Hack v Fordham [2009] VUCA 6; Civil Appeal Case 30 of 2008 (30 April 2009)

IN THE COURT OF APPEAL OF
THE REPUBLIC OF VANUATU
(Appellate Jurisdiction)

CIVIL APPEAL CASE No. 30 OF 2008

BETWEEN:

GRAHAM HACK
First Appellant

AND:

SANTO EXPORTS (VANUATU) LIMITED
Second Appellant

AND:

JOHN MAXWELL FORDHAM
Respondent

Coram: Chief Justice Vincent Lunabek
Justice John von Doussa
Justice Ronald Young
Justice Nevin Dawson

Counsel: Mr. F. Kabini for the Appellants
Mr. N. Morrison for Respondent

Date of hearing: 23rd April, 2009
Date of Judgment: 30th April, 2009

JUDGMENT

1. This appeal concerns a claim for outstanding wages, payment in lieu of notice and severance pay which the respondent claimed consequent upon his dismissal from his employment.
   
2. The Claim was brought against both Santo Exports (Vanuatu) Ltd (Santo Exports) and Graham Hack. The pleadings do not clearly identify which of these two was the employer against whom the claim was made. Most of the statement evidence tendered at the trial treated both defendants as the employer. However, the trial judge entered judgment in favour of the Respondent against Mr. Hack for the following amounts:
   

(a) Outstanding Wages	VT 1.656.000
(b) Severance	VT 259.000
(c) Damages for unjust dismissal – Severance of VT 259.000 x 5	VT 1.295.000
(d) Payment in lieu of Notice	VT 128.000
Total:	VT 3.238.000

3. In addition interest at the rate of 6% per annum was awarded on the total sum of VT 3.238.000 from the date of the respondent’s dismissal (4th July 2006) together with the costs of the action on the standard basis to be agreed or determined by the Court.
   
4. At trial a great deal of statement evidence was tendered by each side which made wide ranging allegations about the conduct of the other side, and in response denial of the allegations. Ultimately most of the issues raised in the sworn statements did not need to be resolved as the outcome of the trial turned on facts which were common ground. The essential facts were as follows:
   
   1. On 1st September 2004, the respondent commenced employment with Santo Exports as Factory Manager on an agreed monthly salary of VT 276,000. Mr. Hack was a Director at Santo Exports and was the person who guided the affairs of the company. Mr. Hack had negotiated the contract of employment with the respondent. Santo Exports carried on business under the name "Clean and Green Fruits & Vegetables (Vanuatu)".
      
   2. On 23rd May 2005 Santo Exports was struck off the Register of Companies at Vila pursuant to S.335 of the Company’s Act [Cap.191].
      
   3. The respondent did not become aware that Santo Exports had been struck off the Register until after his dismissal.
      
   4. The respondent continued after 23rd May 2005 to work for the business, Clean & Green Fruits & Vegetables (Vanuatu), and until the end of 2005 continued to receive his monthly salary from the business as before.
      
   5. On 4th July 2006 the respondent received a letter on the letter head of Clean and Green Fruits & Vegetables (Vanuatu) signed by Mr. Hack as Principal, notifying him that his employment was terminated. The letter reads:-
      

"Clean and Green Fruit & Vegetables (Vanuatu)

Santo Exports (Vanuatu) Ltd Trading as P.O.Box 111, Luganville, Espiritu Santo, Vanuatu

Phone: + (678) 37111 Fax:+ (678) 36321

4 July 2006

Mr. John Fordham

Luganville

Espiritu Santo

Dear John,

Please be Advised that your employment has been terminated effective as of today 4 July 2006.

It has been brought to the attention of the undersigned that you have been conducting action of a subversive basis against myself.

You are hereby advised that as you are no longer employed by Clean and Green, you are to return both vehicles to Santo Fuel and Oil Office by 5:00 pm, tomorrow night the 5th July 2006. Failing to do so the local authorities will be advised accordingly.

Your wages will be paid by cash only during the month of July 2006. This will be calculated in accordance with the Department of Labour conditions.

I am very sorry to have taken this action, however you have given me no alternative.

Yours faithfully,

Grahame Hack

Principal"

5. It seems a number of other employees of the business were also put off at the same time as the business had run out of funds.

6. Later, Mr. Hack acknowledged that the respondent had not been paid his salary for 6 months, and was entitled to recover VT 1,656,000 on that account, and also 2 weeks salary (VT 128,000) in lieu of notice. However, a payment for severance was denied.

7. These proceedings were issued by the respondent against Mr. Hack and "Santo Exports (Vanuatu) Ltd Trading as Clean and Green Fruit & Vegetables (Vanuatu) (struck off status)".

8. At trial Mr. Hack defended the claim against himself personally on the basis that the contract of employment was with the company Santo Exports, that he did not know the company had been struck off the Register, and that he had no personal liability in respect of the employment contract between Santo Exports and the Respondent.

