Schmitt v Carter
[2014] FCA 1370
•15 December 2014
FEDERAL COURT OF AUSTRALIA
Schmitt v Carter [2014] FCA 1370
Citation: Schmitt v Carter [2014] FCA 1370 Parties: TREVOR RICHARD SCHMITT v PHILIP CARTER, NICHOLS MARTIN and MARCUS AYRES File number: NSD 936 of 2014 Judge: GLEESON J Date of judgment: 15 December 2014 Catchwords: CORPORATIONS – appeal against decision of administrators of deed of arrangement pursuant to s 1321 of Corporations Act 2001 (Cth) – where decision to classify plaintiff as “Class C Creditor” under deed to be paid pari passu – whether plaintiff should be classified as “Class B Creditor” to be paid in full – where plaintiff made claim for “unpaid salary” – whether claim is “retrenchment payment” under s 556(1)(h) – whether claim includes amount attributable to non-priority days under s 556(1C) – application refused Legislation: Companies and Securities Legislation (Miscellaneous Amendments Act 1985 (Cth)
Corporations Act 2001 (Cth) ss 9, 436A, 554A, 555, 556, 1321
Fair Work Act 2009 (Cth)Cases cited: Automatic Fire Sprinklers Pty Ltd v Watson (1946) 72 CLR 435
Baini v The Queen (2012) 246 CLR 469
Chan v Cresdon Pty Ltd (1989) 168 CLR 242
Fisher v Madden (2002) 54 NSWLR 179
Glass v Defence Force Retirement Benefits Authority (1992) 38 FCR 534
Hicks v Minister for Immigration & Multicultural & Indigenous Affairs [2003] FCA 757
Irons v Merchant Capital Ltd (1994) 116 FLR 204
J&G Knowles and Associates Pty Ltd v Commissioner of Taxation (2000) 96 FCR 402
March v Stramare (1991) 171 CLR 506
McEvoy v Incat Tasmania Pty Ltd (2003) 130 FCR 503
McGrath v Sturesteps (2011) 81 NSWLR 690
R v Khazaal (2012) 246 CLR 601
Republic of Croatia v Snedden (2010) 241 CLR 461
Sunbird Plaza Pty Ltd v Maloney (1988) 166 CLR 245
Undershaft (No 1) Ltd v Commissioner of Taxation (2009) 175 FCR 150; [2009] FCA 41
WBM v Chief Commissioner of Police [2012] VSCA 159Date of hearing: 24 November 2014 Date of last submissions: 28 November 2014 Place: Sydney Division: GENERAL DIVISION Category: Catchwords Number of paragraphs: 64 Counsel for the Plaintiff: Mr Braham SC with Mr Lim Solicitor for the Plaintiff: Toomey Pegg Lawyers Counsel for the Defendants: Mr Oakes SC Solicitor for the Defendants: Johnson Winter & Slattery
IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION
NSD 936 of 2014
BETWEEN: TREVOR RICHARD SCHMITT
PlaintiffAND: PHILIP CARTER
First DefendantNICHOLS MARTIN
Second DefendantMARCUS AYRES
Third Defendant
JUDGE:
GLEESON J
DATE OF ORDER:
15 DECEMBER 2014
WHERE MADE:
SYDNEY
THE COURT ORDERS THAT:
1.Pursuant to rule 14.1(2)(b) of the Federal Court (Corporations) Rules 2000 (Cth), the time for filing the originating process be extended to 15 September 2014.
2.The defendants’ decision to reject the plaintiff’s proof of debt dated 10 February 2014 to the extent that the plaintiff claimed to be a “Class B Creditor” be confirmed.
