Pappas v P & R Electrical P/L - [2016] SADC 132

DISTRICT COURT OF SOUTH AUSTRALIA
(Civil)
PAPPAS v P & R ELECTRICAL P/L & ANOR
[2016] SADC 132
Judgment of Her Honour Judge McIntyre
4 November 2016
EMPLOYMENT LAW - TERMINATION AND BREACH OF CONTRACT
CONTRACTS - GENERAL CONTRACTUAL PRINCIPLES - CONSTRUCTION AND INTERPRETATION OF CONTRACTS
This is a contractual dispute involving a family business. The plaintiff and the second defendant are brothers. They are shareholders and directors of the first defendant, a business started by their father. The plaintiff contends that he was also an employee of the first defendant.
The plaintiff sues the first defendant for breach of his employment contract and for breach of a loan contract. He sues the first defendant and the second defendant for misleading and deceptive conduct in relation to the loan contract.
Held: Dismissing the claim in respect of the loan contract:
1. The plaintiff has failed to prove that he entered into the loan agreement because of any or all of the representations pleaded in the statement of claim; and
2. The plaintiff has failed to establish that the first defendant breached the loan agreement.
In relation to the employment dispute:
1. The plaintiff was an employee of the first defendant.
2. There was no breach of the plaintiff's employment contract by reason of its termination.
3. The plaintiff was underpaid upon his termination in respect of annual leave and long service leave entitlements. The total underpayment was $54,335.38.
Superannuation Guarantee (Administration) Act 1992 (Cth) ; Fair Work Act 2009 (Cth) ; Long Service Leave Act 1987 (SA) , referred to.
Gould v Vaggelas (1995) 157 CLR 215, 236; Bathurst Regional Council v Local Government Financial Services Pty Ltd [2012] FCA 1200; Stephens v Brodribb Sawmilling (1986) 160 CLR 16, 24; Vabu Pty Ltd v Commissioner of Taxation (1996) 81 IR 150; Commissioner for Taxation v Vabu Pty Ltd (1997) 35 ATR 340; Hollis v Vabu Pty (2001) 207 CLR 21; Abdalla v Viewdaze Pty Ltd (2003) 122 IR 215; R v Industrial Commission of South Australia; Ex Parte Adelaide Milk Supply Co-Op Ltd (1977) 16 SASR 6; Ryan v Department of Energy & Minerals (1995) 60 IR 304; Amcor Ltd v Construction, Forestry, Mining & Energy Union (2005) 222 CLR 241; Brennan v Kangaroo Island Council (2013) 120 SASR 11; Kuczmarski v Ascot Administration Pty Ltd [2016] SADC 65, considered.

PAPPAS v P & R ELECTRICAL P/L & ANOR
[2016] SADC 132

This is a contractual dispute involving a family business. The plaintiff and the second defendant are brothers. They are shareholders and directors of the first defendant, a business started by their father. The plaintiff contends that he was also an employee of the first defendant. The plaintiff sues the first defendant for breach of his employment contract and for breach of a loan contract. He sues the first defendant and the second defendant, his brother, for misleading and deceptive conduct in relation to the loan contract. The issues in this matter can be summarised as follows:
The Loan
1.   Did the second defendant make false and misleading representations to the plaintiff in respect of the loan?
2.   Did the plaintiff rely on a representation of either defendant in entering into the contract of loan?
3.   Did the first defendant comply with the terms of the loan?
Employment contract issues
1.   Was the plaintiff an employee?
2.   If so, was there a breach of his employment contract or were the first defendant’s actions otherwise unlawful in relation to:
2.1.The termination of his employment
2.2.The reduction of his annual leave entitlements
2.3.The reduction of his long service leave entitlements
For the reasons I now publish I find that the plaintiff has failed to prove that he entered into the loan agreement because of any or all of the representations pleaded in the statement of claim and has failed to establish that the first defendant breached the loan agreement. I therefore dismiss that aspect of the plaintiff’s claim. I find that the plaintiff was an employee of the first defendant but I do not consider that there was a breach of his employment contract by reason of its termination. The plaintiff was however underpaid upon his termination in respect of annual leave and long service leave entitlements. I quantify the total underpayment as $54,335.38.
The Case
This matter was originally listed for trial for four days commencing on 2 May 2016. It ultimately took some 13 days of hearing.
The plaintiff’s case comprised evidence from the plaintiff, his wife and the former chief financial officer of the first defendant, Ms Rachel Pope. The defendants’ case comprised evidence from the second defendant, Mr John Rhigas, the third director of the first defendant, and the current chief financial officer, Ms Cassandra Harten. In addition, a large number of documents were tendered.
The evidence of Mrs Pappas and Ms Harten was, for the most part, uncontroversial. Ms Pope was a reluctant witness. She required a subpoena to attend court and give evidence. Ms Pope left the first defendant on unhappy terms. It was suggested that this coloured her evidence. I do not accept that submission. Ms Pope appeared to me to do her best to assist the court and to give her evidence fairly. She was however most unclear about some dates and circumstances that she was called upon to give evidence about. This is unsurprising given the lapse of time and her change in employment circumstances but it means that I was unable to accept certain portions of her evidence. I will deal with those difficulties in her evidence in context.
The evidence of the plaintiff, the second defendant and John Rhigas was affected by their particular personal perspectives of what was plainly a difficult working relationship and, in the case of the two brothers, a distressing breakdown within the family. I therefore approached all of their evidence with caution.
The plaintiff, in particular, appears deeply embittered about the manner in which he feels he has been treated by his brother and John Rhigas. In many respects he has cause for that sense of grievance but it did not assist an assessment of his reliability as a witness given that his suspicion and mistrust of his fellow directors coloured all of his evidence. Whilst I do not consider that his evidence was so affected by this that I could not accept it without corroboration some aspects were troubling.
The second defendant appeared deeply conflicted about his brother. On the one hand he was frustrated by the plaintiff’s behaviour within the business and on the other he seemed genuinely distressed at the fact he had to terminate his brother’s employment. Again, the second defendant saw these events through the prism of his frustration with the plaintiff, but his evidence was generally more balanced and cogent than that of the plaintiff.
Jon Rhigas was also plainly frustrated by his views of the plaintiff’s conduct but he had limited involvement in the critical issues of dispute because of the plaintiff’s refusal to speak to him. Overall, I formed the view that whilst John Rhigas’ evidence was somewhat vague on points, it was generally reliable.
There are many differences of evidence on various matters; some are relevant to determination of this matter, some are not. I will deal with the relevant issues and my findings in context.
Background
The plaintiff, Chris Pappas, was born in 1968. The second defendant, Nick Pappas, is his elder brother.
The first defendant, P&R Electrical Wholesalers Pty Ltd (“P & R”) is a wholesaler of electrical products to other businesses in the building and electrical industry. It supplies goods manufactured by large electrical manufacturers and has a head office and several branches in South Australia. The business was started by the plaintiff’s father, George Pappas, and George Rhigas in 1977. The business was successful and grew quickly. The plaintiff and the second defendant have no other siblings. George Rhigas had three sons, Paul, Jim and John. All of the Pappas and Rhigas sons were invited into the business where they worked their way up to an executive level.
The plaintiff completed an apprenticeship as an automotive electrician and started working at P & R in January 1991. He undertook a number of roles before commencing as the financial controller of the business in approximately 1998.
In 1997, George Pappas and George Rhigas decided to retire. They agreed to transfer control of the business collectively to their five sons. They each retained an 8% shareholding in the business but transferred the balance of the shares to their sons. Two of the Rhigas brothers subsequently left the business; Jim Rhigas in 2005 and Paul Rhigas in 2006. They sold their shares to the remaining three brothers at full value which included an amount paid in respect of goodwill. Each received a redundancy payment.
This left Chris Pappas, John Rhigas and Nick Pappas as the only three directors and holding 84% of the shares in the business. The shareholding was equally distributed between the three of them. On 10 September 2008, the three directors executed a shareholders’ agreement dealing with matters relevant to the conduct of the business and their roles within it.[1] At the time of the execution of that agreement, Nick Pappas and John Rhigas were joint managing directors and Chris Pappas was the financial controller of the business.
[1] Exhibit P2.
The first defendant invested heavily in related businesses called Electrical Xpress and Go Electrical. These were initially successful but the first defendant was unable to continue funding the capital required for their expansion. Ultimately, P & R’s interests in Go Electrical were sold to the New Zealand co‑owner as part of a restructuring plan that P & R implemented in 2012 to 2013.
Locally, the building industry was depressed and sales were in decline. There was increased competition in the local market. These factors impacted adversely on the financial situation of the first defendant. P & R’s financier, Westpac, withdrew support for the first defendant by letter dated 21 December 2012, giving the first defendant until 11 March 2013 to find an alternative financier.
As part of the efforts to address the first defendant’s poor financial situation and to obtain an alternative financier, the three directors agreed to a number of measures. First, it was agreed to obtain a professionally qualified chief financial officer and for the plaintiff to step aside as the financial controller of the business. Second, it was agreed that the directors would take a cut in salary from $300,000 per annum to $150,000 per annum. Third, it was agreed by the directors to reduce their accrued annual and long service leave entitlements by about $96,000 being the lowest leave balance due to John Rhigas. This agreement had the effect that John Rhigas’ adjusted entitlement to annual leave and long service leave was nil and the plaintiff had his annual leave reduced from $69,585.40 to $28,336.05 and his long service leave reduced from $54,730.06 to nil.[2] The agreement as to both the reduction of salary and leave entitlements took effect at the beginning of the financial year, 1 July 2012. The write-back of leave was undertaken on the basis of a salary of $300,000 per annum. The effect of this agreement is contentious and forms part of the plaintiff’s claim.