9. The provisions of s.335 of the Companies Act are clear. When a company is struck off the Register it is by force of law dissolved. That is, it ceases to exist for all purposes. That was the position from 23rd May 2005. It was the position when the proceedings were commenced, and the purported joinder of Santo Exports as a defendant was misconceived. In reality the only defendant in the proceedings was Mr. Hack. As a matter of fact, the business of Clean and Green Fruit and Vegetables (Vanuatu) continued to operate under the direction of Mr. Hack as Principal.

10. At trial there was lengthy argument about "the corporate veil" and whether in the circumstances the veil had lifted so as to expose Mr. Hack to personal liability. The trial Judge in his reasons for judgment did not enter judgment against Mr. Hack by reference to those arguments, but simply on the ground that Mr. Hack had been the person who terminated the employment.

11. Before this Court counsel for Mr. Hack again sought to argue that as the contract of employment was initially entered into with Santo Exports, it could only be Santo Exports that was the responsible party.

12. The Employment Act [Cap.160] makes provision for circumstances where there is a transfer of ownership of a business in which an employee is engaged. Unfortunately the relevant sections of the Employment Act were not brought to the attention of the trial Judge. The provisions of the Act deal comprehensively with the situation before the Court, and discussion about lifting the co-operate veil and basic principles of corporate responsibility are beside the point.

13. Section 11 of the Employment Act provides

"Transfer of Contract

11. The transfer of any contract of employment from one employer to another shall not be binding upon the employee except with the employee’s consent which in the case of a written contract must be in writing:

Provided that if a change occurs in the ownership of an undertaking as a result of a sale thereof as a going concern, inheritance, formation of a company or similar cause every contract of employment valid at the time of the change taking place shall remain in force between the employee and the new employer".

14. The proviso in s.11 covers the events which occurred in this case. A change of ownership of the business Clean and Green Fruit and Vegetables (Vanuatu) in fact occurred when Mr. Hack continued to carry on the business after the company was struck off. Even if he did not know the company had been struck off, as a matter of law it had ceased to exist, and Mr. Hack’s knowledge about this could not affect the factual result that it was him that carried on the business. In terms of s.11, the change of ownership was as a result of a cause similar to a change of ownership as a result of the sale of the business as a going concern, inheritance, or the formation of a company. The respondent’s contract of employment with Santo Export remained in force between the respondent and the new employer.

15. As the respondent’s contract of employment remained in force by reason of s.11, for the purpose of calculating a severance payment the contract of employment terminated on 4th July, 2006 is taken to have commenced on 1st September, 2004. There is no need for the respondent to look to the provisions of s.54 (2)((c) of the Employment Act, which deals with successive contracts of employment.

16. The grounds of appeal which argue that Santo Export, not Mr. Hack, is liable for the respondent’s claim therefore fail.

17. The grounds of appeal also challenge a finding that the termination of the respondent’s employment was unlawful. Mr. Hack contends that the respondent was summarily dismissed by reason of serious misconduct and for this reason that the respondent is not entitled to payment in lieu of notice or to a severance allowance.

18. Section 50 (4) of the Employment Act provides:

"50.(4) No employer shall dismiss an employee on the ground of serious misconduct unless he has given the employee an adequate opportunity to answer any charges made against him and any dismissal in contravention of this subsection shall be deemed to be an unjustified dismissal".

19. It is common ground that the respondent was not given any opportunity to answer to charges made against him in the letter of 4th July, 2006 which terminated his employment. As no opportunity was given to answer the charge of misconduct, it is not open to Mr. Hack to contend that the respondent was dismissed on the ground of serious misconduct, and the respondent is therefore entitled to recover payment in lieu of notice.

20. On the question of the claim for severance allowance, the issue is whether the termination was unjustified rather than whether it was unlawful. Under ss. 54 and 55 of Employment Act, an employee with a sufficient period of service is entitled to a severance allowance where the employment is terminated for reasons other than for serious misconduct as provided in s.50.

21. In considering whether the termination was unjustified, counsel for Mr. Hack contends that the trial Judge should have given weight to other matters asserted by Mr. Hack in sworn statements filed by him and a witness on his behalf, including that the respondent had been guilty of a serious misconduct, and was at the time of his dismissal conducting another business on his own account. The difficulty with this contention lies in the way the trial was conducted. At trial counsel for both of the claimant and the defendants tendered the sworn statements filed before trial on their clients’ behalf, and, apparently by agreement, then did not cross examine the deponents. This procedure deprived the Court of the opportunity to see and hear the deponents respond to the challenges made to their evidence. Without seeing and hearing the witnesses cross-examined on disputed facts the Court was in no position to decide issues of credit between the witnesses. In particular the disputed allegations of misconduct and other business activities made against the respondent were not tested. Not surprisingly, the Court has made no findings about them. Rather the trial Judge confined his findings to matters which appeared to be common ground. As the disputed allegations made by Mr. Hack were not tested by cross-examination, the trial Judge was correct not to make findings on those topics. For the same reason, it is not possible for this Court to resolve the disputed evidence.

