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Stuke v Rost Capital Group Pty Ltd & Ors (No.2) [2011] FMCA 80 (15 February 2011)

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Stuke v Rost Capital Group Pty Ltd & Ors (No.2) [2011] FMCA 80 (15 February 2011)

Last Updated: 16 February 2011

FEDERAL MAGISTRATES COURT OF AUSTRALIA

STUKE v ROST CAPITAL GROUP PTY LTD & ORS (No.2)

INDUSTRIAL LAW – Application by corporate respondent for summary judgment or summary dismissal – application by individual respondent to set aside service of documents initiating proceedings or for declaration that documents not duly served – relevant principles.


Federal Court Rules, O.9 r.7
Federal Magistrates Court Rules, rr.1.05, 13.10

Adnunat Pty Ltd v ITW Construction Systems Australia Pty Ltd [2009] FCA 499
Automatic Fire Sprinklers Proprietary Limited and Another v Watson (1946) 72 CLR 435; [1946] HCA 25
Commissioner of Taxation v Ma (1999) 92 FCR 569; [1999] FCA 1093
Deputy Commissioner of Taxation v Southgate Investments Funds Limited [2010] FCA 1298
Laurie v Carroll and Others (1958) 98 CLR 310; [1958] HCA 4
Spencer v The Commonwealth of Australia (2010) 241 CLR 118; [2010] HCA 28
Stuke v Rost Capital Group Pty Ltd & Ors [2011] FMCA 79
Toll (FGCT) Pty Limited v Alphapharm Pty Limited and Others (2004) 219 CLR 165; [2004] HCA 52
Vivid Entertainment LLC and Others v Digital Sinema Australia Pty Ltd and Others (2007) 209 FLR 212; [2007] FMCA 157
White Industries Aust Ltd and Another v Federal Commissioner of Taxation and Another (2007) 160 FCR 298; [2007] FCA 511

Applicant:
ALEXANDER STUKE

First Respondent:
ROST CAPITAL GROUP PTY LTD
(ACN 132 992 280)

Second Respondent:
CROWN 2 PTY LTD
(ACN 100 162 329)

Third Respondent:
GRIGORY ROZENTSVET

Fourth Respondent:
SERGE ROZENTSVET

File Number:
SYG 1805 of 2010

Judgment of:
Barnes FM

Hearing date:
7 December 2010

Delivered at:
Sydney

Delivered on:
15 February 2011

REPRESENTATION

Counsel for the Applicant:
Mr J Darams

Solicitors for the Applicant:
Clayton Utz

Solicitors for the First Respondent:
Piper Alderman

ORDERS

(1) The application in a case filed on 15 October 2010 be dismissed.
FEDERAL MAGISTRATES
COURT OF AUSTRALIA
AT SYDNEY

SYG 1805 of 2010

ALEXANDER STUKE

Applicant


And


ROST CAPITAL GROUP PTY LTD
(ACN 132 992 280)

First Respondent

CROWN 2 PTY LTD
(ACN 100 162 329)

Second Respondent


GRIGORY ROZENTSVET

Third Respondent


SERGE ROZENTSVET

Fourth Respondent


REASONS FOR JUDGMENT

Background

  1. On 18 August 2010 Mr Stuke commenced proceedings against four respondents, including the second and third respondents Crown 2 Pty Ltd (Crown) and Grigory Rozentsvet (Mr G Rozentsvet), alleging contraventions of provisions of the Fair Work Act 2009 (Cth) in relation to unpaid salary and annual leave entitlements of an employee. He seeks compensation and that pecuniary penalties be imposed on each of the respondents. Mr G Rozentsvet is a director of both Crown and the first respondent Rost Capital Group Pty Ltd (Rost). The fourth respondent, Mr S Rozentsvet is said to be company secretary of Rost. Orders are sought against the third and fourth respondents on the basis that they were involved in contraventions by the first and second respondents. In addition, it is contended that Rost and Crown each breached express and implied terms in contracts of employment relating to Mr Stuke’s termination, salary, superannuation and annual leave entitlements. Mr Stuke seeks to recover his loss and damages by reason of such alleged breaches of contract.
  2. A notice of appearance for Crown and Rost was filed on 26 August 2010. On 8 September 2010 Rost filed an application in a case. It was resolved between the parties whilst part heard, but was the subject of competing costs applications (see Stuke v Rost Capital Group Pty Ltd & Ors [2011] FMCA 79).
  3. On 16 September 2010 Mr Stuke sought, and subsequently obtained, orders for substituted service of the documents initiating the proceedings in relation to Mr G Rozentsvet and Mr S Rozentsvet.
  4. On 13 October 2010 a conditional appearance was filed on behalf of Mr G Rozentsvet.

