Kalmus v Sxiq Pty Ltd
[2018] VMC 9
•15 August 2018
IN THE MAGISTRATES’ COURT OF VICTORIA
AT MELBOURNE
CIVIL DIVISION
Case No. H10877169
| MARK KALMUS | Plaintiff |
| v | |
| SXIQ PTY LTD | Defendant |
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MAGISTRATE: | J GRAINGER |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 4 June 2018 |
DATE OF DECISION: | 15 August 2018 |
CASE MAY BE CITED AS: | Kalmus v SXIQ Pty Ltd |
MEDIUM NEUTRAL CITATION: | [2018] VMC009 |
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CATCHWORDS – Claim for notice payable under employment agreement – Whether plaintiff’s conduct amounted to serious misconduct.
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APPEARANCES: | Counsel | Solicitors |
For the Plaintiff | Mr Fetter | Kalus Kenny Intelex |
For the Defendant | Mr Kirby | Nicholas O’Donohue & Co |
Her Honour:
Background
The defendant, SXIQ Pty Ltd, formerly known as Southern Cross Computers Systems Pty Ltd, (Southern Cross) was established in around 1981. The plaintiff, Mark Kalmus, became its sales director in 1996 and its chief executive officer in 2003.
In 2006, Mr Kalmus and his business partner, Chris Palmer bought the shares in Southern Cross through their respective companies, Mandossa Pty Ltd (Mandossa) and Lendossa Pty Ltd (Lendossa). At the time, Mr Kalmus was the sole director of Mandossa, which owned 50% of the ordinary shares in Southern Cross and Mr Palmer was the sole director of Lendossa, which owned the other 50% of shares. Mandossa is also apparently the trustee of Mr Kalmus’ family trust.
Mr Kalmus and Mr Palmer were also directors of Southern Cross at the time and were appointed as secretaries in 2007.
In May 2016, Mandossa and Lendossa agreed to sell 80% of their shares in Southern Cross to Ingenio Pty Ltd (Ingenio). Ingenio’s sole director is John Hanna.
The sale of Mandossa and Lendossa’s shares to Ingenio was completed in late June 2016.[1] Mandossa and Lendossa each retained 20% of their shares in Southern Cross.
[1] See paragraphs 64 to 70 below.
Accordingly, at present, Ingenio owns 80% of the shares in Southern Cross and Mandossa and Lendossa each own 10% of the shares in Southern Cross.
According to the ASIC current and historical extract for Southern Cross, Mr Hanna also became registered as a director and the secretary of Southern Cross on 29 June 2016. Mr Kalmus remained a director of Southern Cross until 8 December 2016 and a secretary until 28 June 2016. Similarly, Mr Palmer remained a director until 9 November 2016 and a secretary until 28 June 2016.
Mr Kalmus was also offered a twelve month employment contract with Southern Cross in May 2016.[2] Broadly speaking, the rationale behind Southern Cross’ decision to employ Mr Kalmus as director of business operations was to ensure a smooth transition after Ingenio became the majority shareholder of Southern Cross and Mr Hanna became the managing director.
[2] On 17 May 2016, Southern Cross sent Mr Kalmus a letter setting out an offer of employment as director of business operations and a document headed ‘Terms of Employment’ (the employment agreement).
Whilst the offer of employment stated that the start date was 1 June 2016, the start date was delayed until late June 2016 or early July 2016, because the completion of the sale of the shares was delayed until around this time.
10. Mr Kalmus’ employment contract was subsequently terminated by Southern Cross without notice as of 6 February 2016 because Southern Cross had formed the view that Mr Kalmus had engaged in serious misconduct.
11. Mr Kalmus denies that he engaged in serious misconduct and claims that he is entitled to payment of $45,000, being the notice payable under the employment contract and superannuation of $4,275.00.
The alleged serious misconduct
12. In its defence to Mr Kalmus’ claim and its further and better particulars of defence, Southern Cross alleges that Mr Kalmus engaged in serious misconduct because:
a) on about 29 and 30 June 2016 false invoices were created in respect of 1020 computer monitors that had been ordered from Southern Cross by Telstra,
b) the invoices were false because they contained a false billing and delivery address for Telstra, being ‘Cato Lane/Level 23 Hawthorn East’ which was, in fact, the address for Southern Cross’ overflow warehouse,
c) Mr Kalmus was involved in creating the false invoices,
d) as director of business operations for Southern Cross, Mr Kalmus was involved in and approved a scheme to create false invoices on about 29 and 30 June 2016 in respect of 1020 computer monitors that had been ordered from Southern Cross by Telstra,
e) Mr Kalmus was involved in presenting these false invoices to Southern Cross’ banker, Scottish Pacific Finance,
f) when Scottish Pacific Finance paid Southern Cross 80% of the value of the false invoices under an agreement between them set out in a debtor finance facility deed dated 5 May 2015 (the finance deed), it did so in circumstances where the payment was not properly due, and
g) as a result of the above, the payment from Scottish Pacific Finance artificially increased Southern Cross’ revenue for the 2015/2016 financial year.
13. In his reply to Southern Cross’ defence, Mr Kalmus claimed that:
a) properly construed, clause 19.1 of a document headed ‘Terms of Employment’, which formed part of his employment contract, only permitted summary dismissal where the serious misconduct in question was committed during the term of the employment created by the contract, namely employment in the role of director, business operations
b) his employment began on 30 June 2016 or thereabouts, being the date on which control of Southern Cross passed to Ingenio (the start date of the employment contract)
c) Southern Cross’ account manager, Zoran Jakimovski was responsible for creating the invoices
d) Mr Kalmus was not involved in creating the invoices
e) Mr Kalmus was not involved in presenting the invoices to Scottish Pacific Finance
f) in so far as Mr Kalmus’ involvement predated the start date of the employment contract, his involvement could not justify summary dismissal because of the reasons set out in paragraph a) above.
