Industrial Court of New South Wales CITATION: Ceccato v Almona [2007] NSWIRComm 318 This decision has been amended. Please see the end of the judgment for a list of the amendments. APPLICANT Phillip Ceccato PARTIES: RESPONDENT Almona Pty Ltd FILE NUMBER(S): IRC 4871 of 2005 CORAM: Staff J Breach of Annual Holidays Act and Long Service Leave Act - Recovery of unpaid annual leave and long service leave upon termination of employment - Whether payment of annual leave made in lieu of taking holidays - Whether payments made after termination were intended to be a payment in respect of long service leave and thus able to be set off against claim for such payment - Held - Employee entitled to payment for annual leave and long service leave - Orders made - Section 365 of Industrial Relations Act CATCHWORDS: Annual leave - Breach of Annual Holidays Act and Long Service Leave Act - Recovery of unpaid annual leave and long service leave upon termination of employment - Whether payment of annual leave made in lieu of taking holidays - Whether payments made after termination were intended to be a payment in respect of long service leave and thus able to be set off against claim for such payment - Held - Employee entitled to payment for annual leave and long service leave - Orders made - Section 365 of Industrial Relations Act Long Service Leave - Breach of Annual Holidays Act and Long Service Leave Act - Recovery of unpaid annual leave and long service leave upon termination of employment - Whether payment of annual leave made in lieu of taking holidays - Whether payments made after termination were intended to be a payment in respect of long service leave and thus able to be set off against claim for such payment - Held - Employee entitled to payment for annual leave and long service leave - Orders made - Section 365 of Industrial Relations Act Annual Holidays Act 1944 LEGISLATION CITED: Industrial Relations Act 1996 Industrial Relations (General) Regulation 2001 Long Service Leave Act 1955 Australian and New Zealand Banking Group v Finance Sector Union of Australia (2001) 111 IR 227 J Scott Pty Limited v Stapp (1960) AR 300 CASES CITED: Pacific Publications Pty Ltd v Cantlon (1983) 4 IR 415 Payne v Howison (unreported, IRC 5432 of 1996, 26 September 1997, Cahill VP, Hill and Marks JJ) Poletti v Ecob (No 2) (1989) 31 IR 321 Ray v Radano (1967) AR 471 HEARING DATES: 8 November 2007, 9 November 2007 and 28 November 2007. DATE OF JUDGMENT: 18 December 2007 APPLICANT Ms K Nomchong of counsel Solicitor: Mr M J Barnes White Barnes LEGAL REPRESENTATIVES: RESPONDENT Mr A Britt of counsel Solicitor: Mr J Tsatsimas JR Lawyers JUDGMENT: - 1 - INDUSTRIAL COURT OF NEW SOUTH WALES CORAM: Staff J 18 December 2007 Matter No IRC 4871 of 2005 PHILLIP CECCATO v ALMONA PTY LTD Application for recovery of money pursuant to s 365 of the Industrial Relations Act 1996 JUDGMENT [2007] NSWIRComm 318 1 Phillip Ceccato ("the applicant") was employed by Almona Pty Ltd ("the respondent") for 22½ years. During this period, he was entitled to 90 weeks annual leave. It is agreed between the parties that during the employment period, the applicant was granted and took 11 weeks annual leave. However, the applicant contends that he only received paid leave for five of these weeks, resulting in an entitlement to 85 weeks annual leave at ordinary earnings at the date of his termination. The applicant also contends that he was not paid long service leave at termination. 2 The respondent denies virtually all the allegations made by Mr Ceccato. It says that he was paid in lieu of annual leave when he did not take such leave and that he was paid his long service leave after resigning his employment. 3 Mr Ceccato seeks relief under s 365 of the Industrial Relations Act 1996 ("the Act"). This section provides: 365 Order for recovery of remuneration and other amounts payable under industrial instrument An industrial court may, on application, order an employer to pay any amount payable under an industrial instrument that remains unpaid to the person to whom it is payable. 4 The orders sought are: 1. the Respondent shall pay to the Applicant the sum of $128,040 gross in respect of accrued annual leave pursuant to the Annual Holidays Act 1944; 2. the Respondent shall pay to the Applicant the sum of $27,742.49 gross in respect of accrued long service leave pursuant to the Long Service Leave Act 1955; 3. the Respondent shall pay interest on the total of the sums set out orders 1 & 2 at the rates prescribed by Schedule 5 of the Uniform Civil Procedure Rules 2005 from 28 December 2004 to the date of judgment. 5 At the outset of the proceedings, the parties agreed to the following facts and matters: 1. The Applicant was employed by the Respondent from 1 July 1982 until 27 December 2007 being a period of 22½ years ("the employment period"). 2. During the employment period the Applicant was granted and took eleven (11) weeks annual leave. 3. In 1982, the Applicant took two weeks annual leave and was paid his ordinary wages for those two weeks. 4. In 1983, 1984 and 1985, the Applicant was paid $1,000 cash in lieu of annual leave. He did not take the leave. 5. The Applicant and the Respondent are in dispute as to what payments (if any) were made in lieu of annual leave from 1985 to 2004. 6. The Applicant's rate of pay as at the date of termination of the employment was $1,455 gross per week. 7. Following the termination of his employment the Respondent made weekly payments of $1,455 gross to the Applicant for at least 27 weeks. The proper characterisation of these payments is in dispute. 8. During the course of employment period the Applicant and Mr Con Constantine, Managing Director of the Respondent developed a close personal relationship during which certain agreements and arrangements were reached in respect of wages, superannuation, taxation and loans (both to and from the Respondent), however, the nature of those agreements is in dispute and are now the subject of proceedings commenced in the District Court of New South Wales. 9. Following the termination of the employment, the parties have initiated litigation as follows: (a) The Application in those proceedings was filed on 19 September 2005; (b) Proceedings were commenced in the District Court of NSW by the Respondent on 3 February 2006; (c) A cross-claim was filed by the applicant in the District Court proceedings on 10 July 2007. Background 6 Mr Ceccato was employed by the respondent in various roles, which culminated in 1989 in his appointment as general manager, Parklea Markets, a position held until his resignation on 27 December 2004. It was common ground that during the course of his employment Mr Ceccato and Mr Con Constantine, the managing director of the respondent developed a strong personal relationship. It was in every sense akin to a father and son relationship and in my view is capable of explaining all of the applicant's conduct. There was no written contract between the parties during their 22½ year relationship. 7 At the time that Mr Ceccato commenced employment with the respondent, its primary business was operating a plant nursery at Annangrove. Mr Ceccato was 21 years of age and was employed on a fulltime basis earning initially about $200 nett per week. He was paid in cash and did not receive a pay slip. Mr Ceccato worked with Mr Constantine at the nursery, often for long hours, after which they would have a drink at the office and talk. Mr Ceccato says that it is difficult to identify some kind of defining moment when the relationship became not just employer/employee, but more of a friendship and a family-type relationship. During 1982-1983, Mr Ceccato became very close to Mr Constantine and his family, often going to his home for dinner with his family. They would talk about Mr Constantine's business and his plans for the future. 