[2] Exhibit P16; Exhibit D13.
It appears clear that over time the relationship between the plaintiff and his co-directors soured. Although the reason is disputed it is uncontentious that from about 2012 onwards he and John Rhigas did not speak to each other. His relationship with his brother was also strained. In the latter half of 2013 the plaintiff explored the possibility of selling at least some of his interest in P & R. Legal advice was obtained, inter alia, to the effect that the plaintiff was not entitled to a payment in respect of goodwill under the terms of the shareholders’ agreement. I make no findings in respect of that issue as it was not part of this action, however, the plaintiff was not prepared to sell his shareholding on the basis proposed by his co-directors and by August/September 2013 those discussions were effectively at an end. This appears to mark the beginning of a significant deterioration of the relationship between the two brothers.
When the plaintiff ceased acting as the financial controller of the first defendant he moved into a role described as business analyst. That role is outlined in a position description signed by the plaintiff and the first defendant’s chief financial officer, Rachel Pope, on 13 May 2013.[3] What transpired thereafter is contentious but on 7 May 2014 the first defendant purported to make the plaintiff redundant from that role.
[3] Exhibit P3.
In January 2014, the plaintiff’s father, George Pappas, was involved in Family Court proceedings with his former wife. To enable him to complete a settlement of those proceedings he asked to be repaid the sum of $300,000 that he had loaned to the first defendant. Given the financial circumstances of the business at the time, the plaintiff entered into a loan agreement to provide $200,000 to the first defendant to enable repayment of his father’s loan. The plaintiff says that he was induced into making that loan by the misleading and deceptive statements of his brother, the second defendant, and says further that the first defendant has not complied with the terms and conditions of the loan agreement. He further says that the circumstances surrounding his provision of the loan funds was one of the key factors leading the termination of his employment.[4] Accordingly I will deal with the issue of the loan first.
[4] Plaintiff’s written opening address [127].
The Loan
It is uncontentious that the plaintiff loaned the first defendant the sum of $200,000 in March 2014 and that the terms of that loan were set out in an agreement dated 21 March 2014. That agreement is exhibit P10.
The background to the loan is that in January 2014 there were discussions between the three directors concerning the payment of $300,000 owed by the first defendant to the plaintiffs’ father, George Pappas. George Pappas needed the repayment by March/April 2014 in order finalise a property settlement with his former wife entered into in the Family Court. The company was having cash flow problems and could not afford to repay that amount to Mr George Pappas. The plaintiff says that his father turned to him and his brother to clear the debt.[5]
[5] Transcript 303.
Nick Pappas did not have sufficient equity in his home to finance this. Chris Pappas said that John Rhigas was also highly geared and unable to raise the funds. He was the only one of all the directors that had sufficient equity to find the amount required.[6] He made the necessary arrangements to borrow the amount of $300,000 against the equity in his home and he informed his brother of that in about January 2014. The terms of the plaintiff’s proposed loan to the first defendant were set out in a letter signed by Nick Pappas and John Rhigas dated 31 January 2014.[7] In summary, the loan was for $300,000 plus interest to be paid back over a five year period. The repayments were to be $8,000 per month for the first two years and then $5,000 per month until the loan was extinguished. The agreement was to commence at the beginning of March 2014.
[6] Transcript 304.
[7] Exhibit P26.
The plaintiff gave evidence about a family gathering at his home after the January letter but before the arrangements changed in March 2014. At this stage he said that he was still prepared to loan $300,000 and that relations with his brother were cordial. This does not sit very comfortably with the contemporaneous records suggesting that at least the brothers’ business relationship was troubled. The plaintiff gave evidence of the following conversation:
QDid something happen on the deck that night.
AYes, it did. One of the things that was discussed was that my brother had said to me in front of my father that if for any reason that P&R Electrical got into cash flow difficulties and there were ever a problem with repaying the $10,000 per month, that in a short time I will be able to re-value my home, it will have equity and I will ensure that, you know, that the loan won’t be defaulted and I will help you. So, that was something that I also relied on but I didn’t put it into the contract unfortunately.
QWhy not.
ABecause it was a personal thing. It was a personal thing, a brotherly thing that I expected my brother will do. I trusted that was his word. I didn’t think it was required or it wasn’t prevalent in that conversation the night before with my dad, so it wasn’t put into the contract. [8]
[8] Transcript 316.
Chris Pappas said that he had an altercation with his brother Nick in the carpark of the business relating to his salary and a possible reduction of that salary to reflect his reduced responsibility after stepping down from his role as financial controller.[9] I infer from his evidence that this occurred after the conversation at the family gathering. Chris Pappas says that as a result of that altercation he no longer trusted his brother and John Rhigas. He thought that they were planning to drop his salary by a further 50%. He took this as a serious threat. He was concerned that such a reduction in his income would see him losing his home as there was already a substantial mortgage and he was re-mortgaging his home in order to come up with the additional $300,000. He was concerned about meeting the repayments and the larger debt. I make no finding as to whether this was in fact the case but the plaintiff plainly had a sense of ill-usage that, on the one hand he was helping the company out by borrowing against his home, and on the other he perceived that his fellow directors wanted to reduce his salary. Accordingly, on 19 March 2014, Chris Pappas spoke to his father at the office and told him that for personal reasons he was only able to loan half the money being $150,000. He told his brother about this after telling his father. It appears from the plaintiff’s evidence that there was little discussion with his brother at this stage. He did not tell John Rhigas.[10]
[9] Transcript 289, 307-8.
[10] Transcript 315.
The plaintiff says that his father asked him to meet him that evening for a further discussion outside of the work environment at a bar in Norwood. He described the discussion at that meeting as follows:
QWho was present.
AMyself and my father.
QAs a result of that meeting did that change what you might be prepared to do in respect of the loan.
AIt did.
QIn what way did it change.
AThere was pressure from my father. I felt bad because it happened – there wasn’t a lot of notice given but I thought I had to do what I needed to do to protect myself but my father pressured me and I agreed on – I agreed to increase the loan to 200 but there would be some very strict conditions for me to do that.
QDid you discuss those with your father.
ANot entirely, no, this was the directors’ matter.
QI need to understand if you discussed it or not.
ANo. [11]
[11] Transcript 309.
Chris Pappas said that the same evening he spoke to his brother on the telephone. He described Nick Pappas as being very agitated. Chris Pappas said that he told his brother that he and John Rhigas would need to agree some strict terms before he would agree to loan the sum of $200,000. Chris Pappas said that they had a discussion of about half an hour over the telephone in which they discussed the loan and the conditions for the loan.[12]
[12] Transcript 310-14.

The following day Chris Pappas sent an email to P & R’s chief financial officer, Rachel Pope.[13] In that email, which he copied to Nick Pappas, he set out the terms that he wished to be included in the new agreement. Those terms were reflected in the document prepared by Ms Pope.[14] He received the document with both managing directors’ signatures and Ms Pope’s signature on it. He said that he took it into the managing directors’ office and asked them to initial the front page. He then signed it and provided it back to Ms Pope, following which he arranged for the funds to be drawn down and forwarded to his father’s conveyancer so that the property settlement could proceed.[15]
Did the second defendant make false and misleading representations to the plaintiff in respect of the loan?
[13] Exhibit P9.
[14] Exhibit P10.
[15] Exhibit P27.
The plaintiff’s statement of claim sets out a number of representations asserted to have been made by Nick Pappas inducing the plaintiff to enter into the loan contract. Those representations are set out as follows in paragraph 50 of the Statement of Claim:
50. Mr Nick Pappas within the meaning of Section 18 of Schedule 2 of the Australian Competition and Consumer Act 2010 (Cth) (ACL), represented to the Plaintiff, at the Defendants offices (exempt 55.4), between February and March 2014 as follows:
50.1   That a property of the Defendant at Surf Parade, in Queensland would be              revalued, refinanced and/or sold and up to $50,000 would be paid to the             Plaintiff to reduce and repay the loan. This representation also became a           written term of the loan agreement;
50.2   That the $10,000.00 monthly payments would continue notwithstanding the            anticipated payment from Surf Parade;
50.3   That the repayments of $10,000.00 per month would be given priority over            director’s fortnightly payments.
50.4   In the presence of the Plaintiff and their Father, in March 2014 at the home             of the Plaintiff Nick Pappas represented to the Plaintiff that part way through              the term of the loan once he had gained some equity in his own home that if                for any reason the Defendant could not repay the Loan, that he would   revalue his home and borrow funds from his bank, to ensure that the Loan              was serviced or to provide funds to the Plaintiff for the Loan to be paid out          (collectively the “representations”).
The representation set out in paragraph 50.4 is that said to have been made at the family gathering prior to the change in the loan arrangements. The representations set out at 50.1, 50.2 and 50.3 are conditions that the plaintiff says were discussed in the telephone conversation with his brother following his meeting with his father. The representation in 50.4 did not, as the plaintiff says, find its way into the loan agreement. The conditions at 50.1, 50.2 and 50.3 are dealt with in the loan agreement.