3.The plaintiff pay the defendants’ costs.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION
NSD 936 of 2014
BETWEEN: TREVOR RICHARD SCHMITT
PlaintiffAND: PHILIP CARTER
First DefendantNICHOLS MARTIN
Second DefendantMARCUS AYRES
Third Defendant
JUDGE:
GLEESON J
DATE:
15 DECEMBER 2014
PLACE:
SYDNEY
REASONS FOR JUDGMENT
This is an appeal under s 1321 of the Corporations Act 2001 (Cth) (“Act”) in respect of the defendants’ decision on about 18 August 2014 to reject the plaintiff’s proof of debt or claim dated 10 February 2014 to the extent that the plaintiff claimed to be a “Class B Creditor” under a deed of company arrangement executed by CMA Corporation Ltd (subject to deed of company arrangement) (“CMA”) and its subsidiaries (“DOCA”).
The defendants admitted the plaintiff’s claim for “unpaid salary” in the sum of $995,973.10, but concluded that the plaintiff was a “Class C Creditor”. Class B Creditors’ claims will be paid in full while Class C Creditors will be paid pari passu in accordance with the level of their admitted claims.
The plaintiff appeals only against that part of the decision that relates to his classification as a “Class C Creditor”. The plaintiff argues that his claim is a retrenchment payment within s 556(1)(h) of the Act, and is not affected by s 556(1C) of the Act.
Background facts
The plaintiff was the chief financial officer and company secretary of CMA between 12 May 2008 and 20 December 2012.
Between 10 August 2010 and 20 December 2012, the plaintiff was also a director of CMA.
On 20 December 2012, the plaintiff’s employment was terminated summarily.
In March 2013, the plaintiff commenced proceedings against CMA for wrongful dismissal under the Fair Work Act 2009 (Cth). In May 2013, CMA filed a defence in those proceedings.
On 2 August 2013, CMA and its subsidiaries entered into voluntary administration. The defendants were appointed as voluntary administrators pursuant to s 436A(1) of the Act. The wrongful dismissal proceedings were stayed upon CMA’s entry into voluntary administration.
On 17 December 2013, CMA and its subsidiaries executed the DOCA. The defendants are the joint deed administrators of the DOCA. The DOCA has been altered pursuant to orders made in the Supreme Court of Queensland in October 2014 in respects that are not relevant to these proceedings.
The DOCA provides for a deed fund of $3.3 million to be distributed to creditors of CMA and its subsidiaries in accordance with the “priority waterfall” set out in clause 5.3 of the DOCA.
In January 2014, the defendants invited formal proofs of debt or claim. In February 2014, the plaintiff’s solicitors lodged two proofs of debt or claim with the defendants. One of those proofs, for defence costs, is not relevant to these proceedings. The other specified a claim for “unpaid salary and leave entitlements”. The claim for leave entitlements is not in issue. The “unpaid salary” claim was particularised, relevantly, as:
Unpaid salary pursuant to a contract of employment…providing for a fixed period of employment from 1 February 2012 to 31 January 2015 with total remuneration of AU$459,679.90 per annum. Mr Schmitt’s employment was terminated unlawfully on 20 December 2012, and he claims unpaid remuneration for the period from 21 December 2012 to 31 January 2015 (inclusive).
Senior counsel for the plaintiff, Mr Braham SC, acknowledged that the “unpaid salary” claim is a claim for damages for breach of contract.
It seems that the plaintiff initially contended that the unpaid salary claim was a priority payment within the meaning of s 556(1)(e) of the Act. On 25 July 2014, the defendants received advice from Mr Oakes SC, senior counsel for the defendants on that contention. In his advice, Mr Oakes SC also addressed the possible characterisation of the claim as a “retrenchment payment” under s 556(1)(h) of the Act.
On 18 August 2014, the defendants sent the plaintiff a notice of rejection of formal proof of debt or claim.
Relevant terms of the DOCA
Clause 5.1(a) of the DOCA provides for the establishment of the deed fund, for the benefit of the deed administrators and the participating creditors. The “deed fund” is defined to mean the sum of $3.3 million to be distributed in accordance with the terms of the DOCA.
Clause 5.2 provides that the deed fund is the only property available to pay the admitted claims.
