Domanko v Business Catalyst International Pty Ltd (No 2) [2009] NSWIRComm 219 (18 December 2009)

Last Updated: 24 December 2009

NEW SOUTH WALES INDUSTRIAL RELATIONS COMMISSION

CITATION :
Domanko v Business Catalyst International Pty Ltd (No 2) [2009] NSWIRComm 219



FILE NUMBER(S):
IRC 581

HEARING DATE(S):
20 July 2009 - 22 July 2009, 23 November 2009, 24 November 2009

DATE OF JUDGMENT:
18 December 2009

PARTIES:
Robert Domanko (Applicant)
Business Catalyst International Pty Ltd (First Respondent)
Zia Qureshi (Second Respondent)
Business Catalyst Consulting Pty Ltd (Third Respondent)
Business Catalyst (Hong Kong) Ltd (Fourth Respondent)


CORAM:
Staff J


CATCHWORDS: UNFAIR CONTRACT - section 106 of the Industrial Relations Act 1996 - termination of employment - whether contract unfair in failing to provide for reasonable notice, redundancy - permitting a salary reduction by 30 per cent for three months due to lack of profitability - failing to vary contract to increase remuneration package - failing to provide monetary value of 20,000 unit in employee participation trust - failing to pay discretionary bonus - held - contract unfair in failing to provide for redundancy and reasonable notice - no unfairness found in respect of balance of claims - whether second respondent had necessary connection to unfair contract - second respondent ordered to pay monetary order - costs

LEGAL REPRESENTATIVES
Mr D Shoebridge of counsel
Barwick Legal
Mr F Austin of counsel

CASES CITED:
Brown and ors v Rezitis and ors [1970] HCA 56; (1970) 127 CLR 157
Domanko v Business Catalyst International Pty Ltd and anor [2008] NSWIRComm 120
Unitedglobalcom, Inc v Industrial Relations Commission (NSW) in Court Session (2005) 142 IR 204
Westfield Holdings v Adams [2001] NSWIRComm 293; (2001) 114 IR 241

LEGISLATION CITED:
Industrial Relations Act 1996
Uniform Civil Procedure Rules 2005


TEXTS CITED:




JUDGMENT:

- 1 -

INDUSTRIAL COURT OF NEW SOUTH WALES

CORAM: STAFF J

Friday 18 December 2009

Matter No IRC 581 of 2005

ROBERT DOMANKO v BUSINESS CATALYST INTERNATIONAL PTY LIMITED & ANOR

Application under s 106 of the Industrial Relations Act 1996

JUDGMENT

[2009] NSWIRComm 219

1 Robert Domanko ("the applicant") commenced employment with Business Catalyst International Pty Ltd (In Liq) ("first respondent") on 29 July 2002 as a Managing Consultant on a remuneration package of $130,000 per annum, inclusive of statutory superannuation.

2 On 25 May 2004, the applicant was advised that, due to the fact that there were no upcoming assignments, his services were no longer required. The applicant was paid four weeks pay in lieu of notice.

3 Zia Qureshi ("the second respondent") was the Chief Executive Officer of the first respondent. He is also a Director of Business Catalyst Consulting Pty Ltd ("the third respondent") and its Chief Executive Officer. He is also a Director of Business Catalyst (Hong Kong) Ltd ("the fourth respondent"). The third respondent provides management consultancy services in New South Wales. The fourth respondent is registered in Hong Kong and carries on the business registered in Australia known as Business Catalyst International.

4 Pursuant to a sale of business agreement dated 7 February 2005, the fourth respondent purchased the business, plant and equipment, and the intellectual property of the first respondent. On 28 July 2005, the first respondent was placed under a member's voluntary winding up.

5 On 26 May 2006, an order was obtained in the Supreme Court of New South Wales to allow these proceedings to continue against the first respondent, notwithstanding the liquidation. On 3 July 2008, leave was granted by Marks J to proceed against the third and fourth respondents: Domanko v Business Catalyst International Pty Ltd and anor [2008] NSWIRComm 120.

The claim

6 The applicant claims, as pleaded in a further amended summons for relief, various elements that constitute the definition of an unfair contract under s 106 of the Industrial Relations Act 1996 ("the Act"). The applicant sought the following orders:

a. In the event that the employer (that is, the first respondent) terminates the employment of the employee (that is, the applicant) for any reason other than misconduct, the employer shall give the applicant six months notice or pay the applicant compensation in the nature of pay in lieu of notice and/or severance pay equivalent to the value of six months total remuneration, to be based upon the new pay structure promised to the applicant to take effect 1 August 2003.

b. The employer is to implement the new pay structure promised to the applicant with effect from 1 August 2003.

c. The employer will, upon termination of the employee's employment, redeem any units that the employee holds in the BCI Employee Participation Trust Scheme for market value, but in any event shall pay the employee an amount equivalent to no less than their issue value of $1 per unit.

d. The employer is to pay the employee annual performance bonuses in line with the representations made by the employer to the employee from time to time, including during the interview and hiring process.

e. An order avoiding BCI Employee Participation Trust Scheme or any part thereof, from its commencement or from such other time as the Court considers just in the circumstances of the case.

f. An order that the second, third and fourth respondents pay the applicant the sum of $60,000 in connection with the BCI Employee Participation Trust Scheme avoided in accordance with order (8).

7 The applicant also sought a declaration:

a. That the contract between the applicant and the first respondent contained a related condition and/or collateral arrangement.

b. That the contract between the applicant and the first respondent, in so far as it consisted of the BCI Employee Participation Trust Scheme, was unfair, harsh, unconscionable or against the public interest as a consequence of representations made by the respondents to the applicant to "reward" the applicant for his contribution by promising to allocate the applicant with 20,000 units in the BCI Employee participation Trust Scheme on or about 10 July 2003.

c. That the second, third and fourth respondents are jointly and severally liable to the applicant with respect to any sum or sums of money to be paid to the applicant in these proceedings.