Nick Pappas denies making the representations complained of. He says that the conversation at the family gathering did not take place as alleged. He says that shortly before the settlement was due to take place, Chris Pappas reneged on the arrangement that they had agreed upon in January, placing his father and the company in a difficult situation. There was limited time to arrange other finance and the plaintiff dictated the terms of the loan to him and John Rhigas. They were in no position to dispute them.[16]
[16] Transcript 575-80.
The plaintiff bears the burden of persuading the court that it is more likely than not that representations were made in clear and unequivocal terms. He has not discharged that burden. I prefer the evidence of Nick Pappas that he did not make those representations. His evidence is consistent with an email that he sent to John Rhigas dated 20 March 2014 setting out the events that had occurred in relation to the loan.[17] The email contains a lengthy diatribe about his brother plainly indicating his frustration with the manner in which he perceived that Chris Pappas had behaved in the business over some years. He concludes the email by describing, for John Rhigas’ benefit, the events of the previous day. Specifically, he refers to his brother advising him and his father of his change of heart and his indication that he would now only advance $150,000. He refers to their father negotiating with Chris later in the day to increase the amount he was prepared to loan to $200,000. He does not refer to any phone call such as that described by the plaintiff, rather, he refers to the demands set out in the plaintiff’s email to Rachel Pope, which he attaches. He concludes that they have no option ‘but to proceed with Chris’s demands’.[18]
[17] Exhibit D16.
[18] Above n 15.
The plaintiff contends that Mr Nick Pappas’ evidence on the topic of the phone call was inconsistent. I have read the transcript references to which I was referred.[19] It is my view that these represent a consistent denial of the telephone conversation. Likewise, the asserted inconsistency concerning a conversation about refinancing Nick Pappas’ home was not made out. Nick Pappas’ evidence was that there was never a discussion in the terms asserted in paragraph 50.4 of the statement of claim but there was a time where Chris Pappas told him he should look to refinance his home, sell Hindmarsh Island and take a $30,000 pay cut.[20]
Did the plaintiff rely on a representation of either defendant in entering into the contract of loan?
[19] Transcript 802-5.
[20] Transcript 815-18.
There are two further problems with the asserted representations.
First, they do not disclose an independent cause of action against Nick Pappas. These discussions, assuming they had taken place, were discussions between directors in the context of the plaintiff providing financial support to P & R because it was experiencing cash flow difficulties. Nick Pappas was in those circumstances speaking in his role as a director about issues of company finance. If there was any cause of action in relation to representations then they are representations by P & R. The loan agreement was concluded with P & R. There has not been any suggestion of a contract with Nick Pappas.
The second issue is whether the plaintiff has established that he was actually induced to enter into the loan agreement by the representations and, if he was, whether his reliance on those representations was reasonable.[21]
[21] Gould v Vaggelas (1995) 157 CLR 215, 236; Bathurst Regional Council v Local Government Financial Services Pty Ltd [2012] FCA 1200.
It is plain from the evidence of the plaintiff and the material tendered that he had agreed to loan $300,000 to the company in January 2014. He unilaterally withdrew from that arrangement. He told first his father and then his brother Nick Pappas of that decision but said that he might be prepared to loan the lesser amount of $150,000. Chris Pappas made his decision, on his own evidence, to extend a loan of $200,000 after he spoke to his father in the bar at Norwood. Neither his brother nor John Rhigas were present for that discussion. I find that the plaintiff made the arrangement, perhaps under sufferance, in order to assist his father. He did not rely on any representations in making that arrangement. He was prepared to go ahead with the arrangement under what he described as strict conditions which I find he dictated to his fellow directors via the email to Rachel Pope on 20 March 2014. They felt that they had no choice but to accept them and they did so by signing the letter.
The whole tenor of Mr Chris Pappas’ evidence was that he did not trust his fellow directors from the time that their negotiations as to his exiting the company failed in late 2013. His lack of trust was heightened after the car park altercation with his brother which caused him to withdraw from the $300,000 loan arrangement. In other words, Chris Pappas actively distrusted his fellow directors, including his brother Nick Pappas, at the time he entered into this transaction. A reasonable person would not have relied upon the word of a person they actively distrusted.
Accordingly, I dismiss the plaintiff’s claim against both defendants in respect of the asserted misrepresentations.
Did the first defendant comply with the terms of the loan?
At the time of submissions $177,000 of the total loan had been repaid together with all of the additional amounts required under the agreement as to interest and expenses. The contest as to the breach of agreement relates to the interpretation of the following clause:
It is also agreed that should cash flow be poor in any given month, priority of the $10,000 repayment will be given by the following means:
·One of the fortnightly directors payments of $9,534 or similar amount will be forfeited to allow the $10,000 to take precedence;
·If cash flow gets to a position that the $10,000 cannot be supported in that month and both fortnightly payments to the directors of $9,534 has been forfeited then the $10,000 will also be forfeited and the total loan due date will be increased by a month.[22]
[22] Exhibit P10.
The plaintiff contends that the first defendant has failed to comply with that clause in deferring some of the loan repayments.
The agreement is not well written. If there is any ambiguity in the wording of this document I note that the language of the agreement was that of the plaintiff. I would therefore resolve any ambiguity against the plaintiff in favour of the first defendant.
Evidence given by both Ms Pope and Ms Harten revealed that they advised the directors and the advisory board of the cash flow of the company at the time each payment was due and made an assessment whether cash flow was adequate to support the payment to the plaintiff. Their evidence and that of the material tendered does not suggest any instruction given to err on the side of not repaying the money, indeed, there was at least one occasion when a payment of $15,000 rather than $10,000 was made on the instructions of John Rhigas. I also note the evidence of Ms Harten that she was told in her first month of employment of the existence of this loan and it was only when she questioned whether the company’s cash flow was sufficient to meet a payment at the end of August 2015 that Mr Rhigas advised her of the terms of the agreement and the possibility of deferring the payment.
I do not accept the proposition put to me by the plaintiff that money has deliberately been withheld from the plaintiff by his fellow directors. The objective evidence and that of Ms Pope and Ms Harten is to the contrary. It is undisputed that the company had cash flow issues. The argument put by the plaintiff appears to be that, if the company wanted to, it could have made the payment. Taken to its logical extreme this submission was, in effect, that the company would need to be either in liquidation or about to go into liquidation before it was possible to defer the payment. I do not consider that to be a commercially reasonable reading of the agreement. The agreement provides for one of two options in months where cash flow is ‘poor’. The agreement does not predicate these options on a situation where the company is incapable of raising funds.
The first option is the forfeiture of one of the fortnightly directors’ payments to allow the repayment to take precedence. Evidence was given that the company’s advisory board determined that the cash flow would not sustain those payments and that none have been made since April 2014. That leaves option two. The ordinary meaning of option two is that the loan agreement provides a deferral mechanism to help the financial health of the company in circumstances of poor cash flow. When the chief financial officer said that a payment could be supported it was made, and when the chief financial officer formed the view that the payment could not be supported, it was not made. The company continued to reduce the amount of the loan and there is a limited amount outstanding.
The plaintiff has failed to establish a breach of the loan by the first defendant.
Employment Contract Issues
Was the plaintiff an employee?
Paragraph 1 of the Statement of Claim pleads that “The Plaintiff is a director of the Defendant and a former executive and employee as detailed below.” Save for contending that the reference to “defendant” is taken to mean the first defendant the defence does not take issue with this pleading. Notwithstanding this concession I raised the issue as to whether the plaintiff was an employee of the first defendant in light of some aspects of the pleadings and certain matters raised in the parties’ openings. For example, the plaintiff’s written opening contended as follows:
2.   The trial is in one respect straightforward and devoid of any complexity. The plaintiff says he was wrongfully terminated. The Business says he was made redundant. That is the question for the Court.
3.   That question is not complicated by any allegations about the plaintiff’s job performance. Further the matter is not complicated by any terms of employment. There was no contract of employment. It is a family business.
4.   The plaintiff had a reasonable expectation of a job for life with the business, until his brother the second defendant and Mr John Rhigas decided they would terminate him for no proper reason.
I consider that when the plaintiff first commenced working in what was his father’s business, he was an employee. The issue is whether, having become a director and shareholder and in particular following the execution of the shareholders’ agreement, he remained as an employee.
The ‘control test’ is no longer the critical test for determining whether a person is an employee. The High Court has in recent times adopted a multi-factor test. In Stephens v Brodribb Sawmilling[23] Mason J observed:
[T]he existence of control, whilst significant, is not the sole criterion by which to gauge whether a relationship is one of employment. The approach of this court has been to regard it as merely one of a number of indicia which must be considered in the determination of that question….Other relevant matters include, but are not limited to, the mode of remuneration, the provision and maintenance of equipment, the obligation to work, the hours of work and provision of holidays, the deduction of income tax and the delegation of work by the putative employee….(citations omitted)[24]
[23] (1986) 160 CLR 16.
[24] Ibid, 24.
The test for determining who is an employee may vary depending on the context. In Vabu Pty Ltd v Commissioner of Taxation[25] the NSW Court of Appeal held that the totality of the relationship between the parties showed that couriers engaged by the taxpayer, Vabu Pty Ltd, were neither employees at common law nor under the extended definition of the Superannuation Guarantee (Administration) Act 1992 (Cth). Special leave to appeal to the High Court was refused.[26] In Hollis v Vabu Pty Ltd[27] the High Court found that Vabu was vicariously liable for the negligent act of a bicycle courier on the basis that the courier was an employee.
