Richtsteiger v Century Geophysical Corporation (No 2)

[1996] IRCA 168

DECISION NO:  168/96

CATCHWORDS

INDUSTRIAL LAW - PRACTICE AND PROCEDURE - submission of no case to answer - allegation that employment arrangments amounted to a “sham”

Industrial Relations Act 1988 s 170EA

Albin Erich Richtsteiger v Century Geophysical Corporation, Industrial Relations Court of Australia, TI 95/1256, Marshall J, 26 April 1996, as yet unreported
James Andrew Baker & Ors v Official Trustee in Bankruptcy, Federal Court of Australia, QG 102 of 1994,  Burchett, Ryan and Carr JJ, 3 August 1995, as yet unreported
James v ANZ Banking Group Ltd (No. 2) (1985) 9 FCR 448
Sharrment Pty Ltd and others v Official Trustee in Bankruptcy (1988) 82 ALR 530

No. TI 95/1256

ALBIN ERICH RICHTSTEIGER v CENTURY GEOPHYSICAL CORPORATION

JUDGE:        Marshall J
PLACE:        Perth (heard in Adelaide)
DATE:          9 May 1996

IN THE INDUSTRIAL RELATIONS  )
  )
COURT OF AUSTRALIA  )
  )

SOUTH AUSTRALIA DISTRICT REGISTRY       )                No. TI 951256

BETWEEN:       ALBIN ERICH RICHTSTEIGER

Applicant

AND:  CENTURY GEOPHYSICAL
  CORPORATION

Respondent

JUDGE:       Marshall J

PLACE:       Perth (heard in Adelaide)

DATE:          9 May 1996

ORDER

THE COURT ORDERS THAT:

1.        The respondent’s no case submission be dismissed.

NOTE:  Settlement and entry of orders is dealt with by Order 36 of the Industrial Relations Court Rules.

IN THE INDUSTRIAL RELATIONS  )
  )
COURT OF AUSTRALIA  )
  )

SOUTH AUSTRALIA DISTRICT REGISTRY       )               No. TI 95/1256      

BETWEEN:       ALBIN ERICH RICHTSTEIGER

Applicant

AND:  CENTURY GEOPHYSICAL

CORPORATION

Respondent

JUDGE:       Marshall J

PLACE:        Perth (heard in Adelaide)

DATE:          9 May 1996

REASONS FOR JUDGMENT

BACKGROUND

On 26 April 1996 I delivered ex tempore reasons for judgment on the issue as to whether the applicant should be granted an extension of time under s170EA(3) Industrial Relations Act 1988 (“the Act”) within which to make an application under s170EA of the Act as it stood prior to 15 January 1996. See Albin Erich Richtsteiger v Century Geophysical Corporation, Industrial Relations Court of Australia, TI 95/1256, Marshall J, 26 April 1996, as yet unreported.  Those reasons for judgment traverse the history of the application and should be read in conjunction with these reasons for judgment on another preliminary issue arising in the proceeding.  It  is sufficient for current purposes to record that the Court granted the extension of time requested by the applicant.  As foreshadowed in the reasons for judgment of 26 April 1996, the Court heard the applicant on that day as to whether the respondent should be put to its election on the question of it calling evidence before making its no case submission.  Having regard to the order of the Court made by von Doussa J on 2 February 1996, referred to in the decision of 26 April 1996, the Court did not need to hear from the respondent on the question of election.  The immediate issue for determination is whether the Court should accept or reject the no-case submission of the respondent.  Counsel for each party agreed that the test to be applied is whether there is “evidence upon which the Court could enter judgment for the applicant”.  See James v ANZ Banking Group Ltd (No. 2) (1985) 9 FCR 448, 451 per Toohey J.

THE EVIDENCE IN THE APPLICANT’S CASE

The applicant closed his case on 24 April 1996.  The state of the evidence after the close of the applicant’s case was as follows:-

• The applicant was employed by the respondent on 2 March 1986 as the manager of its Australian operation.

• The respondent is a registered foreign company with its head office in Tulsa, Okalahoma in the United States of America (“USA”).

