Fallins v Credit Suisse Asset Management

APPLICANT Ms K Nomchong of counsel Solicitor: Mr G Phillips Carroll & O'Dea LEGAL REPRESENTATIVES: RESPONDENT Solicitor: Mr G Fredericks Freehills

JUDGMENT: - 1 - INDUSTRIAL RELATIONS COMMISSION OF NEW SOUTH WALES IN COURT SESSION Coram: Staff J

DOMINIC WILLIAM FALLINS v CREDIT SUISSE ASSET MANAGEMENT (AUSTRALIA) LTD

Application under s 106 Industrial Relations Act 1996 JUDGMENT [2004] NSWIRComm 112

1 In these proceedings, Dominic William Fallins ("the applicant") claims a number of orders seeking a declaration that a contract made between the applicant as employee and the respondent as employer be declared void, in whole or in part, or varied. An order is also sought that the contract of employment was unfair for the purposes of s 106 of the Industrial Relations Act 1996 ("the Act").

2 By notice of motion filed on 18 November 2003, the respondent moved the Court for an order that the summons for relief be set aside for want of jurisdiction. The grounds advanced in support of this application were as follows:

1. Pursuant to section 109A of the Act, the Commission does not have jurisdiction to grant relief in respect of a contract or arrangement where an application has been or could have been made under Part 6 of the Act (unfair dismissals) or where such an application could have been made but for the provisions of section 83 of the Act.

2. An application could have been made by Dominic William Fallins under Part 6 of the Act but for the provisions of section 83 of the Act. The substance of the matters of fact and law set out in the Summons for Relief are matters that pertain to an unfair dismissal claim and do not identify any basis upon which the contract of employment can properly be said to be unfair within the meaning of section 105 of the Act.

3 Leave was sought by the respondent for dispensation from compliance with r 82(2)(c) of the Industrial Relations Commission Rules ("the Rules"). The rule requires the filing of a notice of motion within the time limited for entering an appearance. This was not opposed by the applicant. Accordingly, I granted dispensation from compliance with r 82(2)(c).

4 On 30 March 2004, the applicant filed a notice of motion seeking an order that leave be granted to permit the filing of an amended summons for relief. The respondent neither consented to, nor opposed the order sought. The respondent reserved its position in respect of the question of costs.

5 Ms K Nomchong of counsel who appeared for the applicant submitted, relying on s 170(2)(a) of the Act and r 148(1) of the Rules that the Court's power to grant leave to amend may be exercised at any stage of the proceedings.

6 Ms Nomchong also referred the Court to a decision of the High Court in State of Queensland v JL Holdings Pty Ltd (1997) 189 CLR 146 where Dawson, Gaudron, McHugh JJ considered an application to amend a defence and said at 155: Justice is the paramount consideration in determining an application such as the one in question.

7 This principle is reflected in the provisions of s 170(1) of the Act and r 148(1) of the Rules.

8 The application to amend occurs relatively early in the proceedings and in my view is consistent with the interests of justice. In these circumstances, I granted leave to the applicant to amend its summons. Consequently, an amended summons was filed in Court.

9 Mr Fallins commenced employment with the respondent on or about 29 October 1990 and was summarily terminated on 7 June 2002 for allegedly distributing confidential information to his wife. At the time of termination the applicant held the position of Managing Director of Marketing and Client Services.

10 Mr G Fredericks solicitor who appeared for the respondent submitted that firstly, the proceedings were at an appropriate stage for the Court to determine an objection to jurisdiction and that the applicable principles to be applied are set out in the decision of Boland J in Anthony Balsdon v Murray Irrigation [2003] NSWIRComm 251 at 5 to 7 (sic). Mr Fredericks submitted that the summons for relief contained the necessary material for the Court to reach a clear and final decision on whether Div 2 of Pt 9 of ch 2 of the Act applies to the contract of employment having regard to the operation of s 109A of the Act.

11 In addition to the material required to be filed pursuant to r 18A of the Rules, the applicant has filed an affidavit which, it was submitted, should be accepted as leading the evidence which the applicant relies upon to prove the allegations set out in the summons for relief.

12 Mr Fredericks therefore contended, relying on the following authorities, that the Court had sufficient material before it to reach a conclusion on the narrow jurisdictional issue: Nagle (T/as W D and J L Nagle & Sons) v Tilburg (1993) 51 IR 8 at 10 to 12; Beahan v Bush Boake Allen Australia Ltd (1999) 47 NSWLR 648 at 653 to 654 and Majik Markets Pty Ltd v Brake and Service Centre Drummoyne Pty Ltd (1991) 28 NSWLR 443 at 446; 39 IR 169 at 170.