Did the invoices contain a false billing and delivery address for Telstra, being ‘Cato Lane/Level 23 Hawthorn East’ which was, in fact, the address for Southern Cross’ overflow warehouse?
Southern Cross’ evidence and contentions in relation to whether the invoices contained a false billing and delivery address for Telstra, being ‘Cato Lane/Level 23 Hawthorn East’ which was, in fact, the address for Southern Cross’ overflow warehouse
14. Southern Cross’ current direction, John Hanna, contended that the invoices contained a false billing and delivery address for Telstra because they stated that Cato Lane was Telstra’s delivery address, when in fact, this was the address for Southern Cross’ warehouse. Mr Hanna relied on the chain of emails between a number of employees of Southern Cross in support of this contention.
The email chain
15. On 28 June 2016 at 7:35pm, Andrew Harris, an employee of Southern Cross, sent an email to Chris Palmer in relation to some (R30) laptops, monitors, docks, cameras and SSDs (solid-state drives) that Telstra had ordered from Southern Cross, which apparently had yet to be delivered and which Southern Cross had yet to invoice Telstra for.
16. Mr Harris’ email updated Mr Palmer in relation to the state of the orders. In relation to the monitors, the email stated:
Monitors = 1200 (SCCS [Southern Cross] has 209 in stock). The rest are on hold at Synnex for SCCS. To my knowledge we can request these to be sent to us as they have been reserved for SCCS.
Buy - $145
Sell - $220
GP = $76,500
17. At the end of the email, Mr Harris asked Mr Palmer ‘how you would like us to tackle the above in relation to end of year invoicing’. Mr Palmer answered in an email sent at 7:59pm, ‘Invoice as much as humanly possible’.
18. Whilst these emails were not sent to Mr Kalmus, when Mr Harris replied to Mr Palmer the following morning at 8:08am, he CC’d Mr Kalmus into that email, which included the earlier emails between him and Mr Palmer. Mr Harris also CC’d Susan Poulter and Peter Bain, other employees of Southern Cross. Mr Harris’ email stated:
CP,
Will do.
Susan/Peter, please let me know this morning if you need us speaking with Synnex about the monitors. Credit limits/Terms etc. As per the below they are in stock at Synnex reserved for SCCS [Southern Cross].
19. At 8:58am, Susan Poulter sent an email to Andrew Harris and Chris Palmer and CC’d Peter Bain Mark Kalmus and Andrew Stoker. Her email stated:
Andrew,
Now on to the other items:
We don’t have the monitors on order with Synnex. Zoran urgently needs to provide confirmed buy prices and bid details so they can be ordered. Your team must also ask Synnex and hand-hold them about delivering directly to our customer – “Telstra” at Cato Lane Hawthorn East. The truck can actually come to Southern Cross’ warehouse at 2 Hall St, and will then be escorted over to the rear of 3 Hall Street (otherwise known as Cato Lane) to unload there, but the delivery advice and consignment note must not say it is being delivered to Southern Cross or 2 or 3 Hall St. It could perhaps state “call Southern Cross on 03 9804 1700 to arrange a site access”. Synnex must also deliver to us in full today/tomorrow. Philip will need to urgently send the invoice details to Peter so he can arrange a matching payment.
You’ve listed the docks and the cameras – is there any chance we will get them tomorrow if we order today? Are they even in country? If there is a chance of getting them tomorrow, also need buying details etc urgently.
Thanks
20. In an email sent at 1:03pm later that day, Ms Poulter reiterated her instructions in relation to delivery of the monitors. Her email stated:
I asked Bill to work with Synnex on the odd delivery arrangement and urgency for the monitors, and he and Andrew Stoker were very helpful working through it all. The order for the required monitors has been placed with Synnex and Andrew S was following up to ensure they understood/recalled that they must be delivered to “Cato Lane” tomorrow. Andrew S will also be arranging for the monitors and USP docks we have here for the same set of orders to be invoiced and delivered to “Cato Lane”.
21. Ms Poulter’s email also provided the recipients with an update in relation to the orders for the laptops (R30) and the SSDs (solid-state drives).
22. The next email in this chain of emails was from Andrew Stoker, which was sent at 8:40pm on 29 June 2016 to Susan Poulter, Andrew Harris, Chris Palmer, Peter Bain and Mark Kalmus. In relation to the monitors, Mr Stoker wrote:
Hi all,
Here is the [sic] my take on where we are at with Telstra at the moment. Synnex have promised the hot desk Samsung monitor delivery tomorrow, what we don’t know is if it’s all of them together or split delivery across 2 days as some had to come from interstate.
23. A little later, at 8:53pm, Mr Kalmus sent an email to Mr Stoker stating “Many thx for your efforts stokes”.
24. Mr Kalmus also sent an email to Susan Poulter, Andrew Harris, Andrew Stoker, Chris Palmer and Peter Bain on 30 June 2016 at 8:57pm that stated ‘Thx Harro’ in reply to an email from Mr Harris informing Mr Kalmus and the other employees who were part of the email chain that in relation to the monitors, ‘400 coming from Synnex Melbourne on a Synnex truck today’ and that the remaining which were ‘coming from Synnex Sydney was due to leave yesterday (Bill is checking the status from Synnex this morning)’.
25. Mr Hanna gave evidence that when these emails came to his attention in early January 2017, he formed the view that the invoices for the monitors contained a false billing and delivery address and were, accordingly, false invoices.
Mr Kalmus’ evidence and contentions in relation to whether the invoices contained a false billing and delivery address for Telstra, being ‘Cato Lane/Level 23 Hawthorn East’ which was, in fact, the address for Southern Cross’ overflow warehouse
26. Mr Kalmus agreed that the billing and delivery address on the invoices for the monitors was the address for Southern Cross’ warehouse and not Telstra’s address.
