Alliance Motor Auctions Pty Ltd & Anor v Industrial Relations Commission of New South Wales & Ors

Reich v Client Server Professionals of Australia Pty Ltd (2000) 49 NSWLR 551; CASES CITED: Sydney Water Corporation Ltd v Industrial Relations Commission of New South Wales [2004] 61 NSWLR 661; Truelove v Sydney Water Corporation Ltd [2005] NSWIRComm 191.

Alliance Motor Auctions Pty Ltd - First Claimant David Attwells - Second Claimant PARTIES: Industrial Relations Commission of New South Wales - First Opponent Gino Giovannangelo - Second Opponent Motor Vehicle Valuations Pty Ltd - Third Opponent

J M Neil - Claimants COUNSEL: Submitting - First Opponent M Kimber SC & C Magee - Second and Third Opponents

Hunt & Hunt - Claimants SOLICITORS: I V Knight, Crown Solicitor - First Opponent Willis & Bowring, Miranda - Second and Third Opponents

LOWER COURT JURISDICTION: Industrial Relations Tribunal of NSW

IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CA 40412/05 IRC 6970/03

MASON P GILES JA McCLELLAN CJ at CL

Thursday 13 October 2005 ALLIANCE MOTOR AUCTIONS PTY LTD & ANOR v INDUSTRIAL RELATIONS COMMISSION OF NEW SOUTH WALES & ORS Judgment 1 GILES JA: These proceedings are concerned with the jurisdiction of the Industrial Relations Commission of New South Wales under s 106 of the Industrial Relations Act 1996. 2 Section 106 provides in subs (1), so far as relevant to the present proceedings, that the Commission may make an order varying any contract whereby a person performs work in any industry if the Commission finds that the contract is an unfair contract. By subs (2), the Commission may find that it was an unfair contract at the time it was entered into or that it subsequently became an unfair contract because of any conduct of the parties, any variation of the contract or any other reason. 3 By the definitions in s 105 of the Act, so far as relevant to the proceedings "contract" means any contract or arrangement, and "unfair contract" means a contract that is unfair, harsh or unconscionable or is against the public interest. 4 Although the terms of the contract are disputed, it is common ground that the first claimant Alliance Motor Auctions Pty Ltd, which carried on the business of purchasing, wholesaling and auctioning motor vehicles and of which the second claimant Mr David Atwells was the Chief Executive Officer, engaged the services of the second opponent, Mr Gino Giovannangelo. The services were engaged through the second opponent's company, the third opponent Motor Vehicle Valuations Pty Ltd. It is also common ground that the engagement was a contract whereby Mr Giovannangelo performed work in an industry. 5 The engagement began in August 2001, and came to an end in contentious circumstances in May 2003. In December 2003 the second and third opponents brought proceedings against the claimants in the Commission, claiming relief pursuant to s 106. The Commission is the first opponent in the proceedings in this Court. It entered a submitting appearance, and my references hereafter to the opponents will be to the second and third opponents. 6 The opponents' current claims are found in a further amended summons filed on 13 August 2004. A reply filed by the claimants on 19 February 2004 has not been updated, nor has the response filed by the opponents on 10 March 2004, but these documents continue to show the areas of dispute. A number of affidavits have also been filed in the Commission, sworn by the second opponent and the second claimant. 7 By a summons filed in this Court on 20 May 2005 the claimants applied for declaratory and prohibitory relief on the ground that the Commission was without jurisdiction to hear or determine the claims made in the proceedings. The application for relief was all-embracing, challenging the jurisdiction to hear or determine any claim and seeking to prohibit the Commission from taking any steps further to exercise or purport to exercise any power under s 106 in the proceedings. 8 The basis of the application was that the opponents were effectively seeking damages for breach and termination of the contract, and that their assertions of unfairness of the contract, were no more than a device to enliven the jurisdiction of the Commission under s 106. This reference to "device" comes from the claimants' written submissions. In oral submissions the claimants eschewed any suggestion of a sham, and said that it was merely meant that the claims in the Commission were in substance claims for damages for breach and termination of the contract. The application in this Court was founded on its decision in Sydney Water Corporation Ltd v Industrial Relations Commission of New South Wales [2004] 61 NSWLR 661, in which it was held that s 106 does not permit the granting of relief unless the contract or arrangement otherwise falling within that section is or is found to have become an unfair contract as defined in s 105. 9 For the following reasons, in my opinion the application is without substance and the summons should be dismissed with costs. 10 The terms of the contract alleged by the opponents are found in para 16 of the further amended summons. The terms of the contract asserted by the claimants are found in para 11 of their reply. There is agreement that the first claimant would pay the third opponent $100,000 per annum plus GST for the provision of the second opponent's services, that it would provide the second opponent with a fully maintained motor vehicle including petrol, and with some difference in its extent that there would be provision in relation to the second opponent's telephone expenses. There was some difference between the descriptions of the services to be provided, but the major dispute was -