[25] (1996) 81 IR 150.
[26] Taxation, Commissioner for v Vabu Pty Ltd (1997) 35 ATR 340.
[27] Hollis v Vabu Pty Ltd (2001) 207 CLR 21.
A helpful summary of the law is found in the Australian Industrial Relations Commission decision in Abdalla v Viewdaze Pty Ltd[28]:
Following Hollis v Vabu, the state of the law governing the determination of whether an individual is an employee or an independent contractor may be summarised as follows:
(1)Whether a worker is an employee or an independent contractor turns on whether the relationship to which the contract between the worker and the putative employer gives rise is a relationship where the contract between the parties is to be characterised as a contract of service or a contract for the provision of services. The ultimate question will always be whether the worker is the servant of another in that other's business, or whether the worker carries on a trade or business on his or her own behalf: that is, whether, viewed as a practical matter, the putative worker could be said to be conducting a business of his or her own. This question is answered by considering the totality of the relationship.
(2)The nature of the work performed and the manner in which it is performed must always be considered. This will always be relevant to the identification of relevant ‘indicia’ and the relative weight to be assigned to various ‘indicia’ and may often be relevant to the construction of ambiguous terms in the contract.
(3)The terms and terminology of the contract are always important and must be considered. However, in so doing, it should be borne in mind that parties cannot alter the true nature of their relationship by putting a different label on it. In particular, an express term that the worker is an independent contractor cannot take effect according to its terms if it contradicts the effect of the terms of the contract as a whole: that is, the parties cannot deem the relationship between themselves to be something it is not. Similarly, subsequent conduct of the parties may demonstrate that relationship has a character contrary to the terms of the contract. If, after considering all other matters, the relationship is ambiguous and is capable of being one or the other, then the parties can remove that ambiguity by the very agreement itself which they make with one another.
(4)Consideration should then be given to the various ‘indicia’ identified in Brodribb and the other authorities bearing in mind that no list of indicia is to be regarded as comprehensive and the weight to be given to particular indicia will vary according to the circumstances. Where a consideration of the ‘indicia’ points one way or overwhelmingly one way so as to yield a clear result, the determination should be in accordance with that result. (Citations Omitted)[29]
[28] Abdalla v Viewdaze Pty Ltd (2003) 122 IR 215.
[29] Ibid, 228-29.
The AIRC then set out a list of various indicia that can be gleaned from the authorities.[30] In this case the indicia point both ways. The indicia that suggest that the plaintiff is an employee include that:
[30] Ibid 229-31.
·he was paid through the PAYG system in the same manner as other employees;
·group certificates were provided;
·superannuation entitlements were paid;
·WorkCover levies and fringe benefits tax was paid for the plaintiff;[31]
[31] Transcript 117-18.
·annual leave and long service leave accrued;
·a position description setting out his duties and reporting line;
·all business equipment was provided by the first defendant including payment of allowances for a motor vehicle, telephone and internet, petrol card and the provision of a mobile telephone; and
·the plaintiff was not paid director’s fees.[32]
[32] Ibid.
The matters which suggest that the plaintiff was not an employee include:
·there is no written contract of employment except to the extent that any position description could be said to comprise such a contract;
·the plaintiff was a director and shareholder and expected to be treated as such;[33]
·the description of the plaintiff as a director on correspondence rather than by reference to his role because he thought it was more “appropriate”;[34]
·the plaintiff’s expectation of a job for life;[35]
·the plaintiff’s salary was fixed from an agreed amount fixed equally between the three directors;[36]
·each of the directors was paid the same amount with no reference to their role within the business;
·the plaintiff’s evidence that he did not consider it appropriate that other staff members gave him directions about the work he performed;[37]
·the agreement between the three directors to reduce their salaries and leave entitlements when the business experienced financial difficulties; and
·the maintenance of the directors’ income following the reduction in salary for a period of time by accessing what was described in evidence as “a top-up payment” from their respective loan accounts.
[33] Transcript 411.
[34] Transcript 88.
[35] Transcript 264, 334.
[36] Transcript 60.
[37] Transcript 91.

Despite the artificiality of the employment relationship, I have come to the view that the plaintiff was employed under a contract of service to the first defendant. The parties have all acted on the basis that the three directors were in an employment relationship with the company. In particular the defendants purported to make the plaintiff redundant and the plaintiff accepted that decision. Accordingly, I will proceed on the basis that the plaintiff was, for these purposes, an employee, noting that there is likely to be other litigation between the parties as to his entitlements as a director and shareholder and under the shareholders agreement.
The termination of the plaintiff’s employment
The Law
The plaintiff’s income exceeds the high income threshold under the Fair Work Act 2009 (Cth) (the ‘FWA’). He cannot take proceedings under the FWA in respect of his dismissal. His claim is therefore a common law claim for breach of contract. An employer has the right to terminate an employment contract at common law by giving proper notice of termination in accordance with the terms of the employment contract. The plaintiff has no written contract dealing with notice of termination nor is he covered by an award or industrial agreement.
The defendants’ position is that the plaintiff was made redundant from the position of business analyst. The plaintiff says that he had ceased to perform this position and had, since about November 2013, worked in the position of master file manager. He says the role of master file manager was not redundant, it still exists and continues today, being undertaken by Bob Whitfield, who was engaged on or about 7 May 2014. The defendants say, on the other hand, that the plaintiff was never authorised to take up the role of master file manager, that the role did not exist until Mr Whitfield was employed in it and that, in any event, the plaintiff was not performing the full range of the duties undertaken by Mr Whitfield.
The classic definition of redundancy is that of Bray CJ in R v Industrial Commission of South Australia; Ex Parte Adelaide Milk Supply Co-Op Ltd[38] where his Honour stated:
….the concept of redundancy in the context we are discussing seems to be simply this, that a job becomes redundant when the employer no longer desires to have it performed by anyone. A dismissal for redundancy seems to be a dismissal, not on account of any personal act or default of the employee dismissed or any consideration peculiar to him, but because the employer no longer wished to job the employee has been doing to be done by anyone.[39]
[38] R v Industrial Commission of South Australia; Ex Parte Adelaide Milk Supply Co-Op Ltd (1977) 16 SASR 6.
[39] Ibid, 8.
Subsequent cases have made it plain that this is not an exhaustive description of what can constitute a redundancy. In Ryan v. Department of Energy & Minerals[40] Ryan J of the Industrial Relations Court of Australia said:
However, it is within the employer’s prerogative to rearrange the organisational structure by breaking up the collection of functions, duties and responsibilities attached to a single position and distributing them among holders of other positions, including newly created positions. It is inappropriate now to attempt an exhaustive description of the methods by which a reorganisation of that kind may be achieved. One illustration of it occurs when the duties of a single, full time employee are redistributed to several part-time employees. What is critical for the purpose of identifying a redundancy is whether the holder of the former position has, after the reorganisation, any duties left to discharge. If there is no longer any function or duty to be performed by that person, his or her position becomes redundant in the sense in which the word was used in the Adelaide Milk Co-operative case.[41]
[40] Ryan v. Department of Energy & Minerals (1995) 60 IR 304.
[41] Ibid, 308.
The issue of whether the plaintiff was directed to work in the master file manager role is at the heart of the redundancy issue. There seems to be little dispute that the business analyst role had, for all intents and purposes, ceased. On the plaintiff’s evidence a large aspect of that work had been completed and the plaintiff had transferred other duties outlined in that position description to other employees within the first defendant. The business analyst role was, I find, redundant; the emphasis being upon a job being redundant rather than a worker.[42]
[42] Amcor Ltd v Construction, Forestry, Mining & Energy Union (2005) 222 CLR 241.
The Evidence
The plaintiff says that he stepped down from the financial controller position by agreement with the other directors. He was replaced by David Fraterman, a consultant to the business, temporarily and then permanently by Ms Pope. When Ms Pope commenced he did not immediately hand over all of the duties of financial controller so that she was able to settle into her role. Further Ms Pope, as a qualified accountant, was undertaking a number of higher level tasks that he had not previously been involved in.
The plaintiff said that he started in the role of business analyst on 13 May 2013. That position came about following his brother asking him to work out what his strengths and weaknesses were and what he could contribute to the business. He said he prepared a document called a SWOT analysis which set out his strengths and weaknesses. He sat down with his brother on a number of occasions to discuss the SWOT document.[43] He said that the business analyst role was created from those discussions.[44] The plaintiff says that he was happy with the business analyst role and he understood that his brother was likewise happy with the role.
[43] Exhibit P4; Transcript 63-5.
[44] Exhibit P3.
Nick Pappas gave evidence that the business analyst role came about as a result of his brother not coping with the financial controller role. He agreed that his brother prepared the SWOT analysis at his request and he agreed that they had meetings to discuss that document. He said that the handwritten annotations on exhibit P4 are his writing. He said that his brother agreed to include those duties into his new job description. He said that he was happy with the business analyst job description that was prepared as a result of those discussions. He said that he and John Rhigas both approved the job description of business analyst.[45]
[45] Transcript 592.
