Montresor v Astra Prestige Vehicle Service & Detailing Pty Ltd & anor [2008] NSWIRComm 109 (13 June 2008)

Last Updated: 27 June 2008

NEW SOUTH WALES INDUSTRIAL RELATIONS COMMISSION

CITATION :
Montresor v Astra Prestige Vehicle Service & Detailing Pty Ltd & anor [2008] NSWIRComm 109



FILE NUMBER(S):
IRC 5995

HEARING DATE(S):
17, 18 March & 19 May 2008

DATE OF JUDGMENT:
13 June 2008

PARTIES:
APPLICANT
Lorenzo Montresor
FIRST RESPONDENT
Astra Prestige Vehicle Service & Detailing Pty Ltd
SECOND RESPONDENT
Alfio Merlino

CORAM:
Marks J


CATCHWORDS: S106 unfair contract proceedings - applicant relocated business to respondent’s premises - agreed that applicant would service vehicles of respondent’s two businesses as well as private clients - parties aware that Council consent was required - parties agreed to half ownership of a company to conduct the business - applicant contributed tools and respondent contributed 12 months rent - applicant to be paid "wages" - inability to secure Council approval - company failed to pay a number of invoices - company had not made sufficient income to enable applicant to be paid full wages - respondent caused company to cease trading – held arrangement between applicant and 2nd respondent - no relationship between applicant and corporate respondent – 2nd respondent aware that Council approval was unlikely - inability to quantify financial loss flowing from lack of Council consent - payment of “wages” only if there is a profit is not unfair - no relevant unfairness in charge out rate - respondent’s companies’ failure to pay invoices created relevant unfairness - no evidence of ownership or value of tools - if arrangement avoided, ownership arguably reverts to applicant - arrangement avoided from inception - at some stage the applicant should have been aware of the lack of Council approval - applicant experienced shortfall of anticipated wages - applicant should have reconsidered position due to lack of profitability - monetary compensation ordered to applicant together with interest

LEGAL REPRESENTATIVES
APPLICANT
Mr R Crow of counsel
Solicitor
Carbone Lawyers
Mr D Carbone
FIRST AND SECOND RESPONDENTS
Mr R DeMeyrick of counsel
Solicitor
Law Partners Solicitors and Barristers
Mr A Daniel

CASES CITED:
Autobake Pty Ltd v Budd (1986) 19 IR 29
Fish v Solution 6 Holdings [2006] HCA 22; (2006) 225 CLR 180
Get Ahead Wealth Solutions Pty Ltd v JLF Corporation Pty Ltd [2008] NSWIRComm 61
Mitchforce Pty Ltd v Starkey (No 2) (2003) 130 IR 378
Schwartz v Central Sydney Area Health Service & Anor [2002] NSWIRComm 79
Sydney Water Corporation Limited v Industrial Relations Commission of New South Wales [2004] NSWCA 436
Yim v Industrial Relations Commission [2007] NSWCA 77; (2007) 162 IR 62

LEGISLATION CITED:
Civil Procedure Act 2005 s100
Industrial Relations Act 1996 ss105, 106


TEXTS CITED:




JUDGMENT:

INDUSTRIAL COURT OF NEW SOUTH WALES

CORAM: Marks J

Friday 13 June 2008

Matter No IRC 5995 of 2004

Montresor v Astra Prestige Vehicle Service & Detailing Pty Ltd and anor

Application under s 106 of the Industrial Relations Act 1996

JUDGMENT

[2008] NSWIRComm 109

1 These proceeding brought under s 106 of the Industrial Relations Act 1996 (“the Act”) are constituted by an amended summons for relief. The applicant is Lorenzo Montresor. He alleges that he made an arrangement with the first respondent, Astra Prestige Vehicle Service and Detailing Pty Ltd “or” the second respondent Alfio Merlino, by which he performed work servicing motor vehicles. It was alleged that the arrangement was or became unfair in a number of respects, which I shall deal with later in these reasons for judgment.

2 Relevantly, ss 105 and 106 of the Act are as follows:
s 105 Definitions

In this Part:

“contract” means any contract or arrangement, or any related condition or collateral arrangement, but does not include an industrial instrument.

”unfair contract” means a contract:
(a) that is unfair, harsh or unconscionable, or
(b) that is against the public interest, or

(c) that provides a total remuneration that is less than a person performing the work would receive as an employee performing the work, or

(d) that is designed to, or does, avoid the provisions of an industrial instrument.

s 106 Power of 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.

(2A) A contract that is a related condition or collateral arrangement may be declared void or varied even though it does not relate to the performance by a person of work in an industry, so long as:

(a) the contract to which it is related or collateral is a contract whereby the person performs work in an industry, and

(b) the performance of work is a significant purpose of the contractual arrangements made by the person.

(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.

(6) In making an order under this section, the Commission must take into account whether or not the applicant (or person on behalf of whom the application is made) took any action to mitigate loss.

3 The amended summons is inelegantly framed. Proceedings under s 106 of the Act are directed to a contract as defined. It is a precondition to the exercise of jurisdiction and power under s 106 for such a contract to be found to exist, which, obviously, involves inter alia identification of that contract. It is then necessary to make a finding that such a contract is unfair for the purpose of s 106 and only if such a finding is made is the Court empowered to make consequential orders including avoidance or variation and the awarding of monetary compensation.

4 As framed, the amended summons seeks to impugn as unfair “the arrangement between the Applicant and the First and/or the Second Respondent....” These words accommodate, potentially, three different arrangements. The first is between the applicant and the first respondent, the second is between the applicant and the second respondent and the third is between the applicant and both of the first and second respondents.