(a) the opponents alleged that the contract was for a three year term, which the claimants did not accept; and

(b) the opponents alleged that they would be entitled to a 3.25 per cent share in the business of the first claimant, that during the course of the contract they would receive a dividend on the first claimant's profits calculated in a particular way and paid quarterly, and that at the end of the three years they would surrender their shareholding in the business and would be paid by the first claimant the value of the shareholding with a guaranteed minimum of $250,000; but the claimants accepted only that the second opponent would be entitled to a 3.25 per cent shareholding in the first claimant "following two years of continuous service, subject to the achievement of performance outcomes". 11 The opponents pleaded the discussion underlying the terms of the contract for which they contended in paras 12 to 15 of the further amended summons. The unfairness which they asserted stemmed in part from that discussion, which was pleaded as follows - "12. On or about 25 July 2001 the First Applicant met with the Second Respondent socially at the Taren Point Hotel. During the course of that meeting the Second Respondent raised with the First Applicant his desire to have the First Applicant join him at the First Respondent.

13. During the course of that discussion the First Applicant indicated that he may be prepared to do so but would only agree to a three (3) year contract as he intended to move to Queensland in approximately three (3) years time. Secondly he did not wish to be financially disadvantaged as he was currently earning through the Second Applicant $120,000 plus GST.

14. In the course of that discussion the Second Respondent indicated that whilst he had a preference for a five (5) year contract he would be prepared to agree to a three (3) year contract. He proposed that the First Applicant could be offered a remuneration of $100,000 per annum plus GST together with a 3.25% share in the business. The Second Respondent acknowledged that the base salary was less than the First Applicant was currently receiving, however the offer of a 3.25% share in the business would result in the First Applicant receiving dividends from the business which would equal, if not exceed, the $20,000 per annum difference in the salary. The Second Respondent then advised the First Applicant that if he agreed to join the First Respondent that his 3.25% share would be worth a guaranteed minimum of $250,000 at the end of the three (3) year period. The Second Respondent indicated that that would be a 'nest egg' for the First Applicant in respect of his move to Queensland. The Second Respondent then gave a number of examples to the Applicant depending on the First Respondent's business profits on a yearly basis of what 3.25% share in the business would be worth on a per annum and also how it potentially could be worth more than $250,000 at the end of a three (3) year period. 15. The Second Respondent then proceeded to obtain a piece of paper from a member of staff at the Taren Point Hotel and wrote out his proposed offer including examples of how the dividend calculations would result in the First Applicant receiving greater remuneration per annum and also at the end of the three (3) year period that he was currently receiving. In the light of the representations contained in those discussions and set out in the document the First Applicant advised the Second Respondent that he was prepared to accept the offer and would make arrangements to commence work for the First Respondent in approximately 14 days. The First Applicant and the Second Respondent then shook hands on the deal." 12 The allegations of unfairness in the further amended summons, found in its para 49, were extensive. It was said that there was unequal bargaining power of which the claimants took advantage. It was said that representations concerning the issue of the shareholding, and entitlement to dividends and a share buyback on termination of the contract, including prior to the expiration of three years, were relied on in entering into the contract and performing it but were or became untrue. Complaint was made of the second claimant misleading the opponents in respects to do with the way dividends or a sum which, on the opponents' case, they thought were going to be dividends would be paid during the currency of the agreement, and there was complaint that the contract operated unfairly in that the second opponent was led to believe that he had become a shareholder in the first claimant upon commencement of the contract and in that it permitted the claimants not to pay quarterly dividends in the manner which the opponents had been led to believe would occur. Further, it was said that the contract operated unfairly because it permitted the claimants to unfairly terminate it without being required to pay forthwith the value of the shareholding or the minimum sum of $250,000, the point being termination as distinct from expiry of the three year period. This is not a complete catalogue of the unfairness alleged, but is sufficient for present purposes. 13 The substantive claims to relief made in the further amended summons were again extensive, but should be summarised. 14 They were first to orders varying the contract to provide -

