In the matter of Optimisation Australia Pty Limited

[2018] NSWSC 31

Supreme Court

New South Wales

Medium Neutral Citation:

In the matter of Optimisation Australia Pty Limited [2018] NSWSC 31

Hearing dates:

1, 2, 3, 4, 8, 9, 10, 11, 14, 15, 16 March, 20 May, 14, 15, 16, 17, 21, 22 June 2016

Date of orders:

31 January 2018

Decision date:

31 January 2018

Jurisdiction:

Equity - Corporations List

Before:

Brereton J

Decision:

Para 452 – plaintiff to bring in short minutes.

Catchwords:

CORPORATIONS – members rights and remedies – oppression – closely held company ‘quasi-partnership’ - where majority takes excessive benefits from company – where majority dismisses minority from employment – where minority had legitimate expectation of ongoing participation – oppression established – compulsory purchase order - valuation

 

CORPORATIONS – officers – directors – duties – where directors remunerate majority and their personal company at uncommercial rates in excess of those agreed with minority, for no proper corporate purpose – contraventions established

 

EMPLOYMENT – national employment standards – where alleged agreement to accept other benefits in lieu of annual leave and personal – held, entitlements could not be excluded

  EMPLOYMENT – national employment standards – – jurisdiction – whether Supreme Court has jurisdiction to entertain claim for entitlements under national employment standards – held, it does not

Legislation Cited:

(CTH) Corporations Act 2001 (Cth), s 79, s 180, s 181, s 182, s 232, s 233, s 236, s 237, s 1317DA, s 1317E, s 1317H
(CTH) Fair Work Act 2009, s s 16(2)(c), s 21(1)(c), s 23, s 44, s 61, s 86, s 87, s 96, s 117(3), s 119(2), s 121(1)(b), s 539, s 545
(CTH) Fair Work Regulations 2009, reg 1.09, reg 1.12.
(NSW) Civil Procedure Act 2005, s 146(1)
(NSW) Industrial Relations Act 1996, Chap 7 Pt 2; Sch 4 Pt 18
(NSW) Industrial Relations Amendment (Industrial Court) Act 2016.

Cases Cited:

Australian Institute of Fitness Pty Ltd v Australian Institute of Fitness (Vic/Tas) Pty Ltd (No 3) [2015] NSWSC 1639
Bright Pine Mills Pty Ltd, Re [1969] VR 1002
D G Brims and Sons Pty Ltd, Re (1995) 16 ACSR 559
Diligenti v RWMD Operations Kelowna Ltd (1976) 1 BCLR 36
Dynasty Pty Ltd v Coombs (1995) 13 ACLC 1290
Ebrahimi v Westbourne Galleries Ltd [1973] AC 360
Ervin v Smipat Pty Ltd t/as LJ Hooker Burleigh Heads [2013] QCATA 153
ES Gordon Pty Ltd v ldameneo (No 123) Pty Ltd (1994) 15 ACSR 536
Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd (1998) 28 ACSR 688
Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd (2001) 37 ACSR 672
Hogg v Dymock (1993) 11 ACSR 14
Joint v Stephens (2008) 26 ACLC 1,467; [2008] VSCA 210
Ledir Enterprises Pty Ltd, Re (2013) 96 ACSR 1 Morgan v 45 Flers Avenue Pty Ltd (1986) 10 ACLR 692
Mopeke Pty Ltd v Airport Fine Foods Pty Ltd [2007] NSWSC 153; (2007) 61 ACSR 395
O’Neill v Phillips [1999] UKHL 24; [1999] 2 All ER 961
Optimisation Australia Pty Ltd, In the matter of [2015] NSWSC 2072
Quinn v Jack Chia (Australia) Ltd [1992] 1 VR 567
Rankin v Marine Power International Pty Ltd (2001) 107 IR 117; (2001) VSC 150
Reid v Bagot Well Pastoral Co Pty Ltd (1992) 9 ACSR 129
Roberts v Walter Developments Pty ltd (1997) 15 ACLC 882
Rogan-Gardiner v Woolworths Ltd (No 2) [2010] WASC 290
Sanford v Sanford Courier Services Pty Ltd (1986) 10 ACLR 549; 5 ACLC 394
Scottish Co-operative Society v Meyer [1959] AC 324
Short v Crawley (No 30) [2007] NSWSC 1322
Susanna Ma v Expeditors International Pty Ltd [2014] NSWSC 859.
Thomas v H W Thomas Ltd [1984] 1 NZLR 686
Wayde v NSW Rugby League Ltd (1985) 180 CLR 459.

Texts Cited:

Duff & Phelps 2014 Valuation Yearbook.
Hayes G (2008), A Practical Guide to Business Valuations for SMEs, 2nd ed.
Ibbotson SBBI 2013 Valuation Yearbook.
Pratt S, Business Valuation Discounts and Premiums.
Sappideen C, O’Grady P, Warburton G & Eastman K, Macken's Law of Employment, 6th ed.

Category:

Principal judgment

Parties:

Brian Kearney (P)
Optimisation Australia Pty Limited (D1)
Gary Williams (D2)
Susan Williams (D3)
Sharmark Pty Limited (D4)
Orchard Office Services Pty Limited (D5)

Representation:

Counsel:
A. Fernon (P)
M.P. Cleary (Ds)

  Solicitors:
O’Neill McDonald Lawyers (P)
Australian Business Lawyers (Ds)

File Number(s):

2013/ 153589

Judgment

1. The first defendant company Optimisation Australia Pty Limited [1] has four shareholders: the plaintiff Brian Kearney (aged 42 at trial), his sister the third defendant Susan Williams (aged 49), her husband the second defendant Gary Williams (aged 50); and the fourth defendant Sharmark Pty Limited, which is the trustee of Gary and Susan's family trusts. [2] In these proceedings, [3] Brian claims relief for oppression in respect of the conduct of the affairs of Optimisation, pursuant to (CTH) Corporations Act 2001, ss 232 and 233, by way of a compulsory purchase order against Gary, Susan and/or Sharmark, at a price to be determined by the Court; [4] and, by a statutory derivative action under Corporations Act, s 236, [5] on behalf of Optimisation against Gary and Susan and the fifth defendant Orchard Office Services Pty Limited, a company owned and controlled by Gary and Susan, compensation[6] in respect of various alleged breaches of their duties as directors of Optimisation, which correspond with matters the subject of the oppression claim. These claims comprise the “oppression and directors’ duties issues”.

   1. The company was originally known as Web4site Pty Limited. It changed its name to Optimisation Australia Pty Limited on 15 May 2011. In this judgment it is referred to as “the company” or “Optimisation”.

   2. Given the familial relationship between them, and without intending the slightest disrespect, I shall for convenience refer to the protagonists by their first names.

   3. By his Second Further Amended Statement of Claim filed on 18 November 2015.

   4. Brian’s alternative claim for an order that Optimisation be wound up on the just and equitable ground was ultimately not opposed.

   5. For which leave pursuant to Corporations Act, s 237 was granted, by consent, on 19 December 2014

   6. By way of damages, equitable compensation and/or statutory compensation under Corporations Act, s 1317H.

2. In addition, Brian personally claims against Optimisation unpaid entitlements upon termination of his employment, including pay in lieu of notice, and accrued unpaid annual leave and personal (sick) leave. Optimisation has brought a cross-claim against Brian which claims repayment of annual leave said to have been overpaid to him following his termination. Together, these are the “employment entitlements” issues.

Overview

3. This overview chronicles the main events and matters which are not in serious contention, so as to provide context for the issues.

Background – Orchard Office Service

4. Before Gary, Susan and Brian became associated in Optimisation, Gary and Susan were involved in Orchard. Orchard was incorporated on 15 January 1998, but its telesales business - selling office consumables, especially ink toner cartridges - had been established by Gary, with one Mauro Spigone, in March 1997. Its business model involved the use of telemarketers – typically backpackers – to “cold-call” potential customers in order to generate sales. Susan was employed in Orchard’s business from June 1997; she was the sales manager, responsible for recruitment and managing the office, supervising the telemarketers and preparing scripts for their use. Gary managed the finances, including payroll, debtors and creditors, stock and orders. Mauro Spigone relinquished his shareholding in October 2000, and thereafter Gary and Susan operated Orchard, and they and Sharmark (as trustee of their family trusts), were the shareholders.

5. From about October 2003, Orchard operated from rented premises at 105 Coogee Bay Road, Coogee. Following the birth of Gary and Susan’s daughter Mia in December 2002, Gary did not work until 2005, from when he says he worked between two and three days per week, while Susan says he was in the office most days or worked from home, but not fulltime. Susan continued to work fulltime in the business. In FY2005/06, both drew a salary of $95,000.

Establishment of Optimisation

6. Brian, whose background and skills were in sales, had worked for Yellow Pages and in the online sales and marketing industry, including in his own company Xpand Enterprises Pty Limited, which sold websites. In 2003, he commenced a business selling spas, through a trading entity called “Affordable Aussie Spas Direct”. Having first met his brother-in-law Gary in 2002, he used Orchard’s offices after hours, for telemarketing. He did not pay rent, although according to Gary he was supposed to log calls and reimburse Orchard for them.

7. In 2004, Brian’s employment with Sensis (Yellow Pages) was terminated, by reason that Brian was placing advertisements for his side business (Aussie Spas) for which he did not pay.

8. In late 2005, Brian and Gary discussed commencing their own business of selling websites. Brian and Gary agreed that they would together establish such a business through a company, in which Brian would hold 51% and Gary 49%. Gary recognised that such sales could only be effected face-to-face, and that Brian was a good salesperson. That Brian would be employed in the business, as a salesperson, was a fundamental assumption from the outset: Gary gave the following evidence:

Q. And so between the two of you, you agreed that you would set up this new venture, a new venture that had Brian running the front office, being the man going out, had to close the deals, and that you being the back office, basically being responsible ultimately for insuring that the deal that had been closed was performed. Correct?

A. Correct.

Q. On that basis, on that fundamental basis, you decided to enter into a business relationship with Mr Kearney. Correct?

A. Correct.

9. And so the company was incorporated, initially under the name Web4site Pty Limited, on 31 October 2005, through the services of Kidmans Chartered Accountants, an accounting firm with which Gary had a prior relationship, where the principal contact was Mr Rex Miller. Brian and Gary were the only directors and secretaries. Initially, there were 100 issued shares, of which Brian held 51, and 49 were held by Sharmark as trustee of Gary's family trust; the trust structure was apparently adopted by Gary on the advice of Mr Miller for tax effectiveness, and Sharmark had earlier been constituted the trustee of Susan’s family trust. According to Gary, he agreed that Brian would be the majority shareholder because he would be making the business work and bringing in the sales.

