Murphy v Innovior Pty Ltd
[2020] FCCA 2060
•20 August 2020
FEDERAL CIRCUIT COURT OF AUSTRALIA
MURPHY v INNOVIOR PTY LTD [2020] FCCA 2060
Catchwords:
INDUSTRIAL LAW – Fair Work – application for summary dismissal – Applicant signed deed on exit from Respondent and related companies, release included releasing right to claim for employment entitlements – whether deed bar to proceeding – whether no reasonable prospect of success – no reasonable prospects – summary dismissal application granted.
Legislation:
Fair Work Act 2009 (Cth), ss.44, 90(2), 323
Federal Circuit Court of Australia Act 1999 (Cth), s.17A
Federal Circuit Court Rules 2001 (Cth), r.13.10
Professional Employees Award 2010
Cases cited:
Agricultural and Rural Finance Pty Ltd v Gardiner [2008] HCA 57; (2008) 238 CLR 570
Atkins Freight Services Pty Ltd v Fair Work Ombudsman [2017] FCA 1134
Codelfa Construction Pty Ltd v State Rail Authority of New South Wales [1982] HCA 24; (1982) 149 CLR 337
Doyle v Oil Basins Limited [2017] FCCA 2758
Electricity Generation Corporation v Woodside Energy Ltd [2014] HCA 7; (2014) 251 CLR 640
Grant v John Grant & Sons Pty Ltd [1954] HCA 23; (1954) 91 CLR 112
Jefferson Ford Pty Ltd v Ford Motor Company of Australia Ltd [2008] FCAFC 60; (2008) 167 FCR 372; (2008) 246 ALR 465
Kowalski v Trustee, Mitsubishi Motors Australia Ltd Staff Superannuation Fund Pty Ltd [2003] FCAFC 18
McGrath v Sturesteps; Sturesteps v HIH Overseas Holdings Ltd (in liq) [2011] NSWCA 315; (2011) 81 NSWLR 690
Redowood Pty Ltd v Mongoose Pty Ltd [2005] NSWCA 32
Shammas v Canberra Institute of Technology [2014] FCA 71
Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd & Ors [2004] HCA 52; (2004) 219 CLR 165
Western Export Services Inc v Jireh International Pty Ltd [2011] HCA 45; (2011) 282 ALR 604
Applicant: DANIEL MURPHY
Respondent: INNOVIOR PTY LTD
File Number: SYG 2786 of 2019
Judgment of: Judge Baird
Hearing date: 15 April 2020
Date of Last Submission: 15 April 2020
Delivered at: Sydney
Delivered on: 20 August 2020 REPRESENTATION
Counsel for the Applicant: D O’Sullivan
Solicitors for the Applicant: Matthew Warburton, Outlaw Legal
Counsel for the Respondent: M Minucci
Solicitors for the Respondent: Jonathon Leung, Strongman Crouch ORDERS
(1)Pursuant to s.17A of the Federal Circuit Court of Australia Act 1999 and r.13.10(a) of the Federal Circuit Court Rules 2001 there be judgment for the respondent, and the applicant’s application and statement of claim filed 28 October 2019 be summarily dismissed.
(2)Directs within 7 days the respondent in writing inform the applicant whether or not it intends to seek costs.
(3)Any application for costs along with brief written submissions (no more than 4 pages) be filed and served within 14 days of this order.
(4)Any response to an application for costs along with brief written submissions (no more than 4 pages) be filed and served 14 days thereafter.
FEDERAL CIRCUIT COURT
OF AUSTRALIA
AT SYDNEYSYG 2786 of 2019
DANIEL MURPHY Applicant
And
INNOVIOR PTY LTD Respondent
REASONS FOR JUDGMENT
Introduction
1.By application dated 28 October 2019, the applicant, Mr Daniel Murphy, commenced proceedings in this Court against the respondent, Innovior Pty Ltd, alleging contraventions of ss.90 and 323 of the Fair Work Act 2009 (Cth) (FW Act), and the Professional Employees Award 2010, claiming he was not paid his salary for the period 1 July–3 September 2019, accrued annual leave entitlements, or interest. In the accompanying statement of claim, Mr Murphy contends that he was an employee of Innovior at all material times, and that his claims are not barred by a release contained in a Deed of Agreement entered into by the parties and others on 26 June 2019.
2.Innovior seeks summary dismissal of the application and statement of claim pursuant to s.17A(2) of the Federal Circuit Court of Australia Act 1999 (Cth) (FCCA Act), and r.13.10 of the Federal Circuit Court Rules 2001 (Cth), further to application in a case filed 19 December 2019. In sum, Innovior submits that the application and statement of claim should be dismissed because the proceeding has no reasonable prospect of success as the parties had earlier executed the Deed, settling all relevant matters between them, including the subject of the proceeding, and the Deed therefore operates as a complete bar to Mr Murphy’s claims as pleaded.
