Lewins v Platinum Australia Ltd
[2015] WASC 135
•23 APRIL 2015
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS
CITATION: LEWINS -v- PLATINUM AUSTRALIA LTD [2015] WASC 135
CORAM: ACTING MASTER GETHING
HEARD: 16 APRIL 2015
DELIVERED : 23 APRIL 2015
FILE NO/S: COR 3 of 2015
BETWEEN: JOHN DEREK LEWINS
Plaintiff
AND
PLATINUM AUSTRALIA LTD (Subject to Deed of Company Arrangement)
First DefendantBRYAN KEVIN HUGHES AS DEED ADMINISTRATOR OF PLATINUM AUSTRALIA LTD (Subject to Deed of Company Arrangement)
Second Defendant
Catchwords:
Deed of company arrangement - Proof of debt partially allowed - Appeal
Legislation:
Corporations Act 2001 (Cth), s 1321
Result:
Decision of Deed Administrator overturned
Proof of Debt allowed
Category: B
Representation:
Counsel:
Plaintiff: Mr B D Campbell
First Defendant : No appearance
Second Defendant : No appearance
Solicitors:
Plaintiff: Mony de Kerloy Barristers and Solicitors
First Defendant : No appearance
Second Defendant : No appearance
Case(s) referred to in judgment(s):
Coal and Allied Operations Pty Ltd v Australian Industrial Relations Commission [2000] HCA 47; (2000) 203 CLR 194
De Bortoli Wines Pty Ltd v HIH Insurance Ltd (in liq) [2011] FCA 645; (2011) 84 ACSR 527
Delaney v Staples [1992] 1 AC 687
Easling v Mahoney Insurance Brokers Pty Ltd [2001] SASC 22
Lewis v Notrex Pty Ltd (No 2) [2001] NSWSC 610
Marsland v Gamble [2002] WASC 213
Martin v Tasmania Development & Resources (1999) 163 ALR 79
Pacific Carriers Ltd v BNP Paribas [2004] HCA 35; (2004) 218 CLR 451
Re David Gregory Young in his Capacity as Liquidator of Great Wall Resources Pty Ltd (in liq); Capocchiano v Young [2013] NSWSC 879
Re Galaxy Media Pty Ltd (recs and mgrs apptd) (in liq) [2001] NSWSC 917; (2001) 39 ACSR 483
Re Kentwood Constructions Ltd [1960] 1 WLR 646
Sanders v Snell [1998] HCA 64; (1998) 196 CLR 329
Smith v Hughes (1871) LR6QB 597
Spencer v Dowling [1997] 2 VR 127
Tanning Research Laboratories Inc v O'Brien [1990] HCA 8; (1990) 169 CLR 332
Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52; (2004) 219 CLR 165
Westpac Banking Corporation v Totterdell (1998) 20 WAR 150
ACTING MASTER GETHING: Platinum Australia Ltd (Company) is subject to a deed of company arrangement (DOCA). Its Deed Administrator is Bryan Hughes, who was appointed by a resolution of the Board of the Company on 28 June 2012. The DOCA incorporates the proof of debt provisions contained in Corporations Act 2001 (Cth) (CA) pt 5.6.
John Derek Lewins was the managing director of the Company at the time of the appointment of the Deed Administrator. Mr Lewins was engaged by the Company pursuant to an employment contract dated 17 August 2011 (Employment Contract). The Employment Contract had a term of three years. It also relevantly provided in cl 16.1(b) that:
This Agreement may be terminated at any time by the Company … giving twelve months' notice in writing to the Employee without the Company having to assign any reason.
The Deed Administrator terminated the Employment Contract.
Mr Lewins lodged a CA Form 536 Proof of Debt dated 8 July 2012 with the Deed Administrator (Proof of Debt). In it he claimed the amount of $1,030,489.62 arising out of the Employment Contract. This included an amount of $550,000, being 12 months salary to be paid in lieu of notice.
