Mr Jeremy Scott v Flinders Island Meat Pty Ltd

[2018] FWC 1469

[2018] FWC 1469

FAIR WORK COMMISSION

DECISION

Fair Work Act 2009
s.394 - Application for unfair dismissal remedy

Mr Jeremy Scott
v
Flinders Island Meat Pty Ltd
(U2016/14181)

COMMISSIONER CRIBB MELBOURNE, 9 APRIL 2018

Application for relief from unfair dismissal - jurisdictional objection - associated entity.

[1] Mr Jeremy Scott (the Applicant) has lodged an application under section 394 of the Fair Work Act 2009 (the Act) for an unfair dismissal remedy. The application is in relation to his dismissal by Flinders Island Meat Pty Ltd (the Respondent, the company, Flinders Island Meat).

[2] The company filed a jurisdictional objection on the grounds that it was a small business employer and that, therefore, Mr Scott did not meet the required minimum employment period. Mr Scott commenced employment with the company on 7 March 2016 and was dismissed on 7 November 2016.

[3] A determinative conference was held on 16 March 2017 to deal with the company’s jurisdictional objection. At the end of the determinative conference, the Commission was unable to make a decision in relation to the objection. This was because a number of contentions had been made by Mr Scott during the determinative conference. It was then agreed that both parties were to file additional material in relation to the number of employees the company employed at the time of Mr Scott’s dismissal.

[4] Prior to adjourning the determinative conference, as the result of an inquiry from the Commission, the parties agreed to commence negotiations about a possible settlement of the application. Unfortunately, the parties were unable to reach an agreement following protracted negotiations.

[5] At the determinative conference, it was also alleged by Mr Scott that Flinders Island Meat and Midgeon Holdings Pty Ltd (Midgeon Holdings) were associated entities with the result that the employees of Midgeon Holdings would be counted in determining whether or not Flinders Island Meat was a small business employer. Flinders Island Meat disputed the claim that the two companies were associated entities.

[6] On 26 September 2017 the Commission issued Directions for the filing of material in relation to this issue. Documentation was filed by the company on 9 October, and a witness statement filed by Mr Scott on 18 October 2017. Upon receipt of this further material, the Commission formed the view that it was necessary to have sworn evidence from Mr Hui, Chief Financial Officer with Midgeon Holdings Pty Ltd, Mr Bartholemew, Company Accountant for Flinders Island Meat and Mr Madden, Director and Chief Executive Officer of Flinders Island Meat, and for these persons to give oral evidence and be available for cross examination by Mr Scott. Witness statements for these three persons were filed with the Commission on 16 December 2017.

[7] A hearing was held on Wednesday 21 February 2018 for the purpose of determining whether Midgeon Holdings is an associated entity of Flinders Island Meat in accordance with s.50AAA of the Corporations Act 2001 (the Corporations Act). Mr Scott did not attend the hearing despite having been notified of the date. The Commission was unable to make contact with Mr Scott at that time and the hearing proceeded in his absence. During the hearing, the Commission, in Mr Scott’s absence, asked questions of the witnesses in relation to various issues that had been raised by Mr Scott in the submissions that he had filed in response to the Directions.

[8] Following the hearing, Mr Scott was sent a copy of the transcript of the hearing and was provided with two weeks in which to file any response to the evidence contained in the transcript. 1 Also after the hearing, the Respondent provided to the Commission and Mr Scott, a link to the document that was discussed during the hearing by Mr Bartholemew.2

[9] This decision, therefore, deals with the issue of whether or not Flinders Island Meat and Midgeon Holdings are associated entities in accordance with section 50AAA of the Corporations Act 2001.

Legislative framework

Fair Work Act 2009

[10] In assessing whether an employer is a small business employer, section 23 of the Act provides as follows:

“23 Meaning of small business employer

(1) A national system employer is a small business employer at a particular time if the employer employs fewer than 15 employees at that time.

(2) For the purpose of calculating the number of employees employed by the employer at a particular time:

(a) subject to paragraph (b), all employees employed by the employer at that time are to be counted; and

(b) a casual employee is not to be counted unless, at that time, he or she has been employed by the employer on a regular and systematic basis.

(3) For the purpose of calculating the number of employees employed by the employer at a particular time, associated entities are taken to be one entity.