The plaintiff says that the most significant aspect of his duties as a business analyst related to the customer discount matrix. By October 2013 the customer discount matrix project was finished. He said that about two-thirds of his role as a business analyst disappeared with that project. He said that he had a meeting with his brother Nick Pappas and told him this. The plaintiff said he told his brother that he needed a new job to drive him. He said that he had been looking at his skills and that one of the things he was good at was operating Microsoft Excel and manipulating data. As a result of his discussion with his brother, Nick Pappas, a new role of master file manager was proposed to him. He then gave evidence as follows:
QWhat was discussed after the two of you discussed your skills, who proposed this position as master file manager.
ANick Pappas.
QWhat was the role of master file manager at that time.
AAt that time for master file, we did not have a master file manager in the role but the commercial manager’s assistant Kelly had learned that role and was doing that role for approximately a four to five-year period. That role was taught to her by a person called Bob Whitfield who was working prior to Kelly being taught that job for Go Electrical and previous to that, he was working for the groups, so when Go Electrical had started up and P&R were using them and we were using shared services, that was the time that my role was shared with Go Electrical and our debtors and creditors were shared. Bob Whitfield was brought on board and he did the master file maintenance for both P&R and Go Electrical and was employed by P&R initially. After a short period of time, Go Electrical wanted Bob Whitfield as an exclusive resource, so at that time he was brought in to teach Kelly the main part of his job and Kelly had done that job for a four to five-year period up to the point where we are at now being about October/November ’13.
QJust a couple of things. You spoke about ‘shared services’, just in case there are any queries about that, yesterday you told her Honour that you were to be controller for both Go Electrical and P&R during its set-up period and you explained that P&R provided the office services and creditor and debtor department; is that what you mean by referred to ‘shared services’.
ACorrect.
QMoving on, you’ve told us how the role had evolved in the organisation that Kelly carried out. What were you doing after, was it precisely the same thing that Kelly was doing.
ANo, it was the master file manager role, so there were some subtle differences.
QWhat was discussed with you as to what that meant.
AThat meant that the role could be advanced to what was required for the business, and one of the big issues was we were about to implement a new computer system, so our product – Kelly, when Kelly was doing the job, she was updating the price files and doing what was required, but she had no time to properly configure the files in a format that would be ready for the new computer system.
QDid you and your brother discuss that at one of these meetings where he was suggesting you take on that role.
ACorrect. That was one of the, I guess, the highlights that – it gave me brightness of future, like I can get in a role, I can improve it, it was in an area where my skill sets were strong, it overlapped in a lot of the areas that I had previously done in both roles, so it was actually a job that I was very keen and very looking forward to.
QDid you and your brother, in those meetings, discuss duties in addition to what you’ve already discussed with us, that is to get the system ready to get on to the new computer system.
AThat was the aim, to basically continue the job – well, continue the job in the master file manager role, so that was to do the job in a more comprehensive way, but also to get the files ready for a new system. We had been on this VAX system since day one, and that was a major change for the business. [46]
[46] Transcript 73-4.
The plaintiff then described how he divested himself of other aspects of the business analyst role so that he could undertake the role as a master file manager. In essence those duties and responsibilities were handed over to Rachel Pope, the chief financial officer and John Micholos, another manager.
The plaintiff said that he commenced his new role as master file manager at the start of November 2013. He said that there was no job description at the commencement of the job.[47] He asked Peter Newman from Go Electrical to obtain a copy of Bob Whitfield’s job description.[48] Mr Whitfield was the master file manager at Go Electrical. Having obtained that document the plaintiff said that he used it as the basis for his job description to ensure that his role covered the matters that were required of a master file manager. He said that there were one or two items that were not applicable to P & R as they were unique to the Go Electrical business.[49] Once he had prepared a draft position description as master file manager he gave it to either Rachel Pope or an HR person called Kirralee. He got the Whitfield job description on about 22 November 2013 and he believes he gave his draft to either Kirralee or Rachel Pope prior to Christmas.[50]
[47] Transcript 82.
[48] Exhibit P5.
[49] Transcript 83-4.
[50] Transcript 86.
The plaintiff said that Kelly Anderson (nee Cherry) trained him and his assistant Tracey Martin in the new role during November and December 2013. He said that everybody knew about his new role. He said that he developed some master file management procedures in the role.[51] He sent a number of emails in his role as master file manager. He agreed, however, that he was referred to as a director rather than master file manager in all correspondence and in the office.[52] The plaintiff said that during the time he was undertaking the master file manager role he never had discussions about his work with his brother Nick or with John Rhigas. He said that if he required direction or assistance he would speak to either Jim Micholos or Rachel Pope.[53]
[51] Transcript 92; Exhibit P6.
[52] Transcript 95.
[53] Transcript 95-6.
Chris Pappas said that the next time he saw his draft job description as master file manager was in April 2014 when he reviewed it with Rachel Pope. He understood the purpose of the meeting with Rachel Pope was to finalise his job description. By this time he had, on his evidence, been undertaking the master file manager role for some five months. The plaintiff said that he and Rachel went through the job description line by line adding or removing items. He said the document had to be retyped prior to being signed.
The plaintiff became aware that there were discussions about the P & R Group employing Mr Whitfield, the master file manager at Go Electrical. He understood from discussions with his brother that the purpose of employing Mr Whitfield was to ‘bring on things such as a reward program’.[54] He was taken to some emails relating to this topic dating to April 2014.[55] He agreed that he received an email dated 10 April 2014 sent by his brother to him and others relating to Mr Whitfield and an offer of employment. He said that he did not do anything in relation to that letter. The plaintiff said that he did not become aware that Mr Whitfield was employed as P & R’s master file manager until after his employment was terminated.[56]
[54] Transcript 96.
[55] Exhibits P8; Exhibit P39.
[56] Transcript 97-8.
The plaintiff described the meeting at which his employment was terminated on 7 May 2014. He said he was asked to attend a meeting with his brother. He did not know what it was about. When he went into the meeting the company’s HR coordinator, Kirralee, was present to minute the meeting. He said that his brother told him that for commercial reasons the company had made a decision that his role would become redundant. Chris Pappas recalled his brother pulling out his job description as a business analyst and going through the tasks one by one saying that he was no longer doing these particular tasks. Chris Pappas responded by saying that these tasks were given by to Rachel back in October 2013 when he was appointed to the new role of master file manager.[57] The plaintiff was taken through minutes of that meeting.[58] He agreed that the minutes were generally accurate although he did not recall being referred to some documents of April and May 2014 and being asked for his response. The plaintiff said that the reference in the minutes to him commenting that his position description was outdated and had been redone was a reference to the fact that he was no longer in the business analyst role and from November 2013 he had commenced in the role of master file manager.[59] Chris Pappas said that following this meetings he grabbed his personal items from his office and drove home. He was provided with a letter of termination following the meeting setting out his termination payments.[60] He has not returned to work since.
[57] Transcript 336.
[58] Exhibit P21.
[59] Transcript 339.
[60] Exhibit P32.
Rachel Pope, the financial controller at the time, gave evidence that she observed the plaintiff undertaking the business analyst role. She was aware that his role in relation to the customer discount matrix was initially very significant but that over time it became less onerous.[61] She said that Chris Pappas’ role changed from business analyst to another role when a person called Kelly left to work in the Electrical Xpress Division. Ms Pope said that she observed Chris Pappas moving to that role with another lady from accounts payable, Tracey. She said she observed a hand over period where Kelly spent a considerable amount of time with Chris and Tracey training them for the role. It is clear from her evidence that Ms Pope did not have any involvement in this.
[61] Transcript 121.
Ms Pope did not, until prompted in examination in chief, indicate what she thought Chris Pappas’ new role was. It is clear that she did not know at the time because she sent an email dated 27 February 2014 to Chris Pappas asking what his role was for administrative purposes. His response to that email was that he was the master file manager. Ms Pope was taken to that email chain in her evidence in chief and asked;
QDoes that remind you of the name of the role that he was filling?
AYes. Yes. I mean that was the role after the business analyst role, yes, the one that I think you were talking about that, you know, didn’t get signed off in the end.
QSo the role you recall is called master file manager, that’s the one you think wasn’t signed off. Is that what he was referred to throughout the office, as the master file manager.
ANo. The signature says there he is director. He had originally finance director there when he was finance director, but I believe he just changed it to director, yeah, because – yeah, I don’t think – I’ve been trying to remember. I mean master file manager wouldn’t have been used quite commonly because it’s a bit of a strange title anyway, so I can’t remember it being used in the scheme of things. [62]
[62] Transcript 128.
She was then asked whether she knew Bob Whitfield. She said she knew that he was employed by the first defendant. She understood his role to be setting up a rewards program; she did not recall him being referred to as a master file manager.[63]
[63] Transcript 131.
In cross-examination Ms Pope was again referred to the emails relating to the title master file manager. She agreed that she used that email as the source of her conclusion that this was Chris Pappas’ title. She said it wasn’t common that he used that title rather he used the term “director”. She further agreed that she had never been told by either of the managing directors that Chris Pappas’ title had changed to master file manager. She was asked whether that was because his title at no time changed to master file manager. She was not sure whether his title had changed; she did not know one way or the other.[64]
[64] Transcript 175.
Ms Pope said that after Kelly left P & R she sat down with Chris Pappas and went through a process of preparing a job description for his new role. She explained her involvement as follows:
QAt some stage did anybody ask you to sit down and go through a process of preparing a job description for just this role.