10. In January 2006, Gary and Brian agreed to open a bank account for the company, and on 18 January 2006, they attended at the Coogee branch of Westpac to open a trading account. The circumstances surrounding the opening and subsequent operation of that account are a matter of controversy, to which it will be necessary to return.

11. During this period, Brian did some work for Pink Pages (Dawson Media), who were selling “pay per click” services.

Operations commence

12. The company began trading in March 2006, operating (with Gary and Susan’s agreement) from Orchard's Coogee premises. There was no suggestion at that point of Orchard making any charge for the use of its facilities. The company initially sold editable websites, then added Google AdWords (a service that enabled an advertisement for the client’s business to appear on the results page when a Google search using specified keywords was generated), and then online video productions (to advertise clients' businesses online to customers and potential customers). In mid to late 2007, the company trialled and then introduced a new product, called search engine optimisation (SEO), which enhances a website so that it will be promoted to a higher (more prominent) position on the results of a search using particular keywords.

13. From the commencement of operations on 1 March 2006, both Gary and Brian were employed by the company. Gary was the operations manager, responsible for financial and administrative management, and was employed on an annual salary of $100,000 fulltime equivalent (FTE), to be prorated according to the actual hours he worked as a proportion of full-time employment (given that he continued to also work for Orchard). Brian was responsible for sales, and was remunerated with a 20% commission, plus a 2% bonus commission for monthly sales in excess of $60,000.

14. When operations commenced in March 2006, Brian initially endeavoured to arrange his own appointments, by “cold-calling” from the Coogee office to make appointments with prospective customers. However, he did not enjoy this, and Susan agreed to use Orchard telesales staff for this purpose, at least until Optimisation was in a position to retain its own telemarketers. As a result Susan, whose expertise was in telemarketing and drafting scripts, was employed by the company from March 2006, to oversee the telemarketers. She also continued to work for Orchard. The arrangements in respect of her remuneration, from the outset and subsequently, are a matter of controversy, and are considered below.

15. Under these arrangements, telemarketers employed by Orchard would telephone potential customers (including from Orchard’s client base of over 6000 clients) to arrange appointments for Optimisation’s sales representatives – including in particular Brian - to make presentations to those potential customers and secure sales. There is a significant dispute about the commercial arrangements by which Orchard’s telemarketers were used by Optimisation: Brian contends that it was agreed that Orchard would be paid $15 per hour for such telemarketing services, being the wage cost to Orchard of hiring such telemarketers; whereas Gary and Susan say that a rate of $50 per hour for telemarketing costs was agreed. In any event, from mid-2006, Orchard invoiced, and was paid, at the rate of $50 an hour, and this is the subject of complaint by Brian, who says that he was unaware of it, and that it was contrary to the agreed arrangements and uncommercial.

16. Also in March 2006, Gary and Brian agreed that Gary’s personal credit card would be used to pay for company expenses when a credit card was required, at least until Optimisation was in a position to procure its own. Brian now raises as an issue the personal benefit Gary derived from the reward points earned from the use of his credit card for the purposes of the company.

Share restructure

17. In May 2006, the company retained a second on-road sales consultant, Kelly Hyde. With this, from 15 May 2006, Susan’s role expanded, so that in addition to managing the telemarketing team, there was also a second salesperson to manage, and with it a requirement to double the number of appointments generated by the telemarketing team.

18. At about this time, Gary, Susan and Brian agreed to a share restructure, at least in part on account of Susan’s increased role. Gary says that when at the outset he agreed to Brian having a 51% shareholding, he did not know how much of his time Optimisation would require, or whether it would be successful. Brian says that Gary and Susan threatened that if he did not agree, use of Orchard’s premises and personnel might be withdrawn. This need not be resolved, as there was no challenge to the consequent restructure, the outcome of which was that, with effect from 30 June 2006, there were 1000 ordinary shares and 100 D Class shares, of which Brian held 350 ordinary shares and 35 D Class shares; Gary owned or controlled 330 ordinary shares and 33 D Class shares (281 ordinary shares were held in his own name, and 49 ordinary shares and 33 D Class shares were held by Sharmark as trustee for his family trust); while Susan owned or controlled 320 ordinary shares and 32 D Class shares (320 ordinary shares being held in her own name, and 32 D Class shares held by Sharmark as trustee for her family trust). That remains the shareholding structure to today. The rights attached to the ordinary and D Class shares differ only in respect of the right to receive notice of and vote at meetings of members; D Class shares carry no such rights. Otherwise, they enjoy the same rights as ordinary shares to receive dividends and return on capital. In substance, therefore, Brian owned (and continues to own) 35%, Gary 33% and Susan 32% of the company.

19. The directorships did not formally change at this time, and Brian and Gary remained the only formally appointed directors until April 2013. However, whether or not this was, as the defendants contend, an “oversight”, Susan was thereafter treated as if she were a director, and Brian regarded her as such.

20. From July 2007, the company employed a telemarketer of its own, but continued also to use Orchard's services. In November 2008, Orchard and the company moved offices; since December 2008 both have operated from premises in the Westfield Centre at Eastgardens. At the same time, the hourly rate at which Orchard invoiced Optimisation for telemarketers decreased from $50 to $30.

21. In August 2010, the company hired Paul McElroy as general manager. He was succeeded, from February 2011, by Paul Pearson, whose responsibilities as general manager included management of Optimisation’s day-to-day operations. Mr Pearson remained until December 2011.

22. In February 2011, Brian had spinal fusion surgery, which resulted in him being able to work only on a limited basis for approximately six months. After he recovered, he continued to work for the company as an on-the-road sales representative. From about 1 June 2011, in circumstances described later, his remuneration changed from commission, to a salary of $100,000 – the same as the remuneration package for each of Gary and Susan at that time.

23. The company, which changed its name from Web4site to Optimisation Australia on 12 May 2011, was increasingly profitable, and progressively expanded:

Year	Turnover	Turnover Change	Profit
2006	$120,934	N/A	$36,126
2007	$559,493	+362.64%	$10,477
2008	$774,983	+38.52%	$53,578
2009	$1,123,305	+44.94%	$225,792
2010	$1,270,330	+13.09%	$331,431
2011	$1,501,035	+18.16%	$474,603

24. During the same period, Orchard's turnover was decreasing; after achieving turnover of $2.5 million in 2000, its turnover between 2006 and 2011 was as follows:

Year	Turnover
2006	$1,400,000
2007	$1,100,000
2008	$700,000
2009	$500,000
2010	$320,000
2011	$195,000
2012	$51,732
2013	$32,453

25. The last employee of Orchard, Steven Hickey, was transferred from Orchard to Optimisation on 27 August 2010. Orchard ceased to invoice Optimisation for telemarketing services after April 2011.

Gary and Susan go to England

26. From 29 May 2011 to 18 January 2012, Gary – who is originally from England and has a son there from a previous relationship, with whom he was seeking to communicate - resided in England. Susan resided there with him, save for a period from the end of August until 10 October 2011 during which she returned to Australia. The basis on which Gary and Susan continued to receive remuneration as employees during that period is a matter of contention.

27. Optimisation ceased telemarketing about the end of 2011, and from early 2012, Brian was its only on-the-road sales representative.

28. Paul Pearson resigned on 21 December 2011. On 23 April 2012, Sara Hewitson was employed as Optimisation’s general manager, and she remained in that role, with responsibility for the day to day operations of Optimisation, until April 2013.

29. In June 2012, Optimisation introduced a new product or service, called "Get Cubed", which Gary had conceived in about March 2012. This service was said to involve ongoing review of online marketing and results for clients, and to be a “high level, more strategic service”, more appropriate for larger clients. Prior to Gary and Susan leaving for England, for a second period, in May 2012, there were discussions about the respective roles of Brian and Ms Hewitson; and while there is some controversy about the detail, essentially it was agreed that Brian would continue to market the existing Optimisation products and service to existing and potential Optimisation clients, while Ms Hewitson would be responsible for the GetCubed service.

26. From 17 July 2012 to 14 March 2013, Gary again resided in England, and Susan with him, although she returned a month earlier, on 15 February 2013. Their remuneration arrangements while in England during this period are, again, contentious.

The relationship breaks down

31. From about early 2013, prior to Gary and Susan returning from England to Australia, difficulties in the relationship between Brian on the one hand and Gary and Susan on the other became manifest. There were multiple facets to this. In particular, Brian claims to have sought for several years to have on-line access to Optimisation's bank accounts with Westpac, in order to be able to review transactions, but such access was resisted, or at least not facilitated, by Gary and Susan. Next, in early 2013, Gary and Susan sought to appoint Mosaic Financial in place of Altus Financial (Rex Miller) as Optimisation’s external accountants, as well as acting as their personal accountants; Brian opposed this, proposing the appointment of an independent accountant for Optimisation. Thirdly, Brian did not have a happy working relationship with the general manager Ms Hewitson. On the other hand, Gary and Susan claim that his role as an on-the-road sales consultant was becoming redundant, and that he refused to undergo necessary training to perform his role, or to re-role.

32. Susan returned to Australia from England on 15 February 2013, and on 21 February or thereabouts, Susan and Brian met; Susan says that they discussed Brian’s role, GetCubed and sales; while Brian says that the retainer of Mosaic - and his opposition to it - was the main topic.

33. Gary returned to Australia from England on 14 March 2013. The following day, 15 March 2013, Gary, Susan and Brian had a meeting at a restaurant in Brighton Le Sands. Three main issues were discussed: first, whether Brian would be coming into the office more regularly (as distinct from being “on-the-road”), as Gary and Susan were seeking; secondly, the signing of the requisite authority for Brian to access the Westpac account; and thirdly, who would be the accountants (in particular, whether it would be Mosaic, as Gary and Susan proposed). Gary signed the Westpac authority, although there is some dispute as to how willingly this was done. Although there is dispute as to whether (as Brian says) it was agreed that Mosaic would not be engaged as accountants, it is common ground that there was agreement that alternatives would be considered. As to Brian’s working from the office, Gary and Susan say that Brian agreed that he would work from the office; and Brian accepts that he agreed that he would at least occasionally come into the office, but says that all agreed that, given his difficult relationship with Ms Hewitson, it would not be sensible for him to be there fulltime.

34. Despite this, the very next day - Saturday 16 March - Gary and Susan demanded an “exit strategy” as they said they no longer wished to be associated with Brian. On 17 March 2013, Ms Hewitson resigned as general manager - although she continued to work, casually and remotely, until 19 September 2013, to assist where required.

Brian is terminated

35. Brian did not do any significant work in February, March or April, due to the dispute. On 4 April 2013, Gary and Susan caused to be issued a notice of a meeting of members of Optimisation, to be held on 29 April 2013, to remove Brian as a director of Optimisation and to appoint Susan in his place. On 24 April, Yates Beaggi (then acting for Brian) wrote to Diamond Conway (for Optimisation), foreshadowing an oppression suit and requesting withdrawal of the notice of meeting.

