Eland v Hyro Limited

No judgment structure available for this case.

Local Court of New South Wales

CITATION: Eland v Hyro Limited [2006] NSWLC 41

JURISDICTION: Civil

PARTIES: Mark Eland
Clint Neilson
Lorna Walker-Kennedy
Sang-Wun Kim
Hyro Limited

FILE NUMBER: 12935/05; 12936/05; 12937/05; 12938/05

PLACE OF HEARING: Downing centre Local Court

DATE OF DECISION:
11/03/2006

MAGISTRATE: Magsitrate B A Lulham

CATCHWORDS: Contract - Terms and conditions - Intention to enter into legal relations - Intention inferred from conduct

LEGISLATION CITED: Long Service Leave Act 1955

CASES CITED: Damevski v Giudice [2003] FCAFC 252
Brambles Holdings Ltd v Bathurst City Council (2001) 53 NSWLR 153
Howard Smith & Co Ltd v Varawa (1907) 5 CLR 68
Barrier Wharfs Ltd v W Scott Fell & Co Ltd (1908) 5 CLR 647
B Seppelt & Sons Ltd v Commissioner for main Roads (1975) 1 BPR 9147
Film Bars Pty Ltd v Pacific Film Laboratories Pty Ltd (1979) 1 BPR 9251
Intergrated Computer Services Pty Ltd v Digital Equipment Corp (Aust) Pty Ltd (1988) 5 BPR 11110
Vroon BV v Foster's Brewing Group Ltd [1994] 2 VR 32
Pagnan SpA v Feed Products Ltd [1987] 2 Lloyd's Rep 601
Briggs v James Hardie & Co Pty Ltd & Ors (1989) 16 NSWLR 549

REPRESENTATION: Mr T J Dixon - Counsel
M C G Lawyers - Solicitors
Mr A Ogborne - Counsel
Paul Bard - Solicitor

ORDERS: Judgment for the plaintiffs. Costs to follow the event.

1 The plaintiffs Mark Eland, Clint Neilson, Lorna Walker-Kennedy and Sang-Wun Kim were all employees of Brainwaave Interactive Pty Limited (hereinafter referred to ‘Brainwaave Interactive’). They were informed in late October or November that Brainwaave Interactive was going to merge with a group known as Hyro. The four employees claimed that they were informed that the merger was with Hyro Limited and that they were offered employment with Hyro Limited. They each alleged that they thereafter worked for Hyro Limited at the Hyro offices in Pitt Street, Sydney. Their wages were paid into their bank accounts with a notation that it was being paid either by Hyro Pty Limited or Hyro Communications. However for the financial year ending 30 June 2004 their Group Certificate issued showing their employer as Brainwaave Interactive. In March 2005 each of the four employees received a letter of dismissal headed ‘Brainwaave Interactive Pty Limited a subsidiary of Hyro Australia Pty Limited’. Each of the employees commenced action to recover outstanding entitlements as follows;

Mark Eland

$12,341.09

$43,841.09

Clint Neilson

$6,459.81

$25,305.91

Lorna Walker-Kennedy

$3,940.37

$15,915.69

Sang-Wun Kim

Severance pay $10,576.90

2 Hyro Limited defended each of the claims on the basis that it was not the employer of each of the plaintiffs and was therefore not liable. It claimed that Hyro Limited through its wholly owned subsidiary Hyro Communications had purchased the shares in Brainwaave Interactive from its shareholders and that the plaintiffs to be employed by Brainwaave Interactive.

3 Evidence was not called disputing the amounts claimed.

4 I found these proceedings very difficult and most frustrating to hear. Three of the four plaintiffs were suing for long service leave to which they were entitled under the Long Service Leave Act 1955. In relation to the claim for severance pay, the defendant in submissions conceded that even if the plaintiffs were employees of Brainwaave Interactive, they were still members of the Hyro Group and entitled to the severance benefits under the Hyro Employees Policy Manual. It was on the basis of that Manual that the plaintiffs claimed the severance pay. I will set out shortly the legal basis of the Share Purchase Agreement dated 10 November 2003. It was not indicated to me, and I could not understand why, the legal representatives for the plaintiffs did not seek to join Brainwaave Interactive prior to the commencement of the hearing, and indeed at any time up to the close of its case. I was just as bewildered as to why the defendant Hyro Limited being the holding company of Hyro Communications Pty Limited, and therefore the holding company of Brainwaave Interactive would not, as a matter of decent corporate responsibility, ensure that such subsidiaries met their statutory and contractual obligations to employees. Such a course would appear to be even more responsible and reasonable when each of the four employees was given a reference upon termination indicating that each was a positive motivated employee who carried out his or her duties with a creativity and skill commensurate with his or her job description.

5 The Share Purchase Agreement dated 10 November 2003 was Annexure 1 to the Affidavit of Joseph Calavassy tendered as Exh.8. He was a director of Hyro Limited and Brainwaave Interactive. Under the Share Purchase Agreement the four shareholders of Brainwaave Interactive sold the shares to Hyro Communications Pty Limited. The consideration for the sale was 130,258,121 shares, or following consolidation proposed at the following Annual General Meeting 13,025,812 ordinary shares in the capital of Hyro. The result was then that Hyro Communications Pty Limited owned all of the shares in Brainwaave Interactive. Hyro Communications Pty Limited was a fully owned subsidiary of Hyro Limited. Brainwaave Interactive became a fully owned subsidiary of Hyro Limited. Much was made of the fact that Hyro Limited or Hyro Communications Pty Limited did not therefore purchase the business of Brainwaave Interactive. That is true but Hyro Limited through its fully owned subsidiary then had complete control and management of the company, including its business. The evidence indicated that each of the four plaintiffs was told that Brainwaave Interactive was being ‘merged with’, ‘taken over by’, or ‘its business had been purchased by’ Hyro or Hyro Limited. There was no evidence that anyone explained to any of the four plaintiffs the legal significance of the ‘sale’ or ‘merger’ by way of a subsidiary of Hyro Limited purchasing all the shares in Brainwaave Interactive. Indeed the evidence was to the complete contrary. The plaintiffs stated that they asked Mr Tom Kennedy. the CEO of Hyro Limited, why it was that they continued to receive wage slips from Brainwaave Interactive. They were told they were employed by Hyro Limited or Hyro and that the name of Brainwaave Interactive was being used for tax purposes. The four plaintiffs were not of course parties to the share purchase agreement between the shareholders of Brainwaave Interactive and Hyro Communications Pty Limited.

6 At the commencement of the hearing Mr Dixon for the plaintiffs indicated that he wished to call Mr Kennedy who, at 10 November 2003 (being the date of the Share Purchase Agreement) was the Chief Executive Officer, and Mark Anthony Tesoriero, the Chief Operating Officer of Brainwaave Interactive. Mr Dixon conceded that witness statements for Mr Kennedy and Mr Tesoriero had not been served because he said that Messrs Kennedy and Tesoriero were no longer employees of Hyro Limited and were bound by confidentiality agreements. I indicated that the confidentiality agreements would not prevent their giving evidence and my understanding was that if they were unable to prepare statements, there was an obligation on the party calling them, to inform the other party of the evidence it was understood they would give. Mr Kennedy was the Chief Executive Officer of Brainwaave Interactive and following the purchase by Hyro Communications Pty Limited of the shares in Brainwaave Interactive, Mr Kennedy became the CEO of Hyro Limited and a director of Brainwaave Interactive..

7 The plaintiffs wished to call Mr Kennedy because the witness statements of each of the plaintiffs contained many instances of statements made by Mr Kennedy to the four plaintiffs as to the ‘merger’ or ‘takeover’ of Brainwaave Interactive by Hyro or Hyro Limited and the nature and terms of their employment. It was alleged Mr Tesoriero had also made similar statements. If those persons were not called, then the conversations of Messrs Kennedy and Tesoriero alleged by the plaintiffs in their statements, would be inadmissible as hearsay evidence. An application was for an adjournment by the plaintiffs was made and I indicated I may be prepared to grant it on terms. Subsequently I was informed that an agreement had been reached between the parties whereby the defendant withdrew its objections based on hearsay to the statements alleged to have been made by Messrs Kennedy and Tesoriero on the basis that they would not give evidence. I understood such agreement to mean that the statements alleged to have been made by Messrs Kennedy and Tesoriero by each of the plaintiffs were therefore admissible in evidence, not only on the basis that such statements were made, but, if I was satisfied such statements were made then as to the truth of such statements.

