FEDERAL COURT OF AUSTRALIA

In the matter of C&T Grinter Transport Services Pty Ltd (In Liquidation) & Grinter Transport Pty Ltd (In Liquidation) (Controller Appointed);  Ex parte Laurence Andrew Fitzgerald & John David Adams (in their capacities as joint and several liquidators of C&T Grinter Transport Services Pty Ltd) (In Liquidation) & Grinter Transport Pty Ltd (In Liquidation) (Controller Appointed) & Towns Haulage (Gippsland) Pty Ltd (In Liquidation) (In its capacity as Controller of Grinter Transport Pty Ltd) (In Liquidation) (Controller Appointed), Intervener [2004] FCA 1148

CORPORATIONS LAW – liquidator applied under s 511 of Corporations Act 2001 (Cth) for determination as to the employer of three groups of employees – employees not parties and did not give evidence – applicable principles for determining employers discussed – whether documentation did not reflect the reality

Corporations Act 2001 (Cth) s 433, s 511

Dalgety Farmers Ltd t/a Grazcos v Bruce, NSWCA, 3 August 1995 cited

Denham v Midland Employers Mutual Assurance Ltd [1955] 2 QB 437 cited

Marrs Fabrics Pty Ltd & Nathan Wholesale Fabrics Pty Ltd v Whipps (1991) 33 AILR 167 cited

Nokes v Doncaster Amalgamated Collieries Ltd [1940] AC 1014 cited

Pitcher v Langford (1991) 23 NSWLR 142 cited

Re Coogi Nominees Pty Ltd (Administrators appointed);  McCluskey v Karagiosis (2002) 120 IR 147 cited

Romero v Auty (2001) 19 AGLC 206 cited

Sharrment Pty Ltd v Official Trustee in Bankruptcy (1988) 18 FCR 449 cited

Smith v Blandford Gee Cementation Co Ltd [1970] 3 All ER 154 cited

Textile Footwear and Clothing Union of Australia v Bellechic Pty Ltd, FCA, Ryan J, 19 November 1998 cited

Vroon BV v Foster’s Brewing Group Ltd [1994] 2 VR 32 cited

IN THE MATTER OF C&T GRINTER TRANSPORT SERVICES PTY LTD (IN LIQUIDATION) (ACN 004 205 887) & GRINTER TRANSPORT PTY LTD (IN LIQUIDATION) (CONTROLLER APPOINTED) (ACN 100 583 551)

LAURENCE ANDREW FITZGERALD AND JOHN DAVID ADAMS (IN THEIR CAPACITIES AS JOINT AND SEVERAL LIQUIDATORS OF C&T GRINTER TRANSPORT SERVICES PTY LTD) (IN LIQUIDATION) (ACN 004 205 887) & GRINTER TRANSPORT PTY LTD (IN LIQUIDATION) (CONTROLLER APPOINTED) (ACN 100 583 551) v TOWNS HAULAGE (GIPPSLAND) PTY LTD (IN LIQUIDATION) (ACN 004 918 478) (IN ITS CAPACITY AS CONTROLLER OF GRINTER TRANSPORT PTY LTD) (IN LIQUIDATION) (CONTROLLER APPOINTED) (ACN 100 583 551)

No V844 of 2004

FINN J

ADELAIDE (HEARD IN MELBOURNE)

6 SEPTEMBER 2004

THE COURT DETERMINES THAT:

1.         All of the persons listed in the Originating Process are to be treated as employees of C&T Grinter Transport Services Pty Ltd (In Liquidation). 

Note:    Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

REASONS FOR JUDGMENT

1                     This is a far from satisfactory proceeding.  The two applicant liquidators have applied under s 511 of the Corporations Act 2001 (Cth) to have determined whether the members of three district groups of employees are to be treated as employees of Grinter Transport Pty Ltd (In Liquidation) (“Grinter”) or of C&T Grinter Transport Services Pty Ltd (In Liquidation) (“C&T”) for the purposes of the liquidation of the two companies.  The applicants are the joint and several liquidators of both companies.  The intervener respondent, Towns Haulage (Gippsland) Pty Ltd (In Liquidation) (“THG”), has taken possession of Grinter’s property, save for certain vehicles, under a deed of charge it had with Grinters.

