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Barrett v Patterson [1992] VULawRp 7; [1980-1994] Van LR 558 (21 October 1992)

[1980-1994] Van LR 558

IN THE SUPREME COURT OF
THE REPUBLIC OF VANUATU

CIVIL JURISDICTION

Civil Case No. 122A of 1992


BETWEEN:

LINDSAY DAVID BARRETT
Plaintiff/Applicant

AND:

ROBERT HARRY PATTERSON
First Defendant/Respondent

AND:

MICHAEL HARRY PATTERSON
Second Defendant/Respondent

Coram: Chief Justice Vaudin d'Imecourt

Mr J. Ozols for the Petitioner
Mr S. Hakwa for the Respondent


JUDGMENT

[COMPANIES - RECEIVERS - EMPLOYMENT]

This was an application by originating summons dated 2nd day of September, 1991, by Lindsay David Barrett, who was the receiver and manager of the Solaise Hotel Limited of Port Vila Vanuatu, appointed on March 7th 1990, by ANZ Bank (Vanuatu) Limited pursuant to a mortgage and general charge, dated January 8th 1988 and made between the company of the one part and ANZ Bank (Vanuatu) Limited ("the Mortgagee") of the other part. By that deed the company charged, with payment to the Mortgagee of all such sums of money as were or should become owing to the Mortgagee from the company all and singular its undertaking, business, goodwill and all its assets whatsoever and wheresoever both present and future including the uncalled capital, such charge clearly being by way of a floating security. The clause conferring power to appoint a receiver is set out in clause 18 of the debenture and the terms of such appointment is contained in clause 19 thereof. The Mortgagee in pursuance of such power appointed Mr Barrett to be receiver and manager of the premises charged by "the debenture", viz. the Mortgage and general charge of January 28th 1988, on the terms and with and subject to the powers and provisions of the debenture.

The originating summons sought directions pursuant to the Companies Act No.12 of 1986, section 342, on the following matters:-

The entitlements if any of the (now) First and Second Respondents to payment as preferential creditors in accordance to section 308(1)(a) of the Companies Act No. 12 of 1986 pursuant to claims lodged by them with the Plaintiff.

The respondents were Robert Harry Patterson a director/shareholder of the Company and his son Michael Harry Patterson (the 1st respondent's son) also a shareholder and director of the Company. Both claim (or counterclaim) in answer to the petition, to have been "employed" by the Company at all times and to have been unfairly dismissed by the receiver.

The questions that now arise are whether:

(i) The respondents were employed by the Company.
(ii) If employed, under what terms and as from when?
(iii) Whether they were unfairly dismissed.
(iv) If unfairly dismissed, what if any are their entitlements under the Employment Act 1 of 1983 and 20 of 1986 [Cap 160], and
(v) the question raised under the originating summons, as to what payments, if any, as preferential creditors.

The Company was incorporated on the 22nd September, 1979 as R.H. Patterson (New Hebrides) Ltd (on the 4th February 1985 the name of the Company was changed to the Solaise Hotel Ltd) and carried on the business of a hotel and restaurant. By Mortgage dated January 28th, 1988, the Company charged its property and undertaking as security for moneys from time to time owing to the Mortgagee. Clause 18 of the Mortgage contains, so far as now material, the following provisions:

"(18) That at any time after the moneys hereby secured become payable the bank may appoint in writing any qualified person to be a receiver or receiver and manager..... provided always that such receiver shall be the Agent of the Mortgagor [the Company] and the [Company] alone shall be responsible for his acts and defaults and such receiver .... shall....have power to (c) carry on or concur in carrying on the business .... (f) to employ and appoint managers etc ... (m) to do all such other acts and things without limitation as such receiver shall think expedient in the interests of the bank."
"(21) that all moneys received by any such receiver or by the bank under or by virtue of these presents shall be applied in the manner following namely:
(a) in payment of all rents etc.. and other outgoings having priority to the charge hereby created. The surplus (if any) shall belong to the mortgagor ..."

