Custance v SC Admin Pty Ltd

Introduction 1 This is an application by the respondents for an order under s 48 of the Federal Court of Australia Act 1976 (Cth) (the Act) and r 2.02 of the Federal Court Rules 2011 (Cth) that this proceeding be transferred from the South Australia District Registry to the Queensland District Registry. The applicants in this proceeding are Mr Daniel Patrick Custance, Mr Edison Miraziz, Think Labour Pty Ltd and iEducate Pty Ltd, and the respondents are SC Admin Pty Ltd and Smart City Vocational College Pty Ltd. The applicants oppose the application to transfer the proceeding. 2 The respondents' application is supported by two affidavits sworn by Mr James Albert Spong on 11 November 2016 and 6 December 2016 respectively. Mr Spong is the sole director of each of the respondents. The applicants rely on an affidavit sworn by Mr Custance on 7 December 2016. Mr Custance is the sole director of each of the third and fourth applicants, and he is the sole shareholder of the third applicant and an equal shareholder with Mr Miraziz in the fourth applicant.

The Relevant Principles 3 The relevant general principles are well established. In National Mutual Holdings Pty Ltd and Others v The Sentury Corporation and Another (1988) 19 FCR 155, the Full Court of this Court observed that the power conferred on the Court or a judge by s 48 of the Act is in terms wholly unfettered and should be exercised flexibly having regard to the circumstances of the particular case. The power is an aspect of the national character of this Court. The Court observed that the factors a court is entitled to take into account in determining that one city is more appropriate than another for interlocutory hearings or for the trial are numerous and that those factors must be weighed in each case. The Court identified the residence of parties and of witnesses, the expense to parties, the place where the cause of action arose, and the convenience of the Court itself as some of the factors that may be relevant in particular circumstances. The Court said that the balance of convenience would generally be a relevant consideration, but is not necessarily determinative of each case. There is no onus of proof in the strict sense to be discharged by the party applying for an order that the proceeding be transferred. However, the Court must be satisfied after considering all relevant matters that there is sound reason to direct that the proceeding be conducted or continued elsewhere. The Court said (at 162): Its starting point is that the proceeding has been commenced at a particular place. Why should it be changed? On the one hand, if the party who commenced the proceeding chose that place capriciously the Court would be justified in giving no weight to the choice of place. At the other end of the scale, a proceeding may have continued for some time at the place of commencement with many steps having been taken there, for example, filing of pleadings and affidavits, discovery and inspection. Due weight would be given by the Court to such matters before directing that the proceeding should continue at a different place. The Court said that ultimately the test involves a determination of where the case can be conducted or continued most suitably bearing in mind the interests of all the parties, the ends of justice in the determination of the issues between them, and the most efficient administration of the Court. 4 There is, with respect, a helpful summary of the relevant principles by McKerracher J in Mortimer v Opes Prime Stockbroking Limited (ACN 086 294 028) (Administrators Appointed) (In Liquidation) [2009] FCA 227 at 15-16 (see also Harcourts WA Pty Ltd v Roy Weston Nominees Pty Ltd [2012] FCA 1383; Wepar Nominees Pty Ltd v Schofield [2013] FCA 920). 5 A particular issue which is said by the respondents to arise in this case is the weight to be given to a choice of jurisdiction clause in an agreement between the parties. This issue was addressed in KC Park Safe (SA) Pty Ltd and Ors v Adelaide Terrace Investments Pty Ltd [1998] FCA 601 (KC Park Safe v Adelaide Terrace Investments) which was a case which concerned an application to transfer a proceeding from the Victoria District Registry to the South Australia District Registry. One of the relevant matters was a choice of jurisdiction clause which was in the following terms: This deed shall be governed and construed in all respects in accordance with the law of the state of South Australia and the Commonwealth of Australia, and the parties hereby submit to the jurisdiction of the courts of South Australia and the Commonwealth of Australia in respect of all matters arising hereunder, or relating hereto PROVIDED HOWEVER that any proceedings issued in the courts of the Commonwealth of Australia shall be issued in the Adelaide registry of any such court. Justice Finkelstein considered that the choice of jurisdiction clause was a matter of real importance. His Honour said: In my view when parties have reached an agreement that a particular court or a court that sits at a particular place is to have exclusive jurisdiction to resolve their disputes, that agreement should be given effect unless there is some good reason why the parties should not be kept to their bargain. In that case, his Honour was required to consider whether the claim involved in the proceeding arose under the guarantee in issue and he decided that it did. His Honour indicated that but for the existence of the choice of jurisdiction clause, it was unlikely that he would have made an order that the proceeding be transferred. 6 In Aquila Resources Limited v Pasminco Limited [2004] FCA 39, the Court considered an application to transfer a proceeding from the Western Australia District Registry to the Victoria District Registry. RD Nicholson J said that it was a relevant factor that the agreements in issue in the proceeding referred to a choice of governing law and he referred to the decision in KC Park Safe v Adelaide Terrace Investments. His Honour went on to say that a choice of governing law clause was relevant even though there may not be any relevant difference between the laws of the two jurisdictions.