8 In 1984, as an example of their close friendship, Mr Ceccato says Mr Constantine approached him because he needed money to pay one of the employees his holiday pay. He said to Mr Ceccato that he did not have enough money to pay the employee and asked could he lend him some money. Mr Constantine's evidence is that Mr Ceccato and the employee came to an agreement where the applicant would give the employee his car. His car was worth about $1,000 and the employee accepted it in lieu of holiday pay. After this, Mr Ceccato used Mr Constantine's car, which was a company car. In assisting Mr Constantine, Mr Ceccato considered that he was contributing to "the family" company. Mr Ceccato also lent money to Mr Constantine during the early period of his employment. Annual Leave 9 In 1982, Mr Ceccato took two weeks annual leave and was paid his ordinary wages for that period. He deposed that at the end of 1983 he wanted to take annual leave for 2 weeks over Christmas and approached Mr Constantine for his approval. He stated that Mr Constantine rejected his request and said "No we're too busy, I'll pay you cash in lieu of holidays." Mr Constantine said that Mr Ceccato approached in him 1983, 1984 and 1985 and had a conversation in the following words: Mr Ceccato : "Con I need money instead of taking holidays. Pay me my holiday pay and I'll work." Mr Constantine: "Up to you." 10 In resolving the conflicts in the evidence between Mr Ceccato and Mr Constantine I have preferred the evidence of Mr Ceccato. In my view, he was a credible witness who made concessions when appropriate. On the other hand I found Mr Constantine to be evasive and, as will become clear, some of his evidence was completely improbable. 11 Mr Ceccato was paid $1,000 cash in lieu of annual leave for the years 1983, 1984 and 1985. He did not take leave in those years. Apart from these years, Mr Ceccato stated that he did not have any conversations with Mr Constantine during which he agreed to accept a payment in lieu of his annual leave. He was certain about this because he said from April 1986, Mr Constantine stopped paying him his regular wages because of financial difficulties with the business. 12 Mr Constantine's evidence was that for the years 1986 to 2004, Mr Ceccato was paid the equivalent of four weeks annual leave at Christmas each year, although he did not take such leave. 13 As to the nature of the Christmas payments, Mr Constantine gave the following evidence during cross-examination: Q. Right, now your evidence is that you paid him the holidays that he took? A. Correct. Q. And you paid him four weeks at the end of each year? A. Correct. Q. Why would you pay him the four weeks at the end of each year if you had already paid him during the year? A. Because he was a loyal worker, he was a good worker. Q. That doesn't make sense, does it, Mr Constantine? A. What doesn't make sense? Q. If he was only owed four weeks annual leave per year, and let's say in 2003 he took three weeks of it, why would you pay him a lump sum at the end of the year for another four weeks? A. Normally happens with every business in the world you reward your employees for (sic) giving them extra money, extra time. There is nothing wrong with that. Q. That sounds a bit more like a bonus than annual leave, was it a bonus? A. Call it what you like, I don't know it was extra money he got from me for being there for me. Q. I want to know what you call it, Mr Constantine, was it a bonus you gave him every Christmas? A. He got all his benefit. That was a plus. Q. Money that you say you gave at the end of the year, was that a bonus? A. Call it what you like. Q. I want to know what you call it, answer the question, money you say you gave Mr Ceccato at the end of the year, was that a bonus? A. Call it a bonus. 14 Mr Ceccato stated that in 1986 the financial position of the respondent was so difficult that it could not afford to pay him a basic wage let alone cash payments in lieu of annual leave. His evidence was that because of these financial difficulties, he did not draw his full wage. He only received a part payment of wages at the request of Mr Constantine. He stated that this was done to assist with the respondent's cash flow. Mr Ceccato gave evidence that this did not mean he was foregoing his entitlements, rather it meant that he was happy to wait until the respondent was able to pay him because he had developed a close friendship with Mr Constantine and he trusted him. 15 In the period between January 1986 and 27 December 2004, Mr Ceccato's evidence was that he took nine weeks annual leave. He stated that Mr Constantine sometimes paid his expenses when he was on leave such as petrol or airfares. Mr Ceccato said that he took unpaid annual leave during this period on the following dates: (a) A trip with Mr Constantine's sons to Hamilton Island for five days in 1986. (b) A trip to Queensland for two weeks in 1990 or 1991. (c) A trip to Perth for ten days around 1993/1994. (d) 15 days leave from 21 September to 7 October 1999. 16 It was suggested to Mr Ceccato that he took a trip to Europe in 1994 and that the respondent or Mr Constantine funded such a trip. This was denied. Mr Ceccato's evidence was he visited Europe in 2003. He accepted that Mr Constantine paid for the airfare and tour costs of this trip. These payments were viewed by Mr Ceccato as a bonus and he stated that there was no agreement that these payments be considered as a payment in lieu of annual leave. Mr Constantine's said that he informed Mr Ceccato that these payments were in lieu of annual leave and not a bonus. 17 During cross-examination, Mr Ceccato admitted that he received paid annual leave during the trip to Europe in 2003 which constituted three weeks annual leave. In respect of the September/October 1999 period, his bank records showed deposits of money. Mr Ceccato said a part of the money deposited in September 1999 could be attributed to "birthday money" received from his mother who gave him money for his birthday and at Christmas. However, he conceded that he was uncertain whether he had received any payment for those 15 days. In respect of the Perth trip, he stated that it was highly unlikely that he would have been paid. In respect of the trips in 1986 and to Queensland in 1990 or 1991, Mr Ceccato denied that he was paid his full wage. In respect of the trips to Queensland and Hamilton Island, Mr Ceccato stated that he only received an allowance of $100 per week whilst away. 18 From the early 1990s, Mr Ceccato stated that he became responsible for keeping annual holiday and wages records for the respondent. This was disputed by Mr Constantine who said that Mr Ceccato started keeping wages records from 1986 or 1987. Holiday and wage records were kept in a Zion wage book or in his market diary until 2004. It was Mr Ceccato's evidence that he did not receive any formal training in relation to bookkeeping. He stated that Mr Constantine did not give him any direction in respect of how to keep annual leave or long service leave records for employees of the respondent. Mr Ceccato explained that he learnt about bookkeeping on the job. 19 During cross-examination, Mr Constantine was taken to the respondent's wages record for the financial year ending 30 June 2004. These documents were produced by the respondent's accountants. The wages record noted four entries for Mr Ceccato of $800 net per week on the 5, 12, 19 and 26 December 2003. Mr Constantine was unable to explain why there was no additional entry recording the payment of four weeks annual leave in lieu for Mr Ceccato. The records showed only 52 wage payments to Mr Ceccato. If Mr Constantine's contention that payments in lieu of annual leave were made, there should have been 56 wage payments shown in the records. I shall return to this evidence later in the judgment. Long Service Leave 20 It was common ground that Mr Ceccato was paid for 27 weeks after he resigned his employment. Mr Ceccato was not aware that the payments made after the date of his termination were in settlement of any leave entitlements owed to him. He believed that Mr Constantine was making ex gratia payments or paying him his back wages. Mr Constantine's evidence was that following Mr Ceccato's resignation he calculated approximately what the respondent owed to him in terms of long service leave and continued to deposit moneys into Mr Ceccato's account until mid July 2005. There was no documentation forwarded by the respondent to Mr Ceccato which explained the nature of these post-termination payments. 21 The first time Mr Ceccato became aware that the respondent considered that the payments represented long service leave was when he read Mr Constantine's affidavit for the purposes of the current proceedings. 