36. Given the then hostile relationship, Brian did not attend the meeting on 29 April 2013, which was held at 09.00am. Gary and Susan did not remove Brian as a director, but they voted to appoint Susan as a director, and thereafter Gary and Susan controlled the board of Optimisation. At 10.30am the same day, 29 April 2013, Susan sent an email to Brian, informing him that a directors' meeting had been called “for tomorrow morning, to discuss HR and operational issues that need urgent attention". Although Gary and Susan admit that their purpose and intention was to dismiss Brian as an employee, the notice did not include any proposed resolution to that effect, nor any direct allusion to Brian’s dismissal or redundancy.

37. Again, due to the tension between the parties and the likelihood that things may have become heated in the small meeting room, Brian did not attend the directors meeting on 30 April 2013. Gary and Susan resolved to dismiss Brian as an employee, on the basis that his position as sales consultant was redundant. At the same meeting, Gary was appointed as managing director, and Mosaic Financial Group were appointed as accountants. At 4.16pm that day, Susan sent Brian, by email, notice of his termination for redundancy. Brian disputes that the role of an on-road sales representative was redundant, and contends that the pretence of redundancy was a sham to justify his removal. On 19 June, Brian was paid $9,526.90 termination pay (less PAYG withholding of $2,665), calculated as $1,834.59 annual leave, $7,692.31 pay in lieu of notice, and $857.42 superannuation guarantee.

38. Having been appointed Managing Director on 30 April, Gary then resigned from his employment with Optimisation on 6 May 2013, with effect from 31 May, although he claims to have continued to work thereafter, unpaid. Susan’s was thereupon appointed general manager, and her salary increased from $100,000 to $150,000 per annum.

The proceedings

39. These proceedings were commenced by originating process filed on 17 May 2013.

The 16 September 2014 resolutions

40. On 23 April 2014, Brian made a demand for payment of his accrued unpaid annual leave, personal leave and long service leave, and payment in lieu of reasonable notice (in addition to that which had been made at the time of termination). Gary and Susan obtained legal advice and decided that they too had outstanding employment entitlements.

41. On 23 August 2014, Susan gave notice of a meeting of members and directors to be held on 16 September 2014, to consider resolutions relating to the retrospective reinstatement of Gary and payment to him of backpay of $128,340.50 (subsequently increased to $136,128.66); payment of accrued annual leave for Gary, and cashing out of annual leave for Susan; payment of annual leave and sick leave to Brian; and payment in advance of $150,000 legal costs to the defendants’ lawyers Australian Business Lawyers (ABLA) in respect of these proceedings. The resolutions, to which Brian expressed opposition, were carried at the meeting, which Brian did not attend. By orders made on 22 September 2014, Optimisation, Gary and Susan were restrained from giving effect to the resolutions in respect of reinstatement of Gary and back pay for him, and the payment to ABLA. The payments in respect of annual and sick leave were not restrained, and on 15 September 2014, Brian was paid $53,526.74 (less PAYG withholding of $10,036.04), representing annual leave of $30,465,59, sick leave of $11,115.00, and long service leave of $11,946.15. Gary was paid $29,999.60 (for 78 days allegedly unpaid leave based on an annual salary of $100,000), and Susan $22,730.65 (for 39.4 days allegedly unpaid leave based on an annual salary of $150,000).

The witnesses

42. Because significant issues in the case depend on arrangements made orally between Brian, Gary and Susan – relating to their respective remuneration and emoluments, the provision of telemarketing services by Orchard, the arrangements for Gary and Susan’s salaries while they were in England, and the alleged restructure of the company associated with the introduction of the Get Cubed business in 2012 – of which there is little documentary evidence, much turns on the testimonial evidence of the protagonists. My reasons for reaching the conclusions that I do on the significant controversial factual issues are generally set out below, in the context of each of those issues. However, it is appropriate at this point to make some general observations about the principal witnesses and their evidence.

Brian

43. Brian appeared to take care to be accurate. His memory appeared to be good, and his recollections of sequences, dates and events was largely consistent with the contemporaneous correspondence - although it must be acknowledged that this may be coloured by what he has ascertained from disclosure in the course of the proceedings, as he has familiarised himself closely with the material. Nonetheless, he seemed frank, and prepared to acknowledge his shortcomings and weaknesses, such as his history of gambling, and his so-called “party” lifestyle. He was prepared to make concessions where they were called for, and while he obviously had an interest in his own case, did not present unduly as an advocate. Importantly, where there is documentary evidence, it tends to favour Brian’s version.

44. One exception concerns his evidence about his working hours from mid-2011 until early 2013. The records of his appointments do not support the contention that was attending anything like 2 (out of a target 3) appointments per day in June 2011, or subsequently. Brian’s attempts to explain the discrepancies between his activities as described in the various records, and the fulltime load of (at least) three appointments per day, were unconvincing.

Gary

45. Gary’s evidence was replete with departures from or inconsistencies with his earlier (affidavit or oral) evidence, reversals, inconsistencies with contemporaneous documents, and avoidance of directly answering questions. Many instances are referred to below, in the context of particular issues; it suffices to refer to a few examples here.

46. First, the version Gary gave orally as to whether he was paid for annual leave so differed from that which he had given on affidavit that he conceded that the latter was completely wrong. This was not the only occasion on which he would acknowledge or assert that his affidavit evidence was incorrect: another instance was the explanation he proffered for Susan’s salary increasing to $80 per hour from 1 July 2006.

47. Secondly, he misleadingly said that he “now” knew that Brian had not attended 70% of a full load of appointments, when in fact he knew from the outset that he had not done so for June 2011.

48. Thirdly, his evidence as to the times their child Mia was in day care fluctuated to suit the circumstances.

49. Fourthly, he variously denied and asserted that he had any conversation with Brian in relation to the opportunity cost to Orchard of providing telemarketing services to Optimisation.

50. Fifthly, he quite falsely suggested that Brian had “just copy and pasted from Steve Hickey’s mail” to secure a sale to Pool & Spa, when there was no such “cut and paste”, and in fact the sale in question was negotiated in a conversation by Brian.

51. Sixthly, he could not bring himself to allow Brian the credit for achieving the superior results for FY2012/13, in particular through signing Tile Megamart as a GetCubed client.

52. Seventhly, he evaded responsibility for appointing Susan as managing director notwithstanding her alcoholism, by asserting that it was not his role, but that of a doctor, to form an opinion as to her capacity.

53. Eighthly, although he had written to a social worker on 7 May 2014 that Susan’s alcohol issues had impacted on the business, financially and legally, for two and a half years, he first said that he did not recall saying that; next, that Susan felt that her alcoholism had been a catalyst for the dispute and felt guilty; and then, that he did not necessarily mean that it had had a detrimental impact on the business – which in its context is unbelievable.

54. Ninthly, he at first denied that he had told Brian in December 2014 that Sophie was performing the role of an on-the-road salesperson, but then said that what he said was misinterpreted, and eventually accepted “absolutely” that he told him that she was meeting with clients face-to-face – although he denied that she was “on-the-road”, as she was office-based.

55. Tenthly, although in the course of seeking an opinion as to Susan’s fitness he had told Dr Montebello that her duties included training and managing the on-road sales staff, he first did not recall it, then said that it was incorrect, and “I don’t know why I put that in there. That’s a mistake”.

56. Eleventhly, he denied that Susan was attending work drunk and that this was commented on by staff, until shown his own letter to Dr Montebello on 28 April 2014, in which he had written just that.

Susan

57. It was noticeable that, in her oral evidence, Susan could not bring herself to refer to her brother by name; she consistently referred to him as “the plaintiff”, and although that might be strictly correct, in the context that she referred to Gary (strictly, “the second defendant”) by name, this is illustrative of her animus towards Brian. Her evidence, too, was peppered with inconsistencies and reversals, examples only of which are referred to below.

58. Susan verified a defence in which she pleaded that her salary for the period 1 March 2006 to 31 May 2006 was $50,000 prorated, but in oral evidence said that this was not correct, and that the instructions for it did not come from her. When asked from whom else those instructions could have come, she first said that she took responsibility for it; but then that the solicitors would have information, and that she would not have signed the affidavit verifying had she picked it up.

59. She asserted that it was agreed from early 2011 that Brian would work based from the office, although still go out “on-the-road”. She said that this was to commence when he returned from his injury in June 2011. However, despite her protestation that there was some reference to this in her affidavit evidence, there was none.

60. She maintained, with certainty, that the notice of meeting of 4 April 2013 to remove Brian as a director was given when it appeared that Brian had removed $1000 from the bank account, and she and Gary formed the opinion that Brian was not acting in the interests of the company. As that withdrawal was not made until 1 May, that evidence could not have been correct. When documentary evidence to that effect was shown to her, her explanation was “this is the first time I’ve seen this email”. This is a matter of considerable significance, because it involves the invocation of a patently false basis for the decision to launch steps for Brian’s removal.

61. She repeatedly and unresponsively made the point that Brian had spent 59 minutes on the phone to her complaining about Sharmark, and alleging that Gary had established it to “rip him off” when in fact she had established before meeting Gary - a complaint which was abandoned on behalf of the plaintiff before the hearing (although Brian did say that he abandoned it on advice, and for himself still considered it serious).

62. When shown an email with the financial results for December 2012, she at first said that she was on the plane coming back to Australia at the time of this email, but she was compelled to retract this. While not much turns on this of itself, it is illustrative of her tendency to seek a means to avoid being implicated in communications, and to shift responsibility to Gary – of which other instances are referred to below.

63. Frequently, Susan did not attend to the questions asked of her, but focussed on giving her point of view. She appeared to avoid the point of questions directed to her. Her responses were often over-inclusive, and manifested not merely a need to explain, but a determination to convey her position. She tended to put her own gloss or interpretation on any communication about which she was asked. She did not give direct answers to questions, and avoided making admissions when they were plainly called for, at least without being taken to and checking documents. She seemed incapable of appreciating the possibility that there might be an alternative perspective.

Conclusion

64. While the explanations proffered by Susan and Gary for the inconsistencies and changes in their evidence might have been plausible on their own in an individual instance, their accumulation is too much to be credible. The circumstance that the documents, when they exist, tend to support Brian’s case, is also a weighty factor. Although there are some matters in respect of which his interest, or his lack of understanding, affects his reliability, and I do not uncritically accept everything Brian says, in substance and in general I accept him as a truthful witness. (One exception is that I am unpersuaded that Brian was working to the extent he claims in the period from mid-2011 to early-2013). Where the evidence of Gary and/or Susan conflicts with that of Brian, I prefer Brian’s evidence, except where I otherwise expressly indicate.

