Burnett v Atlantis Relocations

APPLICANT Mr R Alkadamani of counsel SOLICITORS Haywards Solicitors

LEGAL REPRESENTATIVES: RESPONDENTS Ms E A Collins of counsel for 2nd, 3rd & 4th respondents SOLICITORS KPMG Legal

INDUSTRIAL RELATIONS OF NEW SOUTH WALES IN COURT SESSION CORAM: MARKS J Thursday 17 October 2002 Matter No IRC 3971 of 2001 NICHOLAS BURNETT v ATLANTIS RELOCATIONS (NSW) PTY LTD

Application under s106 of the Industrial Relations Act 1996

1 By summons filed in this Court on 13 June 2001 the applicant Nicholas Burnett sought relief under s 106 of the Industrial Relations Act 1996 ("the Act") against the respondent Atlantis Relocations (NSW) Pty Ltd. The proceedings concerned a contract of employment made between the applicant and the respondent in about August 1995. That employment came to an end in April 2000. The summons contains allegations of unfair conduct, the nature of which is presently irrelevant.

2 A voluntary administrator was appointed to the respondent and other companies within the Atlantis Relocations group on 13 June 2002.

3 On 12 July 2002 the applicant filed a notice of motion seeking that the summons be amended by adding three additional respondents. The first and second additional respondents Anthony John Jaggs and John Macri were the directors and shareholders of the existing respondent. The third proposed additional respondent, Atlantis = (NSW) Pty Ltd was a company of which Messrs Jaggs and Macri were the directors and which acquired the business formerly operated by the respondent from the voluntary administrator. The notice of motion came on for hearing on 8 August when it was adjourned because the applicant had only that day served an affidavit upon which the applicant relied for the purpose of the notice of motion. Costs were reserved.

4 The proceedings came on for further hearing on 5 September 2002. On that occasion Ms Collins of counsel who appeared for the proposed additional respondents said that Messrs Jaggs and Macri no longer opposed the making of orders amending the summons so as to add them as additional respondents. This left for deliberation the proposal to join in Atlantis = (NSW) Pty Ltd.

5 The existing respondent was one only of seven companies to which an administrator was appointed, all appearing to be within the "Atlantis Relocations" group. The companies entered into an agreement with Atlantis = Pty Ltd on 26 April 2002, prior to the appointment of the voluntary administrator for the sale of the assets and debts of the businesses. It appears that the purchasing company paid $700,000 and assumed an obligation to pay outstanding employee entitlements of companies which had operated in New South Wales, the ACT and Victoria. Furthermore the purchaser assumed certain additional liabilities including a liability with respect to deposits paid to the companies in administration.

6 In a report issued on 3 July 2002 the administrator said that he had reviewed the sale agreement and was of the opinion "that the sale was for fair market value and whilst it was not at arm's length, as the Atlantis = Group is related to the companies by virtue of a common director, I am of the opinion that it was reasonable."

7 The sum of $700,000 would form part of a fund to be used inter alia for the payment of creditors.

8 The proposed amended summons for relief, in that it contained grounds relating to the proposed additional fourth respondent stated that it "is the beneficiary of the unfairness set out herein in that they have received the assets, business and goodwill of the First Respondent." This appears to be the sole reference in the proposed amended summons to this additional respondent.

9 The notice of motion was opposed by the proposed additional respondent on the basis that the mere fact that that company had acquired the business of the current respondent in administration could not justify the addition of that company as a respondent to the proceedings.

10 In order to deal with this argument it is necessary to have regard to the provisions of s 106, and in particular s 106(5). Section 106 is in the following terms:

106 Power of the Commission to declare contracts void or varied (1) The Commission may make an order declaring wholly or partly void, or varying, any contract whereby a person performs work in any industry if the Commission finds that the contract is an unfair contract. (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) A contract may be declared wholly or partly void, or varied, either from the commencement of the contract or from some other time. (4) In considering whether a contract is unfair because it is against the public interest, the matters to which the Commission is to have regard must include the effect that the contract, or a series of such contracts, has had, or may have, on any system of apprenticeship and other methods of providing a sufficient and trained labour force. (5) In making an order under this section, the Commission may make such order as to the payment of money in connection with any contract declared wholly or partly void, or varied, as the Commission considers just in the circumstances of the case.

11 The High Court of Australia had occasion to consider the provisions of the former s 88F of the Industrial Arbitration Act 1940, the predecessor to s 106 in Brown v Rezitis (1970) 127 CLR 157. Barwick CJ in discussing the extent of the power of the then Industrial Commission of New South Wales to make orders in terms of what is now s 106(5) said: "…. underlying sub section (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 section (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" (at 164-5).

