Automotive, Food, Metals, Engineering, Printing and Kindred Industries... [2005] NSWIRComm 428 | Case summary

1 These proceedings are constituted by an amended summons for relief filed on 13 April 2005. The applicant trade union has commenced proceedings under s 106 of the Industrial Relations Act 1996 ("the Act") against two named respondents; the first is Alan Thomas David and the second is John Lawrence Coates. There was previously a further respondent, John Morony, who has been dismissed from the proceedings consequent upon his bankruptcy. The claim is brought on behalf of a number of former employees of David Graphics Pty Ltd ("David Graphics"). For present purposes I shall proceed on the basis that Mr David was a director and substantial shareholder in David Graphics. That company went into liquidation and at about that time the contracts of employment of each of the employees were terminated, save for one employee whose contract had been terminated some four months previously on the basis of redundancy. That employee had been told at the time that the company did not have sufficient money to pay him his termination and severance payments and arrangements were made for these payments to be made by way of instalments. Some two years prior to the liquidation, David Graphics had ceased making payments of compulsory and voluntary superannuation payments on behalf of its employees and had ceased making payments of other monies due and owing to the employees. The employees concerned had become aware of this failure and Mr David and Mr Coates had advised the employees that those contributions would be made in due course. It was on this basis that the employees continued in employment until the company was liquidated. Upon liquidation they received insufficient or no payment of monies due and owing to them. 2 Upon the liquidation of the company, a sale of the stock and work-in-progress was made to a company, Digital Graphics Communications Pty Ltd ("Digital Graphics"). The directors and shareholders of that company were two of Mr David's children and a person with whom he has had a long-time personal relationship. Mr David was employed as a consultant to Digital Graphics and Mr Coates was employed as the manager of that company. It was alleged on behalf of the union that Digital Graphics had purchased the stock and work-in-progress of David Graphics at an undervalue. Digital Graphics continued to operate the business formerly conducted by David Graphics from the same premises. 3 This judgment deals with two interlocutory applications. The first, brought by Mr Coates, is that he be struck out from the proceedings. The second, brought by the applicant, seeks to add Digital Graphics as a further respondent. I shall deal with each in turn. 4 With respect to the addition of Mr Coates, it is necessary to review some further factual material. He was clearly an employee of David Graphics. He was promoted through a number of positions and in April 2000 became general manager. He said that his duties were "to manage the factory, production and quality control requirements". He supervised about 100 staff and had overall management responsibility for the supply of stock, the scheduling and control of production, and a number of managers and supervisors reported to him. He in turn reported to Mr Morony, who was the managing director, and occasionally to Mr David, who was the chairman. Mr Coates had no shareholding in David Graphics, nor was he a director. He described his role as being a conduit for the dissemination of information about management decisions taken by Messrs Morony and David to the employees. He denied having any particular involvement in the making of any decision affecting or impacting upon the financial state of the company. This included in particular the decision to place the company into liquidation and any decision about which employees were to be made redundant and as to the quantum of any payments to be made to them, including suggestions for the payment of outstanding monies by instalments. 5 Mr Coates was involved in proceedings brought by an associated trade union against David Graphics before the Australian Industrial Relations Commission and gave evidence on behalf of the company. It is clear that Mr Coates gave evidence to the Commission he did so as representing the interests of the company. In particular, he gave an undertaking on behalf of the company with respect to the payment of certain monies to an employee. However, I conclude from the evidence given by Mr Coates that he did nothing more than represent the interests of the company. There is no indication that when Mr Coates was in the position of a person authorised to make any ultimate decision on behalf of the company with respect to the redundancy of its employees, and in general terms with respect to the financial circumstances of the company. 6 It was submitted on behalf of Mr Coates that there was no arguable case that could be made against him to substantiate any continuing involvement in the proceedings. 7 It was not argued on behalf of the applicant that this was not the appropriate time for the Court to consider this application. Both Mr Coates and the applicant had an opportunity of putting before the Court such evidence as they wished with respect to this discrete issue, and a number of affidavits were filed on behalf of the applicant and became evidence in these interlocutory proceedings. 8 In order for Mr Coates to succeed in this application it is necessary for him to demonstrate that the applicant's case against him is so obviously untenable that it cannot possibly succeed, is manifestly groundless, or discloses a case which the Court is satisfied cannot succeed and under no possibility can there be a good course of action. These are the matters which need to be considered according to the test formulated by Barwick CJ in the High Court of Australia in General Steel Industries v Commissioner for Railways NSW (1964) 112 CLR 125, as helpfully summarised by Wright J, President of this Court, in Virtue v New South Wales Department of Education and Training (1999) 92 IR 428 at [447]-[448]. 9 Whether Mr Coates is properly joined as a respondent to these proceedings depends upon the application of the well-known principles established in the High Court of Australia in Brown v Rezitis (1970) 127 CLR 157. 