Jakobkiewicz v Dickson Catering Pty Ltd [2002] ACTSC 107 (1 November 2002)

Last Updated: 6 November 2002

IN THE MATTER OF DICKSON CATERING PTY LIMITED ACN 008 485 229 (IN LIQUIDATION) & THE CORPORATIONS LAW. BETWEEN: RAPHAEL JAKOBKIEWICZ AND: DICKSON CATERING PTY LIMITED [2002] ACTSC 107 (1 November 2002)

CATCHWORDS

CORPORATIONS - Review of decision of liquidator disallowing a claimed debt.

ASSERTED EMPLOYMENT CONTRACT - whether applicant an employee of company - plaintiff agrees to `help out' in company of de facto spouse - promise of future benefit - agreement to transfer 50% of company

Corporations Act 2001 s 1321

Corporations Regulations Reg 5.6.54(2)

Ermogenous v Greek Orthodox Community of SA [2002] HCA 8, (2002) 187 ALR 92

Tanning Research Laboratories Inc v O'Brien [1990] HCA 8; (1990) 169 CLR 332

Westpac Banking Corporation v Totterdell and Another (1999) 17 ACLC 317

No. SC 101 of 2001

Coram: Master T. Connolly

Supreme Court of the ACT

Date: 1 November 2002

IN THE SUPREME COURT OF THE )

) No. SC 101 of 2001

AUSTRALIAN CAPITAL TERRITORY )

IN THE MATTER OF DICKSON CATERING PTY LTD ACN 008 485 229 (IN LIQUIDATION) & THE CORPORATIONS LAW

Between:

RAPHAEL JAKOBKIEWICZ

Plaintiff

and:

DICKSON CATERING PTY LIMITED ACN 008 485 229 (IN LIQUIDATION)

Defendant

ORDER

Coram: Master T. Connolly

Date: 1 November 2002

Place: Canberra

THE COURT ORDERS THAT:

1. The application to review the decision of the liquidator of 1 March 2002 be dismissed

2. The applicant to pay the liquidators costs

1. This is an application commenced by interlocutory application of 1 March 2002 for a review of a decision by the liquidator of the defendant company to reject on 14 February 2002 a proof of debt claim made by the plaintiff. The application is properly brought before me pursuant to Reg 5.6.54(2) of the Corporations Regulations and s 1321 of the Corporations Act 2001.

2. It is common ground that the defendant company was placed into provisional liquidation in March 2001, and that at that time the plaintiff was a director of the defendant company. In November 2001 the plaintiff submitted a claim to the liquidator that he had been an employee of the company since 1995 but had not been paid wages. This claim was further supported by another letter from the plaintiff to the liquidator on 19 November 2001, and on 31 January 2002 a letter from the plaintiff's then solicitors to the liquidator set out a claim for some $238,157 by way of wages arrears for the period 1995 to 1999. On 14 February 2002 the claim was wholly disallowed by the liquidator, Mr Rangott, and it is appropriate to set out his reasons in full:

"My grounds for disallowance of your claim are as follows:

-An agreement was reached in or about March 1995 between yourself and Ms Wendy Hudson, whereby you undertook to work for the business, Hudsons of Dickson on the understanding that in lieu of receiving a regular wage based on hours worked, you were to acquire a 50% share in the Company at sometime in the future. This eventuated on 1 January 2000 from which time you became entitled to a regular wage.

-A nominal share price was the only other consideration received by Ms Wendy Hudson in respect of your acquisition of a 50% share of the company

-The agreement between Ms Wendy Hudson and yourself implied you were not entitled to receive payment of any wages for work performed in the Company until the "business improved" and was "out of financial difficulty". It appears the company did not improve until 2000 at which time you began to receive wages."

3. The plaintiff in his application sought review of this decision, and an order that the plaintiff's entitlements as an employee be dealt with according to law. The plaintiff's claim is for wages for the period 1995-1999, and a claim for reimbursement for vehicle expenses. In dealing with this application, which is styled by the Corporations Law an appeal from the decision of the liquidator, I am to deal with the application as if it were a hearing de novo (Tanning Research Laboratories Inc v O'Brien [1990] HCA 8; (1990) 169 CLR 332), and in this hearing the applicant plaintiff bears the onus of proving the claimed debt. (Westpac Banking Corporation v Totterdell and Another (1999) 17 ACLC 317 (Full Court, Supreme Court of Western Australia).

