Great Scott International Pty Ltd v Cosmetic Suppliers Pty Ltd and Anor

SECOND RESPONDENT: Sebastian Australia Pty Ltd ABN 50 074 198 495

CORAM: Wright J President; Walton J Vice-President; Schmidt J

CATCHWORDS: Appeal - application for leave to appeal and appeal - application for joinder of a new applicant - operation of section 108B of the Industrial Relations Act 1996 - application of approach in Nagle v Tilburg - leave to appeal granted - public interest test satisfied - appeal upheld - joinder granted - leave to proceed on the amended summons granted - costs

LEGISLATION CITED: Industrial Relations Act 1996

BEA Systems Pty Limited v Lowe [2005] NSWCA 227 Bell v Macquarie Bank Limited (No4) (1999) 93 IR 191 Crowe v UCS Developments Pty Ltd (2003) 130 IR 266 Eslick v Exben Pty Ltd [2001] NSWIRComm 68 Great Scott International Pty Ltd v Cosmetic Suppliers Pty Ltd [2004] NSWIRComm 139 Larsen v Ondeo Nalco Australia Pty Ltd [2004] NSWIRComm 123 CASES CITED: Metrocall Inc v Electronic Tracking Systems Pty Ltd (No 2) (2000) 102 IR 309 Minister for Youth and Community Services v Health and Research Employees' Association (1987) 10 NSWLR 543 Nagle v Tilburg (1993) 51 IR 8 Stonham v Speaker of the Legislative Assembly of New South Wales (No 4) (2001) 110 IR 417 Unitedglobalcom Inc v The Industrial Relations Commission of New South Wales in Court session & Anor [2005] NSWCA 131 Wong v Chen & Anor t/as Artist Production (1999) 91 IR 369

APPELLANT: Mr I M Neil and Mr D W Chin of counsel SOLICITORS: Henry Davis York LEGAL REPRESENTATIVES:

RESPONDENTS: Mr J J E Fernon SC SOLICITORS: Baker & McKenzie

INDUSTRIAL RELATIONS COMMISSION OF NEW SOUTH WALES IN COURT SESSION

CORAM: Wright J, President Walton J, Vice-President Schmidt J Friday 4 November 2005

GREAT SCOTT INTERNATIONAL PTY LTD v COSMETIC SUPPLIERS PTY LTD AND ANOTHER

Application by Great Scott International Pty Ltd for leave to appeal and appeal an interlocutory judgment of Justice Marks given on 28.6.2004 in matter No. IRC4548 of 2002

1 This is an application by Great Scott International Pty Ltd for leave to appeal and if granted, an appeal, from a decision given by his Honour Justice Marks on 28 June 2005 (see Great Scott International Pty Ltd v Cosmetic Suppliers Pty Ltd [2004] NSWIRComm 139), dismissing the appellant's application to amend its summons for relief, by the joinder of another applicant. The proceedings had been commenced in August 2002 pursuant to s 106 of the Industrial Relations Act 1996 ('the Act'). 2 The questions raised by the appeal were said to be:

1. Whether the Industrial Relations Commission of NSW in Court Session (" NSWIRC ") must be positively satisfied that a person who is proposed to be joined as an applicant to a Summons for Relief is a "party to the contract" within the meaning of paragraph 108(a) of the Act before permitting the amendment of a Summons for Relief so as to join that person as an applicant?

2. If the answer to question 1 is "yes", whether Justice Marks was correct in applying Nagle v Tilburg (1993) 51 IR 8 to determine that it was not appropriate to determine whether Mr Scott Krauss was a "part to the contract" the subject of the proposed amended Summons for Relief filed on 26 May 2004?

3. Whether section 108B of the Act applies retrospectively so as to impose a 12 month time limit on the making of applications under Division 2 of Part 9 of the Act in circumstances whether the contract in relation to which the application is made was terminated prior to the introduction of section 108B on 24 June 2002?

