Industrial Relations Commission of New South Wales in Court Session CITATION : Attwell v Maxx Implementation Pty Ltd [2003] NSWIRComm 52 [2003] NSWIRComm 475 Applicant: David Attwell PARTIES : Respondent: Maxx Implementation Pty Limited FILE NUMBER: IRC3384 of 2000 CORAM: Peterson J CATCHWORDS : Unfair contract - costs issues arising from primary judgment - quantification of mitigation arising from earnings of alternate business - income assessed - payment of interest ordered - costs order made LEGISLATION CITED : Industrial Relations Act 1996 s106 Abboud v NSW Department of Education (2000) 99 IR 299 CASES CITED : King v State Bank of NSW (No 3) [2003] NSWIRComm 308 Donald Campbell & Co Ltd v Pollack (1927) AC 732 HEARING DATES: 12/05/2003 DATE OF JUDGMENT: 12/19/2003 Applicant: Mr A.T. Britt of counsel Solicitors: WH Parsons & Associates LEGAL REPRESENTATIVES: Respondent: Mr R. Alkadamani of counsel Solicitors: Thomas and Co JUDGMENT: - 7 - INDUSTRIAL RELATIONS COMMISSION OF NEW SOUTH WALES IN COURT SESSION CORAM: PETERSON J DATE: 19 DECEMBER 2003 Matter No. IRC3384 of 2000 DAVID ATTWELL v MAXX IMPLEMENTATION PTY LIMITED Application under s106 of the Industrial Relations Act 1996 SUPPLEMENTARY JUDGMENT 1 On 10 March 2003, I handed down the primary judgment in this matter, which involved an application under s106 of the Industrial Relations Act 1996. This judgment deals with some residual issues on which the parties have made written submissions. The orders made earlier were as follows: The court orders: 1. The said contract is varied on and from 10 March 2000 to provide that the applicant shall receive, upon termination of employment, three months' notice or three months' pay in lieu thereof. 2. In satisfaction of order 1, Maxx shall pay the applicant a sum equivalent to three months' pay at a rate of $101,650 per annum (that is, including his superannuation component), less any earnings from his alternative activity, the lawn mowing business. I reserve liberty to apply with respect to quantification, should the parties be unable to agree. It follows that the applicant was entitled to a sum of $25,412.50 less the earnings he received in the first three months following his termination. 2 The parties have been unable to agree on that deduction and have seemingly applied themselves assiduously, and perhaps expensively given the affidavit evidence including that of an accountant and also the written submissions, to the quantification of that deduction. The applicant postulates the relevant deduction as nil and the respondent argues for a deduction of $7,771.95. 3 Any income received by the applicant in the relevant period of three months was derived from the conduct of a lawn mowing business through a franchise purchased by him from "Jim's Mowing". That business, as the applicant has deposed and his taxation information supports, exposed him in the usual way to the need to expend money in order to obtain income. 4 The applicant filed an affidavit on 28 October 2003 in which he adverted to these matters and sought to demonstrate that his business incurred a net loss of $670.04. An accountant engaged by the respondent has prepared a report based on the information provided to her which estimates the applicant's earnings as $7,771.95 causing her to suggest that the residue of the judgment sum outstanding is $17,640.55. The interest on that sum, up to 15 May 2002 (that calculation being annexed to an affidavit sworn 13 November 2003) is suggested to be $3,933.60. 5 The issues for determination now are: 1. The amount payable after the deduction of earnings received during the notional notice period. 2. Interest on the judgment sum; and 3. Costs. The Deduction 6 The applicant relies upon the information supplied to him by his accountant for the purposes of the completion of his tax return, showing the net loss of $670.00 to which I have referred. In the absence of some strongly persuasive alternative, I can see no reason for the court to reject that representation of the reality. 7 The respondent relies upon the affidavit of Catherine Ann Grove, Chartered Accountant, who has sought to review the affidavit of the applicant and the material annexed thereto and to support her conclusion that the applicant's earnings over the relevant period were some $7,772. 8 The primary difficulty identified by Ms Grove relates to a term of the franchise agreement under which the applicant was guaranteed work availability to the value of $800.00 per week. The franchise agreement operated on the basis that if the franchisee did not receive work to that value, he was obliged to offer services free of charge as a promotional gesture to householders never before serviced by the business. The franchisor was then obliged to pay the franchisee for the provision of those services, in accordance with the terms of the agreement. It appears on the information supplied that the applicant exceeded the guaranteed minimum amount for the period, which equated to $8,178.00 exclusive of GST. However, the income recorded by the applicant totalled only $5,034.67. It seems in this way that Ms Grove took the view that earnings are not necessarily represented by income received and that "invariably not all income received in a cash business is necessarily deposited". Ms Grove then reviewed the daily schedules for the business, calculated an average weekly charges figure and utilised that to calculate (i.e. estimate) earnings for the period of three months. The calculation also assumes that the applicant worked six days each week over the relevant period. There are a number of difficulties with these assumptions. As the applicant has deposed in reply, he started the business off with 33 clients and worked up to 55 clients. No account was taken of rain, public holidays, sick leave or bad debts. He deposed that he did not work full time, six days per week, as he was not fit enough and only worked on Saturdays when it would have been caused by rain earlier in the week. 9 The applicant also denied the suggestion that he had failed to deposit all income received in the business. There was a requirement of the franchisor that all cash and cheques be deposited into the bank account. Bank statements and deposit books show both cash and cheques were deposited. 10 Other items of expense criticised by Ms Grove were bank charges, in respect of which the applicant has accepted that they might be disregarded; depreciation of $1,717.00 which Ms Grove contended was an inappropriate deduction for this purpose. The applicant contended that depreciation was a real and ultimate cost that he would have to bear on the loss of the value of all capital equipment needing to be replaced and was thus a real expense. I concur in that view. 11 An issue arose about the cost of a uniform worn in the conduct of the business which is trivial and should be reduced by $90.00. 