By notice dated 22 December 2014, the Deed Administrator partially rejected the Proof of Debt. The portion rejected related to the claim for payment in lieu of notice. The Deed Administrator's position is that Mr Lewins ended up working out his entire notice period for the Company, for which he was paid, and is not entitled to also receive a payment in lieu of notice.
Mr Lewins' position is that his contract of employment was terminated by the Deed Administrator on the basis of an agreement with the Deed Administrator for him to be paid in lieu of notice. He says his subsequent employment by the Company was as a consultant. Accordingly, by application dated 6 January 2015, Mr Lewins sought an order setting aside the decision of the Deed Administrator to partially reject his Proof of Debt. Mr Lewins' application was filed within 21 days after the date of the decision by the Deed Administrator as required by Supreme Court (Corporations) (WA) Rules 2004 r 14(2)(a). He swore an affidavit dated 6 January 2015 which was filed with the application, together with a second affidavit sworn 27 February 2015.[1]
[1] Which I will refer to as the 'Lewins Affidavit' and the 'Second Lewins Affidavit' respectively.
The Deed Administrator filed an affidavit sworn 16 February 2015.[2] He also filed an outline of submissions dated 1 April 2015. By letter dated 7 April 2015, the solicitors for the Deed Administrator advised that he was of the view that he had put all relevant material before the court to enable the court to make an informed decision in the appeal. The Deed Administrator advised that, in order to minimise costs, he did not intend to appear at the hearing on 16 April 2015, nor take any further steps in the proceeding, and would abide by the decision of the court. The Deed Administrator reserved his rights in relation to the costs of the proceeding.
[2] Which I will refer to as the 'Hughes Affidavit'.
What issues arise for determination?
Mr Lewins seeks relief pursuant to CA s 1321(1). This sub‑section relevantly provides that a 'person aggrieved by any act, omission or decision of … an administrator of a company … may appeal to the Court in respect of the act, omission or decision and the Court may confirm, reverse or modify the act or decision, or remedy the omission, as the case may be, and make such orders and give such directions as it thinks fit'. A person whose proof of debt was partially rejected by a deed administrator has standing to invoke CA s 1321(1).[3]
[3] Marsland v Gamble [2002] WASC 213 [9] (Barker J) (by analogy to the position of a creditor whose proof of debt was rejected by a liquidator).
An appeal against the rejection of a proof of debt is a hearing de novo.[4] The 'Court's task in approaching the question de novo is to bring to bear a proper rigour in reviewing all the relevant facts in their context, to determine whether indeed the debt should have been admitted or rejected, doing so by applying legal principle to those facts afresh'.[5] The court may have regard to material not before the deed administrator.[6] There is no need to show error on the part of the deed administrator, meaning that the reasons for decision of the deed administrator are not relevant save for forensic use in identifying and analysing objections that might or might not be made to the proof.[7] The onus is on the applicant as the party challenging the deed administrator's decision to establish facts that would enable the proof of debt to be allowed.[8] The court will not upset the decision unless properly satisfied that that onus has been discharged.[9] If the court is unable to conclude either way as to whether the proof of debt should be admitted, then the decision of the administrator must stand.[10]
[4] Tanning Research Laboratories Inc v O'Brien[1990] HCA 8; (1990) 169 CLR 332, 338 ‑ 341 (Brennan & Dawson JJ); Re Kentwood Constructions Ltd [1960] 1 WLR 646, 647 ‑ 648 (Buckley J); Re Galaxy Media Pty Ltd (recs and mgrs apptd) (in liq) [2001] NSWSC 917; (2001) 39 ACSR 483 [24] (Santow J); Marsland [7] ‑ [12]; De Bortoli Wines Pty Ltd v HIH Insurance Ltd (in liq) [2011] FCA 645; (2011) 84 ACSR 527 [25] (Stone J); Re David Gregory Young in his Capacity as Liquidator of Great Wall Resources Pty Ltd (in liq); Capocchiano v Young [2013] NSWSC 879 [46] (Kunc J).