8 A sensible agreement was reached between the parties that each of the four matters would be heard together and that the evidence in each matter would be evidence in the other matters.

9 Mr Eland was the first plaintiff to give evidence and I propose to go more carefully through his evidence and cross examination. I do not believe it necessary to spend as much time on the statements and evidence of the other witnesses. To a large extent much of their evidence was corroborative of, or similar to, Mr Eland’s evidence.

10 The Amended Statement of Claim filed at the hearing on behalf of Mr Eland pleaded the original contract and the continuous employment of Mr Eland by Brainwaave Interactive from 5 May 1997.

11 The Statement of Claim pleaded that on 11 December 2003 that Hydro Limited purchased the business of Brainwaave Interactive and that the plaintiff’s employment contract was assigned to Hyro Limited. The plaintiff’s pleaded that as a result of the assignment his employment with Hyro Limited was assumed to be and treated as continuous as from 5 May 1997. The plaintiff pleaded that he had become an employee of Hyro Limited but with Brainwaave Interactive continuing to pay his salary. He pleaded that Hyro Limited had obtained the benefit of his work.

12 In the alternative, Mr Eland pleaded that there was a novation of the contract between Mr Eland and Brainwaave Interactive. He pleaded that he was offered and accepted employment with Hyro Limited following statements by Mr Tom Kennedy for and on behalf of Hyro Limited in November 2003. It was pleaded that a term of the new contract of employment was that Hyro Limited would take over the obligations of Brainwaave Interactive for the plaintiff’s long service leave and other entitlements. Mr Eland pleaded that he was covered by Hyro Limited’s Employment Policy dated September 2004 and was entitled to the benefits allowed to Hyro Limited employees pursuant to that Policy.

13 The Statement of Claim further pleaded that Brainwaave Interactive had acted as agent for Hyro Limited for the purposes of paying the plaintiff’s salary on behalf of Hyro Limited.

14 Mr Eland sought severance pay of $31,500.00 and long service leave of $12,341.09 from Hyro Limited.

15 The defendant did not file a Defence to the Amended Statement of Claim. However, it was obvious from its Defence of the original Statement of Claim that the defendant denied that there had been any assignment or novation of any contract by Hyro Limited. It denied that Hyro Limited had employed any staff and it maintained that the four plaintiffs had continued to be employed by Brainwaave Interactive.

16 I now propose to summarise the evidence and cross examination of each of the plaintiffs.

Mark Eland

17 Mark Eland’s witness statement was tendered as Exh.1. He commenced work with Brainwaave Interactive on 5 May 1997. In late March 1999 Mr Tom Kennedy, the CEO of Brainwaave Interactive informed Mr Eland that for accounting purposes his employment was to be transferred to a related company Brainwaave Administration, and a written Employment Agreement dated 1 April 1999 was entered into. He was assured by Mr Kennedy that all employment entitlements would be taken over by Brainwaave Administration.

18 Mr Eland stated that in late 1999 Mr Eland said that Beyond Online was purchasing Brainwaave Interactive and that his employment had to be transferred back to Brainwaave Interactive. He said he agreed as long as his employment continued unaffected. He said that at a meeting Mr Kennedy informed the staff;

“The change will have no affect on your conditions of employment. Service with Brainwaave Administration will be recognised by Brainwaave Interactive and no one will be disadvantaged at all.”

19 Mr Eland said that in late 2003 Mr Kennedy called a meeting of the staff of Brainwaave Interactive and informed them;

“Brainwaave Interactive is going to merge with a company called Hyro Limited” (or words to that effect).

He said Mr Kennedy said words to the effect;

“All Brainwaave Interactive employees will have the same role in the new merged company and the company will be called Hyro Limited. We have paid special attention when dealing with Hyro Limited that all your contracts will continue as before and no one will lose out as a result of the change.”

20 Mr Eland said that in late October or November he had a conservation with Mark Tesoriero the Chief Operating Officer of Brainwaave Interactive who said to him;

Eland: “I want to make sure all my entitlements from Brainwaave Interactive will be transferred through to Hyro Limited”.

Tesoriero: “We have made special arrangements in the sale documents to ensure you keep all of your entitlements.”

21 Mr Eland said he had a further conversation with Tom Kennedy in or about November 2003 as follows;

Kennedy: You will be creative director of Hyro Limited and have a team working for you including members of your current team. You will continue to report to me as before when we transferred you between Brainwaave companies your contract and all other Brainwaave Interactive employees will be assigned to Hyro Limited and all of your entitlements will be picked up by Hyro Limited as if you worked with them continuously from the time you first started at Brainwaave” (or words to that effect).

22 Mr Eland said he moved to Hyro offices in Pitt Street in October or November 2003. He was given new Hyro business cards, Hyro email address and was introduced as its Creative Director. He said he was told in November 2003 by Tom Kennedy to cease using Brainwaave Interactive email addresses and business cards and not to mention the name Brainwaave to clients. He annexed a letter dated 24 June 2005 relating to his membership of the Hyro Limited Superannuation Plan. He said that from December 2003 he did not use Brainwaave stationery and did not have Brainwaave business cards. He was in control of all work undertaken by Hydro Limited offices in Sydney and Melbourne. He continued to report to Tom Kennedy who had become the CEO of Hyro Limited.

23 In March 2004 he was handed a copy of the Hyro organisational chart, a copy was attached to his statement as ME4 where he was shown as the Creative Director. He was shown on the website as the Creative Director of the Hyro team (ME5). He produced documents entitled Hyro Corp Competencies and Hyro’s Performance Review. The documents were entitled ‘Hyro Limited’. He said he discussed those documents with Clint Neilson and Sang-Wun Kim. They were included in the organisational chart as reporting to him.

24 He said that on or about 2 November 2004 he received an email from the CEO Tom Kennedy attaching the Hyro Staff Policy and Procedures Manual (the document was headed Hyro Limited and on page 6 set out the background to the company Hyro Limited. At page 24 it set out the entitlement to severance pay which indicated that for an employee for less than forty-five years with six plus years service, severance pay would be paid for sixteen weeks). He said Thom Kennedy told him words to the effect;

“The Policy Manual applies to your employment at Hyro Limited.”

25 He said that on 7 March 2005 he was called to a meeting when he was informed that he was to be made redundant effective immediately. He attached as ME11 a copy of the letter handed to him dated 7 March 2005 headed ‘Brainwaave Interactive Pty Limited a subsidiary of Hyro Australia Limited’. He said he was surprised to see the Brainwaave Interactive letterhead, as he had been told by Mark Tesoriero in or about 2004 that Brainwaave Interactive was being used for tax reasons concerning the sale of the Brainwaave business to Hyro Limited and that he was an employee of Hyro Limited.

26 In cross examination Mr Eland agreed that the organisation by which he was employed was often referred to as ‘Hyro’ or ‘the Hyro Group’. Mr Eland said that he was not aware that Mr Kennedy and other employees were employed by Hyro Australia Pty Limited. He agreed (T27/07, p27, L10) that in the organisation chart Hyro Limited sat at the top with other companies underneath.

27 He agreed at p28 that in answers he had referred to Hyro, rather than Hyro Limited. He said (T27/07, p28, L25);

Q. Mr Eland you didn’t know which of the various companies within the group was your employer. You just knew you were employed by Hyro didn’t you?

A. Yes.

28 Mr Eland was asked questions regarding the meeting where he said all Brainwaave Interactive employees attended and they were addressed by Mr Kennedy. Mr Ogborne put the following question (T27/07, p31, L40);

29 Mr Ogborne suggested to Mr Eland that Mr Kennedy had said words to the effect;

“All your entitlements will remain and you’ll have all the ones that you had when you first started at Brainwaave or something to that effect.”

Mr Eland replied ;

“Yes that’s the perception I remember after having - thinking back to the time to the conversations, yes.”

Mr Eland agreed that Mr Kennedy may not have used the word ‘assign’. Mr Eland agreed that Mr Kennedy probably referred to Hyro, but then said (T27/07, p35, L45);

“All I say is I look at my documentation that was given to me and they had Hyro Limited on it so that’s how I referred to it.”

30 Mr Eland agreed that he could not dispute that Hyro Communications Pty Limited may have been paying employees. Mr Eland agreed at p37 that the PAYG Payment Summary he received for 30 June 2004 showed his employer as Brainwaave Interactive Pty Limited.