AYes, I had to go through it. There was some issue of who was managing him in this new role. I thought it was Jim Micholos, who was the commercial manager, but I was told that it was myself.
QTold by who.
AOne of the directors, and so I had to sort of scramble to sort of get up to speed in what was required, so I had to sit down with Chris to sort of go through it and try and work out what he did do to sort of write it up. But I mean – yeah, so it was a bit confusing at that time who was supposed to be managing him.
QSo you don’t remember sitting down and discussing the role with him.
AI suppose I know I sat down with the directors to discuss the role. I can’t really –
QSorry to interrupt you, I will just pause you there. When you say the directors, does that include Chris Pappas.
ANo.
QSo the managing directors.
AManaging directors, sorry, I had to sit down with the managing directors and David Fraterman to talk about the role, and I was instructed from that, by my note that I kept, that I had to communicate that back to Chris, but I can’t really recall the exact meeting of when I sat down with Chris to do that. Whether I did or not, yes, I can’t remember.
QYou can’t remember the meeting or you can’t remember the date.
AThe date. I mean I remember sitting down with the managing directors about it, but yeah, I can’t remember the meeting or the – when it was, yeah, exactly when the date was. [65]
[65] Transcript 123-24.

She said that following this direction from the managing directors she sat down with Chris Pappas. She and Chris Pappas initially looked at the business analyst role; working out what he was doing and what he wasn’t doing any more. She said that they crossed out a number of duties. In particular they deleted a number of finance duties that had to be handed over to her. They then gave this job description as amended by them both to Kirralee, the HR coordinator, to type up a new job description. Ms Pope said this document sat on Kirralee’s desk for a while and that there was never a final document to be signed. Ms Pope believed that Nick Pappas came and asked her for it. She told him that Kirralee had it. Ms Pope never saw it again.
Ms Pope did not give evidence of having seen a draft master file manager job description prepared by Chris Pappas either before Christmas or at this meeting. Her evidence was plain that the document they worked with was his business analyst position description.
In cross-examination Ms Pope agreed that she had never been asked by the managing directors to take on a human resource role and that she could not remember either of the managing directors asking her to develop a new position description for Chris Pappas.[66] She did however maintain that she did sit down with him and go through his position description. Her evidence as to when and why she did this was somewhat confusing. In her evidence in chief it appears that she suggested that she did this at the request of one of the managing directors because of some confusion about who was managing Chris Pappas. In cross examination she said:
QYou’ve told her Honour that you did in fact assist Chris Pappas with drawing up a revised position description.
AYes.
QThat’s right, isn’t it.
AYes, I had to go through it with him to work out what was finance related and what we didn’t require anymore.
QYou keep saying that you had to go through it with him but the fact is you weren’t asked by either of your bosses, the managing directors, to do anything of the sort, were you.
ANo. [67]
[66] Transcript 161.
[67] Transcript 162.
Later she said:
QYou weren’t present when anybody else had a discussion with the managing directors about Chris Pappas moving into a new role.
ANo, it wasn’t part of the conversation of him moving into the position that Kelly was doing, no.
QIt comes to this, doesn’t it, you’ve just assumed that the managing directors knew what was going on.
AWell, they would have had to know.
QYou’re guessing. ‘Would have’, you keep using the words ‘would have’ because you’re guessing.
AWell, if he didn’t know what was going on, that’s quite strange, but I mean he had to do the role when Kelly left, so that’s the role that he was doing as I believed it was occurring.
QWell, he didn’t have to do the role, did he, he could have continued operating as a business analyst which is what he’d been approved to do.
AHe could have if he wanted to, correct.
QWhy do you say ‘if he wanted to’.
AWell, if he didn’t want to take Kelly’s role, I suppose being a director, he could have said that he didn’t want to do it. [68]
[68] Transcript 165.
Ms Pope gave evidence about a meeting in April 2014 with Nick Pappas where he wished to discuss Chris Pappas. She said that Nick Pappas expressed surprise to her that he had been told that Chris Pappas was now reporting to Jim Micholos. Nick Pappas said that he thought that she was managing Chris Pappas. Nick Pappas queried her as to what Chris Pappas was doing by way of employment duties. Ms Pope did not recall producing a job description but she agreed that she and Nick Pappas went through Chris Pappas’ business analyst position description working out what duties Chris Pappas was performing.[69] She said that during their meeting they made some marks on the document, specifically, some duties were crossed out because they were no longer being performed by Chris Pappas. She agreed that by April 2014 Mr Chris Pappas was not performing any of the financial duties. She could not identify all of the handwriting on the document but some of it was hers. She did not recall Nick Pappas expressing surprise or disappointment to her that Chris Pappas was not undertaking some of the duties and that she had not made him aware of that change. She denied being reprimanded by him or being told that he was disappointed she had not told him of the changes.
[69] Transcript 175-77; Exhibit D4.
At the conclusion of Ms Pope’s evidence I granted leave for the plaintiff to re-open examination in chief in respect of some notes that she had made. The further evidence did not clarify what happened at the meetings. The notes did not refresh Ms Pope’s memory to enable her to give any further evidence beyond that already given. The notes did however enable her to say that she had a meeting with Nick Pappas on 10 April 2014 and a meeting with Chris Pappas on 15 April 2014. Ms Pope was clear that the 15 April meeting with Chris Pappas was the meeting where they both went through his position description. Whilst not entirely clear, the tenor of her evidence was that she had been requested to do this by Nick Pappas at the meeting on 10 April 2014.
Nick Pappas denied that he asked Rachel Pope to produce a job description for Chris Pappas as master file manager.[70] He said that position descriptions were prepared by Kirralee Dennis the HR coordinator. In relation to his brother, any new position description would have come to him for checking and approval, before being provided to the supervisor to arrange for it to be signed. Nick Pappas said that this is the process that was followed in relation to the business analyst position. If any other position description was drafted in 2014 it would have had to go through the same process in order to be valid. Nick Pappas said that he did not instigate any such process in respect of his brother changing his duties in that year. He denied that he suggested to his brother that he undertake the role of master file manager; indeed he said that he did not know what that role was in 2013.[71] He further denied any knowledge of his brother undertaking alternative duties. He said that he was aware that Ms Anderson wished to do something different. She had been trained to upload price files by Mr Whitfield in about 2006-7 but by 2013 she was looking for a more challenging position. It was agreed that she would undertake a different role. He understood that Mr Micholos was concerned that her knowledge might be lost and he asked Chris Pappas to document it for him so that he could teach Tracey. Nick Pappas said that neither he nor John Rhigas authorised that process nor were they involved in it.[72]
[70] Transcript 764.
[71] Transcript 593.
[72] Transcript 594-95.
Nick Pappas accepted that Ms Pope had made a diary entry for 15 April 2014 where she says that she discussed a position description with Chis Pappas. He was shown a document which appeared to be a position description relating to his brother issued on 15 April 2014 replacing the previous business analyst job description of 13 May 2013. Nick Pappas accepted that the document was prepared by someone at P & R but says that he has not previously seen that document. [73] He denied that as the chief financial officer Rachel Pope would have the authority to deal with Mr Chris Pappas in respect of a new position description in April/May 2014 without his or John Rhigas’ knowledge. He further denied that either of them had tasked her to do that job.[74]
[73] Transcript 762.
[74] Transcript 264.
Nick Pappas said that he understood that from 2013 until late April 2014 his brother was working as a business analyst with Rachel Pope as his immediate supervisor. He said that in late April 2014 he became aware that Jim Micholos was unhappy because he believed that Chris Pappas was now reporting to him. Nick Pappas said that he immediately approached Rachel Pope about this on or about 29 or 30 April 2014[75];
[75] Transcript 595.
QWhat did you say to Rachael Pope.
AI asked her if she had any knowledge of Jim being concerned or thinking that he is now Chris Pappas’ boss.
QWhat was Rachael’s response.
ARachael appeared to be confused.
QDid she say anything.
AShe said that he is now reporting to Jim Micholos.
QWhat was your response to that.
A‘How is that possible? And why?’[76]
[76] Transcript 596.
Nick Pappas said that Rachel Pope showed him Chris Pappas’ job description and indicated which tasks he was no longer doing. He identified that document and the various handwriting on it.[77] He concluded at the end of that meeting that his brother had diluted his duties to the extent that he was not producing more than two to three hours of work a week and had effectively made himself redundant. He said that he discussed this with his fellow managing director John Rhigas and the executive management team. Ultimately, they decided to make his brother redundant. He did not speak to his brother prior to that decision being reached.
[77] Exhibit D4; Transcript 596-601.
Nick Pappas denied that he had had a meeting with Rachel Pope on 10 April 2014 at which his brother’s duties were discussed. He said that the only meeting he had with her at which this topic was discussed was the meeting he described as taking place on 29 or 30 April 2014. On Nick Pappas’ evidence the meeting with Rachel Pope must have post-dated her meeting with Chris Pappas because he says that she produced the document that she and his brother had amended together.[78] The document has a handwritten date of “April 2014” at the top in Nick Pappas’ handwriting. Ms Pope could not remember producing the document to Nick Pappas but agreed that the document, which is exhibit D4, was the document she discussed with Nick Pappas albeit she appears to contend that this discussion occurred on 10 April 2014. If however this was the case it does not explain how Chris Pappas’ handwriting also came to be on the document.
[78] Exhibit D4.