22 Mr Constantine said that the respondent did not put aside funds for accrued annual leave as its financial position enabled the respondent to pay out such amounts of long service leave if any employee decided to leave. However, after examining letters provided to Mr Constantine from the respondent's accountants dated 21 December 2001 he admitted that the respondent did put money aside in 2000 and 2001 for accrued leave entitlements. Evidence in respect of back pay and loans 23 Both parties agreed during their evidence that wages were paid to Mr Ceccato in cash from the takings of the respondent until the end of 2003. From 2004, it was also agreed between the parties that Mr Ceccato's full wage was directly deposited into his bank account. 24 Mr Ceccato gave evidence that he was underpaid by the respondent from the years 1986 to 2003. Mr Ceccato stated he had only received a part of his wage due to an agreement reached with Mr Constantine in 1986 that he would take only living expenses. Mr Ceccato says he was assured by Mr Constantine that he would be paid when the respondent's situation improved. This was at the time the business was experiencing difficulties and a cash flow problem. The respondent denied that Mr Ceccato had been underpaid or that there was an agreement to reduce his wages and pay him at a later time. It was Mr Constantine's affidavit evidence that Mr Ceccato continued to receive his regular wages after April 1986. Further Mr Constantine denied that the respondent had any cash flow problems. It was accepted by both parties that Mr Ceccato received his full wage in 2004. 25 At this time (1989), Mr Ceccato says the Parklea Plant Market had just opened and the respondent had massive debts. Further, the respondent had faced a huge legal battle with Blacktown City Council over obtaining the development approval for the variety market at Parklea. The Council rejected the application and Mr Constantine challenged the decision in the Land and Environment Court. As a consequence the respondent had a substantial legal bill. Mr Ceccato stated that he knew the respondent had cash flow problems at this time as Mr Constantine would regularly discuss the respondent's financial situation with him. 26 It was Mr Ceccato's evidence that by February 1999 the respondent was doing well and that the cash flow was no longer a problem. In July 1999 he stated he had the following conversation with Mr Constantine: Mr Ceccato: Con, you've said to me twice you would get back to me about paying me properly. You haven't told me if you will or not - what's going on?" Mr Constantine: I said I will work it out and get back to you and I will. 27 Mr Ceccato in his affidavit summarised his income and payments received during his employment as follows: (a) 1986-1991 $100 per week living expenses (b) 1992-2003 $250 per week living expenses and $500 net (c) 2004/2005 $1,000 per week (wages for 1 year and payments made by the respondent to Mr Ceccato after termination) 28 Mr Ceccato says that he received the following lump sums in lieu of wages from Mr Constantine: 1991: $272,000 for the purchase of a property known as Maraylya 1996: $80,000 for the purchase of properties at Marsden Park and Riverstone 2004: $206,155.05 for the building of a house 29 Mr Constantine stated that these lump sum payments were loans to Mr Ceccato and that these sums have not been repaid. The respondent agreed with the amounts paid in 1991 and 1996, but argued that the amount paid for building Mr Ceccato's house was $206,000 with the balance of $250,000 being made up by construction costs incurred by one of Mr Constantine's companies. In cross-examination Mr Constantine stated that he had paid $250,000 towards the building of Mr Ceccato's house. This matter is the subject of the District Court proceedings. 30 Mr Ceccato's evidence during cross-examination was that Mr Constantine always said to him that he would look after him and pay him his full wage when he was able to do so. He said Mr Constantine told him in 1999, when he asked for his back pay: "I'm looking after you, I will look at it, I will get back to you". Mr Constantine denied saying this to Mr Ceccato. He said that he told Mr Ceccato "you are getting more than you are supposed to now." 31 During his oral evidence, Mr Constantine made the following corrections to his affidavit sworn 12 March 2007. He stated that he paid Mr Ceccato the following amounts: (a) 1986-1991 $200 net per week (b) 1992-1999 $250 net per week increasing to $910 gross per week (The original amount was $980 gross per week) (c) 2000-2001 $985.00 gross per week (from $1,060.77) (d) 2001-2003 $1,021.43 gross per week (from $1,100) (e) 2003-2004 $1,277.50 gross per week (from $1,186.25) (f) 2004-2005 $1,455.00 gross per week 32 The corrected figures represent 56 equal payments of Mr Ceccato's annual salary as stated in his group certificates. The original figures represented 52 equal payments of his annual salary. Mr Constantine's corrections are contrary to the wage records for the financial year ending 30 June 2004 produced by the respondent's accountants which record only 52 wage payments for that year to which I have already referred. 33 Mr Constantine's affidavit evidence was that Mr Ceccato had received $1,000 net per week or $1,186.25 gross per week for the financial year ending 30 June 2004. However, he was unable to reconcile this figure with Mr Ceccato's wage records produced by his accountants which showed that he received $800 per week from July 2003 to December 2003. 34 During re-examination, Mr Ceccato was taken to his bank statements which covered the period 14 January 1983 to 31 December 2004. The bank statements recorded the following entries: (a) 22 November 1984 a loan of $28,519.91 to the respondent (b) 24 December 1985 a deposit of $2,000 for holiday pay (c) From 1986 to 1996 there were no deposits in respect of wages recorded. Mr Ceccato explained that he only received a modest income at the time so he was unable to make wage deposits (April 1986 - September 1991 $100.00 per week net and September 1991 - 1996 $250.00 per week net). (d) In 1997 there were regular deposits made into Mr Ceccato's account of either $2,000 or $2,500 every month. (e) 29 December 1997 a deposit of $5,000. Mr Ceccato stated that this amount was for wages in November and December. He did not receive any other moneys from the respondent during that period. (f) 5 January 2004 a deposit of $20,000. Mr Ceccato explained that the amount was the sum of $2,000 for wages and $18,000 being reimbursement from Mr Constantine for a car he had bought for his own use. 35 Mr Constantine said that from 1982 to the present day, he personally had millions of dollars in assets. When asked in cross-examination why he had borrowed $48,000 (the actual figure was $43,519.91) from Mr Ceccato when he had millions in assets and holdings, Mr Constantine said that Mr Ceccato had offered the loan to him and there was an arrangement that he would lend the money back to Mr Ceccato to buy property. He denied that the respondent borrowed the money as a result of cash flow problems. However, he did admit that in 1987-88, when interest rates went from 9 to 16 percent, that the respondent had struggled with its cash flow and had difficulty meeting its enormous debt obligations. 36 Mr Constantine stated that he had notified the accountants of the lump sum loans allegedly made to Mr Ceccato, however there was no record of such loans contained in the financial records of the respondent. Although the balance sheet of the respondent for the year ending in June 2004 showed a loan of $50,000 to his son, Mr Constantine was unable to explain why such large loans to Mr Ceccato were not recorded. Further, he was unable to explain the non-existence of legal documents for any of these alleged loans other than to say that he trusted Mr Ceccato. I find this explanation difficult to accept. However, in light of the District Court proceedings I do not propose to make any findings in respect of these issues. 