3.In its defence dated 5 December 2019, inter alia, Innovior denies Mr Murphy’s status as an employee, pleads that further to a shareholder’s agreement entered into in October 2017, Mr Murphy was a director and had key duties as a Business Development Executive of Innovior. Referencing clauses 1.1(e), 10.1 and 11.1 of the Deed, Innovior further pleads that by entering into the Deed, Mr Murphy released and forever discharged Innovior from all claims, including any potential claims for employment entitlements, and acknowledged that the Deed could be pleaded as a full and complete defence to all such claims.
4.For the reasons that follow, I have concluded that Mr Murphy has no reasonable prospects of successfully prosecuting the application; his claims are barred by the Deed. It follows that the application should be summarily dismissed.
Background
5.According to Recital B to the Deed, Innovior operates a consultancy business, specialising in advising on, and implementing, efficiencies in business performance, specialising in automation.
6.Mr Murphy, Mr Jure Brkan, and Mr Timothy Ryan were the founders of Innovior Group Holdings Pty Ltd (IGH), which company held 100% of the ordinary shares in Innovior. Mr Scott Lunga held a minority shareholding of 10 of 10 “Class G” shares. Until the performance of the Deed, Mr Murphy was a director of Innovior, as well as holder of a 30% interest in IGH, together with Messrs Brkan and Ryan, as to 40% and 30% respectively. For convenience, I refer to Innovior, IGH, and its subsidiary, Innovior Managed Support Operations Pty Ltd (IMSO), together as the Innovior Group entities in these reasons.
7.Mr Murphy contends he commenced employment with Innovior on 1 November 2016 (although I note the company was incorporated about 17 May 2017). He contends that in the period to 4 September 2019, he was paid a salary in the range of $80,000 to $220,002, and that Innovior also paid superannuation contributions on his behalf. There was no formal written agreement regarding his alleged employment. As I have said above, Innovior denies that Mr Murphy was an employee.
8.From about April 2019, Mr Murphy and Innovior held discussions that he exit from Innovior’s business and entities relating to Innovior, including IGH. Those discussions and negotiations were conducted with the assistance of the parties’ legal representatives. They resulted in the execution of the Deed on 26 June 2019, pursuant to which the parties agreed a mechanism for the valuation of IGH and the determination of a buyback price for Mr Murphy’s interest in IGH, the buyback of his shareholding, and Mr Murphy’s resignation from all roles as director and employee of each of the Innovior Group entities.
9.On or about 1 June 2019, Innovior informed Mr Murphy he was no longer required to physically attend for work. Mr Murphy claims that during this period he was required to complete certain duties, including a handover of all work in progress. In performance of his obligations under the Deed, Mr Murphy resigned as a director and employee of all the Innovior Group entities on and effective 4 September 2019, and delivered up his shares. Completion of the Deed occurred, and a number of the 12 instalment payments of the buyback price of $521,700 have been made - the evidence is about $260,000 as at the date of hearing.
10.Mr Murphy alleges that he was not paid his salary for the period 1 July 2019 through to 3 September 2019, in contravention of s.323 of the Act, nor paid his accrued but untaken annual leave, in contravention of s.90 of the Act.
11.On the hearing of the summary dismissal application, Innovior relied on two affidavits sworn by Jonathan Chung Wa Leung, solicitor, sworn on 12 December 2019 and 26 March 2020 respectively, and Mr Murphy relied on his affidavit affirmed 2 April 2020. They each deposed that negotiations led to the execution of the Deed, the valuation of shares setting the price for buy‑back, and performance of the Deed, and attached inter partes correspondence relating to the dispute now the subject of the proceeding. Mr Murphy deposed as to certain understandings and expectations, and Mr Leung conveyed his client’s (fellow director Mr Brkan) understanding during negotiations. I received both statements of understandings as argument / submission.
12.Whilst in its defence, Innovior has denied Mr Murphy’s status as an employee, Innovior submits that its summary dismissal application does not depend on whether the Court considers Mr Murphy to be an employee or not, and it is content for the limited purpose of this hearing to assume that Mr Murphy will at final hearing establish he was an employee.
The Deed
13.The parties to the Deed are Innovior, IGH, IMSO, Messrs Brkan, Ryan, and Murphy, the trustees of their respective corporate trust vehicles (Haywere Investments Pty Ltd, IFIELD Pty Ltd, and Mr Murphy), and Mr Scott Lunga. Messrs Brkan, Ryan and Murphy were the three directors of each of Innovior, IGH and IMSO, and the founders of Innovior and IGH.
14.Recital G to the Deed states:
G.The parties have agreed to Murphy’s exit from Innovior, IGH and IMSO on the terms and conditions set out in this Deed and the members of each of Innovior, IGH and IMSO have all resolved, or have agreed to resolve, unanimously to authorise the entry of Innovior, IGH and IMSO into this Deed.