27. However, he denied that this amounted to a false billing and delivery address. Mr Kalmus contended that the address on the invoices was not false because the invoices ‘accurately stated’ that the monitors had been delivered to Telstra because Southern Cross was storing the monitors on behalf of Telstra.
28. In support of this contention, Mr Kalmus gave evidence that Telstra had ordered the monitors some time before 28 June 2016, which was conceded by Mr Hanna, and that it was a common practice for customers to ask to be ‘pre-invoiced’, that is, for orders to be invoiced before the end of a financial year and for the ordered goods to be sent to a nominated or pre-agreed destination or to be stored by Southern Cross on the customer’s behalf until the goods were needed by the customer.
Findings in relation to whether the invoices contained a false billing and delivery address for Telstra, being ‘Cato Lane/Level 23 Hawthorn East’ which was, in fact, the address for Southern Cross’ overflow warehouse?
29. The billing and delivery address on the invoices for the monitors was clearly the address for Southern Cross’ warehouse, not Telstra’s address, and at no stage during the hearing did Mr Kalmus suggest that this was a normal business practice. This is consistent with Ms Poulter describing the delivery arrangements as ‘odd’.
30. Mr Kalmus sought to explain this anomaly by giving evidence that Southern Cross was storing the monitors on behalf of Telstra.
31. I agree that Southern Cross was storing the monitors on behalf of Telstra when the invoices were created in so far as it appears from all of the evidence that the monitors that Southern Cross bought from Synnex and which were delivered to its warehouse were the monitors that Telstra had previously ordered and which were subsequently delivered to them in February 2017.
32. However, whilst I accept the evidence given by Mr Kalmus that it was a common practice for customers to ask to be ‘pre-invoiced’ and for ordered goods to be sent to a nominated or pre-agreed destination or to be stored by Southern Cross on the customer’s behalf until the goods were needed by the customer, there was no evidence before me that Telstra had asked to be pre-invoiced for the monitors or had asked Southern Cross to store the monitors on its behalf or agreed to this being done. In fact, there was no evidence that the invoices in dispute were ever sent to Telstra.
33. In addition, in my view, the only explanation for Ms Poulter’s directions to Andrew Harris to get his ‘team’ to ‘hand-hold’ Synnex (the supplier of the monitors) ‘about delivering directly to our customer – “Telstra” at Cato Lane Hawthorn East’, that ‘the delivery advice and consignment note must not say it is being delivered to Southern Cross or 2 or 3 Hall St’ and her description of the delivery arrangement as ‘odd’ is that Telstra had not asked to be ‘pre-invoiced’ for the monitors before the end of the 2015/2016 financial year and had not asked for Southern Cross to store them on their behalf.
34. Accordingly, Mr Kalmus’ explanation for why the billing and delivery address for Telstra was Southern Cross’ warehouse is not satisfactory.
35. There being no other reasonable explanation for why the invoices for the monitors stated that Telstra’s billing and delivery address was Southern Cross’ warehouse, I am satisfied that the billing and delivery address for Telstra was false, in the sense that it was ‘deliberately untrue’.
Were the invoices ‘false’ because they contained a false billing and delivery address for Telstra, being ‘Cato Lane/Level 23 Hawthorn East’ which was, in fact, the address for Southern Cross’ overflow warehouse?
36. Counsel for Southern Cross contended that the invoices were false, or ‘a fiction’ because they contained a false billing and delivery address for Telstra and because they gave the impression that the monitors had been delivered to Telstra when in fact, they had been delivered to Southern Cross’ warehouse. Southern Cross again relied on the contents of the email chain in support of this contention.
37. Counsel for Mr Kalmus contended that the invoices were not false because Telstra had previously ordered the monitors, Southern Cross had bought the monitors ordered by Telstra from Synnex and Southern Cross was storing the monitors on Telstra’s behalf. Counsel for Mr Kalmus contended that the only ‘issue’ with the invoices was the ‘timing’ of the invoices.
Findings in relation to whether the invoices were ‘false’ because they contained a false billing and delivery address for Telstra, being ‘Cato Lane/Level 23 Hawthorn East’ which was, in fact, the address for Southern Cross’ overflow warehouse?
38. I agree that, based on the contents of Ms Poulter’s emails, the false billing and delivery address for Telstra was recorded on the invoices to create a false impression that the monitors had been delivered to Telstra, when in fact the monitors had been delivered to, or were being stored by Southern Cross at its warehouse. This is made clear by Ms Poulter’s direction to ‘hand-hold’ Synnex ‘about delivering directly to our customer – “Telstra” at Cato Lane Hawthorn East’, her direction that ‘the delivery advice and consignment note must not say it is being delivered to Southern Cross or 2 or 3 Hall St’ and her description of the delivery arrangement as ‘odd’.
39. However, whilst the delivery address on the invoices was false, in my view, that fact alone does not render the entire invoice false in circumstances where it appears that in all other respects, the invoices were genuine.
40. I am satisfied that the invoices referred to genuine purchase orders from Telstra and there was no evidence before me to suggest that the product codes, descriptions and prices for the monitors were not genuine or that the account details in any other respect were incorrect or false.
41. In addition, whilst Telstra may not have requested Southern Cross to store the monitors on its behalf at that time, it is apparent that Southern Cross incurred costs buying the monitors ordered by Telstra from Synnex, accepted delivery of the monitors on behalf of Telstra and, as conceded by Mr Hanna in cross examination, the monitors were all subsequently delivered to Telstra and paid for by them, albeit in the following financial year.
42. For these reasons, I am not satisfied that the invoices can be fairly characterised as ‘false’.
43. It flows from this finding that Mr Kalmus was not involved in creating false invoices or in a scheme to create false invoices, that he did not approve such a scheme and that he was not involved in presenting false invoices to Scottish Pacific Finance.