In cross examination Nick Pappas was taken to an unsigned position description for Chris Pappas.[79] The position is entitled “business analyst”; the issue date is 15 April 2014 and it is said to replace a document dated 13 May 2013. The latter date is the date of the plaintiff’s original position description as business analyst. Nick Pappas said that he had not seen this document before. He accepted that it was prepared by someone at P & R and that it had been discovered in these proceedings. He further agreed that it was reasonable to assume that it had been found in one of the human resources files. He was then asked about the content of the document as follows:
[79] Exhibit P53.
QThat refers to the executive officer that is responsible for this employee, doesn’t it.
ARefers to the CFO Rachael Pope at the time.
Q.    And she was responsible for Chris Pappas based on your evidence, wasn’t she.
A.    Yes.
Q.Indeed, you said to the court that it was a meeting at about this time where Ms Pope was disciplined because she thought Mr Micholos was supervising Mr Pappas and, indeed it was supposed to be her.
A.    Yes.
Q.So looking at the front sheet of this document on p406 by noting the employee and the person they are to report to, confirms for you that the likely author of this document, not the typist but the likely author, is the Chief Financial Officer.
A.    That’s a reasonable assumption, yes.
QAnd you told us yesterday that you didn’t personally get involved in all the position descriptions within the business, didn’t you.
AThat is correct.
QAnd the Chief Financial Officer would have the authority to deal with Mr Chris Pappas in respect of a new position description statement in April and May of 2013.
ANo.
Q’14, sorry.
ANot without my knowledge or John’s knowledge.
QWell, so other than that exception, you would say she could do a position description statement.
ANot for Chris Pappas.
QWhat really happened, Mr Pappas, is you actually tasked her and knew that she was doing this description statement because it was a meeting on 10 April that included yourself and Rhigas and Fraterman, where you actually tasked her to do this job.
ANo.
QAnd you knew she was doing this job because you discussed it with her on or about 15 April when you discovered that she (sic) was doing the master file manager role.
AIt was after 15 April.
QAnd you thought you had taken this document from Ms Pope, didn’t you.
ANo, that’s what she claimed but no.[80]
[80] Transcript 764-65.
Nick Pappas said that all three directors operated within the shareholders’ agreement and that any director changing his position within the company needed authority of another director to do so.[81]
[81] Transcript 842.
Nick Pappas was taken through the unsigned position description document and asked to compare it with Mr Whitfield’s position description as master file manager.[82] Mr Pappas did not accept that there was much overlap between that position description and Mr Whitfield’s master file manager role.[83] He was then referred to Kelly Anderson’s (nee Cherry) previous role description, which was the role the plaintiff contends he took over.[84] Nick Pappas denied that there was much cross over between her role and that of Mr Whitfield. Essentially he contended that Ms Anderson was an administrative officer who was not qualified to undertake many of the tasks that Mr Whitfield took on when he joined the company.
[82] Exhibit P52.
[83] Transcript 707, 722, 726.
[84] Exhibit P11.
Nick Pappas denied that the termination of his brother’s employment had anything to do with Mr Whitfield’s employment. He said that Mr Whitfield’s role was a new role and required someone with the skills and experience to undertake the master file manager role. He said that it was determined to offer employment to Mr Whitfield at a board meeting in March 2014 because he could do five crucial things that no one else at P & R was able to do. He was then gave evidence as follows:
QYou just described five features of Mr Whitfield’s role.
A Yes.
QThe question I was asking you is; why do you say that the position description didn’t substantially overlap with the duties performed by Chris.
A Because to be able to do the master file manager position, you needed the experience, you needed the knowledge and you needed the skills set to be able to actually do this job description in its totality, and Chris or Kelly had none of those qualities, experience or knowledge to be able to do the job at hand within this document.[85]
[85] Transcript 845-5 referring to Exhibit P52.
John Rhigas said that he was aware that Chris Pappas changed his role from that of financial controller to business analyst. He said that Nick Pappas managed this and that he did not have any direct involvement in that change. He was shown the plaintiff’s position description as business analyst[86] by Nick Pappas in May 2013. He said that he agreed with the plaintiff moving into that role. He then gave evidence as follows:
[86] Exhibit P3.
Q.Between May 2013 and the termination of Chris Pappas’ employment, did you agree to there being any change in Chris Pappas’ duties.
A. No.
Q.In April 2014 did you become aware that there was a change to Chris Pappas’ performance duties (sic).
A.Yes.
Q.How.
A.The commercial manager of the company reported to me in a meeting I had with the customer manager, Jim Micholos. He asked me why there will be a change in reporting which saw Chris Pappas now reporting to himself. I wasn’t aware of that change.
Q.What did you do in response to being told that by Mr Micholos.
A.I went and met with Nick Pappas and asked him if in fact he was aware of the change in Chris’ role and reporting structure.
Q.What did Nick Pappas say.
A.He was not aware.
Q. What, if anything, did you agree between you to do next.
A.It was agreed that Nick would investigate this change and Nick would interview, amongst other people the new CFO Rachael Pope that Chris was reporting and other executives.
Q Were you involved in that investigation directly.
ANo.
QWere you informed of its outcome.
AYes, I was.
QWhen were you informed of its outcome.
ATwo or three days later, this would have been late April.
QWhat was the effect of the report that you received.
AChris had, on his own behalf, diluted and moved his role and tasks onto other people in the organisation.
QWhat course of action occurred as a result of you receiving that information.
AChris had, once these tasks had been removed from his business analyst role, he had no meaningful role in the business and it was decided he would be made redundant and dismissed.
QWho did that.
A Nick and myself.
QWere you involved in implementing the dismissal.
ANo.[87]
[87] Transcript 857-8.
In cross-examination Mr Rhigas denied attending a meeting with Rachael Pope in April 2014 to discuss Chris Pappas’ position and the work he was doing in the company.[88] He said he was never made aware of Chris Pappas undertaking the role of master file manager. He said that in early 2014 there was an executive meeting where a new role of master file manager was discussed and that there was a consensus that Bob Whitfield was the best choice for that role.
[88] Transcript 956-7.
Findings
Whilst I have no doubt that Chris Pappas wished to change his role from business analyst to master file manager I am not satisfied that this occurred. The plaintiff did not take up that role; rather, he assumed the duties of Kelly Anderson following her change of position. I do not accept that he did this at the suggestion of Nick Pappas or with the knowledge or acquiescence of either Nick Pappas or John Rhigas. Rather I consider it more likely than not that Chris Pappas did this of his own accord. I say this for a number of reasons.
There was ill-feeling between the plaintiff on the one hand and the two managing directors on the other. The plaintiff was suspicious that they were trying to reduce his salary. Communication between the plaintiff and John Rhigas was virtually non-existent from early 2013. The communication between the plaintiff and his brother was limited particularly following the failure of negotiations about purchase of the plaintiff’s shares. I infer that the office environment was not happy and that the three directors generally did not interact on a day to day basis.
Ms Anderson moved to other duties however her role was not that of a master file manager. She undoubtedly did some administrative aspects of that role principally related to uploading price files but I accept Nick Pappas’ evidence that she did not have the skills or experience to do more. The plaintiff’s actions suggest that he accepted this to be the case. If she had been undertaking the master file manager role he would not have needed to obtain a copy of Mr Whitfield’s job description; he could simply have copied hers. Ms Anderson was employed as a commercial administrative assistant. Whilst he was somewhat coy about her salary level, Chris Pappas knew that she was paid considerably less than him and that her role was not an executive level role.
In normal circumstances it seems unlikely that a managing director would involve himself substantially in the mechanics of a decision to move relatively low level staff to other duties. I accept Nick Pappas’ evidence that whilst he was aware of Kelly Anderson’s move he was not involved in the details. John Rhigas did not have responsibility for such matters and accordingly seems to have taken little interest.

There was a suggestion that the two managing directors and particularly Nick Pappas ought to have been aware of the change in Chris Pappas’ duties because of proximity within the office. This suggestion overlooks the tense relationship between the parties and the fact that the term master file manager was neither used by the plaintiff in correspondence nor was it a term in use in the office. Further, the evidence of Rachael Pope was that, whilst she was aware that Chris Pappas was being trained by Ms Anderson, she did not know the specifics and did not know until late February 2014 that he described his role as master file manager. She was, according to his business analyst position description, his direct supervisor and a person who would normally have been expected to know precisely what he was doing. I am not critical of Ms Pope for this. She was in a difficult position supervising a person who was one of three directors and a major shareholder in the company that employed her; one moreover who did not consider that he ought to accept directions from other employees.
I reject Chris Pappas’ evidence that he prepared a job description based on Mr Whitfield’s job description and that he handed this to either HR or Ms Pope before Christmas 2013. The document was not found in the HR files and Ms Pope gave no evidence of seeing such a document. Her evidence was that she and Mr Pappas prepared his new job description on 15 April 2014 using his old business analyst job description. This evidence is supported by the tendered documents; exhibit D4 the business analyst position description with the handwritten amendments and exhibit P53 the unsigned position description dated 15 April 2014 which contains some aspects of the master file manager role but is still entitled business analyst suggesting that the former position description was the basis of that document. I accept that the plaintiff and Ms Pope prepared a new position description document[89] on or about 15 April 2014 and that this was subsequently typed up in the unsigned format as tendered. However, I also accept the evidence of Nick Pappas that he had not seen that document until this court case. There is no evidence to suggest that he did see it other than Ms Pope’s evidence that Nick Pappas asked for his brother’s position description. It was not entirely clear which document she was referring to when she gave that evidence; the original job description with notations or the typed unsigned document. In any event, she said that she referred him to HR and that she had not seen the document since, the implication being that Nick Pappas had somehow disposed of it. Given that both documents were located in the HR files and disclosed I consider that Ms Pope is mistaken about this.