13 Secondly, Mr Fredericks contended that the claim relied upon by the applicant represented nothing more than a claim for unfair dismissal and that s 109A of the Act excluded such claims from the unfair contracts jurisdiction: Beahan at 692 and Balsdon at [32]. Mr Fredericks further submitted that once it was established that the substance of the unfair contract claim was an unfair dismissal claim, then the contract of employment is an exclusive contract and consequently any 'non unfair dismissal' aspects of the unfair contract claim also fall away.

14 Mr Fredericks submitted that the Court should determine the jurisdictional point as a threshold matter to avoid the parties incurring unnecessary costs and the inconvenience of a protracted hearing: Majik Markets.

15 Ms Nomchong's principal contention was that for the respondent's motion to succeed the Court is required to take the applicant's case at its highest and to be satisfied, on the balance of probabilities, that no order could validly be made by the court: Majik Markets.

16 Accordingly, Ms Nomchong submitted that the Court was required to distil the essential elements of the applicant's claim that the contract of employment was unfair and then to determine whether the essence of the claim is "an unfair dismissal claim in disguise" or whether it is a claim which genuinely challenges the terms or operation of the contract of employment: Beahan at 692.

17 In the alternative, it was submitted that the respondent's motion as to jurisdiction is pre-emptory and that the Court is not in a position at this stage of the proceedings to properly consider the argument. Ms Nomchong referred to the decision of Boland J in Balsdon submitting that his Honour made clear that the determination in Balsdon should not be seen as lessening the stringency with which the approach in Nagle v Tilburg should be applied.

18 Ms Nomchong submitted that there are a large number of factual issues upon which there is yet no evidence before the Court and/or the evidence to those matters is contested.

19 Ms Nomchong gave as an example of such evidence, the proper characterisation of the information sent by the applicant to his wife.

20 Ms Nomchong contended that decisions such as Antonakopoulos v State Bank of New South Wales (1999) 91 IR 385 and Bell and Berg v Macquarie Bank Ltd & Anor [2002] NSWIRComm 235 were distinguishable because there is not an allegation of a failure to follow procedure in this matter, but rather an allegation that the procedure itself was unfair because of its content or what it failed to contain.

21 The issue in these proceedings is whether Mr Fallins' claims for relief under s 106 of the Act are unfair dismissal claims in disguise and precluded by the operation of s 109A and therefore beyond the Court's jurisdiction.

22 In Beahan v Bush Boake, prior to undertaking an extensive consideration of the provisions of s 109A, the Full Bench (Wright J President, Walton J Vice-President and Hungerford J) said at 652: At the outset, we should make plain our reservations as to the matter proceeding as a threshold argument on jurisdiction before the applicant had opened his case or presented any evidence in the substantive proceedings. Nevertheless, both parties joined in urging us to do so on the basis of accepting for the purpose of determining the jurisdictional issue the case put for the applicant at its highest as set out in the further amended summons and supporting affidavits; a statement of agreed facts directed to certain formal matters was made available. Having in mind the nature of the preliminary issue, its importance to the operation of the relevant provisions of the Industrial Relations Act and, in particular, the view of the parties here concerned, we proceeded as requested. However, it is appropriate to record our concerns on this aspect by reference to what was said by a Full Court (Fisher CJ, Hungerford J and Peterson J) of the former Industrial Court in Nagle (T/as W D & J L Nagle & Sons) v Tilburg (1993) 51 IR 8 at 10 - 12 as follows: "As a general proposition, we think that all issues arising should be dealt with in the substantive proceedings unless the basis for a challenge, either on jurisdictional grounds, as here, or for lack of a reasonable cause of action, be clearly demonstrated. As was said by Mason and Jacobs JJ (with whom Barwick CJ and Stephen J agreed) in Stevenson v Barham (1970) 136 CLR 190 at 202-203. 'We have been told that the Commission follows the practice of permitting questions of jurisdiction to be argued without requiring a party to elect not to call evidence. There is much to commend this approach. As a general rule it is desirable that an objection to jurisdiction be determined as early as circumstances will conveniently admit so that the tribunal does not embark on a hearing which it lacks authority to conduct. … The discretion of a court to determine a case at an early stage, when appropriate, has been repeatedly asserted: see Young v Rank [1950] 2 KB 510; Ramsden v Ramsden [1954] 2 All ER 623 at 624; Union Bank of Australia Ltd v Puddy [1949] VLR 242; Sampson v Edwards [1949] VLR 6.'

