Fisher v Madden [2002] NSWCA 28 (21 March 2002)

Last Updated: 22 March 2002

NEW SOUTH WALES COURT OF APPEAL

CITATION: Fisher v Madden [2002] NSWCA 28

FILE NUMBER(S):

40521 of 2001

HEARING DATE(S): 08/02/01

JUDGMENT DATE: 21/03/2002

PARTIES:

Karen Fisher

v

Martin Madden as Receiver and Manager of Dataflow Computer Services Pty Limited

JUDGMENT OF: Meagher JA Sheller JA Beazley JA

LOWER COURT JURISDICTION: Supreme Court

LOWER COURT FILE NUMBER(S): SC 1828 of 2001

LOWER COURT JUDICIAL OFFICER: Windeyer J

COUNSEL:

A: I Neil

R: R Weber SC with G Rich

SOLICITORS:

A: Haywards

R: Coudert Brothers

CATCHWORDS:

Order of priorities set by s 433(3)(c) of Corporations Law - s 106 of Industrial Relations Act 1996 - whether the Industrial Relations commission could retrospectively vary a contract of employment between a company and its employee - whether company was required to make a retrenchment payment to employee - characterisation of "retrenchment payment" within the meaning of s 556(1)(h) of Corporations Law - appeal dismissed with costs.

LEGISLATION CITED:

Industrial Relations Act 1996

Industrial Arbitration Act 1940

Corporations Law

DECISION:

1. Appeal dismissed; 2. the appellant to pay the respondent's costs of the appeal; 3. to the extent that the respondent has incurred costs in this appeal not recoverable under order 2, such costs to be paid out of the assets in his hands as receiver.

JUDGMENT:

IN THE SUPREME COURT

OF NEW SOUTH WALES

COURT OF APPEAL

CA 40521/01

MEAGHER JA

SHELLER JA

BEAZLEY JA

Thursday, 21 March 2002

KAREN FISHER v MARTIN MADDEN AS RECEIVER AND MANAGER OF DATAFLOW COMPUTER SERVICES

Facts

The respondent, Martin Madden, was appointed Receiver and Manager of Dataflow Computer Services Pty Ltd on 29 May 2000. The appellant, Fisher, had been an employee of Dataflow since 1983. As at the date of the Receiver's appointment, the appellant had entitlements for the value of unpaid annual leave of $54,842, and long service leave of $2,614.62. Fisher would also have been entitled to $10,000 in lieu of one month's notice had her employment ceased at the date of the Receiver's appointment. However on the facts, no such entitlement arose. On her dismissal, the appellant was paid her unpaid holiday pay and long service leave, and in priority to the claims of other creditors. If at the date she had been owed any retrenchment payment, she would have been paid that amount.

At the time of the Receiver's appointment, the appellant brought proceedings in the Industrial Relations Commission seeking orders under s 106 of the Industrial Relations Act 1996. She alleged that her contract of employment with Dataflow was unfair, harsh or unconscionable and against the public interest, and sought orders varying it by including (a) 12 months' notice of termination or payment in lieu, and (b) a severance payment if payment was based on redundancy. The Commission had not yet heard the appellant's case at the time of this appeal.

It was contended, that any order in Fisher's favour for payment of a monetary sum should properly be characterised as a "retrenchment payment" within the meaning of s 556(1)(h) of the Corporations Law, and therefore entitled to priority payment. The trial judge's declaration to the opposite effect formed the basis of this appeal.

Held: Per Meagher JA

(i) Section 106, does not by its own operation, create any rights or obligations. Rather its function is to grant jurisdiction to the Industrial Commission: Majik Markets Pty Ltd v Brake & Service Centre Drummoyne Pty Ltd (1991) 28 NSWLR 443. The appellant does not possess a right to a quantifiable order. She only has a right to apply for an order, nothing more.

(ii) The appellant's rights cannot be categorised as a "contingent" debt or claim within s 553. She has the bare right to make a claim, nobody knowing whether it will succeed or not, or if so in what amount, or subject to what terms or conditions; Federal Commissioner of Taxation v Gosstray [1986] VR 876.

(iii) Just because a claim or debt is a contingent debt or claim for the purposes of s 553 in a winding up, it does not necessarily follow that it has priority under s 556, dealing with priority of debts in a receivership.

(iv) In this case, an amount under s 106 cannot be categorised as a "retrenchment payment". Rather it will be an amount awarded to an employee as compensation for an unfair contract and not as a debt "in respect of the termination of the employee's employment".

(v) All claims and debts must be listed and valued at the date of the receiver's appointment: Woods v Winskill [1913] 2 Ch 303, Dynamics Corporation of America (in liquidation) [1976] 1 WLR 757, Steinberg v Herbert (1988) 14 ACLR 80.

Per Sheller JA (Beazley JA agreeing)

(i) Retrenchment did not occur until after the relevant date and the contract in the form existing at that date made no provision for any payment to the appellant on her retrenchment: Steinberg v Herbert (1988) 14 ACLR 80, Whitton v CAN 003 266 886 (1996) 42 NSWLR 123, In re Dynamics Corporation of America (in liquidation) [1976] 1 WLR 757, In re Humber Ironworks and Shipbuilding Co (1869) LR 4 Ch App 643

(ii) The obligation of a retrenchment payment "payable" to the employee would exist only if and when the Industrial Relations Commission varied the contract of employment, even though the contract might be varied "ab initio", to include a provision of severance pay: Ryan v Textile Clothing and Footwear Union of Australia (1996) 2 VR 235.