These proceedings

  1. On 15 October 2010 Crown and Mr G Rozentsvet filed the application in a case that is the subject of this judgment. Crown seeks an order that pursuant to s.17A(2) of the Federal Magistrates Act 1999 (Cth) the court give judgment in its favour in relation to claims made against it in the application and statement of claim relied on by Mr Stuke in the substantive proceedings or, in the alternative, an order pursuant to r.13.10 of the Federal Magistrate Court Rules that such claims against Crown be dismissed.
  2. Mr G Rozentsvet seeks an order that service of the application and statement of claim on him be set aside pursuant to O.9 r.7(1)(b) of the Federal Court Rules or, in the alternative, an order declaring that the application and statement of claim were not duly served on him pursuant to O.9 r.7(1)(c) of the Federal Court Rules.

Crown’s application

  1. Crown primarily relies on s.17A(2) of the Federal Magistrates Act, which is as follows:
  2. Section 17A(3) provides:
  3. Rule 13.10 of the Federal Magistrates Court Rules is as follows:
  4. Crown asserts that Mr Stuke has no reasonable prospect of successfully prosecuting the claims against it. There is no dispute between the parties regarding the law applicable to the Crown application. Both parties referred to authorities in relation to s.31A(2) of the Federal Court of Australia Act 1976 (Cth) which, relevantly, is in the same terms as s.17A(2) of the Federal Magistrates Act (see Vivid Entertainment LLC and Others v Digital Sinema Australia Pty Ltd and Others (2007) 209 FLR 212; [2007] FMCA 157 at [21]).
  5. Section 31A(2) of the Federal Court of Australia Act was considered by the High Court in Spencer v The Commonwealth of Australia (2010) 241 CLR 118; [2010] HCA 28. French CJ and Gummow J made the point (at [24]) that the exercise of a power to summarily terminate proceedings “must always be attended with caution”, notwithstanding that the criterion in s.31A may be satisfied on grounds wider that those previously contained in the Federal Court Rules in relation to summary dismissal.
  6. Their Honours stated (at [25]):
  7. However, as counsel for Mr Stuke pointed out, their Honours also went on to say (at [25]):

(Also see [26]).