15.Clause 1 defines terms, and provides some rules of interpretation. Relevantly, clause 1(e) defines “Claims” as:
(e)Claims includes actions, allegations, complaints, causes of action, arbitrations, debts, liabilities, dues, costs, claims, demands, disputes, obligations, remedies, damages, losses, proceedings, claims for compensation, requisitions, objections, verdicts and judgments howsoever arising, whether present or future, unascertained, immediate or contingent and whether at law or in equity or arising under a statute.
16.Clauses 2 to 9 deal with various aspects of the mechanics of the Deed and the payments involved – including the selective share reduction of the share capital of IGH by the sale and buyback of Mr Murphy’s shares, calling of a general meeting of members as a condition precedent, the appointment of an independent valuer, and the determination of the buyback price by reference to the valuer’s fair market valuation of IGH, Mr Murphy’s resignation as director and employee (clauses 5 and 6), completion, payment, warranties and indemnities, restraint post completion, and non-disparagement.
17.Clause 4.6 sets out certain matters relating to the valuer’s conduct of the valuation of the fair market value of IGH. These include by clause 4.6(b), that the valuer “must take into account the wages drawn by each of Brkan, Ryan and Murphy, for the period from 1 July 2017 to date and whether or not they were commensurate with market rates.” If they were not so commensurate, the valuer was directed to adjust accordingly. Pursuant to clause 5.1, Mr Murphy was obliged on or before the Completion Date (a defined term) to (a) “resign as a director and employee of each of Innovior, IMSO and IGH by giving written notice to each of those companies”, and (b) return their property. Clause 6.2 provided that Completion (a defined term) was to occur when the listed events or transactions have been completed, including the resignations by Mr Murphy “as a director and employee … in accordance with clause 5.1(a)”.
18.Included in the representations and warranties Mr Murphy gave pursuant to clause 7.1 was that as at, relevantly, Completion, he was “not aware of any Claim in respect of Innovior, IMSO, IGH or the Shares of which he has not given written notice to IGH, Brkan and Ryan”.
19. Clause 10 of the Deed is headed “Releases” and provides as follows:
10.1 Subject to clause 10.2, upon the execution of this Deed, Innovior, IMSO, IGH, Brkan, Haywere, Ryan, IFIELD and Lunga and each of their “related bodies corporates” within the meaning of the Act (Innovior Parties), on the one hand, and Murphy, on the other hand, release and forever discharge each other from all Claims (including with respect to employment entitlements) [emphasis added] that any one or more of them has or may have had, or may have in the future [emphasis added], against the other in relation to, arising out of, or in connection with:
(a)the Shares;
(b)Innovior;
(c)IMSO;
(d)IGH;
(e)any pre-emptive rights with respect to the Shares arising from any constitution, articles of association or shareholders’ agreement of Innovior, IMSO or IGH; and
(f)the matters referred to in this Deed
(together, the Released Matters)
10.2 The Released Matters do not include any Claims in relation to, arising out of, or in connection with, any alleged or actual breach of any agreement, covenant, indemnity, obligation, representation or warranty in or under this Deed. Without limiting the generality of the above, any such breach may be the subject of a Claim by a non-defaulting party, including for specific performance.
20.Clause 11 of the Deed is headed “Bar to Proceedings” and provides:
11.1Subject to this clause, upon the execution of this Deed, this Deed may be pleaded as a full and complete defence by any party to a Claim brought by any other party in relation to, arising out of, or in connection with, the Released Matters.
11.2Clause 11.1 shall not operate in respect of a Claim brought by a party in relation to, arising out of, or in connection with, another party’s breach of any agreement, covenant, indemnity, obligation, representation or warranty under this Deed. Any such breach may be the subject of a Claim by a non-defaulting party, including for specific performance.
21.Subsequent clauses then deal with various matters including matters conventionally included in many commercial agreements. By clause 17 each party warrants that they had received or had the opportunity to receive legal and accounting advice. Clause 23 comprises an entire agreement clause. Clause 25, headed “Acknowledgements”, sets out the parties’ acknowledgements and warranties as to their capacity, freedom to contract, and intentions as follows (without alteration):
Each party acknowledges and warrants that it:
(a)has the legal capacity and power to enter into this deed and has obtained all necessary consents and approvals to do so;
(b)enters into this Deed freely and voluntarily based upon its own information, legal advice and investigation;
(c)other than as provided for in this Deed, does not execute this Deed as a result of or in reliance on any promise, representation, advice, statement or information of any kind given or offered to it by or on behalf of any other party, whether in answer to any inquiry or not; and
(d)enters into this deed with the intention of settling on a final basis, according to the provisions of this deed, all Claims in respect of the Released Matters notwithstanding that it may become aware of or come into possession of new information with respect to the matters subject of that release.