• The respondent is engaged in the provision of equipment and interpretive analysis to those engaged in geophysical exploration, primarily in the mining industry.

• At all material times, Mr McCormick was the chief executive of the respondent.

• Prior to the applicant’s employment with the respondent there had been a high turnover of managers of its Australian operation.  The applicant was the fifth manager in almost five years.

• In early 1989, the applicant was informed by a representative of the respondent that one of the applicant’s predecessors, Mr Gannon, had managed the Australian operations as a “contractor” rather than an employee.  It was suggested to the applicant that he might like to do the same.

• The applicant made inquiries with his solicitor.  He was advised that “such an arrangement would be seen as a scheme by the Australian Taxation Office and disallowed”.  He came to the view that it would also cost him money to implement and administer the proposed arrangement with little consequent benefit to him.

• In or about June 1989, the applicant was told by Mr McCormick to change the method by which he was paid so that his salary did not form part of the respondent’s payroll but was shown as payments for “contract services”.

• Mr McCormick assured the applicant that he would not lose any entitlements or benefits from the changed arrangements.  He would retain accrued annual leave and continue to accrue annual leave.  His rate of pay would not be altered.

• Mr McCormick was concerned about the cost to the respondent of the workers’ compensation premium required to be paid by the respondent in respect of the applicant’s employment.  The high assessment resulted from the applicant performing high risk field work from time to time.

• The relevant conversation with Mr McCormick occurred during a visit to Australia by Mr McCormick.  During the course of the conversation, Mr McCormick said that by having the applicant “off the books”, the respondent would not have to pay “workmen’s” compensation in respect of him.  He directed the applicant to investigate ways in which the applicant would be able to become a contractor for the financial year commencing 1 July 1989.

• Mr McCormick was concerned about cutting the costs of running the Australian operation of the respondent.  The applicant believed that his employment would be terminated if he did not find a way to go “off the books” as Mr McCormick desired.  He was concerned about the difficulty he would experience in finding alternative employment in his very specialised field of engagement.

• As at 1 July 1989, the applicant took himself “off the books”.  There was no further entry in the wages books of the respondent in respect of the applicant after June 1989.

• As at 1 July 1989, the applicant had made no arrangements to be “employed” by the entity which was to provide contractual services to the respondent.

• The applicant paid himself a quarterly salary in arrears by writing cheques drawn on the respondent’s cheque account made payable to Schogar Pty Ltd (“Schogar”).  Schogar was the name the applicant had chosen for the company which he intended to establish to comply with the directions of Mr McCormick.

• The applicant “negotiated the salary cheques prior to the incorporation of Schogar by paying them into the trust account of (his) solicitor”.

• Schogar was incorporated on 28 March 1990 after the applicant received legal advice as to how to put into effect the “directive” that he go “off the books”.

• Notwithstanding the incorporation of Schogar, cheques continued to be paid into the solicitor’s trust account until a bank account for Schogar was opened in April 1991.

• Taxation records were prepared which showed that from July 1989 the applicant was an employee of Schogar and not the respondent.

• In July 1990, the applicant was in Tulsa and was asked by Mr McCormick if an agreement had been prepared between the respondent and Schogar.  The applicant replied in the negative.  He was told to arrange the preparation of such an agreement immediately.  He urgently requested his solicitor in Hobart to prepare such an agreement.  This was done on 10 July 1990.

• The only change in the applicant’s dealings with the respondent after 1 July 1989 was the method of his remuneration.  He was not paid out his accrued entitlements.

• The applicant was personally reimbursed by the respondent for the cost of telephone calls, petrol expenses and half the costs of maintaining his vehicle.

• In late July 1990 the respondent proposed a revised draft of an agreement based on the version prepared in Hobart on 10 July 1990.  The agreement was dated 30 July 1990 and was signed by the applicant on behalf of Schogar and by Mr McCormick on behalf of the respondent.  The applicant understood that payments would be made by the respondent to Schogar under the agreement rather than to him personally.

• A further service agreement was signed in 1992 by the applicant and Mr McCormick.