(a) upon termination for any reason, including the expiration of any fixed term contract, for the giving of six months notice of termination or payment in lieu calculated on the total remuneration package;

(b) upon termination for any reason prior to the end of the three years as well as at the end of the three years, for payment of a sum equivalent to the greater of the value of a 3.25 per cent share in the first claimant's business or $250,000; and

(c) for access to the first claimant's financial records until (a) and (b) were fulfilled. 15 It was then claimed, further or in the alternative, that the contract should be varied by -

(d) deletion of any term to the effect that the second opponent would be entitled to a 3.25 per cent shareholding in the first claimant following two years of continuous service subject to the achievement of performance outcomes, and any term to the effect that the issuing of the shareholding would be predicated upon the second opponent entering into a written shareholding agreement. 16 It was then claimed, again further or in the alternative, that the contract should be varied to provide -

(e) for the issue of shares representing a 3.25 per cent shareholding in the first claimant upon commencement of the provision of services and for the due registration of the shareholding, and also for an entitlement to be paid a dividend calculated in the particular manner, and

(f) upon termination of the contract for any reason prior to or at the expiration of three years, for the payment of a sum equivalent to the greater of the value of the shareholding or $250,000. 17 Finally, an order was claimed for payment of "such sum of money in connection with the contract, as varied as is just in the circumstances". 18 It will be apparent from this that the relief claimed was in part by way of variation of the contract as alleged by the opponents and in part by way of variation of the contract as asserted by the claimants. It is quite plain, in my view, that the opponents were not just claiming damages for breach and termination of the contract as alleged by them. Indeed, on one view they were not claiming damages for breach and termination of that contract at all, because the claim for payment of money was a claim for payment of money in connection with the contract as varied, although that may be overly technical. The opponents were making substantial claims for variation, particularly substantial if the contract were found to be in the terms asserted by the claimants, but even if that were not so variations to the contract as alleged by the opponents. 19 There was dispute over the terms of the contract, principally in relation to the three year period and in relation to the opponents' entitlement to a shareholding and the benefits of a shareholding in the first claimant, a facet of which is the time at which the entitlements accrued. The opponents claimed that if the contract was as asserted by the claimants, then it should be varied because a contract in the terms asserted by the claimants was unfair and operated unfairly. The opponents said that even a contract in the terms they alleged was unfair and operated unfairly, in summary because it did not fully provide recompense to the opponents for that which they gave away on entering into the contract, properly reflect the representations made in the negotiations for the contract, or fully protect the entitlements which it was agreed the opponents should have. Aspects of that were the length of any notice of termination, the time at which shareholding rights should be translated into the issue of shares, and whether the shareholding buyback could occur if there were termination of the contract prior to the expiry of the three years. Again those aspects are not exhaustive. 20 There was considerable controversy in these respects, and the Commission has jurisdiction to take up the controversy. It will first have to decide what the terms of the contract were. Depending on what the Commission finds, it then may or may not then find that the contract, whichever version it be and perhaps neither precise version will be found, was unfair, or that it operated unfairly. All that is a matter for the Commission. It cannot be said that it is not open to the Commission to find unfairness and, as I have indicated, it is not suggested that there is any sham in the opponents' proceedings. It cannot be accepted, in my opinion, that if the Commission declines to find unfairness or unfair operation it will nonetheless proceed to order the payment of money as no more than damages for breach or termination of the contract. The Commission will be alive to Sydney Water Corporation Ltd v Industrial Relations Commission of New South Wales, and the claimants' application rather uncharitably assumed that, if the circumstances of that case arise, the Commission will not recognise that they have arisen or will ignore its authority. 