4. If the answer to question 3 is "yes", whether the proposed amended Summons for Relief filed on 26 May 2004 constitutes a fresh application to which section 108B of the Act applies by reason of the fact that the proposed amended Summons for Relief seeks the joinder of Mr Scott Krauss as a second applicant? 3 It was the appellant's case that leave to appeal should be granted, because important questions as to the proper construction of s 108B of the Act arose for consideration; as did the level of proof required in relation to the question of whether a person was a party to the contract, before joinder of that person to the proceedings could be ordered. His Honour's judgment was also argued to be inconsistent with Full Bench and single member authority. 4 The respondent opposed leave being granted. Marks J's conclusions were submitted to be unexceptional, given the evidence and the provisions of s 108B of the Act. The decision was consistent with binding authority and applicable principle. 5 In his decision of 28 June, Marks J noted that the proceedings had been commenced by summons in August 2002, by Great Scott International Pty Ltd. Relief was sought in relation to 'contracts and/or arrangements' between the applicant and the two respondents, which included a Sales Agency Agreement between the applicant and the second respondent. The applicant sought leave to amend the summons, to include Mr Scott Kraus, said to be a director and shareholder of the applicant, as an additional applicant. 6 His Honour noted at [6] that the motion did not 'specify the precise manner in which the summons was to be amended, nor was there any identification of the contract as defined in s 105 of the Act with respect to which a finding of unfairness was sought'. This, his Honour concluded, did not identify the contract 'with precision, or at least sufficient precision to enable the respondents or, indeed, the court, to be able to deal with the principal matter raised by the respondents in opposition to the motion, namely the application of s 108B of the Act.' 7 A proposed amended summons and further submissions were provided after the hearing. Reliance was placed upon Metrocall Inc v Electronic Tracking Systems Pty Ltd (No 2) (2000) 102 IR 309, for the proposition that Mr Krauss had sufficient interest in the impugned contract or arrangement, to permit his joinder. 8 Marks J took the view that consistently with Metrocall, it was still necessary for Mr Krauss to be a party to the asserted contract or arrangement, in order to be added as an applicant in the proceedings. His Honour took the view at [7] that:

It would seem to me that a determination as to whether there was in fact an arrangement of the kind as described to which the proposed additional applicant was a party cannot be determined at this particular stage of the proceedings. It would be necessary for sufficient evidence to have been filed to enable a determination about such a matter to be made. It may be that such a determination cannot be made until all of the evidence has been led and evaluated in the substantive proceedings. It would follow, therefore, that it would be inappropriate to determine this particular issue at this particular time. This accords with the decision of the Full Court of the Industrial Court of New South Wales in Nagle v Tilburg (1993) 51 IR 8. In a passage which is well known, commencing at page 10 and which has been repeatedly affirmed in many Full Bench decisions of this Court subsequently, the Court held that there had to be a clear demonstration of the lack of jurisdiction but that such a determination should be made at the appropriate time, namely when all of the relevant evidence was available. As the court said: "…whilst it is desirable for a case to be determined at an early stage it is only open to do so at the appropriate stage of the proceedings, that is, where the facts, either established by evidence or plainly agreed in terms, enable the Court to determine what the contract or arrangement is or, at least, the parameters of the contract or arrangement." (at page 11). 9 His Honour concluded, accordingly, at [9] that:

I decline to deal with this matter by reference to whether the contract as defined in s 105, which is the subject of the proceedings as currently constituted, is or is not identical with the contract as defined which is the subject of the proposed amended summons. Such a determination must be made at an appropriate stage in the proceedings. It follows that this is not the appropriate stage at which to consider any argument as to whether the proposed additional applicant was a party to that contract for the purpose of s 108 of the Act.

10 Next his Honour turned to consider the respondent's argument that s 108B of the Act precluded the joinder sought, because it amounted to a fresh application, caught by the section. His Honour noted that joinder had been ordered in Metrocall, a decision given before the enactment of s 108B. His Honour also referred to Crowe v UCS Developments Pty Ltd (2003) 130 IR 266, where joinder of additional respondents was permitted. Joinder was ordered, noting at [15] the conclusion there reached that the proposed amended summons did "not constitute a fresh application for an order, but in substance an amendment to an application for an order made under s 106(1) prior to s 108B coming into effect." (at [55]). 11 At [17] his Honour declined leave to join the new applicant, concluding that:

It seems to me that because an additional applicant is sought to be added to the proceedings this must constitute a new application for the purpose of s 108B. There is, in my opinion, a marked difference between circumstances as in Crowe where an existing applicant seeks to add additional respondents in proceedings directed to the impugnment of the same contract when compared with the circumstances which apply in these proceedings. The proposed amendment to these proceedings seeks to create an additional applicant. It is an application which is sought to be made by a person who has not hitherto made an application for an order under s 106. It is, to that extent, a new application in the sense that it is an application not already made; or, to apply the observations made by the Full Bench in Crowe , the amendment is so substantial and is of such a nature as to warrant the conclusion that it should be characterised as an application for an order caught by s 108B.

12 Marks J also noted the submission that his decision as to the proper construction of s 108B in Larsen v Ondeo Nalco Australia Pty Ltd [2004] NSWIRComm 123 was incorrect. His Honour did not agree. The parties' respective cases