23 The judgment in Nagle v Tilburg was recently referred to with approval by Wright J President and Walton J Vice-President (Schmidt J not dissenting) in Euphoric Pty Ltd v Ryledar Pty Ltd & Anor (2002) 117 IR 1 where their Honours said at [9]: This approach has been followed and adopted in numerous cases in both the Court Session and the Commission. The analysis of that judgment which was essayed in Virtue v NSW Department of Education and Training (1999) 92 IR 428 at 447 - 448 has been cited and followed in a number of subsequent judgments; see, for example, Heath Group Australasia Pty Ltd v Pengly (2001) 110 IR 376; Hall v Strathfield Group Ltd [2001] NSWIRComm 266 (subject to appeal); Alsford v Castech Pty Ltd [2001] NSWIRComm 259.

24 Furthermore, their Honours said at [14], Schmidt J not dissenting on this aspect: The jurisprudence of this Court represented by the judgment of the then Full Industrial Court in Nagle v Tilburg , and the cases which have followed it, has been important in controlling a practice which had developed in the jurisdiction of some respondents too readily raising jurisdictional arguments at an early stage, at times with at least the appearance of a forensic tactic or an attempt to place logistical difficulties in the way of a less well-resourced applicant. The decision in this matter should not be seen as, or become, a basis for the rigour which has hitherto been exercised in the jurisdiction to be lessened. These observations are made only to emphasise the decision in this matter has depended on the very particular and relatively rare set of circumstances raised by these proceedings. It should not be interpreted or considered by those who practice in the jurisdiction as signifying any lessening of the stringency with which the approach in Nagle v Tilburg will be adhered to.

25 In Hogan v Employment National (Administration) Pty Ltd [2000] NSWIRComm 47 Walton J Vice-President referred to the principles in Nagle v Tilburg and said at [10]: As was said by Kirby P (as he then was) in Majik Markets Pty Ltd v Brake and Service Centre Drummoyne Pty Ltd (1991) 28 NSWLR 443 at 446, the approach of determining jurisdiction at a preliminary stage is a sensible course only "where a party has a substantial threshold argument which, if it succeeds will knock out the claim"; see also Virtue v New South Wales Department of Education and Training (1999) 92 IR 428 at 447 - 448.

26 The judgments referred to by his Honour have recently been referred to with approval by the Full Bench in Western Sydney Area Health Service v Gibson (2001) 109 IR 359 and Victor Lahoud v Joseph Lahoud [2003] NSWIRComm 179 at [38].

27 It is with the principles and observations made in the cases that I have referred to in mind that I approach the consideration of this matter.

28 Section 109A of the Act provides: 109A Exclusion of certain contracts in connection with unfair dismissals (1) This Division does not apply to a contract of employment that is alleged to be an unfair contract for any reason for which: (a) an application has been or could have been made by the employee under Part 6 (Unfair dismissals), or (b) such an application could have been made but for the provisions of Section 83 that exclude the employee from making an application under that Part. (2) In this section: "contract of employment" means any contract or arrangement under which work is done by a person in the capacity of an employee, and includes a related condition or collateral arrangement with respect to such a contract.

"dismissal" has the same meaning that it has in Part 6.

29 The summons states that the contract of employment was unfair because:

(a) it failed to provide fair and reasonable payment in lieu of notice;

(b) it failed to contain a disciplinary policy which included terms set out in paragraph 3(f) which dealt with the substantive relief sought;

(c) it failed to provide fair, reasonable and transparent terms or conditions in relation to the process that would be adopted in the event that charges or allegations of misconduct were made against the applicant in respect of the distribution of allegedly confidential information. (d) the applicant was always in a position of unequal and inferior bargaining power;

(e) it failed to contain provisions for the payment of adequate, fair and appropriate compensation on termination;

(f) it failed to provide for pro rata awarding of bonuses and had the material effect of depriving the applicant of the benefit of shares, options and other securities, or their value, which had been awarded to him during his employment.

30 The substantive relief sought by Mr Fallins was:

(a) an order that the contract of employment or arrangement or collateral arrangement was unfair, harsh and unconscionable and contrary to the public interest; (b) a variation of the contract to the effect that the respondent will not terminate the contract for any reason other than serious or wilful misconduct without providing the applicant 18 months' notice of termination or payment in lieu of 12 months' notice of termination;

(c) payment of accrued annual leave and long service leave entitlements in any notice period, or that might have accrued in any notice period for the applicant being paid instead of notice.

