Donald F Hagans v UnitedGlobalCom, Inc. & ors

Donald F Hagans v UnitedGlobalCom, Inc. & ors - [2004] NSWIRComm 164 - NSWIRComm 2004 case summary — Zoe

[17]

9 The affidavits filed on behalf of the respondent in the substantive proceedings dealt with the following developments: (a) the first respondent, UnitedGlobalCom, Inc. was now known as UGC Holdings; (b) the second respondent, UIH Asia/Pacific Communications, Inc. was now known as United Asia/Pacific Communications, Inc.; (c) the third respondent, United International Management, Inc. was a related corporation to the first respondent; (d) the first respondent was formerly known as United International Holdings, Inc. and in January 2002 was restructured and several companies were merged - the first respondent ultimately changed its name to UGC Holdings, Inc.; (e) a new company was created and given the name UnitedGlobalCom, Inc., and became the parent of UGC Holdings, Inc.; (f) the new parent company assumed the name UnitedGlobalCom Inc. and was referred to as "New UGC"; (g) bankruptcy proceedings in the United States have been taken against "Old UGC, Inc." which is asserted to be a wholly owned subsidiary of UnitedGlobalCom, Inc. Old UGC, Inc. does not conduct any business operations but serves as a holding company for its direct and indirect subsidiaries, collectively referred to as "Old UGC Group"; (h) as at 30 November 2003, Old UGC, Inc. held directly approximately $US9.5 million cash and cash equivalents and was the holder of a promissory note made by UnitedGlobalCom, Inc. having an outstanding balance of principle and accrued interest of approximately $US17.7 million. Holding companies, subsidiaries of Old UGC, held approximately $US37.5 million in cash and cash equivalents and were themselves holders of approximately 4.7 million shares of Class A common stock of UnitedGlobalCom, Inc.; (i) in January 2002, as a result of transactions with Liberty Media Corporation there was a re-structuring. Prior to the 2002 re-structuring, Old UGC was the publicly held parent company of the Old UGC Group. As part of the 2002 re-structuring and subsequent transactions, UnitedGlobalCom, Inc. became a publicly held company; Old UGC became a wholly owned subsidiary of UnitedGlobalCom, Inc.; (j) the decision to file the petition in Bankruptcy and to seek to re-structure Old UGC's outstanding obligations was prompted primarily because Old UGC was unable to meet its payment obligations, and it ultimately determined that the Chapter 11 process offered the most efficient means of re-structuring its obligations; (k) Old UGC was a defendant in three legal proceedings, Inc.luding two employment related matters pending in Australia; (l) Old UGC has no employees and functions through UGC and its officers, all of whom are employees of UnitedGlobalCom, Inc. The services of those and other employees are provided to Old UGC by UnitedGlobalCom, Inc. under a shared services agreement pursuant to which those employees perform services on behalf of Old UGC and the expenses of those employees and other overhead expenses are shared between UnitedGlobalCom, Inc. and Old UGC; (m) as the result of a plan of merger, New UGC would be the surviving entity. Each share of UnitedGlobalCom, Inc. Class A stock outstanding immediately prior to the merger was to be converted into and represented a right to receive and was to be exchangeable for one share of the Class A common stock of New UGC. At the time of merger, all outstanding options to purchase shares of UnitedGlobalCom, Inc. Class A stock under its option plan or any other contract would remain outstanding and be assumed by New UGC and thereafter be exercisable at the same per share exercise price and pursuant to the same terms and conditions as was exercisable immediately prior to the effective merger; (n) in the proceedings in the United States old UGC seeks an extension of the applicable deadline for filing Notices of Removal of what is referred to as "the Australian actions" under the Federal Rules of Bankruptcy procedure. These actions are described as two employment relations matters pending in Australia. Old UGC, in its documents filed in the United States, states that, although it does not currently anticipate that it will remove any particular action, it seeks the extension out of an abundance of caution.