37 Mr Ceccato stated that he had made requests to Mr Constantine for the payment of his outstanding wages from 1986 to 1996. Although he agreed he was paid back pay in 1991 and 1996, he said that he was willing to accept the explanations of Mr Constantine that he would be paid when the respondent's cash flow situation improved. Mr Ceccato says that in February 1999, he asked Mr Constantine if he could be paid properly. The markets were doing well and cash flow was no longer a problem. He wanted to build a house on his land and provide for his son. He said he was sick of living in a shed and caravan. His evidence is he said to Mr Constantine: "The markets are doing well. Cash flow is good. Can you pay me my full wage now? I'd like the money?" Mr Constantine said: "Ok. I'll work it out and get back to you next week." Mr Constantine did not get back to Mr Ceccato. In the beginning of March 1999, Mr Ceccato says that he again said to Mr Constantine: "You didn't get back to me. Can you start to pay me a full wage again? I want to build a house on my land." Mr Constantine said: "Ok. I'll have to work it out and get back to you." Nothing happened and again Mr Ceccato says he had a similar conversation with Mr Constantine in July 1999. Once again, nothing happened and on 21 September 1999, Mr Ceccato said to Mr Constantine: "What have you decided to pay me Con? I've had enough of living in the shed. I'm sick of living like a dog. I've worked long and hard enough. How much money are you going to pay me? You owe me for back pay from 1991. Ok?" Mr Constantine said: "Ok. I told you I would work it out." 38 Mr Constantine refused to give Mr Ceccato an answer about how much he would actually pay him which caused Mr Ceccato to say: "I'm not going to come to work until you tell me whether you will pay me properly. You promised me you would work it out months ago. I'm not coming in until you tell me how much you are going to pay me. Things are going well for you. We can afford to do it now." 39 It was mid afternoon. Mr Ceccato left the office and went home. He waited for Mr Constantine to call. He says he considered he was on leave and he has included this period in the eleven weeks of leave received. Mr Ceccato says that he subsequently had a discussion on the telephone with Mr Constantine who said: "Phil, I have thought about it and I will work it out. Come back to work. Ok?" Although Mr Ceccato was still upset, he agreed and returned to work on 7 October 1999. He said that he was relieved to have things smoothed over with Mr Constantine. He had been very stressed in the two weeks he had been away and also concerned about his close personal friendship with him. 40 Mr Ceccato believed that he would receive his back pay as he had in 1991 through lump sums. He had stopped making such requests in 1996 as Mr Constantine had a divorce settlement with his ex-wife which involved substantial sums of moneys. However, Mr Constantine stated that the divorce settlement did not make a significant dent in the financial situation of the respondent. He was able to sell a property for $9.6 million and use the funds to settle his divorce. 41 Mr A Britt of counsel, who appeared for the respondent, took Mr Ceccato to his tax returns for the years he had worked for the respondent. For the financial year ending 30 June 1997 the tax records stated that Mr Ceccato earned $50,960 which did not equate to the $750 per week net he claimed to have received from the respondent. Mr Ceccato gave the following evidence: Q. You have told the tax man that your income was $50,960, have you not? A. Yes. Q. You have told the tax man that you had deducted from that a sum of $15,600? A. Yes Q. That reflected, sir, the group certificate that was provided to you by Almona? A. Yes. Q You would agree with me, sir, you did not tell the tax man that at the time you were only earning $250 per week living expenses and $500 per week in wages, did you? A. No. Q. But that is what you are telling this court, are you not? A. My wages were very complicated; I only took part of any wage, which was the agreement, that Con had asked me to forfeit wages. I was not in control of how much tax I should pay, that was Con's obligation to organise tax on my income. So the part I was getting was not necessarily the same as what I showed on the group certificate and it was not my position to query that as an employee. I was so dedicated to Con I was not in a position to query his judgment or tell the authorities or change the situation. Q. Mr Constantine did not tell you how to fill your tax return in? A. No; he told me how much group tax I should pay. Q. Just answer my question: he did not tell you how you should fill your tax return in? A. No. Q. That was your decision to tell the tax man your income and how much tax you were paying? A. Yes. Q. That reflected what was in your group certificate? A. Yes. Q. You did not tell the tax man: listen, I am actually not receiving that sum of money, I am receiving another sum of money; did you? A. No Q. In fact, sir, when you got a tax refund you got a benefit, didn't you based upon the tax that had been remitted by the respondent to the tax office? A. Yes, but the balance of the wages I should have received went back into the company to Con for his own purposes. Q. We will get to that in a moment. You are telling the tax man, sir, that you are on a salary of $50,960 per annum in that year? A. Yes Q. You have never told the tax man that figure was wrong? A. No, I didn't think there was a problem of paying too much tax. I knew I would get the income eventually so it was gathering on my behalf. Q. You, in fact, in every tax return after 1997 adopted the same approach, didn't you, sir? A. Yes. Q. At no stage in relation to tax returns after 1997 have you gone back and told the tax office that it doesn't reflect the payments that were made to you? A. No because, as I said earlier, the rest of the income was accruing in the company for me to be paid back at a later stage. 42 Mr Ceccato's evidence was that he could reduce his living expenses because in 1996, Mr Constantine gave him what he described as the trolley business. He therefore had money from that business to live on and the allowance that he took from the respondent decreased to reflect that there were funds from another source available to him. His evidence was that he only took what he needed from the respondent to meet his living expenses which he estimated to be about $250 per week during the period 1992 to 2003. 43 In re-examination Mr Ceccato explained his remuneration this way: Q. Mr Ceccato, you were asked a number of questions during yesterday's examination by Mr Britt concerning the wages you received. And during the earlier part of your evidence yesterday you gave some evidence which was inconsistent with evidence that you gave later in the day. I just want to clarify your evidence as to what you say you received in wages during the course of your employment in order to properly clarify that issue. What do you say you were paid nett between 1982 and April 1986? A. I started on $200 nett per week and by April 86 it was $500 nett per week. Q. Can you remember at what stage during that period the wages went up? A. Not exactly, it's too long ago. Q. If you can't remember, please say so? A. It is probably yearly based on performance, I couldn't be sure. Q. Between April 1986 and September 1991, what do you say you were receiving? A. $100 per week. ... Q. Between September 1991 and the end of 1996 what do you say you were earning cash in hand? A. $250 per week. Q. And what do you say was the reason that the rate of pay increased from $100 to $250 in about 1991? A. At that stage pre-'91 I was living with my mother at Maraylya, I had very, very few expenses, if any; end of 1991 I moved out of the property into the shed and caravan so obviously my expenses were slightly greater. Q. Between 1997 and December 2003, what do you say you received in wages? A. Would have been $750 nett. Q. How was that made up? A. $500 per week wages and $250 of allowance. Q. And from January 2004 until the date of your resignation on 27 December 2004, what do you say you were receiving? A. That was $1,000 nett per week. Q. Were payments made by direct deposit into your bank account? A. Yes. 44 Although there is some inconsistency in respect of the payments received by Mr Ceccato I am only concerned with whether he was paid annual leave in lieu during the period of his employment which I will determine later in the reasons. 