Bowker & Anor v Software Engineers Australia

SECOND RESPONDENT: Timothy Arundell

THIRD RESPONDENT: Prophecy Technologies Pty Limited (ACN 087 222 419) FILE NUMBER: 291 of 1999 CORAM: Schmidt J CATCHWORDS : Unfair contract - joinder application for two additional respondents after addition of a third respondent consented to in settlement of application for Mareva type orders - joinder opposed - business lines of the proposed respondents included a substantial part of the business lines of the first respondent - third respondent ceased conducting business - new respondents now conduct the business formerly conducted by third respondent - concern that current respondents will not be able to meet any orders made against them in the proceedings, if successful - application granted LEGISLATION CITED : Industrial Relations Act 1996 ACE Business Brokers Pty Ltd v Phillips-Treby (2000) 100 IR 420 Brown v Rezitis (1970) 127 CLR 157 CASES CITED : Cardille v LED Builders Pty Limited (1999) 198 CLR 380 Harmer v Caltex Petroleum Pty Limited & Ors [2002] NSWIRComm 43 Gough & Gilmour Holdings Pty Limited & Ors v Caterpillar of Australia Ltd [2001] NSWIRComm 92 Jones v Dunkel (1959) 101 CLR 298 HEARING DATES: 06/11/2002 EXTEMPORE JUDGMENT DATE : 06/11/2002

APPLICANTS: Mr D Knoll of counsel SOLICITORS: Haywards

FIRST, SECOND AND THIRD RESPONDENTS: Mr J Phillips of counsel LEGAL REPRESENTATIVES: SOLICITORS: Cutler, Hughes & Harris

FOURTH AND FIFTH RESPONDENTS: Mr R Alkadamani of counsel SOLICITORS: Pipers Lawyers & Advisors

JUDGMENT: - 9 - INDUSTRIAL RELATIONS COMMISSION OF NEW SOUTH WALES IN COURT SESSION CORAM: Schmidt J

GEOFFREY BOWKER & ANOR v SOFTWARE ENGINEERS AUSTRALIA (NSW) PTY LTD & ORS Application under s106 of the Industrial Relations Act 1996

1 These proceedings were commenced in January 1999. By notice of motion of 2 April 2002, the applicants sought the joinder of two new respondents - ACN 087 222 357 Pty Ltd formerly Prophecy Solutions Pty Ltd and Prophecy People Pty Limited ACN 007 248 286

2 At the hearing Mr Alkadamani, of counsel, appeared for the proposed new respondents in order to oppose the joinder. Mr Phillips, of counsel, for the existing respondents, put but brief submissions in opposition to the joinder; not conceding that any failure on their part to honour undertakings given to the Court in August 1999 had been established.

3 Mr Knoll, of counsel, for the applicants, argued that joinder was appropriate, having regard to the circumstances in which the third respondent was joined to the proceedings; the evidence given in the proceedings by Mr Arundell, the second respondent, and the sole director of both the first and third respondents and of the proposed two new respondents; and the material obtained on summons from the National Australia Bank ('NAB'), in relation to the affairs of those corporate entities.

4 The third respondent was joined by consent in August 1999, in proceedings before Marks J, when the applicants had sought Mareva type orders. Mr Goot, of counsel, then appeared for the first and second respondents in response to the motion, which he indicated, as far as the Mareva type orders were concerned, would be vigorously opposed by the second respondent, Mr Arundell. The joinder of the third respondent was also sought, which was not opposed, and which was then submitted for the respondents to be a proper basis for the Mareva orders not to be granted, given that there had been a sale of business from the first to the third respondent. Contempt of Court was also then raised, but ultimately not pursued.

5 At that stage Mr Burley of counsel, appearing for the applicants, asked: "What is to stop it happening again?" Marks J said at page 4: 'Can I just say this: I sense that with Mr Goot's involvement as counsel and with the involvement of the firm of solicitors as solicitors for the second and presumably now or (sic) the proposed third respondent that you are unlikely to be in that situation again and I just sense from what Mr Goot has said that Mr Rundle (sic) will be towing the line and that is my sense of what's happening now.

I suggest you have some meaningful discussions with Mr Goot and it may well be that you can reach some sensible accommodation as is often arrived at in this jurisdiction and in other jurisdictions to deal with any such issues such as undertakings, plus undertakings to inform and the like. You understand the usual sort of arrangements that are made?'