Clause 5.3 provides:
The Deed Fund shall be distributed to Creditors by the Deed Administrators in accordance with the following priority:
(a) First, to the Deed Administrators for the Deed Administrators’ Expenses;(b)Second, to the payment of the Administrators’ Expenses and the Administrators’ Remuneration to the extent that the Administrators’ Expenses and/or the Administrators’ Remuneration remains unpaid;
(c)Third, to the Class A Creditor in full payment of its Claim (minus any costs and expenses of the Deed Administrators (in their capacities as voluntary administrators of the CMA Companies and administrators of this Deed) in realising the assets of the CMA Companies the subject of any security granted in favour of GE); and
(d)Fourth, to the Class B Creditors in full payment of their Claims; and
(e)Fifth, the balance of the Deed Fund to the Class C Creditors pari passu in accordance with the level of their Admitted Claims.
“Class B Creditors” means “the Employees to the extent that they have a Claim in respect of Employee Entitlements”.
“Employee” means “a past or present employee of the CMA Companies who has a Claim for Employee Entitlements”.
“Employee Entitlements” means “any right or entitlement of an Employee (or Subrogating Employee) which, if the CMA Companies were being wound up, that Employee (or Subrogating Employee) would be entitled to receive pursuant to sections 556, 560 and 561 of the Act in priority to all other Creditors of each of the CMA Companies.”
“Class C Creditors” means “any Admitted Creditor other than the Class A Creditor and the Class B Creditor (sic)”.
Clause 5.6 provides:
All Employees will be entitled to a priority at least equal to what they would have been entitled to if the Deed Fund were applied in accordance with sections 556, 560 and 561 of the Act.
Statutory provisions
Section 555 provides:
Except as otherwise provided by this Act, all debts and claims proved in a winding up rank equally and, if the property of the company is insufficient to meet them in full, they must be paid proportionately.
Section 556 provides relevantly:
(1) Subject to this Division, in the winding up of a company the following debts and claims must be paid in priority to all other unsecured debts and claims:
…
(e) subject to subsection (1A)—next:
(i)wages, superannuation contributions and superannuation guarantee charge payable by the company in respect of services rendered to the company by employees before the relevant date…
…
(h)subject to subsection (1C)—next, retrenchment payments payable to employees of the company.
…
(1C)A payment under paragraph (1)(h) to an excluded employee of the company must not include an amount attributable to non-priority days.
Definitions
(2) In this section:
“employee”, in relation to a company, means:
(a) an employee of the company who has been:
(i)at any time during the period of 12 months ending on the relevant date; or
(ii) at any time since the relevant date;
or who is, a director of the company;
…
“non-priority day”, in relation to an excluded employee of a company, means a day on which the employee was:
(a)if paragraph (a) of the definition of excluded employee applies—a director of the company; …
…
“retrenchment payment”, in relation to an employee of a company, means an amount payable by the company to the employee, by virtue of an industrial instrument, in respect of the termination of the employee’s employment by the company, whether the amount becomes payable before, on or after the relevant date.
“Industrial instrument” is defined in s 9 of the Act to include a contract of employment.
“Relevant date” is defined in s 9 to mean, in relation to a winding up, “the day on which the winding up is taken because of Division 1A of Part 5.6 to have begun”.
“Wages” is defined, also in s 9, to mean, relevantly, amounts payable to or in respect of an employee of the company under an industrial instrument.
Issues for determination
The issues are whether the “unpaid salary” claim:
(1)Is a “retrenchment payment” within the meaning of s 556(1)(h); and
(2)Does not “include an amount attributable to non-priority days” within the meaning of s 556(1C).
Matters not in dispute
There is no dispute that the term “industrial instrument” extends to the plaintiff’s employment contract.
It is also not disputed that the plaintiff’s claim is “in respect of the termination of the employee’s employment”: cf J&G Knowles and Associates Pty Ltd v Commissioner of Taxation (2000) 96 FCR 402 at [22] to [26].
The “relevant date” is agreed to be 17 December 2013, when the DOCA was made.
The plaintiff accepts that he is an “excluded employee” within the meaning of s 556. The plaintiff was a director of CMA until 20 December 2012, that is, during the period of 12 months ending on 17 December 2013.