45 In 1997, Mr Ceccato was entrenched in the role as general manager of the markets and Mr Constantine was the owner of the business. On or around this time, Mr Ceccato said to Mr Constantine: "I can't work these hours any more. I'm getting too tired. I need to reduce my hours." Mr Constantine agreed and his hours were changed. He also said to Mr Constantine: "I want to start drawing a full wage." Mr Constantine replied: "No. We still can't afford it. Take $500 per week." This is disputed by Mr Constantine. Mr Ceccato says from February 1997, he received $500 per week nett which he took from the market takings once per month and banked into his personal account. The books of the business showed that he was paid more than this amount, but his evidence was did not receive any more. He also continued to receive revenue from the trolley business. He denied that he did receive the amounts declared on the group certificates. It was Mr Ceccato's evidence that he only received a part of his wages as per the agreement with Mr Constantine to assist the respondent with its cash flow. Mr Ceccato said that Mr Constantine dictated the amount of wages he should receive and tax he should pay. 46 Subsequently Mr Ceccato was asked by Mr Britt why he thought he had a tax liability on earnings which he did not receive. Mr Ceccato stated that he wanted to ensure that his group taxes were paid so that he would not have a tax debt when Mr Constantine paid his back wages which he always believed he would get because he trusted Mr Constantine. 47 It was Mr Constantine's affidavit evidence that Mr Ceccato was paid his regular weekly wage and taxes were remitted from his wages. Mr Constantine admitted that Mr Ceccato had filled out the books in the way that he had shown him. However, he stated that an accountant would come into the office quarterly and go through the books to ensure that everything was correct. 48 Mr Ceccato was cross-examined about payments made to him by the respondent which post dated his resignation on 27 December 2004. He stated that he viewed these payments as an attempt "to make good" and to entice him back to work and or as representing back pay. He explained the reason why he wrote "wage" next to the payment from the respondent dated 7 February 2005 on his bank statement, was out of habit. Mr Ceccato acknowledged that he had incorrectly filled out his tax return for the financial year ending 30 June 2005 by including these payments as salary or wages. As stated above, it was Mr Constantine's evidence that these payments were for long service leave owed to Mr Ceccato at the time of his resignation. 49 Mr Ceccato was taken to a PAYG statement issued under his name by the respondent for the financial year ending 30 June 2006 which showed that he received $16,005 during that year. He denied that he received $16,005 gross or $11,387 net from the respondent as was stated on the statement. Mr Ceccato accepted that as a part of regular weekly payments from the respondent following his termination he received two payments of $1,000 net from the respondent for the 2005/2006 financial year. 50 Mr Constantine stated that Mr Ceccato had walked out three or four times during his employment before returning to work prior to his resignation on 27 December 2004. It was Mr Constantine's evidence that the respondent had continued to pay Mr Ceccato on previous walkouts, so Mr Constantine had continued this practice after 27 December 2004. He stated that the payments were stopped in July 2005 when it became apparent that Mr Ceccato would not return. 51 Mr Ceccato's said that he had discussions with Mr Constantine about the payment of his annual leave and long service leave entitlements in September and October 2004. As I have already observed, Mr Ceccato stated that on 12 October 2004, after a dispute over the payment of moneys for the construction of his house, he gave Mr Constantine notice that he would resign on 27 December 2004. Mr Constantine said he was not given any notice and that Mr Ceccato had just walked out and that this was not the first time he had done this. 52 In April 2005, four months after his resignation, Mr Ceccato wrote to Mr Constantine as follows: Dear Con, It's been over 4 months since we last spoke and I had asked you to settle my entitlements, that was 20 weeks ago. While I appreciate the weekly payments into my account I need all entitlements paid in full to settle this once and for all. While I do not want to go into the fine detail of my employment with you over the years, please consider the following points when calculating my payment. In November 1999 you promised me a figure of $250,000 - (two hundred and fifty thousand dollars) being back pay for wages I hadn't fully drawn in previous years. This money was to be used to finally build a house for my son and myself after living the shed for the previous 8 years. It took another 4 years of asking to finally get you to pay the $250,000, it was always "not now", "soon", "later" or " I can't afford it yet", it was always something more important than my needs even though I had spent my entire adult life dedicated to you and your needs. Putting aside for the moment the sacrifices I have made for you over the past 24 years, what happened to the balance of my wages I didn't draw from the company from the end of 1999 (presuming the $250,000 - you recently paid towards the construction of my new home was for monies owed to me up to November 1999). Remember that I only started drawing a full wage from January 2004. Con, never in a million years would I have ever thought I would have to ask this of you. The person who always said through those hard years when there was no one beside you but me, that you would always look after me and never let me down. Do you call trying to screw me over my basic entitlements "looking after me"? Obviously you have to consider the original money I gave you in 1985 and the wage sacrifice over the years against the money you have given for the purchase of the Maraylya and Riverstone properties and the recent money for the construction of the new house. Please provide me with a settlement figure by the middle of June this year. Hope Natasha and the kids are all well. Regards, Phillip Ceccato Consideration 53 The questions that require determination in this matter are as follows: (i) what annual leave was taken by Mr Ceccato during his employment with Almona? (ii) whether payments in lieu of annual leave made to Mr Ceccato at Christmas 1983, 1984 and 1985 should be taken into account by the Court in determining Mr Ceccato's entitlement to annual leave upon termination? (iii) did the respondent continue to pay the applicant in lieu of annual leave after Christmas 1985 to 2003 inclusive? (iv) can the payments made to Mr Ceccato after the termination of his employment in December 2004 be characterised as a payment of an entitlement? What Annual Leave was Taken by Mr Ceccato? 54 Mr Ceccato was employed by Almona from 1 July 1982 until 27 December 2004, being a period of 22½ years. It was common ground that Mr Ceccato should have received 90 weeks annual leave during the period of his employment. The applicant conceded that he took 11 weeks annual leave during the course of his employment but contends that he was only paid for five of these weeks, those being, two weeks at the end of 1982 and three weeks in 2003 when he travelled to Europe. The additional holidays that the applicant says he took, but was not paid annual leave, were: (a) 1986 - a trip with Mr Constantine's sons to Hamilton Island - five days; (b) 1990 - a trip to Queensland - two weeks; (c) 1993/1994 - a 10 day trip to Perth; (d) 1999 - 15 days when applicant left employment due to a dispute. 55 The fundamental difficulty with this case is that there is a complete absence of annual leave and wage records to substantiate either party's version of what transpired. Mr Constantine's evidence was that the applicant was either paid when he took annual leave or he provided him with payments in lieu of annual leave. 56 A summons for production of documents was issued on the respondent for its wage and annual leave records. Only two sets of documents were produced which contained references to annual leave or payments for holiday pay. These were the office diaries kept by Mr Ceccato for the financial years 2002, 2003, 2004 and Zion Hours and Wages Books for the same financial years. However, none of these documents complied with s 9 of the Annual Holidays Act 1944 (which requires employers to keep annual leave records) and reg 11 of the Industrial Relations (General) Regulation 2001 which requires that such leave records contain: (a) the leave taken by the employee, (b) the employee's entitlement from time to time to that leave, (c) accrual of leave. 