10 The factual circumstances which applied in Brown v Rezitis are significantly different from those which apply to these proceedings. There is no question of a "subterfuge" which would take employees out of the employer-employee relationship (see Barwick CJ at [164]). However, by analogy, there may be parties involved in the unfairness "who are not parties to the contract or arrangement but who are in reality the actors deriving benefit from the making or the execution of the contract or arrangement" (see Barwick CJ at 164). It is this matter which is the focus of attention in these proceedings. 11 The unfairness which is at the heart of these proceedings arises out of the contracts of employment of each of the employees of David Graphics who continued in employment on the assurances given that their outstanding entitlements and contributions would be paid, and whose contracts of employment were eventually terminated without payment of those monies or, indeed, other monies then due and owing. Whilst it is clear that Mr Coates communicated information and made representations to the employees, it is equally clear, in my opinion, based on the evidence before the Court, that he did so as a conduit for the persons with ultimate authority and control of David Graphics. There is no suggestion that Mr Coates derived any benefit of a personal nature from the representations that were made. As I have indicated, he was neither a shareholder nor director of David Graphics. It is true that he may have derived some benefit from the fact that he was ultimately employed by Digital Graphics, but there is no evidence of any kind that Mr Coates had any involvement in any arrangement or had any knowledge of any arrangement whereby Digital Graphics was incorporated and acquired the work-in-progress and other assets of David Graphics from the liquidator. 12 Accordingly, there can be no basis for concluding that in some way that Mr Coates "received the proceeds of the contract or arrangement or (was) in some way culpably associated with its making or operation" (per Barwick CJ at [168]). Nor can there be any suggestion that Mr Coates received any monies of any kind by reference to the part that he played in communicating information to the employees of David Graphics (see Barwick CJ at [168]). He was not "in reality an actor deriving benefit from the making or execution of any contract of the requisite kind which might be found to be unfair (per Barwick at [164]). 13 In Brown v Rezitis, Menzies J, in a separate judgment which is often cited in connection with those proceedings, also referred to the circumstances in which a person who was not a party to the impugned contract might be held liable for the payment of money. At [170] his Honour noted that if any such order for payment is to be made, it must be made against… "…a person who was connected in some way with the making of the contract, or the work done, or the expenditure made, or the obligation incurred there under. Such persons could, I think, be ordered as it were to recompense the worker for what he has lost. Thus, if, under a harsh and unconscionable arrangement between an insolvent company and two workers, a swimming pool has been installed at the home of a director of the company, it would be within the power of the Court, in setting aside the arrangement and after giving him an opportunity to be heard, to order the director to make a payment which would put the workers in the same position as it, in doing the work, they had been his employees. I think it would be a like case if work were to have been done for a shareholder of a company which made such an arrangement. I would not think, however, that work done for the advantage of a director, could be the basis of an order against a shareholder who had nothing to do with the matter, even if he held his shares beneficially. Unless something more were to appear - such as, for instances, that the company was a one man company - a mere shareholder would be a stranger to any of the matters for which the section provides a remedy arising out of a contract or arrangement by a company". The flavour of these observations of Menzies J is directed to some advantage or benefit being derived by the person against whom an order is sought. There is a notion of recompense involved. Again, no such flavour and no such notion could possibly apply in the circumstances of these proceedings. 14 Further assistance is to be derived from the judgment of a Full Bench of this Court in Ace Business Brokers Pty Ltd v Phillips-Treby [2000] NSWIRComm 163. In those proceedings the Court dealt with circumstances where an agent of a franchisor had made representations recklessly and without regard to their truth in negotiating the sale of the franchise. Although the Full Bench concluded that the words "culpably associated", as used by Barwick CJ in Brown v Rezitis, should not be confined to conduct "which has more the connotation of the criminal law or as at the level of fraud" it concluded that it was necessary to demonstrate that the conduct was "blameworthy". The Court said: "If an agent in dealing with a principal's customer was blameworthy in some respect, such as here by making unsupported representations the truth of which was not ascertained, thereby inducing the person to make a contract found to be unfair, then, we would have thought that the necessary connection or association with the contract had been established" (at paragraph [48]). Although, it is true it is that the Court, at that stage, was directing itself to the requirement that any monetary order ultimately made under s 106(5) must have a real connection with the making, variation or avoidance of any contract or arrangement found to be unfair, it is nevertheless a matter to be taken into account in ascertaining whether a party to proceedings had been properly joined. I would also distinguish the position of an agent for sale who is, to that extent, independent of the principal and who is acting for reward, from the position of Mr Coates who was an employee, albeit of managerial status, carrying out his duties in the course of his employment for no gain other than, presumably, the remuneration which he would otherwise have received. 15 I conclude that, on the strength of these authorities, the applicant's case against Mr Coates is so obviously untenable that it cannot possibly succeed. Accordingly, so much of the amended summons as is brought against the respondent John Lawrence Coates is dismissed. 16 Mr Coates sought an order for costs which was not substantially opposed. However, the order sought was for the payment of costs on an indemnity basis. There are no reasons why, in my opinion, indemnity costs should be awarded. The application for indemnity costs is declined. However there should be an order in favour of Mr Coates for his costs of the interlocutory application. 