6 The parties then conferred and, as a result, the application was settled upon certain terms; including the joinder of the third respondent. At page 7 of the transcript Mr Goot then said: 'I can indicate to your Honour that in so far as there was a sale of the assets of the second respondent to the proposed third respondent my instructions are that that was a bona fide commercial transaction for good reason, planned well in advance of these proceedings. Indeed, I am instructed that the applicant was aware of it at the time when it was proposed. That that purpose having been achieved there is no present intention to deal with the assets of the third respondent other than in the normal course of business.'

7 Mr Burley stated: 'If that was simply converted to an undertaking that there would be no such disposition.' 8 His Honour stated: 'It's a statement made to the court by Mr Goot of counsel on instructions. That is probably as good as an undertaking I would have thought.'

9 Mr Burley said: 'I am just concerned to protect my client's interests and my present contention changes in two weeks would not be in contravention of my learned friend's clients, then my client's position would be affected.'

10 His Honour said: 'No one knows what's going to happen with any great certainly (sic) in this world, Mr Burley, but let's just hope we are all still around.

I will grant liberty to apply. It is presumably a fairly small commercial world in which your client and Mr Goot's client operate, I am sure if anything is likely to happen your client will hear about it first.'

11 In those circumstance, it was argued by Mr Knoll, that the evidence now revealed that the third respondent's assets had not been preserved, so as to ensure payment of any orders made in the proceedings. There had also been problems with the respondents' failure to comply with summonses for the production of documents. The end result was that, on the material produced, it was impossible for there to be any certainty that assets had been preserved, as undertaken. A Jones v Dunkel (1959) 101 CLR 298 inference flowed against the respondents as a result. 12 It was further argued that the evidence was that Mr Arundell directed the business of all of these corporate entities. While there had been a sale of the business between the first and third respondents, the evidence was that the third respondent had not employed anyone thereafter. The evidence was that the business lines of the proposed respondent included a substantial part of the business lines of the first respondent. The respondents had been relevantly co-located; the public face of all the companies, was that it was one consortium or business group; a relevantly identical logo was used; the name "Prophecy" was also used; there was substantial commonality of customer base - the principal assets and source of goodwill of such a software engineering business. The website domain name had been cancelled by the third respondent and one of the proposed respondents had then commenced using it; the NAB documents supported the inference that the third respondent ceased conducting the business in question after the undertaking which was given to the Court, and that the services it had offered in that business, were included in those offered by the two proposed new respondents. It was submitted that the new respondents now in fact conducted the Prophecy business formerly conducted by the third respondent. 13 While it was submitted that there was nothing wrong with business re-organisation, it was argued that the third respondent had simply allowed the business in question to wind down, with the result, demonstrated by the bank documents, that the position which the existing respondents had tried to present to the Court in these proceedings, was far from the truth.

14 It was argued that the joinder sought was necessary in the circumstances, in order to protect the integrity of the Court's proceedings. If the present corporate respondents were unable to satisfy orders made by the Court, then the proposed new respondents should be exposed to them. The applicant should not be financially exposed in all of these circumstances.

15 Mr Alkadamani, for the proposed respondents, argued that given the basis upon which joinder was here sought, namely the tracing of assets, the proper course was not for joinder to be sought, but rather relief in the nature of Mareva orders. No evidentiary basis had been established for any Mareva orders to be made and hence it followed that no joinder could properly be ordered either.

16 Counsel also argued that there had not been proper service of the joinder motion and that joinder would not be ordered, given that the applicants had not properly formulated the amendments to the summons, which they proposed to pursue, indicating the orders which would be sought against the respondents and the basis upon which they would be sought.

17 It was also submitted that there was no evidentiary basis for the joinder established and that any failure by the third respondent to honour undertakings given to the Court could not be visited upon the proposed new respondents.

18 It was further argued there were good discretionary grounds for refusing the joinder at this late stage of these proceedings.

19 I am satisfied that here no proper basis exists for the arguments developed in relation to service, especially given the basis upon which this motion was listed for hearing today, when the matter was before the Court for directions on 20 May.

20 The evidence given by Mr Arundell, and confirmed by NAB documents in evidence, suggests that there has been a corporate restructuring of the companies here in question and that neither of the current respondents continue to operate the business in which the applicants were involved, under the contracts alleged to be unfair in these proceedings. The position of the new respondents was that there had been no purchase of any business from the existing respondents. That might be correct. The evidence that they operate the business formerly operated by the third respondent is, however, not necessarily contradictory.

