LIR v GUNST [2001] NSWSC 344

New South Wales Supreme Court

CITATION : LIR v GUNST [2001] NSWSC 344 CURRENT JURISDICTION: Equity Division FILE NUMBER(S) : SC 5155/00 HEARING DATE(S) : 06/04/2001 JUDGMENT DATE : 6 April 2001

PARTIES : LIR AUSTRALIA PTY LIMITED v ANDREW GUNST JUDGMENT OF : Master Macready at 1

COUNSEL : Mr J.P. Phillips for plaintiff Mr D.P. Robinson for defendant SOLICITORS : Murrays Lawyers for plaintiff Toomey Pegg Drevikovsky for defendant CATCHWORDS : Corporations Law. Applicatgion to set aside statutory demand under s 459G. No matter of principle. DECISION : Paragraph 12

1 MASTER: This is an application to set aside a statutory demand under s 459G of the Corporations Law. The statutory demand was dated 4 December 2000 and claimed the sum of $139,166.67, being an amount equalling ten months payment of salary package value at the time of termination of the defendant's employment with the plaintiff. The defendant was employed by the plaintiff under a contract of employment which commenced on 20 July 1999. Importantly, cll 9, 10 and 11 of that contract provide as follows:

"9. Notice period: The employee is to give 3 months notice of termination of employment if giving notice within the first 3 years of service. The employer is to give notice of termination of employment equal to 3 months plus one month for each completed year of service to a maximum of 12 months or a payment of the equivalent amount of package value in lieu thereof.

10. Redundancy: In the event that the position becomes redundant for any reason such as a reduction of size or if the ownership of the business changes or the business is wound up and no equivalent position based in Sydney is available with the new shareholder or with the PECHINEY Group, then a redundancy payment equal to 9 months package value is to be paid in addition to the period of notice or payment in lieu under point 9 above.

11. Non compete clause: On termination of The Employee's employment The Employee covenants not to be employed in or be engaged in or otherwise involved with any business within Australia for a period of 12 months plus any period of notice of termination for which a payment is made in lieu by the company, which is in direct competition with the business of the company at the time of the termination of employment. In consideration of this covenant the company agrees to make the following payments to the employee on termination of employment:

(a) should The Employee resign from employment an amount equal to 6 months package value plus 50% of the package value of any period of notice (whether or not paid out in lieu by the Company) pursuant to this agreement.

(b) should The Employee be dismissed from employment by The Company, an amount equal to 8 months package value plus 67% of the package value of any period of notice (whether or not paid out in lieu by the Company) pursuant to this agreement

where package value is the value of The Employee's remuneration package as at the date of termination of employment." 2 On 1 May 2000 the defendant's employment was terminated by letter, the substance of which was in the following terms: "Pursuant to Clause 9 of your contract of employment dated 20 August 1999 you are hereby given three months notice of termination. Enclosed with this correspondence are cheques in the sum of A$33,754.36 representing 3 months package value and accrued annual leave less tax payable.

You are required to leave your employment immediately. Please leave with Mr Giovanni Sidagni the keys to your company car, and all confidential information and documentation that is the property of this company.

In relation to clause 11 of the contract we advise that we will not enforce the non-competition clause and hence you are free to compete." 3 This was followed by various letters from the defendant to the plaintiff company suggesting that the appropriate amount was a payment calculated in accordance with the terms of cl 11 of the contract of employment; this was resisted by the plaintiff on the basis it had waived, as it said in the letter of 1 May 2000, the benefit of that clause. 4 There are a number of cases which deal with what are the appropriate principles to apply to determine whether there is a genuine dispute within the meaning of that expression in the section. I think probably the most useful summation is that given by McLelland CJ in Eq in Eyota Pty Limited v.Hanave Pty Limited (1994) 12 ACLC 669 where at p 671 his Honour made the following comments in respect of the expression "Genuine dispute:" "It is, however, necessary to consider the meaning of the expression 'genuine dispute' where it occurs in s 459H. In my opinion that expression connotes a plausible contention requiring investigation, and raises much the same sort of considerations as the 'serious question to be tried' criterion which arises on an application for an interlocutory injunction or for the extension or removal of a caveat. This does not mean that the Court must accept uncritically as giving rise to a genuine dispute, ever statement in an affidavit 'however equivocal, lacking in precision, inconsistent with undisputed contemporary documents or other statements by the same deponent, or inherently improbable in itself, it may be' not having 'sufficient prima facie plausibility to merit further investigation as to (its) truth' (cf Eng Mee Yong v. Letchumanan (1980) AC 331 at 341), or 'a patently feeble legal argument, or an assertion of facts unsupported by evidence' (cf South Australia v. Wall (1980) 24 SASR 189 at 194.)