2                     There is a number of district curiosities in the manner in which this proceeding comes before me.  The various employees whose employer I am asked to determine are not parties.  Secondly, the liquidator-applicants advance a common view for both Grinter and C&T notwithstanding that those companies do not have a common interest in the matter.  Thirdly, for whatever reason, I have not been provided with evidence from any of the employees in question – other than from Craig Grinter who is a co-director of C&T with his father, Thomas Grinter, and is also sole director of Grinter – notwithstanding its potential relevance to the question to be determined.  Indeed evidence generally has not been forthcoming where it might reasonably have been expected.  Counsel for the applicants has acknowledged the unsatisfactory character of the evidence which is attributed to lack of cooperation by the employees.

3                     Were it not the case that the available assets of both C&T and Grinter are slender, I would have adjourned the application unless and until it was appropriately constituted and its evidentiary deficiencies rectified.  My so doing would in all likelihood have resulted in the further diminution of such assets as remain.  In the event, I have proceeded to make the determination sought while acknowledging, as do the parties, that it will not determine the actual rights of the employees in question.  I need not labour my dissatisfaction in having to take this course.

THE FACTUAL SETTING

4                     C&T was formed in 1935 and conducted a transport business.  At the time of the events to be narrated it had a fleet of six trucks and employed around seven people at any one time.  In late 2001 or early 2002 Craig Grinter decided to purchase THG’s transport business.  He sought advice from C&T’s accountant, Andrew Bragg, as to the appropriate manner in which to structure the purchase.  It was suggested that a new company be formed and Grinter was thus incorporated in May 2002 for the purpose of purchasing the THG business.  It was intended at that time that the businesses of C&T and THG would be consolidated under the Grinter umbrella.  However, it was also envisaged that C&T would retain its trucks and trailers which it would lease or licence to Grinter.  A purpose of the latter arrangement was to provide an ongoing income stream to C&T so enabling it to service its own obligations, particularly to leasing creditors as also to utilise trading losses sustained by C&T. 

5                     On 1 October 2002 C&T ceased trading.  Thereafter all invoices for road transport services were rendered by Grinter which proceeded to use the services of C&T employees.  There is no evidence that either C&T or Grinter sought or received the consent of any of the C&T employees at the time that they transferred their services to Grinter.  To foreshadow later evidence, there is no evidence that any of these employees ever changed the employer designated on the “employment declarations” they made for taxation purposes.  On 1 October 2002 Grinter also took possession of THG’s assets and utilised the services of THG’s employees. 

6                     A contract was negotiated by Grinter with THG for the sale and purchase of THG’s assets.  It was executed on 31 October 2002.  Clause 10 of the contract provided:

“10.     EMPLOYEES

10.1     The Vendor must give notice to each Employee of the Business terminating their employment with effect from the date of this Agreement. 

10.2     The Vendor is to be solely responsible for payment of each terminated Employee of all remuneration and entitlements arising out of the termination of the employment.

10.3     A list setting out the details of each Employee is specified in Schedule 2.

10.4     Subject to Clause 10.6 the Purchaser will make offers to engage all of the Employees on terms no less favourable than each individual Employee’s current terms of employment with the Vendor.

10.5     The Vendor agrees to use its best endeavours to assist the Purchaser to obtain the agreement of all Employees to commence employment with the Purchaser.

10.6     On the date of this Agreement the Purchaser must provide the Vendor with full details of those terminated Employees who have accepted employment with the Purchaser.

