Alsford v Castech Pty Ltd & Anor

APPLICANT Mr A T Britt of counsel SOLICITORS John F Morrissey & Co

LEGAL REPRESENTATIVES: SECOND RESPONDENT Ms E S Brus of counsel SOLICITORS Glynns Lawyers

JUDGMENT: - 1 - INDUSTRIAL RELATIONS OF NEW SOUTH WALES IN COURT SESSION CORAM: MARKS J Wednesday 31 October 2001 Matter No IRC 706 of 2001 MATHEW EDWARD ALSFORD v CASTECH PTY LTD & ANOR Application under s106 of the Industrial Relations Act 1996 INTERLOCUTORY JUDGMENT 1 The applicant Mathew Edward Alsford has issued proceedings under s 106 of the Industrial Relations Act 1996 ("the Act") claiming relief against the first respondent Castech Pty Ltd and the second respondent David Thomas. The summons is essentially directed to unfair conduct in the circumstances surrounding the termination of the applicant's employment by the first respondent. The first respondent is now in liquidation. The second respondent was at all relevant times the managing director of the first respondent and a shareholder, but not a substantial shareholder.

2 The second respondent has sought an interlocutory order that he be dismissed from the proceedings and these reasons for judgment deal with the notice of motion filed by the second respondent. In essence, two grounds were put forward in support of the motion. The first was that at all relevant times the second respondent in effect acted in his capacity as an employee of the first respondent. The second ground was that the second respondent was entitled to be indemnified by the first respondent with respect to any orders that might be made against him in the proceedings.

3 Additional evidence led by the parties for the purpose of the interlocutory hearing established that whilst the second respondent was intimately and substantially involved in the operations of the first respondent and in particular in and about the circumstances leading up to the termination of the applicant's employment, he conferred with the Chairman of the Board and in particular conferred with respect to the termination of the applicant's employment.

4 The principles which apply in interlocutory applications of this kind are now well established. They are conveniently summarised in the decision of Wright J, President of this Court in Virtue v NSW Department of Education (1999) 92 IR 428 at 447-8. His Honour said: "1) The discretion of a court to determine a case at an early stage, when appropriate, has been repeatedly accepted. 2) As a general rule it is desirable that an objection to jurisdiction be determined as early as circumstances will conveniently admit so that the tribunal does not embark on a hearing which it lacks authority to conduct. The course of a court entertaining a challenge to jurisdiction in a preliminary or threshold way is often a sensible one where a party has a substantial threshold argument which, if it succeeds, will knock out the claim and save the costs and inconvenience that attend a protracted hearing of proceedings on the merits. 3) However, a further general proposition is that all issues arising should be dealt with in the substantive proceedings unless the basis for a challenge, either on jurisdictional grounds, or for lack of a reasonable cause of action, be clearly demonstrated. 4) Threshold relief of the kind sought here must be conserved to a clear case where it is plain that the invocation of the jurisdiction impugned is wholly misconceived or, upon analysis, lacks an arguable legal foundation. 5) Necessarily, refusal of relief at the threshold will not finally determine that jurisdiction exists for any order which the Court might make between the parties. This is because, to secure relief, the claimants must demonstrate that no order could be made which would be within jurisdiction. The resulting burden is a heavy one. 6) Accordingly, whilst it is desirable for a case to be determined at an early stage it is only open to do so at the appropriate stage of the proceedings. That is, where the facts, either established by evidence or plainly agreed in terms, enable the Court to determine what the contract or arrangement is or, at least, the parameters of the contract or arrangement. In other words, unless the facts are sufficiently established to enable the Court to be satisfied it has the necessary material to reach a clear and final decision on the question then the appropriate stage has not been reached for such a determination to be made. 7) Similarly, the jurisdiction to terminate an action summarily for want of a cause of action is to be sparingly employed and ought not to be used save where the lack of the cause of action was clearly demonstrated." (at 447-8).

5 The capacity of this Court to make orders against persons who are not parties to the contracts or arrangements which are the subject of attack under s 106 is well established.

