Konstantinos Markos Stavreas v Kenneth Stout
[2010] VSC 662
•1 June 2010
| IN THE SUPREME COURT OF VICTORIA | Not Restricted | |
AT MELBOURNE
COMMON LAW DIVISION
S CI 2010 00544
| KONSTANTINOS MARKOS STAVREAS | Plaintiff |
| v | |
| KENNETH STOUT | Defendant |
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JUDGE: | GARDINER AsJ | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 17 May 2010 | |
DATE OF JUDGMENT: | 1 June 2010 | |
CASE MAY BE CITED AS: | Konstantinos Markos Stavreas v Kenneth Stout | |
MEDIUM NEUTRAL CITATION: | [2010] VSC 662 | |
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CORPORATIONS – External administration – Deed of company arrangement – Appeal by creditors pursuant to section 1321 of the Corporations Act 2001 (Cth) following rejection of proof of debt by deed administrator – Appeal allowed.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr M. Harding of Counsel | Holding Redlich |
| For the Defendant | Mr S. Pitt of Counsel | Browne & Co Solicitors and Consultants |
HIS HONOUR:
On 12 September 2009, Agri Energy Limited (“the company”) went into voluntary administration and the defendant (Mr Stout) was appointed as administrator. On 19 December 2008, the company entered into a deed of company arrangement and Mr Stout became the deed administrator. On the same day, the company entered into a creditors’ trust deed with Mr Stout, which operated in conjunction with the deed of company arrangement.
The Plaintiff (Mr Stavreas) is a former employee of the company and this application is an appeal by him against the rejection of a proof of debt pursuant to s 1321 (1) of the Corporations Act2001. That section provides that persons who are said to have been aggrieved by any act, omission or decision of, among others, an administrator of a deed may appeal to the Court and the Court may confirm, revise or modify the act or decision and make any directions it thinks fit. Mr Stavreas is in my view undoubtedly a “person aggrieved” by reason that he contends that he is a creditor of the company and that the proof of a debt which he claims is enforceable against the company and provable under the deed has been rejected by Mr Stout.
Mr Stavreas’ claim is supported by his affidavits affirmed on 4 February 2010 and 18 March 2010. Mr Stout filed no evidence in opposition to the application and did not seek to cross‑examine Mr Stavreas. However, Mr Pitt, counsel for Mr Stout, submitted that much of Mr Stavreas’ affidavit of 18 March 2010 was objectionable as being hearsay and inadmissible.
Mr Stavreas contends that he is a creditor of the company by reason of entitlements he accrued upon being made redundant when the company went into administration. Mr Stavreas was employed by the company as a business and strategy analyst. The terms of Mr Stavreas’ employment are contained in a letter dated 29 November 2006 from the company (then called Australian Ethanol Limited) which sets out the terms of his employment. Under the heading “Termination and Resignation” it provided, among other things:
Termination may be effected [by] the Company without cause by giving the employee two (2) months notice, except in the case of serious misconduct. The notice may be served or paid out to the employee at the sole option of the Company.
In the case of redundancy you will, in addition to accrued leave be entitled to payment of four (4) weeks’ salary for each completed year of service plus notice. In the event of a change in control or takeover a minimum redundancy payment will be 6 months’ salary.
On 28 October 2009, Mr Stavreas lodged the proof of debt with Mr Stout which annexed several documents including a covering letter and the letter of 29 November 2006 setting out the terms of the employment contract referred to above, together with several other documents to which reference will be made below[1].
[1] The proof of debt is exhibit KMS-4 to Mr Stavreas’ affidavit affirmed 4 February 2010.
On 7 December 2009, Mr Stavreas provided further and better particulars in response to a request by Mr Stout. On 22 December 2009, Mr Stout wrote to Mr Stavreas and stated that he accepted claims for unpaid annual leave, superannuation, salary and redundancy in a total sum of $29,768 but rejected claims for notice in lieu and for bonuses for the years 2007 and 2008. Of the claims rejected, only the claim for notice in lieu is pursued in the current application.