The Parties and the Applicants' Claims 7 The first applicant resides in the State of South Australia. The second applicant resides in the State of Queensland, but he commutes to Adelaide as part of the business conducted by the third and fourth applicants. I have already referred to their respective relationships with the third and fourth applicants. 8 The third applicant is a corporation which, although registered in the State of South Australia, currently has its registered office and principal place of business in the State of Queensland. It is alleged to carry on a business of providing school-based traineeships, labour hire and marketing, and facilitating the training of students in nominated tertiary qualifications. The fourth applicant is a corporation registered in the State of South Australia and it is alleged to carry on a business of marketing and facilitating the training of students in nominated tertiary qualifications. 9 The first respondent is a corporation registered in the State of Queensland and it is a wholly owned subsidiary of the second respondent. It is alleged to carry on the business of providing administrative services to the second respondent and to act as the agent of the second respondent in entering into employment contracts with staff providing services to the second respondent. 10 The second respondent is a corporation which, although registered in the State of Victoria, currently has its registered office and principal place of business in the State of Queensland. It is alleged to be a privately operated registered training organisation. It has been and is subject to the Commonwealth Vocational Education and Training (VET) Quality Framework and the National Financial Viability Risk Assessment Requirements 2011 to ensure its financial viability to deliver training to VET students. It is alleged to carry on the business of a vocational training institute offering training, education and certification in various industries at both diploma and certificate level and to operate at least nine campuses throughout the States of Queensland, South Australia and Tasmania. 11 I turn to summarise the key elements of the applicants' claims. 12 The applicants allege that the third applicant (Think Labour) and the second respondent (Smart City) entered into an agreement in or about June 2014 called the Payment and Services Agreement. The agreement involved the third applicant providing referrals of students to the second respondent for training and assessment in return for the payment of fees calculated by reference to government funding. It is not necessary for me to outline the alleged terms of that agreement which are set out in paragraph 16 of the Amended Application. The third applicant alleges that the second respondent has not made the payments due to it under the Payment and Services Agreement for students referred to the second respondent and in respect of which the third applicant has issued invoices. The invoices are identified in Annexure A of the Amended Application and the allegation is that an amount of $141,557.14 remains outstanding. I accept the applicants' submission that the main issues involve the construction of the agreement and, depending on that construction, a reconciliation exercise about government funding advanced and possibly repaid. 13 The applicants allege that in November 2014, it was orally agreed between the fourth applicant (iEducate) and the second respondent (Smart City) that those parties would alter a previous arrangement by entering into an agreement that the second respondent would employ all of the fourth applicant's administrative staff and trainers, and that the net profits of the enterprise would be shared on a 50/50 basis between the fourth applicant and the second respondent, and that a reconciliation would be done every six weeks. This is the main claim made by the applicants in the proceeding and the agreement is referred to as the Profit Share Agreement. The amount claimed by either the fourth applicant or by the first and second applicants is an amount of $3,019,737.69. This amount is said to be 50% of the profit earned by the second respondent and (so it is contended by the applicants) subject to the Profit Share Agreement. 