(iii) At the relevant date the respondent was under no existing obligation to pay a sum of money by way of retrenchment payment to the appellant immediately or in the future. Her "right" only extended to taking proceedings in the Industrial Relations Commission to vary the contract to that end: Majik Markets Pty Ltd v Brake and Service Centre Drummoyne Pty Ltd (1992) 28 NSWLR 443.

(iv) The appellant's right to invoke the jurisdiction of the Industrial Relations Commission did not until such time as an order was made create any obligation on Dataflow to make a retrenchment payment to her. Even if the IRC declared the contract unfair, varied it ab initio and ordered Dataflow to make a retrenchment payment to the appellant, it remains true that at the relevant date, no amount for retrenchment payment had become payable before, on or after the relevant date.

Orders

Appeal dismissed with costs.

IN THE SUPREME COURT

OF NEW SOUTH WALES

COURT OF APPEAL

CA 40521/01

MEAGHER JA

SHELLER JA

BEAZLEY JA

Thursday, 21 March 2002

KAREN FISHER v MARTIN MADDEN AS RECEIVER AND MANAGER OF DATAFLOW COMPUTER SERVICES

Judgment

1 MEAGHER JA: The appellant, Miss Karen Fisher, was employed by Dataflow Computer Services Pty Limited. She had been so employed since 1983. She rose to the position of Inside Sales Manager, at a salary of $120,000 and other benefits which brought the value of her package to an amount that she calculated to be $149,000. The ANZ Banking Group Limited, under a mortgage debenture dated 13 August 1995, appointed a receiver on 29 May 2000. An administrator was appointed on 30 July 2000, and on 24 October 2000 the company's creditors determined that the company enter into a deed of company arrangement. Such a deed was executed on 13 November 2000.

2 The receiver dismissed her on 14 July 2000, after giving one month's notice on 14 June 2000. As at the date of the appointment of the receiver Miss Fisher had entitlements for the value of unpaid annual leave of $54,842, and long service leave of $2,614.62. If her employment had ceased at the date of the receiver's appointment, she would also have had an entitlement of $10,000 in lieu of one month's notice; but, of course, on the facts, no such entitlement arose. When she was dismissed she was paid her unpaid holiday pay and long service leave, and in priority to the claims of other creditors. If at that date she had been owed any retrenchment payment, she would have been paid that amount.

3 Since the appointment of the receiver, Miss Fisher has brought proceedings in the Industrial Relations Commission seeking orders under s106 of the Industrial Relations Act 1996, the modern equivalent of the old s88F of the Industrial Arbitration Act 1940. In these proceedings she alleges that her contract of employment with Dataflow is an "unfair contract" within the meaning of s105 0f the Act, and that there be made an order under s106 varying it by including terms requiring (a) 12 months' notice of termination or payment in lieu, and (b) a severance payment if payment is based on redundancy. If she is successful in obtaining either variation, she will end up having an entitlement that Dataflow owes her a monetary sum, which that company will be ordered to pay her. It has not yet made any order, because it has not yet heard the case. The appellant's whole case really is that any order in Miss Fisher's favour for payment of a monetary sum is properly characterised as a "retrenchment payment" within the meaning of s556(1)(h) of the Corporations Law and therefore entitled to priority payment. Windeyer J granted a declaration to the opposite effect, and it is against that declaration that the appellant appeals.

4 It is desirable, I think, to set out some of the relevant legislation.

5 In the Industrial Relations Act, the key provision is s106, which is as follows:

106 Power of the Commission to declare contracts void or varied

(1) The Commission may make an order declaring wholly or partly void, or varying, any contract whereby a person performs work in any industry if the Commission finds that the contract is an unfair contract.

(2) The Commission may find that it was an unfair contract at the time it was entered into or that it subsequently became an unfair contract because of any conduct of the parties, any variation of the contract or any other reason.

(3) A contract may be declared wholly or partly void, or varied, either from the commencement of the contract or from some other time.

(4) In considering whether a contract is unfair because it is against the public interest, the matters to which the Commission is to have regard must include the effect that the contract, or a series of such contracts, has had, or may have, on any system of apprenticeship and other methods of providing a sufficient and trained labour force.

(5) In making an order under this section, the Commission may make such order as to the payment of money in connection with any contract declared wholly or partly void, or varied, as the Commission considers just in the circumstances of the case.

In this regard, particular attention should be paid to subsection (3), which demonstrates the malleability of the Court's powers: orders can be made operative only in the future, or only in respect of some nominated past period.

6 As far as company law legislation is concerned, one must go to the Corporation Law, s433 of which is the following terms (insofar as is relevant):

433 Payment of certain debts, out of property subject to floating charge, in priority to claims under charge

(2) This section applies where:

(a) a receiver is appointed on behalf of the holders of any debentures of a company or registered body that are secured by a floating charge, or possession is taken or control is assumed, by or on behalf of the holders of any debentures of a company or registered body, of any property comprised in or subject to a floating charge; and

(b) at the date of the appointment or of the taking of possession or assumption of control (in this section called the relevant date):

(i) the company or registered body has not commenced to be wound up voluntarily; and

(ii) the company or registered body has not been ordered to be wound up by the Court.