On March 7th, 1990, the Mortgagee duly appointed the applicant to be the receiver and manager of the Company. The receiver is a chartered accountant and a partner in the firm of Coopers & Lybrand. On the same day, the receiver went in he caused to be served on all the employees of the Company a letter dated 7th March, 1990, in these terms:

"To: All employees as addressed
As you will be aware I was appointed Receiver and Manager ....
It is my intention to continue the trading of the business of the company
In my capacity as receiver ................... I will continue your employment in the same position and under the same terms and conditions as existed between you and the Company."

Attached to that letter was a 'memo' of the same date in the following terms:

"Date: 7th March 1990
To: All Employees
From: Lindsay D. Barrett (Receiver & Manager)
Re: Duties and Responsibilities
Set out below are the duties and responsibilities for each and all employees .............
(1) Without the express written authority of the receiver,
(2) All funds received will be passed to the receiver or paid into a bank account nominated by him.
(3) All documents issuing from the Company shall have (Receiver and Manager appointed) after the name of the Company .........."

In his affidavit of the 24th June 1992, Mr Barrett referring to the above says this:-

(11) ..... I asked Michael Patterson to distribute copies of the letter [7th March 1990]
..... It was not intended to be distributed to the three managers. The Pattersons should have been aware it was not intended to apply to them because I arranged for weekly salaries to be continued to be paid to the employees, but Messrs Pattersons..... did not receive any payments until their management contract was executed.

The terms of the so called "Management contract" were contained in a letter of the 22nd March 1990 in the following terms:-

"I refer to our recent discussions concerning the total remuneration package ....
It is noted that I will be advised by you as to the manner in which it has been agreed that the monthly salary will be allocated between each one of you. This will be effective from Thursday, 8th March ...
It is recognised that any entitlement that you may have for wages or annual leave, as a consequence of your employment with the company up to the date of my appointment will not be prejudiced and will be dealt with in accordance with the relevant provisions of the Companies Act and Employment Act".

It is now claimed by the receiver, as is indeed set out in the same affidavit, that they always believed the Pattersons to be acting as directors of the Company not as employees. Indeed, it is said in paragraph (5) of the affidavit:

"I asked them whether they had any contracts with the Company and they advised me they did not".

In his evidence in Court, that paragraph was somehow transformed into "I asked them whether they were employed by the Company and they said they were not." It was pointed out to Mr Barrett, that on the 11th April 1990, within days of the so called "consultancy agreement" (as he referred to the same letter of the 22nd March in his oral evidence in Court) the Pattersons sent in a "Statement of Affairs" in schedule E of which they clearly set out their claims as employees of the company and their entitlement. That statement by them was never refuted by the receiver. In his evidence Mr Law another chartered accountant, working for Coopers & Lybrand in close association with the receiver at the time and who was in daily involvement with the Company at the time had this to say:

"We did not give the statement of affairs a second thought because we thought there was so much money in the kitty at the end of the day".

In paragraph (9) of his affidavit of the 24th June 1992, Mr Barrett says:-

".... For this and compassionate reasons it was decided, with the approval of the ANZ Bank, to appoint the Patterson as consultants & managers of the hotel"

Yet he writes a letter to R.G. Jones of the ANZ also dated 22nd March 1990 (annex B to that affidavit) in these terms at p.7

"MANAGEMENT"
I have met with the managers of the hotel, Harry and Michael Patterson and established their role given my appointment ........... The management role of Michael Patterson has been primarily concerned with the supervising and running of the bars, liquor purchases, accounts, banking and invoicing and front office. Harry Patterson has been the overall manager of the hotel, and has concerned himself with maintenance of the premises, marketing and business development ..... I have explained to them their roles and what I expect from them ..... I have been approached by an experienced hotel manager who has been employed in a large local hotel and consider that he may be an appropriate replacement for the Pattersons should it be necessary ..... The Pattersons had a number of personal expenses (in lieu of wages) paid by the hotel. It is my view that this is no longer appropriate and I have proposed to them that they be paid a salary ........"