In considering applications of this character, the Court conducts a hearing de novo. The party seeking to impeach the decision complained of bears the onus of displacing the decision. The decision which is the subject of this application is not one which involves the revisiting of a discretion exercised by Mr Stout. Rather, Mr Stavreas’ grievance is that he is a creditor for the amount of notice in lieu (two months salary) and that Mr Stout has rejected his claim in that regard. The Court’s task in this case is to decide whether or not Mr Stavreas has a claim at law which Mr Stout is bound to admit to proof.[2] The onus that Mr Stavreas bears will be discharged if he can establish on the balance of probabilities that his claim for notice in lieu is a liability owing by the company at the relevant date, i.e. the date it went into administration.
[2] See generally Westpac Banking Corp v Totterdell (1997) 142 FLR 137, a decision of the Full Court of the Federal Court.
The issue which arises for consideration is whether, as Mr Stavreas would have it, his claim came into existence as an enforceable entitlement on 12 September 2008, the date upon which the company went into administration and his employment with the company ended. Mr Stout contends that the company gave Mr Stavreas valid notice of termination on 20 May 2008 which expired on 18 July 2008 and the company has no liability to Mr Stavreas for notice in lieu under the terms of the second paragraph of the employment agreement extracted in paragraph 4 above.
Mr Stavreas was posted to the United States in November 2007 to assist with a project managed by the company’s US subsidiary, US Canadian Bio Fuels LLC. The project, described as the Beatrice Bio Diesel Project, involved the construction of a bio-diesel plant in Nebraska which the company through its US subsidiary then intended to operate for the purpose of manufacturing bio diesel from soya bean oil. Mr Stavreas’ annual salary had risen at that juncture to $100,000.
On 20 May 2008, Mr Anderton, the chief executive officer and chairman of the company, wrote to Mr Stavreas and stated that his job as Group Financial Analyst was redundant and would come to an end on 18 July 2008. Mr Anderton stated:
Due to market conditions and inability for the Group to raise essential investment funds in a very difficult biofuels market, the Board of Agri Energy Limited (AAE) has taken the difficult decision to restructure the Group whereby it will effectively cease to perform operational function globally and will focus on all activities on a corporate wind down. The effect of this restructure will result in the redundancy over time of all roles within the Company.
Regrettably we are therefore unable to continue your employment and under your contract, we will bring your employment relationship with us to an end.
The letter of 20 May 2008 went on to set out Mr Stavreas’ entitlements which would be paid on 18 July 2008. These included payment of the sum of $13,717.79, being the unpaid portion of two months’ salary less applicable tax which would be worked out until 18 July 2008 and the remainder paid out, superannuation to 18 July 2008, $8,333.17, being four weeks’ salary as a severance payment taxed concessionally as a bona fide redundancy payment, and $6,005.63 being an amount for accrued annual leave up to and including the last day of employment less applicable tax. The letter also set out details of the process for cessation of his employment. It required Mr Stavreas to work out the period of the notice of termination (until 18 July 2008). On the last day of his employment, he would be required to return all property including company laptops, access cards or keys and any other company property that was in his possession or control. In my view, the company sought to invoke the process set out in the first paragraph of the termination provisions extracted in paragraph 4 above.
Mr Stavreas deposes that 18 July 2008 came and went without any practical change to his employment. On 15 July 2008, he was paid his monthly salary to 31 July 2008. Nothing was said to Mr Stavreas in regard to his position with the company on or about that date and he continued to work at the company.
Significantly the entitlements set out in that letter were not paid. No mention is made as to whether he was requested to return any property of the company that he held including laptops or was required to surrender his security access card or keys as mentioned in the letter of 20 May 2008 and I would infer he was not.
Mr Stavreas eventually departed the company when he and other employees received an email from Mr Stout on 17 September 2008. Mr Stout states in that email:
No staff are on the books for continuing work as far as I am aware & I have not as the VA sought to ratify any on-going hire of staff; I will seek to use Graeme, Peter & or Tim as & when required on a contracted agreed before hand needs basis.