(3) In the case of a company, the receiver or other person taking possession or assuming control of property of the company shall pay, out of the property coming into his, her or its hands, the following debts or amounts in priority to any claim for principal or interest in respect of the debentures:

(c) subject to subsections (6) and (7), next, any debt or amount that in a winding up is payable in priority to other unsecured debts pursuant to paragraph 556(1)(3), (g) or (h) or section 560.

(9) For the purposes of this section the references in Division 6 of Part 5.6 to the relevant date shall be read as references to the date of the appointment of the receiver, or of possession being taken or control being assumed, as the case may be.

It will be observed that I have omitted subsections (4), (5), (6), (7) and (8), which do not seem to me to be relevant, and also paragraphs (a) and (b) from subsection (3), for the same reason.

7 Section 553 tells us what debts or claims are provable in a winding up. It says:

(1) Subject to this Division, in every winding up, all debts payable by, and all claims against, the company (present or future, certain or contingent, ascertained or sounding only in damages), being debts or claims the circumstances giving rise to which occurred before the relevant date, are admissible to proof against the company. (Italics supplied)

There was considerable argument about this section in the present case, although in my view, since it deals with a winding up, not a receivership, it is, to say the least, not of central relevance. One thing which it does, however, assuming it to be relevant, is to make clear that the claims to which it refers include "future" claims and "contingent" claims.

8 Section 556 of the Corporations Law deals with the vitally relevant question of priority of payments, and I have already set out so much of it as is incorporated into the law governing receiverships as is mandated by s433(3)(c).

9 Section 556 contains a definition of "retrenchment payment" which is of considerable importance:

(2) "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.

10 Section 558 deals with the position of debts due to employees, but, although it was conceived as being of some relevance both by counsel and by the judge below, it does not seem to me to bear on any issue in the present case.

11 The appellant's argument, then, is quite clear. If and when an order is made by the Commission that Dataflow pay Miss Fisher a sum of money, she has a "claim" or "debt" to which s433(3)(c) applies; that claim or debt is at least a "contingent" claim or debt within the meaning of s553; it will be a "retrenchment payment" within the meaning of s556(2), and will as such be entitled to priority under s556(1)(h). Interesting as this argument is, and attractively presented as it was by learned counsel for the appellant, Mr Neil, there are, I think, a number of points at which it breaks down.

12 There was a tendency in Mr Neil's submissions to treat Miss Fisher as if she already possessed a claim, or at least a right to an order. This is not the case. Section 106 does not of itself confer any rights or obligations on anyone. Not only does she not have a right to a quantifiable order, she does not have a right to an order at all. She has the right to apply for an order, nothing more. As Mahoney JA said in Majik Markets Pty Ltd v Brake & Service Centre Drummoyne Pty Ltd (1991) 28 NSWLR 443:

"Section 88F [the predecessor of s106] does not, by its own operation, create any rights or obligations. Its function is to grant jurisdiction to the Industrial Commission."

13 The narrowness of her right is further emphasized when one considers whether it is a "contingent" debt or claim within s553. The word "contingent" is a slippery word. In the field of real estate, Fearne's Contingent Remainders (a book which Baron Parke took with him on his honeymoon) describes a contingent remainder as a remainder limited so as to depend on an event or condition, which may never happen or be performed, or which may not happen or be performed until after the determination of the preceding estate. Even in the case of such a contingent remainder, one always knows the nature of the preceding estate and the nature of the contingent remainder, which might or might not come into existence. In cases other than real estate, life is more precarious still. In Federal Commissioner of Taxation v Gosstray [1986] VR 876 at 878 Tadgell J said:

"An attempt to formulate a universally applicable definition of a contingent debt or of a contingent creditor is difficult, and probably not very useful having regard to the variety of contingent claims that may properly be the subject of proof. A contingent creditor, like an elephant, is rather easier to recognize than to define. The following statement by Pennycuick J. In Re William Hockley Ltd [1962] 1 WLR 555, at p. 558; [1962] 2 All ER 111, is well known: "The expression `contingent creditor' is not defined in the Companies Act, but must, I think, denote a person towards whom under an existing obligation, the company may or will become subject to a present liability upon the happening of some future event or at some future date." In Re Gasbourne Pty Ltd [1984] VR 801 at p 837, Nicholson J said that he did not regard that description as exhaustive, and with respect I would not disagree. In Community Development Pty Ltd v Engwirda Construction Co. [1969] HCA 47; (1969) 120 CLR 455, at p 459 Kitto J, having observed that not much assistance is to be gained from observations to be found in reported cases as to the import of the word "contingent" in the context now being considered, regarded what Pennycuick J had said as being "perhaps rather a definition of a `contingent or prospective creditor'". Kitto J did, however, consider tht the importance of the words of Pennycuick J "for present purposes lies in their insistence that there must be an existing obligation and that out of that obligation a liability on the part of the company to pay a sum of money will arise in a future event, whether it be an event that must happen or only an event that may happen".