Meaning of “amount payable …by virtue of an industrial instrument”
Plaintiff’s submissions
On behalf of the plaintiff, Mr Braham SC, who appeared with Mr Lim, submitted that his claim is an “amount payable” by CMA to him, the defendants having admitted the proof of debt or claim.
Mr Braham SC contended that the amount was “payable upon termination as damages for breach of contract”.
The plaintiff’s argument was that the expression “by virtue of” is sufficiently broad to connect the plaintiff’s damages claim and the contract of employment which gave rise to the claim. He acknowledged that the phrase “by virtue of” entailed a causal relationship. For example, in WBM v Chief Commissioner of Police [2012] VSCA 159 at [34] per Warren CJ (Hansen JA agreeing) said:
…the phrases “by reason of”, “because of” and “by virtue of” have been found by Australian courts to imply a relationship of cause and effect and “a practical application of ordinary causation principles is required: D C Pearce and R S Geddes Statutory Interpretation in Australia (7th ed, 2011) [12.9].
Similarly, in Republic of Croatia v Snedden (2010) 241 CLR 461 at [22], French CJ:
Generally speaking “by reason of” has been held to connote a cause and effect relationship: Macedonian Teachers’ Association of Victoria Inc v Human Rights and Equal Opportunity Commission (1998) 91 FCR 8 at 31 per Weinberg J, approved by the Full Court in Victoria v Macedonian Teachers’ Association of Victoria Inc (1999) 91 FCR 47 at 49 [8] in which the words “by reason of” were held to be narrower than the words “based on”.
Mr Braham SC contended that there is a sufficient causal relationship between his employment contract and the damages claim on the basis that the claim could not have been made “but for” the existence of the contract. Only the terms of the contract could underpin any finding of breach and any quantification of the amount payable. For those reasons, an amount payable for breach of an employment contract must be said to be payable “by virtue of” that contract, even though it may not be payable “under” that contract.
Mr Braham SC acknowledged that it was necessary to construe the expression by reference to the statutory context and purpose. In R v Khazaal (2012) 246 CLR 601 at 613 [31] French CJ said:
Relational terms such as “connected with” appear in a variety of statutory settings. Other examples are: “in relation to”; “in respect of”; “in connection with”; and “in”. They may refer to a relationship between two subjects which may be the same or different and may encompass activities, events, persons or things. They may denote relationships which are causal or temporal or relationships of similarity or difference. The task of construing such terms does not involve the resolution of ambiguity. They are ambulatory words and may be designed to cover a variety of subjects and a variety of relationships between those subjects. The nature and breadth of the relationships they cover will depend upon their statutory context and purpose. Generally speaking it is not desirable, in construing relational terms, to go further than is necessary to determine their application in a particular case or class of cases. A more comprehensive approach may be confounded by subsequent cases.
Mr Braham SC placed emphasis on the reference in the definition of “wages” in s 9 to amounts payable “under an industrial agreement” and submitted that this was a strong textual indicator that the expression “by virtue of an industrial instrument” is intended to cover a broader class of payments than payments “under an industrial agreement”.
Mr Braham SC submitted that:
(1)The obvious purpose of the legislative regime is to protect employees in the winding up of corporations and it would not serve that protective purpose to give any narrow construction to the definition of “retrenchment payment”;
(2)The definition requires two relationships (with the industrial agreement and with the termination) so that an overly narrow approach to either is not warranted; and
(3)The legislative scheme strikes a balance between protecting employee entitlements generally and carving out certain entitlements from that protection – namely, in relation to excluded employees and non-priority days.
In relation to the defendant’s reliance on the decision of Young J in Irons v Merchant Capital Ltd (1994) 116 FLR 204 (“Irons”), as long-standing authority that damages for wrongful dismissal are not “amounts payable…by virtue of an industrial agreement”, Mr Braham SC contended that his Honour erred in conflating the language of “by virtue of” in the definition of “retrenchment payment” with the language of “under”. It was submitted that to follow the decision in Irons would be to fall into the error of applying “paraphrases of the statutory language” which “are apt to mislead if attention strays away from the statutory text”: Baini v The Queen (2012) 246 CLR 469 at 476 [14] per French CJ, Hayne, Crennan, Kiefel and Bell JJ.
