Marsland v Gamble - [2002] WASC 213

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CIVIL

CITATION: MARSLAND -v- GAMBLE [2002] WASC 213

CORAM: BARKER J

HEARD: 21 AUGUST 2002

DELIVERED : 6 SEPTEMBER 2002

FILE NO/S: COR 118 of 2002

BETWEEN: BRETT KENNETH MARSLAND
Applicant
AND
RONALD DEREK GAMBLE
Respondent

Catchwords:

Corporations - Winding up - Proof of debt - Appeal by creditor against decision of respondent liquidator to reject part of formal proof of debt

Corporations - Corporations Law, s 1321 - Rules of the Supreme Court 1971 (WA) O 81G r 81

Whether nature of appeal is by rehearing or de novo

Appeal - Refusal of liquidator to accept claim entitlement to redundancy or termination payment - Employment contract - Express notice provision - Payment of four weeks' salary in lieu of notice more than adequate - Appeal dismissed

Appeal - Refusal of liquidator to accept claim for profit share - Terms of employment agreement - Claim for profit share not made out - Appeal dismissed

Legislation:

Corporations Law, s 1321

Rules of the Supreme Court, O 81G r 81

Result:

Appeal dismissed

Category: B

Representation:

Counsel:

Applicant: Mr W L Goodlet
Respondent: Mr A M Prime

Solicitors:

Applicant: Unmack & Unmack
Respondent: McCallum Donovan Sweeney

Case(s) referred to in judgment(s):

Coal Allied Operations Pty Ltd v Australian Industrial Relations Commission (2000) 203 CLR 194
McClelland v Northern Ireland General Health Services Board [1957] 1 WLR 594
New South Wales Cancer Council v Sarfaty (1992) 28 NSWLR 68
Re Kentwood Constructions Ltd [1960] 1 WLR 646
Tanning Research Laboratories Inc v O'Brien (1991) 169 CLR 332
Vincent, White and Associates v Vouris (1998) 16 ACLC 974
Westpac Banking Corporation v Totterdell (1998) 20 WAR 150

Case(s) also cited:

