Faibicher v Frumar and Others

LEGISLATION CITED: Industrial Relations Act 1996 Uniform Civil Procedure Rules 2005

Jooste v Digicore Technology Pty Ltd and Ors [2006] NSWIRComm 228 CASES CITED: Tranter v Shaan Holdings Pty Ltd t/as Shaan Eyeworks and Another [2006] NSWIRComm 245 McDonalds Australia Holdings Ltd v Industrial Relations Commission of New South Wales (2005) 144 IR 219 Solution 6 Holdings Ltd and Others v Industrial Relations Commission of New South Wales and Others (2004) 60 NSWLR 558

Applicant: Mr R. Moore of counsel Solicitors: Somerville and Co LEGAL REPRESENTATIVES: Respondents: Mr L. Docker of counsel Solicitors: Keith Hurst and Associates

Application under s 106 of the Industrial Relations Act 1996

1 The applicant, Leo Faibicher, has commenced proceedings against the first, second and third respondents seeking relief under s 106 of the Industrial Relations Act 1996 (the Act) arising out of circumstances of the termination of a document referred to as a shareholders' deed (the deed). 2 The application which has proceeded by way of summons for relief seeks an order in addition to certain consequential orders in the following terms:

An order that the contracts, arrangements, conditions or collateral arrangements under which the Applicant performs work for the Respondent be varied so as to insert into it ab initio or at some other time the following terms:-

(a) Upon either the Applicant or the First Respondent ("the defaulting party") taking over financial control of the Second Respondent to the exclusion of the other party ("the innocent party"), the innocent party may terminate the Shareholders' Deed forthwith ("the termination").

(b) Within 14 days after the termination, the defaulting party shall:- i. pay out the amount outstanding to the innocent party in the innocent party's loan account;

ii. Purchase the interest of the innocent party in the Second Respondent for an amount equal to 50% of the value of the ProFitness business [as defined below] not being an amount less than the purchase price paid for the ProFitness business on 18 December 2002;

iii. pay any amount owing to the innocent party under 9.4 and 9.5 the Shareholders' Deed up to and including the date of the termination. Background

3 In about April 2002 the applicant commenced a wholesale clothing business called "Salsa Fitness". Salsa is apparently a brand name for clothing manufactured in Brazil. The applicant's business specialised in the wholesaling of fitness and leisurewear imported from Brazil. Salsa supplied clothes to a number of retail outlets in Australia including a business known as Activate Pro Shops (ProFitness). Sometime in about August or September 2002 the applicant commenced negotiations with the owner of ProFitness, Ms Paula Allan in regard to purchasing a store at Bondi Junction. Shortly after, in October 2002, the applicant met the first respondent. He contracted with the first respondent for the provision of bookkeeping services for Salsa. Meanwhile the applicant's negotiations with Ms Allan continued. ProFitness consisted of five retail stores. Ms Allan told the applicant that she was interested in selling the whole business to him. The applicant spoke to the first respondent about Ms Allan's proposal and the fact that he, the applicant, was interested in acquiring the business but did not have sufficient funds with which to pay the purchase price. The first respondent suggested that he and the applicant should examine the financial records of ProFitness. Soon after, the records were reviewed. In about November 2002 the first respondent proposed that the purchase of the business could be financed by both the applicant and himself. The first respondent would provide cash and the applicant would provide the merchandise. At about the same time the applicant advised the first respondent that he had to travel to Brazil in December 2002. He was therefore anxious that all the arrangements for the purchase were finalised beforehand. 4 In late November 2002 the applicant and the first respondent entered into a Business Sale Agreement with ProFitness. The completion date for the sale of the business together with its assets was 19 December 2002. The purchase price was $80,000 including fittings and chattels, plus stock, at cost exclusive of GST, in the shops the day before completion date. 5 The applicant travelled to Brazil on 4 December 2002. While the applicant was in Brazil he exchanged a number of emails with the first respondent. On 10 December 2002 the first respondent in an email to the applicant advising on the progress of the impending purchase, commented:

Without the supporting/wholesaling operation being included in the business it is not a viable proposition. For our offer to proceed you will need to agree to bring the whole operation together immediately. 6 In a second email sent on 11 December 2002 the first respondent expanded upon the importance of the wholesaling operation to the viability of the business:

What I mean by my last email to you is that Paula's business is a viable business because 50% to 60% of the sales are with her brand which she makes about a 70% gross profit. This gross profit will not continue when she becomes just a supplier and sells to us at normal wholesale price. The Salsa items will need to be supplied at cost for the same results to be achieved, otherwise this business cannot deliver the results. As I said before if the shops buy at only wholesale prices, they will make about a 45% gross profit instead of 58%-60% gross. At that level the shops would only be making a living for 1 person and are not a proposition. However, with the wholesale business supplying the shops with about 50% of the stock it will be making about $75,000 to $80,000 per year - this profit needs to be consolidated into the one operation. Without discussing our arrangements, I spoke to Paula about how she would have managed the shops if she was not manufacturing and she confirmed that she would have struggled and would not have continued - she said that the success depended on her being able to supply at manufacturing prices and not at wholesale prices. For our offer to proceed you will need to agree to bring the whole operation together immediately. Unfortunately, if you do not, I cannot proceed. Please consider this urgently and contact me if you need to discuss. 7 Upon receipt of the two emails from the first respondent, the applicant advised the first respondent that in view of the changes to the structure of the business suggested by the first respondent he intended to appoint a solicitor to represent his interests in the matter. 8 On 19 December 2002 the applicant sent the first respondent an email. In that email the applicant expressed concerns about a lack of communication from the first respondent, as well as other concerns:

You have hardly had any communication in writing with me since I left Brazil, as a partner I assume I have the right to know what is happening in our potential new venture; even the stocktaking final figures I have not received so far.

I have warned you many times that we had to finalise our agreement before December 18th, but this did not seem to be a concern to you, as you hardly made any comment on this matter until just 2 or 3 days prior to taking over the shops.

Then you spoke to my brother on the phone and mentioned that I MUST sign the contract otherwise you would organize a new contract with Paula and David, getting the shops for yourself and leaving me out of the operation at the last minute, after I have introduced you in this industry and showed this business opportunity to you. It seems you are happy to leave me out of this operation, I hope this is not the case. In fact, it does not seem too good that you come to my office hired as Admin/Accountant support, learn about the whole operation in detail, learn about a business opportunity that is available, affects my operation for a few weeks , suggests that you want to get involved in the gym wear clothing industry with me and in the very last minute wants to make my participation in the shops very hard by not going ahead with our original project unless I sign documents unconditionally. In fact the other day you mentioned you had made contact with another Brazilian supplier, Emenel, and that you were keen to buy from him, knowing that he is a direct competitor of mine in the wholesale operation, plus invading an area that according to our draft agreement is mine, which is buying the goods for the shops and handling suppliers. This was only one more fact that has surprised me recently, as you have been chanching (sic) few things since we had come to a 'final' agreement at Morris Kaplan office prior to my departure to Brazil late November. I have left A$15,000 worth of goods (cost price) organised to be delivered to the shops, as per our draft agreement, and you do not seem to be willing to have these goods in the shops as I have not heard from you on this matter - and you mentioned that without the agreement signed you would not proceed.

The day to take over the shops, December 18th has gone and you did not mentioned a word to me on what is happening and what will happen from now on. You have been acting on your own as if you do not have a partner in this venture and as if we had not signed a contract together with Paula and David.

I hardly get any communication in writing from you - we both can access the Internet easily 24 hours/day. I am available most of the time on the phone (preferably not late in the night) - and also in the Internet if you need to contact me. 9 The following day the first respondent emailed his response:

First let me say that we settled on the business yesterday at 1pm.