  1. In Spencer, Hayne, Crennan, Kiefel and Bell JJ acknowledged that effect must be given to s.31A(3) of the Federal Court Act in “recognising that the combined effect of sub-ss (2) and (3) is that the inquiry required in this case is whether there is a “reasonable” prospect of prosecuting the proceeding, not an inquiry directed to whether a certain and concluded determination could be made that the proceeding would necessarily fail”. (at [52]).
  2. Their Honours rejected any contention that concepts such as “untenable”, “frivolous”, “groundless” or “faulty” described the limits of the concept “no reasonable prospect” of success (at [59]) in explaining that “full weight must be given to the expression as a whole” and that the power to dismiss an action summarily is not to be exercised lightly.
  3. The solicitor for Crown accepted that it would be inappropriate to make either of the orders sought by Crown if the court were called upon to determine disputed questions of fact (Spencer at [25] – [26] and White Industries Aust Ltd and Another v Federal Commissioner of Taxation and Another (2007) 160 FCR 298; [2007] FCA 511 at [58] – [59] per Lindgren J). However it was submitted that although on the face of the evidence presently before the court there appeared to be a number of factual matters in dispute, on a proper analysis all the facts necessary to dispose of the motion were not in dispute or could not seriously be in dispute. Hence it was submitted that this was an appropriate matter in which to make an order for summary judgment or dismissal.
  4. Crown relied on the following evidence in support of this application: the affidavit of S Rozenstvet of 15 October 2010 (and exhibit SR2); the affidavit of M Bassin of 15 October 2010; the affidavit of S Rozentsvet of 25 November 2010 (and exhibits SR3 and SR4); and the affidavit of S Rozentsvent of 2 December 2010.
  5. Mr Stuke asserted that there were significant factual matters in dispute and relied on the affidavit of A Stuke of 11 November 2010 (and exhibit AS-1); the affidavit of A Stuke of 2 December 2010; and the affidavit of R Bhattacharya of 29 September 2010.
  6. Mr Stuke’s substantive case is relevantly that he was an employee of both Rost and Crown for the purposes of the Fair Work Act and that each of Rost and Crown breached that Act and also that each of Rost and Crown entered into and breached contracts in relation to his employment.
  7. In these proceedings Crown submitted that Mr Stuke has no reasonable prospect of success in relation to the claims against Crown because evidence that is not in dispute or that cannot seriously be in dispute is said to disclose that Mr Stuke was employed by Rost and that the parties never intended to be bound by the Crown contract; that Mr Stuke performed no work for Crown; that there was no reason for Crown to enter the Crown contract (it having no need for employees); and that certain facts pleaded in the Statement of Claim were not supported by the documentary evidence or by Mr Stuke’s affidavit evidence. It was also contended that if it was accepted that Mr Stuke performed no work under the Crown contract his allegation as to non-payment of salary and other benefits was “fundamentally flawed in law”.
  8. The written submissions for Crown contain a detailed outline of what are said to be “Background facts”. However Mr Stuke’s submissions refer to additional events and take issue with some of Crown’s submissions about what occurred between mid-2008 and June 2010.
  9. In essence, Mr Stuke takes issue with the Crown’s submission that certain matters of fact and law are not in dispute or could not seriously be in dispute and on this basis contends that the application for summary judgment or dismissal should be dismissed and the disputed matters determined at trial.
  10. For the reasons given below, I am not satisfied that summary judgment should be given in favour of Crown or that the claims against it should be summarily dismissed.
  11. I note generally that the solicitor for Crown referred to the adoption in Deputy Commissioner of Taxation v Southgate Investments Funds Limited [2010] FCA 1298 of the summary of the operation of s.31A of the Federal Court Act in Adnunat Pty Ltd v ITW Construction Systems Australia Pty Ltd [2009] FCA 499 at [37] per Sundberg J. While this must now be seen in light of the approach of the High Court in Spencer (see for example Spencer at [59]), it is notable that, consistent with the approach taken to s.31A of the Federal Court Act in Adnunat, in applying such a provision the court “does not conduct fact finding, but must assess the strength of the allegations made by reference to the pleadings, affidavits and any other evidence adduced, in order to determine whether the claim is sufficiently strong to warrant a trial” (at [37]) (emphasis added).
  12. Insofar as Crown’s case in effect invites the court to conduct a mini-trial on the documents at this early stage in the proceedings and reach conclusions of fact in relation to matters in dispute without the benefit of all the evidence on which the parties wish to rely or any cross-examination, that would not be appropriate.
  13. Moreover, as Sundberg J stated in Adnunat (at [37]):