Relevant principles
22.The parties are in general agreement about the principles relevant to the exercise of the Court’s power of summary dismissal, and the Court’s approach to construction of the terms of the Deed.
Summary dismissal
23.Section 17A of the FCCA Act empowers the Court to give judgment for one party, against another party, in relation to any part of a proceeding if the Court is satisfied that the party has “no reasonable prospect of successfully prosecuting … that part of the proceeding”. Rule 13.10(a) of the Rules is to the same effect. Sub‑section 17A(3) of the FCCA Act provides that a proceeding need not be hopeless or bound to fail for it to have no reasonable prospect of success. The provisions of the FCCA Act are in the same terms as s.31A of the Federal Court of Australia Act 1976 (Cth), and the approach taken in cases dealing with that section are generally seen as apposite to s.17A of the FCCA Act.
24.The relevant principles are well established: see e.g., Jefferson Ford Pty Ltd v Ford Motor Company of Australia Ltd [2008] FCAFC 60; (2008) 167 FCR 372; (2008) 246 ALR 465; Nichol v Discovery Africa Limited [2016] FCAFC 182; (2016) 343 ALR 594. They, and superior court authorities, were conveniently summarised in this Court, inter alia, by Judge Obradovic in Ritter v Ritter and Anor [2019] FCCA 782 at [4] to [13], and by Judge Lucev in Ellis v Wadjemup Trading (No. 3) [2018] FCCA 3075 at [6] to [11]. I have also had regard to Shammas v Canberra Institute of Technology [2014] FCA 71, (Foster J), to which my attention was drawn by Mr O’Sullivan, counsel for Mr Murphy.
25.The power to order summary dismissal should be exercised with caution. It should never be exercised unless it is clear that there is no real question to be tried. There must be a high degree of certainty that the claimant cannot succeed if the proceeding is allowed to go to hearing in the usual way. The exercise of the power requires a practical judgment by the Court as to whether the claimant has more than a fanciful prospect of success. That may be a judgment of law or of fact, or of mixed law and fact.
26.The concept of “no reasonable prospect of success” is a different concept to “no real prospect of success”, and encompasses claims that need not be hopeless or bound to fail (as s.17A(3) makes clear). The inquiry required under s.17A(2) is whether there is no reasonable prospect of prosecuting the proceeding, not an inquiry directed to whether a certain and concluded determination should be made that the proceeding would necessarily fail. The onus is on Innovior in the present application.
The courts’ approach to construction of the Deed
27.The courts’ approach to the construction of terms of a written agreement – such as a deed of release - is also well established. The starting point is the ordinary meaning of the words, read as a whole and in context, including the surrounding circumstances known to the parties, and noting that a purposive approach is preferred to a narrow or pedantic approach.
28.In Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd & Ors [2004] HCA 52; (2004) 219 CLR 165 at [40], the High Court reaffirmed that:
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.
29.The Court gives primacy to the words of the document, having regard to any relevant contextual factors discernible from the document itself and the objective circumstances in which it was made. In Electricity Generation Corporation v Woodside Energy Ltd [2014] HCA 7; (2014) 251 CLR 640, the High Court explained, at [35]:
… [this] will require consideration of the language used by the parties, the surrounding circumstances known to them and the commercial purpose or objects to be secured by the contract. Appreciation of the commercial purpose or objects is facilitated by an understanding "of the genesis of the transaction, the background, the context [and] the market in which the parties are operating". … unless a contrary intention is indicated, a court is entitled to approach the task of giving a commercial contract a businesslike interpretation on the assumption "that the parties … intended to produce a commercial result". A commercial contract is to be construed so as to avoid it "making commercial nonsense or working commercial inconvenience".
30.The rights and liabilities of the parties are to be determined objectively; the subjective intentions of the parties are not relevant: Toll, at [40]; Codelfa Construction Pty Ltd v State Rail Authority of New South Wales [1982] HCA 24; (1982) 149 CLR 337.
31.It is not legitimate to use anything said or done by the parties after a contract was made to assist in interpreting its terms: Agricultural and Rural Finance Pty Ltd v Gardiner [2008] HCA 57; (2008) 238 CLR 570; and it is not the job of courts to rewrite commercial bargains under the guise of construction: McGrath v Sturesteps; Sturesteps v HIH Overseas Holdings Ltd (in liq) [2011] NSWCA 315; (2011) 81 NSWLR 690. Also, see Western Export Services Inc v Jireh International Pty Ltd [2011] HCA 45; (2011) 282 ALR 604.
Discussion and consideration
32.It is convenient to state at this point that it is clear from the above authorities that Mr Murphy’s understandings and expectations as deposed to subsequently in his affidavit, being his subjective beliefs, are irrelevant to the Court’s consideration.