10.7     In respect of those Employees who become employees of the Purchaser, the Vendor must pay or allow the Purchaser at Completion an adjustment equivalent to:

(a)               100% of the monetary value of all accrued annual leave;

(b)               100% of the monetary value of the long service leave entitlement of any Employee who has five (5) or more years of service accrued with the Vendor.

10.8     The Purchaser must deal with each Employee’s long service entitlement as if that entitlement had been accrued entirely by the Employee whilst in the employment of the Purchaser.”

7                     There is no evidence before me that either THG or Grinter took any of the steps specified in cl 10.  There equally is no evidence that any representations were made by Grinter to THG employees as to their future employment at the time of execution of the contract or that all or any of those employees had any understanding as to who the new employer would be.

8                     “On around 30 October” to use Mr Bragg’s words, he made inquiries of Allianz Insurance, C&T’s workcover insurer, about the comparative cost of the employees being employed by C&T as opposed to their being employed by Grinter.  He was informed that because C&T had a long trading history and Grinter did not, the rate payable for workcover insurance would be significantly higher if Grinter was the nominated employer.

9                     Mr Bragg discussed the matter with Mr Grinter and it was decided that it would be preferable if C&T employed the employees.  Subsequently a draft management agreement between C&T and Grinter was prepared relating to C&T’s provision of employee services to, and its remuneration by, Grinter.  This agreement seems never to have been executed.  The draft, apparently, has been misplaced and is not in evidence.  It is Mr Bragg’s evidence, which I accept, that this “strategy” was agreed around the end of October and was implemented.  Craig Grinter’s evidence on this matter was unhelpful.  He was unsurprised at later documentation he was shown in which employees were designated as employees of C&T.  No employee ever queried him about this.  He considered “[t]hey just assumed it was all one”.

10                  After 30 October further employees were engaged for the transport business.  There is again no evidence of any representations made at the time of their taking up employment as to who was to be the employer nor is there any evidence of the contemporary understandings of employees on this matter.

11                  There is a significant body of documentary evidence that asserts directly that C&T is, or else is consistent with C&T being, the employer not only of its employees prior to its ceasing to run a transport business, but also of THG’s and the subsequently engaged employees.  It is as follows.

(i)         The Employment Declarations

12                  At the time an employee commenced his or her employment, the employee would be expected to complete a tax file number declaration which would then be filed with the Australian Taxation Office (“the ATO”).  Thirty-one such declarations were filed.  Often there was a gap of weeks or months between the date employment is said to have “commenced” and the date the declaration was made.  Fifteen of the declarants commenced employment prior to either 1 October or 31 October 2002.  Only six of these filed a declaration before that date.  All six declarations specified C&T as the employer.  Of the remaining twenty-five declarations, the specified employer was C&T in twenty-two of these and Grinter in three.  The detail of the declarations including the employer’s name were characteristically not filled out by the declarant.  Mr Bragg acknowledged responsibility in this for twelve declarations.  They were signed as well by either Craig Grinter or Ms Lee, C&T’s bookkeeper.  To the extent that ABN numbers appeared on the declarations they were, until at least March 2003, invariably that of C&T.  Thereafter they were predominantly, but not exclusively, that of Grinter.

(ii)        Employee Wages

13                  Wage slips given employees stated on their face that C&T was the employer.  Group certificates similarly stated C&T to be the employer.  Employee wages were paid from a C&T bank account (save in November 2002 where they were paid from a Grinter account).  C&T was put in funds to make such payments by periodic transfers from Grinter, though by no means in amounts approximating to the wages bill from time to time.  The evidence relating to these transfers is not altogether precise.  They appear to total an amount in the order of $244,000 while the wages paid by C&T were roughly $316,000.  Payments in excess of $200,000 were paid into C&T’s account after 1 October 2002 by a party (or parties) other than Grinter.  Two of these deposits (amounting to roughly $10,000) came from Grinter debtors.

(iii)       WorkCover

14                  The WorkCover policy has at all material times been held with Allianz Australia Workers’ Compensation (Victoria) Ltd in the name of C&T.  Grinter paid all of the premiums. 