  14. Crown submitted first that it was “clear from the evidence” that while Mr Stuke and Crown had entered a contract for employment on or about 1 September 2008, “the parties did not intend to be bound” by that contract of employment. The first asserted reason for this was that it was said to be “clear” on the evidence before the court that the “Crown contract was executed merely to assist Mr Stuke to prove his income to his financiers.”
  15. In effect, the court is asked to reach this and other conclusions in support of Crown’s contentions on the basis of asserted facts which are said not to be in dispute and the drawing of inferences from the evidence.
  16. The initial and significant difficulty with these propositions is that while the parties accept that Mr Stuke and Mr G Rozentsvet had discussions regarding Mr Stuke’s employment which resulted in his employment at an agreed remuneration level, there is no direct evidence from Mr G Rozentsvet (the sole director of Crown and signatory of the Crown contract) before the court. That is so notwithstanding that there is a considerable volume of material relied on by Crown in connection with this application, reflecting, to some extent, the apparent complexity of the dealings between the parties to these proceedings.
  17. The evidence before the court in this respect (apart from that of Mr Stuke who disputes Crown’s contentions) is from Ms Marina Bassin, an administrator and bookkeeper who is said to have maintained records for Crown while working for Mr G Rozentsvet and from Mr S Rozentsvet. However neither of these persons is a director or office-holder in Crown. The sole director and secretary of Crown is Mr G Rozentsvet. There is no evidence from him, whether as to motive or otherwise (see Toll (FGCT) Pty Limited v Alphapharm Pty Limited and Others (2004) 219 CLR 165; [2004] HCA 52 at [40] – [43]).
  18. Despite the absence of evidence from Mr G Rozentsvet, Crown relies on what are said to be “facts” about Mr Stuke’s negotiations with Mr G Rozentsvet. It was contended, (based on a copy of an email from Mr Stuke to Mr G Rozentsvet dated 13 August 2008), that in relation to his employment, it was clear that Mr Stuke sought a remuneration structure that included a cash component of $240,000 per annum.
  19. It appears from this email that at that time the dealings between the parties were at a very early stage. There was an issue about organisation of the structure of the entity or entities to conduct a proposed business in which Mr Stuke was to work. Mr Stuke raised a number of possibilities about his remuneration. He asked Mr G Rozentsvet to consider what was best for him on the basis that Mr Stuke was happy with any of those alternatives. Only one of three alternatives suggested involved a cash component of $240,000 a year. Another version had no cash component. The other had a suggested cash component of $300,000 per year, in addition to a base salary and superannuation.
  20. I note that in this email Mr Stuke contemplated employment by a proposed corporate entity or trust (which he suggested might be called Crown Capital Group). Mr Stuke also referred to the possibility that a number of entities may need to be involved in the proposed business. His case is that he entered into two contracts to give effect to the agreed remuneration. There is no evidence before the court of any response to this email by Mr G Rozentsvet.
  21. Crown submitted that in drafting his employment agreement Mr Stuke included a component for “after-tax benefits” of $240,000, consistent with the cash component he had sought. The evidence before the court in this respect consists of an email annexing a draft contract which Mr Stuke sent to Mr G Rozentsvet on 29 August 2008, asking him to look at it and let him know if he was happy to sign it, on the basis that it was a “standard version of contracts used for senior executives in Australia”. There is no evidence from Mr G Rozentsvet of any discussion about the terms of the contract. This email also made the point that Mr Stuke would re-do the document with Rost “as soon as...new company details [we]re completed”.
  22. On 31 August 2008 Mr S Rozentsvet (Rost’s Company Secretary) sent an email to Mr Stuke. This is said by Crown to be relevant in that a concern was raised as to how “after-tax benefits” would be accounted for by Rost for the purposes of taxation. Mr S Rozentsvet asserted that the reference to after-tax benefits in the draft contract was contrary to the parties’ “current arrangement” being a payment of $240,000 per annum. However it is notable that as well as the draft contract between Crown and Mr Stuke there was also at that time a draft contract between Rost and Mr Stuke. Mr S Rozentsvet simply referred to “the employment agreement”. It is not clear whether he was addressing the Crown contract or item 5 in Schedule A to the proposed contract between Rost and Mr Stuke which referred to $240,000 per annum in “after-tax benefits”. The concern expressed by Mr S Rozentsvet was “I don’t think ROST can officially provide you the benefits as per our current arrangement, because the ATO will object to such “benefits”” (emphasis added). He concluded “Let’s discuss”.