It follows, I think, that even at today's date, one cannot accurately categorise Miss Fisher's rights (if any) as a "contingent" debt or claim. She has the bare right to make a claim, nobody knowing whether it will succeed or not, or if so in what amount, or subject to what terms or conditions. And if that be her position today, it was so much the less substantial before the appointment of the receiver. Moreover, if that difficulty were overcome, one has to face the additional problem that just because a claim or debt is a contingent debt or claim for the purposes of s553 in a winding up, it does not necessarily follow that it has priority under s556, dealing with priority of debts in a receivership. None of the debts referred to in s556 which does deal with receivers is in the last bit contingent.

14 Yet further difficulties arise when one considers the effect of s556(2). It is essential for Mr Neil's argument that the amount, if any, eventually awarded to Miss Fisher under s106 can be categorised as a "retrenchment payment". But I do not see how it could be. It will never be a debt "in respect of the termination of the employee's employment". It will be an amount awarded to him as compensation for an unfair contract.

15 The final, and fatal, argument against Mr Neil's submission was that advanced by Mr Weber SC, learned senior counsel for the receiver, viz that all claims and debts had to be listed and valued at the one date, and that one date was the date of the receiver's appointment. Commonsense would suggest that this must be so because of the accounting and administrative nightmares which would arise otherwise. How could a receiver value Miss Fisher's claim? These pragmatic considerations are reinforced by judicial statements to the same affect, e.g. in Woods v Winskill [1913] 2 Ch 303, and the Dynamics Corporation of America (in liquidation) [1976] 1 WLR 757. They also harmonise with the scheme of the Act. What is more, there is a decided case from the Full Court of the Supreme Court of Western Australia to this effect. Viz Sternberg v Herbert (1988) 14 ACLR 80 in these circumstances, this Court could not possibly say that Windeyer J had erred.

16 The appeal should be dismissed with costs.

17 SHELLER JA: This appeal concerns the impact on the order of priorities set by s433(3)(c) of the Corporations Law (the Law) of a potential order which might be made by the Industrial Relations Commission of New South Wales retrospectively varying a contract of employment between a company and its employee to require the company to make a retrenchment payment to the employee.

Introduction

18 On 29 May 2000 the respondent, Martin Madden, was appointed Receiver and Manager of Dataflow Computer Services Pty Ltd (Dataflow). The appellant, Karen Fisher, had been an employee of Dataflow since 1983. On 14 July 2000 Mr Madden terminated her employment because she was redundant. On 2 August 2000 Ms Fisher began proceedings (No IRC 3784 of 2000) against Dataflow in the Industrial Relations Commission for relief under s106 of the Industrial Relations Act 1996. That section provides:

"Power of the Commission to declare contracts void or varied

(1) The Commission may make an order declaring wholly or partly void, or varying, any contract whereby a person performs work in any industry if the Commission finds that the contract is an unfair contract.

(2) The Commission may find that it was an unfair contract at the time it was entered into or that it subsequently became an unfair contract because of any conduct of the parties, any variation of the contract or any other reason.

(3) A contract may be declared wholly or partly void, or varied, either from the commencement of the contract of from some other time.

(4) In considering whether a contract is unfair because it is against the public interest, the matters to which the Commission is to have regard must include the effect that the contract, or a series of such contracts, has had, or may have, on any system of apprenticeship and other methods of providing a sufficient and trained labour force.

(5) In making an order under this section, the Commission may make such order as to the payment of money in connection with any contract declared wholly or partly void, or varied, as the Commission considers just in the circumstances of the case."

19 Ms Fisher alleged that her contract of employment with Dataflow made in 1983 was unfair, harsh or unconscionable and against the public interest. She sought orders varying in whole or in part and either ab initio or from some other time the arrangement so as to include a provision for twelve months notice of termination and severance pay.

20 On 14 June 2001 Mr Madden applied in the Equity Division of the Court for directions under s424 of the Law. In particular, he sought a direction as to whether any liability of Dataflow to pay to Ms Fisher any sum arising out of any order made by the Industrial Relations Commission in Court Session in her favour in the proceedings she had begun, not being a liability which arose out of the terms of her contract of employment as it existed at the date of the appointment of Mr Madden as receiver, would be a liability to which he would be obliged to give priority in the payment of debts of the Dataflow pursuant to the provisions of s433(3)(b) of the Law.

21 So far as presently relevant, s433 of the Law, in the form it took at the date Mr Madden was appointed receiver, provided as follows:

"Payment of certain debts, out of property subject to floating charge, in priority to claims under charge

....

(2) This section applies where:

(a) a receiver is appointed on behalf of the holders of any debentures of a company or registered body that are secured by a floating charge, or possession is taken or control is assumed, by or on behalf of the holders of any debentures of a company or registered body, of any property comprised in or subject to a floating charge; and

(b) at the date of the appointment or of the taking of possession or assumption of control (in this section called the relevant date):

(i) the company or registered body has not commenced to be wound up voluntarily; and

(ii) the company or registered body has not been ordered to be wound up by the Court.