5 The proceedings were litigated between the applicant and the respondents on the basis of this formulation as contained in the amended summons, apparently without objection, until observations made by counsel for the second respondent during the course of the substantive hearing. To some extent this area of controversy has been overcome by subsequent events. The first respondent has been deregistered. The applicant does not proceed against it and proceeds solely against the second respondent, Mr Merlino. As I understand the applicant’s claim, it is based solely on an arrangement which he alleges he made with Mr Merlino “whereby the applicant did work in an industry.”

6 The evidence in the proceedings, given principally by Messrs Montresor and Merlino, is that for many years Mr Montresor had worked as a motor mechanic on an employed basis and from October 1991 through a company of which he and his wife were shareholders known as Montresor Motors Pty Ltd. The company was operating out of premises at Alexandria when Mr Montresor first met Mr Merlino in about June 2001. They were introduced by a mutual acquaintance. Mr Merlino was a director of and the principal controlling mind of two companies, Astra Chauffeured Limousines of Australia Pty Ltd (“Astra Limousines”) and Australian National Security (NSW) Pty Ltd (“AN Security”). The former is a chauffeured limousine business and the latter operates in the security industry. Both businesses owned a number of vehicles. Arrangements were made by which Mr Merlino, through his company, commenced to service the vehicles of these two companies. Mr Montresor charged his work out at $50 per hour, which was the same rate that he applied to other clients of the business. Mr Merlino’s companies became Mr Montresor’s principal clients. Some time in about March 2002, Mr Montresor and Mr Merlino had a conversation that resulted in Mr Montresor agreeing to operate out of the premises used by Mr Merlino for his businesses, including the two businesses to which I have earlier referred. There is some dispute as to whether Mr Montresor was required to relocate his business because his lease had come to an end or whether he merely agreed to relocate his business. This area of controversy has no bearing, in my opinion, on the outcome of these proceedings.

7 Mr Montresor and Mr Merlino met to discuss the basis upon which Mr Montresor would operate out of these premises, which were situated at Unit 5, 221-223 O’Riordan Street Mascot. During the course of that conversation Mr Merlino made handwritten notes. Mr Montresor said that he saw Mr Merlino making those notes but only one page. The notes produced by Mr Merlino for the purpose of the hearing consist of two handwritten pages. Having regard to the totality of the evidence, I accept that both handwritten pages constitute the notes made by Mr Merlino on that occasion.

8 Before discussing the terms upon which the relocation of the business would occur, I should state for completeness that Mr Montesor said that he had a conversation with Mr Merlino, which I understand Mr Merlino not to dispute, that what was to happen was predicated on the basis that servicing of the vehicles owned by Mr Merlino’s two companies would be undertaken by Mr Montresor at the premises, that Mr Montresor would be entitled to continue to service vehicles of his clients and any other clients that he might attract to the premises and that it would be necessary to obtain council consent to allow a workshop that serviced vehicles for members of the public to be carried out at the premises.

9 It was agreed in evidence that the handwritten notes reflected the basis of the agreement reached between Mr Montresor and Mr Merlino, subject to one important matter to which I shall shortly refer.

10 The notes indicate that it was their intention to utilise a company described as “AL Motors Pty Ltd”. There is written the sum of $5,000 and $1,000 which may indicate that these were amounts to be contributed by each of them, although it is difficult to so conclude given the different positions of each of the monetary amounts on the handwritten page. What is clear is that there was to be half ownership of the company by each of Mr Montresor and Mr Merlino. Furthermore, the company was to pay $2,200 per month rent for the use of the premises as from 1 July 2003, allowing for a 12 month rent-free period. Next to this are the words “Lorenzo will put all the tools and host (meaning hoist) to the company AL Motors Pty Ltd.” This seems to convey the sense that the tools and hoist are to constitute Mr Monresor’s contribution to the company intended to equate with the $26,400 value of the free rent.

11 There is reference to the payment of half of the electricity by AL Motors, to the payment of outgoings by “Astra” and to the cost of the fitout of the premises being borne by AL Motors. Mr Montresor was to receive “wages” of $1,000 per week gross equating to $700 per week net and in addition his mobile phone bill was to be paid.

12 It was the evidence of the parties that the profits of the business would be shared “50/50”. Neither stated explicitly that the profitability after the first year was to be calculated after payment of rent and the regular payments to be made to Mr Montresor, but it may be assumed that this was the case. Furthermore, neither party appears on the evidence to have given any thought to what would occur if there was not only no profit but a trading loss.

13 Both Mr Montresor and Mr Merlino were aware of the need to gain the approval of Botany Council for the use of the premises as a motor vehicle workshop servicing the public. To this end, Mr Montresor introduced Mr Salvatore Rizzo, an architect, to Mr Merlino. Mr Rizzo was subsequently retained to lodge the development application with the Council. The request was made to Mr Rizzo on about 8 March 2002. The DA application was lodged on 27 March 2002 and Council refused the application by notification dated 24 June 2002.

14 It was said by Mr Montresor that the inability to secure council approval severely curtailed his ability to attract members of the public as clients to his business and that this had a resultant adverse effect on the profitability of the business which he was operating pursuant to the arrangement. Despite this, Mr Montresor did continue to service some private clients from the premises, albeit that council approval had not been obtained. There was neither evidence of the value of Mr Montresor’s private clients nor any estimate as to the amount of work that he may have lost.

15 As it transpired, no arrangement was made to incorporate any company known as AL Motors Pty Ltd. Instead, Mr Merlino arranged for the first respondent to be utilised, which was a company within his group apparently not being used at that stage. Although share transfer forms were signed, which would have enabled Mr Montresor to become a 50% shareholder of the company, through administrative oversight, of which I am satisfied on the evidence, the share transfers were never processed. In the end result, I am of the opinion that this omission does not impact upon the outcome of these proceedings.

