New South Wales Supreme Court CITATION : Hyro Ltd v Eland & Ors [2007] NSWSC 1111 HEARING DATE(S) : 05/10/2007 JUDGMENT DATE : 10 October 2007 JUDGMENT OF : Associate Justice Malpass DECISION : The Summons is dismissed. The plaintiff is to pay the costs of the Summons. The exhibits may be returned. CATCHWORDS : Novation - identity of employer - supporting evidence LEGISLATION CITED : Long Service Leave Act 1955 (NSW) CASES CITED : Damevski v Guidice [2003] FCAFC 252 Hyro Ltd (Pl) Mark Eland (1st Def) PARTIES : Sang-Wun Kim (2nd Def) Clint Neilson (3rd Def) Lorna Walker-Kennedy (4th Def) FILE NUMBER(S) : SC 15946/06 COUNSEL : Mr A. Ogborne (Pl) Mr T. J. Dixon (Def's) SOLICITORS : Strategy Legal Solicitors (Pl) MCG Lawyers (Def's) LOWER COURT JURISDICTION : Local Court LOWER COURT FILE NUMBER(S) : 12935/05; 12936/05; 12937/05; 12938/05 LOWER COURT JUDICIAL OFFICER : Lulham LCM LOWER COURT DATE OF DECISION : 03/11/2006 - 1 - IN THE SUPREME COURT OF NEW SOUTH WALES COMMON LAW DIVISION ASSOCIATE JUSTICE MALPASS 10 OCTOBER 2007 15946/06 Hyro Limited v Mark Eland & Ors JUDGMENT 1 HIS HONOUR: During July and September 2006, four proceedings were heard together in the Local Court by Lulham LCM. The Magistrate delivered his decision on 3 November 2006. 2 In each of the proceedings, the defendant was Hyro Limited (the plaintiff in this Court). 3 Each of the four claims was brought to recover employee entitlements. In three of the claims, both severance pay and long-service leave were sought to be recovered. In one of them, the claim was merely for severance pay. The claimants (who are the defendants in this Court) were successful and judgment was entered in favour of each of them. The Magistrate delivered detailed written reasons for his decision. 4 The plaintiff now appeals to this Court. The appeal is brought as of right. It is alleged that there has been error in point of law. The plaintiff bears the onus of demonstrating such error and that it was material to the decision that was made by the Magistrate. 5 I shall first recite some of the history that preceded the litigation. 6 The defendants had entered into written employment contracts with Brainwaave Administration Pty Ltd. Each contract contained a condition authorising assignment or novation. With effect from 1 January 2000, the contracts were novated to Brainwaave Interactive Pty Ltd (Brainwaave). Mr Kennedy was, at material times, the Chief Executive Officer of Brainwaave. 7 In or about October or November 2003, the defendants came to work in offices in Pitt Street, Sydney (which were the offices of the plaintiff) and were told by Mr Kennedy that there was going to be a merger of Brainwaave and Hyro. The defendants and other employees were given instructions by Mr Kennedy to, inter alia, dispose of Brainwaave stationery. They used Hyro stationery, worked with Hyro employees and were referred to as Hyro employees. Wage slips continued to be issued in the name of Brainwaave but bank statements revealed the payee as either the plaintiff or Hyro Communications (however, for the financial year ending 30 June 2004, their group certificate showed the employer as being Brainwaave). There was evidence of an intention of keeping Brainwaave going for stamp duty and tax purposes. Brainwaave clients became clients of the plaintiff. In early November 2004, each of the defendants was given a manual (the Hyro Ltd Staff Policy & Procedure Manual) (the manual). The manual was signed by Mr Kennedy as Chief Executive Officer of Hyro Ltd. It set out the employment policies of the plaintiff. By an express term in the employment contracts, the policies were imported into the terms and conditions of the employment. 8 A share purchase agreement dated 10 November 2003 (the agreement) came into effect (following an earlier understanding reached between the parties thereto). It was completed on 11 December 2003. Under that agreement, Hyro Communications Pty Ltd (Hyro Communications) acquired all of the shares in Brainwaave. Hyro Communications was a fully owned subsidiary of the plaintiff. The agreement also made provision for Mr Kennedy to become the Chief Executive Officer of the plaintiff. The appointment depended on confirmation at a General Meeting to be held on 13 December 2005. Confirmation was given on that day. 9 In March 2005, the employment of each of the defendants was terminated. The termination was effected by a letter of dismissal from Brainwaave (which was described in the letter as being a subsidiary of Hyro Australia Pty Ltd). 10 Before the Magistrate, the defendants put their respective claims in a number of purported ways (including by way of assignment, by way of novation or by way of Brainwaave acting as agent for the plaintiff). 11 Each proceeding was defended on the basis that the plaintiff was not the employer. Rather, it was said that the defendants had continued to be employed by Brainwaave. 12 The Magistrate formed the view that the claims based on agency could not succeed. He found for the defendants on the claim purportedly based on novation. He took the view that it was unnecessary for him to address the claims based on assignment. 13 The claim purportedly founded on novation was pleaded in paragraphs 14 and 15 of the Amended Statement of Claim. Paragraph 14 was as follows:- "14. Further or in the alternative, following the transmission of the business, the Plaintiff became a worker in the employ of the Defendant ("the Novated Contract"). Particulars of the Novated Contract (a) The Plaintiff will refer to and rely upon, inter alia, sections 4(11)(c) and 4(13) of the Long Service Leave Act 1955 (NSW); (b) The Plaintiff will refer to and rely upon, inter alia, sections 101, 102 and 103 of the Industrial Relations Act 1996 (NSW); (c) The Plaintiff was offered and accepted employment with the Defendant following conversations with, inter alios, Tom Kennedy acting on behalf of the Defendant in or about November 2003" 14 In addition to this claim, the defendants looked to the manual as another basis of entitlement for severance pay (paragraph 16 of the Amended Statement of Claim). Also, there was a claim for long-service leave founded on provisions of the Long Service Leave Act 1955 (NSW). It appeared as part of the particulars given pursuant to paragraph 14. In summary, severance pay was sought to be recovered pursuant to the agreement and the manual. Section 4(11)(c) of the legislation was looked to for the recovery of long service leave. There was no dispute as to quantum. 