The oppression and directors’ duties issues

Principles

65. Although it will be necessary to return in greater detail to some aspects, it is convenient at this point to state the main relevant applicable principles.

Oppression

66. Under (CTH) Corporations Act 2001, s 232, the Court may make an order under s 233 if the conduct of a company's affairs, or an actual or proposed act or omission by or on behalf of a company, or a resolution (or a proposed resolution) of members or a class of members of a company, is either contrary to the interests of the members as a whole, or oppressive to, unfairly prejudicial to, or unfairly discriminatory against, a member or members, whether in that capacity or in any other capacity. The phrase "oppressive to, unfairly prejudicial to, or unfairly discriminatory against" is a compound expression,[7] and I will use “oppressive” as shorthand for that expression. It refers to conduct that involves commercial unfairness, which is to be assessed in the context of the particular corporation and relationship in issue. The question is whether it can be said, in the light of the nature of the company’s business and affairs and the relations between its participants, that the impugned conduct is, “objectively in the eyes of a commercial bystander … so unfair that reasonable directors who consider the matter would not have thought the decision fair”,[8] or in other words, whether that conduct, considered in light of all of the relevant circumstances, is “inequitable or unjust”. [9] A decision to impose a disadvantage, disability or burden on the member affected that, according to ordinary standards of reasonableness and fair dealing, is unfair, amounts to oppression. [10]

    7. Australian Institute of Fitness Pty Ltd v Australian Institute of Fitness (Vic/Tas) Pty Ltd (No 3) [2015] NSWSC 1639 at [86] (Sackar J).

    8. Morgan v 45 Flers Avenue Pty Ltd (1986) 10 ACLR 692 at 704 (Young J).

    9. Thomas v H W Thomas Ltd [1984] 1 NZLR 686 at 693; Wayde v NSW Rugby League Ltd (1985) 180 CLR 459.

    10. Re Ledir Enterprises Pty Ltd (2013) 96 ACSR 1 at [178] (Black J).

67. One common species of oppression is the removal of a shareholder from a salaried position, even though it might be a valid exercise of the legal powers of the majority of the directors, where participation in the company was on such a basis that the shareholder/employee had a legitimate expectation that he or she would be employed by the company – particularly where the shareholders derive economic benefits from the company exclusively or substantially via salaries rather than by dividends. [11] Another species of oppression is where the directors or majority shareholders conduct the affairs of a company in a way that advances their own interests or the interests of others, to the detriment of a minority shareholder. [12]

    11. See Ebrahimi v Westbourne Galleries Ltd [1973] AC 360 at 378-9 per Lord Wilberforce, further discussed below, where it is explained that while that case involved winding-up on the just and equitable ground, the same considerations apply in connection with the remedy for oppression.

    12. Re Bright Pine Mills Pty Ltd [1969] VR 1002 at [108].

Directors’ duties

68. Gary has been a director of Optimisation since its inception; and Susan has formally been a director since 29 April 2013, though it appears common ground that she was a de facto director before then. As directors, they had the statutory duties referred to in Corporations Act, ss 180, 181 and 182, and equivalent general law fiduciary duties, to:

1. exercise their powers and discharge their duties with the degree of care and diligence that a reasonable person would exercise if they were a director or officer of a corporation in the corporation's circumstances, and occupied the office held by, and had the same responsibilities within the corporation as, the director or officer (s 180);

2. exercise their powers and discharge their duties in good faith in the best interests of the corporation, and for a proper purpose (s 181); and

3. not improperly use their position to gain an advantage for themselves or someone else, or cause detriment to the corporation (s 182).

69. As the statutory duty provisions of the Corporations Act are civil penalty provisions,[13] the court may order that a person who contravenes them compensate the corporation for damage suffered by the corporation which resulted from the contravention. In respect of s 181 and s 182, that extends beyond the delinquent office-holder, to any person who is involved in the contravention. [14] For that purpose, a person is involved in a contravention if, and only if, the person has aided, abetted, counselled or procured the contravention; or has induced the contravention; or has been in any way, by act or omission, directly or indirectly, knowingly concerned in, or party to, the contravention. [15]

    13. Corporations Act, ss 1317DA and 1317E.

    14. Corporations Act, s 181(2), s 182(2).

    15. Corporations Act, s 79.

Issues

70. At the forefront of Brian’s oppression case is the termination of his employment, in the absence of a reasonable offer to acquire his shareholding, and upon a pretence that his position had become redundant, in response to his legitimate requests for more information concerning the ongoing financial position of Optimisation and its management (including access to the Westpac account), and seeking to avoid a potential for conflict of interest on the part of Optimisation's accountant (by opposing the appointment of Mosaic).

71. Additional matters ultimately relied upon by Brian as constituting oppression [16] relate to the receipt by Gary and Susan, directly and indirectly through Orchard, without Brian’s knowledge or approval, of excessive and uncommercial emoluments and benefits from Optimisation, in particular:

    16. A complaint founded on the undisclosed status of Sharmark as a shareholder was abandoned before the hearing commenced, and another in respect of a failure fully to pay a dividend declared on 26 September 2014 was not pressed at the conclusion of the hearing.

1. Gary’s salary. Brian contends that whereas Gary, while working part time for Optimisation (and continuing to work for Orchard) from March 2006 to about June 2008 (when he commenced working full time for Optimisation), was to receive a pro rata salary based on a $100,000 FTE salary, he worked only between 40%-70% of his time for Optimisation during that period, yet drew $101,667 and $101,150 respectively for the financial years 2007 and 2008, and thereby overpaid himself for these years a total of approximately $90,000. Further, while overseas until his return on 14 March 2013 he was entitled to a half salary only, becoming entitled to a full-time salary of $100,000 only following his return, yet paid himself for the month of March 2013 a first payment of $4,166.67 and a further payment of $8,333.33, an overpayment of approximately $6,250;

2. Susan’s salary. Brian contends that during the period 1 July 2007 to 30 June 2011, Gary paid Susan remuneration at rates which exceeded those that had been agreed with Brian, and that during the periods while she was in England between June 2011 and January 2012, and between July 2012 and February 2013, he paid her a half salary, notwithstanding that it had been agreed that she would not work and would receive no pay;

3. Gary's credit card. Brian contends that by using his own credit card to pay for Optimisation’s expenses, Gary received the personal benefit of the reward points, which ought to have been for the benefit of Optimisation;

4. Orchard’s fees. Brian contends that whereas he and Gary agreed, prior to Optimisation commencing operations in March 2006, that Orchard would provide telemarketing services to Optimisation at the rate of $15 per hour per telemarketer, Gary without his knowledge or approval caused Orchard to charge Optimisation for telemarketing services at the rate of $50 per hour from March 2006 to 31 December 2008, and at the rate of $30 per hour from 1 January 2009 to 30 June 2011, and that those rates unfairly and unreasonably benefitted Orchard to the detriment of Optimisation, to the extent of $207,708.75;

5. Gary’s reinstatement and back pay. Brian contends that the resolutions of 16 September 2014 to reinstate Gary, who had resigned with effect from 31 May 2013, as an employee, and to pay him $136,128.66 back pay for the periods 14 March 2006 to 31 May 2006 and 1 June 2013 to 16 August 2014, would have authorised paying him for a period in respect of which he was not entitled to recover such moneys, and for a period when he was not employed by Optimisation (after his resignation);

6. Payment of defence costs. Brian contends that the resolution of 16 September 2014 to pay $150,000 in advance to the defendants’ solicitors in respect of these proceedings, would have authorised the application of the company’s resources to fund the majority to resist Brian’s claim;

7. Susan's sick leave. Brian contends that Susan has received paid sick leave in excess of her entitlements; and

8. Gary and Susan's annual leave. Brian contends that, even if an agreement that as directors, Gary, Susan and Brian would not receive annual leave entitlements, is not enforceable given statutory entitlements to annual leave, the amounts provided in the September 2014 resolutions ($29,999.60 for 78 days allegedly unpaid leave based on an annual salary of $100,000 for Gary, and $22,730.65 for 39.4 days allegedly unpaid leave based on an annual salary of $150,000 for Susan), were substantially in excess of their true unpaid entitlements.

72. Several of those matters also found the derivative claim for breach of directors’ duties. In particular:

1. Gary’s salary. Brian contends that in overpaying himself, Gary failed to act with reasonable care and diligence, or in good faith in the best interests of the corporation and for a proper purpose, and used his position to gain an advantage for himself;

2. Susan’s salary. Brian contends that in overpaying Susan, Gary failed to act with reasonable care and diligence, or in good faith in the best interests of the corporation and for a proper purpose, and used his position to gain an advantage for himself; and that Susan received the overpayments knowing that they were made in breach of Gary’s duties and was thereby involved in Gary’s contravention;

3. Gary's credit card. Brian contends that in using his personal credit card to meet the expenses of Optimisation and consequently receiving the personal benefit of the reward points, Gary used his position to gain an advantage for himself;

4. Orchard’s fees. Brian contends that in overpaying Orchard, Gary failed to act with reasonable care and diligence, or in good faith in the best interests of the corporation and for a proper purpose, and used his position to gain an advantage for himself; and that Orchard received the overpayments with knowledge that they were made in breach of Gary’s duties and was thereby involved in Gary’s contravention;

5. Gary and Susan's annual leave. Brian contends that in authorising the overpayment of annual leave entitlements to themselves, Gary and Susan as directors failed to act with reasonable care and diligence, or in good faith in the best interests of the corporation and for a proper purpose, and used their positions to gain advantages for themselves.

73. It is convenient to address these issues more or less chronologically, commencing with those which preceded the breakdown of the relationship, then those associated with the breakdown and the termination of Brian’s employment, and finally those which followed his termination.

Gary and Susan's salaries

74. Brian contends that between 2006 and April 2013, Gary and Susan, without his knowledge or approval, and contrary to arrangements agreed between them, extracted from Optimisation for their own benefit unfairly disproportionate emoluments, by way of salaries for Gary and Susan.

Gary and Susan’s arrangements at Orchard

75. The remuneration arrangements which Gary and Susan enjoyed at Orchard, prior to the establishment of Optimisation, provide relevant background to their later arrangements with Optimisation which are the subject matter of this issue.

76. According to Susan, following the birth of their daughter Mia in December 2002, she returned to work at Orchard on a fulltime basis (which she described as 8.30am to 5.00pm, five days per week) on 22 January 2003, while Gary cared for Mia, and worked only an hour or so a day, and Thursday afternoons, until 2005, after which he worked for a couple of hours, most days of the week. Susan said that in 2005/06 her salary at Orchard was $125,000; but when shown her pay advices, which refer to an annual salary of $95,000, she said “I never saw my payslips, Gary did my pay”, and conceded that it appeared that her annual salary was then $95,000; she added “I was assuming I was on 125, so Gary’s obviously done that. … From times, we would reduce pay depending on profit. I was quite aware of that”. However, she remained on the same salary of $95,000 until 2008, notwithstanding that the turnover and profit of Orchard continued to decline over that period.