It appears that you do not understand the realities of what is required in the process of buying a business and starting it up.

As far as the agreement is concerned, we discussed issues prior to signing of the Sale Agreement with Paula and David on 18th Nov. Only after this was it appropriate to engage a lawyer to draw up a Partnership Agreement (we had a month before settlement). An initial draft was issued by the lawyer on the 26th Nov and we had a meeting with Morris on 27th Nov to discuss some issues. As you left on 29th Nov there was little time to finalise and agreements like this still require additional clauses, etc. I well remember telling YOU that this agreement needed to be signed and needed to be done prior to the settlement. Without the agreement there was no legal protection for either of us. Of course as I was committing a substantial amount of money I needed the agreement in place.

With such a short time frame this was not possible.

I have been here actively involved in this initial stage and you are there. Emails are a way of communication but is more remote and more positive form of support is by direct contact through the telephone where emotion can be expressed.

On Tues at noon (our time), I spoke to Mauro and explained the situation and my concerns about this lack of legal protection. I mentioned to Mauro these concerns and suggested that a way to protect myself would be to buy the business myself and then when you returned and we finally reached an agreement everything would return to our original agreement - THIS WAS ONLY A SUGGESTION. I then spoke to you and asked you to sign and fax a letter of understanding that the COMMERCIAL arrangements of our agreement were acceptable. I explained that WITHOUT ANY undertaking from you if the purchase went ahead I would have no legal protection. However on Thurs at 8.25am (the day of the settlement) - a day and a half later and without a PHONE call - I receive an email. I had already left my house early and was organising the final arrangements with the funds and final reconciliations with Paula. When did you think I would get the email - especially considering that you thought that the settlement was to be on the 18th.

You seemed concerned about other suppliers. I NEVER like to burn bridges in business and keeping contact with current suppliers of Paula's business is a sensible thing to do. Whether we purchase from them is another matter. There is no need to be threatened by any contact.

Before you left you told me that you had organised for the $15,000 worth of Salsa stock to be delivered to the shops on the day of settlement, but you would not tell me who had the stock and gave me NO details about making any arrangements to organise the delivery. Even when I questioned you today you were very vague and would not give me any information about how I can get the stock to take to the shops. As this was part of our agreement why did you not give me full and complete details of how this stock would be available so that you could fulfil your obligations? There appears to be a total lack of trust but you then expect ME to spend $100,000 on the business without any protection but have ABSOLUTE trust in YOU and that the goods will be delivered. Where is the balance?

You say that I have been acting as though I do not have a partner in this venture. I can say the same. I am handling the day-to-day issues and have been spending a significant part (if not all) of each day doing so for the past 2 weeks. Sending emails have not always been possible because of the full days and the time differences between and delays in sending and receiving. Phoning is more appropriate as I said before. Also you have given NO DETAILS about discussions with Salsa, what arrangements have been discussed and agreed. There have been no details about other opportunities, nothing about talking with Brasil Sul and an Australian distribution. Nothing! So what should I think?

Leo, I'm sure that we can work though these issues. The main concern is making sure that the business is run correctly, that the stock levels are correct, that the staff is well trained and happy, and that the business thrives and prospers.

I will keep you informed but please phone to make me feel that your complete support and trust is there. 10 About one to two hours after the first respondent sent the above email the applicant emailed his short response:

OK Stuart, I understand your points and will organize goods to be sent to the shops. As per our tel conversation if we have any problems getting to a final agreement this stock should be paid in full. Stock should be delivered on Monday to each one of the shops. 11 On 23 December 2002 the applicant sent an email to the first respondent confirming that he had organised delivery of $19,000 worth of stock at cost price to the ProFitness shops. The first respondent acknowledged receipt of the stock by email sent on 25 December 2002. 12 On 24 January 2003 the applicant and the respondents entered into the shareholders' deed, and a second agreement, the Salsa Fitness Agreement. Under the deed the second respondent was in charge of operational matters. The first and third respondents undertook to issue shares in the second respondent to the applicant. The deed envisaged that the applicant and the third respondent would hold equal shares and equal voting rights in the second respondent. 13 Clause 7 of the deed provided for the funding of the business. Under the clause, the applicant was to provide $60,000 worth of stock with deliveries to be staggered over a five month period commencing from the Completion Date (19 December 2002) until 19 May 2003. The third respondent was to provide cash to the second respondent to enable the second respondent to complete the purchase. Clause 7 is set out in full below:

(a) Leo will provide at the Completion Date at least $15,000.00 at landed cost as the initial stock for the Business;

(b) Leo will provide stock subsequently for the Business at landed cost at the rate of approximately $10,000 per month.

The total value of (a) and (b) will be not less than $60,000.00 and must be provided in full by no later than five (5) months after the Completion Date. This amount will be credited to Leo's loan account with the Company.

While the wholesaling operation is separately owned by Leo, Leo agrees to provide further stock subsequent to (a) and (b) for the Business. Such stock shall be supplied by Leo and paid for by the Company at landed cost plus 15%. However, in respect of such stock which is "Salsa" brand, the Company shall be entitled to pay landed cost only, provided that it pays for 50% of such landed cost upon delivery of the relevant goods to the Company, and the balance within 30 days thereafter.

Stuart (as trustee) has provided monies to the Company to enable it to complete the purchase of the Business together with the existing stock on the Business premises. Stuart shall provide evidence to Leo establishing the amount of such monies within 14 days from the date of this agreement. The amount so established shall be credited to Stuart (as trustee)'s loan account with the Company. 14 Clause 9 of the deed contained provisions setting out details of the work to be performed by the applicant and the first respondent. The applicant was to work for the second respondent. Each person was to receive a salary of $600 per week, or $300 per week (except holiday periods) during any period when either or both were absent from Sydney. Clause 9 also made provision for 4 weeks holiday pay per year. 15 Clause 10 provided an option to one shareholder to purchase the shareholding of the other shareholder. The relevant provisions are extracted below:

10.1 At any time during the period either Shareholder ("the offeror") may serve upon the other Shareholder ("the offeree") a notice of offer offering to sell all of the offeror's shareholding, for a price per share nominated in such notice ("an offer to sell").

10.2 At any time within 28 days from the date of service of the offer to sell, the offeree may accept such offer, by serving a notice to that effect on the offeror ("the notice of agreement to buy").

10.4 If a notice of agreement to buy is served by a Shareholder ("the buying party") then:- 10.4.1 Upon service of the notice of agreement to buy, the buying party shall pay to the selling party a deposit of 10% of the price of the selling party's shareholding, and the balance of the said price within 60 days thereafter. 10.4.2 Upon full payment referred to in clause 10.4.1, the selling party shall transfer its shares to the buying party.

10.6 No shares in the Company may be transferred to any person or company, unless that person or company agrees in writing to comply with the obligations under this agreement, of the Shareholder from whom he, she or it received such transfer. Thereafter, such person or company shall be bound by this agreement, as if he, she or it were the shareholder referred to in this agreement, from whom such transfer was received.

10.7 Clause 8 shall continue to apply. However, the company shall pay out any remaining balance of the loan account of the selling party within 12 months of the transfer of the shares by the selling party. 16 Clause 11 dealt with a procedure to be implemented in the event of any breach of the deed which occurred within 6 months of the Completion Date. The clause is set out in full below:

Should a party (the offending party) fail after 14 days notice from the other party to rectify any breach of its obligations herein, the other party may by notice in writing require the offending party to sell its share in the Company to it at the price of $1.00 and resign from all offices held by the Company. The offending party shall on receipt of the said price then sign and hand to the other shareholder an executed share transfer and resignation. The Company shall thereafter repay to the offending shareholder its loan account within the period of 12 months from the date of the said transfer. 17 On the same day the deed was signed, the applicant and the respondents signed the Salsa Fitness Agreement. This agreement contained three short provisions to the following effect:

1. Stuart or Leo may by notice in writing at any time after 12 months from the date hereof notify the other one of them that he requires Leo to transfer within 30 days the plant, equipment and goodwill of the Business to the Company for the sum of $20,000.00 together with the existing stock valued at landed cost, those sums to be credited to Leo's loan account with the Company.