12 At p 168 Barwick CJ discussed another basis for an order for the payment of money against persons in those particular proceedings who were not parties to the contract namely "that they had received the proceeds of the contract or arrangement or were in some way culpably associated with its making or operation." His Honour posed this as a possible basis.

13 In a similar vein Menzies J said that a person who was not a party to a contract or arrangement could be ordered to pay compensation for what had been lost if that person was connected in some way with the making of the contract, the performance of work or some expenditure made in connection with the contract or arrangement or the incurring of the obligation under it. His Honour gave a number of examples. "Thus, if, under a harsh and unconscionable arrangement between an insolvent company and two workers, a swimming pool had 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 if, 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 instance, 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." (at 170).

14 There have been a number of cases in this Court and its predecessors in which persons or corporations who were not parties to the contract or arrangement sought to be impugned have been made parties to the proceedings so that orders for the payment of compensation might be made and enforced against them. I instance by way of example the decision of the Full Bench of this Court in Ace Business Brokers Pty Ltd v Phillips-Treby (2000)NSWIRComm 163, Gough & Gilmour Holdings Pty Ltd v Caterpillar of Australia Ltd (2001) NSWIRComm 92, Harmer v Caltex Petroleum Pty Ltd (2000) NSWIRComm 100 and Bowker v Software Engineers Australia (NSW) Pty Ltd (2002) NSWIRComm 135.

15 Each of these cases has turned on its own facts. In each of these cases the Court has applied the observations of Barwick CJ in Brown v Rezitis, to which I have previously referred.

16 In these proceedings Ms E Collins of counsel who appeared for the proposed additional respondent in opposition to the notice of motion submitted that there was no basis for joinder because: 1. The proposed additional respondent corporation was incorporated on 11 March 2002, some two years after the applicant's contract of employment was terminated. 2. Even though the assets of the respondent in administration had been sold pursuant to a contract which was admittedly not at arm's length, the contract had been adopted by the voluntary administrator as being reasonable and the purchase price had been assessed as being for fair market value. 3. There is no question of the existing respondent having endeavoured to restructure its affairs so as to avoid any liability to this particular applicant. 4. There is simply no evidence that the proposed additional respondent was the beneficiary of any unfairness alleged by the applicant either at all or after taking into account the clear insolvency of the existing respondent.

17 In my opinion the matter should be approached on a different basis, being an alternative basis put in support of the notice of motion by Mr Alkadamani of counsel who appeared for the applicant.

18 Mr Alkadamani relied upon a decision which I had given in North v Consolidated Gaming Corporation Ltd (2000) NSWIRComm 258. In that judgment I adopted principles established by Jordan CJ in the Full Court of the Supreme Court of New South Wales in Horton v Jones (No2) (1939) 39 SR (NSW) 305. I repeat the principles contained within the judgment of Jordan CJ: "1. It is now a commonplace that if a party to legal proceedings establishes to the satisfaction of the Court that he is genuinely desirous of amending his pleadings for the purpose of modifying or otherwise altering some existing claim or defence, or of introducing a new ground of claim or a new matter of defence, he should be permitted to do so, subject to the imposition of such terms as may be proper, unless the proposed amendment is so obviously futile that it would be struck out if it appeared in an original pleading, or unless it is one that it would be impossible to allow upon any terms without causing substantial injustice to another party to the proceedings. 2. We are not in the present application concerned with the merits of the claims now sought to be litigated; and we must approach the matter from the point of view that the plaintiff may have a just, or at any rate a legal, claim ….. (at 309-310)"

19 I also repeat some observations which I made in North, namely: "14. I put to counsel appearing for the respondents during the course of submissions that if the applicants chose to discontinue the current proceedings and to issue fresh summonses naming the existing respondent company and all of the individuals who were proposed to be added to these proceedings as respondents, that no complaint could be levelled against the applicants denying that they had the right to do so. It seems to me that in the circumstances of these proceedings this is the test which should be used as the appropriate approach in determining whether the amendment application should proceed. It is not to the point, as was submitted to the contrary, that the applicants have not indicated that if they are unsuccessful in these interlocutory proceedings that they would discontinue and commence afresh. The point is whether they had an entitlement to do so. If they could do so then it seems to me that it would be just to allow them do so by amending these proceedings. 15. As Jordan CJ pointed out in Horton, I stress that in the absence of any allegations of abuse of process or the like I am not concerned with the merits of the claims sought to be brought by the applicants against each of the proposed additional respondents. The merits may be the subject of a contest on an interlocutory basis or during the course of any final hearing."