[5] Galaxy Media [33]; Marsland [12]; Coal and Allied Operations Pty Ltd v Australian Industrial Relations Commission [2000] HCA 47; (2000) 203 CLR 194, 202 ‑ 204 (Gleeson CJ, Gaudron & Hayne JJ).
[6] Marsland [10], [12].
[7] De Bortoli Wines [25]; Marsland [12]; Coal Allied Operations (203 ‑ 204).
[8] Lewis v Notrex Pty Ltd (No 2) [2001] NSWSC 610 [15] (Young CJ in Eq); Galaxy Media [26], [33]; Westpac Banking Corporation v Totterdell(1998) 20 WAR 150, 154 (Ipp J, Pidgeon & White JJ); Re Young [46].
[9] Galaxy Media [33]; Re Young [46].
[10] Galaxy Media [34]; Re Young [46].
The issue before the court on appeal is whether the liability in relation to the payment in lieu of notice referred to in the Proof of Debt is a true liability of the Company, enforceable against it.[11]
[11] Tanning Research Laboratories (341); Westpac (154); Marsland [7]; Re Young [46].
It is not in dispute between the parties that as at 5 July 2012 Mr Lewins was entitled to be paid $550,000 as a result of the Deed Administrator terminating the Contract of Employment without giving him 12 months' notice in writing, coupled with the election to only require him to work until 13 July 2012. This is the position set out by the Deed Administrator in his letter dated 5 July 2012, and in the partially completed Proof of Debt enclosed with that letter.[12] Had Mr Lewins and the Company parted ways at this point, it would have been clear that the liability referred to in the Proof of Debt was a true liability of the Company, enforceable against it.[13]
[12] Lewins Affidavit JDL‑2 and JDL‑3 (32 ‑ 37).
[13] Tanning Research Laboratories (341); Westpac (154); Marsland [7]; Re Young [46].
The issue becomes how this payment in lieu of notice is to be characterised. In Delaney v Staples Lord Browne‑Wilkinson, with the concurrence of all other members of the House of Lords, identified four principal categories of 'payment in lieu of notice':[14]
The phrase 'payment in lieu of notice' is not a term of art. It is commonly used to describe many types of payment the legal analysis of which differs. Without attempting to give an exhaustive list, the following are the principal categories.
(1) An employer gives proper notice of termination to his employee, tells the employee that he need not work until the termination date and gives him the wages attributable to the notice period in a lump sum. In this case (commonly call [sic] 'garden leave') there is no breach of contract by the employer. The employment continues until the expiry of the notice: the lump sum payment is simply advance payment of wages.
(2) The contract of employment provides expressly that the employment may be terminated either by notice or, on payment of a sum in lieu of notice, summarily. In such a case if the employer summarily dismisses the employee he is not in breach of contract provided that he makes the payment in lieu. But the payment in lieu is not a payment of wages in the ordinary sense since it is not a payment for work to be done under the contract of employment.
(3) At the end of the employment, the employer and the employee agree that the employment is to terminate forthwith on payment of a sum in lieu of notice. Again, the employer is not in breach of contract by dismissing summarily and the payment in lieu is not strictly wages since it is not remuneration for work done during the continuance of the employment.
(4) Without the agreement of the employee, the employer summarily dismisses the employee and tenders a payment in lieu of proper notice. This is by far the most common type of payment in lieu and the present case falls into this category. The employer is in breach of contract by dismissing the employee without proper notice. However, the summary dismissal is effective to put an end to the employment relationship, whether or not it unilaterally discharges the contract of employment. Since the employment relationship has ended no further services are to be rendered by the employee under the contract. It follows that the payment in lieu is not a payment of wages in the ordinary sense since it is not a payment for work done under the contract of employment.