[37]

30 I turn then to consider whether or not the applicant has made out a case for the joinder of the proposed ninth respondent and the amendments that are necessary to properly identify the parties in the Summons for Relief. I am satisfied on the evidence called by the applicant that the purpose of joining "New UGC" is to ensure that the applicant has access to the share options under the options plan which is now administered by New UGC should the applicant be otherwise successful in its case. The evidence demonstrates that while Old UGC does have shares, the options scheme which forms such a significant part of the applicant's case is now within the control of the proposed ninth respondent. It is not disputed that New UGC came into existence after the applicant was terminated: the applicant does not allege that New UGC was or could have been culpably involved in that decision. The applicant has, however, established an evidentiary basis for its concern that it might otherwise succeed against the existing first respondent yet find that the options or their monetary worth are no longer able to be delivered to the applicant if he succeeds in this part of his case. The proposed ninth respondent is the result of a recent and somewhat complex restructure of the affairs of the existing first respondent. While there is nothing in the evidence presently before the Court to permit a finding that the first respondent's re-structure was designed or influenced by an intention to deprive the applicant of the monetary proceeds of success in this litigation, the fact is that on the current state of the evidence that is a distinct possibility. None of the respondents called evidence on this motion nor was there an assurance proffered that the joinder of the proposed ninth respondent was unnecessary because arrangements would be made by the first respondent or any combination of the respondents to ensure that the applicant's claim would be satisfied if he succeeded in the substantive proceedings. It is not suggested that the first respondent or any of the other respondents were required to take that step but the absence of such an assurance lends weight to the applicant's claim that the proposed ninth respondent needs to be joined in order that all the necessary parties are gathered for the effective hearing of the Summons for Relief.

[38]

31 Having reached the view that the applicant has established a case, in the interests of justice, for the joinder of New UGC as the ninth respondent, it is necessary to consider the remaining arguments raised by the present respondents. Firstly, it was submitted that the joinder of New UGC was an abuse of process if its only purpose was to ensure that there would be present in the proceedings a respondent with sufficient assets to meet any eventual judgment. This point was canvassed before Boland J in Gough & Gilmour and was rejected. In that case the process of discovery revealed a corporate re-organisation which the applicants alleged required the joinder of a new corporate respondent. The respondents argued that joinder in such circumstances, mainly to secure the payment of any judgment should the applicants succeed, was an abuse of process and that the appropriate course was to seek an asset preservation order. In rejecting this argument his Honour stated: [62] I do not consider that the joinder application was an abuse of process. It was open to the applicants to choose which form of relief they considered appropriate in the circumstances and it could not be said that a joinder application is an asset preservation order in disguise. I do consider, however, that a significant reason for the applicants' seeking joinder of Caterpillar Inc. was a concern on their part that there was to be a dismantling of the Caterpillar operation in Australia and that there was a risk if orders were ultimately made in the applicants' favour, they would be of no effect because Caterpillar Australia would have been rendered an empty shell. In other words, in the absence of information that Caterpillar's re-structuring plan it is probable that the applicants would have been content to pursue their remedy against the respondents notwithstanding there may have been concern on the applicants' part about what they perceived to be Caterpillar Inc.'s culpable involvement in the decision to terminate the dealership. The applicants' fear about the consequence of Caterpillar's re-structuring plan appears to have caused the applicants to focus more closely on Caterpillar Inc.'s involvement and thereby triggered the joinder application. It is open to the Court to take these considerations into account in exercising its discretion as to whether or not to order joinder. That reasoning is equally applicable to the present case and I shall, respectfully, adopt his Honour's approach.