15 In this appeal, the plaintiff has argued two matters. The matters are set forth in written submissions as follows:- "5. However, in dealing with the claim based on novation, the magistrate erred by failing to consider whether the written employment contracts had been novated as a result of an agreement (possibly oral or inferred by conduct) between Hyro Ltd, Brainwaave Interactive Pty Ltd and the respective employee, but rather the magistrate erroneously considered whether a new employment contract (which was found to be partly oral and partly to be inferred by conduct) had been formed between Hyro Ltd and the respective employee. In taking this approach, the trial magistrate misconceived the novation claim and erred in applying the principles in Damevski v Guidice [2003] FCAFC 252 to the present case. 6. Further, in finding that fresh employment contracts had been formed between Hyro Ltd and the defendants, the trial magistrate relied on a finding that, at the time the offers of employment were made, Mr Kennedy was the Acting CEO of Hyro Limited and, as a result, had the necessary authority of Hyro Ltd to offer employment to the defendants. The trial magistrate erred in making that finding as, quite simply, there was no evidence to support it." 16 I shall firstly turn to the submission made in paragraph 5 of the written submissions. The contention is one of misdirection. It is said that rather than address what was involved in a novation (an agreement between three parties and requiring consideration), the Magistrate embarked on a broad ranging factual inquiry to determine the identity of the actual employer. It was pointed out that the decision in Damevski (which the Magistrate observed to be "most helpful and instructive") involved such a factual inquiry. There being in that case dispute between the parties as to which of two entities was the actual employer. The case involved no question of novation. 17 There is force in this submission. Before proceeding further with it, it is convenient to turn to the submission made in paragraph 6 of the written submissions. 18 One finding made by the Magistrate was that at meetings held with Mr Kennedy prior to 13 December 2003, the defendants accepted an offer made by him to become employees of the plaintiff. It was pointed out that the Magistrate erred in fact in finding that there were two such meetings. In fact, there was only one and it took place in November 2003. However, it is conceded that this error was of no consequence. 19 The plaintiff contends that the Magistrate inferred that Mr Kennedy was then acting Chief Executive Officer and that this role gave him the necessary authority to enter into agreements with the defendants on behalf of the plaintiff. 20 The plaintiff contends that he did not become Chief Executive Officer until the General Meeting on 13 December 2003 and that there was no evidence to support the finding that he was acting as such prior thereto. This submission may have some force, but there was the manual signed by Mr Kennedy. 21 Later in his judgment, the Magistrate came to observe [at paragraph 107]:- "I am satisfied that the defendant's offer of employment was accepted by the plaintiffs as evidenced by their conduct in their attending at the Hyro premises and commencing to work as Hyro employees. I am satisfied on the evidence that the reasonable bystander would conclude that the plaintiffs were employed by Hyro Limited." 22 After the making of those observations, he proceeded with a further analysis of the evidence relied on by the parties in respect of their competing allegations concerning the identity of the employer. 23 His finding as to the employment relationship appears to have led him to the view that s4(11)(c) of the Long service leave Act had application (see paragraph 126 of his judgment). 24 The case is rampant with confusion. This confusion probably stems from the content of the Amended Statement of Claim. It erroneously treated the agreement as effecting a transmission of the Brainwaave business. This error was sought to be explained on the basis that it was such a transmission that invoked the provisions of s4(11)(c). The more serious problems seem to arise from the manner in which the purported novation claim was pleaded. Whilst the words the "novated contract" appear in paragraph 14, the material facts appearing therein do not reveal a claim founded on a novation. The substantive allegation is that of the claimant becoming a worker in the employ of the party sued. This was pleaded as following the transition of the business (such transmission being earlier defined as the purchase of the business on or about 11 December 2003). The particulars alleged in (a) and (b) of the paragraph have no relevance to a novation claim. The particulars alleged in (c), concern an offer and acceptance said to have taken place following conversations, inter alia, in November 2003 with Mr Kennedy (in relation to these particulars it may be observed that they are inconsistent with the substantive allegation). 25 It seems to me, the substance of the case that was intended to be run pursuant to this pleading was one of a fresh contract arising between the parties to the proceedings. There is no pleading of an agreement reached between three parties and of any alleged consideration for such an agreement. 26 I consider that what the Magistrate did was deal with the case that was in fact litigated before him by the defendants. The conduct of the case was not otherwise confined. Principles of novation were irrelevant to what was presented. It became a dispute as to the identity of the employer. The evidence led the Magistrate to the view that a contract had come into being between each defendant and the plaintiff. There was sufficient evidence to support such a finding. The finding did not solely rely on any question of authority had by Mr Kennedy in November 2003. There was other material (the Magistrate mentions certain of it in paragraph 107). 27 Whether or not there has been any error, I am not satisfied that it has been shown to be material and justifies the disturbing of the decision made by the Magistrate. Accordingly, I take the view that the appeal fails. 28 The Summons is dismissed. The plaintiff is to pay the costs of the Summons. The exhibits may be returned. ********** 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.