16 There was disagreement between Mr Montresor and Mr Merlino about when they first saw Mr Philip Joannou, who was Mr Merlino’s accountant and who Mr Merlino wanted to document the agreement between them and who Mr Merlino contemplated would become involved in the necessary documentation of the financial activities of the company. Mr Merlino said that there was a meeting with Mr Joannou in March 2002. Mr Montresor said that this did not occur until 12 August 2002. There is also disagreement between them as to whether and to what extent Mr Montresor was to be responsible for the preparation of basic financial documentation and accounting records and whether and to what extent Mr Montresor was to be responsible for the preparation and lodgement of Business Activity Statements with the Australian Taxation Office, especially in connection with the payment of GST.

17 Evidence was given in the proceedings by Mr Joannou. Companies associated with Mr Merlino were clients of the accounting practice which he conducted. In his affidavit, he said that he first met Mr Montresor at a meeting with Mr Merlino in his office in about March 2002. In cross-examination, he conceded that he could not state definitively whether that meeting occurred in March 2002 or in August 2002, which was the evidence of Mr Montresor.

18 There was annexed to Mr Joannou’s affidavit a transfer of shares form which he had prepared transferring shares in Astra Prestige Vehicles Service and Detailing Pty Ltd from the Merlino Enterprise Discretionary Trust to Mr Montresor. The typed version of that document contains a date for the transfer of 12 August 2002. That date is crossed out by hand in the form and the date 1 July 2002 substituted, again by hand. I would infer from this document, which Mr Joannou said that he prepared, that it was prepared in August 2002. As he met Mr Montresor only once, this would seem to indicate that Mr Montresor’s recollection of the date when he first met Mr Joannou is to be preferred.

19 Mr Joannou annexed to his affidavit an extract from a “tax agent portal” printout. This indicates that he had arranged for BAS forms to be lodged on behalf of the company for the period July 2003 to February 2004 on 9 July 2004. This seems to have covered about nine statements. It was the evidence of Mr Joannou that two prior BAS forms had been lodged on behalf of the company by someone other than him. Mr Merlino denied having lodged any such documents, and I accept his evidence in this regard. I infer that those two statements had in fact been prepared and lodged by Mr Montresor.

20 It was the evidence of Mr Joannou that the deregistration of the company occurred because of its failure to pay fees to ASIC rather than its failure to pay any monies due and owing to the ATO.

21 Mr Montresor said that in addition to operating the workshop and activities associated with that, his duties involved the payment of trade creditors, the banking of monies received, the maintenance of a cashbook and the preparation of information which would be used, as he understood it, by Mr Joannou for the preparation of BAS returns.

22 On the other hand, Mr Merlino said that he had no knowledge about the financial activities of the company notwithstanding that after 1 July 2003 it failed to make any payments of rent. This failure was justified by Mr Montresor on the basis that Astra Limousines had not paid any invoices rendered by the company for the months of April, May and June 2004 totalling approximately $30,000. Furthermore, the company had not made sufficient income to enable Mr Montresor to be paid all of the $700 per week net that had been agreed between him and Mr Merlino.

23 Mr Montresor said in evidence that he approached Mr Merlino on a number of occasions seeking to meet with him and discuss the impact on the company of the inability to secure DA approval for the workshop, the fact that the company was not achieving income levels that had been contemplated and the non-payment by Astra Limousines of amounts invoiced to it. He said that Mr Merlino promised to discuss these matters but kept fobbing him off and that they never had a discussion about them. Mr Merlino in his evidence said that he had no recollection about these matters or, indeed, a lot of the other detail associated with his involvement with Mr Montresor. In giving this evidence Mr Merlino was careful to state that the conversations asserted by Mr Montesor to have taken place may have occurred, or they may not have, he simply had no recollection of those matters with any particular specificity. It is obvious in these circumstances that it is appropriate to accept the evidence of Mr Montesor about these matters which, as I believe, he clearly recollects as opposed to the evidence of Mr Merlino who, as I believe, states that he simply has no recollection about what happened. There is further evidence given by Mr Merlino that supports this approach. He was asked in cross-examination about the ownership of companies within the Astra group including Astra Limousines and AN Security. He said that he was the “directing mind” of those two companies. Nevertheless, he did not know who owned the companies, other than that it was a trust. He said that he did not know who the beneficiaries of that trust were but believed that his mother was a beneficiary. Furthermore, he said that he did not derive any benefit from the profits of those companies, and that he did not know who did. When asked who it was that arranged for the companies to be owned by a trust he replied that it was “the accountants” but could not recall whether they did so on his instructions. He said that they could have acted on the instructions of his father who died in 2000 who was involved in the hire care and security businesses, but he could not recall whether his father ever owned the two companies.

24 In circumstances where Mr Merlino exhibits very little knowledge of the companies of which he professes to be the controlling mind, including the ultimate shareholding and deriver of profits of those companies, and having regard to his candidly admitted inability to recollect many matters, I must prefer the evidence of Mr Montresor to that of Mr Merlino where there is a conflict, other than where specific circumstances would dictate otherwise.

25 Mr Montresor produced for the purpose of the proceedings deposit slips for all monies that he said had been received from Australian National Securities and Astra Limousines and stated also that all monies which he had received from his own clients were deposited into the company’s account.

26 In connection with the preparation of BAS statements, it was the evidence of Mr Montresor that at least two such statements were prepared by Mr Joannou and that on each occasion a cheque for the GST which was payable had been forwarded to Mr Joannou, although the first of those cheques appears to have been lost. After this occurred, Mr Montresor received no further communication from either Mr Merlino or Mr Joannou about the preparation of BAS statements.