(4) To avoid doubt, in determining whether a national system employer is a small business employer at a particular time in relation to the dismissal of an employee, or termination of an employee’s employment, the employees that are to be counted include (subject to paragraph (2)(b)):

(a) the employee who is being dismissed or whose employment is being terminated; and

(b) any other employee of the employer who is also being dismissed or whose employment is also being terminated.”

[11] Section 12 of the Act states:

“associated entity has the meaning given by section 50AAA of the Corporations Act 2001.”

Corporations Act 2001

[12] Section 50AAA of the Corporations Act defines an associated entity in the following terms:

“50AAA Associated entities

(1) One entity (the associate) is an associated entity of another entity (the principal) if subsection (2), (3), (4), (5), (6) or (7) is satisfied.

(2) This subsection is satisfied if the associate and the principal are related bodies corporate.

(3) This subsection is satisfied if the principal controls the associate.

(4) This subsection is satisfied if:

(a) the associate controls the principal; and

(b) the operations, resources or affairs of the principal are material to the associate.

(1) This subsection is satisfied if:

(a) the associate has a qualifying investment (see subsection (8)) in the principal; and

(b) the associate has significant influence over the principal; and

(c) the interest is material to the associate.

(1) This subsection is satisfied if:

(a) the principal has a qualifying investment (see subsection (8)) in the associate; and

(b) the principal has significant influence over the associate; and

(c) the interest is material to the principal.

(7) This subsection is satisfied if:

(a) an entity (the third entity) controls both the principal and the associate; and

(b) the operations, resources or affairs of the principal and the associate are both material to the third entity.

(8) For the purposes of this section, one entity (the first entity) has a qualifying investment in another entity (the second entity) if the first entity:

(a) has an asset that is an investment in the second entity; or

(b) has an asset that is the beneficial interest in an investment in the second entity and has control over that asset.”

[13] “Control” is defined in section 50AA of the Corporations Act as follows:

“50AA Control

(1) For the purposes of this Act, an entity controls a second entity if the first entity has the capacity to determine the outcome of decisions about the second entity's financial and operating policies.

(2) In determining whether the first entity has this capacity:

(a) the practical influence the first entity can exert (rather than the rights it can enforce) is the issue to be considered; and

(b) any practice or pattern of behaviour affecting the second entity's financial or operating policies is to be taken into account (even if it involves a breach of an agreement or a breach of trust).

(3) The first entity does not control the second entity merely because the first entity and a third entity jointly have the capacity to determine the outcome of decisions about the second entity's financial and operating policies.

(4) If the first entity:

(a) has the capacity to influence decisions about the second entity's financial and operating policies; and

(b) is under a legal obligation to exercise that capacity for the benefit of someone other than the first entity's members;

the first entity is taken not to control the second entity.”

Evidence

Mr Bartholemew

[14] It was Mr Bartholemew’s evidence that:

•  Flinders Island Meat has no associated entities and so Flinders Island Meat and Midgeon Holdings or anyone else are not associated entities. 3

•  On the basis of the guidance in AASB 1031, in relation to the meaning of “material”, he understood that Midgeon Holdings’ investment in Flinders Island Meat would not be material and therefore subsection 5(c) of section 50AAA of the Corporations Act would not apply. 4

•  Midgeon Holdings’ investment would probably not be a qualifying investment in Flinders Island Meat but, as he did not have the balance sheet in front of him, he could not answer that question. 5

•  He had not experienced Midgeon Holdings exerting influence over Flinders Island Meat. Therefore, subsection (3) of s.50AAA did not apply. 6

•  Subsection (4) of s.50AAA does not apply. 7

•  In relation to subsection (7) of s.50AAA, there is no third entity that controls both the principal and the associate. 8

•  In applying the definition of “related bodies corporate” (section 50 of the Corporations Act), Flinders Island Meat and Midgeon Holdings were not related bodies corporate. 9

Mr Hui

[15] Mr Hui gave evidence, on behalf of Midgeon Holdings, that:

•  Midgeon Holdings is not a holding company of Flinders Island Meat. 10 Midgeon Holdings is a passive investor in Flinders Island Meat and Midgeon Holdings’ primary business is in pastoral land in New South Wales and King Island.11

•  Apart from its investment, Midgeon has no direct or indirect business or operational connection or influence on Flinders Island Meat. Midgeon does not get involved in the day-to-day running of Flinders Island Meat. 12

•  Midgeon Holdings has two representatives on the Board of Flinders Island Meat and does not do very much other than being briefed by Mr Madden on the operations of the business. In the past few years, the Board has met quite irregularly (no more than once or twice a year). 13