44. However, in light of my finding that the invoices contained a false billing and delivery address for Telstra and that this was done to create a false impression that the monitors had been delivered to Telstra, when in fact the monitors had been delivered to, or were being stored by Southern Cross at its warehouse (the scheme to create the invoices with the false delivery address), it is incumbent on me to consider whether:
· Mr Kalmus was involved in and or approved the scheme to create the invoices with the false delivery address
· Mr Kalmus was involved in and or approved the presentation of those invoices to Scottish Pacific Finance
· Scottish Pacific Finance made a payment to Southern Cross when it was not properly due
· the payment made by Scottish Pacific Finance to Southern Cross after the invoices had been presented to them resulted in Southern Cross’ revenue for the 2015/2016 financial year being artificially increased
· in the event that I find that Mr Kalmus was involved with or approved the scheme to create the invoices with the false delivery address and the presentation of those invoices to Scottish Pacific Finance, whether Mr Kalmus’ involvement pre-dated the start date of the employment contract, and
· depending on my findings of fact in relation to the above matters, Mr Kalmus’ dismissal without notice was justified because he engaged in serious misconduct.
Was Mr Kalmus involved in and or did he approve the scheme to create the invoices with the false delivery address?
Mr Kalmus’ evidence and contentions in relation to whether he was involved in and or did he approve the scheme to create the invoices with the false delivery address
45. Mr Kalmus denied that he was involved in or approved the creation of the invoices in question. Mr Kalmus gave evidence that one of Southern Cross’ employees, Zoran Jakimovski was responsible for creating the invoices.
46. Mr Kalmus also gave evidence that when he was CEO of Southern Cross, he received over 100 emails per day, did not read every one of them and did not recall seeing or reading any of the emails in the email chain that were sent to him between 28 and 30 June 2016. Mr Kalmus explained that he had sent the email to Mr Stoker on 29 June 2016 stating “Many thx for your efforts stokes” and the email to Mr Harris on 30 June 2016 stating ‘Thx Harro’ because it was his practice as a leader in the company to thank his employees for their work but that it was not his practice to read all of the emails.
47. Counsel for Mr Kalmus contended that in circumstances where Ms Poulter had not given evidence about the creation of the invoices and had not given evidence that implicated Mr Kalmus in any manner, I could not be satisfied about exactly what had been done and at who’s instigation. Counsel relied on the fact that Mr Kalmus had denied any knowledge of the creation of the false invoices and submitted that he gave convincing evidence when challenged during cross-examination. Counsel contended that Southern Cross, which bears the burden of proving that Mr Kalmus engaged in serious misconduct, had been unable to prove through direct evidence that Mr Kalmus had directed anyone to create the false invoices.
Southern Cross’ evidence and contentions in relation to whether he was involved in and or did he approve the scheme to create the invoices with the false delivery address
48. Southern Cross relied on the contents of the email chain set out above to show that Mr Kalmus was involved in creating the invoices with the false billing and delivery address. Counsel for Southern Cross contended that the emails also show Mr Kalmus approved Ms Poulter’s direction to insert a false billing and delivery address for Telstra in the invoices for the monitors.
49. Counsel for Southern Cross contended that Mr Kalmus’ evidence that he had not read the emails that were sent to him between 28 and 30 June 2016 was implausible. Counsel contended that in this case, the emails set out above show that Mr Kalmus went to the effort on two occasions to thank Mr Harris and Mr Stokes for their roles in the scheme that was evident from the contents of the emails. Counsel relied on the fact that Mr Kalmus accepted during cross-examination that as CEO, he gave directions to employees and contended that the email chain shows that Mr Kalmus was aware of, and had encouraged and applauded his employees’ conduct.
50. Counsel also contended that I should infer from the evidence that Mr Kalmus was involved in the creation of the invoices with the false delivery address in circumstances where he had read the emails from other employees discussing their creation and where Mr Jakimovski and Mr Bain were under his supervision.
Findings in relation to whether Mr Kalmus was involved in and or approved the scheme to create the invoices with the false delivery address
51. I agree with the submissions made by Southern Cross’ counsel that Mr Kalmus’ evidence that he had not read the emails that were sent to him between 28 and 30 June 2016 was implausible. I am satisfied that it is much more likely than not that Mr Kalmus read the emails and, when he sent the emails to Mr Stoker and Mr Harris that thanked them and copied in Susan Poulter, Andrew Stoker, Chris Palmer and Peter Bain, Mr Kalmus was expressing his approval of the steps being taken by them. Specifically, I am satisfied that Mr Kalmus was expressing his approval of the steps being taken to get the monitors delivered to Southern Cross by the end of the 2015/2016 financial year and to create invoices for those monitors, including Ms Poulter’s direction to insert a false billing and delivery address for Telstra in the invoices for the monitors, which gave the false impression that the monitors had been delivered to Telstra.
52. In making these findings, I have taken into account:
· that at the time the emails were being sent to Mr Kalmus he was in the process of transitioning from CEO of Southern Cross to director of business operations,
· the undisputed evidence that at this time Mr Kalmus also had a financial interest in ensuring that Southern Cross’ revenue for the 2015/2016 financial year was as large as possible as a result of the share sale and purchase agreement between Mandossa and Ingenio,
· that the emails were sent only a day or two before the end of the 2015/2016 financial year, and
· the nature and content of the emails, particularly the sense of urgency contained in the emails and the level of detail they contained about how the various employees were to fill the various orders from Telstra before the end of the 2015/2016 financial year.
53. I am also satisfied that, having found Mr Kalmus had read the emails relating to the scheme to create the invoices with the false delivery address and had expressed his approval of the steps being taken when he thanked the various employees who were also involved in the scheme, Mr Kalmus was involved in, and approved that scheme.
Was Mr Kalmus involved in and or did he approve the presentation of the invoices with the false billing and delivery address to Scottish Pacific Finance?