6 In discussing this aspect in Byrnes v FRB Industries Pty Ltd (2001) NSWIRComm 250 Peterson J in this Court said at paras 20 and 21: "20 The breadth of the relief available under the section, in the context of persons who may be brought to account by it, was dealt with in Visalli v Southwell and Ors (1988) 12 NSWLR 502 at 511 where Priestley JA said (in relation to a predecessor to s106): Section 88F authorises the Commission to make a variety of orders or awards in regard to contracts of a defined kind, if any one of various grounds is found to exist. There is no restriction in the section limiting the persons who may be the subject of orders made under it. It is settled that the operation of the section is not limited to persons who are in law the parties to the contract all or part of which is in question in an application under the section. Any person who can reasonably be thought to have a real connection with the contract is within the Commission's jurisdiction under the section. Persons having no conceivable connection with the contract are not: see Brown v Rezitis (1970) 127 CLR 157 at 164-165.

For the Commission to see whether, in any application under s88F, any person has a sufficient connection with the contract in question to be within the Commission's jurisdiction in regard to that contract, it needs to have that party before it when it deals with the application. This serves the necessary purposes (i) that the Commission may exercise jurisdiction properly, (ii) that the person who may be affected by any order made under the section will have had due opportunity to make any case that party wants to make in regard to the application and (iii) that the party may unarguably be bound by any decision of the Commission.

21 The reference by Priestley JA to Brown and Ors v Rezitis & Ors (1970) 127 CLR 157 was to the judgment of Barwick CJ who said: In my opinion, even if the proceedings for the variation or avoidance of the contract or arrangement must be initiated by one of the parties to the contract or arrangement, the parties to the proceedings are not necessarily limited to those parties. . . .

Also the power given to the Commission includes a power to declare the contractual arrangements void as from their making, not merely void as between the parties, but absolutely void. If there are other persons whose rights are known to depend on the continuance of the contract as a valid instrument according to its terms, then natural justice may in the circumstances require the Commission to afford such persons an opportunity to be heard. Again the avoidance of the contract or arrangement may be a step in uncovering the real transaction benefiting at the expense of the worker parties other than those in whose name the contract or arrangement was apparently made.

The five grounds on which the Commission may vary or avoid contractual arrangements are not homogenous. Only two of them refer to the avoidance of the award for the underpayment of a worker in industry. Consequently the nature of the orders which may be made under sub-s. (2) will of necessity cover a wide field. But underlying sub-s. (2) is I think a broad concept of a restitution of the parties to a situation which existed before the making of the contractual arrangement as well as in an appropriate case to make remedial provision for what has taken place or been done under the contract in the meantime. This, it seems to me, cannot of necessity and in all cases and with relation to an arrangement varied or avoided on each of the grounds in sub-s. (1) be confined to an order for payment of money by one of the parties. In some cases, as I have said, there will be persons who are not the parties to the contract but who have in fact participated in its making and there may be persons who have received money indirectly from one of the parties to the contract or who may be holding money derived therefrom for one of the parties. Consequently, I am of opinion that the power to order the payment of money is not limited to the making of an order for the payment of money by one of the parties to the contract or arrangement varied or avoided. "