27 Overall, Mr Montresor alleged that the companies owned by Mr Merlino had the advantage during the period whilst the arrangement was in place of having some 45 vehicles serviced on a regular basis albeit, as Mr Merlino pointed out, that the vehicles owned by Astra Limousines were new Mercedes Benz vehicles and did not require a lot of servicing.

28 On 28 June 2004, Mr Merlino, on the letterhead of Astra Prestige Vehicle and Detailing, left a letter addressed to Mr Montresor at the workshop premises. That letter said that BAS statements had not been lodged and relevant tax had not been paid for “approximately two years. I am extremely concerned that you have failed to attend to these matters especially considering that you had indicated to me that you had attended to all of these matters....” There was also an allegation of a failure to pay workers’ compensation and public liability insurances for the prior period of two years. The letter concluded by asserting serious doubts concerning Mr Montresor’s competence to manage a company and advised that “the above named company will cease to continue trading as from 30th June 2004.”

29 Presumably this was intended to advise Mr Montresor that the relationship that he had had with Mr Merlino was to come to an end on that date. Mr Merlino agreed in evidence that he did not consult with Mr Montresor before deciding to have the company cease trading.

30 Mr Montresor was excluded from the premises thereafter and he was precluded from removing his personal tools and equipment as well as the other equipment and the hoist which had been relocated to the premises.

31 In a document filed in the proceedings, Mr Montresor claimed that the value of his personal belongings was estimated to be $8,150 and of the inventory of tools and other equipment, the estimated value was $67,616. However, it transpired in cross-examination of Mr Montresor that much of the equipment was some years old and that the estimated value had been based on new replacement costs rather than the then market value of the equipment.

Was there an arrangement?

32 What constitutes an arrangement for the purpose of s 106 has been discussed in a number of authorities. A convenient, comprehensive and succinct statement is to be found in the joint judgment of Wright J, President and Walton J, Vice President in Mitchforce Pty Ltd v Starkey (No 2) (2003) 130 IR 378 commencing at [132]. In essence, it is necessary for the applicant to demonstrate that there was some understanding or meeting of the minds between himself and Mr Merlino that was of the requisite kind, namely it was one whereby work was performed in an industry.

33 In a joint judgment in the High Court of Australia in Fish v Solution 6 Holdings [2006] HCA 22; (2006) 225 CLR 180, Gleeson CJ, Gummow, Hayne, Callinan and Crennan JJ discussed the requirement in s 106 that the contract must be one whereby a person performs work in an industry. In the context of “arrangements” their Honours said:

“That is, it is the arrangements (contractual and non-contractual) according to which a person performs the work (or in consequence of which or in fulfilment of which a person performs that work) which may be avoided or varied.” (At [41]).

34 This required nexus was considered more recently by the New South Wales Court of Appeal in Yim v Industrial Relations Commission [2007] NSWCA 77; (2007) 162 IR 62. Those proceedings concerned a joint venture arrangement involving the importation of ginseng from Korea and its sale in Australia. The joint venture agreement contemplated that two of the parties would invest funds in an existing company of which the other party was a director and shareholder and they would become an equal shareholder. That other party would continue to be employed by that company. That company was not a party to the proceedings brought under s 106 of the Act. The principal judgment was that of Spigelman CJ with whom Mason P and Handley AJA agreed. The Chief Justice held that the joint venture agreement was not one whereby a person performed work in an industry. It “envisaged, but did not establish, the work relationship” (at [60]) and therefore meet the statutory test required by s 106.

35 No submissions were made on behalf of either party as to whether or not a finding that a contract at law would exclude a finding that there was an arrangement, to the extent that the two relationships are mutually exclusive.

36 In my opinion, the evidence is capable of sustaining a finding that there was an arrangement of the requisite kind between Mr Montresor and Mr Merlino. Quite clearly, Mr Montresor’s discussions with Mr Merlino were conducted on the basis that he was undertaking negotiations on his own behalf. There is no evidence from which I could conclude that Mr Merlino was negotiating other than on his own behalf, although it was contemplated that what was being discussed would affect and involve other entities over which I am satisfied Mr Merlino represented he had sufficient influence. These included whatever entity or person owned the premises from which the workshop was to be conducted and the two named companies whose vehicles were to be serviced. There is no doubt that Mr Merlino represented to Mr Montresor that he would put in place a process to secure the consent of the Council to the conduct of a workshop from the premises. There is no doubt also that he represented that the servicing of vehicles within the limousine and security businesses would be undertaken at the premises pursuant to the arrangement. Indeed, an affidavit of Mr Merlino, which became evidence in the proceedings, when referring to the handwritten notes that he had prepared, said, in part, “I was to provide as my 50% contribution to Astra Prestige the workshop premises... rent-free...the applicant was to provide as his 50% contribution to Astra Prestige all the tools and hoist with the exclusion of his personal toolbox.” The whole tenor of Mr Merlino’s evidence is to the effect that it was he who would bring about the participation of the several entities within the Astra Group in order to allow the arrangement to be put into effect.

37 Likewise, there is no evidence that Mr Montresor had any dealings with Mr Merlino specifically on behalf of any other entity or directly with any other entity.

38 Furthermore, the arrangement made between Mr Montresor and Mr Merlino contemplated that Mr Montresor would personally arrange for the servicing of the vehicles at the premises.

39 It is true that both of them contemplated that the new venture would be conducted by a corporation. However, there is no evidence of any relationship between Mr Montresor and the first respondent other than that he was a director. Indeed, there is no evidence of any kind that would be indicative of a relationship of employer and employee between the company and Mr Montresor. There are no minute books, wages books, there are no indicia of payment of wages, there is no evidence of any deduction of PAYG taxation instalments and the like. The only documentary evidence in the proceedings was that certain payments were made to Mr Montresor by the company characterised as “director’s fees”.