77. Although Susan thought Gary was paid less than her – she supposed he was receiving $80,000 or $100,000 per annum from Orchard - he too was in fact drawing a salary of $95,000 from Orchard, and continued to do so until July 2008 - notwithstanding that he was apparently (according both to Susan and himself) working only a couple of hours a week for Orchard in and after FY2006.

Gary’s salary at Optimisation

78. It is common ground that until June 2008, it was agreed between Brian and Gary that Gary was entitled to draw a salary calculated as a proportion of an annual salary of $100,000 FTE, according to the hours he worked for Optimisation. For the period March to May 2006, Gary drew one-third of an FTE salary. Then, until August 2006, he drew 40% of an FTE salary. Thereafter, until June 2008, he paid himself 100% of an FTE salary. Brian accepts that Gary worked full-time for Optimisation from about July 2008, and it is not in dispute that – apart from the periods during which he was in England, which are discussed separately below – he was thereafter entitled to a flat $100,000 per annum. However, Brian contends that between March 2006 and June 2008, Gary (who was still also drawing his $95,000 per annum from Orchard) worked only between 40% and 70% of a full-time load for Optimisation, yet drew $101,667 and $101,150 respectively for the financial years 2007 and 2008, and thereby overpaid himself a total of approximately $90,000. The issue is whether Gary was in fact working full-time for Optimisation during the period from July 2006 to June 2008, or whether, as Brian says, he was working only part-time for Optimisation, at between 40 and 70% of a full-time load, while he continued also to work for Orchard.

79. Gary disputed that he worked only part time for Optimisation until July 2008. He said that he did not know at the outset how much of his time Optimisation would take, and that as things turned out he was fulltime from the beginning. To the proposition that until 30 June 2006 he spent only about 40% of a full-time workload on Optimisation, he responded that it was “more like 140%”.

80. There is no probative evidence that directly contradicts Gary’s assertion that he was working full-time for Optimisation. Brian did not work from the office, as Gary did, and was not in a position to observe the hours that Gary was working; accordingly, his assertion that Gary was working between 40% and 70% of a fulltime load cannot have been based on personal observation.

81. There are two matters which might support an inference that Gary was not working fulltime for Optimisation during this period. The first is that despite his claim to have worked fulltime from the outset, he drew salary at only one-third of a fulltime rate during the period March to May 2006. Gary said that he deferred his remuneration for that period until Optimisation was in a position to fund it, drawing his deferred remuneration on 4 July 2006 at the rate of 33% for the period to then, followed by a payment on a fulltime (100%) basis on 13 July 2006. At the highest, this might indicate that he was not working full-time before July 2006, and affect his claim for the alleged arrears in respect of the period March to May 2006, which emerged only in September 2014, in circumstances referred to later.

82. The second is that Gary’s commencement on a fixed $100,000 salary from Optimisation in July 2008 coincided with his ceasing to draw salary from Orchard, until when he was drawing a salary of $95,000 from Orchard. The change in Gary’s status with effect from 1 July 2008 to a fixed salary of $100,000, coupled with the circumstance that he was drawing a substantial salary from Orchard until that point which then ceased, might support an inference that he was not working fulltime for Optimisation until then. However, as he and Susan exclusively owned and controlled Orchard, they were able to draw salaries from Orchard based on profitability and tax effectiveness, as distinct from time worked.

83. In my judgment, in the absence of direct evidence contrary to Gary’s as to his hours of work, the inferences which might be drawn from the matters to which I have referred are insufficiently strong to establish, more probably than not, that Gary was not working fulltime for Optimisation, at least from July 2006. I am therefore unpersuaded that he drew excessive emoluments during the period prior to his departure for England in mid-2011. [17]

    17. The position from mid-2011 onwards will be dealt with below, as it is intertwined with the arrangements that pertained while Susan and Gary were in England.

Susan’s salary at Optimisation

84. Up to mid-2011, Susan received remuneration from Optimisation on the following bases:

1. for the period March to May 2006, at the rate of $31.50 per hour;

2. for the month of June 2006, at the rate of $40 per hour;

3. for the period July 2006 to July 2008, at the rate of $80 per hour;

4. for the period September 2008 to May 2011, a flat $80,000 per annum.

85. Brian contends that this was substantially in excess of what it had been agreed that Susan would receive; he says that it was agreed (between him and Gary):

1. in about March 2006, that Susan would draw a pro-rata salary for the hours she worked for Optimisation (as she continued to work for Orchard), based on a FTE salary of $50,000;

2. in August 2007, that her salary would be a flat $50,000 per annum;

3. in April 2009, that her salary would be increased to $70,000; and

4. in May 2011, that her salary would be increased to $100,000.

86. Gary and Susan say that there was never any agreement based on a $50,000 FTE salary, and that - until she went onto a flat $80,000 per annum in 2008 - she and Brian had agreed that she would be paid at an hourly rate of $80 for hours worked, and that this was based on the annual salary of $125,000 which she said she was being paid by Orchard. Susan says that the negotiations in respect of her remuneration were conducted between her and Brian, and did not involve Gary; and Gary says that he had no discussions with Brian about Susan’s remuneration before 2011, but that Susan informed him that she had agreed her salary with Brian, based on $80 per hour - equivalent to what she was being paid by Orchard, based on a 30-hour week.

87. This invites a number of observations.

88. First, an hourly rate of $80 reflects an annual salary of $125,000 per annum only if it is calculated on a 30-hour week. Gary said that it was calculated on that basis, reflecting the hours that Susan was working at Orchard; however, Susan said that she assumed that the hourly rate of $80 as calculated on a 40-hour week, and on her own evidence the hours she was working for Orchard (8.30am to 5.00pm, five days a week) were well in excess of a 30-hour week, and indeed more than 40 hours per week. When it was pointed out to her that mathematically the amount reflected a 30-hour week, she said that she did not know, and that she left it up to Gary, and what she received was completely up to him, who could and did change their salaries at his discretion. The fact that, as appears to have been the case, Susan’s hourly rate was derived on the basis of a 30-hour week emerged only in the course of Gary’s cross-examination; Susan did not know that it was derived in that way; there is no hint that it was ever mentioned to Brian that it was calculated on that basis; and it does not in fact reflect the hours that Susan claims to have worked for Orchard. Use of a 30-hour divisor was an undisclosed and artificial device, which surreptitiously inflated Susan’s remuneration from Optimisation.

89. Secondly, Susan was not in fact on a salary of $125,000 at Orchard; she was being paid $95,000 (which, for a 30-hour week, would be an hourly rate of $60.90, or, for a 40-hour week, $45.67). When this was pointed out to Gary, he maintained that she believed that she was being paid $125,000, even though he knew that she was not, and (quite implausibly) that he may have told her that she was on $95,000, contrary to her belief. Susan eventually conceded that she had never been on a fixed salary of $125,000, although she said that in previous employment she had earned commission in excess of that amount.

90. Thirdly, although Susan disputes that there was any agreement that she would be remunerated on the basis of a $50,000 FTE salary, and maintains that $31.50 – or for that matter $40 per hour - would have been “ridiculous”, the amounts actually paid to Susan (which were calculated and paid by Gary) during the period March to May 2006 appear to be at the rate of $31.50 per hour, which corresponds to $49,140 FTE (if based on a 30-hour week). Although $31.50 per hour thus reflects the alleged $50,000 agreement - if (as Gary says) it was based on a 30-hour week - Gary denied that $31.50 was used initially because he had agreed with Brian that Susan was to receive $50,000, pro-rated. His explanation was:

I’ve been reflecting on this in that break and I’m thinking what I’ve done there is I have worked out that rate, 31.50, based on 95,000 and divided by 52 and 30. It comes out to around about 30.5 or something like that but what I’ve done – okay, and that’s how I’ve paid Sue. I think what may have happened is that’s what I did and that’s what I told her I paid her and she said, “No, that’s not right. It was based on 125,000.

91. He went on to explain that during this period there were two telemarketers working for Optimisation under Susan’s supervision, so to calculate her time he took the total of their telemarketing hours (32 for April, 63 for May and 78 for June) and divided by 2, so that Susan was taken to have worked for a total 86.5 hours, which at $80 per hour generated $6,920 – the amount Susan was actually paid for that period ($2992.50 in May, and $3,927.50 in June, the latter said to include a “bonus” of $807.50, which reflects the difference between $31.50 and $40 for the 95 hours attributable to April and May). However, Susan denied that the hours charged were the total telemarketing hours, maintaining that they were her hours only, and that her rate was halved (to $40) because her remuneration would otherwise have been excessive - although on what basis that was so was not explained. She denied any knowledge of having initially been paid at a rate of $31.50. Gary’s explanation, while capable of justifying the ultimate total amount of $6,920, does not explain why Susan was initially paid $2992.50, which is 95 hours at $31.50: a $95,000 FTE on a 30-hour week basis produces not $31.50 but $30.45 (after dividing by 2 to account for there being two telemarketers). On the other hand, $50,000, without dividing by 2, equates to $32.05, so neither corresponds precisely to the $31.50 which was actually paid, and ultimately, this consideration is equivocal.

91. Fourthly, to an allegation in the amended statement of claim of 11 March 2014 that Susan was entitled to remuneration on a pro rata basis calculated on a maximum of $50,000 per annum for FY07 and FY08, the defence thereto, filed on 23 May 2014 and verified by Gary and Susan, pleaded that for the period March to May 2006 Susan was entitled to a $50,000 salary on a pro-rata basis, and for June 2006 to $40 per hour, then from July 2006 to August 2008 to $80 per hour, and from September 2008 to May 2011, to $80,000 per annum. Susan accepted that she read those pleadings, was aware of the allegation, and verified the defence, but now denies that it was in that respect accurate. Admittedly, it was not the form of the pleading by the time of the trial; but as Susan accepted, only she or Gary could have provided the information on which that defence was prepared. Gary denied that the amended defence of May 2014 was constructed to accommodate the payroll records, and in answer to the proposition that whereas the original agreement was $50,000, he and Susan just varied it without telling Brian, said (rather unconvincingly): “I don’t believe that to be true, no”.

92. Fifthly, in relation to the move to an annual salary of $80,000, Susan said that it was in response to Brian saying that a sales manager with similar responsibilities at Yellow Pages was paid only $75,000, that she reluctantly agreed to $80,000. If it is right that Susan was on a FTE salary of $125,000 – or even $95,000 - that begs the question, why would she take what was in effect a pay cut to $80,000 in 2008?