4. It is common ground that the plaintiff formed a personal relationship with Ms Wendy Hudson, who was a director and the principal of the defendant company in August or September of 1994. This relationship continued for some years, but broke down in about 1999. It is the plaintiff's case that, early on in the relationship and at a time when he was working on a contract basis for a Government Department, he was asked to help out Ms Hudson in the business. He says that in about February 1995 this arrangement became formalised to the point that it became a contractual arrangement whereby the plaintiff would work for the defendant company, as an employee, and would be paid wages when the defendant became profitable. He would also have 50% of the business transferred to him. The plaintiff alleges that the affairs of the defendant company were so mismanaged that the point of profitability was not reached until January 2000, when it is common ground that he received 50% of the shares in the defendant company.

5. The plaintiff, who represented himself throughout these proceedings, has filed extensive affidavit material, which annexes much material obtained under subpoena, going to the question of the reasons for the delay in the company reaching profitability. It was apparent that the full hearing on the assessment of the wages due would take a considerable amount of court time, and incur significant costs.

6. The defendant's position is that there was no contract of employment between the plaintiff and the defendant company, and that the arrangement whereby the plaintiff came to be involved in the business needed to be viewed in the context of the then ongoing domestic relationship between the plaintiff and Ms Hudson. It says that if there was any form of legally enforceable relationship created between the parties, it was an agreement that half of the business would be transferred to the plaintiff in return for his involvement with the business, and that this was fulfilled in January 2000.

7. There is thus a clear legal dispute between the plaintiff and the defendant going to the existence and nature of any legally enforceable agreement between them in early 1995. It was agreed that the questions concerning the point at which the business became profitable would only arise if there was a contract of employment. I suggested to the parties that there would be considerable savings to the parties if this issue was determined, and that the hearing on the question of the quantum of wages said to be owed, which it was common ground would involve a very extensive review of a considerable body of documentation, and would be expected to extend over several hearing days would only proceed if I found that there existed a contract of employment. The matter thus proceeded on this question only.

8. The plaintiff has used a variety of terms to describe the relationship that he says was formed between the defendant and himself. In his affidavit of 13 March 2002 he says at para 5,

"A contract to form a business partnership and to pay wages to me was entered into between the director of Gunnigbland Pty Ltd (Trading as Hudsons of Dickson), Ms Wendy Hudson and Raphael Jakobkiewicz in February 1995. The terms and condition to pay wages are described on pages 6 and 7 of the claim of 31.01.02 for wages arrears."

In the subsequent paragraphs of that affidavit, being paragraphs 6,7 and 8 he referred to "a contract of partnership" (para 6), "partnership" (para 7) and "the contract of business partnership".

9. In addition to his affidavit Mr Jakobkiewicz gave sworn evidence. He said that the personal relationship between himself and Ms Hudson began to grow into something substantial in about September 1994, and that she moved into his place in January 1995. He said that he was aware that she was running the catering business, and he said that he had the impression that the business was in severe financial difficulties, but he said that it was her business and he did not want to ask intimate questions about her business affairs. He says that his contract was coming to an end, and he said

"she put it to me, that if I don't manage to get any employment by the end of my contract, that I can start to contribute to the business. And- but she did tell me, in plain terms, that she wouldn't have any money in the very beginning, to pay, because there was- the business was in such bad shape. But she did tell me that once it becomes profitable, I will start to get paid. I would start to get paid income. And she was saying to me that she- will convey to me half of the business, and also that it was everything in the context of our future together. I mean, there were- it was to us, at that time, we didn't think in other terms than living together, eventually getting married."(transcript, p 26-27)

10. He concluded at page 29

"So that was the understanding that the business couldn't afford to pay me wages in the very- right from the very beginning. She was giving me assurances that- assurances that's expressing her opinion that if we combine our resources together, if I commit myself to the business that we can turn it into successful and good and viable, commercially viable business. And that was the basis on which I started to work in the business. I basically committed myself wholeheartedly, I gave my soul. Obviously it was in the context of - of the personal relationship."

11. In cross-examination the plaintiff agreed that the nature of the personal relationship was a very important factor in his involvement with the business. He said

"to commit myself to work for a certain period of time on the promise to get the future income without any background to it, without any de facto relationship, obviously I wouldn't do it."

12. It was put to him that the first time that the transfer of the business was discussed was about a year after he first became involved in the business in February 1995, and he agreed that it was towards the end of 1996 when the transfer was first discussed. He agreed that there was no job advertisement in February 1995, and that there was no agreement on any rate of pay at that time, and that there was no particular position discussed. He said

"I understood that I would be like her deputy in the business...Obviously it did require time to be introduced to the business."

13. He agreed that, in the context of their domestic relationship, if they needed food or wine it would simply be taken from the business.