Background

8 It was common ground that the first respondent entered into a contract of employment with the applicant on 29 July 2002 and that the applicant was made redundant in May 2004. The applicant claims that he did not receive payment representing reasonable notice and redundancy upon termination. The applicant contends that in November 2002, he was advised by the first and second respondents that because of an alleged lack of profitability in the first respondent's business, he was required to take a 30 per cent pay cut for three months. The applicant further contends that the reduction in salary was unilateral. The first and second respondents say that it was voluntary. The applicant also claims that the salary reduction was also relevant in terms of his capacity to achieve bonuses throughout the period of reduction because he was not in a position to set the rate for his consultancy services as the daily rate for such service was set by the management team.

9 It is contended that the rate set for the applicant's consultancy service made it almost impossible for him to meet his revenue target and thus attract a bonus. The applicant says that he was advised by Mr Gareth Eade, a senior managing consultant with the first respondent, that his bonus target would be adjusted and he would not suffer as a result. This is denied by Mr Eade.

10 At the end of the 2003 financial year, the applicant did not receive a bonus despite, it is contended, achieving high billable hours. In lieu of a bonus, the applicant contended, that he was advised by the second respondent that he would be given a performance award of 20,000 units, with a face value of $1 in the Employee Participation Trust Scheme ("the Trust"). It is the applicant's case that he was not given any units or shares in the Trust and if he had been given units, they would have been worthless.

11 The applicant seeks the value of the units, calculated at $1 per unit ($20,000).

12 On or around the time when the offer of the units in the Trust was made, the applicant contends that Mr Eade informed the applicant that the first respondent was proposing to put in place a new pay structure which would be beneficial for the applicant and would be implemented from 1 August 2003. The applicant was also informed that pursuant to the new pay structure he could expect to receive remuneration of $150,000 per annum. The new pay structure was not delivered to the applicant.

13 The applicant therefore seeks that the contract be varied to reflect the representations of Mr Eade in respect of the new pay structure, that being, $150,000 per annum from 1 August 2003 to the date of termination, instead of $130,000 per annum. The applicant applies to the Court to declare void the unilateral reduction of 30 per cent of the applicant's salary for the three month period (December 2002 to February 2003), which the applicant has quantified as being $8,308, representing the salary loss over the period. In addition, the applicant seeks a discretionary bonus.

14 Mr D Shoebridge of counsel, who appeared for the applicant, acknowledged that the awarding of a discretionary bonus would be difficult. Counsel accepted that if the Court provided relief by awarding the applicant the value of the 20,000 units in the Trust, together with a variation of the contract to reflect the discussions with Mr Eade in respect of a new pay structure from August 2003, that the argument for an additional discretionary bonus would fall to one side.

15 Mr F Austin, of counsel, who appeared for the respondents, in effect, conceded that the contract had operated unfairly in that it failed to provide any redundancy and reasonable notice. Counsel submitted that there was no evidence of the applicant ever meeting or exceeding his billable targets. Counsel also submitted there was no basis to the claims or any unfairness in respect of the salary reduction, discussions regarding an increase in salary, the discretionary bonuses, and the claim for payment of the units held in the Trust, calculated at $1 for unit.

The Evidence

16 The applicant relied on two affidavits sworn on 1 August 2007 and 2 February 2008. The applicant stated that he met Dinsha Palkhiwala, an employee of the first respondent, in 2001 whilst self employed. Mr Palkhiwala introduced the applicant to the second respondent.

17 The applicant’s evidence was that he initially attended a meeting with two officers of the first respondent, Ms Linda Grey, a senior consulting director, and Mr Eade, at their office in approximately July 2002. His affidavit evidence was that he and Mr Eade had a conversation to the following effect:

Mr Eade: We want you to come on board with us as a consultant rather than go into partnership with your firm. We are expanding and have plenty of work. Business Catalyst is now a major player in the market. We need your expertise and are prepared to offer an attractive remuneration to you. Let me tell you what we can offer you. It is a great salary, and in the package as well we have excellent bonuses. With business expanding, our consultants are earning top money.

Applicant: This sounds too good to be true. But I must say that I am not the strongest marketing or sales person around, but my other skills are excellent, and my business is sound. It hasn’t suffered. So, I need some support in this area, what do you say.

Mr Eade: We have an all round team, with support networks, specialists, and a great business plan. We have mapped it out for you. You will fit in just fine. Consider our offer, come on board with us.

18 Mr Eade, in his affidavit evidence and during cross-examination, denied making either statement. He stated that he had not been aware of the applicant working for another firm, that he did not make any offers in the interview as it was not his role, and that other staff would always be consulted. During cross-examination, Mr Eade stated that he would not have said the words "we have it mapped out for you" as it was a first interview and nothing had been mapped out at all.

19 The applicant attended a second meeting with Ms Grey, Mr Eade and Mr Bill Broockmann, a senior consulting director. The applicant’s evidence was that Mr Broockmann said:

“Your position with us, when you realize how good it is you will jump at the opportunity. There is a salary component, but more importantly we have a really great bonus system, the total package is around $200,000 per year. With your skills and abilities you can make it.”

20 The applicant’s evidence was that Mr Eade then said to him:

“If you meet your billable targets, then you can expect your bonuses to be up to 60 - 70 per cent of the value of your base salary. We have more than enough work, and billable targets should really be met quite easily. You can start straight away, once you have signed on, in a current assignment and so be on track to meet your billable targets. We have all the support you need, we are a major player.”

21 Mr Eade’s evidence was that he did not make such a statement and that he was not aware of any base salary to make such a claim, as bonuses were based on client billings and overall performance. He stated that he would not have made such a promise as, in his own experience, bonuses were not guaranteed and were only given out at the discretion of the company. He, himself, had not received a bonus of more than 10 per cent. He stated that he would have advised the applicant that bonuses were available and would be based on performance and the overall profitability of the company. I am inclined to the view that Mr Eade's evidence should be preferred. I have formed the view that Mr Eade was a reliable witness. He made concessions where it was proper to do so and when he denied propositions put to him, he provided reasons. It must also be borne in mind that Mr Eade did not either own the business, nor was he a shareholder. His evidence, which I accept, was that it was not within the scope of his employment to make guarantees about salaries, or representations about what could be earned.