In view of that evidence, and of what is set out in that letter to the ANZ Bank and in the letter of the 22nd to the Pattersons themselves, it is difficult to believe that the letter of the 7th March, 1990 and its memo of the same date were not intended for the Pattersons. Who else was there "in charge of placing orders, accepting goods, incurring credit, paying out funds, paying funds in banks, writing documents for the company, paying for the goods and services at time of delivery etc..." as set out in the letter of the 7th March and its memorandum?

It seems clear to me from the preponderance of evidence that I have heard in this case, that the Pattersons were employed. I was not impressed by the evidence given in this case by Mr Barrett at all. Either his memory failed him or worse, I cannot say, but in any event, I do not accept, as he now claims, that he asked the Pattersons "were you employed by the Company" and that they would have answered " No we are not"

I entirely accept, for that purpose, the evidence of both Pattersons (senior and junior) that they were not only shareholders and directors of this company, but that they were also employed in the full time capacity of managers of the Solaise. Their employment was, to say the least, unorthodox, but employment I find it nevertheless was. The way they ran their hotel, does them both little credit, but they were advised (I will come back to that in a moment). I believe and accept, that the truth was, that the receiver did ask (as he set out in paragraph (5) of his affidavit of the 24th June 1992) whether they had a contract of employment - not as now claimed - are you employed?

That is the only construction I can put on the documentary evidence before me, and as I said previously, I do accept the Pattersons evidence on that score. The difficulty faced by the receiver was what was he to construe as the terms of the contract between the Solaise and the Pattersons, rather than the question of were they employed or not. It is interesting to note, en passant, that no one in that Company had a written contract. Nor indeed does the law of Vanuatu require one. Section 9 of the Employment Act CAP 160 states as follows:-

"A contract of employment may be made in any form, whether written or oral: provided that a contract of employment for a fixed term exceeding 6 months or making it necessary for the employee to reside away from his ordinary place of residence shall be in writing etc ..."

neither of which applied to the Pattersons. Therefore, it was not necessary for them to have a written contract of employment. As a matter of interest, none of the other employees in the Company had a written contract of employment either.

Having said that, it is plain that upon entering the premises on the 7th March 1990, the receiver would have found it difficult to work out exactly what were the terms of the employment of the Pattersons. They by then, were no longer drawing any salaries. They stated in evidence that their reason for not drawing a salary at that stage was that the Company was ailing and in order to keep their staff, they had chosen not to draw any salary for the time being. For my part, I believe their evidence on that matter. It is, if I may say so, the only saving grace, in an otherwise disastrous enterprise. Besides, they had free accommodation and all their food. It is not surprising, therefore, that any receiver entering that hotel at the time, would wish to have determined what should be the proper salary to be given to the managers of the Solaise Hotel in the future. It is that, I have no doubt, that prompted the letter of the 22nd March 1990. It sets out in clear terms, what the remuneration, package would be for the managers in the future. It recognises and preserves, in terms, the rights and privileges to which the Pattersons were thus far entitled.

I come at last to the evidence of Robert Agius, a chartered accountant from the firm of Messrs Moore Stephens. He was the accountant and auditor of the Solaise Hotel since its very early days in 1990. I have read his affidavit of 14th July 1992 and the documents annexed thereto. It would appear from his evidence, that the rather hap-hazard manner in which the Pattersons were drawing their salaries, was due entirely to him, and that they were acting on his advice. I accept entirely the evidence of Robert Agius. I cannot believe that a professional man, giving the evidence that he did, could possibly have been lying. He would have been aware of the likely consequences to his professional future. His advice to the Pattersons, was in my opinion, nothing short of a recipe for fraud. He must have been aware of that. A less professional approach to the management of a limited company is difficult to envisage. He gave his evidence on Friday 17th July 1992 . In his evidence, he adopted his affidavit of 14th July 1992 and all the annexed documents. He went on to say:

"The reason they did not want their names to appear on the pay role journal was for confidential reasons, namely they did not wish members of staff to know what they were earning. They did not get any pay slips either, cheque butts would come to my office regularly, so that we knew how much they were getting paid".