• In seeking a 3% salary increase in lieu of a superannuation payment in that amount in June 1992, and a 2.6% increase payment in lieu of long service leave, the applicant wrote to the respondent in the following terms:-

“Strictly speaking, as a contractor, I am not eligible, however I do not think this ought to be an issue ... I would like you to approve a 5-6% salary increase from 1 Oct (sic) 1992 and a payment of two months salary on that date.”

• In reply by facsimile transmission dated 20 September 1992, Mr McCormick said:-

“This fax will serve as permission for you to increase your salary by 3% effective July 1 1992 to cover superannuation.”

• Although all the relevant paper work (dealing with contractual arangements and taxation records), at least from 1992, was consistent with the applicant being an employee of Schogar and not the respondent, the applicant believed that he remained an employee of the respondent.

• On 14 October 1993, the respondent advised the applicant of his then entitlement to 71 days’ accrued annual leave.  Mr McCormick complained to the applicant about the fact that he had accrued so much leave and said that the applicant should make a bigger effort to take some leave.

• On 24 January 1995, Mr McCormick arrived in Adelaide from the USA.  The applicant met him at the airport.  When the two gentlemen arrived at the respondent’s office at Holden Hill, Mr McCormick said to the applicant, “I’m giving you notice”.  This came as a complete surprise to the applicant.

• On 25 January 1995 the applicant received a letter from the respondent in the following terms:-

“Dear Bill,

This letter is to confirm the discussion that we had Tuesday, 24th January 1995.  In our discussion I notified you that Century Geophysical Corporation would be terminating its management contract with you on the last day of April 1995.

Between now and the end of April I will be assuming direct supervision of the Australian Operations, therefore it will not be necessary for you to provide management services during this period.  I do however expect to have my hands full and may call on you for information or advice from time to time.

I’ve enjoyed working with you, and wish you the best of luck in the future.

Sincerely Yours,

John P McCormick

President”

CONCLUSION

At least from the signing of the 1992 service agreement between Schogar and the respondent all the relevant taxation records of the applicant and the service agreement itself, support the position that the applicant was not an employee of the respondent from that time.  However most of the evidence summarised above is consistent with the applicant’s contention that the changed arrangements between him and the respondent on and from July 1989 amounted to a sham designed to enable the respondent to avoid paying workers’ compensation payments in respect of the applicant.  Indeed, as the evidence stands, the Court is in the position where it must assume that the reason for the changed arrangements arose out of a desire in the respondent to avoid making compensation payments otherwise payable and a desire in the applicant to keep his job. Accordingly the Court is satisfied that as the evidence now stands it can accept the submission of the applicant that he was employed by the respondent continually from 1986 until 30 April 1995.  This does not necessarily mean that the Court will ultimately find that the relevant employment relationship existed throughout that period.  It also does not mean that the Court will ultimately find the changed arrangements were in fact a sham.  Rather the Court’s view is that the evidence of the applicant taken alone has disclosed that the respondent has a case to answer.  After the evidence of the respondent consideration will need to be given to the question as to whether the totality of the evidence supports the existence of a sham in the circumstances.  See for example Sharrment Pty Ltd v Official Trustee in Bankruptcy (1988) 82 ALR 530 and James Andrew Baker & Ors v Official Trustee in Bankruptcy, Federal Court of Australia, QG 102 of 1994,  Burchett, Ryan and Carr JJ, 3 August 1995, as yet unreported.

FURTHER PROCEEDINGS

A telephone directions hearing will be held by the Court at 9.30 am (Eastern Standard Time) on 31 May 1996 at which time the Court will hear submissions and give directions on issues relating to the further conduct of the proceeding.

ORDER
           The Court orders that the respondent’s no case submission be dismissed.

I certify that this and the preceding 10 pages are a true copy of the Reasons for Judgment herein of his Honour Justice Marshall.

Associate:  

Date:  9 May 1996

Counsel for the Applicant:  J Crotty
Solicitor for the Applicant:  James Crotty

Counsel for the Respondent:  R. Schroeder
Solicitor for the Respondent:  Knox Hargrave

Date of hearing:  26 April 1996
Date of judgment:  9 May 1996