Nil

BARKER J: In this matter the applicant appeals against the decision of the respondent, as liquidator of the company, K Mountain Holdings Pty Ltd, to reject part of a formal proof of debt lodged by the applicant. The appeal is made pursuant to s 1321 of the Corporations Law and O 81G r 81 of the Rules of the Supreme Court.
Section 1321 of the Corporations Law provides as follows:
"A person aggrieved by any act, omission or decision of -
(a)…
(b)…
(c)…
(ca)…
(d)a liquidator or provisional liquidator of a company;
may appeal to the Court in respect of the act, omission or decision and a Court may confirm, reverse or modify the act or decision or remedy the omission as the case may be and make such orders and such directions as it thinks fit."
The originating process in the matter was dated and filed 19 April 2002. The respondent's Form 537, notice of rejection of formal proof of debt, was dated 25 March 2002. As such, the originating process should have been filed within 21 days of that rejection, pursuant to O 81G r 81(2)(a). At the hearing of the appeal the Court formally extended the time for filing of the originating process until 19 April 2002, pursuant to O 81G r 81(2)(b).
The originating process of the applicant appealed against the rejection by the respondent of the formal proof of debt in relation to two matters, which are described in the originating process as follows:
"(a)The redundancy claim for 2 weeks' salary for each year of service for 3.5 years; and
(b)For a share in the profits of the business carried out by the said company as KMC Maintenance of which business the applicant was the duly appointed manager."
The originating process was originally supported by an affidavit of the applicant, together with annexures 1 ‑ 3 sworn 18 April 2002 and filed 19 April 2002 (the applicant's first affidavit). In response to the applicant's first affidavit, the respondent lodged an affidavit with annexures RDG1 ‑ RDG11 sworn 30 May 2002 (the respondent's affidavit). On 16 August 2002, the applicant swore and filed a further affidavit in support of the originating process in answer to the respondent's affidavit (the applicant's second affidavit). On 30 August 2002 the respondent sought to file the affidavit of William Kim Mountain, sworn 20 August 2002, in response to the applicant's second affidavit.
The hearing of the appeal proceeded on the basis that the two affidavits filed on behalf of each of the applicant and respondent were received and read in the appeal, notwithstanding that the applicant's last affidavit and the affidavit of Mr Mountain were each filed out of time. To the extent that it may be necessary, the Court grants leave in respect of the late filing of each of those affidavits.
In Westpac Banking Corporation v Totterdell (1998) 20 WAR 150, Ipp J, with whom Pidgeon and White JJ agreed, in dealing with an appeal by an aggrieved creditor against the decision of a liquidator admitting a proof of debt, appears to have characterised an "appeal" under s 1321 of the Corporations Law as one in the nature of a rehearing. Ipp J stated at 154 as follows:
"The appellants contended that the onus of proving that JMTH's proof of debt was correctly admitted lay upon the liquidator. This was rejected by the learned Judge and in my view quite rightly. Although the issue before the Court on appeal is whether the liability referred to in the proof of debt is a true liability of the company, enforceable against it (Tanning Research Laboratories Inc v O'Brien (1991) 169 CLR 332 at 341), it remains incumbent on the appellant to show that the liquidator was wrong in admitting the proof of debt. As Kennedy J said in Bradshaw v Medical Board (WA) (1990) 3 WAR 322 at 328:
'An appeal in the nature of re‑hearing under the [Medical Act 1894 (WA)] remains an appeal and the Court 'must recognise the onus upon the appellant to satisfy it that the decision below is wrong': Powell v Streatham Manor Nursing Home [1935] AC 243 at 255, per Lord Atkin.'
Although Bradshaw v Medical Board (WA) concerned different legislation, the nature of an appeal under s 1321 is the same as that considered in that case, and the rule mentioned by Kennedy J is equally applicable."
While Westpac v Totterdell involved the appeal of a creditor against the decision of a liquidator to admit a formal proof of debt, it is clear the Full Court proceeded on the basis that the relevant principle concerning the nature of an "appeal" and onus was the same in a case where the appeal was against a decision to reject a formal proof of debt. Indeed, in the passage cited above, the Full Court relied upon the decision of the High Court in Tanning Research Laboratories Inc v O'Brien (1991) 169 CLR 332. O'Brien's case involved an appeal against the rejection of a formal proof of debt. In the joint judgment of Brennan and Dawson JJ at 340 ‑ 341, their Honours noted:
"If the liquidator, in performing his function of considering the admissibility of proofs of debt, decides to reject a proof of debt, the ordinary remedy of the person claiming to be admitted as a creditor is to apply to the Court to reverse or modify the decision … The proceedings thus instituted, though often referred to as an 'appeal' from the liquidator's decision to reject, are originating proceedings which the Court hears de novo: In re Bird's Stores Pty Ltd (1931) 37 Arg LR 94; In re Kentwood Constructions Ltd [1960] 1 WLR 646; In re Trepca Mines Ltd [1960] 1 WLR 1273 … The issue in the proceeding is whether the liability referred to in the proof of debt is a true liability of a company enforceable against it."
It is clear enough from Tanning Research Laboratories Inc v O'Brien and Westpac v Totterdell that a person who has their formal proof of debt rejected in whole or in part has standing to appeal under s 1321 of the Corporations Law.
In such an "appeal", it appears that material not before the liquidator at the time of his decision, or not considered by him, may nonetheless be considered on the "appeal" and taken into account by the Court: Re Kentwood Constructions Ltd [1960] 1 WLR 646; Vincent, White and Associates v Vouris (1998) 16 ACLC 974 at 980.
It may be observed that in Westpac Banking Corporation v Totterdell (supra) the Full Court characterised the "appeal" as in the nature of a "re‑hearing", whereas in O'Brien's case, albeit in relation to a predecessor provision to s 1321, their Honours spoke of the hearing being de novo. The consequences of such classifications of appeals was explained in the joint judgment of Gleeson CJ, Gaudron and Hayne JJ in Coal Allied Operations Pty Ltd v Australian Industrial Relations Commission (2000) 203 CLR 194 at 202 ‑ 204, in these terms:
"It was pointed out in Brideson [No 2] that 'the nature of [an] appeal must ultimately depend on the terms of the statute conferring the right [of appeal]' (footnote omitted). The statute in question may confer limited or large powers on an appellate body; it may confer powers that are unique to the tribunal concerned or powers that are common to other appellate bodies. There is, thus, no definitive classification of appeals, merely descriptive phrases by which an appeal to one body may sometimes be conveniently distinguished from an appeal to another (footnote omitted).
It is common and often convenient to describe an appeal to a court or tribunal whose function is simply to determine whether the decision in question was right or wrong on the evidence and the law as it stood when that decision was given as an appeal in the strict sense. An appeal to this Court under s 73 of the Constitution is an appeal of that kind (footnote omitted). In the case of an appeal in the strict sense, an appellate court or tribunal cannot receive further evidence (footnote omitted) and its powers are limited to setting aside the decision under repeal and, if it be appropriate, to substituting the decision that should have been made at first instance (footnote omitted).
If an appellate tribunal can receive further evidence and its powers are not restricted to making the decision that should have been made at first instance, the appeal is usually and conveniently described as an appeal by way of rehearing. Although further evidence may be admitted on an appeal of that kind, the appeal is usually conducted by reference to the evidence given at first instance and is to be contrasted with an appeal by way of hearing de novo. In the case of a hearing de novo, the matter is heard afresh and a decision is given on the evidence presented at that hearing (footnote omitted).
Ordinarily, if there has been no further evidence admitted and if there has been no relevant change in the law (footnote omitted), a court or tribunal entertaining an appeal by way of rehearing can exercise its appellate powers only if satisfied that there was error on the part of the primary decision‑maker (footnote omitted). That is because statutory provisions conferring appellate powers, even in the case of an appeal by way of rehearing, are construed on the basis that, unless there is something to indicate otherwise, the power is to be exercised for the correction of error (footnote omitted). However, the conferral of a right of appeal by way of a hearing de novo is construed as a proceeding in which the appellate body is required to exercise its powers whether or not there was error at first instance (footnote omitted).