Defendant’s submissions
On behalf of the defendant, Mr Oakes SC acknowledged that the decision in Irons did not directly address the question of whether a claim for damages for wrongful dismissal was a priority payment. However, it is plain that Young J viewed the concept of a “retrenchment payment” as being a right that arose under a contract that remained in force, in the sense that the contract specifically provided for the payment. Thus, his Honour said:
An employee may have a right under an industrial right or a contract to be paid money for being retrenched or made redundant. That is a right which is under the employment contract or award and the action is on the contract which remains in force, either so far as its primary aspect is concerned or its or its secondary aspect is concerned. Such a claim is different to a claim for damages for breach of contract, which recognises that the contractual regime, in either its primary or secondary sense, is at an end and damages are sought for the termination of the contract.
Mr Oakes SC contended that a similar distinction was drawn in Chan v Cresdon Pty Ltd (1989) 168 CLR 242 at 249 to 250, in the context of a lease.
Mr Oakes SC argued that, as a matter of judicial comity, the decision in Irons should be followed unless it is “clearly wrong”: cf Hicks v Minister for Immigration & Multicultural & Indigenous Affairs [2003] FCA 757 at [76] (French J). Even so, he acknowledged that I must first embark on my own independent consideration of the issues for decision with a view to reaching my own independent conclusion of them: Undershaft (No 1) Ltd v Commissioner of Taxation (2009) 175 FCR 150; [2009] FCA 41 at [70]. As Lindgren J there said: “If my own conclusion, independently reached is consistent with his Honour’s, there is no scope for his decision to influence me beyond ‘fortifying’ me in my conclusion”.
Consideration
In McEvoy v Incat Tasmania Pty Ltd (2003) 130 FCR 503 (at [1] and [2]), Finkelstein J summarised the background to the concept of priority payments in insolvency as follows:
[1] In most cases of bankruptcy and liquidation there is not enough money to go around. So the basic rule which has been developed is that there should be equal treatment of all creditors. In this context, “equal treatment” means a pro rata distribution of the uncharged assets. Nevertheless, and probably for good reason, some creditors are given priority in the distribution of the available assets. The priorities are fixed by statute. The court has no discretion to vary the position. Nor may it create new categories. The statutory creation of priorities, which was first applied in bankruptcy and then extended to the winding up of companies, now also applies to companies whose assets are secured by a floating charge where the chargee either appoints a receiver or goes into possession.
[2] Among the debts that are accorded priority are arrears of wages, annual leave, long service leave and retrenchment entitlements. The preferential treatment of employees was initially a social measure. It was originally introduced to ease the financial burden of a relatively “poor and defenceless section of the community” following the insolvency of their employers at a time when there was no welfare state and wages were low: Great Britain, Report of the Review Committee on Insolvency Law and Practice (The Cork Report) (Cmnd 8558, 1982).
The definition of “retrenchment payment” has not changed since its insertion into the Companies Code by the Companies and Securities Legislation (Miscellaneous Amendments Act 1985 (Cth) s 105. At that time, the relevant provision of the Companies Code (s 441) identified only “debts” as priority payments (as opposed to claims). This may explain why the definition of retrenchment payments refers to “amounts payable”, which is language more suited to the identification of a debt than a claim: cf Glass v Defence Force Retirement Benefits Authority (1992) 38 FCR 534.
It is not obvious to me that the plaintiff’s claim is an “amount payable by the company”. I would prefer to characterise it as an amount which the liquidator has estimated to be the value of the plaintiff’s unadjudicated claim for unliquidated damages for the purpose of distributing the deed fund: cf s 554A(2). See also Fisher v Madden (2002) 54 NSWLR 179 at [40] to [42]. However, as the defendant’s case was not put this way, I will assume that the amount of the admitted claim is an “amount payable by the company”.