22 The applicant attended a further interview on 22 July 2002 with Mr Eade and Ms Grey. At that meeting, the applicant was assured by Mr Eade that the firm had staff that would take care of business development and he would only be required to work within his skills. The applicant said that Mr Eade then went on to say:

“The bonus structure is the leader in terms of value in this industry. You can easily be rewarded 50 - 60 per cent or more, maybe 70 per cent of your base salary. It is not uncommon for people like you working with us, to get remuneration of up to $180,000 to $200,000 a year. You have to be 80 - 90 per cent billable to get the targets and the money.”

23 Mr Eade denied making the statement, as he did not set salaries. At the time of the job interviews, Mr Eade's evidence was that he was not provided with a proposed salary amount to offer the applicant. The second respondent, in his affidavit, said Mr Eade’s alleged representations were not in keeping with the company’s remuneration policy and that the bonus policy was set out in the Deed of Employment ("the Deed"). His evidence was that the company’s best performers, including Mr Eade, were not earning 60 - 70 per cent of their salary in bonuses. Additionally, all employees were expected to market and develop new business. This requirement was also set out in the Deed. The second respondent found it difficult to believe that Mr Eade would have ever made such statements to the applicant.

24 The applicant’s evidence was that Mr Eade also assured him he would not be required to perform a sales role. His evidence was Mr Eade said:

“You will not do business development. You will do consultancy work, management consultancy and some support to business development.”

25 On 25 July 2002, the applicant received his contract of employment titled "Deed of Employment" along with a letter dated 25 July 2002. The starting salary in the Deed was $130,000 per year, inclusive of superannuation. Under the terms of the Deed bonuses were paid at the discretion of the company and were based upon certain criteria being met. I will return to deal with what the Deed provided in respect of bonuses when I determine the claim for the payment of a discretionary bonus.

26 After reviewing the Deed, the applicant had a number of queries. The applicant was particularly concerned with the operation of the incentives (bonuses). These concerns were abated after further discussions with Ms Grey and Mr Eade. After a few days the applicant signed the Deed at the first respondent's premises and gave the document to Mr Eade. The applicant did not receive a signed counterpart. Mr Eade stated in his affidavit that he never received the document.

27 The applicant commenced work with the respondent on 29 July 2002. Despite being told by both Mr Eade and the second respondent that he would have assignments to work on immediately, the applicant was not given an assignment until approximately four weeks after the commencement of his employment. The applicant's evidence is that he approached Mr Eade about his lack of assignments. He said Mr Eade told him to "go and get them yourself." Mr Eade denied this in cross-examination stating that he had no responsibility for the applicant once he had commenced his employment. Mr Eade's evidence is that the applicant at no time approached him regarding lack of work.

28 The applicant's first assignment was with Energy Australia, which the applicant contends was gained largely through his own efforts and those of a fellow consultant, Mr Philip Nesci. The applicant said that he received little support during the initial four-week period of his employment and was tasked with writing all the marketing and business material in order to gain the assignment with Energy Australia. The charge out rate for Energy Australia, as fixed by the Commercial Team, was done in a way according to the applicant, which meant that he could not meet the set billable targets. The applicant approached Mr Eade to complain about the charge out rates for Energy Australia and how it would affect the applicant’s bonus entitlements. He said Mr Eade advised him that appropriate adjustments would be made when bonuses were determined. In cross-examination, Mr Eade said that he had no knowledge of Energy Australia being a client and did not have any discussions with the applicant about charge out rates. The applicant successfully extended his contract with Energy Australia from the initial four-week period to a period of five months.

29 Despite the representations made to the applicant by Mr Eade, the applicant claims he was required to perform business development work during his employment in acquiring and retaining his own assignments.

30 The applicant’s evidence was that he had gained the Telecommunications Area of Commonwealth Bank as a new customer in mid 2002 through a personal contact, Mr Peter Burrows. The work won with Commonwealth Bank was estimated by the applicant to be worth $120,000. During cross-examination, the applicant accepted that Mr Nesci acted as the lead consultant on the particular contract. The applicant rejected the suggestion that the proposal for the Commonwealth Bank contract in fact involved at least three employees who were consulting directors in more senior positions than the applicant, and that they were in fact the ones responsible for winning the work. The applicant maintained that he found the contract himself, having worked with his personal contact in a previous role. The applicant admitted that other senior employees helped compose the proposal but maintained that he initiated the deal through his personal contact. At around the same time as the Commonwealth Bank contract, the applicant said he also won additional assignments with existing clients at Transgrid and Mission Australia.

31 The second respondent’s evidence was that while the applicant may have been involved in acquiring new assignments with Energy Australia, and later the Commonwealth Bank, both were already established clients. He said that all consultants were expected to develop new work and business development responsibilities were part of the applicant’s employment. Mr Eade also emphasised in his evidence that all employees were expected to perform business development.

Salary Reduction

32 In late November 2002, all employees of the first respondent, including the applicant, were called into a staff meeting. The applicant recalled the second respondent addressed the staff in words to the following effect:

“The Company is under financial stress. We have no option but to keep the company and your jobs going on, without terminations or redundancies, by whatever means we can. You will have to take a 30 per cent pay cut. This will be for a period commencing now, for three months. Paperwork reflecting your choice in writing, to be signed by you will be given to you. You will be given this paperwork prepared under legal advice when you leave this room. You must sign it and give it back to me.”

33 The applicant was handed the salary reduction paperwork as he was leaving the meeting. During cross-examination, the second respondent denied the applicant’s account of the staff meeting. In his affidavit, the second respondent said his address to the company was as follows:

“The Firm is facing severe financial pressure because the team has not been able to generate the planned revenue. We have two options to reduce costs for the purpose of survival. The first option is that we all take a reduction in salary for an initial period of three months. At the end of three months there will be a review. It is estimated that a salary reduction of 30 per cent will be required to bring our expenditure in line with the current low revenue level.

The second option involves reducing the number of employees in the firm. It is up to the team to decide which option to adopt.

It is up to you, however whichever option we go with, we all have to agree (sic) to and if it is option one, then you will all have to give your consent in writing.

Anyone who feels that they are not able to participate in the salary reduction is very welcome to come and discuss any hardship issues with me, or other senior consulting directors.”