The nature of a payment in lieu falling within the fourth category has been analysed as a payment by the employer on account of the employee's claim for damages for breach of contract. In Gothard v Mirror Group Newspapers Ltd [1988] ICR 729 at 733, Lord Donaldson of Lymington MR stated the position to be as follows:
'If a man is dismissed without notice, but with money in lieu, what he receives is, as a matter of law, payment which falls to be set against, and will usually be designed by the employer to extinguish, any claim for damages for breach of contract, that is, wrongful dismissal. During the period to which the money in lieu relates he is not employed by his employer.'
[14] Delaney v Staples [1992] 1 AC 687, 692.
This passage was cited with approval by the plurality in the High Court in Sanders v Snell.[15] In that case, the respondent was employed by the Norfolk Island Tourist Bureau under a contract which did not provide for a fixed term. The Bureau purportedly terminated the respondent's employment pursuant to a clause which provided 'two months notice of intention to determine the employment shall be given by either the bureau or the employee'. It offered the respondent two months payment in lieu of notice. The plurality held that it was not possible to imply into the notice clause a clause permitting the Bureau to make a payment in lieu of notice. Their Honours found that 'for the Bureau to terminate the contract of employment … without first giving the notice stipulated in that clause would be a breach of the contract, unless the parties agreed to the contract being terminated in this way'.[16] As to the consequences of this termination, their Honours stated:[17]
The contract of employment was terminated by the Bureau …. That termination was a breach of the contract, for it brought the contract to an end then and there, without first giving the stipulated notice. This was not a case of an employer giving notice of intention to terminate the contract in two months, paying the employee in advance for those two months and saying to the employee that he or she need not attend work during that time … The payment that was made to the respondent was payment in lieu of notice in the sense of being a payment made after the contract was brought to an end and intended to be set off against, and to extinguish, the damages that ordinarily would be payable for the wrongful termination of the agreement.
[15] Sanders v Snell [1998] HCA 64; (1998) 196 CLR 329 [19] (Gleeson CJ, Gaudron, Kirby & Hayne JJ). See also Martin v Tasmania Development & Resources (1999) 163 ALR 79 [51] (Heerey J).
[16] Sanders [16].
[17] Sanders [19].
Mr Lewins argued that the payment in lieu reflected in the 5 July 2012 letter fell within the third of Lord Browne‑Wilkinson's categories in Delaney. As foreshadowed by the High Court in Sanders, he says parties agreed to the Employment Contract being terminated in this way.
The Deed Administrator's position appears to be that the payment in lieu reflected in the 5 July 2012 letter fell within either the first or fourth categories.
In this context, three issues arise for determination:
•Was there an agreement that the Employment Contract was to terminate on payment of a sum in lieu of notice (placing the case in the third of Lord Brown‑Wilkinson's categories)?
•If there was, did the subsequent conduct of the parties undo this agreement (with the effect of placing the case in the first of Lord Brown‑Wilkinson's categories)?
•In what amount ought the Proof of Debt have been admitted?
Was there an agreement that the Employment Contract was to terminate on payment of a sum in lieu of notice?
By letter dated 29 June 2012, the Deed Administrator provided a formal notice of termination of employment to Mr Lewins effective from that date (Notice of Termination).[18] The Notice of Termination relevantly provided:
Accordingly, I hereby provide formal notice of termination of your employment with the Company effective 29 June 2012. At this stage, I shall require you to work during your notice period for a period to be determined. This is subject to on‑going discussions with you and an assessment to be made on a weekly basis regarding whether you are required to continue to serve your notice period.
[18] Lewins Affidavit JLD‑2 (32 ‑ 33).
By letter dated 5 July 2012, the Deed Administrator advised Mr Lewins of the amounts he considered to be owing as a result of the termination of the Employment Contract.[19] Those entitlements included a component of $550,000 with a reference: 'Notice'. This letter also provided:
Notice has been determined by your employment contract. Your contract provided for 12 months' notice. As you are aware, I shall require you to work during your notice period for a period until Friday, 13 July 2012.
[19] Lewins Affidavit JLD‑3 (34 ‑ 36).