2. Upon service of such notice, each party shall forthwith do all things and sign all documents to enable the Business to be transferred to the Company.

3. For the purpose of this agreement "landed cost" means the actual cost to Leo of acquiring, importing and transporting stock, including all fees, costs and charges payable by Leo in relation thereto.

(The reference to "the Business" is a reference to the applicant's wholesale clothing business known as "Salsa Fitness"). 18 For the next few months the applicant and the first respondent were in regular contact via email in relation to the operation of ProFitness. The emails appear to reflect everyday operational concerns of the business such as staff recruitment management and sales and supply of stock. On a couple of occasions the first respondent expresses some concern that sales of stock are below the figures for the same period in the previous year. One email sent by the applicant on 26 February 2003 confirms a recent delivery of Salsa stock to ProFitness in reduction of the purchase price and pursuant to the applicant's obligations under clause 7 of the deed. 19 On 22 April 2003 in preparation for a trip to Brazil for one month between 23 April and 23 May 2003, in order to source more stock, the applicant appoints Ms Pilar Garcia as his nominee in relation to all business dealings and interests conducted in Australia during his absence. In the same document the applicant appoints Ms Katrina Zanetta to oversee administrative matters, in his absence. The document, entitled "Matters of Business Interest During Overseas Trip 2003" is signed by the applicant and the first respondent on 22 April 2003. 20 On 26 April 2003 the first respondent sends an email to the applicant confirming that more stock under the brand name of Brasil Sul has been collected for the stores. This email was apparently not received by the applicant until 29 April 2003. On 2 May 2003 the first respondent sends a further email to the applicant advising him of the April sales figures. The figures show sales for the five stores in the sum of $43,904.37 compared to $57,375.99 for April 2002. On 8 May 2003 the applicant sends an email to the first respondent expressing some surprise at the first respondent's difficulty in contacting him by email. He nominates other means of communication, for example via Ms Zanetta's email, or via telephone and fax in Brazil. The email also provides an update on the stock which the applicant has sourced in Brasil for ProFitness. 21 It would appear from the emails sent during the period of 26 April 2003 until 7 May 2003 that the first respondent does not receive a response from the applicant. Some of the emails have been returned and marked (by the first respondent) "[u]ndelivered due to full email box". Apart from some apparent difficulty in communications for a period of a week or so, the correspondence between the applicant and the first respondent during this period does not indicate, on its face, any problems in relation to the supply of stock. Nevertheless on 8 May 2003 the first respondent writes to the applicant putting him on notice that he is in breach of his obligations under clause 7 of the deed, that is, to provide stock to ProFitness at landed cost at the rate of approximately $10,000 per month for 5 months after the Completion Date. The letter is handed to Ms Garcia for delivery to the applicant. Presumably the notification is in anticipation of invoking clause 11 of the deed in the event that the applicant fails to provide the stock in time. The terms of the letter are set out in full below:

It is requested that you rectify the breach of your obligations under clause 7 of the Shareholders' Deed dated 24 January 2003. Under this clause it is required of you to: a) Provide at least $15,000 of stock at landed cost at the Completion Date of acquiring the retail business known as Activate Pro Shops (i.e. on 19 December 2002). b) Provide stock subsequently at landed cost at the rate of approximately $10,000 per month. c) A total of $60,000 is to be provided at least 5 months after the Completion Date (ie. by 19 May 2003). This means that by 19 April 2003 you should have provided:

Date Amount At 19 Dec 2002 $15,000 At 19 Jan 2003 $10,000 At 19 Feb 2003 $10,000 At 19 Mar 2003 $10,000 At 19 Apr 2003 $10,000 $55,000

To date, you have supplied stock on the following dates: Date Stock Amount 23 Dec 2002 Salsa $16,000.00 31 Jan 2003 Brasil Sul $4,120.56 1 Mar 2003 Salsa $13,297.51 1 Apr 2003 Salsa $2,500.28 24 Apr 2003 Brasil Sul $ 7,045.90 $42,964.25 (Total order of $12,045.90 less $5,000 paid by Jasso P/L to Salsa Fitness)

Under our agreement, you have therefore not supplied $12,035.75 of stock to today's date. Also, under the agreement, by 19 May 2003 you will need to supply a further $17,035.75 to comply with the conditions. You are requested to remedy these breaches. 22 On the same day the first respondent sends an email to the applicant. The email makes no mention of the letter of the same date giving the applicant notice that he is in breach of the deed. Instead the email seeks information on the nature of the respondents' agreements with the applicant in relation to the Salsa and Brasil Sul clothing brands, both for the ProFitness stores and for the wholesaling business. The email also advises the applicant that the first respondent collected Brasil Sul stock from the applicant's place on 5 May 2003 and requested a catalogue from Ms Zanetta for ordering purposes, but that Ms Zanetta informed him that she had been instructed by the applicant not to provide the catalogue. 23 The applicant responds to this email the following day. It is clear from the text of this email that the applicant has not at that stage received the first respondent's letter of 8 May 2003. The applicant reminds the first respondent that the Salsa Fitness wholesale agreement only relates to Salsa stock and does not include Brasil Sul. In relation to the first respondent's unsuccessful attempt to acquire the Brasil Sul catalogue the applicant says:

2. Brasil Sul order: I have no idea why you are getting involved in ordering, since this is my work... 24 The following day, 10 May 2003, the applicant sends the first respondent an email advising him that he is in receipt of the letter dated 8 May 2003. The email states:

I have received a copy of the letter that you handed to Pilar Garcia.

I will honour my obligation of supplying a total of A$60,000 to the shops until May 2003.

In order to fix any problems related to the quality of the Salsa products and unforeseen circumstances beyond my control the delivery of the remaining $17,035.75 will still happen during the month of May, just a few days later than May 19th.

As you can very well understand I am in the other side of the world doing business for the stores, but on my return back to Sydney I will be seeking legal consel (sic) regarding this matter. 25 On 21 May 2003 the applicant tells the first respondent:

I have seen all of the relevant people and have had a number of very successful meetings. The shipment of goods is on its way.

(The applicant returned to Australia in late May 2003). 26 On 22 May 2003 the first respondent sends the applicant what appears to be a conciliatory email. He advises the applicant that business has improved and that May has been a good month. The email makes no reference to the letter of 8 May 2003 and the possible consequences of failure to provide stock by the due date which has now expired, namely, 19 May 2003. The relevant extract of the email is set out below:

We had a bit of trouble with my computer over the last couple of days and have not been able to receive or send emails.

As far as business goes, we are having a good month (at $46,000 or 93% of budget and up on last year).

The business is starting to work. Our initial visions for the business were good and they are definitely achievable. I believe that this business is a fantastic opportunity and can be made a huge success.

Leo I am looking forward to your return as we need to work more positively together to help this business achieve its potential.

Things have happened recently which I feel very uncomfortable about (by me) and they need to be discussed and worked out. We have so much positive things going for us in this business that issues between us must be resolved, otherwise we will be missing a fantastic opportunity.

We need each other to make this business work. The differences that cause the tension are our strengths, and we need to discuss and work through them. We need to re-establish a good relationship.

Our ideas are good and only together I believe we can achieve our plans into developing this business in a substantial and highly profitable one.