34 The second respondent's evidence was that a vote was conducted at the meeting and that every staff member participated in the vote, including the applicant. The majority voted for the salary reduction. The applicant did not recall a vote at the meeting. In cross-examination, he said he was unsure whether a vote did or did not occur. The applicant gave the following evidence:

Q: ... is it possible in your mind that there was a vote taken by the staff at that meeting?

A: Is it possible?

Q: Yes?

A: Umm, it could be possible but I just, you know, I just, I certainly can’t, I know I didn’t vote, I can’t recall anyone putting their hands up, so, because I sat in the back of the room because I was only just new to the company.

35 The applicant’s evidence was that there was no choice but for him to accept the pay cut. During cross-examination, the applicant did agree that there was an option presented but insisted that, “it was almost like a fait accomplit”. Mr Shoebridge suggested to the second respondent during cross examination that the employees at the meeting were not given a genuine choice between termination and a salary reduction, evidenced by the fact that the only form prepared for the meeting for the employees to sign was the salary adjustment form. The second respondent agreed, stating that there was no paperwork prepared for the termination of staff on the spot.

36 Later, the second respondent gave this evidence:

Q: Mr Qureshi, I put it to you, that after you, that you then said to the meeting, to the employees, “You will be given this paper work prepared under legal advice when you leave this room, you must sign it and give it back to me.” That’s what you said, isn’t it?

A: No.

...

Q: The truth of the matter Mr Qureshi is there was no realistic option for the employees but to sign up for the 30 percent pay reduction, is that right?

A: That’s not true.

37 The evidence in respect of the salary reduction is one example of evidentiary conflict. In this regard, I have to state that neither the applicant nor the second respondent presented as completely reliable and truthful. I formed the view that the evidence of the applicant tended towards exaggeration, possibly caused by feelings of bitterness, of hostility, perhaps justified, towards the respondents, and that the vagueness and evasiveness shown at times by the second respondent in answers to questions were not entirely due to the difficulty of recalling events that happened five or six years ago. Be that as it may, the way in which I have concluded that this matter should be disposed of largely obviates the necessity of ruling, in cases of conflict, where I consider the truth lies.

38 The second respondent recalled that he asked the company’s accountant, Mr Ahmed Qureshi, and Ms Dianne Hill, a senior consulting director, to take "full legal advice from a specialist law firm" before discussing the salary reduction proposition with the staff. The second respondent agreed that there was no advice given in relation to redundancy but maintained that redundancy was definitely an option. When asked about the possibility of a salary reduction scheme versus redundancy, the second respondent said that he had had a meeting with the company’s management team and there was an almost 50/50 split in terms of preference for having the salary reduction.

39 The applicant said he did not sign the paperwork for some time and was frequently contacted by management, including Mr Eade and Ms Grey to return the signed paperwork. The applicant’s evidence was that by the time he had signed the paperwork and forwarded it to management, several pay cycles had passed and his pay had already been reduced. During cross-examination, the applicant conceded that his description of “several pay cycles” in his affidavit was incorrect. His evidence was:

Q: Take a look at this document. I want to suggest to you that is your signature and that is the salary reduction letter you signed on 13 December, four days after the meeting, not four weeks?

A: That’s my signature, yep.

Q. At paragraph 24 of your affidavit where you say halfway down:

"By the time I had signed the paperwork and had given it to management several pay cycles had passed and my pay had already been reduced".

That's incorrect, isn't it?

A: I didn’t sign any paperwork and my pay was cut, that’s how I found out there was [sic] actually been a vote. I know that because I had got mortgage payments coming out and I didn’t have sufficient funds.

Q: So it's incorrect to say that:

"By the time I had signed the paperwork and had given it to management several pay cycles had passed"?

A: The first I knew I had a pay cycle that was reduced, I knew there was already done before I signed the form.

His Honour: What he is putting to you now is that the reference to “several pay cycles” in paragraph 24 is not correct, what do you say about that?

A: Yes, it’s probably incorrect.

40 The applicant's evidence in respect of this issue was shown to be unreliable or that he was, at the very least, mistaken. Other aspects of his evidence were also unsatisfactory, particularly his evidence regarding his previous salary. The applicant initially contended that his salary prior to joining the first respondent was $180,000. However, his income tax returns showed a salary of $138,000. When cross-examined about the difference, the applicant was not prepared to concede he was mistaken, but rather, attempted to explain how his salary was approximately $140,000 to $150,000 if certain adjustments were made. The applicant's evidence in respect of the issues I have outlined requires that it be treated with caution.

41 The applicant stated that he felt forced to sign the paperwork since his pay had already been reduced and that the senior consultants and the second respondent would consider his reluctance as evidence of not being a team player. Mr Shoebridge submitted that this was unfair to the applicant as, having been at the company for only four months, "the capacity of someone in a position for approximately four months to stand up to the General Manager in a meeting and say: I don't agree with this, I have a contract and I want to stick to my contract ... your Honour would recognise that as not a genuine opportunity."

42 Mr Austin submitted that the evidence showed that a number of employees approached the second respondent to discuss the proposed salary reduction. Mr Eade eventually accepted a 10 per cent reduction to his salary, Mr John Marino, a 15 per cent reduction and Mr Palkhiwala accepted a 24 per cent reduction. The applicant did not approach the second respondent to discuss a reduction of less than 30 per cent at any time.

43 The applicant’s salary was returned to its original level by a letter dated 27 February 2003. The evidence does not support a finding that the reduction in the applicant's salary was unilateral. The first respondent was confronted with what the second respondent described as "severe financial pressure because the team had not been able to generate the planned revenue." The evidence supports this contention. The approach adopted by the first respondent enabled the employees to maintain their employment. I find that the salary reduction, in the circumstances, was justified and that the applicant was not in an inferior bargaining position. He could have sought a lower reduction in salary. In my view, the first respondent's conduct in reducing the salaries of employees for a period of three months does not give rise to unfair conduct such that I should exercise my discretion to intervene and vary the contract.