31 Mr Eland was shown pay advice forms at Tab.2 on Exh.14 being documents produced on subpoena. He said that he did receive pay advice slips in the name of Brainwaave Interactive, but he did not recall receiving many forms.

32 Mr Eland gave evidence that he asked Mr Tesoriero on several occasions words to the effect “Why am I still getting payment slips with Brainwaave Interactive on it.” He said Mr Tesoriero replied with words “You’re Hyro employees and that was only for tax reasons that and they were changing over the payment system.” He said that he was told that he was getting Brainwaave Interactive pay slips because of the way that the merger was done and for pay-tax. There was some kind of tax issue. Mr Eland said he could not recall if Mr Tesoriero said “You’re a Hyro employee” or “a Hyro Limited employee” because in his mind they were the same company.

33 In re-examination Mr Eland said he had looked at his bank account statements and they indicated that he was being paid by Hyro. He said it may have been Hyro Communications or Hyro Pty Limited.

Clint Neilson

34 Clinton Phillip Neilson’s witness affidavit sworn 3 July 2006 was tendered as Exh.3. He made similar statements to Mr Eland. He commenced to work full time with Brainwaave Administration on 23 August 1999. He signed an Employment Agreement with similar provisions as that signed by Mr Eland. He gave evidence his employment with Brainwaave Administration was changed to Brainwaave Interactive and said Mr Kennedy had ensured him and other employees that their entitlements would not be affected. He agreed he signed an acknowledgement to that effect.

35 Mr Neilson gave similar evidence to Mr Eland as to the statements made by Mr Kennedy at the staff meeting when the staff were told that Brainwaave Interactive was to merge with Hyro Limited. He said on two occasions he was told by Mr Kennedy that Hyro Limited would pick up all of their entitlements from the date they commenced at Brainwaave Interactive.

36 He gave evidence of moving to Hyro Limited’s office near Circular Quay and of then working for Hyro Limited. He said he was told to stop referring to Brainwaave Interactive to the clients. He had a business card for Hyro. He said he reported to Mark Eland and then to Tom Kennedy until Kennedy resigned in December 2004. He annexed as CN5 a copy of what he said was the corporate structure of Hyro Limited. He was included as an Art Director. He said he received the Hyro Employment Policy Manual and was told by Tom Kennedy;

“This Policy forms part of your employment contract with Hyro Limited” (or words to that effect).

37 He said he was called to a meeting on 7 March 2005 when he was informed with Mark Eland and Sang-Wun Kim that they were to be made redundant immediately.

38 Mr Neilson said in relation to document CN5 (T27/07, p50,L55);

“My understanding is Hyro Limited top left we fall under Hyro Limited.”

39 He couldn’t answer where Hyro Australia Pty Limited came in. He said he thought that company was directly under or directly within Hyro Limited. He said he thought there was a company just called Hyro, as that was the name on the business card and email address. The following question was put to him (T27/07, p52, L35);

OGBORNE: Q. So its irrelevant to you which particular company within the Hyro Group was your employer. Is that right?

A. I understood it to be Hyro Limited as my employer.

At (T27/07, p52, L47) he said;

“When Tom and Mark sat us all down they said to us you know – you’ve cancelled termination of employment with Brainwaave, you can now either join us in Hyro or can you know, leave altogether. So we said okay we’ll join Hyro and Hyro became it.”

40 The following proposition was put to him (T27/07, p54, L25);

Q. Can I suggest to you that in fact what was said to you was that in fact nothing would change because you’re still going to be employed by Brainwaave Interactive?

A. No.

41 He was referred to Tab.2, p23 of Exh.14. He agreed that pay advices came from Brainwaave Interactive, but he said on his bank statement it always came up as Hyro so that didn’t bother him.

42 He agreed that he had signed an Employment Contract with Brainwaave Administration Pty Limited (see p80 of Exh.8) and agreed that he had signed a document consenting to the termination of his employment with Brainwaave Administration with effect from 1 January 2000 and commencement of employment with Brainwaave Interactive on and from that date (see p90 of Exh.8). When it was put to Mr Neilson that he had not entered into any subsequently different employment, he said he had not entered into any subsequent written agreement. He said when he asked Tom Kennedy why the pay slips had Brainwaave Administration on them Tom Kennedy would say to him “Yeah that’s just for tax and you’re getting paid by Hyro Limited.” Mr Neilson gave the following evidence (T27/07, p57, L20);

43 Mr Neilson agreed that he wasn’t privy to any actual business or legal deal between Brainwaave and Hyro and agreed his evidence was based on statements made to him by Tom Kennedy and Mark Eland.

44 Mr Ogborne put the following to Mr Neilson (T27/07, p58, L12);

OGBORNE: Q. Can I suggest to you that whoever said was ‘No you’re going to be employed by Brainwaave Interactive but don’t worry all your entitlements are going to be exactly the same when you’re a Hyro employee?

A. Never – never said.

Sang-Wun Kim

45 Mr Kim’s witness affidavit sworn 30 June 2006 was tendered as Exh.4. He said in February 2001 he started work on a voluntary basis and was then employed part time by Brainwaave Interactive. He said he accepted full time employment from 2 July 2001. A copy of his Employment Agreement dated 17 July 2001 was annexed as SKI.

46 He gave similar evidence as to the meeting of Brainwaave Interactive employees and Mr Kennedy which was held shortly prior to the merger. He said Mr Kennedy “told us the business would be merging with Hyro Limited and we would be moving to their offices at Circular Quay (or words to that effect). He said they were told that their employment conditions would be picked up by Hyro Limited. He said when he moved to the Hyro offices he received a business card with the name Hyro. He was made a member of the Hyro Limited Superannuation Fund. He said he was subjected to Hyro Limited performance reviews and continued to report to Mark Eland and then to Tom Kennedy.

47 He said he received an email from Tom Kennedy on 2 November 2004 attaching a Hyro employee’s Policy Manual. He annexed a copy and also a copy of the Hyro Limited Staff Policy and Procedure Manual. He said he was told of another merger on 1 March 2005 between Hyro and ISMC. He said on 7 March 2005 he was called to a staff meeting and was told that he was to be made redundant effective immediately.

48 In evidence in chief Mr Kim said he and the other employees moved to Hyro’s offices at Circular Quay. He said that at Hyro he worked for people such as NRMA, Australian Film Commission and Cannon. He said the work was collated by Hyro Limited management and there was no separate form of account between Brainwaave and Hyro.

49 Mr Kim agreed that he signed an Employment Agreement with Brainwaave Interactive. He agreed that he received a Group Certificate for the year ending 30 June 2004 from Brainwaave Interactive.

50 Mr Kim said that at the meeting when Mr Kennedy said Brainwaave Interactive was merging with Hyro, that he introduced the company as Hyro Limited. It was put to Mr Kim that he couldn’t say on his oath that he could recall him saying Hyro Limited. Mr Kim replied;

“He said Hyro Limited.”

51 In re-examination Mr Kim produced a bank statement which was tendered as Exh.5 and had an entry 9th August 2004 Hyro Pty Limited salary $2,918.67. He said Brainwaave Interactive did not appear on his bank statements. He said there were about thirty employees in the Pitt Street office at Circular Quay. He said they were not separated into different companies. He subsequently agreed that he understood the employees to be employed by the same company, but he didn’t know.

Lorna Walker-Kennedy

52 Mrs Walker-Kennedy’s witness statement was tendered as Exh.3.

53 She said she commenced work with Brainwaave Administration Pty Limited on 1 September 1998. Her husband Tom Kennedy was then CEO of Brainwaave Administration Pty Limited and Brainwaave Interactive Pty Limited. She said she signed an Employment Agreement on or about 1 September 1998. A copy of the Agreement was annexed as LK.1. She said in January 2000 Brainwaave Interactive became her employer, not Brainwaave Administration. She said that Brainwaave Interactive was relocated to Pitt Street in the Sydney CBD and she took up a position with Hyro Limited as Human Resources Manager and she had responsibility for all Hyro Group payroll, including Brainwaave Interactive. She said she was told by Tom Kennedy words to the following effect;

“They are keeping Brainwaave so that they can minimise stamp duty.”