  23. Mr Stuke’s evidence addressed a conversation with Mr G Rozentsvet in which payment of salary by Crown, rather than “after-tax benefits” was proposed. Mr Stuke’s affidavit evidence is that his employment was arranged with Mr G Rozentsvet, who told him on or about 31 August 2008 that the employment contract would have to be split into two separate contracts for tax reasons: one with Rost and one with Crown. His evidence is that the contract with Rost would provide for fixed annual remuneration of $500,000 plus superannuation with notice and retrenchment provisions and that the contract with Crown would be for $240,000 gross salary (rather than after-tax benefits) plus superannuation, and notice and retrenchment provisions. There is clearly a factual dispute between the parties in this respect in circumstances where the evidence can be said to be ambivalent.
  24. Mr S Rozentsvet gave affidavit evidence of discussions he allegedly had with Mr G Rozentsvet and with Mr Stuke. Reliance is placed on an email from Mr S Rozentsvet to Mr G Rozentsvet dated 1 September 2008 in which Mr S Rozentsvet stated that instead of $240,000 cash benefits “we decided to make a separate agreement with Crown 2 – ONLY to show to the bank” and asked Mr G Rozentsvet whether that was okay with him. There is no evidence of any reply. Mr Stuke denied that in a conversation of 1 September 2008 with Mr S Rozentsvet he confirmed that he would work only for Rost and not for Crown.
  25. While there is no dispute that Mr Stuke had discussions regarding his employment with Mr G Rozentsvet and, to a lesser extent, with Mr S Rozentsvet, Mr Stuke’s case is that he was employed by both Rost and Crown and that both companies agreed to pay him remuneration and that the splitting of the remuneration arrangements were proposed by Mr G Rozentsvet (the sole director of both companies who executed each of the contracts on behalf of Rost and Crown). The suggestion that the Crown contract was “ONLY to show the bank” was only made by Mr S Rozentsvet. This does not suffice to draw an inference as to the intention of the parties to that contract.
  26. Mr S Rozentsvet’s evidence is also that there was a cash payments arrangement between Rost and Mr Stuke. Mr Stuke denies that he agreed to or received cash payments from any of the respondents. As counsel for Mr Stuke pointed out, either Mr Stuke or Mr S Rozentsvet is not being truthful. Their evidence would have to be tested at trial under cross-examination for this to be resolved.
  27. On the untested affidavit evidence before the court and having regard to the issues Mr Stuke takes in relation to much of the evidence of Mr S Rozentsvet, it is not “clear” at this stage of the proceedings that the Crown contract was executed merely to assist Mr Stuke to prove his income to his financiers, albeit that this is a possible interpretation of the evidence before the court.
  28. It was also contended for Crown that while the Crown contract contained a provision for payment of salary of $240,000 to Mr Stuke, not only was this the amount initially requested by Mr Stuke as “after-tax benefits” or a “cash” component of his salary arrangement, but also Crown made no payments to Mr Stuke pursuant to the Crown contract, while Rost made monthly cash payments to Mr Stuke (as attested to by Mr S Rozentsvet). It was said to be “frivolous and vexatious” for Mr Stuke to now demand payment pursuant to the Crown contract when he had already received payment in accordance with the cash payment arrangement with Rost.
  29. However Mr Stuke denies receipt of such cash payments.
  30. Insofar as this submission involves an assertion that the claims for relief should be summarily dismissed under r.13.10(b) of the Federal Magistrates Court Rules, such an assertion is not made out. This issue is in dispute. It should be determined at trial. Given the dispute as to facts, it cannot be said to be “obvious” at this stage of the proceedings that the “relevant arrangement” was a cash payment between Rost and Mr Stuke rather than the Crown contract such as to make it clear (either alone or in conjunction with other material) that the parties did not intend to be bound by the Crown contract.
  31. Crown also contended that on the construction of the Rost contract and the Crown contract it was “impossible” for Mr Stuke to simultaneously fulfil his obligations to both entities. Each contract contained a term that during his employment Mr Stuke must “during work hours, devote the whole of [his] time, attention and abilities to the business” of the particular named company. It was submitted that a requirement that Mr Stuke work full-time for two entities was “incapable of ever being fulfilled” by him. On this basis it was submitted that it was “obvious” that the cash payments arrangement between Rost and Mr Stuke was intended by the parties to be the relevant arrangement for the payment of the sum of $240,000 and not the Crown contract and that to the extent that Mr Stuke was on a salary package of $740,000 (as pleaded in the Statement of Claim) that package consisted of the Rost contract and the cash payment arrangement which Mr Stuke was said to have asked for and received on a regular monthly basis until 30 April 2010.