Also, when do you return, and when is the next shipment of Salsa due for delivery? 27 The first respondent has deposed in his affidavit that he had a conversation with the applicant on 29 May 2003 after the applicant returned to Australia. The text of the conversation as recalled by the first respondent in his affidavit is reproduced below:

First respondent: I have serious concerns about your level of involvement in the running of the business. Not only is there a problem with the level of stock you are providing, but you are leaving everything to me. We need to have clearer lines of responsibility. I am also afraid that the friction between us may have a bad effect on the business and on our staff. We need to resolve these issues as soon as possible.

The applicant said: It's not your position to tell me how to run the business. We are partners, I can do what I like. 28 The applicant in his affidavit in reply denies that the conversation in the terms recalled by the first respondent ever occurred. He said:

As to paragraph 21: I deny the conversation. I agree that upon my return from Brazil I raised issue with Mr Frumar as to his conduct whilst I was overseas. Upon my arrival back in Australia I addressed the matters of concern raised by Mr Frumar and provided the merchandise previously requested by him. 29 The first respondent was cross examined at length about the content of the conversation said to have occurred on 29 May 2003. The relevant portion of that transcript is extracted below:

Q. The only meeting you had between 29 May 2003 and 1 June 2003 was the meeting you record there on 29 May? A. That was the only meeting. That was the last meeting we had.

Q. You raise nothing there, save for the general proposition about "level of stock you are providing but you're leaving everything to me", there is no specific question there asked of Mr Faibicher as to when the $17,000 is to be delivered? A. Um, the way the meeting was left was such which I think is described in that last thing which is "not your position to tell me to run the business". That sort of suggests that there was lack of information coming backwards and forwards between the parties.

Q. That's your recollection of what was said. Mr Faibicher denies that in his affidavit, does he not? A. I don't recall.

Q. Mr Faibicher says this, "I deny the conversation. I agree that upon my return from Brazil I raised the issue with Mr Frumar as to his conduct whilst overseas. Upon my arrival to Australia I addressed the matters concerned and raised the issued as previously requested by him." The only evidence Faibicher has of the merchandise is the invoice? A. What's the date of that.

Q. He denies you raised any of those matters on 29 May. He says the conversation never happened. It is a fiction. He denies the conversation? A. That's his memory of the events.

Q. But what is quite clear he provides to you the stock. He tells you from Brazil he is arranging to get the stock, for $17,000. He tells you that on 10 May. He tells you it is going to come into Australia a bit later than 19 May. At no time does it appear on any communication that you tell him that if you can't have it here on 19 May don't bother. He commits to buying $17,000 worth of stock for the business, for Jasso? A. Yes. He wasn't over in Brazil on the Jasso trip. He wasn't there buying for Jasso. He was buying for the wholesale business.

Q. He was buying for the-- A. The wholesale business. Because the wholesale was nothing to do with Jasso.

Q. But the wholesale business is part of the business that supplies Jasso? A. Yes.

Q. He identifies he is getting $17,000 worth of stock, not for the wholesaling business but to satisfy the conditions in your agreement with him? A. And he tells me that he's going to be supplying in the month of May. 30 Three days later on 1 June 2003 the first respondent wrote to the applicant invoking clause 11 of the deed. The letter is set out in full below:

It is with extreme reluctance that I am writing this letter to you.

While you were away in Brazil and since your return on Saturday 24 May I have expressed my deep concern that we needed to discuss and resolve our business relationship. I said that it was a matter of urgency to me.

However, since your return last Saturday, you have not had the time to do this. We had a 2 hour meeting last Thursday 29 May, where some issues were raised but no resolutions made. At the conclusion of that meeting I again stressed the importance of continuing our discussions. You did not or do not seem to have the same urgency or understand my position.

My particular concerns include the following issues:

1. A clarification of our agreement with regard to the wholesaling operations and the product brands or operations which are included in this agreement;

2. A clarification of our individual roles and responsibilities in the retail business;

3. Discussing, understanding and agreeing on our future roles in the retail and wholesaling operations.

You have said that we are partners and that I am not your boss and you do not have to do anything I request. This is correct but as a partner, should you not also be sensitive to my requests and the needs of the business?

Without you and I resolving the tension between us and understanding and accepting our relationship the business will suffer drastically and the staff will see the disharmony and lose morale.

However, it seems that you do not place the same priority as I do on a resolution.

Therefore, reluctantly I am invoking Clause 11 of the Shareholders' Deed dated 24 January 2003.

Having served on your representative Pilar Garcia a request to rectify a breach of this agreement on 9 May 2003, you have failed after 14 days (ie. by 23 May 2003) to rectify this breach.

I am serving this notice on you in order to protect my legal rights under our agreement.

I therefore request that you sell your share in the company Jasso Pty Ltd to me for the sum of $1.00 and resign from all offices held in the company. 31 On Sunday 2 June 2003 the applicant delivered $17,167.84 worth of Salsa stock to the first respondent at one of the ProFitness stores. The money represented full and final payment of the $60,000 payable by the applicant for his half share in the business. The contract under which work was performed 32 The applicant relies on the shareholders' agreement as the contract under which he performed work, as required by s 106 of the Act. It should be emphasised that the respondents do not contest that the applicant did indeed perform work under the deed. It remains however for the Court to determine as a preliminary issue what work the applicant performed. Once that preliminary step has been identified, the next step is to identify the contract or arrangement under which the applicant performed the work. In Jooste v Digicore Technology Pty Ltd and Ors [2006] NSWIRComm 228 I adverted to this necessary sequence of steps by reference to some High Court authority: At [65], [66] I said:

[65] Before embarking on an analysis of the relevant contract under which the applicant performed work, the preliminary step required by s106 is to identify the work the applicant performed. The necessity to decide this threshold jurisdictional issue was confirmed in the recent High Court decision of Fish v Solution 6 Holdings Limited [2006] HCA 22. At [18], Gleeson CJ, Gummow, Hayne, Callinan and Crennan JJ said:

The Act is concerned with matters industrial. The power given to the Commission by s106(1) to declare wholly or partly void or to vary certain contracts should be understood as hinged about the reference to performance of work in any industry. The first inquiry required by s106(1) is whether a person "performs work in any industry". What may be declared wholly or partly void or varied is any "contract" whereby a person performs that work.

[66] In the decision of Batterham v QSR Limited [2006] HCA 23, delivered the same day as Fish v Solution 6 Holdings Limited , Gleeson CJ, Gummow, Hayne, Callinan and Crennan JJ re-affirmed the approach taken in the latter case to an inquiry under s 106:

The relevant provisions of the Act, and their history, are set out in the reasons given in Fish v Solution 6 Holdings Ltd . Those matters need not be repeated here. As explained in Fish v Solution 6 Holdings Ltd [6], to decide whether the Commission had jurisdiction to make the orders which the appellants seek, it is necessary first to identify whether Mr Batterham performs (or in this case, did perform) work in any industry. (It was not argued that anything turns on the fact that Mr Batterham was no longer performing the relevant work when he applied to the Commission.) Having identified the work that Mr Batterham performed, the next inquiry is what was the contract or arrangement (and any related condition or collateral arrangement) according to which (or in fulfilment of which, or in consequence of which) that work was performed? It is only that contract or arrangement which the Commission may declare void or vary. 33 According to the applicant, the requisite jurisdictional nexus between the work he performed and the deed is found in clause 9. It will be recalled that clause 9 makes provision for the applicant's salary payable by the second respondent for services provided. While the deed makes provision for the applicant to be paid a salary (as well as 4 weeks annual leave) it also makes provision for the applicant as a shareholder of the second respondent to pay one-half share of the business acquired under the Business Sale Agreement by supplying $60,000 worth of stock. The applicant as a wholesaler was able to source the stock from Brazil. This entailed frequent travel to Brazil in order to source the stock and arrange for its importation and ultimate delivery to the ProFitness stores. Effectively these activities constituted the services that the applicant was required to provide to the second respondent and for which he was paid a salary under the agreement. I am satisfied therefore that the work performed by the applicant as described was work performed under the deed. Was the contract unfair? 34 The applicant contends that the deed became unfair when the first respondent sought to invoke clause 11 thereby terminating the relationship between the respondents and the applicant under the deed with the intention of causing the transfer of the business to the respondents for $1.00. By that conduct the respondents sought to acquire the interest in the business and retain the benefit of the stock supplied. The applicant does not contend that the deed when it was entered into was unfair, with the proviso that it be performed "in a particular way". The applicant also contends that clause 10.7 of the deed was unfair because it could be operated to deprive one party of monies for a 12 month period when the corresponding benefit to the other party is the exclusive right to run the business. In this regard the applicant says that the interests of fairness dictate that the party being bought out is bought out quickly so that there is no diminution of interests over the 12 month period contemplated by the provision. 35 It may be appropriate at this juncture to put this latter contention of the applicant in context with the factual background which emerged after the events of 1 and 2 June 2003. 36 On 23 June 2003 the applicant's solicitors wrote to the first respondent with an offer to sell the applicant's shareholding in the second respondent for $25,000, in accordance with clause 10 of the deed. On 1 July 2003 the first respondent's solicitors sent two letters to the applicant's solicitors. The first letter sought to emphasise that the first respondent's letter of 1 June 2003 "activated" clause 11 of the deed. The letter reminded the applicant that the first respondent had tendered the requisite $1.00 and that it remained for the applicant to execute the share transfer. The letter which made no reference to the letter of 23 June 2003, further ordered the applicant that by reason of the first respondent's entitlement to enforce clause 11, an appropriate application could be made to the Supreme Court which would require the applicant to execute the transfer. The second letter which also made no reference to the 23 June 2003 letter, offered to pay the applicant $15,000 in two tranches over a period of two years from the date of the share transfer, and, to repay the applicant's loan account by means of monthly payments over a four month period. The offer was subject to a number of conditions set out in the letter as follows:

Mr Frumar will release and indemnify Mr Faibicher from all liability and obligations he may have as guarantor under leases between the Company and various landlords and their suppliers.

Mr Faibicher will undertake during the period of twenty-four months after the date of transfer of the shares or such further renewed period as Mr Frumar may require to supply to the Company stock from Brazil at cost plus twenty-five percent. Mr Faibicher undertakes to supply and Mr Frumar agrees to purchase a minimum quantity of $7,500.00 per month. Should Mr Faibicher fail to supply these minimum quantities or such further quantities that Mr Frumar may require, Mr Frumar may contact Mr Faibicher's supplier to seek additional supply of the stock.

Subject to clause 5, Mr Faibicher will not object to Mr Frumar contacting suppliers and arranging distribution agreements with any company other than those companies with which Mr Faibicher has current sole distribution contracts.

(a) to supply with his wholesale deliveries proper and sufficient documentation and barcodes for the Company to verify the identity, quantity and landed cost of the stock; and

(b) that on delivery the stock will be separated by Mr Faibicher for each shop as nominated by Mr Frumar. 37 The second letter of 1 July 2003 then appears to have been superseded by a further letter sent on behalf of the first respondent by his solicitors on 11 July 2003. In that letter the first respondent purports to accept the applicant's offer sent by letter of 23 June 2003 to sell his shareholding for $25,000. It encloses a trust cheque for $2,500 representing 10 per cent of the agreed price by way of deposit, and notifies the applicant that the balance will be paid within 60 days. The letter adds that the applicant will be notified of the date of completion, "in due course". On 21 July 2003 the applicant's solicitors respond to the letter of 11 July 2003 acknowledging the first respondent's acceptance of the applicant's offer to sell his shareholding. The letter requests attention, however, to a number of outstanding issues which require resolution. These are enumerated in the letter as follows:

(1) Our client's unpaid remuneration from the Company.

(2) Termination of our client's employment, and payment of his statutory and other entitlements consequent upon such termination.

(3) Any arrangements between the parties for the ongoing supply of goods by our client to the company.

(4) Calculation and payment of our client's loan account. 38 The letter of 21 July is then followed by a letter of 5 August 2003 from the applicant's solicitors to the first respondent's solicitors. That letter asserts that the first respondent is in breach of various obligations under the deed. The letter ends:

In the circumstances, it is clear that your client is repudiating his obligations under the agreement. Such termination, or course, includes a termination relating to the provisions of clause 10.

The damages suffered by our client include the monies owed to him by the company, including his loan account, his entitlement to remuneration, including statutory entitlements and payments consequent upon termination of such employment. 39 This letter is responded to on 8 August 2003 by the first respondent's solicitors who write that the applicant has accepted the "process" in clause 10 and is therefore "estopped" from pursuing his claim of breach of the deed. The letter advises that the first respondent intends to tender a cheque in the sum of $22,500 as final payment for the share transfer and expects at the same time receipt of an executed share transfer. On 23 October 2003, the first respondent's solicitors serve a Notice to Complete on the applicant's solicitors. The Recitals at the beginning of the Notice assert that the applicant and the first respondent are parties to an agreement dated 11 July 2003 by which the applicant agreed to transfer his shareholding, to the first respondent for $25,000. The Notice advises that the completion date for the transfer will be 6 November 2003 at the offices of the solicitors for the first respondent. On 6 November 2003 the applicant's solicitors attend the offices of the solicitors for the first respondent in order to tender the transfer of the applicant's shareholding and complete the agreement. The transfer does not proceed, apparently because the first respondent's solicitors did not have the money to complete the transfer and they inform the applicant's solicitors that they cannot obtain the money on that day. The applicant's solicitors, after this course of events, write to the first respondent's solicitors advising them that in view of the first respondent's failure to complete the agreement on 6 November 2003 this constitutes a repudiation of the agreement which was accepted by the applicant and the deed is thereby terminated. 40 The effect of this correspondence generated after 1 June 2003 is, according to the respondents, to overcome any alleged unfairness that may arise in relation to the first respondent's conduct in acting to invoke clause 11 of the deed. It was no longer the case after 1 June 2003 that the first respondent sought to rely on clause 11. Instead the applicant sought to terminate the deed by relying on clause 10 and offering to sell his shareholding. The respondents accepted the applicant's offer by letter dated 11 July 2003. The Notice to Complete which advised that completion of the share transfer would take place on 6 November 2003 at the offices of the first respondent did not proceed only because the applicant's solicitors arrived there without having made any prior arrangements as to a mutually suitable time. 41 In my opinion while the correspondence discloses an initial adherence by the respondents to the view that the applicant had breached clause 11, the respondents later appear to acquiesce in the applicant's approach to clause 10 and set in train payment for the share transfer in the sum of $25,000. Ultimately, however the transfer did not proceed. The shareholding did not pass at law. It should also be added here, that sometime before the due date for completion of the transfer (6 November 2003) the applicant had already filed his summons for relief under s 106. 42 The present conduct sought to be impugned under s 106 as referable to the deed is the conduct of the first respondent in relation to his invoking of clause 11. This conduct, by 1 June 2003, in my opinion operated to terminate the relationship between the applicant and the respondents under the deed. It is that conduct which the applicant focuses on as impacting on the deed and rendering it, or part of it, unfair. 43 The applicant's case so characterised brings the claim within s 106. In Tranter v Shaan Holdings Pty Ltd t/as Shaan Eyeworks and Another [2006] NSWIRComm 245 I made brief reference to the necessary relationship between alleged conduct of a respondent party and the impugned contract or arrangement in order to bring an applicant's claim of unfairness within s 106 (at [26]):