She was told to answer phones as Hyro Limited and not to use any reference to Brainwaave. She said she was referred to at Hyro as ‘the HR Manager of Hyro Limited’. She said her superannuation was paid into the Hydro Limited Superannuation Fund. She said the funds were paid for wages out of Hyro’s account and only on one occasion were wages paid out of the account of Brainwaave Interactive. She said that she understood all billings for work done by the company were in the name of Hyro Limited. She annexed a copy of the Hyro Employees Policy Manual and the Hyro Limited Staff Policy and Procedure Manual dated September 2004.

54 She said that in or about December 2004 she was precluded from access to her computer and filing cabinet and accordingly unable to do her work. She said it occurred around the time her husband ceased working for Hyro Limited. She was granted annual leave and did not return to work until she received the notice of redundancy effective from 31 March 2005. In evidence in chief she said her supervisor was Mr Mark Hallet. She said she was working on the consolidation of the accounts of many different companies.

55 She was asked the following question in chief (T28/07, p21, L20-30);

Q. In relation to the business of Brainwaave itself did you ever have discussions with Mr Kennedy in the time period about what was to happen to the business once the acquisition was completed – the business of Brainwaave?

A. Yes.

Q. What was said in relation to those discussions?

A. That Brainwaave would just be a shell company basically and all the assets would be transferred all the liabilities would be transferred to Hyro and we would be Hyro employees after that.

Q. It would be?

A. We would be Hyro employees after that.

Q. Can you remember the words that were used in that conversation?

Q. Was there any time frame or the like mentioned in relation to those conversations?
A. We had to keep the shell open for a year to avoid paying some stamp duty.

Cross-examination

56 Mrs Walker-Kennedy agreed that she had signed an Employment Agreement with Brainwaave and also agreed she had signed a document when her employment contract was taken over by Brainwaave Interactive from Brainwaave Administration. She agreed that the pay advices were in the name of Brainwaave Interactive but said the wages were paid by Hyro. She agreed that the wages were paid by Hyro Australia Pty Limited. She was taken to various documents contained in Exh.14 and documents produced on subpoena and she confirmed that on p.235 was a printout of sick leave for Brainwaave Interactive employees and at p.247 annual leave entitlements of Brainwaave employees and at p.258 long service leave entitlements for various Hyro employees.

57 Mrs Walker-Kennedy said she was consolidating the employees of various companies into Hyro Australia Pty Limited and she was working to do the same for the Brainwaave Interactive employees before she left, but she didn’t have time to complete it.

58 Mr Dixon then tendered Mrs Walker-Kennedy’s joint bank statements with her husband and she identified entries indicated as ‘salary Hyro Australia’ as being payments into their account for her wages. Mr Dixon tendered a folder of documents as Exh.7.

59 Mr Dixon had also tendered as Exh.2 a copy of part of Mr Eland’s bank statement with Westpac Banking Corporation showing a payment into his account on 13 December 2004 from Hyro Australia P for salary.

60 That completed the evidence for the plaintiffs. The defendant called one witness Joseph Calavassy.

Evidence for defendant - Joseph Calavassy

61 Mr Calavassy’s first witness statement was tendered as Exh.8. A bundle of documents was tendered as Exh.8 JC1. A further affidavit dated 28 July 2006 was tendered as Exh.9 and a further bundle of documents in a folder was tendered as Exh.9 JC2.

62 Mr Calavassy stated that he was a Director of Hyro Limited and a current Director of Brainwaave Interactive. He attached to his affidavit the Share Purchase Agreement dated 10 November 2003 and employment records for each of the plaintiffs. He also attached ASIC searches for Hyro Limited, Brainwaave Interactive and Brainwaave Administration Pty Limited.

63 Mr Calavassy annexed to his witness affidavit of 28 July the financial statements for Brainwaave Interactive to 31 December 2003 and to 30 June 2004 and to 30 June 2005. He also attached the Payroll Activity Report for Brainwaave Interactive, Hyro Technology, Hyro Communications, Hyro Australia and an Australian Taxation Office Integrated Client Account for Brainwaave Interactive for the period November 2002 to 3 January 2006.

64 Mr Calavassy stated that pursuant to the Share Purchase Agreement, Directors of Brainwaave Interactive Andrew Cook, Scott Pearce, Thomas Kennedy and Mark Tesoriero became employees of Hyro Communications Pty Limited. He stated that Brainwaave Interactive remained a separate economic entity as a subsidiary within the Hyro Group and continued to employ the other employees of Brainwaave for various reasons, including that there were taxation advantages to the Hyro Group.

65 In view of the lengthy cross examination of each of the plaintiffs as to whether in various conversations, the defendant was referred to as Hyro or Hyro Limited, the first questions put to Mr Calavassy were interesting. They were;

DIXON Q. Mr Calavassy you are the CEO of Hydro Limited are you?

A. Of Hyro Group.

Q. Of Hyro Group?

A. Correct. I can provide you if the court wishes a charter.

Q. Are you the CEO of Hyro Limited?

A. Yes.

66 He said he was a Director of Brainwaave, but was not aware if he held “a position with Brainwaave”.

67 Mr Calavassy said (T28/07, p40, L5);

“That following the acquisition of Brainwaave the customers of Brainwaave continued to be their customers and invoices were sent to them by Brainwaave Interactive.”

He said when asked whether there was still a revenue stream going into Brainwaave Interactive into the year 2005 “probably”.

68 Mr Calavassy accepted that Cannon Australia was one of the key clients of Brainwaave Interactive prior to December 2003 and following the acquisition invoices to Cannon Australia were sent by Hyro Australia.

69 At transcript (T26/07, p47, L50 and 55) Mr Calavassy asked Mr Dixon to clarify the meaning of the words ‘integrate’ or ‘merge’. He agreed that the two businesses probably merged operationally. He said (T28/07, p48, L15);

“I accept the fact that Hyro has purchased the business and the shares and operationally the two entities would have probably merged, yeah operationally.”

70 Mr Calavassy was shown a media report (Exh.10) dated 30 September 2003 headed ‘Hyro Limited announces moves to acquire Brainwaave which commenced;

‘Hyro Limited today announced that it had entered into a memorandum of understanding to acquire Brainwaave Interactive Pty Limited, one of Australia’s leading digital media services companies as part of its continual regional expansion plan.’

71 He was shown a media release document (Exh.11) dated 12 November 2003 which was headed;

‘Hyro Limited today announced that it has finalised and signed an agreement to acquire Brainwaave Interactive Pty Limited.’

72 He was shown a further media release dated 3 December 2004 which was headed ‘Hyro Limited’ which commenced;

‘As part of the maturation of Hyro Limited into a broader digital agency the company announces that Mr Tom Kennedy the Chief Executive Officer and Mr Anthony Bertini the Director of Sales and Marketing Australia have left the company. It is excepted that in accordance with the company constitution they will both step down as directors.’

73 Mr Calavassy was asked whether there was a re-branding of Brainwaave. His answer was “no”. He was asked to read the sentence under the heading ‘Operational & Instructual Developments at page 4 of the Half Year Report (Exh.13) which stated as follows;

‘After a series of acquisitions over the past two years our most recent and largest acquisition saw the integration and re-branding of Brainwaave and is now complete.’

74 At p.52 Mr Calavassy was asked whether the Half Year Report 30th June 2004 (Exh.13) reflected the acquisition of the business of Brainwaave Interactive. He said he couldn’t understand the question. He was asked to read the second paragraph under the table on page 3 of Exh.13 which read;

‘On the revenue side we now reflect the acquisition of the business of Brainwaave Interactive Pty Limited (Brainwaave) and the transfer and development of their customer base.’

75 At transcript (28/07, p53, L50) Mr Calavassy denied that Mr Clint Neilson, Mr Sang-Wun Kim and Lorna Walker-Kennedy as employees of Hyro Limited, were made redundant in March 2005.

76 Mr Calavassy was then asked a long series of questions in relation to events which occurred whilst he was not involved with the companies. I did not find that such answers assisted me.

77 Mr Calavassy was taken to Tab.10, p373 of the subpoenaed documents (Exh.14). He agreed that the income for Brainwaave Interactive for the twelve months to 31 December 2003 was $610,034.19.

78 He agreed at p377 the income for the twelve months to 30 June 2003 was $2,059,982.15. He was taken to p386 which was the Profit & Loss Account for Brainwaave Interactive. He agreed the revenue for Professional Services for the year was $5,793.03. Although it was not put to him, it also showed maintenance revenue of $6,925.00, hosting revenue of a minus figure of $2,300.00, with a total income of $10,418.03.