  32. However it was contended for Mr Stuke that he could and did perform work for both Crown and Rost, having been employed to start a “business”. It was also submitted for Mr Stuke that the “business” of Crown would encompass doing work on behalf of Crown and pointed out that under the contract Crown was defined to include both the second respondent and “any agents”. Reference was also made to work Mr Stuke performed while seconded to Australian Minerals Groups (AMG), which was said to be on behalf of both Crown and Rost and to evidence that it was said would seem to suggest that funding was provided to Rost to do work on behalf of Crown. Mr Stuke also claimed that he had received money transfers from Crown to his bank account pursuant to Crown’s obligations under the Crown contract.
  33. Having regard to the apparent complexity of this issue and the limited evidence before the court at this stage, it cannot be said that the language of the two contracts is such that Mr Stuke's assertion that he performed work for both Rost and Crown could not be made out at trial, such that he has no reasonable prospect of success in his claims against Crown.
  34. Even though Crown’s submissions involve an arguable interpretation of the employment arrangement, Mr Stuke has provided an alternative explanation. In the face of complex disputed factual matters it cannot be said that it is clear from all the evidence that the parties (that is Mr Stuke and Crown) did not intend to be bound by the Crown contract as submitted.
  35. It was submitted for Crown that even accepting Mr Stuke’s evidence, it was not until 30 December 2009 that he sought payment of salary pursuant to the Crown contract. It was said to be “inconceivable” that he would have waited some 15 months before making a demand for payment. There was said to be no explanation for this delay. In contrast, Rost was said to have paid Mr Stuke monthly, and when it did not to do so (on 31 May 2010) this resulted in an immediate demand for payment of outstanding salary. It was submitted that “the reason Mr Stuke did not make demands in relation to [the] alleged Crown salary was that he was not entitled to it”.
  36. Even if it would be open to the court to draw such an inference after a contested hearing, I am not satisfied that such an inference as to the reasons for any asserted inaction on Mr Stuke’s part should be drawn in interlocutory proceedings of this nature on the limited evidence before the court and given the significant factual dispute between the parties.
  37. Crown alleged that it was also relevant that Mr Stuke did not complete a tax file declaration in relation to his alleged employment with Crown. Mr Stuke said that he did not do so because Mr S Rozentsvet “never asked him to do so”. His evidence in this respect was said to be “absurd” having regard to the fact that he was said to be highly qualified accountant who had held senior positions and who, according to Mr S Rozentsvet, brought three blank tax file number declarations when he commenced his employment with Rost and completed a tax file declaration for Rost. Again, whether or not Mr Stuke’s explanation is accepted and what, if any, inference should be drawn from that, is a matter for determination at a final hearing.
  38. Crown submitted that another factor which went to show that Mr Stuke had no reasonable prospects of success was that Mr Stuke performed no work for Crown. Such a conclusion was said to be supported by Mr Stuke’s own evidence, on the basis that neither the Statement of Claim nor anything contained in Mr Stuke’s affidavit particularised with any specificity any of the work or services alleged to have been performed by him for Crown. It was suggested that one would have expected Mr Stuke to be capable of clearly setting out his role, duties and achievements and submitted that while Mr Stuke claimed that he performed work on behalf of both Rost and Crown (including being seconded to AMG) he did not say how this was relevant to his duties as Chief Executive Officer of Crown. It was submitted that Mr Stuke had merely attempted to create an impression of having performed some work “on behalf of Crown”, whereas in reality there was no substance in his evidence.
  39. Issue was also taken with the fact that while Mr Stuke attested to many conversations about properties, investments or loans, he did not identify particular properties, investments or loans in his affidavit or the work that he did or was required to do in relation to those properties, investments and loans. It was submitted that there was no evidence of anything specific Mr Stuke did in the capacity of employee of Crown.
  40. Insofar Mr Stuke called in aid certain matters in the diary (see Stuke v v Rost Capital Group Pty Ltd & Ors [2011] FMCA 79) to support the proposition that he performed work for Crown, the solicitor for Crown submitted that these references did not assist Mr Stuke, but highlighted the fact that he performed no work pursuant to the Crown contract. Again such disputes over inferences to be drawn from evidence before the court should not be resolved in proceedings of this nature.