7 In Reich v Client Server Professionals of Australia Pty Ltd (Administrator Appointed) (No 2) (2000) NSWIRComm 196 Hungerford J in this Court considered strike out motions on behalf of individuals named as respondents in proceedings. In considering the circumstances of the individuals concerned and their application to be dismissed from the proceedings his Honour said: "6 It is not unusual in s 106 applications, where a contract is challenged, for persons not strictly parties to the contract to be made respondents so that they may be heard as to claims against them for the payment of money on the avoidance or variation of the subject contract once the grounds of unfairness had been made out. So much is clear from the very many occasions occurring in this Court on a regular basis, and as dealt with by the High Court in Brown v Rezitis (1970) 127 CLR 157; that is effectively the position here: see also Ace Business Brokers Pty Ltd v Phillips-Treby [2000] NSWIRComm 163. 7 I suppose it may be said that in a sense it is surprising Mr Petrat and Mr Jones were not made respondents in the initial proceedings before Maidment J against the corporate entity. However, as counsel for the applicant explained, it was not considered there were any difficulties and the problem only arose once the corporate entity was placed under administration. I do not think there is any doubt, on the evidence, that Mr Petrat and Mr Jones were the principals of the corporate entity; they were the persons who managed and controlled its affairs; they were the persons who were jointly concerned with offering the applicant employment and setting the terms and conditions of that employment; they were the persons who controlled the performance of the employment; and, significantly for present purposes, they were the persons involved in the discussions with the applicant which ultimately led to these proceedings, namely, the conduct of the respondent in reducing the applicant's remuneration under his contract of employment and as to which he made objection. That ultimate reduction in salary was a central feature of the proceedings before Maidment J and of the proceedings before the Full Bench on appeal. 8 Although it was clear from the evidence that both Mr Petrat and Mr Jones were closely associated with the central feature in this case, Mr Petrat opposed his joinder as a respondent. I observe that similar action has not been taken by Mr Jones so that, basically, as to him the case is made out by the applicant for his joinder; in my view, the evidence in that respect was compelling. 9 So far as Mr Petrat is concerned, he accepted that he personally acted on behalf of the corporate entity in relation to the various relevant transactions and events which occurred. However, he opposed his joinder on the basis that he acted as managing director at all times appropriately, diligently and honestly. So, he submitted, any liability should be limited to the corporate entity. In my view, on the evidence, the case for Mr Petrat's joinder as a respondent was also compelling. There is no doubt that he, like Mr Jones, was a controlling, if not the controlling, person as to the events which occurred while he was the managing director, principal and shareholder of the corporate entity. The fact he may have acted appropriately, diligently and honestly at all times, as to which I make no findings at this time, is a matter which may well arise for consideration at the appropriate time when the substantive proceedings under s 106 are dealt with on the merits. At this particular time, however, the question, indeed the only question, is whether Mr Petrat and Mr Jones should be joined as respondents. 10 I have concluded that I see no reason why they should not be joined. Indeed, on the case presented, I accept the submission put by the applicant's counsel that both Mr Petrat and Mr Jones were the natural persons who were the moving force to what transpired and were the persons with the controlling and managing interest in the conduct of the corporate respondent. They should properly be respondents to the present proceedings."

8 In determining these interlocutory proceedings I am required to approach the matter consistently with the tests formulated by Barwick CJ in the High Court of Australia in General Steel Industries v Commissioner for Railways (NSW) (1964) 112 CLR 125, as summarized by Wright J in Virtue, previously referred to. The question then is whether or not the applicant's case against the second respondent is so obviously untenable that it cannot possibly succeed, manifestly groundless, discloses a case which the Court is satisfied cannot succeed and under no possibility can there be a good cause of action. In my opinion the applicant has an arguable case against the second respondent. The second respondent was the managing director of the first respondent, he was a shareholder, he was intimately and substantially involved in the operations of the first respondent and in particular in and about the circumstances leading up to the termination of the applicant's employment. Whether or not the applicant will eventually succeed against the second respondent is a matter which I am not required to deal with at this stage of the proceedings and for the purpose of this interlocutory application. Once it is established that there is an arguable case, then the tests referred to cannot be met. Once the tests cannot be met it follows that the application should be dismissed.

9 As to the second ground relied upon by the second respondent namely that he was entitled to be indemnified by the first respondent, I fail to understand how this can substantiate dismissal from these proceedings. The mere fact that an indemnity exists may give rise to rights between the first respondent and the second respondent, but cannot be used to justify disentitling the applicant to bring a claim against the second respondent. The position might be different if there was some suggestion that the applicant was a party to or had otherwise participated in the creation of the indemnity or in the circumstances which give rise to the indemnity. This ground is rejected.

11 I make the following orders: 1. The notice of motion filed by the second respondent is dismissed. 2. Costs are reserved. ----------------------------------

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