54. Counsel for Southern Cross contended that I should infer that Mr Kalmus was also involved in and approved the presentation of the invoices with the false billing and delivery address to Scottish Pacific Finance because, whilst the invoices had physically been sent to Scottish Pacific Finance by Mr Jakimovski and Mr Bain, they were both under his supervision.
55. Mr Kalmus denied that he was involved in presenting the invoices to Scottish Pacific Finance. Mr Kalmus gave evidence that Zoran Jakimovski provided the invoices to Scottish Pacific Finance as directed by Southern Cross’ chief operating officer and chief financial officer, Peter Bain.
56. I agree with Southern Cross’ contention that I should infer that Mr Kalmus was also involved in and approved the presentation of the invoices with the false billing and delivery address to Scottish Pacific Finance because Mr Jakimovski and Mr Bain, they were both under his supervision.
57. I am also satisfied that it is reasonable to infer that Mr Kalmus was involved in and approved the invoices being presented to Scottish Pacific Finance in circumstances where:
· Mr Kalmus was in the process of transitioning from CEO of Southern Cross to director of business operations,
· Mr Jakimovski and Mr Bain were under his supervision,
· I have found that Mr Kalmus was involved in and approved of the scheme to create the invoices with the false delivery address,
· Mr Kalmus had a financial interest in ensuring that Southern Cross’ revenue for the 2015/2016 financial year was as large as possible, and
· Mr Kalmus was aware that the only way the profit from the sale of the monitors to Telstra would be included in the financial records for the 2015/2016 financial year was if Scottish Pacific Finance paid Southern Cross 80% of the value of the invoices,
58. For these reasons, I find that Mr Kalmus was also involved in and approved the invoices being presented to Scottish Pacific Finance.
Did Scottish Pacific Finance make a payment to Southern Cross when it was not properly due?
Southern Cross’ evidence and contentions in relation to whether Scottish Pacific Finance made a payment to Southern Cross when it was not properly due
59. Counsel for Southern Cross contended that Scottish Pacific Finance made a payment to Southern Cross when it was not property due because under the finance deed, Scottish Pacific Finance was not obliged to make any payment to Southern Cross until it had delivered the ordered goods to its customer, that is, the ordered goods had left Southern Cross’ warehouse, and the customer had accepted the goods and was indebted to Southern Cross for the goods.
60. In support of this contention, counsel relied on a number of warranties in the finance deed including a warranty that Southern Cross had performed all obligations required for the enforcement of the account and that the goods purchased by its customer are the goods described in the invoice, that the goods have been delivered to and accepted by the customer or have been fully performed and that the customer is satisfied with the goods.[3]
Mr Kalmus’ evidence and contentions in relation to whether Scottish Pacific Finance made a payment to Southern Cross when it was not properly due
[3] Clauses 22.1 (c) and (k) of the Confidential Debtor Finance Facility Deed dated 5 May 2015.
61. Mr Kalmus denied that Scottish Pacific Finance made a payment to Southern Cross when it was not property due. Mr Kalmus again relied on his evidence that it was a common practice for customers to ask to be ‘pre-invoiced’ before the end of a financial year and for the ordered goods to be sent to a nominated or pre-agreed destination or to be stored by Southern Cross on the customer’s behalf until the goods were needed by the customer. Mr Kalmus also gave evidence that in these circumstances, it was proper to provide the invoices relating to such goods to Scottish Pacific Finance for payment.
62. Counsel for Mr Kalmus contended that it was possible that Telstra had asked Southern Cross ‘pre-invoice’ them for the monitors and or to store the monitors on its behalf. Whilst I agree that this is possible, as I have already stated, there was no evidence before me that Telstra had asked for, or agreed that the monitors should be sent to a nominated or pre-agreed destination or be stored by Southern Cross on Telstra’s behalf until the monitors were needed by them.
63. The only evidence before me in relation to Telstra’s order for the monitors was that Telstra had ordered them some time before 28 June 2016, but, according to Mr Hanna’s evidence which Mr Kalmus did not dispute, did not ask for them to be delivered until early 2017.
64. Counsel for Mr Kalmus also relied on the fact that Southern Cross had not led any evidence to show that Scottish Pacific Finance had any concerns about how and when the invoices for the monitors were provided to them or the fact that they had paid Southern Cross 80% of the value of the invoices before the monitors had been delivered to Telstra.
Findings in relation to whether Scottish Pacific Finance made a payment to Southern Cross when it was not properly due
65. On the face of it, it appears that Southern Cross breached the warranties in the finance deed when its employees provided the invoices to Scottish Pacific Finance for payment as the monitors had not been delivered to Telstra and accepted by them and accordingly, all obligations required for the enforcement of the account had not been performed.
66. This is also the only plausible explanation for why Ms Poulter was seeking to create the false impression that the monitors had been delivered to Telstra when in fact they had been delivered to Southern Cross’ warehouse.
67. For these reasons, I am satisfied that Scottish Pacific Finance made a payment to Southern Cross when it was not properly due.
Did the payment from Scottish Pacific Finance artificially increase Southern Cross’ revenue for the 2015/2016 financial year?
68. Counsel for Southern Cross contended that as the payment from Scottish Pacific Finance was made when it was not properly due, this payment artificially increased Southern Cross’ revenue for the 2015/2016 financial year.
69. Mr Kalmus denied this, again relying on his evidence that it was a common practice for customers to ask to be ‘pre-invoiced’ before the end of a financial year and for the ordered goods to be sent to a nominated or pre-agreed destination or to be stored by Southern Cross on the customer’s behalf until the goods were needed by the customer.
70. I agree with Southern Cross’ contention that as the payment from Scottish Pacific Finance was made when it was not properly due, this payment artificially increased Southern Cross’ revenue for the 2015/2016 financial year, particularly in circumstances where there is no evidence that Telstra asked to be invoiced for the monitors before the end of the 2015/2016 financial year.