Mr Lewins signed at the foot of the 5 July 2012 letter acknowledging receipt of the letter and advising that he was in agreement with the entitlements due to him as contained in the letter. This occurred on 8 July 2012.
The Deed Administrator attached to the letter of 5 July 2012 a partially completed CA Form 536 Formal Proof of Debt or Claim (General Form) reflecting the calculations set out in that letter.[20] The total amount in the Proof of Debt was $1,030,489.62, including an amount of $550,000 against a description: 'Notice'. The letter stated that: 'If you agree with these entitlements, please sign and date the completed form and return it to this office by 13 July 2012'. Mr Lewins signed the Form 536 on 8 July 2012 and returned it to the Deed Administrator (being the Proof of Debt).[21]
[20] Lewins Affidavit JLD‑4 (37).
[21] Lewins Affidavit [16].
I am satisfied that the exchange of correspondence in July 2012 constituted an agreement that the Employment Contract was to terminate on payment of an agreed sum in lieu of notice, being $550,000. Subject to the next issue, Mr Lewins is entitled to be paid the agreed amount.
Given this finding, the case is not one like Sanders falling within the fourth of Lord Brown‑Wilkinson's categories in which the contract is breached and the employer has a right to damages. In that scenario, the payment made sets off, and perhaps extinguishes, the damages that would ordinarily be payable for wrongful termination.[22] It is only in this scenario that I would need to address the Deed Administrator's submission that Mr Lewins has been overcompensated for his loss as a result of his ongoing or subsequent employment with the Company and that he was obliged to mitigate his loss. As this scenario does not arise, I do not need to address these issues.
[22] Sanders [19].
Did the subsequent conduct of the parties undo the agreement?
The issue then becomes whether the subsequent conduct of the parties changed or undid the agreement reached for Mr Lewins to be paid an agreed amount in lieu of notice. It is not in dispute that Mr Lewins continue to be employed by the Company between the end of July 2012 and September 2014. The Deed Administrator's position is that Mr Lewins was working out his notice period, in effect placing the case in the first of Lord Brown‑Wilkinson's categories. Mr Lewins asserts that he was employed under a new contractual arrangement as an employed consultant.
Mr Lewins' evidence is that approximately two weeks after his employment had been terminated, and he had served out the agreed notice period, the Deed Administrator raised the possibility of him working for the Deed Administrator to assist with the administration of the Company. He agreed to assist the Deed Administrator by going to South Africa to assist with various tasks. Mr Lewins says that at no point during any of these discussions was there any request for him to resume his former position, or work a further portion of his notice period, or to be contractually bound by any employment contract. He states there was no commitment from either party to any ongoing relationship. Nor was he engaged with his former entitlements.[23]
[23] Lewins Affidavit [17] ‑ [19].
The Deed Administrator refers to the same conversation with Mr Lewins, which he states was on 25 July 2012. The Deed Administrator states that he told Mr Lewins that he would continue to require his services in relation to the Company. He states: 'I did so on the basis that I believed Lewins was required under the Employment Contract to work the entire 12 months of his notice period and as such, I did not contemplate nor did I discuss with him that he would be engaged as a contractor'.[24]
[24] Hughes Affidavit [12].
During the period from the end of July 2012 until October 2012, Mr Lewins performed various tasks for the Deed Administrator relating to the Company. This included trips to South Africa, Sydney and Melbourne. Mr Lewins says that whenever he performed work for the Company he completed a time sheet for the work he undertook and received payment by the end of the month.[25]
[25] Lewins Affidavit [20] ‑ [27].
By email to the Deed Administrator dated 16 October 2012, Mr Lewins proposed 'setting up a mutual commitment for the ongoing process with [the Company] that we currently have underway'. Mr Lewins proposed two alternatives, a full time commitment and a part time commitment. Mr Lewins' signature block in the email read: 'Non Executive Director Platinum Australia Limited'.[26] Mr Lewins says that the Deed Administrator never formally responded to this proposal and therefore the ad hoc arrangement continued for a further 12 months until October 2013.[27]
[26] Lewins Affidavit JLD‑8 (41).