The provision considered in Brideson [No 2] conferred power on the Commission to take further evidence, a provision which is indicative of an appeal by way of rehearing. It also required the Commission to 'make such order as it [thought] fit' (footnote omitted). The latter requirement indicated that the Commission's appellate powers were not constrained by the need to identify error on the part of the primary decision‑maker, but, rather, that the Commission was obliged to give its own decision on the evidence before it.
The terms of s 45 of the Act are different from the terms of the provision considered in Brideson [No 2]. Unlike that provision, s 45 does not require a Full Bench of the Commission to 'make such order as it thinks fit'. Nor is there anything else in the terms of s 45 to suggest that the powers of the Full Bench are exercisable or, as in Brideson [No 2], are required to be exercised in the absence of error on the part of the primary decision‑maker."
In such circumstances, it may be questioned whether it is truly correct to say that an "appeal" under s 1321 of the Corporations Law is by way of rehearing, given the Court's power to "confirm, reverse or modify the … decision … and make such orders and such directions as it thinks fit". This power, taken together with the authorities that confirm the ability of the Court to receive further evidence on the hearing of such an "appeal" as cited above, may well make it more accurate to say that on such an "appeal" the Court hears the matter de novo. If the latter position be the correct position, the Court should make its own decision on the evidence before it and not merely decide if there was error on the part of the primary decision‑maker.
In this case the respondent, as liquidator of the company K Mountain Holdings Pty Ltd, rejected the applicant's formal proof of debt in respect of a claimed entitlement of the applicant to a redundancy or termination payment in respect of his former employment with the company, as well as a claimed entitlement of the applicant pursuant to the terms of an employment contract between the applicant and the company. The liquidator admitted the balance of the applicant's proof of debt in respect of a separate claim to leave entitlements.
In respect of the redundancy or termination payment, the applicant claimed there is a true liability of the company at the material time in the sum of $10,094, being two weeks' salary for each year or part year of service, namely, seven weeks. As it transpires, the respondent had earlier authorised a termination payment in favour of the applicant in the net sum of $3343.40, following the termination of the applicant's employment with the company, representing a period of four weeks' salary paid in lieu of notice (being one week for every year of his employment, plus an extra week by reason of the applicant's age being in excess of 45 years). This payment was made on the advice of an employment consultant: see pars 12 and 13 and attachment RDG5 of the respondent's affidavit.
Advancing an argument for contractual entitlement to a redundancy or termination payment in a greater sum, counsel for the applicant drew the attention of the Court to two letters that comprised the employment arrangements at material times between the applicant and the company. The first is dated 16 February 1998 and is attachment RDG7 to the respondent's affidavit. It constitutes an offer and acceptance of a formal employment contract. On the letterhead of the company, it deals with salary, incentive bonus and an item called "Productivity Share of Net Profit". That letter makes no reference to any relevant termination period. However, the portion of the letter that deals with salary provides that it should be "paid weekly, taxable". The evidence discloses that at all material times the applicant was paid weekly: see the weekly time, pay and wages book extracts contained in attachment RDG10 to the respondent's affidavit.
It appears that following a performance review during 1999, the terms of the employment contract were altered and a new employment contract was concluded. By letter dated 23 June 1999 on the letterhead of the company, and signed by the applicant and Kim Mountain, the chief executive officer of the company, a new employment arrangement was agreed to. The base salary was increased. No reference is made therein to the periodic payment of salary, though it appears from the records referred to that it continued thereafter to be paid on a weekly basis. Additionally, a fresh agreement concerning "Productivity Share of Net Profit" was made, together with a new "incentive bonus". This new employment contract, unlike the earlier one, dealt specifically with the question of termination and provided as follows:
"With respect to termination, K Mountain and Co or you may terminate this Agreement by giving 2 weeks' notice in writing."
The letter also provided that "Review of your Employment Agreement will take place annually". This letter is attachment RDG8 to the respondent's affidavit.
The applicant says that, notwithstanding the termination provision in the "Employment Agreement" dated 23 June 1999, that provision did not govern the termination of the applicant's employment with the company by the liquidator in June 2001, at which time the applicant's employment was terminated by the respondent as liquidator. Counsel for the applicant points to the fact that the liquidator actually paid the equivalent of four weeks' salary in lieu of notice and not the two weeks' salary which would apparently have been sufficient to satisfy the contractual termination provision. Counsel said that because this conduct by the liquidator is inconsistent with the contractual provision, it must be assumed, in effect, that the contractual provision did not apply or had ceased to apply. In these circumstances, it was submitted, the redundancy or termination claim and formula adopted by the applicant in his formal proof of debt to the liquidator was reasonable and should have been adopted by the liquidator. Counsel for the applicant, in effect, invited the Court to rule that the termination provision in the Employment Agreement of 23 June 1999 ceased to have force and that some other reasonable notice and termination payment provision should be read into the employment arrangements in lieu thereof. Counsel for the applicant did not support this submission with any authority or other argument based on principle.
In these circumstances, there being no other evidence on the hearing of the "appeal" before the Court, the Court is compelled to find that the decision of the liquidator to reject the proof of debt, insofar as it comprised the redundancy or termination claim, was not wrong. Moreover, on the evidence, the Court does not itself consider any other decision is open to it. The evidence plainly suggests that the letter of 23 June 1999 continued to govern the employment arrangements between the applicant and the company beyond 30 June 2000, and that the company was entitled to terminate the applicant's employment on two weeks' notice. On general authority, two weeks' salary in lieu of such notice would suffice.
When an express notice provision is included in an employment contract, and it is intended by the parties to be comprehensive, the notice provision will apply and there will be no implication of a right to terminate only on reasonable notice: see McClelland v Northern Ireland General Health Services Board [1957] 1 WLR 594; New South Wales Cancer Council v Sarfaty (1992) 28 NSWLR 68 at 74 ‑ 75; Macken et al, "The Law of Employment" 4th ed pp 164 ‑ 168.
The payment of four weeks' salary in lieu of notice actually made by the liquidator appears to have been based on an employment consultant's advice. The court is told nothing further about it. To the extent that it appears to be different from the requirement of the contractual provision, it may be said to err on the side of generosity or otherwise to reflect usual industry practice.
Accordingly, in relation to the question of the redundancy claim in the formal proof of debt, the Court is not satisfied either that the decision of the respondent appealed against is wrong or that the Court would itself find differently and so the appeal in that respect must fail.
The applicant further appealed against the refusal of the liquidator to accept a claim for a profit share for KMC Maintenance in the sum of $14,500.
The evidence discloses that the company operated three divisions. These are explained in a report to creditors of the respondent that is attachment RDG6 to the respondent's affidavit. "K Mountain and Co" was the commercial building division of the company. It was registered as a business name on 5 August 1983 and apparently operated from that date. "KMC Maintenance" was the maintenance contracting division of the company. It appears that the company had operated under that business name since 22 October 1999, that is during a period after the conclusion of the Employment Agreement dated 23 June 1999. "Mountain Development" was the residential unit/building division of the company. It appears that the company had also been operating this business since 22 October 1999.