71. In addition, I am satisfied based on the contents of the email chain set out above that Susan Poulter, Andrew Harris, Andrew Stoker, Chris Palmer and Peter Bain contrived to ensure that Southern Cross invoiced Telstra for the monitors before the end of the 2015/2016 financial year and before the monitors were actually delivered to Telstra. The contents of the emails suggest that it took a significant amount of organisation and effort by these employees, in particular by Ms Poulter who directed other employees to insert the false billing and delivery address for Telstra in the invoices, to get the monitors that had been ordered by Telstra delivered to Southern Cross’ warehouse so that the invoices for the monitors could be created and provided to Scottish Pacific Finance for payment before the end of the 2015/2016 financial year. I am also satisfied that without that significant amount of organisation and effort, the payment for the invoices in relation to the sale of the monitors would not have been received by Southern Cross until the 2016/2017 financial year.
72. Given my finding that Mr Kalmus was involved in and approved the invoices for the monitors being presented to Scottish Pacific Finance at a time when the monitors had not been delivered to Telstra, and that he signed the finance deed with Scottish Pacific Finance, I am also satisfied that Mr Kalmus was aware that Scottish Pacific Finance was going to make a payment when it was not properly due and that this would artificially increase Southern Cross’ revenue for the 2015/2016 financial year.
Was Mr Kalmus the director of business operations for Southern Cross between 28 June 2016 and 30 June 2016?
73. On 17 May 2016, Southern Cross sent Mr Kalmus a letter setting out an offer of employment as director of business operations and a document headed ‘Terms of Employment’ (the employment agreement). The letter of offer stated that Mr Kalmus’ employment would start on 1 June 2016 or on ‘some other mutually agreeable date around that time’.
74. There was no dispute during the hearing that the parties had agreed around this time that Mr Kalmus would continue in the role of CEO of Southern Cross until the share sale and purchase agreement was completed, or, in the words of counsel for Mr Kalmus, control of Southern Cross had ‘changed’ to Ingenio, at which time Mr Kalmus would start his new role as director of business operations for Southern Cross in accordance with the employment agreement.
75. Counsel for Mr Kalmus contended that Mr Kalmus’ employment as director of business operations started in early July 2016, being the next working day after the completion of the share sale and purchase agreement on 30 June 2016. Counsel relied on Mr Kalmus’ evidence that the share sale and purchase agreement was completed on around 30 June 2016, when the money for the sale of the shares was transferred by Ingenio to Lendossa and Mandossa and ‘control’ of Southern Cross was transferred to Ingenio.
76. Counsel for Southern Cross contended that the share sale and purchase agreement was completed on 28 June 2016 and during cross-examination, Mr Kalmus agreed that if there was documentary evidence that the money for the shares was paid on 28 June 2016, this would be the date that the share sale and purchase agreement was completed.
Findings in relation to whether Mr Kalmus the director of business operations for Southern Cross between 28 June 2016 and 30 June 2016
77. Mr Hanna did not give any evidence in relation to when the money for the shares was paid by Ingenio to Lendossa and Mandossa and neither party provided me with any documentary evidence to show when the money for the shares was paid.
78. In addition, neither party provided me with any evidence at all in relation to when the parties completed their ‘pre-completion actions,[4] their respective ‘obligations at completion’,[5] which included payment for the shares, and their post completion actions,[6] which included lodging the relevant forms with ASIC to give effect to the agreement.
[4] As set out in clause 1 of schedule 4 of the share sale and purchase agreement.
[5] As set out in clause 2 of schedule 4 of the share sale and purchase agreement.
[6] As set out in clause 3 of schedule 4 of the share sale and purchase agreement.
79. The only written evidence before me that was relevant to the question of when the share sale and purchase agreement was completed was a copy of a current and historical extract for Southern Cross dated 23 May 2018 that shows that Mr Hanna became a secretary of Southern Cross on 9 June 2016 and a director on 29 June 2016. The extract does not show when Ingenio paid for the shares it was buying from Lendossa and Mandossa or when the shares were transferred to Ingenio.
80. Based on the scant evidence before me, I find that it is most likely that the share sale and purchase agreement was completed on 28 June 2016, the day before Mr Hanna became a director of Southern Cross. This is because it appears that one of the post completion actions was to lodge the relevant forms with ASIC to appoint Mr Hanna a director of Southern Cross.
81. It flows from this finding that Mr Kalmus’ employment as director of business operations started on 29 June 2016, the next working day after the share sale and purchase agreement was completed and that Mr Kalmus was a director of business operations for Southern Cross when he sent the two emails thanking Mr Stoker and Mr Harris and at the time I have found he was involved in and approved the scheme to create the invoices with the false billing and delivery address and their being provided to Scottish Pacific Finance.
Does Mr Kalmus’ involvement with and approval of the scheme to create the invoices with the false billing and delivery address and his involvement in the invoices being provided to Scottish Pacific Finance, which led to Southern Cross’ revenue for the 2015/2016 financial year being artificially increased (Mr Kalmus’ conduct) amount to serious misconduct?
82. Clause 19 of the terms of employment that formed part of Mr Kalmus’ employment agreement sets out how Mr Kalmus’ employment could be terminated. Clause 19.1 provided:
Subject to clause 20.4 the employment may be terminated by:-
a) either party giving to the other party the requisite period of notice;
b) the Employer giving to the Employee compensation instead of the requisite period of notice;
c) immediately if the employee is guilty of serious misconduct, that is, misconduct of a kind that it would be unreasonable to require the employer to continue the employment during the requisite period of notice.
83. Clause 19.2 provided that the requisite period of notice was three months and the agreement did not contain a clause number 20.4.
The law in relation to serious misconduct
84. The law in relation to serious misconduct was considered by Gillard J in Rankin v Marine Power International (Rankin).[7]
[7] [2001] VSC 150.