It should be stated at the outset, that allegations of unfairness, where they rely on the conduct of a respondent party, must be in some way referable to the terms or operation of the impugned contract or arrangement in order to fall within s 106. But this is not a novel proposition. In Truelove v Sydney Water Corporation Ltd (2005) 146 IR 253 the Full Bench of the Industrial Relations Commission in Court Session (now Industrial Court) in commenting on the findings of the Court of Appeal in Sydney Water Corporation confirmed the relationship between conduct and the terms of a contract of employment within the scheme of s 106 of the Act. At [21]-[22] of the decision the Full Bench said:

[21] The reaction to Reich appears to be a reaction to the conclusion in that case that conduct in breach of a contract may render a contract unfair. There is a perception that the true remedy (or the only remedy) in such a case should be for breach of contract at common law. However, the conclusion in Reich is inescapable given the broad terms of the section and was explicitly acknowledged to be so by Mason P at [28] in Sydney Water Corporation Ltd v Industrial Relations Commission (NSW) (2004) 61 NSWLR 661; 141 IR 14. As Kirby P (as he then was) observed in Walker v Industrial Court (NSW) (1994) 53 IR 121 at 134-135, it is not unusual in our legal system for one set of circumstances to give rise to a number of remedies, but the existence of alternatives has never excluded a person from pursuing rights expressly conferred by statute. The existence of other remedies in this context (such as statutory claims for redundancy payments or common law claims for breach of contract) does not control or limit the ample language of the section (in Walker , Kirby P considered a predecessor to s 106, s 88F(1) of the Industrial Arbitration Act 1940 (NSW) (Repealed)). Notably, not one of those who seeks to impugn Reich has attempted to reconcile their argument with the clear words in ss 105 and 106. In our view, it cannot be done.

[22] It may also be a reaction to the idea that any conduct in breach of a contract will necessarily, without more, render the contract (or arrangement, related condition or collateral arrangement) unfair. This appears to be at the heart of Mason P's critique in Sydney Water Corporation Ltd . But this is not the case: as the decision in Origin Energy Ltd v Smith (2001) 111 IR 476 (which we discuss later) makes clear, nothing in the decision of the majority in Reich substantiates such a principle.

[30] We note that the Court of Appeal, in determining what Reich stood for, did not have before it the decision of a Full Bench of the Commission in Court Session in Origin Energy Ltd v Smith (2001) 111 IR 476 where the Full Bench observed at [19]-[20]:

[19] We would add one final observation. It was undoubtedly open to her Honour to deal with the matter in the way she did; that is as a "conduct" case. It may be that she had little alternative to doing so in view of the way in which the respondent framed his case. Nevertheless applicants, in framing their proceedings, and judges in hearing and deciding them, should not overlook the consideration that s 106 is directed to the fairness, etc of contracts and arrangements and with the fairness, etc of their terms, either in themselves as to what they actually provide or fail to provide. There is nothing in the Full Bench judgment in Reich that should lead to any different approach. It would have been preferable for the case before her Honour to have been framed and dealt with in that way.

[20] Although conduct of a party which renders a contract or arrangement unfair or otherwise actionable under s 106 of the Industrial Relations Act may well provide jurisdiction for relief under that provision, the primary focus of the exercise of the Court's jurisdiction should be, where relevant and available, the contract or arrangement and its respective terms or omitted terms as to the effect thereon of the impugned conduct. This approach will usually lead to orders (where orders are made) more certainly well-founded jurisdictionally and will be less likely to result in appeals which, whilst superficially thought to be available, upon examination on appeal are soon shown to lack substance. 44 The applicant's case that the contract was unfair by reason of the first respondent's conduct in invoking clause 11 of the deed must be examined by reference to how the applicant has pleaded his case in the summons. Those pleadings rely, relevantly, on the manner in which the deed permitted the first respondent to conduct himself in his dealings with the applicant and rendered the deed, or part of it, unfair, harsh and/or unreasonable. The alleged conduct is set out in the summons as follows:

(a) The First Respondent has managed the ProFitness business and controlled the affairs of the Second Respondent without any consultation with and to the exclusion of the Applicant.

(b) The First Respondent has conducted the affairs of the Second Respondent without any regard to the legal or economic interests of the Applicant in the Second Respondent and ProFitness business.

(c) The Shareholders' Deed fails to include reasonable safeguards for the interests of the Applicant and operates in an unconscionable and unfair manner that favours the First Respondent.

(d) Relying in part on the terms of the Shareholders' Deed, the First Respondent has acted in relation to the affairs of the Second Respondent without any or any proper regard to the interests of the Applicant and solely in his own interests by, inter alia, failing and refusing to comply with his obligations as set out in the Shareholders' Deed.

(e) The Shareholders' Deed fails to provide a mechanism for the repayment of the Applicant's loan account within a reasonable period of time with interest in the event of the First Respondent's breach of the Shareholders' Deed and the termination of the Shareholders' Deed. 45 The applicant as I apprehend his case essentially relies on three indicia of unfair conduct as referable to the deed, in particular clause 11. These may be briefly summarised in the following way:

(i) the first respondent's conduct was unnecessary, premature and unreasonable considering, particularly, that there was no substantial delay in the delivery of the stock in full payment of the purchase price of the business;

(ii) the evidence suggests a motive on the part of the first respondent in making a pre-emptive strike in issuing the notice on 8 May 2003 and sending the letter of 1 June 2003 invoking clause 11, namely, full and exclusive control of the business by directly dealing with Brasil Sul, one of the applicant's wholesale clothing suppliers;

(iii) those parts of clauses 10 and 11 which provide for a delay of 12 months following the transfer of one party's shareholding to the other before the balance of the loan account is paid out operated unfairly, in the circumstances, against the applicant. Whether first respondent's conduct unnecessary, premature and unreasonable

46 It will be recalled that the short sequence of events culminating in the first respondent's invoking of clause 11 consisted of the following steps:

(i) the notice dated 8 May 2003 delivered on 9 May 2003; (ii) the applicant's response on 10 May 2003 to the notice in which he advised that he would provide the remaining "17,035.75" (in full payment of his share of the purchase price), "just a few days later than May 19th"; (iii) the first respondent's email of 22 May 2003 in which the first respondent informed the applicant that business is starting to work and that he was looking forward to the applicant's return from Brazil so that they could, "work more positively together" (iv) the conversation of 29 May 2003 which on the first respondent's version, made no reference to the anticipated time of delivery of outstanding stock; (v) the letter of 1 June 2003; (vi) the delivery of the balance of the stock representing full and final payment of the applicant's half share of the purchase price of the business on 2 June 2003 to the first respondent, at a ProFitness store. 47 When issuing the notice by way of letter dated 8 May 2003 the first respondent relied on a breach of clause 7 of the Deed. This was the clause that provided for the mechanism of funding for the business by both the applicant and the third respondent. The applicant's obligations in this regard are set out under the sub-heading "Stock". The applicant under the clause was required to initially provide an amount of stock at a value of $15,000. Thereafter he was required to pay monthly instalments of "approximately $10,000" representing the value of the stock to be delivered. He was further required to provide full payment for his share of the business in the amount of $60,000 (by way of stock), by the completion date which was 19 May 2003. 48 The terms of the clause dictating the applicant's funding requirements are in my opinion ambiguous, at least as to precisely when the applicant's obligations to comply with the funding arrangements arose. Clause 7 begins by outlining the applicant's obligations in relation to the value of stock to be supplied:

(a) Leo will provide at the Completion Date at least $15,000.00 at landed cost as the initial stock for the Business;

(b) Leo will provide stock subsequently for the Business at landed cost at the rate of approximately $10,000 per month.