12 The real difference between the parties arises between the contention by the applicant, supported by his affidavit material, that his records record all income of the business including all cash, and Ms Grove's assumption to the contrary and her assumption that daily work sheets could be extrapolated over the whole period on the basis of a six day week. Whilst it is not uncommon in one's experience to find the cash received in a business might not always be accounted for, it is another matter where the court has before it evidence on that issue which asserts, without contradiction, the contrary. I consider it would be an unsound approach for the court to ignore the income recorded in the applicant's taxation returns, particularly when there are other factors which would tend to support the lower level of income, namely a growing clientele, the fact that six days per week was not worked, the occurrence of rain, public holidays, etc. To infer an income at the higher level, in those circumstances, has a touch of unreality about it. 13 While those acting for the applicant informed the solicitors for the respondent that the applicant had exceeded the weekly guarantee level, the applicant's affidavit sworn 9 December 2003 explains his view about that. He did not understand himself to have any right to claim under the guarantee. That is a view I am not able to understand if the work availability supplied by the franchisor was below the value of $800.00 per week unless, of course, the capacity to earn was affected by external events such as rain. This does not seem to have been the case. Therefore, the position would seem to be that the applicant might have had a right under the franchise agreement which he failed to exercise. If that be so there is no warrant for the respondent to be visited with the burden of that failure. It seems to be appropriate in those circumstances to treat the guaranteed minimum amount payable under the franchise agreement as the relevant income sum. That amount is $8,178.00 from which the expenses of the business need to be deducted. I would give the applicant full credit for the expenses recorded in his accountant's profit and loss statement save in respect of bank fees ($42.86) and allowing a reduction in respect of uniforms of $90.00. I would afford the applicant full credit in respect of depreciation. Whether that be viewed as a matter of theoretical expense or not, the subsequent sale of the business at a substantial loss seems to me to support the conclusion. 14 Accordingly, I would assess income at $8,178.00 which will be reduced by $5,571.00 in relation to expenses giving a net income of $2,607.00 for the relevant period of three months. Adjusted to Australian dollars, this becomes $2,126.00 which leaves payable, after mitigation, $23,286.10. Interest 15 As I have noted, the respondent has calculated interest up to 15 May 2002, a date which appears to have no relevance in the proceedings. The applicant submits that interest should be payable, in accordance with the usual practise of the Commission, from the date of commencement of the proceedings until the date of this judgment (see Abboud v New South Wales Department of Education (2000) 99 IR 299 at 307 approved by the Full Bench in King v State Bank of New South Wales (No 3) [2003] NSWIRComm 308). 16 The applicant also advances, in support of its claim for interest to run until final judgment, the fact that the respondent has chosen to make no payment to the applicant of what the respondent believed was owing under the court's orders. The respondent has had the benefit of the amount it contends is payable, $17,640.55, from the date of the primary judgment, 10 March 2003 until the present. It was submitted that the respondent has deprived the applicant of interest on that sum accordingly. 17 There is nothing, in my view, to distinguish this from the usual case. In the exercise of discretion, I would order that the respondent pay the applicant interest on the judgment sum as determined by this judgment, such interest to be at the Supreme Court rates and to run from the date of initiation of the proceedings, 14 July 2000, until the date of this judgment. Costs 18 Costs are in the discretion of the Commission (s181(1)(b). See also Part 27 of the Commission's rules). 19 It is now well settled that the usual costs order in s106 proceedings will be that costs on a party/party basis be awarded to the successful party. The discretion to award costs may, of course, cause a different approach in circumstances which justify it. Here the respondent argues that the applicant ought not be awarded his costs in the proceedings because the conduct of the applicant was such as to constitute special circumstances warranting a departure from the usual costs order. The respondent referred to the words of Viscount Cave LC in Donald Campbell & Co Ltd v Pollack (1927) AC 732 where the view is taken in the light of the "facts connected with or leading up to the litigation which had been proved or . . .observed during the progress of the case". 20 It was submitted that despite the court's not having held that the applicant abandoned his employment, his conduct was the overwhelming cause of the uncertainty and difficulties in the employment relationship and that his conduct and attitude were inexorably linked with the events which gave rise to the litigation. 21 I consider that puts the matter too strongly. This was a case in which the parties had their difficulties and where the respondent took the view the applicant had abandoned his employment. This was held not to be so and the contract was held unfair in providing only two week's notice for the applicant. Three month's notice was substituted. In the ordinary course, I would not think the applicant's position to warrant any reduction or avoidance of the usual costs order. 22 In fact the applicant claims costs on an indemnity basis from 15 May 2002 and on a party/party basis for the period prior to that. This submission is predicated on the amount awarded as a consequence of the earlier consideration in this judgment exceeding an offer of compromise made by the applicant on 15 May 2002 that the applicant would settle the proceedings on the basis the respondent paid to him an amount of $24,000.00 inclusive of interest plus costs as agreed or taxed. The offer was made pursuant to Part 23 of the Commission's Rules. 23 Rule 216 of the Commission's Rules, and in particular sub-rule 4 and 8 support the approach the applicant takes. The applicant is, thereby, entitled to an order of the type he seeks subject to any other countervailing feature which, as I have observed, do not exist. I therefore order that the respondent pay the applicant's costs of the proceedings on a party/party basis up to 15 May 2002 and on an indemnity basis thereafter. The costs shall be in an amount as may be agreed or, in the absence of agreement, as assessed. DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.