New pay structure

44 After his assignment with Energy Australia finished in April 2003, the applicant was given an assignment with Pacific Power, which required the applicant to involve a number of other consultants. His evidence was that he was required to supervise the other consultants at Pacific Power over the eight months that the project lasted and the applicant totalled the work to be worth approximately $300,000 in billable hours. Whilst working on the Pacific Power assignment, the applicant said Mr Eade approached him in mid to late June 2003 and said words to the following effect:

“There will be a new pay structure, effective from 1 August 2003. Because you work a high rate of billable hours, you will profit out of this, you will do better than you are doing now. Because you are fully billable, you will benefit more. Don’t worry, it will happen. Just as an illustration, but entirely feasible in your situation, this incentive pay package should see you receive around a minimum of $150,000 should the billable hours be achieved. And as you have brought in work yourself, there is the added bonus structure. This bonus will be determined later on. But it is going to be more favorable [sic] to you. You are one of those who is to be favored [sic] and rewarded because you have a proven track record. You are a performer.

...

The contract will be forthcoming. Your pay is going up from $120,000 to $150,000. Don’t worry; a new pay structure has already come in for the non-management team.”

45 Mr Eade agreed that he had met with the applicant and Mr Peter Cameron to discuss performance based salaries, however he denied making the above statements. His evidence was that the proposed salary restructures were based on personal billings not billable hours. In the June/July period, all consulting staff were introduced to the concept of performance-based salaries. The applicant said he told Mr Eade that he was happy about the new contract and would accept it. However, the applicant did not receive a new contract.

46 Mr Eade’s evidence, which was confirmed by the second respondent in cross-examination, was that the scheme only proceeded with some staff who were below a certain billing threshold. Contracts were not offered to everyone. Mr Eade did not recall suggesting to the applicant that they would offer the applicant a new contract. Furthermore, it cannot be correct that Mr Eade would have said in June 2003 "your pay is going up from $120,000 to $150,000." The applicant's pay at this time was $130,000, after the reduction in salary was reversed from 27 February 2003.

47 The evidence does not support any formal offer being made to the applicant in relation to the performance-based salaries. It follows, therefore, that there was neither any variation or any new contract entered into, nor was there any evidence of complaint of the non-variation of the contract at the time. In my view, there is no basis to find that the discussions between Mr Eade and the applicant rose any higher than discussions. I do not regard or find such conduct on the evidence as giving rise to unfairness.

Termination

48 At the conclusion of his Pacific Power assignment in September 2003, the applicant took two weeks annual leave. After his return, the applicant was not immediately allocated an assignment and it took the applicant three days to obtain his own work. Eventually, through his own efforts and with help from Ms Grey, the applicant gained work on an assignment with PMP Limited. As most of the work was performed in Melbourne, the applicant was required to stay there for one week. The assignment was originally for a period of three weeks, however it continued for six months up to mid April 2004. The applicant stated his billable rate for the assignment was $2,500 per day.

49 Shortly after returning to Sydney, the applicant took two weeks annual leave until early May 2004. The applicant said he took the annual leave as a gesture of goodwill to the first respondent as he was not engaged in billable work at the time. The second respondent was not told by the applicant that the leave was taken as a goodwill gesture. The company’s policy was to encourage employees to take annual leave, rather than have it be accumulated.

50 On 25 May 2004, the applicant was approached by Mr Peter Goldstein, an executive of the first respondent. During a meeting in his office, Mr Goldstein said words to the following effect:

“I have to tell you that there are significant changes happening here and they will affect you. There is no longer any IT Management work, nothing now or in the future. Your services are no longer required. We have to let you go. Your contract is terminated with immediate effect. The company will pay you four weeks notice as per the contract.”

51 The applicant was then handed a letter giving effect to the termination.

52 Mr Austin read an affidavit of Mr Goldstein and he was called to give further evidence. Mr Goldstein's evidence was that he drafted the applicant's termination letter and handed the letter to the applicant at the meeting. During cross-examination, Mr Goldstein said the applicant had, understandably, responded in an emotional manner to the news of his termination. However, Mr Goldstein said he had not expected the level of hostility the applicant had shown in the meeting.

53 Whilst the second respondent was not informed of the conversation between the applicant and Mr Goldstein, he was aware that, following a review of the applicant’s employment by the operational management group in May 2004, the group agreed the applicant’s employment was no longer tenable for various reasons including that the applicant was not generating new or additional work. Mr Goldstein said that the applicant had not been a good biller and his rates were generally low. According to the second respondent, the applicant was not considered a dynamic employee in the sense of adding value and showing initiative.

54 The applicant was given one month's salary in lieu of notice and no redundancy payment. At the time of his termination, the applicant had been employed for approximately 22 months in a relatively senior position. He was 42 years of age. The evidence suggests that he was encouraged to join the first respondent. The evidence is that the applicant found employment with Telstra approximately six weeks after his termination on a salary package of approximately $200,000.

55 Mr Shoebridge relied on the decision of the Full Bench in Westfield Holdings v Adams [2001] NSWIRComm 293; (2001) 114 IR 241, and in particular, the principles discussed by the Full Bench in respect of the rationale and difference between the provision of reasonable notice and redundancy (at [141] - [148]).

56 Mr Austin conceded that the principles as set out in Westfield Holdings were applicable and acknowledged that the applicant was entitled to a redundancy payment. Counsel submitted that in all the circumstances of this case, four weeks would be an appropriate amount.

57 In respect of reasonable notice, Mr Austin submitted that the applicant was required to mitigate, and noting that he obtained employment six weeks after termination, submitted that I should award no more than a further two weeks salary representing reasonable notice.

58 The applicant contends that the contract of employment became unfair at the time of the applicant's termination because of the failure of the first respondent to provide a proper payment for redundancy and a payment in lieu of notice.

59 Mr Austin quite properly conceded that the contract of employment was unfair in that it permitted the first respondent to terminate the applicant's employment without adequate payment for redundancy and notice.

60 I find that the payment of notice was unfair, given the circumstances of the applicant's termination, and furthermore, that the contract of employment was unfair in that it failed to provide for a payment in respect of redundancy. In the amended summons, the applicant claimed six months notice, or pay, in the nature of pay in lieu of notice and/or severance pay equivalent to the value of six months total remuneration.