14. Mr Mossop put it to the plaintiff that as a result of the breakdown in the de-facto relationship he feels very bitter towards Ms Hudson. He said

"No. Obviously it did play an important role. What I felt bitter about, that Mrs Hudson was, as I understood at that time, that she was dishonest with me."

He agreed that he felt wronged by her, but he insisted that this was due to her failure to pay him wages in accordance with what he says was the agreement.

15. The defendant filed an affidavit by Ms Hudson of 2 April 2002,and she was cross-examined on this. She said that she and the plaintiff met in August or September 1994,and quickly formed a personal relationship. She said that at that time she was working in the business, and he was working full time on a contract with the Defence Department, and he had a part time out of hours job as a carer with Richmond Fellowship. She says

"In or about February 1995 I had a discussion with the plaintiff concerning the business operated by the Defendant. The plaintiff had at this stage ceased working with the Department of Defence. I was very busy operating the Defendant's business and the plaintiff was mostly unoccupied during the day and appeared to have no definite plans for work other than his part time job. The plaintiff offered to help out in the business. This offer to help out was made in the context of our personal relationship. I did not ask the plaintiff to work in the business. I agreed to allow the plaintiff to help me in the business. As we were in a personal relationship at that time, I believed that the success of the business would benefit the both of us. I said to the plaintiff that the business was "our future" and that anything the plaintiff cared to contribute was "working towards our future".

16. She said

"there was no discussion of the plaintiff becoming a paid employee of the Defendant. There was no discussion of the plaintiff receiving money or any other form of payment as a result of any work that he performed in or around the business. The plaintiff did not ask how much he would be paid for work that he performed. It was certainly not my intention to create a legal employment relationship between the plaintiff and the defendant. The plaintiff did not sign any written contract of employment, or request that such a contract be prepared."

17. She said that the plaintiff's work was informal in that he was not on any rosters, and that he set his own hours, and acted as a partial owner of the business throughout this time. She said that there was no discussion of wages or payment, but that about one year later, we discussed the future of themselves and the business, and the plaintiff asked for a half share of the business. She said

"I declined to transfer the shares to him at that time, but said that the business was still our future and that I would consider doing it when the business improved".

She says that he continually pressed for a share of the business, and on or about 1 January 2000 she agreed to transfer 50% of the shares. She said

"The plaintiff agreed to pay a nominal share price only for this 50% share of the business, despite the fact that he was acquiring something worth significantly more at market value. I agreed to transfer this share of the business to the plaintiff at this price due to our long established friendship (our personal relationship had ceased shortly before the plaintiff acquiring a share of the business) and the work that the plaintiff had performed over the previous five years. I do not believe that the nominal share price was ever paid."

18. The defendant's primary submission is that I should find that there was no contract of employment between the plaintiff and the defendant, and that any arrangement or understanding between Mr Jakobkiewicz and Ms Hudson was a general understanding in the context of a domestic relationship in the nature of a de-facto relationship that if the relationship grew to permanence, the business would be the basis of their future security.

19. It was once said that there was a presumption against an intention to create legal relationships in the context of a marriage or close family relationship, but the High Court has made it clear in Ermogenous v Greek Orthodox Community of SA [2002] HCA 8, (2002) 187 ALR 92 that this is no longer an appropriate test. Rather than a presumption, the Court said that in every case the party asserting the existence of a legally binding relationship bears the onus of proof. The Court said:

"It is of the essence of contract, regarded as a class of obligations, that there is a voluntary assumption of a legally enforceable duty. To be a legally enforceable duty there must, of course, be identifiable parties to the arrangement, the terms of the arrangement must be certain, and, unless recorded as a deed, there must generally be real consideration for the agreement. Yet the circumstances may show that the parties did not intend, or cannot be regarded as having intended, to subject their agreement to the adjudication of the courts. Because the inquiry about this last aspect may take account of the subject matter of the agreement, the status of the parties to it, their relationship to one another, and other surrounding circumstances, not only is there obvious difficulty in formulating rules intended to prescribe the kinds of cases in which an intention to create contractual relations should, or should not, be found to exist, it would be wrong to do so. Because the search for the intention to create contractual relations requires an objective assessment of the state of affairs between the parties (as distinct from the identification of any uncommunicated subjective reservation or intention that either may harbour) the circumstances which might properly be taken into account in deciding whether there was the relevant intention are so varied as to preclude the formation of any prescriptive rules. Although the word "intention" is used in this context, it is used in the same sense as it is used in another contractual contexts. It describes what it is that would objectively be conveyed by what was said or done, having regard to the circumstances in which those statements and action happened. It is not a search for the uncommunicated subjective motive or intentions of the parties. In the context of intention to create legal relations there is frequent reference to "presumptions". It is said that it may be presumed that there are some "family arrangements" which are not intended to give rise to legal obligations. ...For our part, we doubt the utility of using the language of presumptions in this context. At best, the use of that language does no more than invite attention to identifying the party who bears the onus of proof. In this case, where issue was joined about the existence of a legally binging contract between the parties, there could be no doubt that it was for the appellant to demonstrate that there was such a contract. Reference to presumptions may serve only to distract attention from that more basic and important proposition." (per Gaudron, McHugh, Hayne and Callinan JJ at paras 24-26).