(3) In the case of a company, the receiver or other person taking possession or assuming control of property of the company shall pay, out of the property coming into his, her or its hands, the following debts or amounts in priority to any claim for principal or interest in respect of the debentures:

(a) first, any amount that in a winding up is payable in priority to unsecured debts pursuant to section 562;

(b) next, if an auditor of the company had applied to the Commission under subsection 329(6) for consent to his, her or its resignation as auditor and the Commission had refused that consent before the relevant date - the reasonable fees and expenses of the auditor incurred during the period beginning on the day of the refusal and ending on the relevant date;

(c) subject to subsections (6) and (7), next, any debt or amount that in a winding up is payable in priority to other unsecured debts pursuant to paragraph 556(1)(e), (g) or (h) or section 560.

.....

(9) For the purposes of this section, the references in Division 6 of Part 5.6 to the relevant date shall be read as references to the date of the appointment of the receiver, or of possession being taken or control being assumed, as the case may be."

22 Division 6 of Pt 5.6 of the Law was headed "Proof and ranking of claims". Section 553 in that Division "Debts or claims that are provable in winding up" provided:

"(1) Subject to this Division, in every winding up, all debts payable by, and all claims against, the company (present or future, certain or contingent, ascertained or sounding only in damages), being debts or claims the circumstances giving rise to which occurred before the relevant date, are admissible to proof against the company.".

23 Section 556(1) in Division 6 of Part 5.6 of the Law provided that in the winding up of a company certain "debts and claims must be paid in priority to all other unsecured debts and claims". There followed fourteen lettered paragraphs, the first ten of which consisted of various expenses, costs and debts incurred in the course of winding up, official management or by a member of a committee of inspection. The last four paragraphs of subs(1) were:

"(e) subject to subsection (1A) [which limited the amount paid] - next, wages and superannuation contributions payable by the company in respect of services rendered to the company by employees before the relevant date;

(f) next, amounts due in respect of injury compensation, being compensation the liability for which arose before the relevant date;

(g) subject to subsection (1B) [which limited the amount paid] - next, all amounts due:

(i) on or before the relevant date; and

(ii) because of an industrial instrument; and

(iii) to, or in respect of, employees of the company; and

(iv) in respect of leave of absence;

(h) subject to subsection (1C) [which excluded any amount attributable to non-priority days] - next, retrenchment payments payable to employees of the company."

Only paras (e) wages and superannuation contributions payable by the company in respect of services rendered to it by employees "before the relevant date", (g) amounts due on or before the relevant date to employees in respect of leave of absence under an industrial instrument, and (h) "retrenchment payments payable to employees of the company", were referred to in s433(3)(c). Paragraph (f), which was not referred to in s433(3)(c), gave priority to amounts due in respect of injury compensation, the liability for which arose before the relevant date. Subsection (1C) aside, para (h) set no temporal condition or limitation.

24 "Retrenchment payment" was defined in s556(2) as follows:

"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."

25 "Industrial instrument" was defined in s9 of the Law, absent any contrary intention, to mean:

"(a) a contract of employment; or

(b) a law, award, determination or agreement relating to terms or conditions of employment."

Decision of the Equity Division

26 The application came before Windeyer J who, by judgment given on 28 June 2001, made the following determination:

"1. Declare that any liability of Dataflow Computer Services Pty Limited to pay to the defendant [Ms Fisher] any sum arising out of any orders made by the Industrial Relations Commission of New South Wales in Court Session in proceedings 3784 of 2000 in favour of [Ms Fisher], not being a liability which arose out of the terms of [Ms Fisher's] contract of employment as it existed, in respect of any liability for redundancy payments at the date of termination of employment, and in respect of other liabilities, at the date of appointment of the receiver, would not be a liability entitled to payment in priority under s433(3)(c) of the Corporations Law.

2. Order that the costs of [Mr Madden] and [Ms Fisher] be paid out of the assets in the hands of the receiver."

27 This meant that even if the Commission, pursuant to its power under s106, found that the contract of employment was an unfair contract and varied it from its commencement and in accordance with such variation ordered a payment of money by way of a retrenchment payment such a payment would not be entitled to priority since, according to the terms of the contract as they existed at the date of Mr Madden's appointment, Dataflow had no liability to make the retrenchment payment so ordered to Ms Fisher. Ms Fisher appeals from Windeyer J's decision.

Appeal

28 Amongst other reasons, Mr Madden defends his Honour's decision in reliance upon the proposition which Windeyer J adopted that "claims and debts must exist at the relevant date (or in the case of redundancy) at termination date to be entitled to priority". His Honour referred to Steinberg v Herbert (1988) 14 ACLR 80, a decision of the Full Court of the Supreme Court of Western Australia and Whitton v ACN 003 266 886 (1996) 42 NSWLR 123, a decision of Bryson J.

29 The facts in the second case were that Mr Whitton had been appointed receiver of the defendant on 8 March 1995 and on the same day agent for the mortgagee in possession. On 10 March 1995, his appointment as receiver was terminated. The defendant carried on a printing business. At a meeting of creditors on 28 April 1995 the defendant went into voluntary liquidation. From 8 March 1995 the defendant was actively conducting its business with a number of employees under Mr Whitton's control until he sold the business on 27 April 1995. On that date he terminated the employment of the employees. One of the questions for consideration by Bryson J was whether Mr Whitton, as agent of the mortgagee in possession, was obliged by s433(3) of the Law to pay out of certain moneys received by him after 8 March 1995 retrenchment payments payable to former employees (see p129). In dealing with this question, Bryson J said at 148:

"Question 2.3 deals with retrenchment payment. By the definition in s556(2) this means any retrenchment payment whenever it becomes payable, even if after the controller's assuming control.