61 In my view, taking into account the applicant's length of service, his age and his work performance, an additional payment of two weeks notice and seven weeks redundancy pay is appropriate noting that the applicant received one month's salary in lieu of notice at termination. The applicant is required pursuant to s 106(6) of the Act to mitigate his loss. The applicant commenced employment with Telstra approximately six weeks after the termination of his employment on a significantly superior contract of employment. I have taken this factor into account in mitigation in assessing the compensation to be awarded to the applicant in respect of reasonable notice upon termination.

Discretionary Bonus

62 The applicant’s evidence was that during his time with the first respondent, there was only six weeks in total where he did not bill work, representing 90 per cent utilisation. The second respondent disagreed with this assessment and stated in his affidavit that the applicant did not reach his minimum personal billing targets. In his reply affidavit, the applicant maintained that he met his targets and annexed a spreadsheet titled ‘Consultant earning 2002-2003’. He insisted that when adjustments for low rate clients and business development activities were taken into account, he exceeded his personal billing targets. The second respondent outlined in his affidavit that the billable targets were set in dollar terms with no mention of hours or days worked or effort made in the employment deed. During cross-examination, the applicant agreed his minimum billable earnings was to be $390,000. Mr Austin submitted that there was no evidence that the applicant ever met or exceeded his billable targets.

63 The second respondent’s affidavit evidence outlined the structure of the first respondent and its policies regarding remuneration and the payment of bonuses. The bonus policy was that if the company made good profits and there was cash available for distribution, then a weighted average formula was applied, using defined criteria, for calculating the bonuses for individual employees. The criteria gave heavy emphasis to revenue targets of consultants and business development by way of new sales. The second respondent stated that the first respondent did not have good financial years in 2003 and 2004, evidenced by the need to reduce its costs, including the salary reduction initiative. The second respondent’s evidence was that consultants who were billing substantially more than the applicant did not receive discretionary bonuses during that time. In his affidavit in reply, the applicant disagreed with this evidence. He said he was under the impression that he was one of the top four revenue earners for the company.

64 The applicant also claimed that a number of benefits promised to him by Mr Eade prior to the commencement of his employment were not met, including access and availability of significant intellectual property to consultants. The second respondent rejected this claim and maintained that there was sufficient intellectual property and reference material available to all consultants which was regularly used on assignments by the applicant. Mr Austin submitted that no documentary evidence was ever tendered by the applicant to prove that the benefits were not met or that he had been offered little support during his employment.

65 In my view, the evidence is completely unsatisfactory in respect of the payment of a bonus. The applicant's evidence is that he expected a bonus of 60 to 70 per cent of his base salary. The evidence of Mr Eade was that he had only ever received a bonus in the order of 10 per cent. Mr Shoebridge's case was that the offer of 20,000 units was in lieu of a bonus and he, in effect, conceded that if I found against his client in respect of the claim for the payment for units in the Trust and the increased salary structure, then the discretionary bonus would stand alone and it would be proper for the Court to exercise its discretion in that respect and award a bonus. Mr Shoebridge also acknowledged that if I was required to undertake this exercise, I was "tied by Mr Eade's evidence of 10 per cent, or my client's evidence of 60 per cent to 70 per cent as to the parameters of the discretionary bonus."

66 There was no reference to a bonus in the applicant's letter of appointment dated 25 July 2002, although the letter referred to "the rewards structure" without specifying any detail. I have already set out what the Deed provided in respect of bonuses. In my view, the applicant's submissions in respect of a discretionary bonus would bear some weight if the evidence demonstrated that the applicant was entitled to a bonus. However, there is no evidence to demonstrate that the applicant met his billable targets, as opposed to billable hours, and therefore activated the so-called discretionary bonus.

67 The applicant's evidence was that upon being provided with the draft Deed, he had concerns about the bonus and how it operated. His evidence was that he clarified his concerns with Mr Eade and Ms Grey at a subsequent meeting. However, there is no evidence about what clarification was sought by the applicant and what response was provided by Mr Eade, Ms Grey or Mr Broockmann. It was after this meeting that the applicant signed the contract. Mr Shoebridge submitted that the evidence disclosed that the applicant was the second highest achiever in the company and that he exceeded his targets.

68 This contention was rejected by Mr Austin, who submitted that the issue was further complicated in that the applicant proceeded on the basis of billable hours, whereas the second respondent contended that the payment of a bonus was based on reaching revenue targets which the applicant did not achieve.

69 The burden of establishing that there was a firm agreement made by the first and second respondents to pay the applicant a bonus lies on the applicant. I am not satisfied on the basis of the evidence that the applicant has discharged this burden. Both the applicant, the second respondent and Mr Eade had differing recollections as to what was said regarding the bonus. Furthermore, the payment of a bonus was discretionary and depended upon, according to the employment deed, the performance of the business. The evidence is that bonuses were not paid in 2002 or 2003. It was the evidence of the second respondent that the applicant did not meet the targets to attract a bonus. The evidence, such as it is, does not allow me to find with the requisite degree of certainty that any bonus based on the applicant's performance would have become payable and I decline to do so. I am not persuaded that the contract has operated unfairly because the applicant did not receive a bonus.

Trust Deed

70 The applicant received a letter dated 10 July 2003 signed by the second respondent, which indicated that he would receive 20,000 units in the first respondent's Trust. By letter dated 10 July 2003, the applicant was given 20,000 units in the Trust. The letter relevantly provided:

As you are aware, this has been a tough year for business. Some of the team members, that includes you, have worked extremely hard and have produced excellent results for the Firm. This is a short note to let you know that your contribution is highly valued.

In recognition of your contribution, the Firm will allocate to you 20,000 units under its employee participation scheme. The unit entitlement will be at a liquidity event as descried in the trust deed and general terms and conditions similar to the existing Employee Participation Trust Deed will be applied.

Thank you again for your commitment and hard work.