(d) that the respondent will conduct themselves fairly and not breach the relationship of trust and confidence between the parties;

(d) for the purpose of calculations the average of the applicant's total salary package over the 12 month period prior to termination shall be used;

(e) just payment for the loss occasioned by the termination of any securities (including shares, options or other securities) awarded to the applicant during the course of his employment.

(f) a variation of the contract to the effect that in the event that charges of misconduct or inappropriate conduct were made against the applicant the respondent would take into account whether the applicant's conduct was intentionally designed to be misconduct or to disobey guidelines or protocols; whether the applicant's conduct had the consequences of occasioning damage or loss to the respondent's business; if the charges involved the distribution of allegedly confidential information and the information is in fact confidential; if the charges involved the distribution of allegedly confidential information, whether the information was distributed to anyone other than the applicant's wife.

(g) If the answers to the above are in the negative, the respondent shall implement no higher disciplinary action against the applicant then a reprimand. In addition, the applicant sought a declaration that the disciplinary policy of the respondent was unfair and compensation to remedy hurt, humiliation and distress.

31 The operation of s 109A arose for consideration in Beahan. The Court was specifically referred to what the Full Bench said at 692: In our opinion, it is central to the operation of s 109A that an excluded contract of employment is one where it is alleged that it is unfair for any reason for which an unfair dismissal claim could have been made. In other words, and as Mr. Hannaford observed during the second reading debate in the Legislative Council (at 4032), "if somebody wants to argue that the terms of his contract are unfair, unconscionable or harsh, he will still be able to achieve a variation of the contract by an application" under s 106; and, as Ms. Kirkby said in the same debate (at 4033), an applicant "will still be able to plead an unfair contract case but this will be on the terms of the contract and not on whether the termination of the contract was unfair".

32 Mr Fredericks contended that there is a crucial difference between the summons in Beahan and the applicant's summons. Mr Fredericks submitted that in Beahan, the applicant did not actually allege that his dismissal was unfair. He noted that the Full Bench said at 670: Importantly, there was no allegation contained in the summons that the termination of the applicant's employment by the respondent itself was in any way unfair.

33 This was to be contrasted with the applicant's summons which Mr Fredericks contended, on a proper reading, rests substantially, if not wholly, on the unfairness of the termination of his employment. Accordingly, it was contended the source of contractual unfairness arises from the procedural manner in which the applicant's employment was terminated. Mr Fredericks referred to various paragraphs of the summons and Mr Fallins' affidavit sworn 5 December 2003 to support these contentions.

34 Ms Nomchong submitted that the selective process adopted by the respondent failed to appreciate that each of the claims are directed to the fairness of terms contained in the contract or the unfairness associated with the absence of such contractual terms and whether or not such omissions are unfair. It was further submitted that it was not open to the respondent to pick out certain words that have been utilised in unfair dismissal cases and then assert that because the same or similar words appear in the pleadings in this matter that it necessarily means that the provisions of s 109A can be invoked.

35 I agree with this submission. The appropriate approach to be adopted in considering motions such as this is to take the applicant's case at its highest to determine whether the facts are sufficiently established to enable the Court to be satisfied that it has the necessary material to reach a clear and final decision.

36 The applicant in part claims that his contract has operated unfairly because of the employer's failure to observe fair procedures and seeks a variation of the contract. The question, therefore, is whether Mr Fallins' claim challenges the terms or operation of an employment contract by genuine reasons related to the contract itself.

37 I am mindful of what the Full Bench said in Bell and Berg v Macquarie Bank Limited & Anor [2003] NSWIRComm 363 at 10: The third contention went to her Honour's reliance on s 109A. We consider her Honour erred in finding that a failure to provide procedural fairness "is a complaint not available to be brought under s 106". ... Secondly, we do not consider that the introduction of s 109A had the effect of excluding from any consideration under s 106 whether or not there was procedural fairness. In this regard, we regard the decision by the majority in Abboud v State of New South Wales (Department of School Education) (1999) 92 IR 32 at 49 - 51 as good law.

38 The majority in Abboud, Wright J President and Walton J Vice-President (Schmidt J not dissenting on this aspect) said at 50: In relation to contracts of employment there are many examples of cases before this Court where the termination of employment arose in circumstances held to warrant a remedy under s 106: see Westfield Ltd v Helprin (1997) 82 IR 411 at 438 - 439 and Harcourt Brace and Co. (Aust) Pty Ltd v Cory (1997) 81 IR 321. That a particular contract, including a contract of employment, permits a situation to occur in which the contract is terminated unfairly may render the contract itself unfair: see, for example, Day v Lumley Life Ltd (1999) 90 IR 70 at 93 and Paviour-Smith and PFS - Premium Financial Group Pty Limited v The National Mutual Life Association of Australasia Limited (1999) 91 IR 8 at 56 at 68. The initial question must be whether the contract permitted the termination of the contract in a manner which was unfair.