33.In substance, the issue between the parties turns on the construction of the Deed, and the interaction between the general rule that parties cannot contract out of public statutory entitlements, and the principle that parties are able to compromise disputes or potential disputes, as that principle was expressed by the Full Court of the Federal Court in Kowalski v Trustee, Mitsubishi Motors Australia Ltd Staff Superannuation Fund Pty Ltd [2003] FCAFC 18.
Summary of parties’ submissions
34.In sum, Mr Minucci, counsel for Innovior, contends that properly construed, having regard to the express inclusion of “employee entitlements” in all Claims comprising the “Released Matters” in clause 10, and the operation of clause 11 of the Deed, Mr Murphy is barred by the Deed from commencing or pursuing the proceeding. Innovior does not cavil with the general rule that parties cannot contract out of their statutory entitlements, but submits that it is clear from Kowalski that parties nonetheless are entitled to settle disputes or potential disputes concerning employment arising in the course of commercial dealings, and that the present case is an instance of such a settlement.
35.Mr Minucci submits that it is apparent from the purpose of the Deed, expressed in the phrase “have agreed to Murphy’s exit from [the Innovior Group entities]” in recital G, the definition of “Claims”, the express identification of “employee entitlements” as a subject matter of the Claims in the Released Matters in clause 10, the operation of clause 11 of the Deed and that both clauses operate with effect from execution, and the terms of the Deed as a whole, including the acknowledgements in clause 25, that the parties objectively intended that the opportunity to claim for employee entitlements – including his statutory entitlements – was part of the relevant bargain that Mr Murphy entered into with Innovior Group entities in the Deed. Mr Minucci submits that it is clear from the Full Court in Kowalski that the parties were entitled to, and did, agree by the Deed so to compromise the subject matter of the proceeding.
36.Mr O’Sullivan, counsel for Mr Murphy, submits that the application has reasonable prospects of success, for the following reasons:
(a)the Deed on a proper construction does not operate as a release to the matters the subject of the application;
(b)equity would restrain Innovior from relying on the release;
(c)the release is unenforceable by operation of the FW Act;
(d)the release is contrary to public policy and cannot be enforced.
37.Mr O’Sullivan principally contends that the Deed on its proper construction does not, and cannot, bar Mr Murphy from prosecuting his claims. He submits that the dispute that existed between the parties that was to be resolved by the Deed was the value, and times for payment, of Mr Murphy’s shares, and the dates he would resign all roles in the Innovior Group entities. He says that there was no extant dispute with respect to the payment of Mr Murphy’s salary and accrued annual leave is evident by the failure of the Deed to expressly refer to these issues.
38.In substance Mr O’Sullivan submits that Kowalski requires that there be an extant, bona fide dispute, preferably expressly referred to in the settlement agreement, and most preferably in the recitals, and refers to the facts of that case, observing that the agreement in that case identified particular entitlements. In contrast, he submits, in the present case the Deed does not identify an extant employment dispute. He submits that Kowalski should be narrowly applied, as cautioned by White J in Atkins Freight Services Pty Ltd v Fair Work Ombudsman [2017] FCA 1134. Mr O’Sullivan also drew attention to Grant v John Grant & Sons Proprietary Limited [1954] HCA 23; (1954) 91 CLR 112, as to the correct approach to the interpretation of a deed of release.
39.In further support in answer to Mr O’Sullivan, Mr Minucci referred to the decision of O’Sullivan J in this Court in Doyle v Oil Basins Limited [2017] FCCA 2758 (in which his Honour discussed Kowalski and Atkins Freight, and subsequent judicial consideration to Grant).
40.It is convenient to observe at this juncture, that the Federal Court’s survey in Seidler v The University of New South Wales [2011] FCA 640, at [57] – [62] of Grant and subsequent authority, remains apposite, as Judge O’Sullivan acknowledged in Doyle, at [50].
The decisions in Kowalski and Atkins Freight
41.The parties were agreed that the established principle that it is not possible for employers and employees to contract out of the minimum entitlements established by awards does not preclude parties from compromising litigation on foot and in contemplation.
42.The Full Federal Court in Kowalski addressed the issue of the effectiveness of a heads of agreement reached further to a private mediation undertaken between the appellant (former employee) and his former employer, the second respondent, in the course of earlier proceedings before the Australian Industrial Relations Commission. Notwithstanding that agreement, the appellant subsequently commenced further actions against the employer in the Commission, and thereafter against both the employer and the appellant’s superannuation fund provider in the Federal Court, from which adverse decision at first instance Mr Kowalski then appealed.