85. In summarising the authorities, Justice Gillard observed that:
· there is no rule of law that defines the degree of misconduct which would justify dismissal without notice[8]
· the sufficiency of the justification depends upon the extent of misconduct[9]
· the question whether the breach of contract justifies dismissal without notice, is a question of fact, and
· the onus of proof rests upon the defendant to establish that it had the right to terminate the employment without proper notice.[10]
[8] At [240].
[9] At [214] per the Privy Council in Clouston and Co Ltd v Corry(1906) AC 122 at [129].
[10] At [243].
86. He also observed that the authorities establish that:
· the employee's breach of contract of employment must be of a serious nature, involving a repudiation of the essential obligations under the contract or actual conduct which is repugnant to the relationship of employer-employee, before an employer may terminate the contract summarily
· isolated conduct usually will not suffice
· each case must be considered in the light of its particular circumstances, but nevertheless, the seriousness of the act of termination and the effect of summary dismissal are factors which place a heavy burden on the employer to justify dismissal without notice, and
· the circumstances do not have to be exceptional, but nevertheless, must establish that the breach was of a serious nature.[11]
[11] At [250].
87. Counsel for Mr Kalmus contended that:
· clause 19 c) has been narrowly drawn
· Southern Cross must satisfy the court that the misconduct complained of is so serious that dismissal with notice will not suffice, and
· Southern Cross has fallen seriously short of being able to prove this.
88. Counsel for Southern Cross accepted that the company must show Mr Kalmus’ conduct was of a serious nature. However, he contended that the approach the court should take in relation to determining whether Mr Kalmus’ conduct amounted to serious misconduct as described in clause 19 c) of the employment contract is the same as the approach the court would have taken if the employment contract did not refer to serious misconduct and Southern Cross was relying on common law principles alone.
89. I am not persuaded that clause 19 c) has been narrowly drawn and ought to be applied more narrowly than if I were applying common law principle alone.
Southern Cross’ evidence and contentions in relation to whether Mr Kalmus’ conduct amounted to serious misconduct
90. Mr Hanna gave evidence that he became aware of the invoices with the false billing and delivery address in late 2016, at which time Southern Cross’ accounts were being audited as part of the ‘true up’ process under the share sale and purchase agreement. Mr Hanna’s evidence is that the monitors were eventually delivered to Telstra in February 2017, after which he arranged for new invoices to be prepared and sent to Telstra with the correct billing and delivery address on them and for the profit in relation to the sale of the monitors to be transferred into the financial accounts for the 2016/2017 financial year.
91. Counsel for Southern Cross contended that Mr Kalmus’ conduct amounted to serious misconduct, that it would have been unreasonable to require Southern Cross to continue his employment after Mr Hanna became aware of the invoices and that his immediate dismissal was justified for several reasons.
92. Firstly, counsel contended that Mr Kalmus had a personal ‘motive’ for wanting the 2015/2016 financial year profit to be as high as possible arising from the share sale and purchase agreement between Mandossa, Lendossa and Ingenio. According to Mr Hanna’s evidence, this was because representations had been made to Ingenio about Southern Cross’ likely profit for the 2015/2016 financial year and because the share sale and purchase agreement contained future ‘put and call’ options that were likely to be effected by Southern Cross’ profit for the 2015/2016 financial year.
93. Counsel relied on Mr Hanna’s evidence that under the share sale and purchase agreement, the price for the shares was calculated on Southern Cross’ profit expectations and that the expected profit for the 2015/2016 financial year was $3,100,000 with a target of $3,500,000. Mr Hanna gave evidence that he was told by Mr Kalmus throughout June 2016 that ‘targets would be hit’. He also gave evidence that it would be ‘problematic’ if Southern Cross’ profit for the 2015/2016 financial year was less than $3,100,000.
94. Counsel also contended that when Mr Hanna learnt of Mr Kalmus’ involvement with the creation of the invoices with the false billing and delivery address, his trust in Mr Kalmus broke down and his faith in Mr Kalmus was eroded, which gave rise to a right to terminate his employment and justified his immediate dismissal. Counsel contended that before this event, the level of trust between Mr Kalmus and Southern Cross was of the ‘highest order’, as Mr Kalmus was required to give Southern Cross financial advice in his role as director of business operations.
95. Counsel contended that regardless of the amount of profit that Southern Cross made on the sale of the invoices, the fact that Scottish Pacific Finance paid Southern Cross $234,000 when it was not properly due and the fact that Mr Kalmus was involved in the invoices having been provided to Scottish Pacific Finance, is sufficient to show that Mr Kalmus breached his obligation to carry out his duties properly, honestly and in good faith.
96. Counsel also submitted that once Mr Hanna had discovered the invoices with the false billing and delivery address, he had no option as a director of Southern Cross but to immediately terminate Mr Kalmus’ employment, given that Mr Kalmus was a very senior employee who had worked for Southern Cross for over ten years, and given his involvement with the invoices having been provided to Scottish Pacific Finance, resulting in the invoices being paid when they were not properly due and artificially increasing Southern Cross’ profit for 2015/2016, in circumstances where Mr Kalmus had a personal motive for ensuring that Southern Cross’ profit for the 2015/2016 financial year was as high as possible.
97. Counsel contended that in these circumstances, Southern Cross would have been derelict in its duties if it had failed to immediately terminate Mr Kalmus’ employment.
98. For these reasons, counsel contended that Southern Cross had established that Mr Kalmus’ conduct amounted to serious misconduct because it was of a very serious nature, it would have been unreasonable to require Southern Cross to continue his employment and that his immediate dismissal was justified.