57 The wages books do not record the hours worked or any overtime. They simply state the wage paid each week and some notations as to when some employees took holidays. Mr Ceccato's evidence is that the amounts listed for his weekly wage in these books was notional in that he was told to write certain amounts by Mr Constantine, but was not actually receiving the sums set out. On Mr Ceccato's evidence, Mr Constantine was withholding part of his wages each week on the promise that he would be paid in the future. 58 At the commencement of Mr Constantine's oral evidence, he altered one of the fundamental paragraphs in his affidavit - paragraph 138. In his affidavit he had given sworn evidence that the wages the respondent paid to the applicant was as set out in that paragraph. This paragraph, in its original form, read as follows: (a) 1986 - 1991 $200.00 nett per week; (b) 1992 - 1999 $250.00 nett per week increasing to $980 gross per week (c) 2000 - 2001 $1,060.77 gross per week (d) 2001 - 2002 $1,100.00 gross per week (e) 2002 - 2003 $1,100.00 gross per week (f) 2003 - 2004 $1,277.50 gross per week (g) 2004 - 2005 $1,455.00 gross per week These figures represent 52 equal payments. 59 Mr Constantine altered these figures so that they represented 56 equal payments (by reference to the annual amounts contained in the group certificates/PAYG summaries) and said that these were calculations given to him by his lawyers. In my view, Mr Constantine's credit was irretrievably damaged from this point. It will be necessary for me to return to this evidence shortly when I deal with the contention that the applicant received payments in lieu of annual leave for the periods 1986 through to 2003. 60 The diaries, wages books and wages summary for the year ending 2004 completely undermine Mr Constantine's evidence. The wage books that were available, completely refute the respondent's assertion that the applicant was paid a lump sum equivalent to four weeks wages in lieu of annual leave at Christmas each year. The wage records show regular weekly payments with no additional payments of four weeks being made each Christmas. More importantly, the wages books only show 52 equal payments, which is directly contrary to Mr Constantine's evidence of an extra payment. 61 It is appropriate at this point to state that I found the applicant a credible witness who gave evidence honestly and openly. The applicant made concessions that were proper and appropriate during this evidence. In particular, conceding that he did receive payments in lieu of annual leave in the years 1983, 1984 and 1985. If his claim was fallacious, in my view, there is no reason why he would have made a concession about these years. The applicant also made a further concession in respect of the three week holiday that he took in 2003. 62 I found Mr Constantine to be an evasive witness, whose credit was damaged from the commencement of his oral evidence. During his evidence, he characterised payments made to the applicant at the end of each year as really a bonus, because the applicant was a loyal and hard worker, rather than payments in lieu of annual leave, as he had stipulated in his affidavit and in the Notice in Reply. Mr Constantine also gave inconsistent evidence about the applicant's resignation. At first, Mr Constantine said he had no idea why the applicant left his employment and that the applicant simply failed to show up for work. When pressed, Mr Constantine conceded that he had had an argument with him about the payments to be made in relation to the construction of his house. He thought that over time, the applicant would simply return to work. 63 In the absence of any proper leave and wage records, the respondent's assertions as to leave taken and moneys allegedly paid in lieu of annual leave are unsupported. In Ray v Radano (1967) AR 471 at 480, Sheldon J in a minority judgment observed: ... An employer who neglects to keep the statutory records, which, in their probative effect, are as much a protection to himself as to the employee, deserves little sympathy if he loses in a battle reduced to oath against oath. Sheldon J's judgment was subsequently endorsed by the Full Bench in Pacific Publications Pty Ltd v Cantlon (1983) 4 IR 415. 64 Although Mr Constantine said that it was the applicant's responsibility to attend to the keeping of proper wage and salary records, he acknowledged that the applicant was completely untrained in bookkeeping. He oversaw the applicant's work, directed him how to do things and never took any steps to ensure that the records were being kept in accordance with the legislation. The clear obligation under the legislation falls upon the employer in respect of the keeping of proper records. 65 Mr Ceccato's evidence was: "I was not assigned the task of preparing wages until the early 1990s. I had no training or experience other than what Mr Constantine had shown me. I carried out this task as shown to me by Mr Constantine and in accordance with his wishes. There were no records kept when Mr Constantine prepared the wages and I was not shown how to or directed to keep such records myself." 66 I prefer Mr Ceccato's evidence in determining whether the balance of the 11 weeks (six weeks) was paid, or unpaid annual leave. The wages that Mr Ceccato said he received reflected what was recorded in his bank statements. In respect of the 15 day period in 1999, the respondent asserts that Mr Ceccato was paid annual leave for this period. Mr Ceccato's conceded, during his oral evidence, that he was not sure if he was paid for this period or not. His bank statements during this period show that he was paid. It was common ground that this was the period in 1999 when Mr Ceccato walked out of his job following a dispute with Mr Constantine. Mr Constantine admitted that Mr Ceccato had done this before during disputes and that he had continued to pay Mr Ceccato as an incentive for him to return to work. 67 In J Scott Pty Limited v Stapp (1960) AR 300 at 317 (Taylor P, Cook and Beattie JJ), the Full Bench of the then Industrial Commission considered whether trips made by Mr Stapp with the Chairman of the company on which a limited amount of business was transacted and the expenses for which were paid by the company were annual holidays. Beattie J stated at 317: ... The crux of it, as I see it, is this. The company paid all the expenses incidental to the various trips, which it now seeks to characterize as holidays for Stapp. The expenses were legitimate business outgoings only if they were incurred in the course of the company's business. The company has made its decision on the true character of the trips, by paying the expenses, not only for Stapp but for the Chairman of the company, who presumably was paid for because she was engaged on the company's business. It should not now be permitted to put another character on the excursions. The Magistrate adopted a reasonable and commonsense approach to the matter and his findings should not be disturbed. 68 In my view, there was no agreement reached between the parties for the period that the employee was absent from work in 1999 to be annual leave. It follows that the 15 days should not be considered as paid annual leave. This results in a finding that out of the 11 weeks that Mr Ceccato took annual leave, he was only paid for five weeks. 69 In respect of the balance of four weeks leave (the trips to Hamilton Island, Queensland and Perth), the records of the respondent, such as they are, do not allow me to find that the applicant was paid annual leave. The applicant says he was not paid annual leave for these periods but the respondent says he was paid. This conflict can only be resolved on the bases of credit. For the reasons that I set out in detail at [61] - [62], I prefer the evidence of Mr Ceccato to Mr Constantine. I therefore find that the applicant was not paid annual leave for what amounts to four weeks. Payments in Lieu of Annual leave 70 The applicant concedes that payments in lieu of annual leave were made at the end of 1983, 1984 and 1985. No annual leave was taken by the applicant during these years. The applicant would have been entitled to 12 weeks annual leave for this period. 71 Mr Constantine's evidence was that Mr Ceccato approached him in 1983, 1984 and 1985 and asked to be paid his holiday pay instead of taking holidays. Mr Ceccato, in his affidavit evidence, agreed that apart from 1983, 1984 and 1985, he had no further conversation with Mr Constantine wherein he agreed to accept money in lieu of annual leave. 