43.The terms of the heads of agreement are set out in the judgment on appeal at [7]. They include the recitation that the parties had entered the private mediation “with the intent of trying to resolve all issues both current and future in dispute between them”, and that they had reached an agreement “in relation to the resolution of all issues and wish to record the terms of settlement”. By clause 1 the appellant agreed to accept a certain sum “in full and final settlement of any entitlements he may have to superannuation, sick leave, compensation and damages arising out of or in the course of his employment with MMAL [the employer]. In particular, the said sum to be paid with a denial of liability, includes payment in full and final settlement of:” (then followed 4 listed matters, first, any injuries or disabilities in respect of [named injuries], secondly, any outstanding sick leave, thirdly, “any matters related to the termination of his employment with MMAL”; and lastly, any superannuation payable by [the superannuation fund]). Clause 2 then set out a breakdown of how the settlement sum was to be allocated, the last, being “the sum of $10,000 to be paid by MMAL in consideration of Kowalski forgoing any claims or future claims in any way arising from his employment.”
44.The appellant contended in the Federal Court that he could not by having entered into the heads of agreement be taken to have contracted out of his statutory rights under the Workplace Relations Act 1996 (Cth). The primary judge rejected that argument. The primary judge further held that any claim at common law against the employer in the face of the heads of agreement had no prospects of success. The Full Court agreed. At [17] the Court stated:
In these circumstances to view the Heads of Agreement as simply involving some diminution of the appellant’s statutory rights is to misunderstand the agreement reached. Plainly the appellant and the second respondent had litigation outstanding. Plainly enough each party was putting a particular positon in that litigation. There were risks to each. True it is that statutory public rights cannot be waived or compromised. However, this does not prevent the parties from compromising litigation on foot and in contemplation, having regard to the various risks to the parties in that litigation. See e.g. Lieberman v Morris (1944) 69 CLR 69 at 80. That is clearly what occurred in this case. …
45.Atkins Freight was an appeal to the Federal Court from the decision of an Industrial Magistrate in the Industrial Relations Court of South Australia on three underpayment of wages actions (variously being for accrued award and statutory entitlements, and seeking penalties), one brought by the Fair Work Ombudsman (FWO) in respect of eight employees/ former employees. The FWO appeared for all claimants. She was successful at first instance, and on appeal. The appellant, Atkins Freight, sought to argue (as it had at trial) that deeds of settlement entered into by two of its employees had the effect that it was no longer liable to pay them any amount for underpayment of wages. At first instance, the Court held that Atkins Freight’s evidence fell short to discharge its onus as to the validity, scope and operation of the deeds. The Court also held that the FWO was not bound by the deeds because she was not a party to them.
46.On appeal, White J held that in the exercise of her statutory function the FWO was not representing the legal interests of the relevant employees and was not bound by agreements made by them. Further, as she was not a party, the agreements could not give rise to an estoppel binding her.
47.The appellant made the alternative submission that the Court at first instance should by reason of the deeds have declined, as a matter of discretion, to make any order in favour of the two relevant employees. In answer, the FWO referred to the principle recognising the validity of compromises to claims to award entitlements. She submitted the principle had no application in the case because there was no evidence “(let alone a suggestion)” that when the deeds were entered into there had been any contemplated litigation or even a dispute between Atkins Freight and those employees which could have been the subject of the compromise. At [50], White J recorded that the FWO submitted that the deeds did not contain any recital of litigation or disputes they were intended to settle, and observed: “On the contrary, clause 3 referred only to claims which the employees “might have”, and went on to say that it did not matter “whether you are presently aware of any right to make such a claim”. His Honour continued:
…I also observe that the Deeds of Settlement refer to “any” wages claims (cl 1) and to “any” claims (cl 3) and not to identified claims. Terminology of these kinds is inconsistent with the Deeds being in settlement of current or contemplated litigation or of an extant dispute.
48.White J accepted that there was simply no evidence that either of the employees had taken any action at all with respect to the underpayments (the FWO was litigating about), or even that they were the ones raising the issue with the employer. His Honour (at [51]) sought to distinguish Kowalski: “The circumstances of this case appear to be very different from those considered by the Full Court in Kowalski, as there is no evidence of an existing bona fide dispute.”
49.His Honour then cautioned, at [52], that:
The principle acknowledged in Kowalski should be carefully confined in its application. Were it otherwise, the general principle that parties cannot contract out of award obligations may be easily subverted. Counsel for Atkins Freight appeared to acknowledge that this was so by submitting that the Kowalski principle applied to bona fide disputes.
50.Innovior submits that White J’s observations in Atkins Freight must be read in light of the particular circumstances of the case: the Court was faced with arguments that the FWO not be able to prosecute the alleged wrongdoer because of deeds that were entered into by the party she sought to prosecute, but to which she was not a party, and the alternative argument that the Industrial Magistrate should have declined in the exercise of a discretion to make any order in favour of the two employees. I accept that submission. I also note that the deeds sought to be relied on in Atkins Freight were made using a pro‑forma document, a fact expressly commented upon by his Honour (see at [12]-[13]), as was the absence of evidence as to whether the employees were still employees when they entered the deeds, or whether they had received legal advice (see at [15], [53], [54]), and other deficiencies in the evidence before him.