[89] Exhibit P53.
Likewise, I do not accept Ms Pope’s evidence that she was directed to develop a job description for Chris Pappas’ new role by the directors at a meeting on 10 April 2014. Both Nick Pappas and John Rhigas denied this. It was not her role as chief financial officer generally to prepare position descriptions. It seems surprising that the other directors only determined to arrange a new position description some 5 to 6 months after the plaintiff says he commenced in the role and then only, on Ms Pope’s evidence, because of some confusion about who was supervising him. Further, by 10 April 2014 the board had determined to offer Mr Whitfield the position of master file manager, the letter of offer had been sent by Nick Pappas and the position accepted by Mr Whitfield. It is hardly likely that they would have directed Ms Pope to prepare a job description for Chris Pappas as a master file manager in those circumstances.
Ms Pope’s evidence about a meeting with Nick Pappas where they went through the business analyst position to ascertain what duties Chris Pappas was undertaking is, in many respects, congruent with that of Nick Pappas about a meeting he says took place on 28 or 29 April 2014. The evidence makes sense in the context of Nick Pappas being made aware for the first time that his brother was doing something other than the business analyst job but little sense in the context Ms Pope suggested being a request to work with Chris Pappas to prepare a new position description. I further note that the document they discussed had Chris Pappas’ handwriting on it which suggests that the meeting with Nick Pappas took place after the meeting between Ms Pope and Chris Pappas on 15 April 2014. I consider that it is more likely than not that Ms Pope worked on the new position description at the request of Chris Pappas and that neither of the other two directors was involved in that.
It was put to Nick Pappas that his brother’s employment was terminated so that he could be replaced by Mr Whitfield at a lower salary. He denied that this was the case. Implicit in the plaintiff’s case is that there was a conspiracy to keep Mr Whitfield’s employment a secret from him. Whilst it is true that he was not copied in to one of the emails tendered, he was copied into one where Nick Pappas advised that an offer had been made to Mr Whitfield as agreed at a board meeting, that the letter of offer was available in HR, that the offer had been accepted and that a starting date had been agreed. Chris Pappas, along with the other email recipients, was requested to consider ways in which Mr Whitfield’s role could best be tailored for the business.
The plaintiff knew that Mr Whitfield was employed as master file manager at Go Electrical. One would have thought that if the plaintiff had been asked to be the master file manager at the first defendant he might have made some enquiries about the offer to Mr Whitfield. The plaintiff gave no evidence of such enquiries. He said he did nothing when he received that email. The board meeting was on 21 March 2014. I do not know whether the plaintiff attended that meeting. He is entitled to do so. Even if he did not the company kept minutes of all meetings that he, as a director, can be presumed to have access to. He also presumably could have requested to see the letter of offer kept by HR referred to in the email. This letter made it plain that the role offered to Mr Whitfield was that of master file manager. I reject the suggestion that the defendants were attempting to keep the plaintiff in the dark about Mr Whitfield.
I also reject the suggestion that the work performed by the plaintiff was the same as that encompassed in Mr Whitfield’s job description. Nick Pappas said that Chris Pappas, in common with everyone then employed with the first defendant, did not have the range of skills or experience to undertake that work. That was the reason it was decided to employ Mr Whitfield. He explained what attributes Mr Whitfield had that his brother lacked. Nick Pappas also went through the comparison of the unsigned job description with that of Mr Whitfield and explained the differences. I found the evidence of Nick Pappas on this topic to be coherent, consistent and cogent. I prefer it to the plaintiff’s evidence on this topic.
I find that John Rhigas and Nick Pappas only discovered the change in Chris Pappas’ duties in late April 2014 following the complaint from John Micholos and that this caused Nick Pappas to undertake the investigation into the duties being performed by his brother. That investigation was somewhat cursory but there appears little dispute that the plaintiff was not performing the duties of business analyst; the position that I find he was then employed in. Those duties had been distributed to others and, following the termination of the plaintiff’s employment, the balance of those duties were easily accommodated by existing employees. In those circumstances the plaintiff was redundant. I reject the contention by the plaintiff that the redundancy was a pretext by the other two directors to get rid of the plaintiff. The decision was in the main, that of Nick Pappas. He did not strike me as a person who would callously and opportunistically terminate his brother’s employment. I accept his evidence that this was the most difficult decision of his life. It has had foreseeable and devastating consequences for the Pappas family as a whole.
The decision to terminate the plaintiff’s employment was certainly unfair in the sense that Nick Pappas did not discuss the matter with his brother prior to the decision being made to terminate his employment. Nor did the company make any effort whatsoever to find alternative duties for the plaintiff which is a significant oversight for an employee of the plaintiff’s length of service and age. However, I note that this is not a normal situation given that the plaintiff was a director and shareholder. The other two directors had, since at least the time the plaintiff gave up his role as financial controller, attempted to negotiate with him and resolve the issues within the business. I infer that their frustration with the failure of those efforts was the likely cause of this failure to consult with the plaintiff on this occasion. If this was an application under the FWA I have no doubt that the manner of the termination would make it an unfair dismissal. This is, however, a breach of contract claim. As discussed above an employer has the right to terminate an employee on the ground of redundancy provided that proper notice is given.
The plaintiff did not have a written contract of employment with terms as to notice. A clause as to reasonable notice is not required to give business efficacy to his contract of employment because section 117 of the FWA applies, establishing his entitlement to notice.[90] Likewise section 119 of the FWA provides his entitlements on redundancy. The plaintiff was paid 12 weeks’ salary in lieu of notice and 12 weeks for redundancy. The minimum required to be paid in lieu of notice under section 117 was 5 weeks and the minimum required for redundancy was 12 weeks under section 119.
[90] Brennan v. Kangaroo Island Council (2013) 120 SASR 11; Kuczmarski v Ascot Administration Pty Ltd [2016] SADC 65.
The plaintiff suggests that his final payment ought to have been made at his former salary of $300,000. No authority has been advanced for this proposition. The plaintiff, as a proprietor of the business, accepted advice and voluntarily agreed to the reduction in his salary. In those circumstances I see no reason to depart from the usual course that a person’s entitlements on termination are calculated on their salary at the time of termination.
The plaintiff also submitted that provision should have been made in these payments for his various allowances. I reject that submission, the entitlements under sections 117 and 119 are calculated on the basis of the base rate of pay which excludes such allowances.[91]
[91] Section 16 FWA.
The plaintiff was paid more than the minimum notice required under section 117 and paid in accordance with section 119 for his redundancy. The payments were appropriately calculated. Accordingly, proper notice has been given; the termination is lawful.
Long Service Leave
The agreement in 2012 to reduce the plaintiff’s long service leave cannot stand. I found that the plaintiff was employed under a contract of service and accordingly the plaintiff is entitled to payment of leave as set out in the Long Service Leave Act 1987 (SA). He cannot agree to forgo it. His entitlement is to be calculated on completed years of service. He is entitled to 13 weeks for the first 10 years of his service and then 1.3 weeks leave for each completed year of service.[92] Payment is to be made on his ordinary weekly rate of pay applicable immediately before termination.[93]
[92] Ibid section 5.
[93] Ibid section 8(4)(a).
The plaintiff has been underpaid because of the directors’ agreement to reduce long service leave entitlements. He was paid $6,207.23 for long service leave.[94]
[94] Transcript 974.
The plaintiff did not provide any calculation or indeed evidence on this topic that would assist me to calculate his long service leave entitlements. I will therefore refer to the evidence given by Ms Harten of her recalculation of the plaintiff’s entitlement without the reduction. A summary of that evidence is contained in exhibit D24. Her calculation is that the plaintiff was entitled to $33,572.14.[95] I accept her evidence and that calculation and find that the plaintiff was underpaid by $27,364.91 in respect of long service leave.
[95] Ibid.
Annual leave
Likewise the agreement to reduce the annual leave is unenforceable. The plaintiff’s entitlement to payment for leave, in the absence of any written or other agreement is to be calculated under the FWA. Section 90(2) provides:
If, when the employment of an employee ends, the employee has a period of untaken paid annual leave, the employer must pay the employee the amount that would have between payable to the employee had the employee taken that period of leave.
Payment is to be made at the employee’s base rate of pay for the employee’s ordinary hours of work as calculated under section 16 of the FWA.
Again, I refer to Ms Harten’s calculation in exhibit D24. I accept her calculation but I do not accept the reduction that she made for 11 days of leave taken.[96] There is no support for that proposition. The defendant kept no records of leave taken by the plaintiff. Accordingly I increase the amount of the calculation by $6,346.15. The plaintiff ought therefore to have been paid $38,883.17. He was paid only $11,912.70.[97] He has been underpaid $26,970.47.
[96] Transcript 972.
[97] Ibid.
Conclusion
Accordingly I consider that the plaintiff is entitled to judgment against the first defendant in the sum of $54,335.38. I will hear the parties as to the question of interest and costs.