In the present case the retrenchments occurred while the controller was still active. Entitlement to retrenchment payment arising as a result of termination of employment on 27 April would, in my opinion, give rise to an entitlement to a priority payment out of whatever property ever was within the net of s433(3). There must, as a matter of implication to avoid absurdity, be some ultimate limit to the time when a retrenchment payment becomes payable if it is to qualify for priority, notwithstanding the references to time in the definition of `retrenchment payment'. It is difficult to suppose that a retrenchment which occurred alter [after] a controller had completed his operations and accounted to all interested parties of whom he was aware would involve liability under s433(3).

To what extent claims for leave of absence or retrenchment payments are preferred under s433(3), if to any extent, and whether Mr Whitton has breached any obligation imposed on him by s433 cannot be determined without elaborate and detailed consideration, in the exercise of which the parties referred to as to the ascertainment of quantum."

30 In that case, apparently, retrenchment payments fell due under the terms of contract of employment as it existed on 8 March 1995, the date of Mr Whitton's appointment. The present appeal proceeds on the basis that at the relevant date, that is to say the date of Mr Madden's appointment as receiver, Ms Fisher had no contractual entitlement to a retrenchment payment.

31 Steinberg v Herbert concerned a company which entered into receivership in April 1984 under the terms of a debenture. In October 1984 the appellant, who had acted as managing director of the company, lodged a claim with the receivers for amounts in lieu of accrued but untaken annual leave and accrued but untaken long service leave. Section 324F of the Companies (WA) Code, in the form it took in October 1984, provided for priority in payment in respect of all amounts due on or before the relevant date to an employee in respect of leave of absence. On 19 March 1986 this provision was amended to give priority to all amounts due on or before the relevant date to employees in respect of leave of absence but relevantly in respect of the appellant so as not to exceed $1500. The question was whether, if the appellant was entitled to payment in lieu of long service leave, the priority at the time the matter came before the court was limited retrospectively to $1500. On an appeal and cross-appeal the Full Court affirmed the trial Judge's decision that the managing director was not entitled to any payment in lieu of holiday pay but was entitled to payment in lieu of long service leave not taken. Brinsden and Kennedy JJ, Wallace J dissenting, held that the appellant's entitlement to priority was not affected by the 1986 amendment.

32 At 89-90 Brinsden J said:

"So far as the argument goes that the right to payment had not vested in or accrued to the appellant and therefore the section as amended applied to him I do not believe any question of vesting enters into the resolution of the matter. I adopt perhaps a simplistic approach. That is based entirely on the construction of s331(1) and (2). They read, and relevantly read, at the date the receiver was appointed, that he `shall pay, out of the property coming into his hands, the following debts or amounts in priority ...., any debt or amount that in a winding up is payable in priority to other unsecured debts pursuant to paragraph 441(g)'. The order of priority (and the extent of that priority) was fixed at the date the receiver was appointed. The provision in subs(2) that the receiver shall pay out of the property coming into his hands debts in priority set out, is a provision which requires him to pay the preferential creditors out of any assets coming into his hands as a receiver: Westminster Corporation v Haste [1950] Ch 442 at 447. If he has had any assets out of which this payment could have been made, (and he has), he is under a liability in tort to pay it to the creditor entitled. The relevant date therefore is the date of appointment of the receiver and it is at that date the order of priority is determined in accordance with the provisions of s331(2) as they appeared at the date of this receiver's appointment. The fact that subsequently the order of priority is varied, or the amount of priority reduced, is irrelevant since the amended provisions of s331(2) were not the provisions having effect as at the date of appointment."

33 At 96 Kennedy J said:

"It is not apparent from the evidence when the receivers would have been in a position to pay the preferential debts; but there is nothing to indicate that they were not in such a position prior to the date upon which the originating summons was issued by them and before the amending legislation was passed. It is not in question that the receivers, before that time, had in their hands the property out of which s331(2) of the Code directed them to pay the preferred debts. Although, almost inevitably, the payment of preferred creditors must be delayed for some time to enable a receiver to realise assets coming into his hands, the critical time for the determination of those creditors' rights appears to me to be the time at which the floating charge crystallised, upon the appointment of the receiver (or, perhaps, upon the entry of the receiver: see per Dixon J in Australian Mutual Provident Society v Geo Myers & Co Ltd (in liq) [1931] HCA 31; (1931) 47 CLR 65 at 83). Preferential claims arising after crystallisation are not within the statutory provision and they remain subordinate to a floating charge: Re Griffin Hotel Co Ltd [1941] Ch 129. Furthermore, any right of set off is determined at the same time: Business Computers Ltd v Anglo African Leasing Ltd [1977] 1 WLR 578. The fact that the preferred creditors may not be able forthwith to be paid, whilst the receiver realises sufficient of the assets of the company in order to enable him to pay them is, in my view, immaterial."