71 The applicant was under the impression that the units were in addition to his bonus payment for the 2002-2003 financial year. The applicant had expected a bonus payment of approximately $60,000, based on his billable hours and on account of his efforts winning contracts and additional work. He thought the units would be redeemable upon leaving the first respondent and that he would be paid at an equivalent rate to what he would be entitled to receive had he been paid a cash bonus. Despite repeated requests, the applicant did not receive a copy of the Trust Deed. The applicant said that he emailed the second respondent and his personal assistant, Ms Fiona Scarf, on several occasions and made verbal requests to both Mr Eade and Ms Grey to no avail. Mr Eade denied receiving verbal requests and only recalled receiving one email, which he forwarded to Ms Scarf.

72 The second respondent’s evidence was that the awarding of units in the Trust to all consultants was a show of goodwill for their loyalty since the firm was not in a position to award bonuses. The plan was the company would distribute profits to the trust which would in turn be distributed to the unit holders like a dividend. Upon a liquidity event under the Trust Deed, the units would become redeemable and unit holders would generate a further profit. The units were initially issued with a face value of $1 in early 2002, though the company’s financial position deteriorated to the point of liquidation and as a consequence the units had no value. The second respondent claimed that he did not receive either a written or oral request from the applicant in relation to information about the units allocated to him.

73 It appears that the applicant did not receive his entitlement because he was not given the Trust Deed and was therefore not in a position to ascribe to the entitlement. The evidence is that other employees were buying units at $1 per unit and paying money to obtain units which were valued in the applicant's eyes at effectively $1 per unit. The applicant's evidence is that he believed this to effectively amount to a $20,000 bonus that did not eventuate. Mr Eade conceded in his evidence that the applicant sought a copy of the Trust Deed and that he was not provided with the units.

74 Mr Austin submitted that the offer of the units in the Trust was a gift in recognition of the work that the applicant was performing and that he was a good employee. Counsel also submitted that at the time that the letter was forwarded to the applicant, the company found itself in serious financial difficulty. The second respondent was endeavouring to keep the employees motivated and he offered the employees a gift. It is clear that the company had experienced financial difficulties in late 2002, which led to the reduction in salary. At the time of the issue of the units in the Trust to the applicant, it must be accepted that the units had some book value, although the evidence does not disclose that value. Unlike shares in a company which would be capable of valuation, that is not the case here. I have not been provided with any evidence that would enable me to determine the value of a unit in the Trust in July 2003. In addition, it appears some employees bought units at $1 per unit. The applicant did not pay any money for the units allocated to him.

75 The applicant's contention was that this was a false bonus. However, the evidence does not enable me to make that finding. What is clear from the evidence is that the first respondent went into liquidation and an inference can be drawn that the units became valueless. In order for unfairness to be found, in my view, it would be necessary for the applicant to have demonstrated that the first and second respondents knew, at the time that these units were offered to the applicant, that they were worthless. There is no evidence to that effect. In such circumstances, I am not prepared to find that the contract or arrangement operated unfairly insofar as it consisted of an offer of units in the Trust. It follows that I decline to make the declarations that are sought by the applicant.

Joint and several liability of the respondents

76 The applicant sought a declaration that the second, third and fourth respondents be jointly and severally liable to the applicant with respect to any sum or sums of money ordered to be paid to the applicant. This order was resisted by Mr Austin.

77 The principles applicable to circumstances where a non party to a contract found to be unfair (or to have become unfair) may be liable to pay monetary orders are to be found in the High Court judgment of Brown and ors v Rezitis and ors [1970] HCA 56; (1970) 127 CLR 157. In that judgment the High Court considered the terms of s 88F, a predecessor section to s 106. Barwick CJ (at 164 - 165) made a number of observations of the meaning of the expression "in connection with":

In some cases, as I have said, there will be persons who are not the parties to the contract but who have in fact participated in its making and there may be persons who have received money indirectly from one of the parties to the contract or who may be holding money derived there from for one of the parties. consequently, I am of opinion that the power to order the payment of money is not limited to the making of an order for the payment of money by one of the parties to the contract or arrangement varied or avoided.

But though there is a generality in the language employed in the sub-section the power to make an order for the payment of money is not, in my opinion, unlimited particularly as to the persons against whom such an order may be made. The problem is to ascertain the limitation by construction of the section. It seems to me that the expression "in connection with" the contract or arrangement varied or avoided provides the necessary limitation as to the nature of the orders for payment of money which can be made and as to the person against whom they may be made. The draftsmanship of the section is inadequate: but I think the expressed intention as to this limitation can be derived from the sub-section read as a whole. Whilst it can be said that the expression "in connection with" is of wide import, it does emphasize the need for a close connexion between the order made and the contract or arrangement varied or avoided. In my opinion, the power to make an order for the payment of money is at best no more than a power to make such an order as can reasonably be thought to have a real connexion with the making, variation or avoidance of the contract or arrangement which has been varied or avoided. It may in truth be limited to a power to make an order for payment of money which has in fact a real connexion with the making, variation or avoidance of the contract or arrangement. However, in either case it will, of course, include power to make an order for payment of money which has been paid or which was payable under the contract arrangements themselves. But, in my opinion, the power will not be limited to the making of such orders. It will extend to ordering the payment of money where the order on the larger view of the jurisdiction given by the sub-section could be considered to be appropriate to effect wholly or partially the restitution of the parties to their former position upon the variation or avoidance of the contract or arrangement. In my opinion, the limitation of the power to order the payment of money to such orders either as are or as may be considered in the circumstances to be connected with the making, performance, variation or avoidance of the contract or arrangement sufficiently limits the power and leaves room for supervision of the Commission by a Court having power to issue prerogative writs so as to confine the Commission within the granted power. Consequently I am unable to accept the submission made by the appellants that an order made by the Commission for the payment of money by any person other than a party to the contract or arrangement varied or avoided is necessarily beyond the power of the Commission. Whether or not it is so depends upon all the circumstances and the terms of the order itself.