The total value of (a) and (b) will be not less than $60,000.00 and must be provided in full by no later than five (5) months after the Completion Date. This amount will be credited to Leo's loan account with the Company. 49 It is not entirely clear on the face of this section of the clause whether the applicant's obligation to supply stock at the value nominated arises monthly or arises five months after the completion date, namely 19 May 2003. The reference to "approximately $10,000 per month" is not helpful. If the obligation arises monthly then the applicant was required to provide "approximately" $10,000 worth of stock each month. Failure to comply in any one month would on this construction of the provision give rise to a breach. If on the other hand the obligation to provide the stock did not arise until the completion date the applicant could not be in breach of the provision until after 19 May 2003. If this latter construction is correct, the notice of 8 May 2003 sent by the first respondent was premature, since at that stage there was no breach. 50 Certainly it appears that the first respondent when he sent the notice relied on the former construction of the clause. At that stage the applicant had paid the initial amount required of $15,000 and, according to the notice, the monthly payments which should have totalled $40,000 were short as at 8 May 2003 by $12,045.90. Over a four month period this represents about $7,000 per month. It is debatable whether this amount could satisfy the requirement of "approximately" $10,000 per month. Nevertheless it serves to illustrate a lack of clarity in the drafting of the clause. 51 In addition to the potential ambiguity illustrated above the applicant responded to the notice by assuring the first respondent that he would, "honour my obligation of supplying a total of $60,000 to the shops until May 2003". The applicant advises that the outstanding amount will be delivered in stock, "during the month of May, just a few days later then (sic) May 19th". The first respondent's email sent on 22 May 2003, although it makes no reference to the applicant's assurances that he would pay the outstanding amount, also makes no reference to the applicant's obligations under clause 7, nor are there any enquiries made as to whether, or when, the outstanding amount will be paid. At the end of the email there is one oblique reference to stock when the first respondent asks, "Also when do you return and when is the next shipment of Salsa due for delivery?". Otherwise the content of the email is plainly conciliatory and indicative of the first respondent's desire to continue the partnership with the applicant and an optimism about the prospects of that partnership. The first respondent for example writes:

Leo I am looking forward to your return as we need to work more positively together to help this business achieve its potential. 52 Following this, and after the applicant arrived back in Australia, there is a meeting between the two parties on 29 May 2003. There is a dispute as to the content of that conversation. Significantly, however, on the first respondent's version of the conversation he does not make any reference to the notice of 8 May 2003 or his intentions in relation to pursuing the applicant for a breach of clause 7 by invoking clause 11 of the deed. Rather, the tenor of the conversation on the first respondent's version is directed to the importance of resolving any tensions between them in relation to the business relationship. 53 These events following the issue of the notice dated 8 May 2003 may well have alleviated any concerns that the applicant may have had in regards to any action that the first respondent was contemplating in the event that the applicant had breached clause 7 of the deed. Nevertheless the first respondent writes to the applicant on 1 June 2003 advising him that he is invoking clause 11 on the basis that he has failed to rectify the breach of the deed identified in the 8 May 2003 notice within the required time, that is, by 23 May 2003. Moreover the evidence discloses that the first respondent served the letter dated 1 June on the applicant the following day when he encountered the applicant making a delivery of the stock in full and final payment of his share of the purchases price at one of the ProFitness stores. 54 This sequence of events, which includes the ambiguities in clause 7 as to the timing of a breach of the clause, the applicant's offer to pay the final amount only a few days after the final amount was due, the first respondent's apparent acquiescence in the proposal, as well as the fact that final payment was made by the delivery of stock at the same time as the first respondent served the letter of 1 June 2003, rendered, in my view, clause 11 of the deed unfair by the reason of its invoking on 1 June 2003 by the first respondent. First respondent's motive 55 The applicant also relies upon what he maintains was the motive of the first respondent for invoking the clause, namely, to gain exclusive control of the business. The evidence upon which the applicant relies to make good this contention consists largely of the affidavit of Marielly Guiliani filed on 13 July 2004. Ms Guiliani applied for a position to one of the ProFitness stores sometime in May 2003. She informed a shop manager that she was acquainted with the owners and manufacturers of the Brasil Sul clothing label in Brazil. About 2 days later she had a conversation with the first respondent which she recalled in her affidavit as follows:

Stuart: So, tell me about your connection to Brasil Sul.

Me: I know the owner and I know the girl who sells it.

Stuart: Please call Brasil Sul, and see what the story is between them and Leo. I'm thinking of finishing the partnership. 56 About two days later Ms Guiliani recalls another conversation with the first respondent in relation to Brasil Sul:

Stuart: Can you call Brasil Sul, and find out what deal they have with Leo, and if it is possible for me to buy directly from them? As (sic) them about me being their direct representative in Australia.

Ms Guiliani says she contacted the owners of Brasil Sul who informed her that its current contract for the supply if goods was with the applicant. It was therefore not possible to deal directly with the first respondent until at least February 2004. 57 The first respondent also corresponded directly with Brasil Sul on two occasions, first on 11 July 2003 and again on 15 October 2003. The reason for this was, insofar as may be ascertained from the relevant correspondence, to enable ProFitness to deal directly with Brasil Sul. 58 The cumulative effect of this evidence does not enable me to conclude that the first respondent deliberately engineered a breach of the deed by the applicant in order to gain exclusive control of the business. Equally, the evidence may be representative of a genuine attempt by the first respondent to meet the realities of operating the business himself as an ongoing viable concern. Certainly the evidence indicates that the first respondent intended to operate the business himself. The advantage of dealing directly with Brasil Sul insofar as I understand the evidence was that the second respondent could buy the clothing at landed cost without the need to pay the additional 15 per cent which it had paid to the applicant under the terms of clause 7 of the deed. This action on its face does not suggest, or lend support to, the contention of the applicant that the first respondent deliberately engineered a breach of the deed. I have already found that the sequence of events leading up to the first respondent's invoking of clause 11 rendered that clause unfair. The attempt by the first respondent to deal directly with Brasil Sul does not, in my view, impact one way or the other on that finding. Whether the 12 month delay for paying out the loan was unfair

59 The applicant also relies on those provisions contained in clauses 10 and 11 of the deed which provide for a delay of 12 months for paying out the loan account held by the second respondent following the transfer of the shareholding of one party to the other, as manifesting unfairness. According to the applicant, the delay of 12 months deprived him of the opportunity to sell his stock for that period while the respondents gained the benefit of acquiring the business, "in full". A suggested solution to remedy this unfairness, according to the applicant, would be a variation to the deed so that the party being bought out, is bought out quickly and there is therefore no diminution of that party's interests. 60 The respondents contend that there is nothing unfair about those parts of clauses 10 and 11 which provide for a delay of 12 months to pay out the loan account following a share transfer. First, such clauses are not uncommon in joint venture operations. The rationale for such provisions is that under clause 10, for example, a mechanism is provided for a party to abandon the relationship in the early stages before any value accrues to the business. Secondly, because joint venture operations are often set up entirely on loans and have no assets at the beginning of the venture, delaying monetary payment of the loan account for 12 months helps to avoid the possibility of the operation failing in the early stages because the loan or loans have to be repaid immediately. 61 I should state at the outset in relation to the respondents' contention that the clauses of the type presently under discussion are common, that no evidence was led to establish the prevalence of such clauses or their apparent rationale. But accepting for the moment the respondents' contentions, it would appear that the rationale, as stated, is meant to protect the party buying out the other party (here the first respondent) from the contingency of a business failure in the early stages. If so, the likelihood of this contingency must be assessed by reference to the prevailing circumstances. Here, the first respondent, as the party buying out the other party, instigated the transaction, no doubt in full awareness of the risks, real or apparent, to the viability of the business, which at that stage had been operating for a relatively short time, namely about 6 months. Secondly, there were some healthy indicators even at that early stage that the business was a viable proposition. The first respondent's email of 22 May 2003 informs the applicant that the business, "...is starting to work" and that May was a, "good month", according to the trading figures. 62 In the present circumstances therefore the 12 month delay before paying out the loan account does not appear to have been necessary for the protection of the first respondent who in any event instigated the dissolution of the joint venture, by invoking clause 11 of the deed. Nor does it appear to have been necessary at that time to preserve the viability of the business. On the other hand, the 12 month delay, did, in my opinion, operate unfairly against the interests of the applicant who was deprived of the benefit of the stock during that period, or comparable value thereof. 63 For the foregoing reasons therefore I find that the deed operated unfairly against the applicant by reason of the first respondent's conduct in invoking clause 11 of the deed. This conduct in my view was unnecessary and unreasonable in the circumstances prevailing during the first six months of 2003, in relation to the operation of the ProFitness business. Those provisions which provided for a 12 month delay before the loan account could be paid out, also, in the circumstances as outlined above, operated unfairly against the applicant. Orders sought