20. In this case it is clearly for the plaintiff to establish the intention to create a legally binding relationship. The evidence is that he commenced his involvement with the business on the basis of helping out his then de facto partner, with the expectation that as the relationship grew and perhaps developed into marriage, the business would be the future of the relationship. There is a conflict in the evidence between the plaintiff, who says that Ms Hudson asked him to help out, and Ms Hudson, who says that he offered to help out. It does not seem to me to matter greatly which version is correct, but for the purposes of this application I am prepared to accept the plaintiff's version. Even on this version, it is a request to help out, with no clear terms and conditions of remuneration, other than, on his case, a vague reference to future wages. Ms Hudson says there was no reference at all to wages. There is no evidence of an agreement or discussion concerning the rate at which any wages would be paid. Mr Jakobkiewicz in his affidavit asserted that the February 1995 agreement was a "contract to form a business partnership and to pay wages to me", but he acknowledged in cross-examination that, although there had been discussion and a form of understanding that as the relationship grew the business would be "our future" (a term used by both the plaintiff and Ms Hudson in this case), the agreement to transfer a half share of the business only arose some time in late 1996. This is consistent with Ms Hudson's recollection.

21. I find that the imprecise nature of any asserted understanding or agreement in relation to the basis of the plaintiffs alleged wages, the absence of any clear definition of his duties (and his acknowledgement that as at February 1995 he had no experience of the catering industry and no business experience) and the lack of any reference in the books and records of the company to his status as an employee are inconsistent with the intention of the plaintiff and Ms Hudson on behalf of the company in February 1995 to enter into a legally enforceable contract of employment. I am not satisfied that the plaintiff has established on the evidence that, whatever the personal relationship and understanding between the plaintiff and Ms Hudson, who where then in a personal relationship that both say at the time was contemplated could lead to a permanent relationship and marriage, there was an intention to create a legally binding contract of employment between the plaintiff and the defendant company.

22. I note that Ms Hudson in her affidavit asserts that it was her understanding that in the period from when the plaintiff left his other employment to when he became a director and started to take remuneration from the company, he was on social security benefits, and this was not challenged in his evidence. This, along with the absence of any records of the company referring to him as an employee, further reinforces my view that the understanding and mutual desire to help out in a business venture that was contemplated to be their mutual future did not create a legally binding contract of employment.

23. The defendant's alternative submission is that, if there was an intention to create a legally binding relationship, it was an intention to create a contact in the nature of a partnership between the plaintiff and Ms Hudson (and not the defendant company) and that this was fulfilled by Ms Hudson's transfer of 50% of the shares of the defendant company to the plaintiff in January 2000. It seems to me that this is as far as the evidence would go, and to the extent that his years of involvement in the business entitled him to a benefit (after allowing for issues such as the degree to which he and Ms Hudson benefited by way of food and wine and the like obtained through the company) the benefit was conferred by way of the equal share in the company from January 2000. It is apparent from the evidence of both Ms Hudson and the plaintiff that as the personal relationship had by this time broken down, the professional relationship between the two was unable to be sustained, and broke down to the point that the plaintiff brought proceedings to appoint a provisional liquidator for the company as he and Ms Hudson were unable to find common ground on the future of the company.

24. It follows that I have come to a conclusion in the same terms as the liquidator, and that is that the plaintiff has not established that he was an employee of the company. There is no need for a further hearing on the question of the extent of any debt owed by way of wages, and it is appropriate that the application to review the decision of the liquidator to disallow the claim should be dismissed, with costs to follow the event in the usual way.

I certify that the preceding twenty four (24) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Master, Mr T Connolly

Associate:

Date: 1 November 2002

Counsel for the Plaintiff: Self Represented

Counsel for the Defendant: Mr D M Mossop

Solicitor for the Defendant: Mallesons Stephen Jaques

Date of hearing: 25 September 2002

Date of judgment: 1 November 2002