22. Section 56 (4) provides:
    

"56. (4) The court shall, where it finds that the termination of the employment of an employee was unjustified, order that he be paid a sum up to 6 times the amount of severance allowance specified in subsection (2)".

23. In the present case the trial judge applied a multiplier of 5 to allow a sum of VT 1,295,000 in addition to the basic statutory entitlement under the formula in s.56 (2). In respect of this allowance the trial Judge found that:

(a) The termination was sudden and that it had adverse effects on the family, so much so the Respondent had to send his family back to Australia.

(b) The Respondent made provisions to relocate to Vanuatu due to numerous offers of business and investment opportunities represented by Mr. Hack.

(c) The Respondent had to sell his property in Australia to relocate to Vanuatu.

24. The trial Judge was satisfied that the respondent had incurred considerable losses as a result of relocating to Vanuatu for the purposes of being employed by Santo Exports, and was therefore entitled to compensation. This Court established in Banque Indosuez Vanuatu Ltd v. Marie Noelle Ferrieux Appeal Case 1 of 1990, 2 of VLR [1989- 1994] 490 at 496 that the purpose of s.56 (4) is to enable the Court to compensate an employee for any special damage which he has suffered by reason of an unjustified dismissal if the basic severance allowance is insufficient for that purpose. In Vanuatu Broadcasting and Television Corporation v. Malere & Ors., CAC 3 of 2008, [2008] VUCA 2, this Court acknowledged that the section may also be invoked to reflect the circumstances which lead to the dismissal. In the present case the trial judge has based the award partly on the circumstances which lead to the dismissal and partly as compensation for the loss suffered through the termination of the employment. On the findings made by the trial judge we did not think that the application of a multiplier of 5 was outside the proper bounds of the discretion given to the Court under s.56 (4).

25. Finally, counsel for Mr. Hack argued that the trial Judge erred in awarding, in full, standard rate costs to the respondent. Early in the proceedings the appellant filed an offer of settlement under the Civil Procedure Rules No. 49 of 2002. The offer was not accepted, and at trial the respondent recovered more than the sum offered. The sum offered was for the outstanding wages due at the date of dismissal and for two weeks salary in lieu of notice. The offer contained nothing on account of severance whereas at trial a substantial sum was awarded under that head of claim.

26. Even though the respondent recovered more than the offer, counsel argued that under Rule 15.11 less than the full costs should have been awarded. Rule 15.11 provides:

"Court to take into account offers to settle

15.11 &#160>When consideriidering the question of costs, the court must take into account any offer to settle that was rejected".

27. Rule 15.11 must be read together with Rule 9.7(10) which expressly covers thes the case where an offer to settle is filed and the offer falls short of the final outcome. Both these rules offer guidance to the Court in exercise of the discretion to award costs. If a rejected offer is close to, but less than, the final outcome, the fact that the offer was made and rejected may lead the Court to award less than full costs. However, here the offer was for VT 1,841,000 plus interest and costs. The outstanding wages and payment in lieu of notice which this sum represented were never in dispute. The outcome of the trial awarded a substantial payment for severance in respect of which no offer had been made. The difference between the amount awarded and the trial judgment was substantial. We consider the trial Judge correctly exercised his discretion by allowing full standard costs.

28. For these reasons the appeal must fail.

29. Before leaving the matter we wish to comment on two aspects of the trial procedure which are of a general importance.

30. We have already mentioned the procedure adopted by the parties in this case of not cross examining on sworn statements where the facts deposed to are in dispute. Counsel in a trial must appreciate that when a deponent is not cross examined, a trial Judge will not be in a position to reject the deponent’s evidence in favour of a different version of the facts where the dispute turns on the credit of the witnesses.

31. The other matter concerns a practise followed in this case of allowing counsel significant time to file written submissions at the end of the trial. In this case the Court allowed 21 days to the claimant and 14 days thereafter to the defendants to make final written submissions. In the event the claimant did not file his written submissions until some 10 weeks after the conclusion of the trial. The Judge thereafter waited for the defendant’s submissions but when the nearly 6 months had expired from the conclusion of the trial the Judge preceded in the absence of any communications from the defendants.

32. Counsel should come to a trial ready to address at the conclusion of evidence. It is not uncommon during a trial for a Judge, at the close of the evidence, to adjourn to the following day to allow counsel to order their points for address, but to allow longer periods for written addresses is a practise that we consider that should not be followed save in most exceptional and complex cases. Such a practise delays the preparation of the judgment and places unnecessary burdens on both the Judge and counsel to keep the events of the trial and the evidence in mind for too long. The practise inevitably requires additional time to be spent reading notes of evidence and exhibits to refresh the memory of events which were fresh when the trial ended but gradually fade as time goes by. The trial Judge should be assisted by the prompt addresses of counsel as soon as possible after the evidence is completed.

33. The formal orders of the Court are that the appeal by the appellant Graham Hack be dismissed with costs at the standard rate.

DATED at Port-Vila this 30th day of April 2009

BY THE COURT

Vincent LUNABEK CJ
Nevin R DAWSON J
John von DOUSSA J
Ronald YOUNG J