•  Midgeon Holdings does not have significant influence over Flinders Island Meat. Midgeon Holdings does not have any influence other than being briefed and having high level discussions. Midgeon Holdings does not have any other involvement in Flinders Island Meat. 14

•  Midgeon Holdings’ investment in Flinders Island Meat was recorded as such. Midgeon Holdings do not account for Flinders Island Meat’s profit or loss each year and there has been no movement in Midgeon Holdings’ investment for 4 - 5 years. Midgeon Holdings does not do any business with Flinders Island Meat – just handed over a cheque as an investment. 15

•  Midgeon Holdings’ investment in Flinders Island Meat was absolutely not material. It is below 5% of the net worth of Midgeon Holdings. 16

Mr Madden

[16] Mr Madden gave evidence that:

•  With respect to subsection (8) of section 50AAA of the Corporations Act, the only relationship between Midgeon Holdings and Flinders Island Meat was that of shareholding. There was no machinery or tools or assets that are owned by Midgeon that are used by Flinders Island Meat. Further, there was no other association between Flinders Island Meat and Midgeon Holdings except for Midgeon Holdings’ passive shareholding. 17

•  The connection between Midgeon and Flinders Island Meat was very limited and Flinders Island Meat was a tiny part of Midgeon Holdings’ portfolio. It was stated that the relationship between Midgeon Holdings and Flinders Island Meat was a very passive one and that Midgeon Holdings had never tried to exert any form of significant influence over Flinders Island Meat – no direction or opinions given. He sent Midgeon Holdings quarterly reports and there was maybe an annual informal Board meeting. 18

•  As it is a 50% shareholding for both parties, neither party can compel any course of action to happen. 19

•  Flinders Island Meat’s shares in Flinders Island Meat are held by the Lady Baron Trust but do not directly benefit the Trust. 20

Mr Scott

[17] Mr Scott provided written submissions in relation to this issue. In Mr Scott’s witness statement, filed 16 January 2018, it was contended that Midgeon Holdings is an associated entity of Flinders Island Meat. This was on the basis that subsections (5) and (6) of section 50AAA are satisfied. 21 It was argued that Midgeon Holdings did have a qualifying investment as it owned half of the shares of Flinders Island Meat.22

[18] Further, Mr Scott submitted that Midgeon Holdings has significant influence as they own 50% of the shares and Flinders Island Meat does not own any. As Lady Baron and Midgeon Holdings have equal shareholding, it was stated that both have significant influence. It was also contended that Midgeon Holdings may have a greater influence in more voting power as the shares are beneficially held. 23

[19] Finally, Mr Scott argued that Midgeon Holdings’ interest in Flinders Island Meat was material as they have direct beneficial ownership of half of the shares and resultant voting power and dividends. 24

[20] Mr Scott also filed a witness statement on 18 October 2017. 25 In this witness statement, it was contended that no entity would allow two members to sit on the Board without holding any influence or power.26 Mr Scott also contended that half the shares were beneficially held by Midgeon Holdings whereas the other half of the shares held by Lady Baron are not beneficially held. It was stated that Lady Baron was holding the shares for the benefit of another member – Midgeon Holdings. “Beneficially held” was said to mean that the owner of the shares gets the direct benefit of the shares. Mr Scott argued that this could involve higher profits from the business but that it most certainly provided superiority in voting rights.27

[21] In Mr Scott’s witness statement, dated 19 January 2017 28, Mr Scott argued that Flinders Island Meat and/or entities associated with Flinders Island Meat, carried on other businesses which were likely to employ a number of employees.29 Mr Scott attached a number of documents in support of this contention.

Considerations

[22] Section 50AAA(1) of the Corporations Act 2001 requires that, for one entity to be an associated entity of another entity, one of subsections (2), (3), (4), (5), (6) or (7) is to be satisfied. I will deal with each of the subsections in turn.

Section 50AAA(2)

[23] This subsection is satisfied if Flinders Island Meat and Midgeon Holdings are related bodies corporate. “Related body corporate” is defined in section 50 of the Corporations Act. It was the evidence of Mr Bartholomew and Mr Hui that Flinders Island Meat and Midgeon Holdings were not related bodies corporate. This was on the basis that Midgeon Holdings was not a holding company of Flinders Island Meat. In addition, Midgeon Holdings’ investment in Flinders Island Meat does not meet the definition of “subsidiary” contained in section 46 of the Corporations Act. This is because the investment is 50% and not 51% or more, as required by section 46.