(iv)       Instalment Activity Statements/Business Activity Statements

15                  Such of these ATO documents as are in evidence are in the name of C&T;  they (ordinarily) have been signed by Craig Grinter;  they indicate the PAYG tax that has been withheld on account of C&T’s employees;  and the payments to be made to the ATO were made by Grinter by way of direct debit on its account.

(v)        Trading Activities

16                  From 1 October 2002 all invoices for the road transport services provided have been rendered by Grinter.

17                  The unpaid employee entitlements amount in aggregate to $389,501.  C&T’s assets are subject to a number of both fixed and floating charges.  It is the liquidator’s view that C&T has virtually no assets subject to the floating charges.  After discharging the debts owed to the fixed charge holders and paying the liquidators remuneration etc, a minimal dividend in the range of 5 cents – 10 cents in the dollar could be paid to employees in respect of their entitlements were I to find that C&T was their employer.

18                  As at 21 May 2004 Grinter had assets subject to floating charges which were valued at approximately $385,000.  Were I to find Grinter was the employer of the employees in question, this sum would be available to pay employee entitlements in priority to the claims of the floating charge holders in consequence of the provisions of s 433 of the Corporations Act 2001 (Cth).

19                  At the hearing of this matter that applicants relied (without opposition) upon an affidavit of a person in the employ of the liquidators’ firm of accountants.  On 26 August 2004 he attempted to contact the employees of interest in this proceedings to ascertain whether they believed they were employed by C&T or Grinter or whether they were unsure.  Contact was able to be made with five such employees.  It yielded up the unsurprising conclusion that one believed he was employed by C&T;  another, that he was employed by both;  and the remaining three were unsure by whom they were employed. 

APPLICABLE PRINCIPLES

20                  The principles to be applied in the identification of the employer of an employee where there are two or more possible employers, are reasonably well settled.  For present purposes I would note the following:

(1)        A contract of service cannot be transferred by one employer to another or novated as between them without the employee’s consent:  Nokes v Doncaster Amalgamated Collieries Ltd [1940] AC 1014;  Re Coogi Nominees Pty Ltd (Administrators appointed);  McCluskey v Karagiosis (2002) 120 IR 147.  Questions of estoppel apart:  Smith v Blandford Gee Cementation Co Ltd [1970] 3 All ER 154;  the employee’s consent must be a real one whether express or implied and is “not to be raised by operation of law”:  Denham v Midland Employers Mutual Assurance Ltd [1955] 2 QB 437 at 443.

(2)        The totality of the circumstances surrounding the relationships of the various parties including conduct subsequent to the creation of an alleged employment relationship is relevant to the assessment to be made:  Romero v Auty (2001) 19 AGLC 206 at [10] and [42]-[44].

(3)        Documentation created by one or more of the parties describing or evidencing an apparent employment relationship will be relevant to, but not necessarily determinative of, the true character of that relationship:  Pitcher v Langford (1991) 23 NSWLR 142;  Marrs Fabrics Pty Ltd & Nathan Wholesale Fabrics Pty Ltd v Whipps (1991) 33 AILR 167.  In determining the identity of a disputed employer, the Court is entitled to consider “the reality of purported contractual arrangements”:  Dalgety Farmers Ltd t/a Grazcos v Bruce, NSWCA, 3 August 1995.  The documentation may have been brought into existence for other purposes, for example, tax minimisation or the reduction of insurance premiums, without reflecting the reality of the parties relationship:  ibid;  Pitcher v Langford, at 149;  Sharrment Pty Ltd v Official Trustee in Bankruptcy (1988) 18 FCR 449 at 454.

(4)        Conversations and conduct at the time of the alleged engagement of the employee is of considerable significance:  Romero, at [9].  The beliefs of the employees as to the identity of their employer is admissible and is entitled to weight:  Pitcher v Langford. 