79 Mr Calavassy denied that the decrease in revenue from over $1 million to approximately $5,000 for Professional Services was because the clients were no longer clients of Brainwaave Interactive.

80 He was then asked a series of questions as to the legal liability for some entity within the Hyro Group to pay long service leave. I propose to set the series of questions out in full hereunder;

DIXON: Q. Were you aware that there was an existing long service leave liability for the plaintiffs within the Hyro Group?

Q. You were aware?

Q. I’m asking --

A. Not exactly. No, I don’t have any details in front of me.

Q. When you wrote the termination letters that I’ve taken you to earlier, did you play any part in determining what entitlements were paid out of the plaintiffs?

A. No, that – that came out of the finance .. (not transcribable) . .

Q. Have you directed your mind to whether or not there was a legal obligation to pay the plaintiffs’ long service leave?
A. If there was legal obligation it would have been calculated and paid at the time.

Q. Did you dispute that, for example, Mr Eland had worked for Brainwave Interactive for a period of over 5 years when he became redundant?

A. I wasn’t aware, no.

Q. You weren’t aware of that? Are you aware that the plaintiffs made claims for long service leave?

A. I wasn’t aware, no.

Q. You weren’t aware of that” Are you aware the plaintiffs made claims for long service leave?

A. I can’t remember the details, I’m sorry.

Q. You’re not aware that the plaintiffs are making claims for long service leave”

A. They’ve got claims but I can’t remember the details of the claims.

Q. Can I ask you why, and whether it be Brainwaave Interactive or whatever company that might fall within the Hyro Group that has money, why in your case Brainwaave Interactive didn’t pay the entitlements for long service leave” Do you have any knowledge of why that’s the case?

A. No.

Q. You don’t know why?

A. No.

Q. You’re simply unaware that there’s a legal entitlement to pay long service leave to the plaintiffs, are you?

OBJECTION

Q. Are you unaware that there’s a legal entitlement to pay long service leave? Is that what you’re saying?

A. Yes. Is there an obligation? Depending on – depending on the – on the law. I’m sorry, I – I don’t understand your question.

Q. Do you understand why we’re here today, Mr Calavassy?

Q. I put it to you that there are claims for long service leave being made by my clients. Are you aware of that?

A. Right.

Q. Are you aware that the claim or the liability to pay falls on your case, with Brainwaave Interactive?

A. Right.

Q. Do you know that?

A. Yes.

Q. Have you assessed the validity of that claim yourself?

A. No.

OBJECTION

HIS HONOUR: Well, re-ask the question.

DIXON: Q. Are you aware, or have you taken advice in relation to a legal obligation to pay long service leave --

HIS HONOUR: I reject that.

DIXON: Q. I can ask if advice has been sought, your Honour. Not the content of the advice. I appreciate that.

HIS HONOUR: I note the times.

DIXON: Yes, this is the last question I’m asking – the last area of course.

Q. Have you taken legal advice in relation to any obligations that Brainwaave Interactive Pty Ltd has as far as legal obligations go in respect of a) long service leave?

OBJECTION WITHDRAWN

HIS HONOUR: Q. Your answer is not required to be any more than, yes, or, no, or, you don’t know, something like that. We’re not asking you what – do you understand?

A. Yep.

Q. What’s your answer?

Dixon: Q. You sought advice?

A. Yes.

Q. I’m not asking you about the content of the advice, but is it now your understanding sitting there today, that Brainwaave Interactive has an obligation to pay long service leave for Mr Eland?

OBJECTION. LEGAL PROFESSIONAL PRIVILEGE. question DISALLOWED

THE LEGAL POSITION

81 I have received very detailed and helpful submissions from Mr Dixon and Mr Ogborne. I propose to discuss those submissions, but before doing so, I found the decision in Damevski v Giudice [2003] FCAFC 252 most helpful and instructive. It was a unanimous decision of Their Honours Judges Wilcox, Marshall and Merkel.

82 I propose to summarise the decision of His Honour Marshall J. I set out the following summary of facts based on His Honour’s judgment;

(ii) On 19 August 2001 Mr Damevski ‘resigned’ from his employment with Endoxos. Mr Damevski was given the choice by Endoxos to resign and contract his services to a company called MLC Workplace Solutions (MLC) or not be provided with any work by Endoxos.

(iii) Mr Damevski was forwarded a letter by his employer on 16 July indicating that his employer was offering him the opportunity to accept work as a contractor from MLC on the basis set out in an offer from MLC. He was required to sign the following statement:

‘I R. Damevski understand the information supplied to me agree to accept the IAC/MLC as detailed in the information pack delivered to me.’

(v) Mr Damevski signed a letter of resignation on 16 August 2001.

(vi) Commissioner Grainger who heard the matter found that Mr Damevski was clear in his evidence at the hearing that as from the 20th of August he was engaged as a sub-contractor, but was confused as to whether his relationship as a sub-contractor was with MLC or Endoxos. He had no doubt that he was being paid by MLC.

(vii) After 20 August 2001 Mr Damevski continued to wear Endoxos clothing. He drove an Endoxos van and had an Endoxos telephone. He submitted time sheets to MLC, but continued to submit the same time sheets to Endoxos.

(viii) On 8 February 2002 Mr Damevski was called to the office of Endoxos where he was told he was being taken off the job and would lose the Endoxos van and telephone.

(ix) After 20 August 2001 Mr Damevski continued to work at the direction of Endoxos in the same manner in which he had worked for Endoxos prior to 19 August 2001. He only worked for Endoxos. When sick he notified Endoxos, not MLC.

83 Both Commissioner Grainer and the Full Bench of the Commission found that there was no contract in existence between Mr Damevski and Endoxos after 19 August 2001 and that after that date the only contract to which Mr Damevski was a party, was one with MLC.

84 His Honour Judge Marshall set out the following extract with his own emphasis of paragraph 22 from the decision of the Full Bench of the Commission;

It is clear in our view that the documentary evidence showed that the appellant agreed to perform work for MLC and to be paid for it by MLC. That the work was to be performed pursuant to a contract between MLC and Endoxos tends to confirm the absence of a contract between the appellant and Endoxos. We think this evidence is conclusive and the Commissioner was correct so to find.

85 His Honour Judge Marshall disagreed and made the following finding in relation to that paragraph;

The Full Bench like Grainger C at first instance assumed that Mr Damevski was tied to the hiring agreement entered into between Endoxos and MLC. It also did not appear to consider it possible for Mr Damevski to enter into a separate and different contract with each party. Even assuming Mr Damevski was an independent contractor, he was not prevented from forming an employment relationship with Endoxos.

86 The three judges in Damevski found that after 19 August 2001 Mr Damevski in fact entered into a new contract of employment with Endoxos. In coming to that decision Marshall J stated as follows;

81 Although there is no evidence of an express contract between Damevski and Endoxos, the Full Bench failed to properly apply established principles of contract law and addressed, after considering all of the relevant evidence, whether there was a contract which could be implied to exist based on the conduct of the parties.

82 Although contracts are not to be implied lightly, the court may find exceptions to the general rule concerning express intentions. The court may imply a contract by concluding that the parties intended to create a contractual relationship after examining extrinsic evidence including what the parties said and did. (See Brambles Holdings Limited v Bathurst City Council (2001) 53 NSWLR 153.

87 Although the excerpts are lengthy, I propose to set out paras 84, 85, 86 and 87 from His Honour’s judgment.

Anson’s Law of Contract,

“An agreement may be inferred from conduct alone; the intention of the parties is a matter of inference from their conduct, and the inference is more or less easily drawn according to the circumstances of the case.”

Brambles Holdings Ltd v Bathurst City Council

“The second relevant principle is that post-contractual conduct is admissible on the question of whether a contract was formed: Howard Smith & Co Ltd v Varawa

Barrier Wharfs Ltd v W Scott Fell & Co Ltd

B Seppelt & Sons Ltd v Commissioner for Main Roads

Film Bars Pty Ltd v Pacific Film Laboratories Pty Ltd

86 In providing his exposition of the case law relating to formation of contract, Heydon JA said at 177:

“But limited recognition has been given to the possibility of finding contracts exist even though it is not easy to locate an offer or acceptance. In

Integrated Computer Services Pty Ltd v Digital Equipment Corp (Aust) Pty Ltd

(1988) 5 BPR 11,110 at 11,117 – 11,118 McHugh JA (Hope JA and Mahoney JA concurring) said:

“It is often difficult to fit a commercial arrangement into the common lawyers’ analysis of a contractual arrangement. Commercial discussions are often too unrefined to fit easily into the slots of ‘offer’, ‘acceptance’, consideration’ and ‘intention to create a legal relationship’ which are the benchmarks of the contract of classical theory. In classical theory, the typical contract is a bilateral one and consists of an exchange of promises by means of an offer and its acceptance together with an intention to create a binding legal relationship ...