Later on in his evidence, he went on to say that:-

"The only two who were drawing irregular payments were Mr Patterson senior and Mrs Patterson, Mr Patterson junior was getting regular payments every week ..... they were paying themselves in this way on my advice."

In the second annex to his affidavit of 14th July 1992 at the last paragraph on page one he deposes as to the manner in which Mr Harry Patterson was being paid on his advice as follows:-

"Mr Patterson's remuneration from the Company consisted of a series of drawings from the company's account to meet all personal expenses. No limits were set and the drawings were on a 'needs' basis only. In addition to these drawings the Company paid all Mr Patterson's living expenses and that of his family .... The drawings from the Company's accounts as a separate amount were also not a regular amount from the accounts of the Company"

This statement prompted me to say that this was a formula for fraud. I cannot believe that any so called professional accountant could possibly give such advice to a client, and yet that was exactly the advice which Mr Agius gave to the Pattersons. The Solaise Hotel was being run like a family firm. The word "Limited" at the end of the name, it seems, only meant "Limited as to the amount of debt we will have to repay but unlimited as to the amounts of debt we create." They were plainly hiding behind their shield of incorporation. They were, in short, doing nothing more nor less on the advise of Mr Agius than operating a fraud on their creditors. It seems to me that a proper investigation by the receiver, might well have entitled him to dismiss the management for misappropriation of funds. But no investigation of this nature was ever carried out by him. Nor, may I add, is it the purpose of this case. I am limited to the declaration sought by the receiver and to the claim in response made by the Pattersons.

It was contended by Mr Ozols on behalf of the receiver that the Pattersons were never "employed" by the company, but were acting as directors and were not drawing any remuneration as employees, but merely as directors. He relies, on a number of cases in support of his contention that "directors" can act as such only and need not necessarily be "employed" as "employees" of the company. As a statement of law, I cannot fault that submission, he relies for that contention in particular on:

(i) Parsons v. Albert J. Parsons & Sons Ltd [1979] I.C.R. 271. In that case, the Industrial Tribunal which had heard the facts of the case, had found that upon those facts, the director was not in the circumstances of that particular case, an employee of the company. The Industrial Appeal Tribunal, while considering itself bound by the Industrial tribunal's findings of fact held that whether a contract of employment should be implied from the circumstances, was a question of law and that it was highly likely that where a full time director worked for a remuneration a contract of employment was to be implied. On appeal to the Court of Appeal, it was held that on the facts found, it was clear that the applicant was regarded and remunerated as a director and was not employed and therefore not entitled to compensation for unfair dismissal. That case plainly turns on its own facts and does not enunciate any new principles of law.
(ii) Freeman & Lockyer (A Firm) v Buckhurst Park Properties (Mangal) Ltd [1964] 1 All ER 630. This case is authority for the proposition that a director who acts as managing director to the knowledge of the board of directors, has ostensible authority to bind the company, when acting within the ordinary ambit of the authority of a managing director and that no inquiry need be made by 3rd parties as to whether such a director was in fact properly appointed; it was sufficient for the 3rd party's purpose that under the articles of association of the Company there was in fact power to appoint the director as such. This case does not assist me in the context of the present case.
(iii) Hely-Hutchinson v Brayhead Ltd [1968] 1 QB 549. This case also turned on its own facts and is again authority for the proposition that ostensible or apparent authority is authority of an agent as it appears to others and is capable of binding a company. Again in the context of this present case, it does not assist me. I do not accept that Messrs Patterson were being put forward as directors of the company as opposed to employees. They plainly acted as both. There were no other employees who could have managed the company at the time. Nor do I accept, as indicated previously, that they claimed not to have been employed by the company.
(iv) Hutton v West Cork Railway Co [1883] UKLawRpCh 129; [1883] 23 Ch D 654 and Moriarty v Regent's Garage [1921] 1 KB 423; neither case assist in the context of the present. They are both at best authorities for the proposition that company directors can enter into a remuneration contract with the Company in spite of the fact that they are directors and that such contracts do not make them necessarily servants of the company. All good proposition in law, but unhelpful on the facts as I find them to be in the present case.
(v) Lee v Lee's Air Farming Limited [1961] AC 12 is authority for the proposition that a person who holds practically all the shares in a company and is also appointed governing director with full power of government and control of the company's affairs may still, in his personal capacity, enter into a valid contract of service with the company and then become a worker in the employment of the company, nor can the capacity of the company to make such a contract be impugned because the governing director himself was the agent of the company in its negotiation.

