Industrial Court of New South Wales CITATION: All-Fect Distributors Pty Limited and Ors v Stewart [2006] NSWIRComm 239 ALL-FECT DISTRIBUTORS PTY LTD First Appellant FRED JOSEPH ESSEY Second Appellant PARTIES: JOSEPH FRED ESSEY Third Appellant PAUL FRED ESSEY Fourth Appellant GEORGE STEWART Respondent FILE NUMBER(S): IRC 2658 of 2006 CORAM: Schmidt J CATCHWORDS: Appeal - application for stay - independent contractor - money orders against corporate and personal appellants - balance of convenience - prospects of success of appeal - whether appeal might be rendered nugatory if stay not granted - evidence of respondent's financial circumstances - appeal raises questions of operation of ss 105 and 106 in the case of an independent contractual arrangement not designed to avoid the provisions of an award but having that effect in an objective sense and money orders made against personal appellants - stay granted on terms LEGISLATION CITED: Industrial Relations Act 1996 Brown v Rezitis (1970) 127 CLR 157 George Stewart v All-Fect Distributors Limited and others [2006] NSWIRComm 195 CASES CITED: Mozzini v Dean [1970] AR (NSW) 1 The Federated Miscellaneous Workers' Union of Australia, New South Wales Branch v Wilson Parking (NSW) Pty Ltd and others [1980] AR (NSW) 352 Wheatley v Armstrong [1995] NSWIRComm 3 HEARING DATES: 19/07/06 EXTEMPORE JUDGMENT DATE: 07/19/2006 APPELLANTS: Mr J Hassett, Solicitor SOLICITORS: Hassett Dixon LEGAL REPRESENTATIVES: RESPONDENT: Mr D Shoebridge of counsel SOLICITORS: Employment Lawyers JUDGMENT: - 9 - INDUSTRIAL COURT OF NEW SOUTH WALES CORAM: Schmidt J 19 July 2006 Matter No IRC 2658 of 2006 ALL-FECT DISTRIBUTORS LIMITED AND OTHERS v GEORGE STEWART Application by All-Fect Distributors Limited for leave to appeal and appeal against an judgment of Justice Boland given on 19.6.2006 in matter no. IRC 4435 of 2003 EXTEMPORE JUDGMENT [2006] NSWIRComm 239 1 The appellants have filed an application for leave to appeal and appeal from a judgment given by Boland J on 19 June 2006 (George Stewart v All-Fect Distributors Limited and others [2006] NSWIRComm 195). A stay was also sought. This judgment deals with the question of the stay. 2 His Honour declared that a contract entered between George Stewart and All-Fect Distributors Pty Ltd in early 1994 was an unfair contract; ordered its variation by the insertion of a new provision, requiring Mr Stewart to be remunerated at half the rate of that of an employee to whom the Commercial Travellers &c (State) Award applied, and the payment of $52,000 to Mr Stewart, apportioned as between the appellants. An order for costs was also made. 3 The application for stay was pressed on the basis that it was common ground that the respondent was impecunious and that if a stay were not granted, it was likely that any money paid to the respondent would be dissipated, rendering the appeal nugatory. 4 The appellants submitted that they had an arguable case on the evidence; the parties had contracted with each other on the understanding that the respondent was an independent contractor, operating his own business and not subject to the appellants' control, in the way that employees were controlled. The effect of the orders made was to treat the respondent as if he were an employee, to whom the provision of an award applied, discounted by 50%. This approach was submitted to involve an error of law and to be untenable, resulting in significant injustice to the appellants. The result was that they had been made responsible for underwriting the success of the respondent's business, even though the appellants were never in a position to control that business. It was further argued that Boland J had erred in applying the High Court's judgment in Brown v Rezitis (1970) 127 CLR 157 to the second to fourth appellants. 5 The balance of convenience was argued not seriously to be in issue, given the evidence as to the respondent's financial position. It clearly fell in favour of the grant of the stay. 6 The respondent submitted that the appeal had no real prospects of success, given the findings at first instance that the respondent was an independent contractor; that the appellants had benefited from the termination of the respondent's contract and that the parties bargain was very one-sided, having resulted in an income well below what the respondent would have received if he had been an employee. The finding of unfairness which followed was unremarkable, given the provisions of s 105 of the Industrial Relations Act 1996 ('the Act'). In reality, the appeal involved a complaint as to the provisions of s 105 of the Act not the conclusions reached. The approach adopted by Boland J to the quantification of the money orders was unremarkable in the light of the findings of unfairness made, as were the orders made against the individual appellants. 7 The respondent conceded the Court's power to grant the stay sought under s 190 of the Act, but submitted that there was no evidence which could properly lead to a finding of impecuniosity. If a stay were to be ordered, it was submitted that it should be on terms, which would involve the payment of $26,000 to the respondent and $26,000 to be held on trust, together with other orders in relation to costs and interest. Consideration 8 The law in relation to the issue of a stay is well settled. The onus falls on the appellant for the stay. Consideration must be given, amongst other things, to the balance of convenience, the competing rights of the parties, the prospects of success of the appeal, at least in a preliminary way and whether or not the appeal might be rendered nugatory, if the stay were not granted. 