Moreover, in an ongoing relationship, it is not always easy to point to the precise moment when the legal criteria of a contract have been fulfilled. Agreements concerning terms and conditions which might be too uncertain or too illusory to enforce at a particular time in the relationship may by reason of the parties’ subsequent conduct become sufficiently specific to give rise to legal rights and duties. In a dynamic commercial relationship new terms will be added or will supersede older terms. It is necessary therefore to look at the whole relationship and not only at what was said and one when the relationship was first formed.”

Vroon BV v Foster’s Brewing Group Ltd

87 Heydon JA also said that:

Integrated Computer Services Pty Ltd v Digital Equipment Corp (Aust) Pty Ltd

“… it is an error ‘to suppose that merely because something has been done then there is therefore some contract in existence which has thereby been executed’ … Nevertheless, a contract may be inferred from the acts and conduct of parties as well as or in the absence of their words. ---The question in this class of case is whether the conduct of the parties, viewed in the light of the surrounding circumstances shows a tacit understanding or agreement. The conduct of the parties, however, must be capable of proving all the essential elements of an express contract… .”

Pagnan SpA v Feed Products Ltd

88 I finish my discussion of the judgment in Damevski v Giudice by setting out paras 98 and 99 from His Honour’s judgment;

98 Although Endoxos turned its mind to the potential advantages of using the arrangement offered by MLC, it did not ask itself whether the way it continued its relationship with Mr Damevski would result in the entering of contractual relations. Its intention can only be inferred from its conduct.

99 The conclusion of a reasonable bystander would be that a contract existed between Endoxos and Mr Damevski, and that MLC was engaged to provide payment services. Endoxos held the position of responsibility and wielded the power.

89 As indicated previously I have received very helpful submissions from Mr Ogborne for the defendant and Mr Dixon for the plaintiffs. I am not able to deal with each of the submissions seriatim. I propose to deal with some of them and to deal with others when giving my reasons. I indicate that I have taken all of their submissions into account even though I may not refer to each or all of the submissions.

90 I do not agree with the opening sentence of Mr Ogborne’s submissions wherein he states;

‘Each of the plaintiffs is claiming entitlements under a written employment contract.’

I am not persuaded that such is the position. For the purposes of dealing with the submissions and in this judgment generally, I will make reference to Mr Eland’s case as the same principles apply to each of the four cases. The pleadings in the four cases were the same.

91 It is true that each of the plaintiffs pleaded the agreements which they had with Brainwaave Interactive and with Brainwaave Administration Pty Ltd. The plaintiffs were required to do so to establish the length of their employment for the purposes of the claim for long service leave and severance pay. It went to quantum. For the reasons I will give later, I do not find that the plaintiffs’ case pleaded under the principles of novation, rely on any written agreement on the question of liability.

92 I do not accept Mr Ogborne’s submission on page 4 that in this case it is not necessary to undertake a factual inquiry to determine who is the employer. In my view Mr Ogborne’s submissions ignore the case put by each of the plaintiffs that they entered into a new contract of employment with, they claim, Hydro Limited. Their case is that such contract was made partly orally and partly by conduct.

93 I re-emphasise the finding I made on the legal basis of the Share Purchase Agreement between the shareholders of Brainwaave Interactive and Hyro Communications Pty Ltd. The plaintiffs were not parties to that agreement. There is no evidence that the terms of that agreement were brought to their notice by either the Directors of Brainwaave Interactive or by the Directors or Executive Officers of Hyro Limited. They were not bound by that agreement in the same way Mr Damevski was not bound by the agreement between Endoxos and MLC in his case.

94 I do not propose to discuss in detail the submissions made by Mr Ogborne on the plaintiffs’ claim based on the assignment of the contract. Whilst I do not agree with some of his submissions, particularly those relying on the terms of the Share Purchase Agreement, it is not necessary in my view for them to be dealt with.

95 I propose to deal with Mr Ogborne’s submissions on the principles in relation to novation and particularly in relation to the factual situation when giving my reasons.

96 I am satisfied that the plaintiffs cannot succeed on the claim based on agency, and it is therefore not necessary for me to discuss those submissions. I will take into account and refer to other submissions made by Mr Ogborne when giving my reasons and decision in the matter.

97 I propose to deal with Mr Dixon’s submissions when giving my reasons and conclusions in relation to the matter.

98 The plaintiffs’ cases as argued and pleaded under paragraphs 14, 15 and 16 was that in November 2003 an offer was made for each of the plaintiffs to commence employment with Hyro Limited. The offer was made by Mr Tom Kennedy and Mr Mark Tesoriero. The condition of the offer was that each of the plaintiffs’ leave and employment entitlements would be taken over by Hyro Limited. Each of the plaintiffs commenced employment with Hyro Limited. Each of the plaintiffs were served with a copy of the Hyro Limited Staff Policy & Procedure Manual. That Manual set out entitlements for each of the plaintiffs, if applicable, for long service leave and severance pay. The plaintiffs claim their entitlements under that policy. The plaintiffs further claim that their employment by Brainwaave Interactive ceased when they were employed by Hyro Limited. They relied on the express oral condition that Hyro Limited would assume responsibility for all of their previous entitlements to long service leave, severance pay and other rights.

99 The defendant’s case was that the acquisition by Hyro was by way of purchase of the shares from the shareholders of Brainwaave Interactive by Hyro Communications Pty Ltd. The defendant argued that Hyro did not purchase the business of Brainwaave Interactive. It argued that Brainwaave Interactive continued as a fully owned subsidiary of Hyro Limited, and that the four plaintiffs continued to be employed by that company and that their entitlements for long service leave and severance pay (which were not disputed) were owed by Brainwaave Interactive.

100 I have considered carefully the principles enunciated by His Honour Judge Marshall in Damevski and applying those principles to this case, I am satisfied that the conclusion of a reasonable bystander would be that a contract of employment existed between each of the plaintiffs and Hyro Limited.

101 I am satisfied on the evidence that on two occasions there was a meeting at which the four plaintiffs and Mr Tom Kennedy were in attendance. Mr Kennedy was the CEO of Brainwaave Interactive and by 30 September 2003 Brainwaave Interactive had entered into a memorandum of understanding for it to be acquired by Hyro Limited. I am satisfied that the first meeting was probably held some time after 30 September. The Share Purchase Agreement whereby Hyro Communications Pty Ltd purchased the shares in Brainwaave Interactive Pty Limited was announced by Hyro Limited on the date of the agreement, namely 12 November 2003. I am satisfied that the second meeting was held either shortly before or shortly after that date and more probably after that date.

102 I am satisfied that at probably the second meeting Mr Kennedy offered the four plaintiffs the choice of either terminating their employment or being employed by Hyro Limited following the ‘merger’ of the two companies. I am satisfied that at least on some occasion during that conversation, Mr Kennedy referred to Hyro Limited. I am satisfied that the four plaintiffs believed he was referring to Hyro Limited. I am satisfied that the objective observer would have considered it reasonable for the plaintiffs to have that belief. The press release issued to the Stock Exchange on 12 November 2003 referred to Hyro Limited as making the announcement and that it had finalised and signed an agreement to acquire Brainwaave Interactive Pty Limited. That was the information released to the general public via the Stock Exchange.

103 I am satisfied that the offer made by Mr Kennedy was that the entitlements of the four plaintiffs would be taken over by Hyro or Hyro Limited, and that each of the plaintiffs would not lose any of their entitlements. The plaintiffs, in my view reasonably, indicated that the right to continue to receive the entitlements accrued during their employment with Brainwaave Interactive, was their most important concern. I am very comfortably satisfied that Mr Kennedy offered them employment on that basis. I am satisfied that he did so on the basis that he was to become a Director and CEO of Hyro Limited and that when he made that offer he was the Acting CEO of Hyro Limited pending confirmation of his appointment at a General Meeting on 13 December 2005. In this regard I am satisfied Mr Kennedy had the necessary authority. He was acting on the very basis as Mr Calavassy acted when the plaintiffs’ employment was termination in March 2005. At that time he was Acting CEO pending confirmation of his appointment at a General Meeting to be held on 31 May 2005.