14 Other relevant agreements referred to in the applicants' pleadings are a written employment contract between the first applicant and the first respondent, and a written employment contract between the second applicant and the first respondent. The applicants allege that each of these employment contracts were accompanied by a bonus scheme arrangement which was embodied in a separate document and which provided that the bonus scheme did not form part of the employment contract. As I understand it, the applicants allege that these agreements (which were later in time to the Profit Share Agreement) were an attempt by the respondents to replace the Profit Share Agreement. They allege that the conduct by the respondents associated with the Profit Share Agreement and these agreements constitutes misleading or deceptive conduct, unconscionable conduct and that the respondents are estopped from denying the true position. The applicants allege that the respondents have sought to avoid the Profit Share Agreement by relying on conditions in the bonus scheme arrangements which the respondents contend preclude the first and second applicants from sharing in profits made. 15 The claims made by the applicants are for damages for contraventions of s 18 of the Australian Consumer Law (Schedule 2 to the Competition and Consumer Act 2010 (Cth)), damages for breach of contract, payment of the outstanding amounts due under the unpaid invoices, equitable damages and an account of profits for the applicants' share of the profit payable under the Profit Share Agreement. 16 The respondents raise various matters in response. One plea which they raise should be noted because it is relevant to the witnesses who may be called at the trial. It is raised in paragraph 24 of their Response and it is to the effect that a number of the enrolments undertaken by the first and second applicants were irregular and are under investigation by the appropriate authorities. For example, in paragraph 24.4.5 of their Response, the respondents plead the following: the conduct of Custance and Miraziz and the other Employees under the direction of Custance and Miraziz is known by the respondents to be under investigation by regulatory agencies, and the respondents believe that the investigation is likely to result in the reversal of the enrolments of more of the students enrolled with Smart City through the Adelaide office in the period from November 2014 to June 2015; 17 The employment contract and bonus scheme arrangement between the first respondent and the second applicant is in similar terms to the employment contract and bonus scheme arrangement between the first respondent and the first applicant. In the circumstances, it is sufficient if I refer to the contract and arrangement involving the first applicant and the first respondent. 18 The employment contract was signed by the first respondent on 13 April 2015 and by the first applicant on 23 April 2015. It defines the location of the first applicant's principal place of business as "the Adelaide Campus at level 10, 90 King William Street, Adelaide SA 5000". The contract is defined to mean the employment contract. Clause 16 of the contract provides as follows: 16. BUSINESS MANAGER BONUS SCHEME 16.1 Due to the nature of your role you are eligible to be considered for a bonus which will be based upon various considerations, including the profitability of the business and you meeting your set KPIs, as detailed in your Performance Appraisal Plan. 16.2 Any payments made will be determined by the Employer's Bonus Scheme, as provided to you by the Employer, and will be conditional upon you meeting the requisite criteria. 16.3 The Employer reserves the right to vary, alter or withdraw its bonus scheme. The Employer will notify you of any changes to the bonus scheme. 16.4 It is a condition of any bonus that you are employed by the Employer at the time any payment falls due. 19 Clause 25 of the contract provides as follows: 25. GOVERNING LAW The Contract shall be governed by and construed in accordance with the law noted at Item 10 of the Schedule. The parties agree to submit to the jurisdiction of the courts of that State. Item 10 of the Schedule identifies the governing law as the law of the State or Territory in which the employer is based. The first respondent is based in Queensland. 20 The bonus scheme arrangement provides as follows: BONUS CONDITIONS Your entitlement to be considered for a Bonus Payment will be conditional upon the following: (1) The Employer being in profit for the campus for the six (6) month period (Bonus Period) in which the Bonus Payment is calculated; (2) You being employed and not under notice of termination of employment (whether the notice is given by you or the Employer) on the date the bonus is payable; and (3) You meeting your set KPI's, as per your Performance Appraisal Plan negotiated within three (3) months' of commencement of employment and as subsequently revised from time to [sic] by the Employer. BONUS PAYMENT STRUCTURE Your Bonus Payment will be drawn from a defined profit pool (Bonus Pool). The Bonus Pool is defined as being the total income for the campus less direct attributable expenses (including a Head Office administration levy calculated at 15% of turnover) from Adelaide campus and surrounding area during a Bonus Period. Your Bonus Payment will be calculated as being 50% of the defined Bonus Pool. Any Bonus Payment earned will be confirmed to you in writing by the Employer and paid to you within six (6) weeks following the close of the Bonus Period via electronic funds transfer into your nominated bank account.