As noted above, the two relevant employment contracts (and the only employment contract adduced in evidence) were between "K Mountain and Co" and the applicant. They were on the letterhead of this division and only refer to it. Of course, at the relevant dates, the two other divisions had not been created and so that fact would not have come as a surprise to the liquidator. The Employment Agreement dated 23 June 1999 provided in respect of "Productivity Share of Net Profit" as follows:
"2.Productivity Share of Net Profit
Continuing on from your employment agreement last year, you will be entitled to receive the following percentage share of net profit for the period 1 July 1999 to 30 June 2000.
Second year 5 per cent of net profit
Third year9 per cent of net profit
Fourth year 10 per cent of net profit
Fifth year 12 per cent of net profit
Any entitlement will be due and payable in September 2000."
Notwithstanding the provision of this Employment Agreement dated 23 June 1999 that there should be a review of the employment agreement annually, as referred to above, there does not appear to have been a review of the Employment Agreement for the purposes of the period to commence on 1 July 2000. It would appear, on the evidence before the Court, and before the liquidator, in my view, that the terms of the employment agreement dated 23 June 1999 continued to govern the employment arrangements between the applicant and the company after 30 June 2000 and at material times.
However, in the first and second affidavits of the applicant, the applicant emphasised that the entity KMC Maintenance did not come into existence until some 18 months after he had first been employed as the general manager of K Mountain and Co. He claimed that he was then given the role of manager of the new entity and was required to give quotations on behalf of that entity for much of the work and to make executive decisions. However, he accepted that his role was shared with Mr Kim Mountain, the director of the company. The applicant says that, based on this new or additional role within the company, in respect of the activities of KMC Maintenance, he made, and was entitled to make, a claim for the share of net profits of KMC Maintenance in his formal proof of debt. He claims he was not obliged to prove in respect of K Mountain and Co or take the profitability of that division of the company into account when so proving.
The respondent, in his affidavit and in submissions made on his behalf, states that as at 30 June 2001, based on the company's Triumph Accounting System Records, the net profit (loss) position of the three divisions of the company was said to be as follows:
(a)K Mountain and Co $(68,549)
(b)KMC Maintenance $102,577
(c)Mountain Developments $(78,577)
This was not disputed by the applicant, although he did not accept the respondent's further evidence that the losses of the company may in fact be greater than disclosed by this accounting system.
In other words, at the relevant date, apparently the only profitable division of the company was KMC Maintenance. It is said on behalf of the respondent that the applicant has only made a claim for a share of profits in respect of KMC Maintenance, because it was the only division within the company that had made a profit. That may be so, but the question is whether the applicant had a legal entitlement to do so.
The respondent further disputes the claim that the applicant was in fact employed by the company in relation to the division KMC Maintenance. In his affidavit sworn 20 August 2002, Mr Mountain, the sole director of the company at material times, states in par 4 that at no time during the applicant's employment with the company did the applicant's position change from general manager of K Mountain and Co. He adds that specifically the applicant was never employed, or moved, to be general manager of KMC Maintenance. In support of this evidence, Mr Mountain annexes relevant parts of an agreement that the company, through its division KMC Maintenance, made with Caltex Australia. That is signed for "KMC Maintenance Pty Ltd" by Mr Mountain. The applicant was a witness to that signature. Accepting that "KMC Maintenance Pty Ltd" is a reference to "KMC Maintenance", the submission made on behalf of the respondent is that the document disproves the claim of the applicant to have been engaged to work on behalf of KMC Maintenance at material times. It is not at all clear that the attachment to the affidavit supports that conclusive view, although it may tend to support a suggestion that it was Mr Mountain, and not the applicant, who took primary responsibility for the affairs of KMC Maintenance at material times.
The difficulty with the applicant's claim to a share of profits of the KMC Maintenance division is that there is nothing in the terms of the Employment Agreement dated 23 June 1999 that entitles the applicant to a productivity share of net profit of the KMC Maintenance division. That is not entirely surprising given KMC Maintenance was not created until after this agreement was signed. Nevertheless, the Employment Agreement plainly was in respect of the K Mountain and Co division of the company and no other. That is clear, in my view, from the terms of the first Employment Agreement dated 16 February 1998, the second Employment Agreement dated 23 June 1999, as well as from the description of the applicant's position as general manager of K Mountain and Co which is set out in attachment RDG9 to the respondent's affidavit.
In response to this observation, counsel for the applicant said that, while there was no written or oral agreement or variation agreement put forward on behalf of the applicant, there was a new agreement, by conduct, whereby the applicant was to receive a productivity share of net profit in similar terms to those set out in the employment agreement dated 23 June 1999, in respect of the KMC Maintenance division of the company. Counsel expressly did not rely on a fresh written or oral agreement to this effect - only an agreement by conduct.
The Court is unable to discern any evidence of such an agreement, whether express, oral or by conduct, and none was identified by counsel for the applicant. The most that can be said on the evidence is that the applicant may have rendered some services to the company in respect of the KMC Maintenance division of the company, and may well have been remunerated for that work. However, there is nothing to suggest that there was a contractual entitlement in the plaintiff, and a liability in the company, to remunerate the applicant with a "Productivity Share of Net Profit" of that division of the company.
While it is not strictly necessary in these circumstances for the Court to consider the matter further in light of this finding, if the applicant were able to point to some compelling evidentiary basis to the claim to profits - on the basis that he became responsible for the business of KMC Maintenance as well as K Mountain and Co - it would be difficult to understand why the applicant should necessarily thereby become entitled to prove in respect of the profits of the one division without taking account of the performance of the other division. This merely serves to highlight the Court's view that no contractual entitlement has been shown in respect of the profits of the KMC Maintenance division of the company.
For these reasons, in my view, the applicant has not shown that the decision of the respondent to reject that part of the formal proof of debt that comprised a claim for share of net profit of the KMC Maintenance division of the company was wrong nor does the evidence permit the Court itself to find that the company had a true liability to the applicant in respect of the claimed share of profits.
Accordingly, for these reasons, the "appeal" must fail.
In so finding, it has been brought to my attention that, since the "appeal" was heard and I reserved my decision, the solicitors for the applicant have filed, or attempted to file, a further affidavit in support of the "appeal". There being no leave to file further affidavit evidence in the "appeal", I have neither read nor taken account of such affidavit.