[24] Therefore, I find that subsection (2) of section 50AAA has not been satisfied.

Section 50AAA(3)

[25] Subsection (3) is satisfied if Flinders Island Meat (the principal) controls Midgeon Holdings (the associate). Section 50AA of the Corporations Act defines what is meant by the word “control” and requires that the first entity has the capacity to determine the outcome of decisions about the second entity’s financial and operational policies. In determining the capacity to determine outcomes, this includes the practical influence the first entity can exert and any practice or pattern of behaviour.

[26] On the basis of the evidence before the Commission, I am not satisfied that Flinders Island Meat controls Midgeon Holdings in the terms set out in Section 50AA. The witness evidence of Mr Bartholomew and Mr Hui point directly to the contrary.

Section 50AAA(4)

[27] This subsection requires Midgeon Holdings (the associate) to be controlling Flinders Island Meat (the principal) 30 and that the operations, resources or affairs of Flinders Island Meat (the principal) are material to Midgeon Holdings (the associate).31 There is no evidence before the Commission that Midgeon Holdings controls Flinders Island Meat in the manner described in section 50AA of the Corporations Act. The evidence of Mr Bartholomew, Mr Hui and Mr Madden indicated that this was not the case. This was on the basis that Midgeon Holdings’ shareholding in Flinders Island Meat is a passive investment and that, as equal shareholders, Midgeon Holdings does not have the capacity to determine decisions about Flinders Island Meat’s financial and operating policies. There is also no evidence of any influence exerted (practical or otherwise) or pattern of behaviour by Midgeon Holdings in relation to Flinders Island Meat.

[28] There is also no evidence that the operations, resources or affairs of Flinders Island Meat are material to Midgeon Holdings. It was Mr Hui’s sworn evidence that Midgeon Holdings’ investment in Flinders Island Meat amounted to less than 5% of Midgeon Holdings’ net worth and that Midgeon Holdings was a passive investor in Flinders Island Meat. There is no basis before me to conclude that Flinders Island Meat’s operations, resources or affairs are material to Midgeon Holdings.

[29] Therefore, I find that this subsection has not been satisfied.

Section 50AAA(5) and (6)

[30] These subsections are mirror images of each other in that the same three requirements apply to the associate (Midgeon Holdings) (subsection 5) and then to the principal (Flinders Island Meat) – subsection (6). The three requirements are that the associate or the principal has a qualifying investment in the other, 32 that the associate or the principal has significant influence over the other33 and that the interest is material to either the associate or the principal.34

Qualifying investment (subsections (5)(a) and (6)(a))

[31] “Qualifying investment” is defined in s.50AAA(8) and requires that one entity has an asset that is an investment in the second entity 35 or has a beneficial interest in an investment in the second entity and has control over that asset.36

[32] Midgeon Holdings has a 50% shareholding in Flinders Island Meat. Therefore, as Midgeon Holdings has an asset that is an investment in Flinders Island Meat, s.50AAA(8)(a) has been met. Accordingly, the requirements of subsection (5)(a) have been satisfied.

[33] There is no evidence that Flinders Island Meat has a shareholding or any other investment in Midgeon Holdings. Therefore the requirements of subsection (6)(a) are not met and, in turn, subsection (6)(b) is therefore not satisfied.

Subsections 5(b) and (c)

[34] These subsections require that Midgeon Holdings has significant influence over Flinders Island Meat and that that interest is material to Midgeon Holdings. Mr Bartholomew, Mr Hui and Mr Madden all gave sworn evidence in relation to these subsections. Their evidence was to the effect that Midgeon Holdings did not have any, let alone significant, influence over Flinders Island Meat and that Midgeon Holdings’ interest (shareholding) in Flinders Island Meat was not material to Midgeon Holdings (being less than 5% of Midgeon Holdings’ net worth). There is nothing before the Commission which would cause the Commission not to accept this evidence. Therefore, on the basis of the sworn evidence before the Commission, I am not satisfied that Midgeon Holdings has significant influence over Flinders Island Meat and that that interest is material to Midgeon Holdings.

Section 50AAA(7)

[35] Subsection (7) concerns a situation where a third entity controls both the principal and the associate. In this matter, there is no evidence of a third entity which controls both Flinders Island Meat and Midgeon Holdings. Therefore, I find that this subsection is not relevant.