The company and such person are separate legal entities and although the governing director exercised the right of control over himself as an employee of the company he did so as agent for the company.

On the facts as I find them to be in the present case, it is clear that, applying the principles as enunciated in the case of Lee above, the Pattersons or probably Mr Patterson senior, acting as agent for the Solaise Hotel Limited, employed both himself and his son as servants of the company.

Therefore, if as I hold, I find that the Pattersons were at all times employed by the Solaise Hotel, the question which follows is: was that existing contract of employment determined by the appointment by the debenture holders of a receiver out of Court? In law the answer to that is no, they are not. I am greatly assisted in coming to this decision by:

(i) The case of Griffiths v Secretary of State for Social Services [1973] 3 All ER 1184 and the case of Re Mack Trucks (Britain) Ltd [1967] 1 All ER 977 and
(ii) That at no time was the existing contract of employment determined by the receiver upon entering into receivership, quite the contrary, as one can see from the letter of the 7th March 1990, which in terms specifically preserved the employment of all the employees of the company. As I have said previously, the terms of that letter and the wording of the annex to it, lead me inexorably to the conclusion that they were primarily, addressed to the Pattersons. If I needed any further convincing, I accept entirely the evidence of Mr Patterson junior on that matter.
(iii) I am also assisted by the case of Nicoll v Cutts [1985] BCLC 99,427 to some extent, although that case is authority for the proposition that a receiver is not personally liable for continuing an existing contract of employment for wages subsequent to the receiver's appointment.

This leads to my next question, what is the effect of the letter of 22nd March 1990? Was that a new contract determining the first or was it merely purporting to define the terms of an existing contract? In view of all the evidence I have heard in this case, I can only come to the conclusion that it was the latter, and I so find as a matter of fact and so rule as a matter of law.

This leads me to the conclusion that the termination of the Patterson's contract of employment by one week's notice was void and I rule that they were unfairly dismissed for the following reasons:

The Employment Act CAP 160 states at section 18:

(1) No statement such as "received in full statement of all claims" made by the employer whether during the period of his contract or after its termination, shall have the effect of waiving any rights he may have under the said contract.
(2) The acceptance without protest or reservation by an employee of a pay document shall not be held to imply renunciation on his part of the claim for all or any part of remuneration which may be due to him and such acceptance shall not be held to imply the settlement of all claims.

It is clear, that the so called contract of the 22nd March was nothing more nor less than a mere statement of an existing state of affairs with regards to the Pattersons. It could in no way deprive them of any pre-existing statutory rights. Those statutory rights are defined at section 49 of the Employment Act CAP 160 as follows:-

"49: 1) A contract of employment for an unspecified period of time shall terminate on the expiry of notice given by either party to the other of his intention to terminate the contract.
2) Notice may be verbal or written, and, subject to subsection (3), may be given at any time.
3) The length of notice to be given under subsection (1):
4) Notice of termination need not be given if the employer pays the employee the full remuneration for the appropriate period of notice specified in subsection (3)."