51.It is clear from a fair reading of the whole of Atkins Freight that White J’s observations on Kowalski are limited to the particular, and peculiar, circumstances before him. It is immediately apparent as well that the circumstances before the Full Court in Kowalski were, as his Honour said, very different, although not only because of the reason he posits.
52.Mr O’Sullivan for Mr Murphy says Kowalski requires a bona fide dispute regarding particular entitlements. He submits that the Deed relied on by Innovior does not focus on what is the bona fide dispute, unlike the case in Kowalski. If the Deed was seeking to contract out of entitlements under the Act, it must be made with the intention of resolving a dispute in relation to employment claims, evidenced by litigation, intended litigation, or clear evidence of a then current dispute about an employee’s entitlements under the Act, or other statutory instruments. Mr O’Sullivan says no such dispute occurred in the creation of the Deed.
53.Innovior submits there is nothing in Kowalski that suggests that an agreement must be made in respect of a then present dispute, nor that there must be specific consideration given to specific entitlements in dispute. Innovior further submits that there is nothing in the authorities to suggest the dispute must be referred to in the recitals, and that consistently with Codelfa, regard must be had to the entirety of the agreement to discern the nature and extent of what the document is about.
54.I do not read Kowalski as narrowly as Mr O’Sullivan urges. Whilst there was a bona fide dispute on foot when the heads of agreement relied upon by the respondents in Kowalski was entered into, it is clear from the Full Court’s judgment, including at [3], [4], [7] and [10], that the dispute on foot when two of the parties mediated was not on all fours with that subsequently sought to be agitated in the Federal Court proceeding. The Full Court in Kowalski at [17] made clear that parties may compromise contemplated litigation “having regard to the various risks to the parties …”. This does not require that the litigation that, but for the compromise, may ensue be detailed in the deed, nor that the compromise be limited to litigation already on foot.
Consideration of the Deed
55.I turn to the Deed. I have regard to the principles of construction I have set out above (see at [27] – [31]), and the Federal Court’s consideration of Grant and other authorities, usefully set out in Seidler.
56.The background to the circumstances giving rise to the Deed, and antecedent negotiations are adverted to in the recitals, however regard is to be had to the tenor of the whole document. The phrase “have agreed to … exit from Innovior … on the terms and conditions set out in this Deed” in recital G, the fact that a deed had to be entered into, and the terms of the Deed considered as a whole, objectively demonstrate that the parties were cognisant that there may otherwise be disputes arising from Mr Murphy’s exit from the business, and intended that the Deed resolve and deal entirely with them. It is apparent from clauses 5 and 6 that that exit from the business included exit from employment. Clauses 5 and 6 expressly identify his resignation from both directorships and employment as steps that must be taken by Mr Murphy in performance of his obligations under the Deed before Completion can occur. Clause 4.6(b) expressly identifies that the valuation pursuant to which the amount to be paid to him was to be determined was to take into account “wages”. Consistently with the wording of that recital G, the terms of the Deed contemplate the payments to Mr Murphy be in satisfaction of any entitlements he may have otherwise had as a result of his positions with Innovior and the Innovior group entities.
57.Clause 10.1 captures the entirety of the release agreed in the single term “the Released Matters”. The inclusion of “(including with respect to employment entitlements)” within the Claims released in Clause 10.1, makes express the contemplation of the parties that past, present and future disputes about employment entitlements were to be dealt with in the Deed and as part of Mr Murphy’s exit from employment. That express reference is very clear. It is to be understood having regard to the agreement Mr Murphy reached to resign from – to exit – his employment from the Innovior Group entities, as a necessary step before Completion could occur.
58.In its ordinary meaning, I consider that the phrase “with respect to employee entitlements” directly contemplates classic entitlements arising from employment such as for wages, and annual leave, and any interest that could accrue on any of such payments where unpaid. The clause expressly releases “all claims” as to those subject matter, past, present, or future. Release from Claims to such entitlements was part of the bargain that Mr Murphy made to exit his shareholdings, directorships and employment with the Innovior Group entities.
59.It is clear from the first sentence of clause 10.2 that it provides a carve‑out from the release provided in clause 10.1, permitting any party to the Deed to enforce the terms of the Deed itself. It does not operate more broadly to permit Mr Murphy to bring proceedings in respect of the Released Matters.
60.The general purpose of clause 11 is to prevent any party from engaging in future litigation in respect of the matters the subject of the bargain captured by the Deed, namely, Mr Murphy’s departure (“exit” in the words of recital G, “resign” in clause 5) from Innovior and Group entities. The words used in clause 11 - barring proceedings that are “in relation to, arising out of, or in connection with” the Released Matters - are of wide import, and capture the spectrum of all potential “Claims” that may otherwise arise between the parties. Clause 11 thus reflects and completes the release given in clause 10.1, making express that the release has the consequence that the opportunity to make “all Claims” henceforth has been foregone as part of the bargain reached by the parties.