93. Moreover, there is a high degree of improbability that in circumstances where Gary managed the finances and payroll – and where according even to Susan he had total discretion with salaries – she told him what her remuneration should be. The circumstance that she was not aware that her hourly rate was based on a 30-hour week, though he was, tends to confirm this, as does her professed ignorance of the basis on which her various pays were calculated. It is more likely that her remuneration was agreed between Gary and Brian, and that would explain why she was initially paid at the rate of $31.50. Such an agreement, to the effect that she would be paid on the basis of a $50,000 FTE salary, also accords with what the defendants pleaded in their defence of 23 May 2014. There is also a high degree of improbability that Susan would have agreed to a salary of $80,000 in 2008, if she was already being compensated on the basis of an FTE salary of $125,000. These considerations, together with my general preference for Brian’s evidence, persuade me that more probably than not it was agreed between Brian and Gary that Susan would be remunerated initially at an hourly rate based on an FTE salary of $50,000; then from August 2007 on a salary of $50,000 per annum; and then from April 2009 on an increased salary of $70,000; but that Gary engineered her receipt of amounts in excess of that agreement, by increasing her salary without consulting Brian - and also by calculating the hourly rate on a 30-hour, instead of a 40-hour, week.

94. For the year ended 30 June 2008, Susan was paid $60,020, which exceeded the $50,000 to which she was entitled by $10,020. For the year ended 30 June 2009, she was paid $73,793, which exceeded the $53,333 to which she was entitled (at the rate of $50,000 per annum for July 2008 to April 2009, and then $70,000 per annum from May to June 2009) by $20,460. For the year ended 30 June 2010, she received $90,565, which exceeded the $70,000 to which she was entitled by $20,565. For the year ended 30 June 2011, she received $83,527, which exceed the $70,000 to which she was entitled by $13,527. The overpayments total $64,572.

The first English episode: May 2011 to January 2012

96. As has been mentioned, Susan and Gary resided in England from 29 May 2011 until 18 January 2012, although Susan returned to Australia for a period from the end of August until early October. According to Brian, it was originally contemplated that Gary and Susan would be away from Australia only for a period of three months. While Gary said that he initially flagged a year’s absence when they went to England in 2011, Susan said that it was Gary who wanted to go to England for a year, and that she was prepared to commit to three months and see after that. In any event, in anticipation of their absence, Paul Pearson was employed from 23 February 2011 as Optimisation’s general manager, with a view to his undertaking the roles they had until then performed.

97. Until May 2011, Brian was remunerated by commission. Gary and Susan were dissatisfied that Brian’s commission-based earnings exceeded their salaries, and considered the level of his commission unsustainable. Prior to their departure to England on 29 May 2011 (and as Brian was resuming work following his back surgery), it was agreed between the three that from 1 June 2011, each would receive a fixed salary of $100,000 per annum, while they were working fulltime. Brian’s salary was to be prorated until he returned to work fulltime (which was defined initially as a minimum of four appointments per day, but this was later reduced to three); and while Susan and Gary were overseas, she would not be paid as she would not be working, while Gary would be paid pro-rata, for hours actually worked, on the basis of $100,000 FTE. This arrangement was referred to in an email from Susan to Brian, which was copied to Gary, on 18 May 2011:

Moving forward I propose the following that we all get an equal salary $100K each, based on the hours we work IE: Gary will pay himself hours worked while he is away, Susan no work no pay, when I am back I will be paid for hours worked if I sell anything as previously goes into the kitty to be shared. Until you are back full time min 4 x meetings per day we will prorate your salary per appointment serviced IE: $100k divided by 52 weeks, divided by 5 days, divided by 4 appointments = quarter day’s pay = $96.15 per appointment completed any sales into the company for profit share.

98. Subsequently, in July 2011, it was further agreed that Gary would simply draw 50% of his FTE salary, that is to say at the rate of $50,000 per annum. In an email of 6 July, Brian provided particulars of the appointments he serviced during June - while asserting that it was not a full reflection of his work, which was “much more” - and asked to be updated on Gary’s pay, explaining that he wanted to be “kept in the loop with stuff like this from now”:

I want to be more involved with our expenses/costings, product profit margins & the overall picture of how we are tracking … it should be doable moving forward.

99. Gary responded on the same day:

I work every morning for 2-3 hours and most nights deal with urgent stuff. I also consult with Sue and she makes calls etc, so this goes to contributing to my hours, as she is not getting paid. I was thinking of paying myself half, trust you think this is fair also?

In regards to you, I think just work out a percentage of time that you think fair also and let me know.

100. Brian replied:

OK fair enough re pay at your end. I would have been working at least 70% June. July will blow out & I will monitor. Even though my time will be required doing other stuff too, my focus will still be to bring in $$$ for us, some good stuff building from going through existing [clients].

101. Brian was paid 70% of a monthly instalment of $100,000 per annum for June 2011, and 100% for July 2011 and thereafter until his termination in April 2013. Gary was paid 50% of a monthly instalment of $100,000 per annum (that is, $4,166.66 per month), for the duration of his absence. This is not the subject of complaint. However, despite these arrangements, while she was in England, Susan was paid a total of $8,333.34 during the period 29 May 2011 to 31 August 2011, and $17,666.67 during the period 8 October 2011 to 18 January 2012, equivalent to a half salary for those periods.

102. There is no doubt that the initial understanding was that Susan would not be paid while she was in England. So much is clearly enough stated in the email of 18 May 2011 set out above, sent a week or so before their departure, in which Susan informed Brian of the arrangements, namely “Susan no work no pay”, while Gary would pay himself for hours worked while away. Susan accepted that it was initially her intention to “step back”; to the proposition that it was anticipated that she would not be working and would not be paid, she answered that this was not indefinite, but that she was anticipating that she would not be working for at least three months. However, the email of 18 May contained no such qualification.

103. Susan claimed that shortly after their arrival in England, she had a telephone conversation with Brian in which she stated:

Gary is working pretty much full time, he is liaising with me, sometimes I do more than Gary, sometimes less, so we will split a salary of $100,000 and pay ourselves $50,000 each.

104. She claims that Brian responded:

Yep that is fine, I’m working full time so this doesn’t apply to me.

105. Susan said that she commenced working immediately on arriving in England; that this conversation occurred within a month of their arrival, and certainly before 6 July; that she had several similar conversations with Brian while they were in England; and that she spoke to Gary before speaking to Brian about the proposal that they each draw a half-salary, and Gary agreed. She disputed that the agreement was that only Gary and not she would draw a half salary. Brian disputes that there was any such conversation, and says that he believed that, consistent with the 18 May email, Susan was not being paid while in England.

106. There is no hint in the email exchange of 6 July, set out above, that Susan was to be paid; quite the contrary - Gary wrote that Susan was not being paid. Confronted with the emails of 6 July 2011, Susan’s evidence changed, and she said that the conversation which she had previously said definitely occurred before 6 July must have occurred later. Then, she said that the arrangement referred to in the 6 July email operated until her return to Australia at the end of August 2011. Ultimately, Susan accepted that prior to her return to Australia for seven weeks from 31 August 2011, the only arrangement about her pay was that recorded in the email of 6 July. Yet she was paid a half salary.

107. When it was suggested that the arrangement remained on foot after she returned to England in October, until she returned to Australia in January 2012, she at first responded that she did not know when they started paying themselves $50,000 each. Then, when it was again put that the email of 6 July was the only arrangement between them in respect of her remuneration when in England, for the period May to August 2011, and that it continued for October 2011 to January 2012, she said:

I can’t say for sure whether that is correct. My recollection is that between 9 October and 18 January 2012 we were splitting $100,000. … There was an arrangement because that is what we were working. … We all agreed we would prorate $100,000. … Gary and I were never asked to log it, it was a guestimate of what we did; fair and reasonable that we were doing at least one fulltime role between us.

108. Gary said that the 6 July email related only to the month of July. However, that is not evident from the terms of the correspondence. Nor was there any further email about subsequent months. Indeed, there was no further written communication with Brian about Susan or Gary’s pay: although many emails passed between them, not one touched on any half salary arrangement for Susan. Susan and Gary now assert that there were subsequent telephone conversations with Brian about their remuneration; however, those conversations were not put to Brian in cross-examination. Gary admitted that he never subsequently told Brian that he was going to pay Susan; when asked why, he said he thought that it was obvious that she was working, as she was in touch with him. If this was really his belief, which for reasons advanced below I do not accept, nonetheless particularly in the light of Brian’s request to be kept informed of such matters, it was an unreasonable unilateral decision. Brian’s assumption that the arrangement was enduring, and not limited to June 2011, or to three months, was entirely reasonable.

109. Having regard in particular to the terms of the email correspondence, the absence of any further relevant email or other correspondence, and the admission that Brian was not informed by Gary of his intention to pay Susan, and also to the variability of Susan’s evidence about the alleged telephone call, and my general preference for Brian’s evidence, I do not accept that there was ever any oral variation to the arrangements recorded in the email of 6 July.

110. Nor do I accept that in fact, Gary and Susan between them were working anything approaching the equivalent of one full time role. Gary’s email, referred to above, does not suggest as much; it refers to two to three hours each morning, and urgent matters in the evening. Susan’s evidence was more or less to similar effect; she said that while in England, Gary would work two or three hours every morning, though she then suggested that he worked more than that: though she did not log his hours, he would open his laptop and start work about 7.00am, and perhaps finish by lunch. She sought to equate their combined efforts to one fulltime role. However, they lived in a village in Shropshire, and had no printer or scanner in their home. Paul Pearson had been employed in Australia to fulfil the role of managing the staff and office, which Susan had previously performed; any remaining function of Susan was merely proprietary or directorial in nature. An endeavour was made to establish that Susan was working by tendering emails from her email account; however, it emerged that this was an account which Susan did not use while in England, and the emails related to the period during which she had returned to Australia.

111. Moreover, Susan became affected by alcoholism from late 2011, though more seriously in 2012. Her medical records note that she “started feeling low” in December 2011, and attended a counselling session in England in November of that year. An entry in the South Sydney Area Health Service notes for February 2013 described her presenting concern as “alcohol problem for about 2 years” – which would date it from 2011; although she said that it was “very sporadic then”, the notes record that it was “triggered by moving to UK to support husband” – which she said was “part of the truth”. A discharge summary in respect of an admission between 7 and 12 May 2014 states: “The alcohol drinking started two years ago when she moved to England with her husband and was not working while living in an English village”. The medical records also note that she had “suddenly stopped very demanding stressful business, found herself bored and useless, missing house and life here”. When asked whether she told the doctors that she did not like living in England and had ceased running a demanding business, she dissembled that while she preferred living in Australia and it was stressful running the business from England, it was not correct that she told them that she did not like the place at all, but rather that she found it stressful living there. She said that she would not have told the doctor that she felt “bored and useless”: “They’re not words that I would use … they’re his medical notes, not mine”; and that it was not true that she was not doing much work in England: “Not at the capacity I was used to working at. I didn’t have the control that I had when I was in Sydney, working in the capacity I was”. In my view the more or less contemporaneous medical notes provide a much more reliable source than Susan’s attempts to explain them away. Gary denied that there was any drinking problem before Susan returned to Australia in January 2012 – when she had a 2-day episode - but the medical notes contain, under “Details of past treatment”, reference to a “J6 session” in November 2011; Gary did not know what this was, but Susan admitted that she had a counselling session in December 2011, following a suggestion by a doctor that she see a counsellor. On 20 February 2013, she presented for assessment at a hospital with “Alcohol problem for about 2 years. Triggered by moving to UK to support husband”. Moreover, on 7 May 2014, Gary told Susan’s social worker that her alcohol issues had impacted on the business, financially and legally, for the last 2½ years – a relatively precise period, which would date it from late 2011.