Mr Kalmus’ evidence and contentions in relation to whether his conduct amounted to serious misconduct
99. Mr Kalmus denied that he had a personal ‘motive’ for wanting the 2015/2016 financial year profit to be as high as possible. Mr Kalmus gave evidence that this was because the share sale and purchase agreement contained ‘after event adjustments’ in relation to Southern Cross’ 2015/2016 financial year profit. His evidence was that a ‘true up’ would take place and that the correct profit figures would eventually ‘come out’.
Whilst Mr Kalmus conceded that the email chain suggested that it was urgent that Southern Cross invoice as much as possible by 30 June 2016, he gave evidence that there was an ‘urgency’ every month to invoice as much as possible and that the employees of Southern Cross tried to invoice as much as possible before the end of every financial year.
Mr Kalmus also gave evidence that the invoices in relation to the monitors sold to Telstra only increased Southern Cross’ profit for the 2015/2016 financial year by around $20,000 and that the total profit for the 2015/2016 financial year was around $2,000,000. During cross-examination, Mr Kalmus asked (rhetorically) ‘do you think I would go to all of this trouble for a profit of $20,000?’.
Counsel for Mr Kalmus contended that Southern Cross had to overcome a high hurdle to establish that Mr Kalmus had engaged in serious misconduct.
Counsel for Mr Kalmus contended that Southern Cross’ defence should fail because it had not proved that there was anything ‘untoward’ about the invoices although he conceded that Ms Poulter had described the delivery instructions as ‘odd’.
Counsel relied on the undisputed evidence that Telstra had ordered the monitors and that they had been subsequently delivered to Telstra and paid for by them. Counsel contended that the only issue that had been raised by Southern Cross was the timing of the issuing of the invoices, and that this was only an issue for Ingenio in relation to the share sale and purchase agreement with Mandossa and Lendossa.
Counsel also relied on the fact that Southern Cross had not called any evidence from Scottish Pacific Finance and accordingly, there was no evidence that they had any concerns or complaints about the timing of the issuing of the invoices and Scottish Pacific Finance’s subsequent payment to Southern Cross.
Counsel also contended that Southern Cross had not established that it was untenable for Mr Kalmus to continue in his role or that it could not have dismissed Mr Kalmus with notice in accordance with the employment contract.
Counsel contended that Southern Cross had fallen seriously short of proving that Mr Kalmus’ misconduct was so serious that dismissal with notice did not suffice.
Findings in relation to whether Mr Kalmus’ conduct amounted to serious misconduct
The extent of Mr Kalmus’ involvement in the scheme to create the invoices with the false billing and delivery address was minimal. There was no evidence that Mr Kalmus initiated the scheme or directed any of Southern Crosses’ employees to create invoices with false billing and delivery addresses or that he directed anyone to provide those invoices to Scottish Pacific Finance for payment at a time when it was not properly due.
Rather, the evidence shows that Mr Kalmus was only indirectly involved in the scheme to create the invoices with the false billing and delivery address, having read the emails in the email chain and having thanked the relevant employees for their efforts.
Similarly, on the evidence before me, Mr Kalmus’ only involvement in the invoices being presented to Scottish Pacific Finance was an indirect involvement arising from having read the emails about the scheme and, being aware of the terms of the finance deed, having expressed his approval of actions that he knew would lead to the invoices being provided to Scottish Pacific Finance for payment before that payment was properly due by thanking his employees for their efforts.
Whilst I accept Mr Hanna’s evidence that he arranged for new invoices to be created and for the profit in relation to the monitors supplied to Telstra to be transferred into the financial accounts for the 2016/2017 financial year and that this evidence was not challenged by Mr Kalmus, there was no evidence before me that Southern Cross was compelled to take such action or that such action was necessary from an accounting or legal perspective, let alone any expert evidence to this effect. In addition, there was no evidence from Telstra that it had any complaints or concerns in relation to when Southern Cross bought the monitors on its behalf or how and when it was invoiced for the monitors nor was there any evidence from Scottish Pacific Finance that it had any complaints or concerns about how and when the invoices for the monitors were provided to it and when it made the payment to Southern Cross.
In addition, whilst I am satisfied that the payment from Scottish Pacific Finance artificially increased Southern Cross’ revenue for the 2015/2016 financial year, I am not satisfied that this gave rise to a conflict between Mr Kalmus’ interests and his duty to Southern Cross, particularly as it does not appear that his conduct resulted in any negative financial or legal consequences for Southern Cross or damaged Southern Cross in any way that was so destructive of the confidence between Southern Cross and Mr Kalmus that it would have been unreasonable to require Southern Cross to continue to employ Mr Kalmus whilst he was given the requisite notice under clause 19 of the terms of employment.
If there were any negative financial or legal consequence flowing from this scheme, these appear to relate to the sale of Mandossa and Lendossa’s shares in Southern Cross to Ingenio under the share sale and purchase agreement.
Further, whilst I accept that when Mr Hanna learnt of the scheme to invoice Telstra for the monitors before they were delivered to Telstra, this diminished his trust and faith in Mr Kalmus, I am satisfied that this was primarily because of its possible impact on the share sale and purchase agreement between Ingenio and Mandossa and Lendossa rather than its possible impact on Southern Cross.
Mr Kalmus’ conduct was also isolated, which Gillard J in Rankin observed will usually not be sufficient to justify immediate dismissal.
In all of the circumstances, I do not consider Mr Kalmus’ conduct to be objectively so serious from Southern Cross’ point of view, that it could have damaged Southern Cross’ trust, confidence and faith in Mr Kalmus to the extent that it justified his immediate dismissal without notice.
For these reasons, Southern Cross, which bears the onus of proving that it had the right to dismiss Mr Kalmus without notice, which onus has been described as a heavy burden, has not satisfied me that in all the circumstances, Mr Kalmus’ dismissal without notice was justified.
Accordingly, Mr Kalmus’ claim for payment of $45,000 being the notice payable under the employment agreement and superannuation of $4,275.00 is allowed.
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