In the present case, because of the length of service given by both Pattersons, it is clear that the minimum period of notice (or payment in lieu) due to them under their contract of employment was one of 3 months for each of them. By terminating their contract by one week's notice, the receiver was acting illegally.

Section 53 of the same Act provides as follows:-

"53. 1) If an employer .......... commits some ....... serious breach of the terms and conditions of the contract of employment, the employee may terminate the employment forthwith and shall be entitled to his full remuneration for the appropriate period of notice in accordance with section 49 without prejudice to any claim he may have for damages for breach of contract."

This section entitles the employee to the full remuneration for the period of the notice on top of any other damages which the court may award him for the breach itself. Therefore, here, the Pattersons are entitled to the full three months salary due to them (less the one week already paid) plus an award for breach of contract.

The matter does not end there, for on top of it all, the employee is entitled to certain severance allowance under section 54 of the Employment Act as follows:

"54 (1) Subject to section 55, where an employee has been in continuous employment for a period of not less than 12 months, with an employer on a contract of employment entered into before or, on or after the date of commencement of this Act, and -
(a) The employer terminates his employment.
The employer shall pay severance allowance to the employee under the Act.

The amount of severance allowance under the Act is determined under section 56 as follows:-

"56 (2) Subject to subsection (4) the amount of severance allowance payable to an employee shall be
(a) for every period of 12 months -
(b) for every period less than 12 months, a sum equal to one-twelfth of the appropriate sum calculated under paragraph (a) multiplied by the number of months during which the employee was in continuous employment.
(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).
(5) Any severance allowance payable under this Act shall be paid on the termination of the employment.
(6) The Court may, where it thinks fit and whether or not a claim to that effect has been made, order an employer to pay interest, at a rate not exceeding 12 per cent per annum from the date of the termination of the employment to the date of payment.
(7) For the purposes of this section the remuneration which shall be taken into account in calculating the severance allowance shall be the remuneration payable to the employee at the time of the termination of his employment."

Under section 342(2) of the Companies Act CAP 191:

"A receiver or manager of the property of a company appointed [under the powers contained in any instrument] shall, to the same extent as if he had been appointed by order of the Court, be personally liable on any contract entered into by him on the performance of his functions, except in so far as the contract otherwise provides, and entitled in respect of that liability to indemnity out of the assets; ......."

In other words, although personally liable for any contracts entered into by him in his capacity as a receiver (subject to his rights of indemnity) as agent of the Company, the receiver is not liable personally to an employee on his contract of employment, if the contract is continued as opposed to being created by him. (The same as section 369(2) of the English Companies Act 1948).

It is to be noted that the wording of the subsection refers only to contracts "entered into by him on the performance of his functions". I am further assisted in so holding by reference to the case of Nicoll v Cutts(supra). Where it was held by the Court of Appeal in England, when interpreting section 369(2) of the English Companies Act 1948, which is drafted in very similar terms as section 342(2) of the Companies Act CAP 191, in these terms at p.324, in the courts judgment delivered by Dillon LJ:

"it is impossible in my judgment to construe the subsection as meaning that a receiver is personally liable on any contract which in the performance of his functions he allows to continue after his appointment."

Although not bound by that decision, I am forced by common sense to recognise that it is a correct interpretation of the section and I so hold. It is therefore a contract on which the company is liable. There now remains for me to decide two matters:

1. What exactly shall be:
2. What, if any, preference attaches to the liability of the Company under section 308(2) of the Companies Act as amended by section 54(3) of the Employment Act.

I shall take each of these in turn and award the quantum of damages as I consider appropriate.