(5)        In cases of the engagement of new employees to work in a business in which a number of separate corporate entities participate otherwise than as partners:

“… it was open to those controlling the business to select which company should be the employer provided that the selection was consistent with the financial and administrative organisation of the business and was not otherwise a sham.”

            See Textile Footwear and Clothing Union of Australia v Bellechic Pty Ltd, FCA, Ryan J, 19 November 1998. 

CONSIDERATION

21                  There are three separate classes of employee whose position needs to be considered.  These are (i) the employees of C&T at the time it ceased to trade as a transport business on 1 October 2002;  (ii) the employees of THG who then worked in the new business;  and (iii) the employees engaged to work in the business after the sale of THG’s assets to Grinter.  As each raises its own considerations they need to be considered separately.

(i)        The C&T “original” employees

22                  These are six in number (I exclude Mr Pleydell who did casual work until the takeover and then took up full time employment).  Two of this number are Thomas and Craig Grinter, both of whom are directors of C&T and both of whom made employment declarations specifying C&T as their employer.  I have no evidence to suggest that Thomas Grinter consented to a new employment arrangement with Grinter.  Though Craig Grinter was aware of the initial plan to have Grinter as the employing company, the strategy he agreed with Mr Bragg at the end of October 2002 made it unnecessary for him to enter into an employment relationship with Grinter.  I am not satisfied on the evidence that he did or, at the relevant time, that he had reason to do so.  Both he and his father remained C&T employees.

23                  As to the remaining four original employees, the applicants have conceded that there is no evidence that these persons actually consented to a change of employer.  Accordingly they must be taken to have remained throughout the employees of C&T.

(ii)       The THG employees

24                  The employment status of these individuals needs to be considered in light of the circumstances surrounding the sale of THG’s assets to Grinter and the conduct of the members of this class thereafter.

25                  The preliminary comment that ought be made – and it is relevant to the inferences I have been asked to draw – is that the evidence adduced by the applicants is slight and lacking.  There is no evidence of either Grinter or THG following the procedures of their sale agreement so as to secure the movement of THG employees into Grinter’s employment.  There is no evidence (a) of any representations etc made to these employees prior or subsequent to Grinter’s taking possession of THG’s business, (b) of any response that could possibly signify consent to a change of employer;  or (c) of the subsequent beliefs of these employees as to the identity of their employer at the time of their engagement.  There is no evidence that these employees understood, or had any interest in, who owned the transport business or the relationship between C&T and Grinter.  Such slight evidence as there is suggests employee indifference as to the actual identity of their employer.

26                  I am satisfied that around 31 October 2002 or shortly thereafter the members of this class of employees ceased as a matter of law to be employees of THG.  Notwithstanding the terms of the sales agreement I do not consider that one can be precise as to when this occurred.  I infer that it happened, nonetheless, from the conduct of these employees around that time in the context of the assets transfer from THG to an unrelated company.  I can make no positive finding as to how that cessation was effected.

27                  There is no evidence of any consent on the part of the members of this class to have their employment with THG “transferred” to Grinter.  I am satisfied, though, that these employees did enter into a new employment relationship but that this was with C&T and not with Grinter.

28                  It clearly was anticipated prior to the THG takeover that Grinter was to be the employer of those engaged in the transport business.  It would seem that by the time the sale agreement was executed (i.e. on 31 October 2002 which was the date on which the agreement envisaged THG would terminate the employment of its employees), Mr Bragg was aware of the WorkCover significance of Grinter becoming the employer and that this was communicated to Craig Grinter.  I am satisfied that, in consequence of this, the Grinter employment strategy was never carried into effect.

29                  It had antecedently been agreed by Craig Grinter that C&T would remain associated with the transport business by leasing or licensing its trucks to Grinter.  There were good financial reasons for its so doing.  C&T had its own obligations to discharge and it had as well the tax advantage of trading losses.  I am satisfied that, as Mr Bragg recognised and put to Craig Grinter, there were good financial reasons for enlarging C&T’s association with the business by constituting it the employing entity of the employees of the business.  And I find that at the end of October Craig Grinter directed Mr Bragg and the bookkeeper, Ms Lee, to carry such an arrangement into effect which they duly did.