  41. It was submitted that insofar as Mr Stuke asserted that Crown benefited from work he performed for Rost, such a claim was “devoid of any evidentiary value” as the basis for that assertion was “unclear”. It was submitted that if even if this meant that work for Rost was for the benefit of Crown as a shareholder (through interposed entities) in Rost, this did not create a contractual relationship of service between Stuke and Crown. However, what is relied on to create the alleged contractual relationship is the contract between Crown and Mr Rost. As set out above, the existence of such a contract is not disputed. Mr Stuke claims he did work on behalf of Crown, in particular by virtue of his secondment to AMG.
  42. While the evidence presently before the court about the work, if any, that Mr Stuke performed for Crown is limited (and I note the submission made by Crown in relation to the response to a notice to produce), there is nonetheless clearly a significant and real dispute about whether and the extent to which Mr Stuke’s work, such as being “seconded” to AMG, constituted work on behalf of Crown, or Crown and Rost or just Rost.
  43. It was also submitted that Crown had no need for any employees (based on matters such as the absence of public documentation, income, tax returns (in relation to which there is a conflict in the evidence)) and a letter from chartered accountants provided to Mr S Rozentsvet. These matters do not resolve the issue of whether there was in fact any contractual liability to Mr Stuke on the part of Crown.
  44. Mr S Rozentsvet asserted that Crown did not carry on a business in its own right. What this supports is the conclusion that the issue of what Mr Stuke was doing and for which party is a matter which ought to be tested at trial on the basis of all the relevant evidence. I note that at this stage the parties have not been ordered to file and serve evidence in the substantive proceedings.
  45. Crown asserted that evidence before the court contradicted paragraph 15 of the Statement of Claim insofar as it asserts that on 21 June 2010 both Crown and Rost terminated the applicant’s employment. The fact that evidence of a letter whereby Rost terminated the Rost contract is relied on in the particulars does not, as Crown submitted, mean that it cannot also be asserted that Crown purported to and wrongfully terminated its contract with Mr Stuke. This is not an application to strike out pleadings and what appears to be more in the nature of an asserted inadequacy in the particulars is not such as to outweigh other issues described above in relation to disputed matters of fact in proceedings of this nature.
  46. In my view the issue of whether Mr Stuke performed work under the Crown contract is a matter to be determined at a final hearing. Hence so too is the issue raised by Crown as to whether Mr Stuke’s allegation about non-payment of salary and other benefits was fundamentally flawed in law on the basis that Crown’s promise to pay salary was dependent on Mr Stuke performing work (see Automatic Fire Sprinklers Proprietary Limited and Another v Watson (1946) 72 CLR 435; [1946] HCA 25).
  47. Crown has not met the onus of persuading the court that Mr Stuke has no reasonable prospects of success. Indeed, even if it could be said that Crown has established a prima facie case for summary judgment, Mr Stuke has pointed to “specific factual or evidentiary disputes that make a trial necessary” (Adnunat at [37]).
  48. Mr Stuke’s submissions, seen in light of the sheer volume and complexity of the material relied on in the application for summary judgment or dismissal, establish with sufficient specificity that there are disputed matters of fact and law which must be determined at trial (see Deputy Commissioner of Taxation v Southgate at [22]). In particular, it is clear that it is disputed as to whether the parties, that is, Crown and Mr Stuke (not Mr S Rozentsvet and Mr Stuke) intended to be bound by the Crown contract and whether, as a matter of fact, Mr Stuke could and did perform work on behalf of Crown, in particular through his role at AMG. These matters can only be resolved after a contested hearing.
  49. I have borne in mind the caution that should be exercised before summary dismissal of an application and that, as French CJ and Gummow J stated in Spencer, where there are factual issues capable of being disputed and in dispute (as in this case) summary dismissal should not be ordered simply because the court has formed the view that the applicant is unlikely to succeed on the facts in issue.
  50. This application requires consideration of apparently complex and disputed questions of fact. It is not a case in which it is possible to say with the necessary confidence that the factual basis for Mr Stuke’s claim in relation to Crown is sufficiently without substance, is contradicted by all the documents or other material on which it is based or is otherwise such that the Court can be satisfied that Mr Stuke has no reasonable prospect of successfully prosecuting his claims against Crown.
  51. It has not been established that Mr Stuke has no reasonable prospects of success in relation to his claims against Crown. I am not satisfied that Crown should have judgment under s.17A of the Federal Magistrates Act or that Mr Stuke’s application should be dismissed under r.13.10 of the Federal Magistrates Court Rules.