21 In this respect we were referred to the decision of the Full Bench of the Commission in Truelove v Sydney Water Corporation Ltd [2005] NSWIRComm 191, being the further consideration of the case in the Commission following the judgment of this Court in Sydney Water Corporation Ltd v Industrial Relations Commission of New South Wales, and in particular to paras [18] and following in that decision in which the Full Bench considered the judgment of this Court. It is, with respect, not entirely clear to me what should be drawn from that consideration, but the claimants expressly held back from a submission that it suggested that the Commission will not act in accordance with the decision of this Court, and I certainly do not presume that it will not do so. 22 In the course of oral submissions the claimants acknowledged that there may be, which I think became were, aspects of the proceedings in the Commission falling within its jurisdiction. It was suggested that the relief claimed in this Court, instead of being all-embracing as I have indicated, could be reframed so as to identify those aspects of the proceedings in the Commission said not to be within its jurisdiction and to claim relief limited to the aspects so identified. This was put on the basis that it might be thought that the matters within the jurisdiction of the Commission were sufficiently incidental that the nature of the claim as a claim for damages for breach and termination of the contract was in substance unaffected. 23 It does not seem to me that that would be an appropriate course to adopt. First, it is not the function of this Court to supervise the parsing of proceedings in the Commission into aspects within the jurisdiction of the Commission and aspects not within its jurisdiction, a task which in any event could not readily be undertaken in a case such as the present. Secondly, because the proceedings in the Commission must begin with a finding of what the contract was, and if it be found that the contract was as asserted by the claimants there is ready opportunity for the fullest exercise of jurisdiction. It therefore does not seem to me that the task can be carried out at all, because it cannot be said that there are aspects of any significance which are clearly outside the Commission's jurisdiction. Thirdly, and most important, I repeat that I do not accept that the Commission will not recognise, if the position so arises, that there is some particular aspect of the proceedings before it which exceeds its jurisdiction, and act accordingly. 24 For these reasons, in my opinion no basis has been shown for the relief claimed in this Court and, as I earlier indicated, the summons should be dismissed with costs. 25 MASON P: I agree with Giles JA and with his Honour's reasons. 26 In the light of those reasons, it is inappropriate for this Court to embark upon in a detailed response to the recent decision of the Industrial Relations Commission in Court Session in Truelove v Sydney Water Corporation Ltd [2005] NSWIRComm 191. In Truelove the Full Bench expressed certain views about the true impact of the Commission's earlier decision in Reich v Client Server Professionals of Australia Pty Ltd (2000) 49 NSWLR 551. 27 By our reasons and the declarations that were made in Sydney Water Corporation Ltd v Industrial Relations Commission of New South Wales (2004) 61 NSWLR 661 this Court expressed its understanding as to the scope and correctness of the Reich decision. It is inappropriate for me to seek to explain our earlier decision which speaks for itself. 28 Such a response might well have been inadequate had I been of the view that the Full Bench had this Court in its sights when it observed in Truelove at [21]: "Notably, not one of those who seeks to impugn Reich has attempted to reconcile their argument with the clear words in ss 105 and 106. In our view, it cannot be done." 29 I read those words as directed at parties and litigants. 30 The judicial dialogue as to the scope of Reich may or may not continue. I content myself with the observation that, as presently advised, I do not agree that the last sentence of para [28] of Truelove either correctly represents the ratio of Reich or the true scope of the Commission's jurisdiction. There it was said, emphasis added: "We also refer to the decision of the Full Court in [ United Globalcom Inc v McRann (2003) 132IR 3] which endorsed the submissions of Mr J West QC in that matter that Reich stood for nothing more than the following proposition: a contract (or arrangement, related condition or collateral arrangement) may be found to be unfair due to the failure of a party at the time of termination to perform its obligations under the contract." 31 I emphasise the words "due to". 32 McCLELLAN CJ at CL: I agree with Justice Giles. 33 MASON P: The orders of the court will be as indicated. oOo

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