72 Ms K Nomchong of counsel, who appeared for the applicant, submitted that payments in lieu of annual leave were void for illegality under s 3(5) of the Annual Holidays Act 1944, contrary to the direct provisions of that Act and did not permit the applicant to enjoy the benefit prescribed by that Act of actually being able to take leave. 73 An analogous set of circumstances were considered by the Full Bench in Payne v Howison (unreported, IRC 5432 of 1996, 26 September 1997, Cahill VP, Hill and Marks JJ). In this case the Full Bench considered whether the recognition of estoppel by conduct as a doctrine operating consistently in law and equity and the prevalence of equity in a Judicature Act system combine to give the whole doctrine a degree of flexibility which it might lack if it were an exclusively common law doctrine. In finding that the doctrine of estoppel should be applied the Full Bench observed the prima facie entitlement to relief based upon the assumed state of affairs will be qualified in a case where such relief would exceed what could be justified by the requirements of good conscience and would be unjust to the estopped party. 74 The Full bench was satisfied that during the course of negotiations and dealings with the appellant, the respondent reached an agreement where in full satisfaction of all and any payments and/or allowances, including statutory entitlements were all included in the remuneration arrangements. The Full Bench held that the respondent should be estopped from denying that amounts paid to him by way of commission were paid in satisfaction and discharge of all and any entitlements which he may have under the award and the Annual Holidays Act. The Full Bench concluded at 24: It would, in our opinion, be unconscionable to allow the respondent to have earned a substantial amount of remuneration under a system which he demanded from the respondent and under which payments were to satisfy all entitlements which would otherwise be payable to him as an employee and yet still be entitled to claim in addition at a later date a substantial amount by way of entitlement under the award and under the Annual Holidays Act. (at 444-446). 75 I find that the parties came to agreement in 1983, 1984 and 1985 for payments to be made in lieu of annual leave. Applying the principles in Payne v Howison, the applicant should be estopped from claiming that the arrangements or payments in lieu of annual leave between 1983 and 1985 are illegal. The applicant, in my view, agreed to receive the benefit of holiday pay in those years. He cannot change his position now, a position upon which the respondent relied, so that he can in effect receive double his holiday pay for this period. The total amount of payment for annual leave in lieu during this period was 12 weeks and the respondent should be given credit for this payment. Did the applicant receive Payments in Lieu of Annual Leave between Christmas 1985 and Christmas 2003? 76 The applicant's evidence is that there was no further agreement after 1985 that he would receive a payment in lieu of taking his annual leave. The applicant says he did not receive any such payment from 1986 to 2003. There is no evidence to support such an agreement, apart from Mr Constantine's evidence, which I reject on this aspect of the matter, in preference to that of Mr Ceccato. 77 I have already referred to the evidence given by Mr Constantine at the commencement of his oral evidence in which he altered his affidavit evidence so that payments made during each year from 1986 to 2003, represented 56 equal payments. Mr Constantine's credit was seriously damaged by this evidence for the reasons that I have already stated. Furthermore, the evidence that Mr Ceccato actually took some periods of leave between 1986 and 2003, which is accepted by Mr Constantine and corroborated by the evidence of Mr Kara (a witness called by the applicant), is inconsistent with the applicant being paid in lieu of annual leave, year after year. It is inherently implausible as asserted by Mr Constantine that he paid annual leave for the periods of leave actually taken and also paid Mr Ceccato four weeks in lieu of leave at Christmas each year. Even if such payments in lieu were made, and I find that they were not, such payments would have been at severely reduced rates of pay that the applicant said he was receiving during this period. 78 The applicant's bank statements from June 1983 through to December 2004, are consistent with the applicant's evidence as to the wages received during this period. There are no deposits at all made into his bank accounts for the years 1986 through to 1991, when the applicant says because of cash flow problems that the respondent was experiencing, he only took living expenses. Furthermore, whilst there is substantiation of the lump sum payments for annual leave in lieu for the years 1983, 1984 and 1985 in the applicant's bank statements, there is no similar substantiation in the bank statements for the years 1986 through to December 2004. 79 In light of my findings that Mr Ceccato received 12 weeks annual leave, paid in lieu, together with five weeks paid annual leave, the respondent is entitled to a credit of 17 weeks in respect of annual leave. The result is that Mr Ceccato is entitled to payment for 73 weeks annual leave. Long Service Leave 80 The matter that requires determination in relation to this aspect of the claim is the proper characterisation of the payments made to the applicant between January to July 2005. 81 The respondent concedes that the applicant was not paid a lump sum for long service upon termination and that this is in breach of s 4(5)(a) of the Long Service Leave Act 1955. However, the respondent contends that it continued to pay the applicant after the date of his termination on 27 December 2004, until about 13 July 2005, an amount of $1,455 gross, totalling $39,285. The respondent submits that the applicant should not be allowed to double dip and that to order the respondent to again pay the applicant long service leave would result in the applicant being unjustly enriched. 82 The applicant's evidence is that he considered such payments as wages and noted his bank statements accordingly. His 2005 tax return treats such payments as wages. In the alternative, the applicant's evidence is that the amounts represented ex gratia payments designed to induce him to return to work. Despite the respondent making substantial lump sum payments in 1991, 1996 and 2004 which it says were loans, even if such payments are treated as lump sum payments in respect of back pay, the applicant contends that there remained a significant amount of outstanding wages as at the date of his resignation. This was the reason he resigned and it is the basis of the cross-claim that he has filed in the District Court. 83 Mr Constantine's affidavit evidence in respect of this issue is highly inconsistent. On the one hand, he says he was paying the money to help the applicant out, which supports the ex gratia payment view asserted by the applicant. However, in his affidavit evidence Mr Constantine characterises the payments as long service leave. The applicant says the first time the respondent referred to the payments as being long service leave was during these proceedings. The documentary evidence is that there is no termination pay advice nominating the payments as long service leave; there are no pay slips; there is nothing in the PAYG payment summary nominating the amounts as long service leave; there is no wage record to that effect and there is no notation anywhere in the respondent's financial records describing the payments as long service leave. 