1. (a) The quantum of damages for breach of contract:

Aware as I am, that damages for breach of contract must remain compensatory for loss and in no way punitive, the loss therefore to each of the Pattersons under the breach of contract element must be limited to that period of notice to which they would have been entitled had there been no breach. In other words I will seek to compensate them strictly for their loss. Under the Employment Act section 49(3) each of them would have been entitled to 3 months notice or 3 months, pay in lieu. Had they been given the appropriate notice, there would have been no breach. I say 3 months notice because, of course, each of them had been employed for more than 3 years by the Solaise. Their employment was terminated by a letter from the receiver dated 8th July 1991 and they were given one week's salary in lieu of notice. I will therefore give the receiver credit for that week's salary in lieu in each case.

Robert Harry Patterson was being paid 48,462 Vatu per week by way of wages. He was entitled to 13 weeks notice to terminate his contract, he received one week and is owed 12 weeks.

Therefore, 12 x 48,462: = Vt 581, 544

He was also entitled to free meals on a daily basis. That means that he would have received on top of his earnings 84 days of free meals as part of the contractual obligation from the Solaise. I estimate that to be worth 2,000 Vatu per day.

Therefore, 84 x 2,000 = Vt 168,000

As for the hospitality and fuel allowance, I consider that that would have been expendable as a result of their working at the hotel in the performance of their tasks and not a personal benefit attaching to them, such as salaries and meals. More in the form of entertainment allowance by way of "advertising" the hotel. The fuel is of course fuel spent in furtherance of hotel business, not a personal matter. I therefore award nothing under that head.

Applying the same principle to Michael Harry Patterson:

Wages: 45,000 x 12 = 540,000

Meals: 2,000 x 84 = 168,000

(b) Quantum as to severance allowance

Robert Harry Patterson

I find as a matter of fact was employed by the Company for 11 years and 9 months. Under section 56(2) of the Employment Act he is entitled to 15 days for every year of service + 9/12 of 15 days. He was receiving 48,462 Vt per week that comes to 6,923 per day, he would be entitled to 11 x 15 = 165 + 9/12 x 15 = 176.25.

Therefore 176.25 x 6,923 = 1,220,178 Vatu.

Section 56(4) states that "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)"

Applying therefore section 56(4) to Mr Patterson senior in view of his long employment with the company I consider that the appropriate multiplier should be 3. Clearly the termination of his contract was unjustified. He shall therefore receive severance allowance

1,220,178 x 3 = 3,660,534.

The allowances for meals and entertainment and petrol are not part of the salary element and I do not consider it appropriate to bring that into the severance allowance. Section 56(7) states "For the purposes of this section the remuneration which shall be taken into account in calculating the severance allowance shall be the remuneration payable to the employee at the time of the termination of his employment". That in the case of Robert Harry Patterson was 48,462 Vatu.

Michael Harry Patterson

Applying the same principle to him, I find that as a matter of fact he was employed by the Solaise Hotel for 8 years and 11 months. Therefore he is entitled 113.75 days severance pay times 6,428 = 731,185 Vatu.

In his case, because of his lesser period of employment, I consider that the appropriate multiplier under section 56(4) should be 2; in his case as well I find as a matter of fact that the termination of his contract was unjustified.

Severance allowance 2 x 731,185 = 1,462,370 Vt.

I apply the same reasoning in his case as to that of his father with regards to meals and other allowance. Under section 56(7) I can only consider the remuneration, not allowances.


Holiday Pay

In both cases I must consider holiday pay. Robert Harry Patterson is entitled to 11.25 days at 6,923 = 77,883

Michael Harry Patterson is entitled to 11.25 days x 6,428 = 72,315 Vt.

I have heard no evidence with regards to arrears of holiday. I therefore award nothing under that heading.


Holiday Pay

Both Pattersons are owed their Air fare to Auckland and I award them their air fare as follows:


Air Fare

Robert Harry Patterson 189,406 Vatu

Michael Harry Patterson 152,628 Vatu

Under section 56(6) they are both entitled to interest on their severance pay at a rate not exceeding 12%. I propose to award 10% interest from the 8th July 1991 to date.