104 Mr Ogborne for the defendant submitted strongly on a factual and legal basis that all Mr Kennedy was doing was offering the employees employment by the Hyro Group on the basis that in fact they would continue to be employed by Brainwaave Interactive Pty Ltd. I reject that submission. If that was so, there was no need for Mr Kennedy to ensure the plaintiffs that their rights would be preserved. All he had to tell them was that they would continue to be employed by Brainwaave Interactive. I am very comfortably satisfied that he did not tell them that. Mr Ogborne put that proposition to Mr Neilson at p57, L25 of the transcript as follows;

Q. Can I suggest to you that in fact what was said to you was that in fact nothing will change because you’re still going to be employed by Brainwaave Interactive?

A. No.

105 He again put the proposition to Mr Neilson at p58, L15 as follows;

Q. Can I suggest to you that whoever said was ‘no, you’re going to be employed by Brainwaave Interactive, but don’t worry all your entitlements are going to be exactly the same and you’re a Hyro employee’?

A. Never – never said.

106 I am satisfied that such propositions were never put by Mr Kennedy to any of the plaintiffs because that wasn’t the intention of the defendant. I am satisfied that the intention of the defendant was to integrate the business clients of Brainwaave Interactive into Hyro Limited and to keep Brainwaave Interactive going as a company for a year to avoid paying some stamp duty and also because there were tax benefits to the defendant. Mrs Walker-Kennedy told the court that was exactly what Mr Kennedy had said to her. I accept it was said. Moreover Mrs Walker-Kennedy said that towards the end of 2004 she was preparing to transfer the employees on the books of Brainwaave Interactive to a Hyro company. I am satisfied that was always the intention of the defendant – that the employees would be employees of Hyro, but remained on the books of Brainwaave Interactive for tax and stamp duty purposes. I am satisfied for the reasons I give hereunder that the employer was Hyro Limited. Mr Calavassy the only witness called for the defendant indicated that there were tax advantages to the defendant in the manner by which Brainwaave Interactive was acquired and operated.

107 I am satisfied that the defendant’s offer of employment was accepted by the plaintiffs as evidenced by their conduct in their attending at the Hyro premises and commencing to work as Hyro employees. I am satisfied on the evidence that the reasonable bystander would conclude that the plaintiffs were employed by Hyro Limited. It is clear from the evidence of each of the plaintiffs that they were not aware or appreciative of the distinctions between companies and firms and subsidiary companies and holding companies. They each said they continued to see charts and documents headed ‘Hyro Limited’ and each of them considered himself or herself employed by Hyro Limited. As an example, the Hyro Staff Policy & Procedures Manual, upon which the plaintiffs rely for the quantum of their claims, was signed by Tom Kennedy as CEO of Hyro Limited. He made to comments such as welcome to Hyro, but the only company name in the document (other than on page 8) was Hyro Limited. Indeed at page 6 was a total page in relation to Hyro Limited. At page 8 there was a Group structure. Hyro Limited was at the top. There was no reference to Brainwaave Interactive.

108 The defendant relied heavily on the fact that Brainwaave Interactive continued to provide wage slips to the four plaintiffs after 12 November 2003. Each of the plaintiffs however indicated that they raised that fact with Tom Kennedy then the CEO of Hyro Limited. Mr Neilson said; (T27/07, p57,L15);

The administration thing that kept showing up on the pay slips which are in this evidence here, was used basically for tax purposes as a shell and that Tom would say to me, yeah, that’s just for tax, you are getting paid by Hyro Limited.

109 Each of the plaintiffs said that their bank statements indicated that the wages were being paid by Hyro Pty Limited or Hyro Communications.

110 In relation to that aspect of the matter, I confirm my earlier findings that there was no evidence at all that any of the plaintiffs were aware of the terms of the agreement between the shareholders of Brainwaave Interactive and Hyro Communications Pty Ltd. They were not parties to the agreement. There was no evidence called by the defendant to the effect that the plaintiffs were told of the arrangements regarding the sale and the parties to it. In this regard the matter is very similar to the factual position in Damevski v Giudice. The very mistake which His Honour Judge Marshall pointed out had been made by the Commissioner and the Full Court of the Commission was to consider Mr Damevski’s position based on an agreement between Endoxos and MLC to which Mr Damevski was not a party. The same situation applies here. The plaintiffs were not a party to the Share Purchase Agreement.

111 I acknowledge that the defendant also relied upon the fact that each of the plaintiffs only signed one employment declaration. That was with Brainwaave Interactive, well before the merger with Hyro. I accept they did not sign any further declaration with Hyro. However, the obligation to have them do so may well have been Hyro’s.

112 I acknowledge that the plaintiffs were paid through Brainwaave Interactive and received pay slips from Brainwaave Interactive. I have already referred to the explanation of each plaintiff as to the assurance given by Mr Kennedy. Moreover, Damevski is very strong authority for the proposition that whoever pays the remuneration is not conclusive as to the identity of the employer.

113 I do not accept the evidence of Mr Calavassy that following the share purchase acquisition Brainwaave Interactive continued to trade in its own name, servicing its own clients. He became involved in an acting role with the Hyro Group from about February 2005, but his role was subsequently ratified by shareholders at the 31st of May Share Holders’ Meeting. He was only involved with the company for the last few weeks of the employment of the four plaintiffs. He was not there when the four plaintiffs commenced employment. I prefer their evidence that immediately upon moving to the Hyro premises they were told that they were to use the Hyro name, they were given Hyro business cards, and they were told not to answer the phone or to use the name of Brainwaave Interactive. I indicated to Mr Dixon, Counsel for the plaintiffs near the end of proceedings that I was surprised as to the lack of evidence as to what happened to Brainwaave Interactive following the Share Purchase Agreement on 12 November 2003.

114 Sang-Wun Kim gave the following evidence (T28/07, p3, L45);

DIXON Q. Did you have any existing clients prior to your move into Hyro office?

A. Me personally?

Q. With Brainwaave?
A. With Brainwaave – we did have clients but we started to work with them as Hyro Limited.

At T28/07, p5 the following evidence was given;

Q. With new clients that you made how many of those were there?
A. There were numerous ones. The ones that I worked on in particular you want me to name them – like such clients as NRMA and Australian Film Commission. We did new work for them. There was Cannon as well.

He said that he kept a time log and the information was collated by Hydo Limited management to bill the client.

115 I am satisfied that NRMA, The Australian Film Commission and Cannon were all clients of Brainwaave Interactive and that after the Share Purchase Agreement such work continued to be done, but was charged for by Hyro. Mr Calavassy admitted that to be the case with Cannon (T15/07, p46, L20). He denied that it occurred generally. I am satisfied it did. I reject the evidence of Mr Calavassy (T28/07, P40, L5);

That following the acquisition of Brainwaave the customers of Brainwaave continued to be their customers and invoices were sent to them by Brainwaave Interactive.

I prefer the evidence of Mr Kim and the other plaintiffs.

116 When Mr Calavassy gave evidence towards the very end of the case, reference was made to Tab 10 of Exh.14. At p377 the total income for Brainwaave Interactive to 30 June 2003 was shown as $2,059,982.00. At p381 the total income for the twelve months to 30 June 2004 was shown as $1,137,022.79. At p386 the total income for the financial year ending 30 June 2005 was shown to be $10,418.03. I reject the explanation given by Mr Calavassy. I prefer the evidence of the four plaintiffs that they continued to work for previous clients of Brainwaave Interactive, but for Hyro Limited and that the accounts were forwarded in the name of Hyro.