40 In addition, the evidence is that Mr Montresor commenced operating the workshop out of the premises before any purported transfer of shareholding and before he was appointed a director of the company.

41 It is true that monies earned as a result of the activities of Mr Montresor were paid into and out of the bank account of the company, the first respondent, but this of itself is not indicative of any contract of employment or indeed any other contract or arrangement between that company and Mr Montresor. It is indicative only that the company was utilised for the purpose of carrying out the intentions of the parties in terms of the operation of a business. It does not assist, however, in determining the nature and extent of any relationship between Mr Montresor and that company for the performance of work.

42 Nor is there any evidence that Mr Montresor or Mr Merlino conducted themselves in their capacity as directors of the first respondent company, other than in carrying out the mechanical tasks associated with the financial aspects of the operation. Certainly, Mr Merlino in determining unilaterally that the company would cease trading does not appear to have acted in his capacity as director or, if he did, he appears to have completely disregarded the usual formalities associated with directorial duties.

43 For all these reasons, I conclude that the only arrangement, whether contractual or non-contractual, which brought about the performance of work by Mr Montresor, namely the servicing of motor vehicles, of which there is any evidence in the proceedings is the arrangement made between Mr Montresor and Mr Merlino to which I have earlier referred. Accordingly, the factual circumstances that apply to these proceedings are relevantly different to those that occurred in Yim where the Court of Appeal found that there was a contract of employment between a corporation and the applicant. Accordingly, it may be said that the agreement not only envisaged but did itself establish the work relationship which was inherent in the servicing of the vehicles by Mr Montresor.

Was the arrangement unfair?

44 When determining matters of unfairness under s 106 and application of its provisions, it is clear that any value judgment exercised must be made on an objective basis having regard to, and reflecting, contemporary community values and standards. I have discussed my understanding of these matters in Schwartz v Central Sydney Area Health Service & Anor [2002] NSWIRComm 79 at paragraphs [71- 73] and [81- 82].

“[71] It is a trite observation that a pre-condition for the exercise of any power under s 106 is a finding that the relevant contract is unfair. A helpful discussion as to the approach of the predecessor tribunals to this Court to the determination of whether a contract etc is unfair is contained within the joint judgment of Fisher CJ and Hungerford J in the Industrial Court of New South Wales Full Court in Baker v National Distribution Services Ltd (1993) 50 IR 254. At 271 their Honours said:

‘The test of unfairness within the meaning of s 88F of the Industrial Arbitration Act, and hence s 275 of the present Act, has received much attention by the Court and by the previous Industrial Commission over very many years, but, in our review of the cases, the approach stated by Sheldon J in Davies v General Transport Development Pty Ltd [1967] AR (NSW) 371 over 26 years ago has endured; his Honour commented (at 374) that unfairness of a contract or arrangement was to be determined according to “the common sense approach characteristic of the ordinary juryman ....It is a plain matter of morals not law.” His Honour cautioned, however, (at 374,375) that the section’s “massive power makes it imperative that it should be exercised with proper restraint ... it should not permit itself to become a refuge for those who are merely disgruntled with a bargain entered into on even terms. ... the discretion should be exercised to protect victims of wrong dealing not to prescribe anodynes.” Those words by his Honour echoed what had been said earlier by Beattie J in Agius v Arrow Freightways Pty Ltd [1965] AR (NSW) 77 at 89 that it was a matter of deciding “in each particular case by the application of the tribunal's common sense and sense of justice whether a particular transaction is unfair, harsh and unconscionable”.

The nature of the unfairness attracted by s 88F was considered later by the Industrial Commission in Court Session (Perrignon and Dey JJ, Cahill J dissenting) in A & M Thompson Pty Ltd v Total Australia Limited [1980] 2 NSWLR 1 at 13 as follows:

“It has been said that fairness is determined by the commonsense approach of a juryman and that it is a moral and not a legal issue (Davies' case). Whether this be so or not, it does seem that in distinguishing between what is fair and what is not fair the Judge must apply standards which appear to him to provide a proper balance or division of advantage and disadvantage between the parties who have made the contract or arrangement. In doing so he would always have to bear in mind the conduct of the parties, their capability to appreciate the bargain they had made and their comparative bargaining positions when entering into the contract or arrangement.” ’ (at 271-2).

[72] It is my understanding that in determining whether there is unfair conduct for the purpose of proceedings brought under s 106 and especially under sub s(2), the Court is required to exercise a value judgment reflecting contemporary community values. The contemporary values may be derived from the commonsense approach characteristic of the ordinary, reasonable, hypothetical ‘standard’ member of the community. Such a person will be neither an employer nor an employee, must be careful to weigh up the competing interests of the applicant as an employee and the respondent as an employer and those interests must be accommodated and viewed objectively and balanced within the context of the factual matrix which applies to them. Such a process will accommodate the reasonable requirements and understanding of an applicant as an employee and the reasonable requirements and understanding of a respondent as an employer in the context of the needs of the employer to undertake its activities in an efficient, effective and competent manner.

[73] Of course the identification of contemporary community values is not without its own difficulties. Some insight as to the difficulties involved may be gained from the discussion by Professor John Braithwaite in the article entitled ‘Symposium on Community Values in Law’ published in vol.17 of the Sydney Law Review at 351. Professor Braithwaite draws on a body of literature to make a distinction between community attitudes and community values, the former not necessarily assisting a court in determining a matter, the latter having much greater relevance. An obvious example of an attitudinal matter is the debate concerning abortion. The corollary and underlying value against which such debate is conducted is ‘respect for human life, health, freedom of choice’.”