17 It is now necessary to deal with the applicant's application to have Digital Graphics jointed into the proceedings as a further respondent. The applicant did not file or produce any proposed amended notice of motion, so it was difficult for the Court to readily appreciate the nature and extent of the case that the applicant sought to make out against this proposed additional respondent, so as to determine whether the application should be granted. Mr Parsons of counsel who appeared for the proposed respondent, submitted that the Court should nevertheless consider the matter on the basis of submissions formulated by the applicant to avoid incurring further delay and further costs with respect to the proceedings. I agreed to this submission, albeit reluctantly. 18 I have already set out a brief summary of the factual background to the proceedings and the part played by Digital Graphics in the narration of events. In essence the case put by the applicant on behalf of the employees concerned against Digital Graphics was that because David Graphics had gone into liquidation, any orders made against it would be futile. It was asserted that Digital Graphics had "received the benefit of the contract with David. It bought the assets at a price less than the market or even realisable value. The way in which David and Digital arranged their affairs could only be described as subterfuge…it meant that they could gain the benefits built up by David in terms of work and stock under the contract without having to suffer any of its debts". The applicant further emphasised the relationship between the directors of Digital Graphic and Mr Alan David, a director and the substantial shareholder of David Graphics. It was said that "the companies were inextricably linked". 19 The applicant based its case against the joinder of Digital Graphics solely on a Brown v Rezitis argument. That is, there was no suggestion of any contract or arrangement to which Digital Graphics was a party which would satisfy the definition in s 105 of the Act. Therefore, the inquiry is confined to the application of the principles discussed in Brown v Rezitis, to which I have earlier referred in these reasons for judgment. 20 Mr Parsons submitted firstly that there was insufficient or no evidence that there had been a sale by the liquidator of David Graphics to Digital Graphics at an undervalue. It is not necessary that I determine this issue because the appropriate test to which I have already referred is whether the applicant's case against Digital Graphics is so obviously untenable that it cannot possibly succeed, is manifestly groundless, discloses a case which the court is satisfied cannot succeed and under no possibility can there be a good cause of action. Whether and to what extent the applicant can make out the factual basis of an assertion is a matter generally for the substantive hearing because that is the appropriate time at which such a matter should be dealt with. Consistent with the approach usually taken to an interlocutory application of this kind, I assume that the applicant will be able to make out its case on a factual basis. 21 It was submitted on behalf of Digital Graphics that that company played no part in any contract which might be held to be unfair. The unfairness upon which the applicant relies is the failure by David Graphics to afford certain benefits to its employees. Digital Graphics was not a participant in any way in that activity, nor were any of its shareholders or directors associated with David Graphics. In reality, the allegation levelled against Digital Graphics was that its contract for the purchase of the business of David Graphics was unfair. Assuming that it were possible to go beyond the sale transaction, in terms of some culpable or blameworthy conduct of the kind referred to in Brown v Rezitis, that would be the conduct of Mr David who was, obviously, a participant in the conduct which the applicant alleges was unfair. 22 On this basis, to use the words of Menzies J in Brown v Rezitis, Digital Graphics is a "stranger to any of the matters for which the section provides a remedy arising out of a contract or arrangement by a company". Whilst the vendor of the assets of Digital Graphics might arguably be involved in culpability of the kind described in Brown v Rezitis on the part of a person who in some way participated in the unfairness associated with the impugned contract, the same cannot be said for the purchaser of the assets, albeit that the purchaser may have been willing to participate in a purchase at undervalue. Digital Graphics, not having been involved in any way in the unfair contract, falls outside any relief which might be granted utilising the principles discussed in Brown v Rezitis. 23 Accordingly, even assuming that the applicant could make out its case as asserted against Digital Graphics on a factual basis, and assuming all of the factual material at its highest in favour of the applicant, it is my opinion that the claim by the applicant intended to be brought against Digital Graphics is so obviously untenable that it cannot possibly succeed and under no possibility could there be a good cause of action within s 106 of the Act in the manner in which the claim was framed for the purpose of these interlocutory proceedings. 24 Digital Graphics sought to raise an argument under s 108B of the Act. Its rights were reserved with respect to any such argument. By reason of the conclusion which I have reached, it is not necessary that any such argument be considered further. 25 For the above reasons, the claim which the applicant has foreshadowed against Digital Graphics should be declared to be beyond any claim available to the applicant in these proceedings. 26 ORDERS I make the following orders: 1. That so much of the proceedings as are brought by the applicant against the respondent, John Lawrence Coates, are struck out; 2. The applicant is to pay the costs of John Lawrence Coates, assessed in default of agreement; 3. Declare that the applicant is precluded from amending the summons so as to include Digital Graphics Pty Ltd as an additional respondent on the basis of such claim asserted by the applicant for the purpose of these interlocutory proceedings; 4. The applicant is to pay the costs of Digital Graphics Pty Ltd in an amount assessed in default of agreement.

Automotive, Food, Metals, Engineering, Printing and Kindred Industries Union, New South Wales Branch v Alan Thomas David and others

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Judgment (17 paragraphs)

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