34 His Honour held that the 1986 amendment had no application to the appellant's rights.

35 Of the Western Australian decision Windeyer J said the following:

"15 In the Western Australian case judgments of Brinsden J at 89-90 and Kennedy J at 96, make it clear that claims and debts must exist at the relevant date (or in the case of redundancy) at termination date, to be entitled to priority. To this I would only add that an order under s106(5) of the Act for payment of a sum of money `considered just in the circumstances' would not ordinarily come within the priority provisions of s556(1)(e)(g) and (h) of the Corporations Law."

36 The importance of, and the practice for, determining the date for ascertaining the liabilities of a company being wound up was discussed in cases quoted in the judgment of Oliver J, as his Lordship then was, in In re Dynamics Corporation of America (In liquidation) [1976] 1 WLR 757. At 763 Oliver J referred to In re British American Continental Bank Limited [1922] 2 Ch 575 in which Lawrence J said at 582:

"In a winding up, this Court has to ascertain all the liabilities of the company being wound up for the purpose of effecting the proper distribution of its assets amongst its creditors. A date has necessarily to be fixed on which all debts and other liabilities are to be treated as definitely ascertained, both for the purpose of placing all creditors on an equality and for the purpose of properly conducting the winding up of the affairs of the company. According to the rules and practice now prevailing, the date so fixed is the date of the winding-up order. One effect of fixing that date is to compel those creditors whose claims do not consist of debts or of liquidated demands ascertained and payable before that date to estimate and assess the amounts which they claim to be due to them on that date. Another effect of fixing that date is that when a claim is disputed this Court will decide the dispute as though it were being determined on the day when the winding-up order was made. Accordingly, in a case where a creditor has an unsatisfied claim against the company for damages for breach of contract, and the amount of those damages is in dispute, this Court will ascertain the correct amount as if it were sitting on the day of the winding-up order and were then trying an action for damages for the breach of that contract."

37 At 762-3 Oliver J referred to the earlier judgments of Selwyn LJ and Giffard LJ in In re Humber Ironworks and Shipbuilding Co (1869) LR 4 Ch App 643 at 646 and 647 where Giffard LJ said:

"....it is quite clear that, where an estate is insolvent, convenience is in favour of stopping all the computations at the date of the winding up."

38 This well accepted practice was reflected in s554 in Division 6 of Pt 5.6 of the Law which follows:

"General rule - compute amount as at relevant date

(1) The amount of a debt or claim of a company (including a debt or claim that is for or includes interest) is to be computed for the purposes of the winding up as at the relevant date.

(2) Subsection (1) does not apply to an amount admissible to proof under subsection 553(2)."

39 These decisions make it plain that, if at the date of the appointment of Mr Madden, Ms Fisher's contract of employment included a provision for the payment of an amount on retrenchment, the fact that the calculation of that amount might require some determination by the court would not prevent Ms Fisher's entitlement to have it paid in priority to other unsecured debts under s433(3)(c) at least if retrenchment occurred on or before the relevant date. But in the present case retrenchment did not occur until after the relevant date and the contract in the form existing at that date made no provision for any payment to Ms Fisher on her retrenchment.

40 Section 556(h) referred to retrenchment payments "payable" to employees. Retrenchment payment was defined to mean "an amount payable by the company to the employee". Ryan v Textile Clothing and Footwear Union of Australia (1996) 2 VR 235 raised the question of whether under s556(1)(h) of the Law a claim based on an arrangement between the company in receivership and a trade union concerning employees who had been dismissed, enjoyed priority when the arrangement was not legally enforceable. Hayne JA (as his Honour then was), with whose judgment Tadgell JA agreed, said at 257:

"It was submitted on behalf of the respondents that the word `agreement' was used in the definition of `industrial instrument' to include a wider range of arrangements than contracts enforceable at law. At first sight, some support for this argument is to be found in the earlier reference to a `contract of employment' in the definition. Why should the legislature speak in one part of the definition of a `contract' but in another use the word `agreement'? For a number of reasons, I do not accept that `agreement' is intended to embrace arrangements of a kind that are not enforceable.

Several aspects of s556 make that plain. First, the section provides for the payment of certain `debts' in priority to `all other unsecured debts'. Arrangements which are not enforceable are not ordinarily described as giving rise to `debts'. Next, the amounts are described as retrenchment payments `payable' to employees; retrenchment payments are defined as amounts `payable' by the company and amounts which are payable `by virtue of' an industrial instrument. The words `payable' and payable `by virtue of' connote obligation, not voluntary arrangement. These textual matters are clear indications that `agreement' is used in the definition of `industrial instrument' in the sense of an agreement giving rise to binding obligations."

41 In this case, such an obligation did not exist at the relevant date. It would come into existence only if and when the Industrial Relations Commission varied the contract of employment to include a provision for severance pay, even though the contract might be varied "ab initio". Thus, the question distilled is whether, within the meaning of s556(1)(h), retrenchment payments payable to employees of the company include payments which the company might become liable to pay as a result of a subsequent variation of the contract of employment giving rise to an obligation to pay. I think not. The language is different from that used in paragraph (f) dealing with amounts due in respect of injury compensation being compensation a liability for which arose before the relevant date. This may extend to compensation awards for workplace injuries which occurred before the relevant date even though the awards were not made until after the relevant date. The language used in (h) is the language of obligation. True, the obligation is not expressly said to be one existing at the relevant date. But if the obligation is not one existing at the relevant date it is an obligation which may come into existence at any time in the future. In accordance with the accepted practice of computing the amount of a debt or claim at the date of the receiver's appointment, this seems an unlikely legislative intention.