78 Mr Shoebridge also submitted that a useful summary was to be found in Unitedglobalcom, Inc v Industrial Relations Commission (NSW) in Court Session (2005) 142 IR 204 where Hodgson JA stated at [24]:

In my opinion, if an applicant obtains an order under s 106 against a respondent for whom the applicant worked in an industry, and it is shown that the assets of that respondent have since passed, by reason of some corporate reorganisation within a group of companies, to another company in that group, there may be jurisdiction under s 106(2) to make an order against the entity to which those assets have passed. If it be the case that the assets that have so passed have been augmented by the work done by the applicant, and if it be the case that the re-structuring has left the original entity for which work was done without sufficient funds to make an appropriate payment, it may be that such a payment is properly regarded as a payment of money in connection with a contract declared wholly or partly void or varied, as those expressions are used in s 106(5). I think that is supported by what Barwick CJ says in Brown, particularly his reference to persons who have received money indirectly from one of the parties to the contract. It is also consistent with the reference in his judgment to subterfuges: the re-structuring of a group of companies so as to transfer the business of one company in the group to another company in the group may not be undertaken as a subterfuge to defeat an applicant, but it could possibly have that effect, and in my opinion it may not be beyond the power of the IRC to make orders under s 106(5) to avoid that effect.

79 Mr Shoebridge submitted that orders could be made against persons who receive the proceeds of the contract or arrangement or were in some way culpably associated with its operation. Counsel submitted that the second respondent was culpably associated in the operation of the contract because:

(i) the second respondent was the beneficiary of any unfairness through a shareholding and position as a director of the first respondent;

(ii) The second respondent is a shareholder and director of the fourth respondent;

(iii) the goodwill of the business was transferred to the fourth respondent in 2005;

(iv) the fourth respondent ultimately sold the name of the business to Dialog Pty Ltd which is the holding company of the third respondent which is carrying on the business;

(v) the second respondent confirmed that he is a major shareholder of the third respondent;

(vi) the second respondent acknowledged that the fourth respondent entered into a licensing agreement with the third respondent which collapsed and did not continue;

(vii) the second respondent acknowledged that he has now bought Dialog Pty Ltd which is now known as the third respondent;

(viii) Business Catalyst (Hong Kong) Pty Ltd, the fourth respondent, in which the second respondent owns 100 per cent of the shareholding acquired the plant, equipment, intellectual property and the name Business Catalyst International in February 2005 as part of the restructure of Business Catalyst Pty Ltd.

80 Mr Shoebridge submitted that this evidence established the chain in respect of the relationships between the respondents. Counsel contended that it was appropriate for compensatory orders to be made jointly and severally against the second, third and fourth respondents. The applicant undertook, in the course of gaining leave to proceed against the first respondent, not to seek any compensatory orders against it as it was in liquidation.

81 Mr Austin emphasised that the fourth respondent was a Hong Kong company and had no registered office in Sydney and had at no time conducted any business in Sydney. Counsel acknowledged that this company purchased the assets and the goodwill of the first respondent, although he submitted there was no evidence as to what they were. It entered into an agreement with Business Catalyst Asia Pacific which also went into liquidation which Mr Austin submitted severed the causal chain. Counsel submitted that after Business Catalyst Asia Pacific went into liquidation, the assets of that company were reacquired by the fourth respondent and sold to a company known as Dialog Pty Ltd ("Dialog) which Mr Austin submitted had nothing to do with the second respondent. The second respondent was not a shareholder of Dialog which, as a holding company, established a further company called Business Catalyst Consulting Pty Ltd. At the time that this occurred, the second respondent was not a shareholder or a director of the third respondent. The second respondent's evidence was that it was not until approximately the beginning of 2009 that he bought into and became a shareholder in the third respondent when he purchased his shareholding from Dialog.

82 Mr Austin emphasised the long causal chain between what he described as the second respondent's severance in July 2004 to the second respondent purchasing a shareholding in early 2009 in the third respondent. Counsel submitted that in these circumstances I should not exercise my discretion and make an order against the third respondent because it had no financial shareholding relationship with the first and second respondents until early 2009. Furthermore, counsel submitted that it would be inappropriate to make an order against the fourth respondent because it operated in Hong Kong and not Sydney, although he conceded that it bought the goodwill of the first respondent.

83 This analysis, in my view, appears to demonstrate that the second respondent, as a Director and Chief Executive Officer of the first respondent, had authority over the applicant's terms and conditions and played a role offering units in the Trust to the applicant. In practical terms, he was the decision-maker with respect to the terms and operation of the Trust and the applicant's employment. The second respondent approved the engagement of the applicant with the first respondent. He determined that the reduction in salary should occur and had discussions with the applicant during the course of his employment regarding his conditions of employment. I find that the second respondent had a close or real connection with the contract of employment which I have found to be unfair and that monetary orders should be made against the second respondent.

84 The orders that will be made with regard to this claim are that there will be a payment to the applicant representing seven weeks redundancy and an additional two weeks representing payment in lieu of notice. Such amounts are to be calculated on the applicant's salary as at the date of his termination. Such payments are to be made by the second respondent. Interest should also be paid by the second respondent on the compensatory orders in accordance with Sch 5 of the Uniform Civil Procedure Rules 2005. Such interest should be payable from the date of filing of the summons for relief being 4 February 2005. The second respondent shall pay the applicant's costs of the proceedings in an amount as agreed, or assessed.

85 The parties are directed to file short minutes of order reflecting the orders made in this judgment, including the monetary amounts.

86 The Court makes the following orders:

ORDERS

1. The contract entered into between the applicant, Robert Domanko and Business Catalyst International Pty Ltd on 29 July 2002 is declared to be an unfair contract on the following grounds, namely, that the contract:

(a) was unfair, harsh and unconscionable;

(b) was against the public interest;

(c) failed to provide for provision of the payment of redundancy and reasonable notice.

2. The contract is varied by inserting a provision to the following effect:

Zia Qureshi is required to pay Robert Domanko seven weeks redundancy and two weeks pay in lieu of notice calculated on the salary that Robert Domanko was paid at the date of termination.

3. Such payment shall be made by the second respondent, Zia Qureshi to the applicant Robert Domanko.

4. The second respondent shall pay interest on the amount specified in order 2 hereof in accordance with Sch 5 of the Uniform Civil Procedure Rules 2005. The interest shall be payable from the date of the filing of the original summons for relief to the date of this judgment.

5. The second respondent shall pay the applicant's costs of the proceedings in an amount as agreed or assessed. If the parties are unable to agree they have liberty to apply.

LAST UPDATED:
18 December 2009