Conversely the company had no work for you to do so any suggestion that there is a continuation of employment post Fridays announcement & until today is totally denied by me.
On a fairness basis if you believe you were working, what was the work you were doing? Who authorised same? Should a wages claim be made by you for this period post Friday last if you were not actually doing anything?
It is Mr Stavreas’ position that this communication, rather than the 20 May 2008 letter ended his employment and that he has entitlements, including payment for “notice” by reason of then being made “redundant”.
In support of his position, Mr Stavreas exhibited to his second affidavit a Business Plan prepared for a potential investor, United Oil Holdings, said to have been written by Mr Anderton, and dated 1 July 2008. In that document, it is stated that Mr Stavreas would serve as the Deputy Chief Executive Officer. After describing Mr Anderton’s responsibilities, the Business Plan states as follows:
For periods when Mr Anderton is not at the site in Beatrice, local management authority and senior representation will be assumed by Mr Kosta Stavreas in his role as Deputy CEO and Risk Manager. Mr Anderton and Mr Stavreas will be supported as follows.
At page 19, the Business Plan states:
Risk Management and Supply, Kosta Stavreas
Mr Stavreas will assume the role or (sic) Risk Manager, Feedstock Supply and Logistics in the Stage 1 and Stage 2 program. During this time, it is intended to hire a full time feedstock Supply/Risk Manager into the Group. The new hire will work with Mr Stavreas to implement policy and systems in the Group.
At page 16 of the Business Plan, “Stage 1” is described as the period from 1 July 2008 to 15 August 2008. At page 17, “Stage 2” is said to be the period from 15 August 2008 to the point where the BBL facility has reached “steady state operations”. This was anticipated to be mid October 2008.
The proposal involving United Oil Holdings did not come to fruition, however, another potential investor, Hydrogenia, became involved in negotiations. Mr Anderton informed the ASX on 31 August 2008 that if the Hydrogenia proposal proceeded, the trading of the company shares on the Australian Stock Exchange, which had been suspended, could resume.
Mr Stavreas deposes that he agreed to the deferral of payment of his August salary because he had confidence in the judgment of Mr Lagdon, a director of the company who was conducting the negotiations with Hydrogenia. He states that Hydrogenia had begun to make payments and that he was “confident of my ongoing role with the company”.
Mr Stavreas deposes that the end came for the company quite unexpectedly when a convertible note holder, Cornell Capital Partners, called up the note and the company had to cease trading.
I agree with Mr Pitts’ submission that much of the second affidavit of Mr Stavreas is inadmissible or at least of very little probative weight. Mr Stavreas’ expectations, assumptions, hopes and matters of which he was “confident”, which are mentioned in his second affidavit, are not relevant or admissible; I have to consider the matter on the evidence. That having been said, the company did not put on any evidence in opposition to the application and a good deal of the material relied upon by Mr Stavreas is documentation generated by the company itself.
It seems clear that the time for Mr Stavreas to depart the company in July 2008 came and went and the notice of the termination of his employment was, for all intents and purposes, ignored. He did not receive any of the entitlements set out in the 20 May letter at that time. It seems that he was not required to hand back company property and security passes and all concerned pressed on without regard to the terms of the May letter. Mr Stavreas continued to work at the company and nobody suggested that he leave or that his arrangements had otherwise changed, save that it appears that he agreed not to press for payment of his August salary when it was due to be paid. On 17 September 2008, shortly after the company went into administration, Mr Stout wrote to the employees, including Mr Stavreas, and told them that they were then redundant.
Earlier, on 9 September 2008, Mr Anderton wrote to Mr Stavreas contending that Mr Stavreas’ employment had been terminated effective of 18 July 2008, i.e. by the expiry of the notice given in May. He stated:
For the period while protracted negotiations have taken place to arrange a capital injection into the Company, the employment arrangements have been extended by mutual agreement on a permanent part-time basis. In your case the payment rate for the services is $384.62 per day based on a five day work week.