Relevant Matters 21 The applicants' choice of forum was not capricious and I did not understand the respondents to contend otherwise. The dealings between the parties involved the Adelaide campus which initially belonged to the fourth applicant and was transferred to the respondents in December 2014. The contracts were, for the most part, performed in Adelaide. 22 The respondents relied on the following matters in support of an order for transfer: the choice of jurisdiction clause; the fact that most, if not all, of the relevant conversations and discussions took place in Queensland; the location of the parties; the location of potential witnesses; the location of documents and the fact that (so the respondents assert) the application was made promptly. 23 With respect to the choice of jurisdiction clause, the respondents rely on the authorities to which I have referred. 24 It is true that the employment contracts which contain the choice of jurisdiction clause are pleaded by the applicants (see paragraphs 44 and 46). It is also true that the bonus scheme arrangements are referred to in the applicants' pleadings (see paragraphs 45 and 47). The bonus scheme arrangements are said not to form part of the employment contracts. However, as far as I can see, the applicants do not base their principal claims on either the employment contracts or the bonus scheme arrangements. The employment contracts and the bonus scheme arrangements are also referred to in the respondents' pleadings. 25 There are issues in and around the employment contracts and the bonus scheme arrangements which will be determined at the trial. However, there is no direct claim made by the applicants under the employment contracts. Although the employment contracts are relevant to the issues in the proceeding, they and the choice of jurisdiction clauses in them do not appear to be central to the claims. The choice of jurisdiction clause is relevant, but not to the extent it was in KC Park Safe v Adelaide Terrace Investments. 26 With respect to a number of the pleaded conversations and discussions, it is true that they took place in the State of Queensland. That is a relevant matter. 27 As far as the location of the parties is concerned, two of the applicants are located in this State. The first applicant resides here and the fourth applicant was incorporated in this State. The second applicant resides in Queensland, but, as I have said, he commutes to Adelaide for the purposes of the business of the third and fourth applicants. The third applicant has its current registered office and principal place of business in Queensland. Both of the respondents are incorporated in Queensland. 28 As far as the residence of witnesses is concerned, Mr Spong has identified a number of witnesses on the respondents' side who are referred to in the applicants' Amended Application. The respondents submit that potentially there are at least 14 witnesses they may wish to call who are resident in Queensland. Furthermore, Mr Miraziz is resident in Queensland and only Mr Custance is resident in South Australia. Mr Spong also identifies the personal inconvenience he and other members of the respondents' management team will suffer if the trial is held in Adelaide. 29 The Amended Application identifies a number of staff members resident in this State who (on the applicants' case) left the employ of the fourth applicant and joined the employ of the second respondent pursuant to the Profit Share Agreement. There are 15 staff members who are named, excluding the first and second applicants (Adelaide employees). Mr Spong asserts that the Adelaide employees are not likely to be called by any party as witnesses to any issue in dispute. He states they were not present at any of the meetings referred to in the applicants' Amended Application. Mr Custance asserts to the contrary. He has identified seven staff members whom the applicants intend to call to deal with the allegations made by the respondents in their pleadings concerning the non-compliance notices. At this stage of the proceedings, I accept what Mr Custance says and that these persons may be called. Both parties have adverted to the likelihood of engaging an independent expert with the applicants wishing to engage an expert in South Australia and the respondents wishing to engage an expert in Queensland. In terms of the convenience of witnesses, the numerical balance is in favour of the respondents, but it is not overwhelming. Although it is too early to tell whether it is appropriate to do so, it is relevant that some witnesses may be able to give evidence by video link. 30 As far as the location of documents is concerned, the respondents submit that their documents will be relevant because of the applicants' claim for profits and that those documents are in Queensland. The applicants identify documents they have in South Australia which will be relevant. The applicants submit that with the ability to electronically scan documents and exchange them by electronic means, this is not a factor of great significance. I agree with the applicants' submission. 31 Finally, there is the issue of delay. The applicants submit that this is a factor, although they do not contend that it is a significant factor. This proceeding was commenced in the Federal Circuit Court, Adelaide Registry, on 28 September 2015. The applicants amended their application in late 2015. The parties were referred to mediation in July 2016. The mediation did not resolve the matter and the proceeding was transferred by the Federal Circuit Court to this Court in September 2016. The respondents gave notice of an intention to apply to transfer the proceeding to the Queensland District Registry in October 2016. The application might have been made more promptly than it was and delay is a factor. However, I do not think it is a significant factor. 32 The question whether this proceeding should be transferred is finely balanced. Having considered and weighed the relevant factors, I am not satisfied that it should be transferred.

Conclusion 33 The application for an order transferring the proceeding to the Queensland District Registry will be dismissed. I certify that the preceding thirty-three (33) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Besanko.

SCHEDULE OF PARTIES SAD 272 of 2016 Applicants Fourth Applicant: IEDUCATE PTY LTD (ACN 166 644 720)