84 Mr Constantine's oral evidence as to why the payments were made is illuminating: Q. If he wasn't coming to work, why did you continue to pay him wages:? A. Because I told you he had done that before. Q. Oh, he had left work before and he had always come back so you continued to pay him his wages for that reason? A. Yes. ... Q. When did you first discover that he was ceasing work on the 27 December 2004? A. Actually the day after when he didn't show up. Q. Your response to a question from my learned friend you said this had happened on a number of other occasions? A. Correct. Q. Can you recall when that had happened? A. Probably happened '85, '86, '89, '90, could be '94 or between '94 and '98 and happened last in one 2004. Q. On those occasions was he absent for a matter of days or a matter of weeks? A. Weeks. Q. On those occasions did you continue to pay him? A. Yes. 85 Mr Britt contended that the authorities relied on by Ms Nomchong including Poletti v Ecob (No 2) (1989) 31 IR 321; Ray v Radano and Pacific Publications Pty Limited v Cantlon (1983) 4 IR 415 as being authority that the reclassification of payments to employees to offset legitimate claims for industrial entitlements were prohibited dealt with award entitlements and not entitlements under the Annual Holidays or Long Service Leave Acts. 86 Mr Britt submitted that even if the Court were to apply these principles it is possible to offset some of the payments made against the an entitlement to long service leave. Counsel relied upon the minority judgment of Sheldon J in Ray v Radano which he submitted was followed by the Full Bench in Pacific Publications v Cantlon where it was held that an amount paid to an employee as a "special gratuity" upon termination of employment could not be setoff against unpaid termination pay due under the award. The Full Court of the Federal Court of Australia in Poletti v Ecob applied the principles stated by Sheldon J and identified the resultant situation this way: The first situation is that in which the parties to a contract of employment have agreed that a sum or sums of money will be paid and received for specific purposes, over and above or extraneous to award entitlements. In that situation, the contract between the parties prevents the employer afterwards claiming that payments made pursuant to the contractual obligation can be relied on in satisfaction of award entitlements arising outside the agreed purpose of the payments. The second situation is that in which there are outstanding award entitlements, and a sum of money is paid by the employer to the employee. If that sum is designated by the employer as being for the purpose other than the satisfaction of the award entitlements, the employer cannot afterwards claim to have satisfied the award entitlements by means of the payment. The former situation is a question of contract. The latter situation is an application of the common law rules governing payments by a debtor to a creditor. In the absence of a contractual obligation to pay and apply moneys to a particular obligation, where a debtor has more than one obligation to a creditor, it is open to the debtor, either before or at the time of making a payment, to appropriate it to a particular obligation. If no such appropriation is made, then the creditor may apply the payment to whichever obligation or obligations he or she wishes. See Halsbury's Laws of England , 4th Ed, Vol 9, par 505 and 506. 87 Mr Britt further submitted that Poletti v Ecob was followed by the Full Federal Court in Australian and New Zealand Banking Group v Finance Sector Union of Australia (2001) 111 IR 227 at 238-239 where the Full Court held: ... So the critical question is whether the relevant award entitlements arose outside the contractually agreed purpose. It will usually be easy to determine whether there is a coincidence between particular award entitlements and the contractually agreed purpose. Take the case of an agreement for payment of wages of $1,000 per week to an employee who has an award entitlement to receive wages of $800 per week. Discharge of the contractual obligation will clearly also discharge the obligation to pay wages imposed by the award. On the other hand, take the first example offered by Sheldon J, where an employer agrees to pay a clothing allowance. It is no answer to a claim for underpayment of wages to say there was no award obligation to pay a clothing allowance. Similarly with Sheldon J's second example: it is no answer to an overtime claim to say the employee has received an over-award payment in respect of ordinary time. 88 Later at 239: It is inherent in this approach that there must be a close correlation between the nature of the contractual obligation and the nature of the award obligations. But it is not necessary that the same label be used. 89 And further at 240: We agree with the statements in Logan (see par 46 above) about the decisions focusing ''on the matter of designation and appropriation rather than the nature of the outstanding obligation''. However designation and appropriation are matters to be determined by reference to the whole of the evidence. 90 In light of these authorities, Mr Britt submitted that in determining whether a setoff may properly be made in any particular situation where recovery is sought for breach of an award, or an act, the approach seems now to be authoritatively settled; namely, "by establishing the true intention of the parties to an employment contract, by the terms of their agreement, determined from their express promises or the natural implications of their act." Counsel submitted when applying this test to the evidence of Mr Constantine the true intention of the respondent was that the payments made after termination was to compensate the applicant for long service leave and more. 91 The difficulty with this issue is the identification of the weekly payments. It was not described by the respondent at the time of the payments as being in respect of any entitlement arising from the contract. The applicant stated that he treated the payments as wages out of habit. 92 The payments were made weekly in very specific circumstances. Those circumstances were that the applicant had resigned his employment because of a dispute regarding the payment of money for the construction of his house. 93 The Long Service Leave Act provides that if an entitlement has accrued at the time of termination an employer is required to forthwith pay the employee "in full his ordinary pay for leave" (s4(5)). The respondent did not meet this obligation. Had the respondent appropriated the weekly payments for such a purpose either prior to or at the time of payment it could have been argued to be in satisfaction of any claim under the Long Service Leave Act. However it did not demonstrate any intention to appropriate the payments in this way at the time. It only seeks to do this now. 94 In my view, the evidence of Mr Constantine does not establish an intention that these payments were for long service leave. The respondent had a history of paying Mr Ceccato when he walked out after disputes with Mr Constantine on previous occasions. Such payments occurred, on Mr Ceccato's evidence, when the respondent continued to owe him back pay in wages. The total amount paid after termination is substantially in excess of Mr Ceccato's entitlement to long service leave ($27,742.49). In these circumstances there is no basis to contend that these payments represented the applicant's long service leave entitlements. 95 The principles in Poletti v Ecob and Pacific Publications prohibit the re- characterisation of payments to employees to offset legitimate claims for industrial entitlements, especially ex gratia payments. Although these cases dealt with payments in respect of notice, they seem to me to be analogous to the facts of this case and the principles equally applicable. 96 For these reasons, I reject the respondent's contention that moneys paid to the applicant, after his termination, should set off against his entitlement to long service leave. 97 The parties asked me to reserve the question of costs. ORDERS 98 The Court makes the following orders: 1. The respondent shall pay to the applicant the sum of $106,215 gross, being an amount representing 73 weeks accrued annual leave pursuant to the Annual Holidays Act 1944. 2. The respondent shall pay to the applicant the sum of $27,742.49 gross, in respect of accrued long service leave pursuant to the Long Service Leave Act 1955. 3. The respondent shall pay interest on the total of the sums set out in orders 1 and 2, at the rates prescribed by Schedule 5 of the Uniform Civil Procedure Rules 2005 from 28 December 2004 to the date of judgment. 4. I reserve the question of costs and grant liberty to apply upon 48 hours notice to my associate. AMENDMENTS HISTORY: 22/04/2008 - Pursuant to r 151(2) of the Industrial Relations Commission Rules 1996, the amount of $250,000 which appears in [28] of the judgment is replaced with the figure of $206,155.05. - Paragraph(s) [28] 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.