“[81] I have already referred to the process which is involved in determining whether a contract or arrangement etc or conduct is unfair. In the context of this process it is important to observe that there will be many cases where there is no absolute defining boundary which delineates what is fair from what is unfair. Often a range of conduct or activities may be said to fall within the limits of what is assessed to be fair, and, by corollary not unfair. This is because of the lack of absolute and scientifically determined criteria which differentiate the concepts of what is unfair.

[82] The assessment which is to be made judged by the standard of the ordinary, reasonable, hypothetical ‘standard’ member of the community is not capable of precise analysis and delineation. There will be a variety of opinions held by such a person. The exercise of a value judgment in these circumstances is obviously made more difficult, but it is a difficulty which is not confined to judges of this Court. By way of analogy, evaluations of what is ‘reasonable’ are made daily by judges in all courts determining claims based on breach of duty of care in negligence, and those brought under certain provisions of the Trade Practices legislation.”

45 The unfairness asserted by the applicant was directed to a number of features of the arrangement with Mr Merlino. I shall deal with each of them in turn.

Failure to obtain Council approval

46 It is clear that at the time that the arrangement was made in March 2002, both parties were aware of the necessity to obtain Council approval. Indeed, Council approval was sought and was declined prior to Mr Montresor commencing to service vehicles at the Mascot premises. Mr Montresor asserts, and Mr Merlino denies, that Mr Merlino was at all times aware that it was unlikely that Council approval would be obtained for the general workshop. Based on the evidence of the parties and the evidence also of Mr Rizzi, and having regard to the material submitted to Council in the Development Application, I am persuaded that Mr Merlino was aware that Council consent would only be given in connection with a workshop servicing the vehicles of Astra Limousines because of the necessity to satisfy the Council that the business was associated with the activities of the airport. That is, Mr Merlino was aware that it was unlikely that Council approval would be gained to enable Mr Montresor to carry out a business of servicing motor vehicles for the public from those premises.

47 Furthermore, there is evidence that at the time that Mr Montresor commenced servicing vehicles at the Mascot premises, Mr Merlino told him that Council approval had not been obtained. This evidence is contained in Mr Merlino’s own affidavit. Certainly, the evidence in the proceedings is that at least as at August 2002 Mr Montresor had not been informed by Mr Merlino that Council approval was not forthcoming.

48 To the extent that the arrangement was predicated upon the ability of Mr Montresor to service vehicles from his existing clientele and to attract new business and that this was an important aspect of the arrangement in terms of revenue, the failure of Mr Merlino to inform Mr Montesor firstly that Council consent was problematical, secondly that Council had declined its consent prior to Mr Montresor commencing to service vehicles at the Mascot premises and thirdly failing to so inform Mr Montresor until at least August 2002, an important aspect of the arrangement was frustrated. Whilst there is evidence that Mr Montresor continued to service the vehicles of some of his existing clients, there is no evidence of the extent to which other existing clients were not serviced solely by reason of the lack of Council consent, nor is there any evidence of the quantification of any monetary loss suffered by the venture entity, the first respondent. Accordingly, I am unable to determine to what extent Mr Montresor suffered any financial loss that he claims to have accrued to him by reason of this unfair aspect of the arrangement. I shall, however, take this matter into consideration when determining the amount of any monetary order to be made in the proceedings.

Payment only if there is a profit

49 It was the evidence in the proceedings that the net “wage” that would be paid to Mr Montresor of $700 per week would only be payable if there were sufficient monies in the company to enable payment to be made. This was the agreed position of both parties in the proceedings. The applicant asserted that such a feature of the arrangement rendered it unfair in that companies controlled by Mr Merlino were able to have their vehicles serviced, and Mr Montresor was obliged to carry out servicing work in circumstances where he might not receive any payment.

50 There are circumstances where a person performs work for another pursuant to an agreement where that person is not entitled to payment for that work which will create relevant unfairness for the purposes of s 106 of the Act. Such was the case in Get Ahead Wealth Solutions Pty Ltd v JLF Corporation Pty Ltd [2008] NSWIRComm 61. However, in those proceedings the applicants, although in a relationship of independent contractor with a principal, were nevertheless performing work for that principal and the risk of lack of revenue was held to lie with the principal rather than the contractor. The circumstances are different in the context of these proceedings where the arrangement may be characterised as one of joint venturers. This is so even though there was an advantage accruing to the companies associated with Mr Merlino in the establishment of a facility for the servicing of vehicles in-house and the ability to share in some part of the profitability of any such venture.

51 In considering this aspect, I take into account Mr Montresor’s own evidence that he was an experienced motor mechanic and had operated his own workshop and conducted his own business, albeit using a company structure, for some time. Apart from the difficulties created by the inability to obtain Council consent, to which I have earlier referred, Mr Montresor must be taken to have entered into the arrangement with some understanding of the extent of the business that the workshop needed to attract in order to meet overheads and to operate at a profit. S 106 has no part to play where persons who profess a degree of expertise enter into a business relationship which is unprofitable, absent any factors that would taint the business relationship with any relevant unfairness. (See, for example, Autobake Pty Ltd v Budd (1986) 19 IR at 29 - 30)

52 I am unable to attribute any unfairness to the arrangement solely by reason of the fact that Mr Montresor would not be entitled to be paid “wages” if there were insufficient funds in the business to enable him to do so.