Grigory Rozentsvet’s application

  1. The solicitors for Crown and Serge Rozentsvet also entered a conditional appearance for Grigory Rozentsvet for the purpose of seeking orders that service of the application and Statement of Claim on him be set aside pursuant to O.9 r.7(1)(b) of the Federal Court Rules or that a declaration be made pursuant to O.9 r.7(1)(c) that the application and Statement of Claim have not been duly served.
  2. Reliance is placed on the Federal Court Rules on the basis that there is no specific relevant Federal Magistrates Court Rule. No issue was taken in this respect by Mr Stuke. It is appropriate to have regard to the Federal Court Rules in such circumstances (see r.1.05 of the Federal Magistrates Court Rules).
  3. Order 9 r.7(1)(b) provides that the court may make an order setting aside the service of an originating process on a respondent. Under O.9, r.7(1)(c) the court may make an order declaring that an originating process has not been duly served on a respondent.
  4. On 20 September 2010 orders were made for substituted service of the application and statement of claim on Mr G Rozentsvet by post to two Bondi, New South Wales addresses, by delivery to the offices of Piper Alderman, solicitors for Crown and Rost and to an email address.
  5. The basis for Mr G Rozentsvet’s application is that he is said to be a resident citizen of the Russian Federation. It was contended that at the time of the commencement of the substantive proceedings Mr G Rozentsvet was not in Australia, that he had been in Australia for only approximately 45 days in the last 12 months and also that he had not resided in Australia at any address since the issue of proceedings.
  6. It was submitted for Mr G Rozentsvet that Mr Stuke had not sought or been granted leave of a court that could grant leave to effect service, that where a respondent was outside Australia it was not appropriate for the court to consider an order for substituted service unless some leave had been obtained to serve the proceedings outside the jurisdiction pursuant to the Federal Court Rules (see Commissioner of Taxation v Ma (1999) 92 FCR 569; [1999] FCA 1093 at [3]) and also that if a respondent was not amenable to service within the jurisdiction, the want of jurisdiction could not be overcome by an order for substituted service (Laurie v Carroll and Others (1958) 98 CLR 310; [1958] HCA 4).
  7. In this context it was submitted that Mr G Rozentsvet as a foreign citizen and resident was “not automatically amenable to the jurisdiction of the Court for service of originating process” and that it was not appropriate for the court to order substituted service on him as a foreign resident and citizen not in the jurisdiction at the time of the issue of proceedings on 18 August 2010, with no leave having been granted for service outside the jurisdiction of the court.
  8. However, the evidence relied on in this respect was not from Mr G Rozentsvet, but consisted of affidavit evidence of Mr S Rozentsvet. There is no direct evidence from Mr G Rozentsvet before the court.
  9. Indeed, there is no direct or admissible evidence that Mr G Rozentsvet is a foreign resident and non-citizen or as to when he left Australia (cf Ma). The claim that leave to serve the proceedings outside the jurisdiction was required is not made out. On the contrary, on the admissible evidence before the court, it can be inferred that Mr G Rozentsvet is a resident of Australia amenable to service within the jurisdiction.
  10. Before the court are ASIC records for Crown and Rost which identify Mr G Rozentsvet as their sole director and list an address for him which is an Australian address (being one of the Bondi addresses to which the documents initiating these proceedings were posted). Under s.201A of the Corporations Act 2001 (Cth) a single director of a proprietary company must ordinarily reside in Australia. As such a director, Mr G Rozentsvet is required to comply with s.205C of the Corporations Act, so that Rost and Crown comply with s.205B of the Corporations Act. The documents initiating the proceedings were served at the address for Mr G Rozentsvet notified to ASIC. In this sense the order for substituted service may have been unnecessary.
  11. Under s.109X(2) of the Corporations Act “For the purposes of any law, a document may be served on a director ... by ... posting it to the ... address notified to ASIC ...”. This provision applies to service on a director “for the purposes of a proceeding in respect of conduct they engaged in as a director”. The basis for the asserted liability of Mr G Rozentsvet is his conduct as a director of Rost and Crown. One of the Bondi addresses to which the documents initiating the substantive proceedings were posted was notified to ASIC as Mr G Rozentsvet’s address. Service was effected in accordance with s.109X(2) of the Corporations Act.
  12. In these circumstances, on the evidence before the court I am not persuaded that either of the orders sought by Mr G Rozentsvet should be made. It has not been established that service against him should be set aside or that he was not validly served. The application should be dismissed.

I certify that the preceding seventy-six (76) paragraphs are a true copy of the reasons for judgment of Barnes FM


Date: 15 February 2011

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