112. Notably, the medical notes recorded that Susan had done some voluntary work while in England, and was quite happy in it; Susan said that this was in a homeless shelter, one morning per week. If, as appears to be the case, that was intended to alleviate her sense of boredom, it is hardly consistent with her consistently working for Optimisation. Thus, the picture that emerges from the medical records is very inconsistent with her working anything like half-time for Optimisation.

113. There is no acceptable justification for Susan’s receipt of a half salary - $8,333.34 during the period 29 May 2011 to 31 August 2011, and $17,666.67 during the period 8 October 2011 to 18 January 2012 - while she was in England. It savours of an attempt to extract maximum benefit for Susan from Optimisation, for no proper commercial justification or corporate purpose, contrary to the arrangements that had been made with Brian, and without his knowledge.

The second English episode: July 2012 to February 2013

114. Susan returned to England with Gary on 18 July 2012; she remained there until 15 February 2013, and he until 14 March 2013. Brian says that Susan once again agreed to “no work no pay” while overseas, and that she effectively resigned in 2012 prior to leaving, and did not intend to resume employment. Brian contends that, contrary to arrangements that while in England she would not be working and would not draw a salary, and although she was not in fact working, Susan was paid a half salary from August 2012 to March 2013, although she was not working - a total of $29,166.62 - and in addition was paid a full salary of $8,333.33 - based on $100,000 per annum - for March 2013. Brian further contends that although Gary was entitled while in England to draw a half salary, he did not return until 14 March 2013, but overpaid himself for the month of March 2013 - a first payment of $4,166.67, and a further payment of $8,333.33, resulting in an overpayment to him of approximately $6,250.

115. Prior to and in contemplation of Gary and Susan leaving to go to England in May 2012, Ms Hewitson had replaced Paul Pearson as general manager. To the proposition that she was hired because they knew they would not be around to perform their duties, Gary responded that they knew they were going overseas, but would still be working; that Ms Hewitson would be responsible for the running of the company, which had been his and Susan’s role before they went overseas; and that it was their intention to take a step back from the business, although they did not know to what extent. He accepted that they told Brian that they intended to “step back”. However, neither Gary nor Susan accepted that Ms Hewitson’s duties covered all those they were otherwise undertaking prior to her being retained: while Gary agreed that he did not communicate with clients (except by email) from England, he said that he remained responsible for accounts; and Susan said that Ms Hewitson did not do finance (which was Gary’s role), and was not a sales manager (which was Brian’s function).

116. Gary agrees that he told Brian in mid-2012, before departing for England, that he would again be pro-rating his salary while overseas. Although Susan denied that she told Brian that once Ms Hewitson had been hired, she was resigning as an employee, she admitted that she said that she would like to step back and, while keeping an eye on things as a “director”, not return as an employee. Susan agreed that the intention was that her role while in England was simply to “keep an eye on things as a director” – as she considered herself to have been a director from when she had become a shareholder. She at first said that she told Brian that she would like to step back, to remain a director, “ideally” just to oversee, and that “ideally” she would like to do voluntary work; however, when pressed she could not recall whether she used the word “ideally” in her conversation with Brian, and I do not accept that her statements to him were qualified in that way.

Unpaid annual leave

428. Brian was also entitled to 20 days per annum annual leave. [66] Between 1 March 2006 and 30 April 2013 (7.17 years; annual leave continues to accrue during periods of paid personal leave, and so the period of his convalescence in 2011 is not excluded), he accumulated 143.4 days of annual leave.

     66. Fair Work Act 2009, s 86.

429. He was paid a total of $32,300.18 on account of annual leave: $1,834.59 on 19 June 2013, said to be in respect of his entitlement accrued between 1 July 2011 and 30 April 2013; and a further $30,465.59 pursuant to the 16 September 2014 resolutions, following his demand for his unpaid employment entitlements in respect of the period between March 2006 and 1 July 2011.

430. The defendants calculated this further payment as the amount due on the assumption that, despite their position that he had negotiated a higher commission rate in lieu of leave entitlements, his statutory leave entitlements could not be excluded. The period between March 2006 and 1 July 2011 represents 4 years and 10 months (4.83 years) of service, in respect of which annual leave of 96.67 days would have accrued. However, the defendants deducted from this the leave attributable to periods during which Brian was said to be absent – he was said to have been absent for 1,726 normal working hours during this period, requiring a reduction of his accrued leave by 133 hours (17.5 days) - on the basis that he:

1. took 16 days off work in April and May 2009. This appears to have been in the nature of annual leave, which (for reasons explained below) ought to have been paid leave, and annual leave continues to accrue in respect of periods of paid annual leave;

2. did not work more than 3 hours per day, 4 days per week between June 2010 and 17 February 2011. The evidentiary basis for this assumption - that Brian was effectively working part-time between June 2010 and February 2011 - is not apparent. He was a fulltime employee, albeit remunerated by commission, throughout that period;

3. in addition, took 2 full weeks off work between June 2010 and February 2011. This too appears to have been in the nature of annual leave, which ought to have been paid, and in respect of which annual leave continues to accrue; and

4. performed no work between 17 February 2011 and 30 April 2011. However, this was the period of his convalescence, which ought to have been paid sick leave, during which annual leave continues to accrue.

431. If the assumptions were accurate and relevant, the calculation appears to be correct (1,726 hours equates to 0.87 of a year (1,976 working hours), and 0.87 of 20 days is 17.4 days). However, for the reasons stated above, there is no warrant for treating him as ineligible to accrue leave during the periods in question. Moreover, the fact that he was remunerated on a commission basis does not mean that he was not entitled to paid leave, in addition to his commission, in respect of leave actually taken. When he took accrued leave, he was entitled to payment of his base rate of pay for the period of the leave. During the periods in question, he was remunerated by commission; as such he was an “award/agreement free employee … paid a rate set by reference to a quantifiable output or task, and … not paid a rate set by reference to a period of time worked”, and so was a “pieceworker”,[67] and his “base rate of pay” for the purpose of annual leave entitlements was an hourly rate worked out using the formula “total amount earned during the relevant period” divided by “total hours worked during the relevant period”, the relevant period being the 12 months before the rate is to be worked out. [68] In other words, when he took leave, he was entitled to be paid on that basis for the period of leave, in addition to his commission earnings.

     67. (CTH) Fair Work Act 2009, s 21(1)(c); Fair Work Regulations 2009, reg 1.12.

     68. (CTH) Fair Work Act 2009, s 16(2)(c); Fair Work Regulations 2009, reg 1.09.

432. As he received no paid leave, Brian was therefore entitled upon termination of his employment to payment for 143.4 days annual leave, which (at $384.61 per day) equates to $55,153.07. He received, on account of annual leave, a total of $32,300.18. Accordingly, he was underpaid by $22,852.89. [69]

     69. In an annexure to the defendants’ written submissions, a revised calculation of Brian’s leave was proffered, which was said to demonstrate that Brian has been overpaid $6,258.55 in relation to annual leave, but how it does so is not apparent; nor is the evidentiary basis for the assumptions on which it is founded.

Jurisdiction

433. The total amount payable for sick leave and annual leave upon termination of his employment was therefore $74,095.11, of which Brian received only $43,415.18, leaving $30,679.93 as the unpaid balance of his entitlements. However, there is a question as to whether this Court has jurisdiction to entertain claims, founded on the national employment standards, for annual leave and personal leave.

434. The entitlement to such leave is created by the (CTH) Fair Work Act 2009 (FWA), Part 2-2 of which prescribes the National Employment Standards as minimum standards that apply to the employment of employees which cannot be displaced, [70] including an entitlement to annual leave [71] and to personal leave. [72] FWA s 44(1) provides that an employer must not contravene a provision of the National Employment Standards, and notes that it is a civil remedy provision. In FWA Part 4‑1, s 539(2) relevantly provides that, for s 44(1), an employee may apply to the Federal Court of Australia, the Federal Circuit Court of Australia, or an eligible State or Territory court, for orders in relation to a contravention or proposed contravention. Under s 545(1), each of the two federal Courts is authorised to make any order it considers appropriate if the Court is satisfied that a person has contravened a civil remedy provision (including an injunction, reinstatement, and compensation). Under s 545(3), an eligible State or Territory court may order an employer to pay an amount to an employee if the court is satisfied that the employer was required to pay the amount under the Act, and that the employer has contravened a civil remedy provision by failing to pay the amount.

     70. (CTH) Fair Work Act 2009, s 61.

     71. (CTH) Fair Work Act 2009, s 87.

     72. (CTH) Fair Work Act 2009, s 96.

435. An “eligible State or Territory court” is defined, by FWA s 12, to be one of the following Courts: (a) a District, County or Local Court; (b) a Magistrates Court; (c) the Industrial Relations Court of South Australia; (d) the Industrial Court of New South Wales; and (e) any other State or Territory court that is prescribed by the regulations. The Supreme Court of New South Wales is not an eligible State or Territory Court within (a) to (d), and as there are currently no State or Territory courts prescribed by regulation under the Fair Work Act, it is not eligible under (e); nor is any other State Supreme Court.

436. The courts referred to in FWA constitute an exhaustive list of the forums in which an employee may choose to commence relevant proceedings against current and former employers. [73] This Court does not have jurisdiction in respect of an employee’s claim for accrued annual leave under FWA, as Ball J observed in Woodland Home Products Pty Ltd v Alex Picalovski, [74] in relation to a claim brought by an employee for unpaid annual leave in the Industrial Court, which the employer sought to have removed into the Supreme Court and transferred to the Federal Court to be heard with other related proceedings:

7 As to the first matter, Mr Picalovski's claim for annual leave undoubtedly arises under the Fair Work Act 2009. Even if the claim originally arose under New South Wales legislation, schedule 3 item 6 of the Fair Work (Transitional Provisions and Consequential Amendments) Act 2009 provides that, where an employee has accrued annual leave during the period before 1 January 2010, the provisions of the Fair Work Act relating to annual leave apply as if the leave had been accrued under that Act. This Court does not have jurisdiction to hear that claim but the Federal Court undoubtedly does. There may be a question whether the Federal Court would have jurisdiction to hear the claim in respect of long service leave alone, but whether or not it does, it would clearly have accrued jurisdiction to hear that claim: see, for example, Carr v Blade Repairs Australia Pty Ltd (2009) FCA 764.