Preferential Payment under section 308 Companies Act

"308 (1) Notwithstanding any provision under any other law in a winding up there shall be paid in priority to all other debts:
(2) Notwithstanding anything in subsection (1) (a), the sum to which priority is to be given under that paragraph shall not, in the case of any one claimant, exceed Vt 100,000."

Section 308 of the Companies Act was amended by Section 54(3) of the Employment Act as follows:

"54 (3) For the purposes of section 308 of the Companies Act, CAP 191 severance pay shall be deemed to be wages."

The effect of section 54(3) of the Employment Act, was to rank severance pay with wages as a preferential debt or payment under section 308(1)(a) of the Companies Act.

Section 308(1)(a) limits the preferential payment to wages or salaries in respect of services rendered during 4 months next before the relevant date. The relevant date referred to there is the date of the winding up and only to the extent of "4 months next before" that date section 54(3) Employment Act preserves severance pay as "wages" under section 308 Companies Act.

Under section 308(2) the sum to which the priority under Section 308(1)(a) applies, is in any event limited to Vt 100,000 in respect of any one claimant.

Therefore applying section 308 of the companies Act as amended by section 54(3) to the present case I hold as follows:-

Neither Patterson is entitled to preferential payment for the holiday pay that I awarded to them. Section 308(1)( b) limits preference to "accrued holiday remuneration becoming payable .... on the termination of his employment before or by the effect of the winding up order or resolution". That is not the case of the Pattersons, whose holiday pay arises as a result of their wrongful dismissal, but not as a result of termination before winding up or "by the effect of the winding-up order or resolution".

Under section 308(1)(a) of the Companies Act as amended by section 54(3) of the Employment Act, wages and severance pay now rank equal in preference, but under section 308(1)(a) it is limited to that sum accrued during the 4 months next before the relevant date. The relevant date being the date of the winding up.

Applying this to the Pattersons, I have to ask "what sum is due to them as represents 4 months wages and or severance pay prior to "the relevant date", in the winding up. Mr Patterson Senior was entitled to 3 months' notice plus 176.25 days severance; one month being 30 days, he is entitled to a maximum of 4 months' wages (or severance pay) as preferential payment, therefore 1/3 x 52 weeks = 17 weeks plus 2 days pay rank in preference namely 48,462 x 17 = 823,854 Vt.

Mr Patterson junior is also entitled on the same basis as above to 4 months wages (or severance pay) in preference, in his case 45,000 x 17 = 765,000 Vt.

Section 308(2) of the Companies Act in any event limits preferential payment to wages under section 308(1)(a) to 100,000 Vatu. Each of the claimants is therefore only entitled to 100,000 Vt and no more in preferential payment. The remainder must rank equal with other creditors.

To sum up therefore:


Robert Harry Patterson is entitled as follows:

Breach of Contract salary 581,544

Breach of Contract meals 168,000

Severance allowance 1,220,178 x 3 3,660,534

+ 10% Interest from 8th July to judgment that is 1 year 4 months 488,070

Interest on breach of contract element which I also limit to 10% to cover same Period 99,938

Holiday pay 77,883

+ 10% interest to date 10,384

Air fare 189,406

+ 10% interest to date judgment total 25,253

Judgment total 5,301,102


Michael Harry Patterson is entitled as follows:

Breach of contract salary 540,000

Breach of contract meals 168,000

10% interest from above 1 year + 4 weeks 94,400

Severance allowance 731,185 x 2 1,462,370

10% interest thereon 1 year 4 months 194,982

Holiday pay 72,315

Air fare 152,628

10% interest on the 2 above 29,992

Judgment total 2,714,687

Under section 308(2) of the Companies Act only Vatu 100,000 of the judgment debt can rank as a preferential debt on other creditors.

Cost to be the Defendants/Respondents; to be taxed or agreed.

21 October 1992

CHARLES VAUDIN D'IMECOURT
CHIEF JUSTICE


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