[27] Lewins Affidavit [27].
In an email to the Deed Administrator dated 29 October 2013, Mr Lewins again offered to come to some arrangement with the Deed Administrator as regards the provision of services. In particular, Mr Lewins offered to limit his paid time to 'say 40 hours per month', with an arrangement to be made for payment for additional hours to be deferred.[28] Shortly afterward, a similar proposal was put to the financiers of the Company on behalf of the Deed Administrator.[29]
[28] Lewins Affidavit JLD‑9 (42 ‑ 43).
[29] Lewins Affidavit JLD‑10 (44 ‑ 45).
By email dated 19 December 2013, another staff member working for the Deed Administrator sent an email to Mr Lewins agreeing to cap his wages at 50 hours per week, with an arrangement to pay out the remainder of the time worked when a particular transaction was completed.[30] The email went on to advise that 'in accordance with guidelines provided by the ATO, your current working arrangements classify you as an employee and accordingly we won't be able to use your consulting company'.
[30] Lewins Affidavit JLD‑11 (46 ‑ 47).
Mr Lewins says that he continued to submit his timesheets with the actual hours worked, so that the unpaid hours could be recorded and paid out when the transaction was completed.[31]
[31] Lewins Affidavit [34].
On 25 March 2014 the Deed Administrator announced that an agreement had been executed between the Company and a third party for the sale of the assets of the Company.
Mr Lewins says that his ad hoc working arrangement continued until 30 September 2014, when he ceased being paid by the Company for any work undertaken.[32]
[32] Lewins Affidavit [35] ‑ [36].
The Deed Administrator confirms that Mr Lewins performed work for the Company including assisting with the sale of the Company's assets up to 30 September 2014. He caused Mr Lewins to be paid a total of $758,160 for that work.[33]
[33] Hughes Affidavit [13].
The Deed Administrator advances three main reasons why the work undertaken by Mr Lewins after 13 July 2012 was undertaken under the Employment Contract.
The first is that there is a contemporaneous record of this being the position of the Deed Administrator. There is an email from the Company's accountant to a director of Pitcher Partners, the Deed Administrator's firm, dated 28 August 2012 in which a director of Pitcher Partners states: 'John is to be paid as an employee, he has a 12 month notice period and the days he works will be deducted from that'.[34] However, Mr Lewins did not receive a copy of this email, nor was this view ever communicated to him.[35]
[34] Hughes Affidavit BKH3 (12).
[35] Second Lewins Affidavit [23].
The second is that after 29 June 2012 the Deed Administrator paid Mr Lewins as an employee, including paying his tax and superannuation.[36] However, this is a neutral fact, as it is equally consistent with the Company and Mr Lewins entering into a new arrangement after 13 July 2012 for Mr Lewins to be employed as a consultant.
[36] Hughes Affidavit [17].
The final reason advanced by the Deed Administrator is that there was no reason for him to engage Mr Lewins as a contractor or enter into a new contract of employment with him when he had a 12 month notice period. To do so would result in Mr Lewins being paid twice, his salary of $550,000 for the notice period and salary on a time based model. The effect of this would be to dilute the moneys available to the Company's unsecured creditors, reducing the already low return to creditors, which may be as low as nil.[37]
[37] Hughes Affidavit [21].
I am satisfied that the work undertaken by Mr Lewins after 13 July 2012 was undertaken under a new contractual employment arrangement. This is for four reasons.