8 As to the second factor, the claim under the Fair Work Act clearly arises under Commonwealth legislation and is not within the jurisdiction of this Court.

73. Ervin v Smipat Pty Ltd t/as LJ Hooker Burleigh Heads [2013] QCATA 153 at [29] (Wilson J).

74. [2010] NSWSC 629.

437. Similarly, Brian’s claim for unpaid annual leave and personal leave are for amounts said to be payable under FWA, which Optimisation is said to have failed to pay, thereby contravening FWA s 44. His claim is not for breach of implied terms of the employment contract, but for statutory entitlements, the right to which and the remedy in respect of which is created and provided by FWA.

438. Although the issue has not been argued (since it arose after judgment was reserved), in my view the position is unaffected by the abolition of the Industrial Court of New South Wales, with effect from 7 December 2016,[75] and the transfer of some of its functions relating to the recovery of unpaid remuneration (including annual leave and long service leave) to the Supreme Court. [76] The reference in the definition of “eligible state court” to the Industrial Court of New South Wales cannot be read as a reference to the Supreme Court, especially given that the Commonwealth Parliament appears to have intended to give jurisdiction only to a specialist industrial court, not a superior court of general jurisdiction, and has not otherwise invested jurisdiction under FWA in the State Supreme Courts.

     75. By the (NSW) Industrial Relations Amendment (Industrial Court) Act 2016.

     76. (NSW) Industrial Relations Act 1996, Chap 7 Pt 2; Sch 4 Pt 18.

439. Accordingly, because it is not an “eligible State court”, this Court does not have jurisdiction in respect of Brian’s claims for unpaid annual and personal leave.

440. It was submitted for Brian that, if I were to come to that conclusion, I should transfer that part of the proceedings to the Local Court. (NSW) Civil Procedure Act 2005, s 146(1), provides that if the Supreme Court is satisfied, in relation to proceedings before it, that the proceedings could properly have been commenced in the District Court or the Local Court, and that any cross-claim in the proceedings could properly have been brought as a cross-claim in the District Court or the Local Court, it may order that the proceedings, including any such cross-claim, be transferred to the District Court or to the Local Court, as the case requires.

441. CPA s 146 is concerned with the transfer of the whole of proceedings, before they are finally heard, and not with the transfer of part only of proceedings, let alone after they have proceeded to hearing and determination. That the provision is concerned with the transfer of the whole of proceedings appears from the references to cross-claims, and the requirement that it appear that any cross-claim could also properly have been brought in the lower court. These proceedings, as a whole, could not properly have been brought in the Local Court. The requirements of s 146 for a transfer are not satisfied. Moreover, it would be inappropriate as a matter of discretion to transfer the balance of the proceedings now, when they have been pursued to trial in this court.

The cross-claim

442. It is convenient at this point to dispose of the cross-claim, by which Optimisation claims restitution of the employee entitlements paid to Brian on 16 September 2014 in respect of the period March 2006 to July 2011, on the basis that the payment was made by mistake, on the footing that Brian agreed with Susan that he would receive commission of 20% in lieu of any salary including employee entitlements, and that he was therefore overpaid on 16 September 2014.

443. Although I have accepted that there was such an agreement, the entitlement to annual leave created by the National Employment Standards is a minimum standard, which cannot be displaced. [77] It follows that Brian’s statutory entitlement to paid annual leave [78] was not effectively excluded by the agreement.

     77. (CTH) Fair Work Act 2009, s 61.

     78. As to which see [428]-[432] above.

CONCLUSION

444. My conclusions may be summarised as follows:

445. The affairs of Optimisation have been conducted in a manner oppressive of and/or unfairly prejudicial to Brian, and/or contrary to the interests of the members as a whole, in the following respects:

1. the payment to Gary of salary, for the month of March 2013, on a fulltime basis, which included a fortnight while he was in England and was entitled only to a half-salary, involving at least an overpayment of $2,084.33;

2. the payment to Susan of salary, in excess of and/or contrary to the arrangements that had been made with Brian, for which there was no commercial justification or proper corporate purpose:

1. to the extent of $64,572 during the period 2007 to 2011, in excess of her entitlements as agreed with Brian;

2. totalling $26,000 in respect of the periods while she was in England between 29 May 2011 and 31 August 2011, and between 8 October 2011 and 18 January 2012, for which there was no commercial justification or proper corporate purpose, as she was not working in any meaningful sense, as distinct from exercising the prerogatives of an owner or de facto director, and she had agreed that she would not draw a salary;

3. of $29,166.62 during the period while she was in England from July 2012 until February 2013, for which there was no commercial justification or proper corporate purpose, as she was not working in any meaningful sense, as distinct from exercising the prerogatives of an owner or de facto director, and she had agreed that she would not draw a salary;

3. the overpayment to Orchard of $208,618.75 in respect of telemarketing costs, at rates which were very greatly in excess of that which was contemplated and agreed when the arrangements were established, and which were not commercial in the circumstances, but unfairly and unreasonably benefitted Orchard, and indirectly Gary and Susan, to the detriment of Optimisation;

4. the dismissal of Brian from employment, when he had a legitimate expectation of ongoing employment and participating in earnings on an equivalent basis with Gary and Susan, without giving him the opportunity to sell his interest in the company at a fair price. While this would be so, even if his position had become redundant, he was not in truth redundant, and the manner in which his dismissal was orchestrated exacerbates the oppressive nature and effect of the decision to dismiss him: Gary and Susan decided that they wanted to be rid of Brian but, while purporting to demand an “exit strategy”, effectively obstructed one by declining to make an offer to buy him out, and by refusing a valuation which would have enabled him to make an offer for their interests;

5. the proposed payment of backpay to Gary, which was uncommercial and for which there was no proper commercial purpose, and which would have been contrary to the interests of the company as a whole;

6. the proposed payment in advance of ABL, which resolution would have involved the expenditure of company resources on the defence of the interests of the majority;

7. the cashing out to Susan of annual leave in the amount of $22,730.65 to which she was not entitled, and the payment to Gary of annual leave which exceeded his entitlements to the extent of $7,307.59, totalling $30,038.24.

446. Brian is entitled to an order that Gary and Susan acquire his interest at its fair value as at the date when they ought to have offered to acquire it, to which the April 2013 valuation date is the most proximate. That value is $725,000. To the extent that Brian is indebted to Optimisation on loan account, the price may be satisfied by release of the loan; to the extent that Brian is owed money on loan account, that should be added to the price.

447. Gary contravened his duties as a director in authorising the excessive payments of salary to Susan, and in authorising the excessive payments for telemarketing services to Orchard, and is liable to compensate Optimisation for the loss which resulted. Orchard was knowingly concerned in the contravention constituted by the overpayments to it, and is liable to Optimisation, jointly and severally with Gary, for the resultant loss. Susan was knowingly concerned in the contravention constituted by the overpayments of salary to her in respect of the periods while she was in England.

448. Gary and Susan contravened their duties as directors in authorising the excessive payments to themselves of annual leave, and are liable to compensate Optimisation for the loss which resulted.

449. In respect of Brian’s entitlements on termination of employment:

1. four weeks was less than reasonable notice for the termination of Brian’s employment as a sales consultant. Two months would have been reasonable. Brian is entitled to the difference, being one month’s salary at $100,000 per annum, which is $8,333.33;

2. Brian was entitled to receive paid personal leave for the period of ten weeks, or 50 working days, for which he was absent convalescing between 17 February and 30 April 2011. As he had accrued leave of 49.25 days, he was entitled to exhaust it. He was underpaid by 20.25 days, which (at $384.61 per day) amounts to $7,788.35;

3. Brian was entitled upon termination of his employment to payment for 143.4 days annual leave, which (at $384.61 per day) equates to $55,153.07. He was underpaid by $22,852.89;

4. however, because it is not an “eligible State court”, this Court does not have jurisdiction in respect of Brian’s claims for unpaid annual and personal leave. The requirements of CPA s 146 for a transfer to the Local Court are not satisfied. Moreover, it would be inappropriate as a matter of discretion to transfer the balance of the proceedings now, when they have been pursued to trial in this Court.

450. There should be judgment that Optimisation pay Brian $8,333.33.

451. As to the cross-claim, although I have accepted that Brian agreed with Susan that he would receive commission of 20% in lieu of any salary including employee entitlements, the entitlement to annual leave created by the National Employment Standards is a minimum standard which cannot be displaced; the agreement was therefore ineffective to exclude Brian’s entitlement to paid annual leave and personal leave, and he was not therefore paid by mistake pursuant to the resolutions of 16 September 2014.

452. Subject to what follows, there should be orders to the effect that:

1. Pursuant to Corporations Law s 233, Gary, Susan and Sharmark purchase Brian’s shareholding in Optimisation, for a price of $725,000, adjusted for the balance of his loan account, and the loan account discharged;

2. Pursuant to Corporations Law s 1317H:

1. Gary pay compensation to Optimisation in the sum of $66,656.33 (being the amount of $2,084.33 overpaid to him, and $64,572 overpaid to Susan during the period 2007 to 2011);

2. Gary and Susan pay compensation to Optimisation in the sum of $85,204.86 (being the amounts of $26,000 and $29,166.62 overpaid to Susan while in England, and $30,038.24 overpaid annual leave); and

3. Gary and Orchard pay compensation to Optimisation in the sum of $208,618.75 (being the amount of the overpayments to Orchard);

3. Optimisation pay Brian $8,333.33 (being the additional notice to which Brian was entitled).

453. Particularly in the context of valuation, and in the treatment of the loan accounts, while I have endeavoured to minimise the scope for further dispute by undertaking all such adjustments and calculations as has been practicable, it is conceivable that there are matters which I have overlooked, and/or to which the parties may wish to draw attention; and it is also conceivable that I have mathematically erred. Further, as the compulsory purchase order will fully compensate Brian, and he will thereafter have no further interest in Optimisation, it may be appropriate to stay indefinitely the operation of the orders to be made on the derivative claim. Accordingly, counsel should have an opportunity to consider these reasons before formal orders are made. The Court directs that the plaintiff bring in short minutes on a date to be fixed to give effect to this judgment, at which time any such matters, the question of costs, and any other consequential issues, may also be addressed.

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Endnotes

Decision last updated: 08 February 2018