In my view, although there is an obvious connection between the employment contract and the plaintiff’s claim, that claim cannot be described as an amount payable “by virtue of” the contract because the plaintiff’s claim arose only upon the termination of the contract: cf Automatic Fire Sprinklers Pty Ltd v Watson (1946) 72 CLR 435 at 465; Sunbird Plaza Pty Ltd v Maloney (1988) 166 CLR 245 at 260 (Mason CJ). It is a claim for the loss of bargain resulting from CMA’s repudiation of the contract and the plaintiff’s acceptance of that repudiation. The amount of the plaintiff’s damages is calculated by reference to the position if the contract had been performed, the contract having been discharged.
In my view, the “but for” test is not determinative in this case. In March v Stramare (1991) 171 CLR 506 at 522-523, Deane J explained the limitations of that test (albeit in considering the law of negligence):
The “but for” (or “causa sine qua non”) test may well be a useful aid in determining whether something is properly to be seen as an effective cause of something else in that sense. In particular, the test will commonly exclude causation for the purposes of the law of negligence if the answer to the question it poses is that the accident which caused the injuries would have occurred in the same way and with the same consequences in any event: see, e.g., Duyvelshaff v. Cathcart & Ritchie Ltd. (1973) 47 ALJR 410, at pp 414-415, 416-417, 419; 1 ALR 125, at pp 134-135, 138, 142-143. There are however, in my view, convincing reasons precluding its adoption as a comprehensive definitive test of causation in the law of negligence. First, the clear weight of authority is against the substitution of such a formularized test of causation for a “common sense idea of what is meant by saying that one fact is a cause of another” (see, e.g., Fitzgerald v. Penn (1954) CLR, at p 277; National Insurance Co. of New Zealand Ltd. v. Espagne (1961) 105 CLR 569, at pp 590-592; Stapley v. Gypsum Mines Ltd. [1953] AC 663, at pp 681-682). … Thirdly, the mere fact that something constitutes an essential condition (in the “but for” sense) of an occurrence does not mean that, for the purposes of ascribing responsibility or fault, it is properly to be seen as a “cause” of that occurrence as a matter of either ordinary language or common sense. Thus, it could not, as a matter of ordinary language, be said that the fact that a person had a head was a “cause” of his being decapitated by a negligently wielded sword notwithstanding that possession of a head is an essential precondition of decapitation. Again, the mere fact that a person makes a gift of money to another is not, in any real sense, a “cause” of the damage sustained by that other person when his agent negligently loses the money notwithstanding that the loss would not have occurred “but for” the original gift.
I acknowledge that this conclusion may have the consequence that the different expressions “under an industrial instrument” and “by virtue of an industrial instrument” are given the same meaning in the context of s 556. However the words “under” and “by virtue of” clearly can be synonymous and the interpretation of “by virtue of” contended for by the plaintiff strains the meaning of those words beyond the ordinary and natural.
Finally, I do not agree with the plaintiff’s description of the legislative scheme as protecting employee entitlements generally, subject to certain exceptions regarding excluded employees and non-priority days. In my view, s 556 is more prescriptive, identifying particular classes of payments and assigning them relative priority. Thus, I do not consider that my interpretation of “retrenchment payments” is inconsistent with the underlying legislative scheme.
My interpretation, independently reached, is consistent with the reasoning of Young J in Irons at 207 to 208, albeit he distinguished between a right to a payment “under” a contract and a claim for damages for termination of the contract.
Must a retrenchment payment be “attributable” to priority and non-priority days?
In McGrath v Sturesteps (2011) 81 NSWLR 690 (“McGrath”) at [39] and [40], Bathurst CJ said:
[39] In Central Asbestos Co v Dodd [1973] AC 518 the House of Lords considered the question of whether a person had knowledge of material facts which demonstrated that his asbestos related disease was attributable to the negligence of his employer for the purpose of s 7(3) of the Limitation Act 1963 (UK). In that context Lord Reid made the following comment (at 533):
“So probably the key lies in the use of the word 'attributable.' That means capable of being attributed. ‘Attribute’ has a number of cognate meanings; you can attribute a quality to a person or thing, you can attribute a product to a source or author, or you can attribute an effect to a cause. The essential element is connection of some kind.”