But it mean that, except in such an extreme case, a Court required to determine whether there is a genuine dispute should not embark upon an inquiry as to the credit of a witness or a deponent who evidence is relied on as giving rise to the dispute. There is a clear difference between, on the one hand, determining whether there is a genuine dispute and, on the other hand, determining the merits of, or resolving, such a dispute. In Mibor Investments (at ACLC 1066; ACLC 1066; ACSR 366-77) Hayne J said, after referring to the state of the law prior to the enactment of Division 3 of Part 5.4 of the Corporations Law, and to the terms of Division 3:

'These matters, taken in combination, suggest that at least in most cases, it is not expected that the Court will embark upon any extended inquiry in order to determine whether there is a genuine dispute between the parties and certainly will not attempt to weigh the merits of that dispute. All the legislation requires is that the Court conclude that there is a dispute and that it is a genuine dispute.'

In Re Morris Catering (Australia Pty Limited (1993) 11 ACLC 919 at 922; (1993) 11 ACSR 601 at 605 Thomas J said:

'There is little doubt that Division 3 ... prescribes a formula that requires the Court to assess the position between the parties and preserve demands where it can be seen that there is no genuine dispute and no sufficient genuine offsetting claim. That is not to say that the Court will examine the merits or settle the dispute. The specified limits of the Court's examination are the ascertainment of whether there is a "genuine dispute" and whether there is a "genuine claim".

It is often possible to discern the spurious and to identify mere bluster or assertion. But beyond a perception of genuineness (or the lack of it) the Court has no function. It is not helpful to perceive that one party is more likely than the other to succeed, or that the eventual state of the account between the parties is more likely to be one result than another.

The essential task is relatively simple - to identify the genuine level of a claim (not the likely result of it) and to identify the genuine level of an offsetting claim (not the likely result of it)." 5 There were a number of bases raised by the plaintiff as to why there was a genuine dispute: (1) there had been a waiver of the clause; (2) there was a question of mitigation; (3) that there was a question of redundancy under cl 10. 6 Dealing with mitigation first, it was suggested that the clause may in some way be penalty rather than a pre-estimate of damages and because the evidence before me showed that the plaintiff had obtained further employment at a higher figure than he was paid by the plaintiff that such a question would arise. However, it is not a question of the defendant suing for breach of the contract sounding in damages and thus questions of mitigation arising. I would have thought he is simply suing for a clear entitlement under the contract. 7 So far as redundancy is concerned reference was made to cl 10. That applies, no doubt, when the position becomes redundant. However, there is no evidence to suggest that there is any basis for suggesting redundancy. It seems the position in respect of it has been reserved but no evidence to say there was a question of redundancy involved. 8 Accordingly, I do not think that is of any assistance in determining whether there is a genuine dispute. 9 This leads to the final matter which is the question of waiver. It was submitted that there were good arguments as to why the clause was one which was capable of being waived and reference was made to a number of cases including Sandra Investments v. Booth (1983) 153 CLR 153. There the Court considered the question of precisely what were the circumstances in which the parties were entitled to waive the benefit of a particular clause. In the majority judgment Wilson J referred to the dispute on the authorities where it is necessary to show that the condition is exclusively for the benefit of the person waiving or, perhaps primarily, for its benefit. The other Judges in the case also recognised that there is this differences in the cases. His Honour Mr Justice Wilson at p 166 had the following to say:

"It is not appropriate to pursue a discussion of these matters in the abstract because the facts of a particular case will often be of critical importance in discovering the intention of the parties. I would merely observe that in undertaking that voyage of discovery one should not lightly imply a right of waiver in one party to the possible prejudice of the other unless it clearly emerges on the face of the contract." 10 The defendant submitted that the submission that there was an ability to waive was a clearly misconceived submission. In particular they refer to the fact that the party cannot waive a term on the ground that it is exclusively for his benefit if he has already benefited from the term in question. They were referring to Bastard v. McCallum (1924) VLR 9. In the present case I do not think that one could view cl 11 as necessarily involving protection for the employer during the course of employment. This is because the clause only operates on termination and involves a covenant on termination. In order to see whether the benefit of cl 11 can be waived it is necessary to have regard to all the circumstances. One of the other circumstances is that there is already another clause in the contract, namely cl 9, which deals with either payment or notice upon termination. That applies to both the employee and the employer giving notice. The employer's condition is by giving a longer period of notice and he is given the option of payment in lieu of notice. One then has a separate covenant in cl 11 which is expressed to be "in consideration of this covenant". The covenant for the payment of moneys is thus clearly linked to the non-compete clause which only applies after termination in two circumstances. If the employee gave notice it would probably be effective under cll 9 and 11, however, cl 11(b) would seem to be separate and apart from the provisions of cl 9. 11 Given that the benefits are only effective after termination, it seems to me that it is at least arguable even on construction of the terms of the contract that it might be capable of waiver. This forum is not the forum to determine that dispute. It seems to me that it is a dispute which would require some thought and careful interpretation of the contract and might even involve a consideration of the circumstances such as the extent of the benefits provided under the clause. 12 In those circumstances I am satisfied that there is a genuine dispute and I make orders 1 and 2 in the application.

(Submissions on costs.) 13 I have heard further submissions and I am not satisfied it is a case for indemnity costs and I decline to change my costs order.

oOo

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