21 The evidence also suggests that the applicants have a basis for concern that the current respondents will not be in a position to meet any orders made against them in these proceedings; that there is a basis for believing that the former business of the current corporate respondents is being conducted by the proposed new respondents and that, unless the joinder is ordered, the Court's procedures might be frustrated.

22 The High Court in Brown v Rezitis (1970) 127 CLR 157 dealt extensively with the question of orders made in proceedings such as these: See particularly the discussion of Barwick CJ at pp163-6.

23 That approach has been applied in later cases, see, for example, the Full Court in ACE Business Brokers Pty Ltd v Phillips-Treby (2000) 100 IR 420, Harmer v Caltex Petroleum Pty Limited & Ors [2002] NSWIRComm 43 and Gough & Gilmour Holdings Pty Ltd and Ors v Caterpillar of Australia Ltd [2001] NSWIRComm 92.

24 Given the basis upon which the third respondent was joined in these proceedings, in settlement of an application for a Mareva type order, the evidence to which I earlier referred; and the above mentioned authorities, I am satisfied that the application for joinder must be granted in the circumstances presently before the Court.

25 That is not to say, however, that the applicants have made out any basis for final relief being ordered against the proposed respondents. They have not. The only question currently before the Court for determination is whether a sufficient evidentiary basis has been established for the joinder sought. Whether or not the applicants are ultimately successful in having any orders made in their favour, let alone orders against the proposed new respondents, are questions to be determined on all of the evidence led in those proceedings. The applicants are, of course, at risk of costs orders being made against them if they are not successful in having such orders made. The respondents are likewise at risk.

26 I am not at all convinced that the decision of the High Court in Cardille v LED Builders Pty Limited (1999) 198 CLR 380, relied upon for the proposed respondents, can lead to any contrary view. That case was concerned with Mareva type orders made by the Full Federal Court on appeal in copyright infringement proceedings.

27 Proceedings brought under s106 of the Industrial Relations Act 1996 ('the Act') are of a quite different nature. Further, the motion currently before the Court concerns a joinder application following upon the settlement of an earlier application for Mareva orders, on particular terms, namely the joinder of the third respondent to ensure that the relevant assets remained to be available to meet any orders made by the Court in these proceedings. A further Mareva order is not now sought by the applicants. Nor, in my view, must it be, given the relevant authorities in relation to entities against whom orders may be made under the section. The proposed respondents fall into the class discussed by Barwick CJ in Brown v Rezitis.

28 I turn then to the future conduct of these proceedings. The parties were not in agreement as to that matter.

29 The position at the moment is that Mr Arundell has been cross-examined and is due for re-examination. The applicants contend that should now occur and that there should then be conciliation under s109 of the Act, before any further step is taken in the proceedings.

30 The respondents' position is that regard must be had to the requirements of s109 and that as a result of the joinder ordered, the hearing must now halt, so that conciliation can take place for that reason and also having regard to the requirements of natural justice.

31 I take the view that the requirements of s109 of the Act must be met and that the joinder of the new parties to the proceedings precludes the hearing continuing until a further conciliation conference has occurred. This course is not expressly dealt with in the section but, in my view, properly flows from the provisions of ss109(1) and (2) of the Act.

32 It follows, in my view, that the applicants must now be ordered to file and serve the amended summons, which will flow from the success of this motion.

33 This application is proceeding under Rule 18, not Rule 18A, of the Court's Rules. It may, nevertheless, be useful, particularly from the point of view of conciliation, if the new respondents take the opportunity of putting on a response to the amended summons which the applicants will now serve. That is a matter I leave to the parties.

34 The parties are at least joined in seeking an urgent conciliation conference. I agree that urgency is appropriate in the circumstances of this case and will approach the President for reallocation of the matter for conciliation on that basis.

35 If the conciliation is unsuccessful, directions for the filing of any further evidence from the applicants and from the new respondents will be required, as will the fixing of new hearing dates.

36 Despite the submissions advanced for the applicants as to Mr Arundell's position, I take the view that the new respondents should not effectively be precluded from leading evidence as to their own position. The requirements of natural justice must be observed.

37 The current position, I think, is an unfortunate one, given the stage which the proceedings have reached and the course which the litigation has taken thus far. Nevertheless, the result of the application for joinder, and its success, it seems to me, makes this outcome inevitable.

38 For all of these reasons I make the following orders:

1. That the applicant file and serve its amended summons as a matter of urgency.

2. That the matter be referred to the President for reallocation for conciliation.

3. In the event that conciliation is unsuccessful, the parties have liberty to apply to have the matter relisted at short notice. ------------------------

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