The agreement between the Company and yourself is in the full knowledge of the corporate and financial situation at this time and the associated risks to your ongoing payment for the services and your ongoing employment.
The Board fully appreciate (sic) your continued support and efforts over what has been a very difficult and stressful time. While there is not a guarantee that the capital raising will be successful, the core Group has agreed to work to this end in the hope that a suitable outcome for the Company can be realised.
Rather than being a contemporaneously generated document, it is written after the event and shortly prior to the company going into administration. Mr Harding, counsel for Mr Stavreas, submitted that it was an attempt to re‑write history and I agree with him in that regard. The letter , which is self serving, was met with a quick response from Mr Stavreas on the following day where he states:
I have not agreed at any time to a change of employment status to permanent part time (sic). There has never been any discussion of this. Nor have I assumed the “associated risks to your ongoing payment”. We did agree to defer the August salary payments due to cash flow difficulties in AAE, but I interpreted this to be an issue of timing and not that we were giving up our entitlement to be paid.
Mr Stavreas then goes on to describe his “understanding” that the redundancies of 20 May were withdrawn and that the conduct of the company supported that contention, observing that …
“The redundancies never actually happened. Our jobs did not cease to exist. No redundancy payments were made. We have worked well beyond the date they were meant to come into effect, in my case 18 July. We were paid a full month’s salary in July and held the expectation that the August salaries would be caught up on 5 September.”
I would not give either communication any great probative weight and my task always returns to a consideration of the position based on the evidence and the uncontradicted facts.
Mr Harding made reference to case law in regard to the meaning of the word redundancy in the context of employment contracts. In The Queen v The Industrial Commission of South Australia; ex parte Adelaide Milk Supply Co-operative Limited and ors[3] Bright J stated at p.26-27:
The word “redundant” does not occur in the Act. In its industrial sense it is not defined in the Oxford Dictionary. The application which I have already set out attempts a definition for the purpose of the proposed award. A consideration of the cases leads me to think that the question of the redundancy of an employee is linked to the question of the continued utility of the job which he is performing. In other words it does not relate to the personal competence of the employee in the job which he is performing. If I am right about this, then in its widest form the concept of redundancy connotes that an employee becomes redundant whenever (and for whatever reason) his employer no longer desires to have performed the job which that employee was doing. A wide variety of instances are contained in the definition clause in the application but they all seem to fit into this connotation, even the reference to retrenchment of employees for any reason whatsoever.
[3][1997] 16 SASR 6.
Finkelstein J, of the Federal Court of Australia, also considered the meaning of “redundancy” in Construction Forestry Mining and Energy Union v Amcor Limited[4] where he stated at paragraph 9:
I will begin the resolution of this dispute by considering the meaning of the word “redundant”. In the context of employment law it is generally accepted that becoming redundant means that the employee is no longer required by his (or her) employer because the employer no longer has a need for the work the employee was performing.
[4][2002] FCA 610.
It is submitted on behalf of Mr Stavreas that the notice of termination of two months given in May came and went without further action. It is said that Mr Stavreas was not “redundant” within the accepted meaning of that word in the employment law context, and continued to work with the company until he was told that he was redundant in September. This position is supported by Mr Stout’s email of 17 September 2008 to Mr Stavreas and others who were senior executives of the company.
I consider that Mr Stavreas has established on the balance of probabilities that he was made redundant in September 2008 and is entitled to payment in respect of the “notice”, which is the subject of this application. I consider that the notice referred to in the second paragraph of the employment agreement extracted above is two months’ notice.
As such, I consider that Mr Stavreas is entitled to an order reversing the rejection of the proof of debt in respect of the notice in lieu together with an order directing Mr Stout to admit the claimed debt and pay Mr Stavreas in accordance with the deed of company arrangement.
I will hear the parties on the question of costs. My preliminary view is that they should follow the event and that Mr Stout should pay Mr Stavreas’ costs, such costs to be part of Mr Stout’s expenses as deed administrator.
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