The first is that the responsibilities under the Contract of Employment are incompatible with the appointment of a deed administrator. By cl 3(a) of the Contract of Employment, Mr Lewins is appointed managing director, it being expressly stated that 'authority for the day to day management of the Company' vested in him. By CA s 437A,(1)(a) while 'a company is under administration, the administrator … has control of the company's business, property and affairs'. The Deed Administrator states that he still viewed Mr Lewins as the Managing Director 'save that his powers were suspended under the Act in favour of me'.[38] He states that the services provided by Mr Lewins were 'of a kind that he had previously provided to [the Company] as managing director and similar to those that a managing director would ordinarily provide, save that he reported to me as Deed Administrator'.[39] Mr Lewins contests this characterisation, in particular pointing out that he only worked on the issues and at the times he was requested to do so, whereas as managing director he worked on whatever issues he determined required attention.[40]
[38] Hughes Affidavit [18].
[39] Hughes Affidavit [16].
[40] Second Lewins Affidavit [14].
The second is that Mr Lewins ceased to describe himself in communications with the Deed Administrator as being the managing director. Rather, he referred to himself as a 'Non Executive Director'.[41] These communications included communications with the Deed Administrator and his staff.[42] The Deed Administrator notes that he never appointed Mr Lewins as a non‑executive director, nor were there any shareholders resolutions to that effect during the relevant period.[43] However, the Deed Administrator did approve Mr Lewins signing documents (under his approval) as a director.[44] Mr Lewins notes that the move to the position of non‑executive director had been foreshadowed at a directors' meeting, at which the Deed Administrator was present, in June 2012.[45] Mr Lewins identifying himself as a non‑executive director is inconsistent with him continuing to be employed as managing director under the Employment Contract, but is consistent with him being employed as a consultant.
[41] Lewins Affidavit JDL‑5, JDL‑6, JDL‑7, JDL‑8 and JDL‑9.
[42] Second Lewins Affidavit [26], JDL‑4 (19).
[43] Hughes Affidavit [18].
[44] Second Lewins Affidavit, JDL4 (19).
[45] Second Lewins Affidavit, JDL2 (13 ‑ 14).
The third is the email of 16 October 2012 in which Mr Lewins sought to engage with the Deed Administrator about a 'Short Term Contract', to quote the email reference line (see [27] above).[46] This email reflects Mr Lewins' position that he was engaged as an employee on an ad hoc basis. If the position was as described by the Deed Administrator, one would have expected an immediate email reply from the Deed Administrator to the effect that no further contract was needed as Mr Lewins was working out his notice period. There is no such email in evidence before me. The email exchanges of October and December 2013 referred to above ([28] ‑ [29]) are also only consistent with Mr Lewins being employed as a consultant, though are of less weight as they postdate the end of any 12 month notice period.
[46] Lewins Affidavit JDL‑8 (41).
The fourth reason is that at no time following his termination as managing director did Mr Lewins actually receive gross remuneration in the amount of $550,000 per annum as required by the Employment Contract.[47] Rather, he was submitting time sheets and being paid in accordance with the hours worked.[48] This is inconsistent with the terms of the Employment Contract. The Deed Administrator states the he caused Mr Lewins' salary to be capped at one twelfth of his annual salary.[49] This is more consistent with Mr Lewins being employed as a consultant than under the Employment Contract; if he was being employed under the Employment Contract his monthly salary would have actually been one twelfth of his annual salary, and would not merely have been capped at this amount. Further, as a matter of law, a change in pay of this nature would have represented such a fundamental departure from the Employment Contract that this contract would be considered repudiated.[50] Alternatively, this treatment would have been so inimical to the ongoing employer/employee relationship as to constitute a constructive dismissal.[51]
[47] Second Lewins Affidavit [18].
[48] Second Lewins Affidavit [22].
[49] Hughes Affidavit [17].
[50] Spencer v Dowling [1997] 2 VR 127, 160 (Hayne J).
[51] Spencer (160); Easling v Mahoney Insurance Brokers Pty Ltd [2001] SASC 22 [99] (Olsson J).
Although the Deed Administrator, and perhaps some of his staff, may have believed that Mr Lewins was working out the balance of his notice period, this was not communicated to Mr Lewins.