Failure to ensure that there was sufficient funds available

53 The applicant submitted that the arrangement was unfair in that “it failed to include a mechanism for ensuring that the business had sufficient funds from which the applicant could draw a weekly wage.” In developing this submission, the applicant relied on a number of factors that were said to have resulted in insufficient monies becoming available to enable Mr Montresor to be paid the totality of the monies which were due to him. The evidence was that during the relevant period, that is until the beginning of July 2004, approximately $195,000 was deposited in the first respondent’s bank account. However, the applicant had only drawn about $45,000 as “wages” leaving a shortfall of about $109,000. One of the factors relied upon was the low hourly rate which it was asserted the applicant was compelled to charge Mr Merlino’s companies for servicing their vehicles, namely $50 per hour. Mr Montresor gave evidence that Mercedes workshops charged $130 per hour for the same work. However, the evidence was that at the time that the arrangement was entered into, Mr Montresor was charging his customers, including Mr Merlino’s companies, $50 per hour. There was never any suggestion at the time that the arrangement was entered into that that rate was unfair or that Mr Montresor wanted to increase it. Mr Montresor said that he complained to Mr Merlino at the end of the first year of the arrangement that the business was operating at a loss during a period where the rent holiday operated and he wished to increase the hourly workshop rate. Mr Merlino refused to agree to any increase. In the circumstances, I am unable to determine that the charge out rate itself and the refusal of Mr Merlino to renegotiate it constituted any relevant unfairness.

54 Another factor relied upon by the applicant was an asserted failure by Astra Limousines and AN Security to pay invoices rendered over the last three months of the operation of the business totalling $30,000. This was always an assertion made by the applicant in the proceedings. It was never denied by Mr Merlino in his affidavit evidence nor was any other evidence adduced which tended to disprove the applicant’s assertion in this regard. During submissions, counsel for Mr Merlino said that the applicant had not proven that the sum of $30,000 had not been paid. I reject this submission. I accept the evidence of Mr Montresor in this regard particularly as Mr Merlino made no effort to adduce any evidence to the contrary. As the proceedings were conducted on the basis of affidavit evidence, the applicant was entitled to proceed on a basis that an assertion made by him of this kind which was not rejected or referred to in the respondents’ affidavits was not seriously contested, or indeed contested at all.

55 Accepting this evidence, the companies controlled by Mr Merlino have had the benefit of having had vehicles serviced to a value of $30,000, the first respondent was deprived of that income and Mr Montresor was denied the ability to pay himself monies as agreed under the arrangement for the work that he had performed. In that Mr Merlino was the controlling mind of these two companies, as he asserted in evidence, the failure to make these payments totalling $30,000 created relevant unfairness.

Tools and equipment

56 Either the applicant or his company made available tools and equipment including a hoist for the use of the workshop. Some of those tools and the hoist are still located at the premises at Mascot. There is no evidence whether the ownership of those tools and equipment was assigned to the first respondent, now deregistered, or otherwise as to their current ownership. Nor is there any satisfactory evidence of their value. On one view, the arrangement was predicated on the basis that these tools and equipment were to be Mr Montresor’s contribution to the venture, as was the one-year’s rent holiday given by an entity associated with Mr Merlino.

57 Mr Merlino said that he and presumably companies that he controls have no use for the tools and equipment. Indeed, they have remained in the Mascot premises solely because of an interlocutory order made some time ago by a judge of this Court restraining their removal until the determination of the proceedings.

58 Common sense would dictate that one sensible resolution would be for the tools and equipment to be sold and that whatever was realised be divided between the parties, assuming that they can be satisfied that the ownership should not properly vest in the deregistered company. Counsel for the applicant submitted that this Court may not be empowered to make such an order because of the limitations of s 106(5), namely the making of an order for monetary compensation only. However, if I avoid the arrangement, as I intend to do, I observe that on one view, if ownership did not vest in the first respondent, ownership may arguably revert to the applicant.

59 In all the circumstances I am not prepared to make any monetary order to compensate the applicant for the contribution of the tools and equipment because, firstly, the first respondent had the advantage of a rent-free period of 12 months, secondly, any monetary compensation should properly reflect in all the circumstances only the loss of earnings of the applicant because this is all that he has been able to prove and, thirdly, there is no evidence which would enable quantification on the basis of any loss of profits or indeed any other loss of earnings suffered by the first respondent as a result of the unfairness which I have found.

Other matters

60 The amended summons contains a claim for relief based on payment under the Metal, Engineering and Associated Industries State Award. No evidence was led in the proceedings concerning the application of this Award, I was not referred to it by counsel for the applicant whether by way of submissions or otherwise and I do not propose to deal with it.

61 In his submissions, counsel for the respondent sought the rejection of the applicant’s claim on the basis of the decision of the New South Wales Court of Appeal in Sydney Water Corporation Limited v Industrial Relations Commission of New South Wales [2004] NSWCA 436. The Court of Appeal held, in general terms, that a contract could not be found to be unfair under s 106 merely by reason of a breach of its provisions. It was necessary that some finding be made that the contract was unfair either by reason of its provisions or because of certain provisions that it did not contain. Accordingly, it is impermissible to maintain a claim under s 106 that is, in effect, a claim for enforcement of the provisions of a contract. Such is not the case here. It will be obvious from my reasons for judgment that the findings of unfairness do not involve the enforcement of the provisions of the arrangement. Indeed, the applicant’s fundamental complaint was the inability to derive earnings from the arrangement even in circumstances where there were insufficient funds available in the venture entity to enable those earnings to be paid in circumstances where the arrangement contemplated that there would be no entitlement to earnings if there were not sufficient funds in the venture entity. Accordingly, I reject this submission.

Relief

62 It is now necessary to address what consequential relief should be ordered following the findings of unfairness which I have made.