42 The definition of retrenchment payment in s556(2) of the Law included an amount payable by the company to the employee whether the amount "becomes" payable before or after the relevant date. This denotes what Pennycuick J described in In re William Hockley Ltd [1962] 1 WLR 555 at 558 as "an existing obligation [in respect of which] the company may or will become subject to a present liability upon the happening of some future event or at some future date". In Community Development Pty Limited v Engwirda Construction Company [1969] HCA 47; (1969) 120 CLR 455 at 459, Kitto J, after quoting Pennycuick J, said:

"The importance of these words for present purposes lies in their insistence that there must be an existing obligation and that out of that obligation a liability on the part of the company to pay a sum of money will arise in a future event, whether it be an event that must happen or only an event that may happen. A building contract creates, as soon as it is entered into, an obligation upon the building owner to pay the contract price, either as a whole upon a future event or, more usually, by progress and final payments each of which is to be made on a future event. The event or events may not happen, but if and when one of them does happen the building owner, by force of the contractual obligation, must pay the builder a sum of money. It is, I think, nothing to the point that the event may be complex, as where the payment is agreed to be made when the whole or some part of the work has been done to the satisfaction of an architect as expressed in a certificate or to the satisfaction of an arbitrator as expressed in an award: the building owner is bound from the time the contract is made to pay money to the builder upon a contingency; and that in my opinion makes the builder a contingent creditor of the owner."

43 In the same case Owen J said at 462:

"Whether or not that obligation would ultimately result in a debt becoming payable by the appellant to the respondent was dependant on a contingency, namely the making of an award in the respondent's favour by an arbitrator acting under cl 26 of the building contract. In these circumstances I am of opinion that the respondent was, at the date of the presentation of the petition, a contingent creditor of the appellant."

44 In the present case at the relevant date Dataflow was under no existing obligation to pay a sum of money by way of a retrenchment payment to Ms Fisher immediately or on a future event. Ms Fisher had only a right to take proceedings in the Industrial Relations Commission to vary the contract to that end. In Majik Markets Pty Ltd v Brake and Service Centre Drummoyne Pty Ltd (1992) 28 NSWLR 443 Mahoney JA, speaking of s88F of the Industrial Arbitration Act 1940, the predecessor of s106, said at 461:

"In my opinion, s88F, as such, is not inconsistent with the Federal Act. Section 88F does not, by its own operation, create any rights or obligations. Its function is to grant jurisdiction to the Industrial Commission. That jurisdiction involves, inter alia, two things: it may categorise, as I have described it, a particular arrangement as `unfair', `harsh or unconscionable', `against the public interest' or otherwise as falling within the subpars (a) to subpar (e) of s88F(1); and, secondly, it may declare void the whole or part of such an arrangement and make an order for payment of money or otherwise as set out in the section. It is only if and in so far as that power is exercised that rights or obligations arise by virtue of s88F."

45 Handley JA said at 467:

"Section 88F confers jurisdiction on the Commission to avoid or vary contracts and to make consequential orders for the payment of money. The effect of legislation which in terms does no more than confer jurisdiction on a court to grant particular relief was considered in R v Commonwealth Court of Conciliation and Arbitration; Ex parte Barrett [1945] HCA 50; (1945) 70 CLR 141. Latham CJ said (at 155):

`.....A right is created by the provision that a court may make an order, and such a provision also gives jurisdiction to the court to make the order. The fact that the court may not be bound to make an order, but may exercise a discretion, does not alter the effect of such a provision.... Such a provision gives a new jurisdiction to the court and ....if the court exercises its discretion in favour of the applicant, a new right to the applicant.'

Similarly Dixon J (at 165-166) said in reference to such a provision:

`......it must be taken to perform a double function, namely to deal with substantive liabilities or substantive legal relations and to give jurisdiction with reference to them. It is not unusual to find that statutes impose liabilities, create obligations or otherwise affect substantive rights, although they are expressed only to give jurisdiction or authority...'

Section 88F therefore creates substantive rights and since proceedings under the section comprise a suit or action (see Minister for Youth and Community Services v Health and Research Employees' Association of Australia, NSW Branch (1987) 10 NSWLR 543 at 560) there is every reason for concluding that it gives rise to rights of action. But even if that is not so the section clearly confers another `remedy' on these applicants which is within s24(1)."

46 However Ms Fisher's right under s106 be categorised, her right to invoke the jurisdiction of the Industrial Relations Commission did not until such time as an order was made create any obligation on Dataflow to make a retrenchment payment to her. Moreover, even if the Industrial Relations Commission declared the contract unfair, varied it ab initio and ordered Dataflow to make a retrenchment payment to Ms Fisher, it remains true that at the relevant date of Mr Madden's appointment no amount for retrenchment payment had become payable before, on or after the relevant date.

Orders

47 In my opinion, the following orders should be made.

1. Appeal dismissed;

2. The appellant to pay the respondent's costs of the appeal;

3. To the extent that the respondent has incurred costs in this appeal not recoverable under order 2, such costs to be paid out of the assets in his hands as receiver.

48 BEAZLEY JA: I agree with Sheller JA.

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LAST UPDATED: 21/03/2002