61.That clauses 10 and 11 came into effect immediately the Deed was executed shows that the bargain reached by the parties in those clauses was intended to govern the performance of the further steps that the parties had to take to Completion – including, as is made express by clauses 5 and 6, Mr Murphy’s resignation from all positions of employment – and the finality of the independent valuation in determining the amount to be paid to Mr Murphy.
62.The acknowledgement and warranty in clause 25(d) provides further objective support that the parties entered the Deed for the purpose of dealing on a final basis all disputes (past, present and future) regarding Mr Murphy’s exit from the Innovior Group entities, including the claims sought to be brought by him in the present proceeding. The express statements there made – relevantly, by Mr Murphy – that he entered into the Deed “with the intention of settling, on a final basis, all Claims in respect of the Released Matters” – which directly refers to the subject matter of clause 10.1, and the parties’ express agreement that settlement meant Mr Murphy releasing all Claims to employment entitlements, – “notwithstanding that [he] may become aware of or come into possession of new information with respect to the matters subject of that release” – makes this clear.
63.Innovior further draws a distinction between settlements in relation to statutory entitlements, and releases from claims for those entitlements. It submits what is being released by the Deed is not the statutory entitlement itself, but the opportunity to claim for the statutory entitlement, and it is that opportunity that forms part of the relevant bargain that Mr Murphy entered into with Innovior for the purposes of resolving the subject matter of the Deed. I accept that this analysis is a reasonable construction of the reference to all Claims (including with respect to employee entitlements) in clause 10, and one which provides further support for the conclusion that I have reached.
64.In the circumstances, I am satisfied that:
(i)the parties to this proceeding bona fide executed the Deed to settle all matters between them;
(ii)the Deed records the terms of full and final settlement of all matters concerning Mr Murphy’s exit from the Innovior Group entities;
(iii)that exit included his employment, and all matters concerning his employment;
(iv)Mr Murphy released the Innovior Group entities from all Claims, whether past, present or future, which included with respect to any employee entitlements;
(v)the parties have acted on the basis the Deed was effective;
(vi)Mr Murphy has accepted from Innovior (the Innovior Group entities) the benefits of the Deed – and specifically as at the date of hearing payment of some $260,000 of an agreed payment of $521,700, and by so accepting the benefits, was bound to perform his obligations under the Deed, including his obligation under the release provisions; and
(vii)Innovior is entitled to take the benefit of the Deed, including the release provisions of clause 10.1, and the bar to proceedings provided by clause 11, having performed its obligations under the Deed, and there being no suggestion by either party (or conduct by either party) that the provisions relating to the payment of money is not operative.
65.I conclude that the Deed operates to bar Mr Murphy from commencing the application. The proceeding has no reasonable prospect of success and should be dismissed.
Other grounds
66.In the light of my conclusion on the interpretation of the Deed, and its scope and operation, Mr O’Sullivan’s other points may be dealt with shortly.
Unconscionability
67.Mr O’Sullivan’s submission that enforcement of the Deed would be unconscionable cannot be maintained in the circumstances I have found above, including Mr Murphy’s receipt of some $260,000 and further sums falling due for payment in the future. There is nothing unconscionable, or contrary to equity, in the circumstance pertaining to the parties in this case in enforcing the commercial bargain that the parties entered into by the Deed, and giving the terms of the Deed their full force and effect.
Argument that enforcement of the Deed would breach the FW Act
68.Given the analysis I have set out above, and my conclusions on the Deed, Mr O’Sullivan’s submission that were the Deed to be enforced to bar the present proceeding, it would have the effect of displacing Mr Murphy’s statutory rights to payment of accrued leave and to payment for work performed, cannot succeed.
69.Contrary to Mr O’Sullivan’s written outline, s.61 of the FW Act (discussed in Workpac Pty Ltd v Skene [2018] FCAFC 131; (2018) 362 ALR 311, at [86]-[87]) does not displace the principle expressed in Kowalski, and its application to the present case.
Public policy
70.Mr O’Sullivan further submits that if the Deed is effective, Innovior will avoid its obligations under the FW Act, contrary to public policy. This argument is without merit. There is nothing in the authorities that would support that submission in the face of the commercial bargain entered into by the parties in the Deed, and which has been part-performed by the payments to Mr Murphy.
Conclusion
71.I have concluded that the application dated 28 October 2019 has no reasonable prospects; it should be summarily dismissed. I will so order.
72.In relation to costs, both parties have reserved their rights in relation to making an application for costs. In the circumstances, I will hear counsel orally as to whether any application for costs is to be made.
I certify that the preceding seventy-two (72) paragraphs are a true copy of the reasons for judgment of Judge Baird
Associate:
Date: 20 August 2020
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