63 In terms of the arrangement itself, it seems appropriate to avoid it from its inception because of the almost certain inability to obtain Council approval for the conduct of a workshop at the Mascot premises, to which I have earlier referred. I propose to do so, saving however, all payments made out of the funds of the first respondent.

64 It is then necessary to determine what monetary compensation should be awarded in favour of the applicant as against Mr Merlino.

65 As I have indicated, Mr Merlino either did not know or was evasive about who ultimately were the beneficial owners of the two corporations whose vehicles were serviced by the applicant. Furthermore, Mr Merlino was unable to give evidence about the ultimate ownership of any entity that would have benefited from the payment of rent. Nevertheless, Mr Merlino said that he was the controlling mind of all of these entities. In any event, Mr Merlino was clearly a party to the arrangement which I have found to exist and which I have found to be unfair. In these circumstances, it is appropriate that he be made liable to pay any monetary compensation that the Court finds should be the subject of an order in Mr Montresor’s favour.

66 The quantification of monetary compensation, which must flow from the unfairness as found, is not without its difficulties. Even though the workshop business was curtailed by reason of the inability to secure Council development approval, there is as I have observed no quantification of any resultant loss to the business and therefore no quantification of any loss that might have been suffered by Mr Montresor personally. In the context of the loss suffered by the business of $30,000 by reason of the failure of the two companies to pay the last three months’ invoices, not all of that loss may have been utilised by Mr Montresor to adjust any monies due and owing to him personally. There is obviously rent that is payable. There is no evidence about the nature and extent of any other outgoings that might be payable, save possibly for GST. Even in connection with this latter factor, there is, in my opinion, insufficient evidence available in the proceedings to quantify any GST liability during this period.

67 The applicant sought that he be awarded monetary compensation firstly by reason of the totality of the shortfall of “wages” during the period that the arrangement existed, namely $64,019.73. He also sought monetary compensation for the loss of the tools and equipment of $24,000.

68 With respect to the shortfall in drawings, there is, as I have said, insufficient evidence to allow the Court to find with any specificity that all of that shortfall derived from the unfairness which I found to exist. Figures compiled by Mr Montresor as to the monies that he had received for the servicing of vehicles for the whole of the period during which the arrangement subsisted showed that AN Security paid $27,286.35 for the servicing of its vehicles, Astra Limousines paid $141,760.15 and the private customers of Mr Montresor paid $26,496.59. One might speculate that even if Mr Montresor was able to double the remuneration earned from servicing private customers’ vehicles, this would have added another $26,500 approximately to gross revenue without allowing for the cost of parts and other overheads.

69 Although it was the evidence of Mr Montresor that he continued to press Mr Merlino for news about the Council approval and that Mr Merlino fobbed him off not only on this but other issues, at some stage Mr Montresor should have been aware that Council approval had not been obtained. There is evidence that in July 2003, a Council inspector attended the premises and that Mr Montresor was told by Mr Merlino to leave the premises before the Council officer attended. Accordingly, as at that date it is appropriate to infer that Mr Montresor should have become aware of the lack of Council approval and that it was thereafter inappropriate that he continue to conduct the business on the basis that he might hold Mr Merlino accountable for any shortfall in revenue by reason of the inability to obtain private customers.

70 Without weighting the figures in terms of the actual trading experience of the business, Mr Montresor sustained a shortfall of anticipated “wages” of about $32,000 per annum over the two-year life of the venture. Doing the best I can with the paucity of financial information available, on this basis it would be appropriate that Mr Montresor be compensated for the $32,000 shortfall at least in the first year’s operation of the business because Mr Merlino had failed to advise him that Council approval was not going to be obtained, coupled with the misrepresentation concerning the likelihood of Council approval to which I have earlier referred. The sum of $32,000 equates generally with the whole of the $30,000 shortfall in revenue caused by the failure of the two companies controlled by Mr Merlino to pay the last three months’ invoices. This makes no allowance for outstanding rent, but this would be offset by taking into account the logistical advantage obtained by those companies in having their vehicles serviced in-house rather than having them driven to third party premises to have them serviced.

71 As to the balance of the amount claimed by the applicant for shortfall of “wages”, there is very little evidence upon which I could, in fairness to both parties, make some form of assessment. Furthermore, as I have said, at some stage Mr Montresor should have reconsidered his position by reference to the lack of profitability of the business. There is no indication on the evidence that there was any guarantee by Mr Merlino that the business would be profitable and, indeed, Mr Montresor as an experienced operator of a workshop should have been able to assess for himself the profitability of the business.

72 In these circumstances, I am unable to formulate any proper basis upon which any further award of monetary compensation in favour of Mr Montresor could be formulated.

73 With respect to the tools and other equipment, I have already observed that there is some doubt as to their ownership and there is some doubt as to their value. Perhaps the avoidance of the arrangement ab initio will, in any event, resolve this aspect.

74 In these circumstances, I intend awarding monetary compensation in the sum of $32,000.

75 The applicant sought orders for costs and interest. Costs would normally follow the event, but the question of costs has not been argued. Accordingly, I intend to reserve costs in the event that the parties are unable to reach sensible agreement about an appropriate costs order.

Orders

76 I make the following orders.

1. The arrangement between the applicant, Lorenzo Montresor, and the second respondent, Mr Alfio Merlino, referred to in my reasons for judgment is found to be unfair in the manner therein set out.

2. The arrangement is declared void from its commencement save for payments made into and from the funds of the first respondent.

3. The respondent, Mr Alfio Merlino, is ordered to pay monetary compensation to the applicant in the sum of $32,000 together with interest from 30 June 2004 calculated in accordance with s 100 of the Civil Procedure Act 2005.

4. Costs are reserved with liberty to apply.



LAST UPDATED:
16 June 2008