39 Later, at 51 the majority said: … The jurisdiction of the Court is to determine whether "the contract is an unfair contract" and to exercise its discretion as to the appropriate remedy. An application under s 106 does not involve an appeal from the decision of the respondent. If the contract permits the respondent to terminate the contract in a manner which is unfair, that contract may be unfair notwithstanding the right of an applicant to bring a claim before this Court alleging the contract is unfair. The finding that this unfairness may have been ameliorated or cured by the fact of the hearing before the Court involves a misapprehension of the function of the Court in determining whether or not the contract was unfair. 40 Section 109A therefore does not have the effect of excluding from the unfair contract jurisdiction any consideration of whether there was procedural fairness in relation to the termination of employment. The initial question stated in Abboud must be whether the contract permitted termination of the contract in a manner which was unfair. If so, this may render the contract unfair.

41 As is stated in Beahan such a challenge to the terms or operation of the contract of employment must be genuine, and not superficial or coloured. If so, the claim is properly within s 106 and s 109A has no operation.

42 There was no allegation in the summons that the dismissal per se was unfair. Rather, that the contract during its operation, prior to its termination and at the time of termination, operated unfairly and that a contract that could so operate was unfair. This matter is distinguishable from the decision in Balsdon. The summons in those proceedings contained no allegation as to why the contract of employment was unfair. The summons in Balsdon, in my opinion, claimed relatively unusual and rare orders not normally found in s 106 applications. These included an order that Mr Balsdon be "restored to duty and treated as though he had never been dismissed". This was, as his Honour observed, an order akin to reinstatement; an order that he "be paid an amount representing lost wages by him on and from his dismissal". Boland J observed this was an order of the type available under s 89(3) of the Act. A further order sought by Mr Balsdon was that he "be paid an amount representing the amount he would have earned if he remained in employment for a further two years". His Honour found this was essentially an order seeking to compensate Mr Balsdon for loss of his employment and that s 106 was not concerned with compensating an employee for loss of his or her employment contract.

43 Furthermore, the variation that was sought by Mr Balsdon was that termination of employment will not be "harsh, unjust or unreasonable" which as his Honour noted are the words contained in s 84. This was a further indication, as his Honour observed, that the subject matter was termination of employment and not unfair contract.

44 Balsdon was also determined before the Full Bench decision in Bell and Berg.

45 It seems to me the complaint that the applicant makes is not that the respondent failed to follow fair procedure but that the procedure itself was unfair because of its contents or what it failed to contain. In order to determine this matter the Court will be required to examine the nature and extent of the disciplinary procedure, the characterisation of confidential information and whether or not it applies to the information contained in an email sent by the applicant to his wife. Secondly, the applicant contends that the conduct of the respondent in characterising certain information as confidential was unfair. Thirdly, the applicant directly challenges the contract as unfair for failing to contain a term which incorporates a disciplinary policy or a policy at all which addresses the use of confidential information.

46 In addition, the applicant seeks a variation of the contract in relation to notice, bonus payments, statutory leave entitlements and share options together with additional compensation for hurt, humiliation and distress as a result of the unfair contract.

47 In these circumstances, in my view the appropriate stage has not been reached which would enable the Court to determine whether the reasons are or are not "superficial or coloured and related to the contract itself." Such a determination cannot be made at this stage of the proceedings. It is only where the relevant facts have been determined that it is possible in turn to consider whether s 109A operates to exclude the contract of employment or arrangement or collateral arrangement from the operation of s 106 as contended by the respondent.

48 I am therefore not persuaded that it has been clearly demonstrated, at this stage of the proceedings, that this matter is an unfair dismissal in disguise.

49 For the above reasons, I do not think the summons should be set aside by virtue of the operation of s 109A of the Act.

50 Finally, as was observed in Virtue this does not close the issue of s 109A. The determination of whether part of the summons falls within the operation of s 109A will require a detailed examination of the substance of the claims and the circumstances of the case during the trial.

51 I am not persuaded, as a matter of law that the factual circumstances pleaded by the applicant clearly demonstrate that the application is excluded by s 109A. It is therefore appropriate to dismiss the notice of motion.

1. The notice of motion filed on 18 November 2003 is dismissed.

2. The matter will be returned to the s 106 directions list.

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