64 The summons for relief sets out the monetary relief sought by the applicant:

$60,000 plus interest Outstanding remuneration due and payable under the shareholders' deed 50 per cent of the value of the ProFitness business. 65 The first head of monetary relief claimed relates to the amount payable to the applicant in his loan account with the second respondent. This amount represents the accumulated value of the stock supplied by the applicant to the ProFitness business under clause 7 of the deed. It will be recalled that the final payment of $17,167.84 was delivered in stock to a ProFitness store by the applicant on 2 June 2003. At that time therefore the applicant had contributed $60,000, representing one half share in the purchase price of the business. This money was deposited into the applicant's loan account with the second respondent. 66 So that orders may be made granting the applicant monetary relief equivalent to this sum of money there must be a sufficient connection between the relief sought and the work performed by the applicant under the deed. In Solution 6 Holdings Ltd and Others v Industrial Relations Commission of New South Wales and Others (2004) 60 NSWLR 558 at [95] Spigelman CJ said:

In my opinion, the power of the Commission to declare void or to vary a contract or arrangement does not extend to a provision which has no relationship whatsoever to the performance of work. Specifically, the formula for computation of the purchase price, in my opinion, has no such relationship and the Commission has no power to vary it. 67 The point was revisited and affirmed in McDonalds Australia Holdings Ltd v Industrial Relations Commission of New South Wales (2005) 144 IR 219 at [78] where Spigelman CJ (with whom Mason P and Handley JA agreed), found that the impugned arrangement under s 106 was not within jurisdiction because there was an insufficient connection between the relief sought and the performance of the work. According to Spigelman CJ there must be a close connection between the relief sought and the performance of work (at [78]):

Plainly it cannot be said in the light of the authorities to which I have referred above, which hold that the requisite jurisdictional element is made out in the case of franchise agreements, that it is essential there be in existence something analogous to a payment by one party to a contract or arrangement in exchange for the performance of work for or on behalf of that party by the other party to the contact or arrangement. Nevertheless, on the authority of Solution 6 , there must be at least some, indeed a close, connection between relief sought and the performance of work. (See also [83]). 68 Although the $60,000 represented 50 per cent of the purchase price of the business paid by the applicant it was nevertheless in my opinion sufficiently or closely connected to the performance of his work under the deed. The applicant's duties under the deed, and in relation to the ProFitness business, involved sourcing and supplying stock for sale in the business. This stock which included the stock supplied to the value of $60,000 deposited into the loan account was supplied by the applicant to the ProFitness stores for sale. 69 I do not find the same necessary connection, however, between the applicant's work, sourcing and supplying stock to the ProFitness stores and his shareholding in the second respondent. The applicant's shareholding was representative of his business relationship with the respondents when they entered into a partnership in the commercial sense (as opposed to the legal sense). It bears little or no direct relationship to the applicant's work as I have characterised it. In any event it seems that the applicant has nominated the value of $25,000 as the value of his shareholding. This figure apparently is derived during the negotiations between the parties following the 1 June 2003 letter when some preliminary agreement was reached to transfer the applicant's shareholding in that amount. It will be recalled that the transfer did not proceed at law following failed negotiations. There is, however, no other evidence that might reliably be used to ascertain a reasonable estimate of the value of the shareholding. The respondents contend that until the loan funds are paid out the second respondent has no real value and the amount of its goodwill is negligible. No money has been directed to the second respondent, besides loan funds, and only two shares were issued with a value of $1.00 each. 70 In my view, even if the applicant's shareholding could be said to relate directly or closely to his work, which I have not found, the evidence is insufficiently conclusive to enable me to identify a reasonable value for the shareholding. The figure of $25,000 was used by the parties during negotiations in relation to a share transfer in accordance with clause 10 of the deed. In the absence of any evidence as to the derivation of this amount, I am unable to conclude that the amount has been reliably assessed or is representative of an estimate of the true value of the business. 71 Finally, any relief granted should in my view be payable jointly and severally by the first, second and third respondents, who were all parties to the deed together with the applicant. In addition, the first respondent invoked clause 11 of the deed which, as I have found, operated unfairly in the circumstances against the applicant. The second respondent as the applicant's employer benefited from the services provided by the applicant which included the supply of stock in the amount of $60,000 which was deposited into the applicant's loan account with the second respondent. The third respondent also benefited either directly or indirectly from the receipt of monies from the applicant. According to the Profit & Loss Statements of the second respondent for the financial years ending 30 June 2003 and 30 June 2004, the third respondent was paid management fees in the sums of $18,000 and $31,2000 respectively. 72 Interest should also be payable on the amount of $60,000 from the date of the summons that is from 16 September 2003 until the date of this judgment. 73 The variation to the deed sought by the applicant nominates the first respondent (as the "defaulting party") as liable to pay the amount outstanding in the loan account. The respondents contend that if this variation were granted then the nature of the commercial arrangement is fundamentally changed and the first respondent is effectively obliged personally to pay the outstanding amount. The loan account, they say, was never in the first respondent's name but in the second respondent's name. The respondents did not proffer any suggestions that might resolve the issue if it became necessary. The applicant did not address it. 74 An order making the three respondents jointly and severally liable should overcome the problem. In addition, since the loan account has always been with the second respondent in the applicant's name, in my view, the variation sought should nominate the second respondent as the "defaulting party". 75 I should add for completeness that I did not understand the applicant to pursue any claim for outstanding salary under sub-clauses 9.4 and 9.5 if I were to find, as I have done, that the deed was terminated on 1 June 2003. In any event there was no evidence placed before the Court which would have enabled me to conclude one way or the other that the applicant was entitled to outstanding salary payments, consequent upon any finding of unfairness, referable to any part of the deed. Orders

76 I make the following orders consequent upon the findings of unfairness which I have made.

(1) The shareholders' deed dated 24 January 2003 is varied from its inception to include the following terms:

(a) Upon either the applicant or the first respondent taking over financial control of the second respondent to the exclusion of the other party, the other party may terminate the shareholders' deed forthwith ("the termination");

(b) Within 14 days after the termination the second respondent shall pay out the amount outstanding to the other party in the other party's loan account;

(2) The first, second and third respondents shall jointly and severally pay to the applicant the sum equivalent to the amount outstanding in the applicant's loan account with the second respondent as at 14 June 2003.

(3) The first, second and third respondents shall jointly and severally pay to the applicant interest on the amount specified in Order 2 above in accordance with Schedule 5 of the Uniform Civil Procedure Rules 2005. The interest shall be payable from the date of the filing of the summons for relief on 16 September 2003 until the date of this judgment.

(4) The first, second and third respondents shall pay the applicant's reasonable costs of the proceedings as agreed or assessed.

(5) In the absence of any agreement as to the amount ordered in Order 2 above, the parties have liberty to approach. That liberty should be exercised within 14 days. _____________________

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