20 It is my opinion that the same approach ought to be adopted in these proceedings. That is, if, prima facie, the applicant could have commenced afresh by filing a summons in the same form as the proposed amended summons, then he should be permitted to do so by way of amendment.

21 In taking this approach I am conscious that I have, in effect, discounted the necessity of the applicant to establish any evidence sufficient to establish any putative nexus between the proposed additional respondent and the contract sought to be impugned in the substantive proceedings such as might justify an order being made for the payment of moneys under s 106(5) against the proposed additional respondent. To some extent there is tension between this approach and that adopted by Schmidt J in Bowker and adopted by me in James v Talisman Group Pty Ltd (2001) NSWIRComm 199. In Bowker Schmidt J said: "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." (at para 25). In James I concluded: "In my opinion there is sufficient evidence to link the proposed additional respondents with the management and control of the affairs of the corporate respondent and with the circumstances of the applicant's employment by that respondent for me to reject any suggestion that their joinder as respondents to the proceedings at this stage would amount to or be analogous to an abuse of process. I stress that these comments are made in the context of the consideration of this aspect only. It may be open to the proposed additional respondents at any stage of the proceedings to make application that they be struck out upon any basis available to them. Such an application will have to be made at an appropriate stage of the proceedings …." (at para 16).

22 I propose to adopt a less stringent approach in these proceedings because it is clear on the authorities established by Full Bench decisions of this Court that a determination as to whether the proposed amendment "is so obviously futile that it would be struck out if it appeared in an original pleading" (per Jordan CJ in Horton) must be undertaken at an "appropriate time." See, for example, the joint judgment of Wright J, President and Walton J, Vice President in this Court in Euphoric Pty Ltd v Ryledar Pty Ltd (2002) NSWIRComm 136. If the amendment sought by the applicant to amend the summons by the addition of the new corporate respondent were considered as if these were new proceedings initiated by the applicant, it would be necessary in most cases for the applicant to have adduced all of the evidence upon which he sought to rely before the Court could determine that it was appropriate to consider whether the amendment was so obviously futile that it would be struck out. An exception to this general rule might be provided by some statutory prescription or by consensus of all parties that such a preliminary matter could be determined solely and exclusively upon the interpretation or construction of a particular document. These exceptional circumstances do not appear to exist in the context of these proceedings. Accordingly, given the current procedures adopted by this Court it would not be necessary for the applicant to adduce evidence upon which he relies until after the respondent had filed a reply, the applicant had filed a response to that reply and the mandatory conciliation process had been unsuccessfully undertaken. Only then would there exist any evidentiary material upon which the Court might consider whether the proposed amendment was so obviously futile that it would be struck out if it appeared in an original pleading.

23 Accordingly, it is inappropriate at this stage to consider and take into account the submissions made on behalf of the proposed additional respondent to the effect that its addition to the proceedings is obviously futile. Whether this is so must therefore await determination for another day. The only comfort that the proposed additional respondent may have is the prospect of an order for costs against the applicant if the applicant is ultimately unsuccessful against it. However, this is a disadvantage shared with all defendant/respondent parties to court proceedings who protest that the plaintiff/applicant has no basis for having commenced the proceedings against them.

24 Accordingly, I propose to allow the applicant to amend the summons in the manner sought, not being persuaded that it is appropriate at this stage to consider whether the allegation contained in the proposed amended summons against the proposed additional corporate respondent is so obviously futile that it would be struck out if it appeared in the original summons.

25 Costs should follow the event. That is, the applicant succeeded by way of concession with respect to the two proposed additional respondents and has succeeded with respect to the proposed additional corporate respondent. Accordingly, the applicant should have an order for costs of the motion in his favour. However the proposed additional respondents should have an order for costs in their favour with respect to the adjournment of the proceedings on 8 August last necessitated by the late filing of an affidavit.

26 I make the following orders: 1. The applicant is granted leave to amend the summons filed in these proceedings in the form of annexure A to the notice of motion. 2. The applicant is to pay the respondents' costs thrown away by reason of the adjournment on 8 August 2002. 3. Otherwise, the respondents including the added respondents are to pay the applicant's costs of the notice of motion. 4. Costs are to be in an amount as assessed in default of agreement. ___________________________

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