Conclusion

[36] On the basis of the findings set out in paragraphs [23] to [35] above, I am not satisfied that Midgeon Holdings is an associated entity of Flinders Island Meat, as defined by section 50AAA of the Corporations Act 2001, in accordance with the requirements of section 23(3) of the Fair Work Act 2009. Accordingly, it is only the employees employed by Flinders Island Meat, as at 7 November 2016, which are to be counted in determining whether or not Flinders Island Meat is a small business employer (section 23 of the Fair Work Act 2009).

Number of Flinders Island Meat employees

[37] During the determinative conference on 16 March 2017, Mr Scott named a number of employees who were alleged to have been employees of Flinders Island Meat as at 7 November 2016. It was agreed at that juncture that Mr Scott would provide a sworn affidavit setting out more details in relation to his contention that there were other employees, including those he had named during the determinative conference, employed at the abattoir at the time of his dismissal. These were in addition to the employees already identified by the Respondent. On receipt of Mr Scott’s affidavit, Mr Madden was to file a sworn affidavit in response to the further information provided by Mr Scott about the alleged additional employees employed at the abattoir at the time of his dismissal.

[38] When negotiations broke down between the parties after several months, the Commission wrote to Mr Scott and Mr Madden and reinstated the process, set out in the paragraph above, that had been agreed during the determinative conference. 37 Mr Scott responded highlighting that the onus of proof was on the Respondent and stating his view that it had not been discharged and, amongst other things, requested that the jurisdictional objection be determined without the provision of any further documentary evidence.38

[39] Given the passage of time, Mr Scott is requested to either confirm his view that the Commission should determine the number of employees on the basis of the material currently before it or to advise that he would like the process set out in paragraph [37] above to commence. The latter option will require a timeframe to be set. Mr Scott is requested to respond in relation to his preferred option by Wednesday 18 April 2018.

[40] In the event that a response is not received from Mr Scott by the due date, the Commission will determine the number of employees on the basis of the material before it. By determining the number of employees employed by Flinders Island Meat at the time of Mr Scott’s dismissal, the Commission will also be determining whether or not Mr Scott meets the minimum employment requirements of section 383 of the Act.

Appearances:

J Scott on his own behalf (determinative conference only)

J Madden from the Respondent

Hearing details:

2017.

Melbourne (determinative conference):

March 16.

2018.

Melbourne:

February 21.

<PR601093>

 1   Email from the Commission to Mr Scott, dated 2 March 2018

 2   Email from the Respondent to the Commission and Mr Scott, dated 21 February 2018

 3   Exhibit R3 and Transcript PN 766 - 767

 4   Transcript PN 770 - 771, 774 - 775 and 795

 5   Ibid PN 773

 6   Ibid PN 777 - 779 and 791 and 795

 7   Ibid PN 791 and 795

 8   Ibid PN 796 - 797

 9   Ibid PN 801 - 802

 10   Ibid PN 820 and Exhibit R4

 11   Ibid PN 821 - 822

 12   Ibid PN 823 and Exhibit R4

 13   Ibid PN 823

 14   Ibid PN 825 - 827

 15   Ibid PN 826

 16   Ibid PN 829

 17   Ibid PN 845 - 846

 18   Ibid PN 847 and 849

 19   Ibid PN 847

 20   Ibid PN 851 - 854

 21   Witness Statement of Mr Scott with attached documents, filed 16 January 2017, at paragraph 1

 22   Ibid at paragraph 2

 23   Ibid at paragraph 3

 24   Ibid at paragraph 4

 25   Witness Statement of Mr Scott, filed 18 October 2017

 26   Ibid at paragraph 4(a)

 27   Ibid at paragraph 4

 28   Exhibit A2

 29   Ibid at paragraph 14

 30 s.50AAA(4)(a) of the Corporations Act 2001

 31 Ibid at s.50AAA(4)(b)

 32 Ibid at s.50AAA(5)(a) and 6(a)

 33 Ibid at s.50AAA(5)(b) and 6(b)

 34 Ibid at s.50AAA(5)(c) and (6)(c)

 35 Ibid at s.50AAA(8)(a)

 36 Ibid at s.50AAA(8)(b)

 37   Email to Mr Scott and Mr Madden from the Fair Work Commission, dated 18 September 2017

 38   Email from Mr Scott, dated 22 September 2017

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