9 Given the evidence at trial as to the respondent's financial position, having regard to his limited income between 1992 and 2004; that he has no substantial assets and rents his house, there can be no question that there is a risk of dissipation of any moneys paid pursuant to the orders made by Boland J, so as to potentially make the appeal nugatory, if the stay were not granted. 10 That the appeal has prospects of success, must also be accepted, notwithstanding the requirement for leave to appeal to be granted. 11 Boland J found that the parties entered an agreement in 1994 when the respondent was 64 years of age, that the respondent would sell the appellants' confectionary products. The respondent had previously traded as a sole trader, making only a marginal income. He approached the appellants, seeking a position, because he wanted to give away his wholesaling business. The respondent's evidence was that he understood he was to be an employee. The appellants' case was that there was no such arrangement ever entered. The appellants employed various sales staff, who were paid and treated as employees. The arrangement with the respondent was on quite different terms, which he understood. 12 Boland J rejected the respondent's claim, finding him not to be 'altogether convincing in his evidence' (at [59]) and noting his concession in cross examination that he didn't think he was an employee (at [65]). Boland J was also critical of the evidence given by various of the appellants, (at [66] to [72]), however he concluded that the parties' relationship was not that of employer and employee. 13 On the evidence, Boland J concluded, amongst other things, that the respondent was an independent contractor. While he was assigned a territory, that was not an indicia of employment, particularly given the customers the respondent in fact serviced; he was free to develop the territory to maximise his income; there was no restriction on him working for another supplier and he did so, although at least initially his time was consumed with the appellants' business ; he could sell confectionary products not supplied by the appellants and did so; the hours he worked were up to him, determined by the number of customers serviced and the imperative of making sufficient sales; he had no fixed quota or target and no fixed hours of work and was not under the appellants' day-to-day supervision; he claimed tax deductions for the use of his home and garage for business purposes; he provided tools and equipment, including a van and mobile phone; he bore the expense of operating and servicing the vehicle and incurred significant business expenses thereby; there was no requirement to wear uniforms and display signage provided by the appellants and no PAYE tax was ever deducted from his payments; there was no salary or wages paid, he invoiced the respondent for commission on sales made; no holidays, annual leave, sick leave or long service leave was ever provided. 14 His Honour concluded that while evidence existed to suggest that the respondent was an employee, on balance, on all of the evidence, he was an independent contractor. 15 His Honour also concluded that the respondent approached the appellants and was offered a commission agents position which he expected 'would provide a better income than what he was achieving in his wholesale confectionary business' [121]. The appellants were not in a dominant bargaining position and the respondent was under no pressure to take up the position offered [122]. There was no misrepresentation or dominance of bargaining power by the appellants [124]. 16 The contract was terminated in 1996, but a second contract was then entered. This led Boland J to conclude at [125] to [127]: 125 In 1996, Fred Essey terminated the contract with the applicant. The effect of this was that the applicant was left with nothing from his two years with the first respondent or from his previous wholesale confectionery business. The applicant had, in effect, lost his previous clientele from his Eastern suburbs territory because it had been subsumed into the respondents' business. The respondents thereby benefited, not only from the addition to their business of the applicant's former customers, or at least some of them, but this was achieved at minimal cost to the respondents, that cost being only the commission on sales paid to the applicant. 126 I have the impression from the evidence that in approaching Fred Essey the second time for work there was a hint of desperation on the part of the applicant that was never fully explained. That is to say, for some reason (perhaps impecuniosity) the applicant was desperate to be re-engaged by the first respondent and accepted sales territory in the Western suburbs and Sutherland Shire, basically on the same conditions as the previous arrangement. 127 It may have been that Fred Essey was sympathetic to the applicant's personal plight, as he stated in his evidence, and that was the reason why he offered the applicant the Western suburbs and Sutherland Shire. But when one considers the whole of the relationship over the nine-year period that it existed, despite the fact that Mr Stewart freely entered into the contracts with the first respondent on two occasions and never complained about its terms for the whole of that period, an unavoidable conclusion is that it was a very one sided bargain; the first respondent expanded and serviced its customer base in the areas assigned to Mr Stewart at minimal cost to the first respondent. The respondents accepted the benefit of the applicant working up to 44 hours each week on occasions selling their products and it would have been obvious to them that the applicant would have no time left to engage in a business of his own. For his part, Mr Stewart received commission on sales that represented an