30                  It had been the case since the beginning of October 2002 that these employees were being paid by C&T albeit with money supplied by Grinter.  Craig Grinter’s evidence was that C&T was the payer because it had the banking facilities in place to do this and Grinter did not.  I note that the sale agreement contemplated that Grinter would conduct, and would have the “takings and profits” of, THG’s business from what it called the “Calculation Date” (which was 28 September 2000) which was well before the date when the contract envisaged THG’s employees would have their employment with THG terminated.  In consequence, I attribute no particular significance for present purposes to the early payment of THG’s employees by C&T or, indirectly, by Grinter.

31                  The earliest date after the completion of the sales agreement on which an employee of this class signed an employment declaration which stipulated C&T as employer was 11 November 2002;  the latest, 30 April 2004.  I do not consider that the delays after the THG takeover, often lengthy, before a given employee signed his or her declaration, evidenced anything more than the relaxed business practices of Grinter.

32                  What in my view most probably occurred after the takeover was that under Craig Grinter’s instruction, these employees were simply allocated by Mr Bragg and Ms Lee to C&T as its employees and that thereafter C&T’s documentation reflected this reality.  This allocation was consistent with the financial arrangements of the two companies.  I note that it was Craig Grinter’s evidence that he treated all of the accounts of the two companies “as accounts on which the business could draw when it needed money”.  The allocation was also consistent with the administrative organisation, such as it was, of the companies.  Craig Grinter was in practical control of both companies.  And, as Mr Bragg indicated in oral evidence, they shared administrative services.  This was without apparent regard to whether the employees concerned in this were employed by C&T or Grinter.  The allocation was probably a matter of indifference to these employees at the time and thereafter though I make no positive finding to this effect.

33                  I consider it unlikely that there was a brief period after the takeover and before the allocation I have found, when any of these employees were in fact employed by Grinter.  There is no evidence from which I could properly infer an agreement of that character.  It is more likely, if there was any such gap, that both the employees and Grinter and C&T considered in any event that they were working for the “business” and were being paid by it, i.e. they were in fact working in a legal world of quantum meruit and not of contract.  As I have earlier indicated, this is not a matter in which one can be definite as to when these employees’ employment with THG terminated and as to when an actual new contract was entered into.  The relationship may thus have been an evolving one:  Vroon BV v Foster’s Brewing Group Ltd [1994] 2 VR 32 at 81;  although I have held that when the employees were engaged to work in the business that engagement resulted in their being allocated to C&T for employment purposes.

34                  I do not accept that the documentation concerning wages, taxation and WorkCover masked the reality.  Rather, I am satisfied it reflected the true state of affairs.  This group of employees were, and were only, the employees of C&T.  I equally do not consider it to be significant that the proposed management agreement between C&T and Grinter was never executed.  The omission is consistent with the business practices of the companies.

(iii)      The “newly engaged” employees

35                  My conclusion here follows necessarily from what I have said of the THG employees.  Those persons who were engaged by “the business” after the takeover of THG’s assets became employees of C&T.

CONCLUSION

36                  My conclusion is an unfortunate one for all of the employees concerned although it remains open to them, if so advised, to have their rights independently determined.  For the purposes of this proceeding I have found all of the employees named in the originating process to be employees of C&T.  In consequence, as matters now stand, they are likely to receive little from the liquidators in satisfaction of their outstanding entitlements.  They may, though, have other avenues through which to recoup at least something of what they are owed.

37                  Accordingly, I determine that all of the persons listed in the Originating Process are to be treated as employees of C&T Grinter Transport Services Pty Ltd (In Liquidation).

38                  I will invite submissions on the question of costs. 

Associate:        

Dated:              6 September 2004