As I have noted, it is not in dispute that there was a contractual employment relationship between the Company (through the Deed Administrator) and Mr Lewins throughout the period from July 2012 to September 2014. The issue is the terms; whether it was a continuation of the Employment Contract or a new contract. The terms on which Mr Lewins and the Company (through the Deed Administrator) contracted are to be determined objectively. As the High Court observed in Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd:[52]
It is not the subjective beliefs or understandings of the parties about their rights and liabilities that govern their contractual relations. What matters is what each party by words and conduct would have led a reasonable person in the position of the other party to believe. References to the common intention of the parties to a contract are to be understood as referring to what a reasonable person would understand by the language in which the parties have expressed their agreement. The meaning of the terms of a contractual document is to be determined by what a reasonable person would have understood them to mean. That, normally, requires consideration not only of the text, but also of the surrounding circumstances known to the parties, and the purpose and object of the transaction.
[52] Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52; (2004) 219 CLR 165 [40] (Gleeson CJ, Gummow, Hayne, Callinan & Heydon JJ). See also: Pacific Carriers Ltd v BNP Paribas [2004] HCA 35; (2004) 218 CLR 451 [22] (Gleeson CJ, Gummow, Hayne, Callinan & Heydon JJ).
The principle of objectivity also governs the question of whether a new contract was made. Thus, in Smith v Hughes Blackburn J stated:[53]
If, whatever a man's real intention may be, he so conducts himself that a reasonable man would believe that he was assenting to the terms proposed by the other party, and that other party upon that belief enters into the contract with him, the man thus conducting himself would equally be bound as if he had intended to agree to the other party's terms.
[53] Smith v Hughes (1871) LR6QB 597, 607.
Viewed objectively, and having regard to the conduct of Mr Lewins and the Deed Administrator and his staff throughout the period from July 2012 to September 2014, I am satisfied that in late July 2012, the Deed Administrator engaged Mr Lewins as an employed consultant, pursuant to a new contract, under which he was paid for hours he worked. That contract was an ad hoc arrangement which could have been terminated without notice by either Mr Lewins or the Deed Administrator.
Significantly, the existence of this new contract did not change or undo the previous agreement reached in early July 2012 to fix a sum to be paid in lieu of the requirement in the Employment Contract for Mr Lewins to be given 12 months' notice of termination.
In what amount ought the Proof of Debt have been admitted?
In summary terms, for the reasons set out above, I find that:
(a)the Employment Contract was terminated by the Notice of Termination, effective 29 June 2012;
(b)pursuant to the Employment Contract, Mr Lewins was entitled to 12 months' notice in the event of unilateral termination;
(c)in early July 2012 the Deed Administrator and Mr Lewins agreed that he would be paid the sum of $550,000 in lieu of notice;
(d)in late July 2012, the Deed Administrator engaged Mr Lewins as an employed consultant, pursuant to which he was paid for the hours he worked; and
(e)the contract in (d) did not alter the liability of the company in (c).
The following table sets out the amount claimed in the Proof of Debt and the Deed Administrator's response:
Description Amount claimed Amount allowed Deed Administrator's response Annual leave $252,729.33 $252,729.74 Allowed in full Long service leave $100,837.21 $119,171.25 Increased to reflect period of service to 30 September 2014. Notice $550,000 Nil Redundancy $126,923.08 $126,923.03 Allowed in full Total $1,030,489.62 $498,824.02
Applying the principles set out above [9], Mr Lewins has discharged the onus on him to establish facts which satisfy me that amount of $550,000 by way of agreed payment in lieu of notice should have been admitted as a true liability of the Company, enforceable against it.
Given the findings in [50], the additional amount allowed for long service leave ought to be removed, as this is based on the premise that the Employment Contract continued to run until 30 September 2014. This amount ought to be limited to the amount in the Proof of Debt, $100,837.21.
I find that the Proof of Debt should be allowed as claimed in the amount of $1,030,489.62.
I will hear from the parties as to the form of the final orders and costs.
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