117 There was a very real issue as to whether Brainwaave Interactive continued to trade in its own name. The plaintiffs said that it did not. The defendant said that it did and in support of that proposition, in answer to a subpoena it produced the invoices which it said Brainwaave Interactive had issued in its own name. The accounts for the period from 5 April 2004 to 31 January 2005 showed Brainwaave Interactive billed five clients as follows;

Tim Boydle

2. Department of Veterans Affairs
31 January 2005 $742.50
25 January 2005 $26.13

3. Nida
20 December 2004 $880.00
20 December 2004 $2,517.90
30 June 2004 $550.00

4. Pioneer Electrics Australia
31 January 2005 $1,760.00

21 December 2005 $1,760.00

30 September 2004 $4,012.80

31 August 2004 $2,041.60

30 June 2004 $1,008.00

30 June 2004 ` $1,056.00

31 May 2004 $2,553.20

5 April 2004 $4,435.20

Pittwater House School

30 November 2004 $2,550.00

118 I am satisfied if those are the only invoices issued by Brainwaave Interactive during the period from 5 April 2004 to 31 January 2005 that the evidence of the plaintiffs that the clients of Brainwaave Interactive were integrated with those of Hyro Limited and billed in the Hyro name was true, and I do not accept the evidence of Mr Calavassy to the contrary.

119 I propose now to deal with some of the Mr Ogborne’s submissions under the heading of ‘Novation’. Whilst it would have been preferable that there be a written agreement between the parties in relation to the employment of the plaintiffs, there was no legal requirement for such agreement to be in writing. I am satisfied that the agreement was evidenced by oral conversations and conduct as previously set out.

120 I agree with Mr Ogborne in para 43 of his submissions that Mr Dixon in his submissions at para 3 misstated the defendant’s case.

121 I note the case which Mr Ogborne puts forward for the defendant at para 44. The case relies largely on the terms of the Share Purchase Agreement. However, as I have indicated the plaintiffs were not parties to the Share Purchase Agreement and were not bound by it. I am satisfied for the reasons given, that an offer of employment was made to the plaintiffs by Mr Kennedy and I am satisfied for the reasons I have given that the reasonable bystander would conclude that the agreement was with Hyro Limited. In relation to the submissions made at para 45.1 to 4, I rely on my factual finding that the statements were made by Mr Kennedy and Mr Tesoriero as alleged by the plaintiffs. They amounted to an offer of new employment with Hyro Limited. Mr Kennedy and Mr Tesoriero did not indicate to any of the plaintiffs the legal situation relied on by the defendant namely, that they were to continue to be employed by Brainwaave Interactive. As I have found, in my view, they did not do so because that wasn’t the intention of the defendant.

122 In regard to my findings, I have of course relied on the agreement between the parties that Mr Kennedy and Mr Tesoriero would not be called and that their statements as alleged by the plaintiffs would not be regarded as hearsay. I have accepted each of the plaintiffs as to what they allege those gentlemen said. The evidence is therefore admissible, not only that it was said, but as to the truth of what was said.

123 In submission 50 Mr Ogborne referred to the share sale transaction being completed on 11 December 2003. I am satisfied on the basis of Exh.11 (the announcement by Hyro Limited to the Stock Exchange) that such agreement was finalised on 12 November 2003. I am satisfied that Mr Kennedy became the Acting CEO subject to confirmation at a General Meeting to take place on 11 December 2003. For the reasons I gave I am satisfied Mr Kennedy had the authority to bind Hyro Limited with his statements made in November 2003.

124 I note Mr Ogborne’s submissions in relation to Damevski. I have set out my understanding of the facts and principles of that case. Even though Mr Damevski had signed a letter of resignation of his employment with Endoxos on 16 August 2001, and even though there was an agreement between Endoxos and MLC that MLC would offer work to Mr Damevski on Endoxos behalf, the court looked at what in fact occurred from 20 August 2001 and looking at the reality of the situation, found that Mr Damevski was employed by Endoxos after 19 August. The court found, as I have indicated, that Endoxos may not have intended to bring about that situation, but nevertheless found that that was the legal position. I am satisfied that the factual position in this matter was similar and the same principles applied to this case.

125 I note that the defendant accepted that the Hyro redundancy policy dated September 2004 was incorporated in the plaintiffs’ employment contracts and that there was therefore no issue as to the question of quantum.

126 I note Mr Ogborne’s submissions in relation to the Long Service Leave Act. On the factual situation which I have found, the plaintiffs became employees of the defendant and therefore ceased employment with Brainwaave Interactive. In my view s4(11)(c) would apply.

127 Even on the defendant’s case there was no dispute that Brainwaave Interactive was liable to pay the amounts claimed by the plaintiffs. Brainwaave Interactive was a fully owned subsidiary of Hyro Limited. The liability to pay the long service leave is not only a contractual obligation, but a statutory one. I was far from impressed with the evidence of Mr Calavassy as to the absence of any reason as to why the defendant should not honour (even on its case) at least the statutory obligations of its wholly owned subsidiary. I found it extraordinary that he claimed he was not aware that the plaintiffs had made claims for Long Service Leave. He said quite extraordinarily in my view (T28/07, P68, L45);

“They’ve got claims but I can’t remember the details of the claims”.

128 That was the evidence of the defendant’s only witness called in the case involving those very claims. He could give no explanation as to why Brainwaave Interactive or whatever company that might fall within the Hyro Group that has money ….. did not pay the entitlements for Long Service Leave (T28/07, p68, L50).

129 Indeed Mr Dixon submitted that this was a matter where I should consider piercing the corporate veil and find Hyro Limited, the parent company, liable for the debt of its fully owned subsidiary Brainwaave Interactive. I considered carefully what the learned author in Fords Corporations Law has to say at 4.270 and under 4.290 “outsiders dilemma which group member is liable”. I also considered very carefully the judgment of His Honour Rogers AJA in Briggs v James Hardie & Co Pty Ltd & Ors (1989) 16 NSWLR 549. As a result of the factual findings I have made, it is not necessary for me to decide this aspect of the matter.

130 I make the following orders:

Mark Eland v Hyro Limited – No. 12935/05

Clint Neilson v Hyro Limited – No. 12936/05

Lorna Walker-Kennedy v Hyro Limited – No. 12937/05

Sang-Wun Kim v Hyro Limited – No. 12938/05

131 In each matter I would propose the following order in relation to costs:

Costs follow the event. The defendant is to pay the plaintiffs’ costs on an ordinary basis as agreed. In default of agreement within 28 days the costs are to be assessed under the Legal Profession Act.

132 I shall hear from the parties in relation to the proposed orders.

B.A. LULHAM

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Citations

Eland v Hyro Limited [2006] NSWLC 41

Cases Citing This Decision

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Cases Cited

5

Statutory Material Cited

1

Rankin Investments (Qld) Pty Ltd v CMC Property Pty Ltd [2021] QCA 156

Al-Shennag v Statewide Roads Ltd [2008] NSWCA 300

CITATION:	Eland v Hyro Limited [2006] NSWLC 41
JURISDICTION:	Civil
PARTIES:	Mark Eland Clint Neilson Lorna Walker-Kennedy Sang-Wun Kim Hyro Limited
FILE NUMBER:	12935/05; 12936/05; 12937/05; 12938/05
PLACE OF HEARING:	Downing centre Local Court
DATE OF DECISION:	11/03/2006
MAGISTRATE:	Magsitrate B A Lulham
CATCHWORDS:	Contract - Terms and conditions - Intention to enter into legal relations - Intention inferred from conduct
LEGISLATION CITED:	Long Service Leave Act 1955
CASES CITED:	Damevski v Giudice [2003] FCAFC 252 Brambles Holdings Ltd v Bathurst City Council (2001) 53 NSWLR 153 Howard Smith & Co Ltd v Varawa (1907) 5 CLR 68 Barrier Wharfs Ltd v W Scott Fell & Co Ltd (1908) 5 CLR 647 B Seppelt & Sons Ltd v Commissioner for main Roads (1975) 1 BPR 9147 Film Bars Pty Ltd v Pacific Film Laboratories Pty Ltd (1979) 1 BPR 9251 Intergrated Computer Services Pty Ltd v Digital Equipment Corp (Aust) Pty Ltd (1988) 5 BPR 11110 Vroon BV v Foster's Brewing Group Ltd [1994] 2 VR 32 Pagnan SpA v Feed Products Ltd [1987] 2 Lloyd's Rep 601 Briggs v James Hardie & Co Pty Ltd & Ors (1989) 16 NSWLR 549
REPRESENTATION:	Mr T J Dixon - Counsel M C G Lawyers - Solicitors Mr A Ogborne - Counsel Paul Bard - Solicitor
ORDERS:	Judgment for the plaintiffs. Costs to follow the event.

[2006] NSWLC 41

03/11/2006