income, but well below that he would have received if he had been an employed sales representative. At the end of nine years with the first respondent the applicant was left with less than what he started with. 17 His Honour concluded that the contract was against the public interest, referring to the approach of Dey J in The Federated Miscellaneous Workers' Union of Australia, New South Wales Branch v Wilson Parking (NSW) Pty Ltd and Others [1980] AR (NSW) 352 and that of Marks J in and Wheatley v Armstrong [1995] NSWIRComm 3. His Honour expressly concluded on the evidence that while the contracts here in question were not designed to avoid the provisions of the Commercial Travellers Award, they had the practical effect of avoiding its terms, 'in an objective sense' [142]. He took the view that if the award had applied to the parties' contract, the difference between the applicant's pre tax earnings before deductions and the minimum annual award remuneration between the period 1 July 1995 and 25 April 2003, was $103,990. 18 His Honour noted the Court's discretion to decline to make money orders. In the circumstances before him, he declined to make orders for annual leave, notice and severance pay, long service leave and superannuation, given the respondent's willing acceptance of an independent contractor's position, but ordered the payment of half of the underpayment of award rates claimed, including a locomotion allowance. In doing so his Honour also had regard to the respondent's claim that he worked up to 44 hours per week on occasions, selling the appellants' products, which his Honour had, however rejected, inclining to the belief that he worked about 38 - 40 hours per week, they being the hours another commission agent, Mr Kostidis worked (at [86]). 19 The appellants complain that his Honour erred in the approach adopted, failing to have regard to the evidence that the respondent was always free to do what he wanted with his time; that the appellants were not ever aware of what he was, in fact doing; that he engaged in other unrelated business activity and was not ever controlled by them in the way in which their employed salesmen were controlled. The evidence also showed that Mr Kostidis, another commission agent engaged under a similar arrangement, made a success of his business, evidence to which Boland J had insufficient regard. 20 The effect of the decision was to require the appellants to underwrite the success of the business the respondent had conducted and to guarantee certain minimum income levels, even though they were never in a position to control how the business was conducted, or the hours in fact worked by the respondent in the business. The decision gave the respondent the obligations of an employer, but not the rights which an employer also enjoyed. The appellants never had monitored the respondent's activities, but after 9 years without complaint by the respondent, they were made responsible for ensuring that his business generated at least the income of an award employee, no matter how little attention the respondent in fact paid to his business. 21 The appeal raises the proper operation of ss 105(c) and (d) and s 106 of the Act, in circumstances where the parties have exercised their undoubted right to enter into an independent contractual arrangement, as his Honour found. This was not a case where an employee had been underpaid award wages, where the parties had entered into a sham arrangement, or where there was any misrepresentation or unequal bargaining power found. In those circumstances, a question arises as to whether the sections envisage that the income generated by such a business, which involves a business risk taken by an independent contractor, having regard to the time and attention paid to the business, must be at least equivalent to that flowing from an applicable award, if the work had been performed by an employee. In part, this also involves consideration of matters such as the hours worked in the business and matters of the kind considered by McKeon J in Mozzini v Dean [1970] AR (NSW) 1 at 6. 22 The appeal also raises the question of whether the decision to impose personal liability on persons not party to the contract in question, was exercised in accordance with the applicable authority, having regards to the connection between the personal appellants and the unfairness found. 23 While undoubtedly the respondent has an interest in maintaining the fruits of his victory, I am satisfied that the balance of convenience in this case falls in favour of the grant of the stay, albeit on terms. The parties agreed that the hearing below must conclude on the question of costs and the calculation of interest. As to the money orders already made, in my view, these orders should be stayed, on terms which the parties agreed. 24 I accordingly, make the following orders: 1. That orders 1, 2 and 3 of his Honour Boland J of 19 June 2005 in proceedings numbered IRC 4435/03 be stayed pending further order of the following terms. 2. Within 14 days of today's date the appellants pay $52,000.00 to the respondent's solicitor to be held, in addition to any interest thereon in trust in a controlled monies account subject to further order of this Court. 3. Within 14 days of any decision of his Honour Boland J as to interest that any such monies due and payable as to interest by order of his Honour Boland J are to be paid to the respondent's solicitor to be held, in addition to any interest thereon, on trust in a controlled monies account subject to further order of this Court. 4. Liberty to apply. 5. Costs in the cause. ------------------------ DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. 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