See also Walsh v Rother District Council [1978] 1 All ER 510.
[40]Section 556(1C) in the present case requires identification of the amount of a payment which can be attributed to non-priority days. It assumes by use of the words “must not include an amount attributable to non-priority days” that a payment can be in part attributed to priority days and in part to non-priority days. I do not think the fact that the words “so much (if any)” as used in s 556(1A) and s556(1B), are not used in s 556(1C), leads to a contrary conclusion. In these circumstances, what is required in my opinion is first to ascertain the reason for which the payment is made.
Bathurst CJ was there dealing with a payment that was found to have been made in recognition of past services. He was not directing his attention to a payment for damages for wrongful dismissal. However, his Honour’s reasoning suggests that, by s 556(1C), a retrenchment payment must be a payment of a kind that is able to be “attributed” to days, whether priority or non-priority days.
In this case, the reason for the payment is the termination of the employment contract. Thus the plaintiff’s claim is not relevantly attributable to any particular day; it is attributable to the event of termination of the employment contract. As Mr Braham SC observed, there is no obvious purpose in attributing the amount payable to the date of termination of the contract.
The fact that the claim is calculated by reference to the duration of the employment contract does not, in my opinion, make the amount of the claim attributable to the days comprising the agreed term of the contract. That is simply an integer in the quantification of the claim for loss of bargain.
This reasoning provides an additional basis for concluding that the plaintiff’s claim is not a “retrenchment payment”.
Amount attributable to non-priority days
If I am wrong, and the plaintiff’s claim is a “retrenchment payment” within s 556(1)(h), it is necessary to consider the effect of s 556(1C).
Plaintiff’s submissions
Mr Braham SC drew a distinction between the day to which a payment is “attributable” and the day on which a payment “accrues”: cf McGrath [42] to [44] (Bathurst CJ, Sackville AJA agreeing).
Mr Braham SC contended that the relevant amount (being the amount payable) did not need to be attributed to any days, so long as it is not attributable to a “non-priority day”. Alternatively, the amount is attributable to the period after the plaintiff’s termination “and during which he is not and will not be a director”. In support of this contention, Mr Braham SC submitted that it would not in any way serve the purpose of the legislation (insofar as that purpose is to disincentivise directors from allowing the company to trade whilst insolvent, knowing their entitlements would be protected) to attribute a claim for damages for wrongful dismissal to the date of termination.
Defendants’ submissions
Mr Oakes SC contended that McGrath is not authority for the approach proposed by the plaintiff. He noted that in McGrath at [44], Bathurst CJ said, “In each case the question is: to what date is the payment to be attributed? The fact that in some cases the day of attribution will be the date of accrual does not mean that the word accrued should be substituted for the word attributable in s 556(1C).”
The defendant contended that, in this case, the only date to which the claim can be attributed is the date of termination of the employment contract, which is a non-priority day.
Consideration
Having regard to the reasoning of Bathurst CJ, in my view, s 556(1) requires the attribution of the payment to one or more days. If so, the only day to which the “amount payable” can be attributable is the date on which the contract was terminated on the basis that this is the date on which the plaintiff’s claim accrued. In my view, the “amount payable” cannot sensibly be attributed to the dates following the termination. The requirement of “attribution” is necessarily backward looking: it is not possible to determine prospectively whether an employee would or would not be a director on a future day.
Conclusion
The defendants were correct to classify the plaintiff as a “ Class C Creditor” because:
(1)The plaintiff’s claim is not a “retrenchment payment” within s 556(1)(h); or
(2)If the claim is a retrenchment payment, it is attributable to a non-priority day, namely 20 December 2012.
The defendants’ decision should be confirmed.
I certify that the preceding sixty-four (64) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Gleeson. Associate:
Dated: 15 December 2014
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