[45]

38 The Full Court considered the terms of the Explanatory Memorandum to the Bill but stated: [35] While it is clear that the amendments were intended to, and will, have significant effects on any application for an order made after 24 June 2002, the present case cannot be described as simply or merely as "an application for an order" made after 24 June 2002. In substance, the questions referred required consideration of the effect of s 108B on proceedings commenced prior to 24 June 2002 and, in particular, the effect of s 108B on an application seeking to amend proceedings presently on foot so as to add additional respondents, in circumstances where more than 12 months have elapsed following the termination of the contract to which the proceedings relate. The Full Court identified the real issue as being the characterisation of the application to amend the Summons for Relief. It was significant that s 108B imposed a limitation by reference to "an application for an order under [the relevant] division in relation to a contract" rather than by reference to, for example, the parties to the contract. The Full Court held that the "application" referred to in s 108B was a reference to an application to exercise the substantive power of the Division dealing with unfair contracts. The original summons filed in that case constituted an application for an order under s 106 in respect of a particular contract or arrangement and was filed well before the commencement of s 108B - that original Summons or the order sought were therefore not affected by the limitation period created by s 108B. Ultimately, what was important was that the proposed amended Summons still had as a substantial focus the contract of employment between the applicant and the second respondent and his employment by the first and second respondent. In those circumstances the amendment did not constitute a fresh application for an order but was in substance an amendment to an application for an order made under s 106 prior to s 108B coming into effect.

[48]

41 The respondents submit that Browne v Reizitis is often cited as authority for the proposition that the jurisdiction of the Commission to order the payment of money extends beyond the immediate parties to the contract when, in truth, the judgment places a significant limitation on the making of such orders. In a sense Browne v Reizitis stands for both those propositions. Chief Justice Barwick clearly stated that 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. There may be persons involved in a subterfuge who are not parties to the contract or arrangement but who are in reality the actors deriving benefit from the making or execution of the contract or arrangement. In some cases there will be persons who are not the parties to the contract but who in have fact participated in its making and there may be persons who have received money indirectly from one of the parties to the contract or whom may be holding money derived therefrom for one of the parties. The expression "in connection with" was of wide import and did emphasise the need for a closer connection between the order made and the contract or arrangement varied or avoided. The power would extend to ordering the payment of money where the order, on the larger view of the jurisdiction given by the sub-section, could be considered to be appropriate to effect wholly or partially the restitution of the parties to their former position upon the variation or avoidance of the contract or arrangement. In his separate judgment, Menzies J stated that without exhausting the meaning of the phrase "in connection with", a payment of money in respect of work done, or money spent, or obligations incurred under the avoided contract or arrangement, was properly to be regarded as a payment in connection therewith so long as the person who is ordered to make the payment is a person who was connected "in some way" with the making of the contract, the work done or the expenditure made "or the obligation incurred hereunder".

[50]

43 The approach I have adopted in this matter seems to be supported by a recent decision of the Full Court in AOS Group Australia Pty Ltd (In Liquidation) v Arrogante & ors [2004] NSWIRComm 80. That case involved arrangements between corporate entities where the assets remained in the hands of one entity but employment was undertaken by a second entity which did not have assets. On appeal the issue primarily was whether the Commission had jurisdiction to vary a contract between two respondents in proceedings where neither respondent sought to have the contract varied and whether there was jurisdiction to create a contract of employment between persons who at no time had been in a contractual relationship. In dismissing the appeal the Full Court stated: [28] In this case, we are satisfied that the approach to jurisdiction urged by the appellant would require that the Court ignore its wide powers to vary or even declare void, unfair arrangements wider than any single contract (or even related conditions or collateral arrangements). [29] Were it otherwise, notwithstanding the wide meaning of the word or expression 'arrangement' and the definition of 'unfair contract' in s105, s106 would still leave available to the unscrupulous, a large opportunity to construct sham arrangements or subterfuges, by use of corporate vehicles which entered a series of contracts with each other. Employees would have no proper redress when made the victim of arrangements designed to shelter business assets, so as to ensure that they are deprived of the contractual, award and statutory benefits of their employment. The result would be that, even if together, the contracts comprised an arrangement to which the section applied, the remedy of variation of the arrangement, could not be utilised in order to rectify any unfairness found, if the end result would be to make one party to the arrangement, a new party to one of the contracts which comprised the arrangement. We are well satisfied that such a restricted construction of the sections is not properly available.

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