13 The case advanced for the appellant by Mr Neil and Mr Chin of counsel, was that Marks J's decision manifested serious errors of law. It was submitted that firstly, his Honour had erroneously confined the application of the reasoning in Crowe to the joinder of respondents, having misunderstood the nature of the amendment proposed to its summons. Secondly, it was argued that his Honour had erroneously inverted the principle in Nagle v Tilburg (1993) 51 IR 8, as to the time at which Mr Krauss' involvement and participation in the arrangement between the appellant and the respondents should be determined. This had affected the relief sought against the respondents, which had effectively been prematurely and significantly determined. 14 In those circumstances important questions of principle arose, which would lead to leave to appeal being granted. The public interest test was satisfied. 15 As to the conclusion reached in relation to the effect of s 108B, in the circumstances, it was submitted that his Honour had erred in concluding that the joinder motion amounted to a fresh application. The application was an amendment to an application already made under the section. Section 108B has no effect in such a case (see Crowe). Reliance was also placed on Minister for Youth and Community Services v Health and Research Employees' Association (1987) 10 NSWLR 543 at 559A, to argue that Mr Krauss was, in any event, a necessary party to the proceedings. 16 It was also submitted that his Honour erred in declining, at this stage, to determine whether Mr Krauss was a party to the impugned contract. His Honour's approach rested on the view that such an issue could not be 'determined' at this stage of the proceedings. Joinder of a party to proceedings does not depend on any such determination. What must be demonstrated is that it was arguable that Mr Krauss was a party to the arrangement (see Bell v Macquarie Bank Limited (No4) (1999) 93 IR 191 at 202; Stonham v Speaker of the Legislative Assembly of New South Wales (No 4) (2001) 110 IR 417 at [9]; Metrocall at [17]). 17 The salient facts were agreed by the parties on the face of the pleadings. They clearly demonstrated, at least arguably, the existence of an arrangement involving the appellant, Mr Krauss and the respondents. In particular, the Sales Agency agreement required the appellant's employees to procure orders for the second respondent's products. Mr Krauss was the sole director of the appellant and an employee who devoted his personal services to the performance of this obligation. He was the natural person through whom all relevant communications between the appellant and respondent were made. 18 In their written submissions below, the respondent had conceded that the question of whether Mr Krauss was a party to the arrangement would not normally be determined until final hearing. It followed that his Honour had erred, by prematurely determining that Mr Krauss should not be joined. Nagle provides that a plaintiff should not be denied access on jurisdictional grounds, unless the Court is satisfied that it has the necessary material to reach a clear and final decision on the question of jurisdiction. That principle has been applied to permit joinder of applicants, or to refuse their removal, before hearing all the evidence, where there is an arguable basis for joinder (see Wong v Chen & Anor t/as Artist Production (1999) 91 IR 369 at 374; Stonham (No 4) at 422; Eslick v Exben Pty Ltd [2001] NSWIRComm 68). 19 The case advanced for the respondent by Mr Fernon of senior counsel, was that leave would not be granted. His Honour was correct to conclude that the joinder application amounted to a fresh application, precluded by s 108B. If Mr Krauss was a party to an arrangement with the respondent, s108B fixed the time within which proceedings had to be commenced. The joinder application, even though brought by the appellant, was brought out of time, being brought more than 12 months after termination of the contract in question. It was relevant that Mr Krauss could not at that time have himself commenced proceedings under the section. Section 108B would have precluded such an application. 20 The decision in Crowe was not of assistance to the applicant in this case. The true test required the Court to consider the terms of s 108B. The amendment proposed to the summons was to permit Mr Krauss to bring a claim for an order against he respondents. It was irrelevant, in that context, whether the same or another contract was sought to be attacked by Mr Kraus. The application was precluded by s 108B. 21 As to the conclusion reached that it was an inappropriate time to determine the joinder, having regard to the requirements of s 108 of the Act, it was argued that it was an unexceptional conclusion, open on the evidence.

22 We are satisfied that this is a case where leave to appeal should be granted, the public interest test having been satisfied because the issues raised relate to fundamental aspects of the Court's jurisdiction. 23 There was no dispute on the evidence as to Mr Krauss' involvement in the relationship between the parties. He was the sole director and an employee of the appellant, actively engaged in the implementation of the parties' agreement. It was asserted in the proposed amended summons, that it was an implied term of the agreement that Mr Krauss would devote his personal services to the work required to be performed by the appellant under the agreement and that he was a party to a broader arrangement with the respondent, which required him to perform work. 24 It is not unusual for persons such as Mr Krauss and the companies through which they provide their personal services, to bring proceedings under s 106. There may be an issue in such proceedings, as to whether such an individual was in fact a party to the contract or arrangement in question, as s108 requires. Such a question can arise at the trial, or beforehand. In a case where an individual seeks to be joined to proceedings already on foot, the question can arise at that point. That was the situation in Metrocall, where it was concluded at first instance by Schmidt J, that given that Mr Miller was the applicant's managing director, a majority shareholder and personally involved in the parties' negotiations and relationship, that it 'could not be safely concluded, at this stage, that Mr Miller does not have a sufficient interest in the contract in question in the proceedings to be an applicant in respect of that contract under s 108' (as quoted at [3]). 25 The Full Bench concluded at [9], that the decision was 'not an unusual decision in the context of a procedural application' and a 'relatively straightforward application for the joinder of an additional party in proceedings commenced under s 106.' After reviewing the meaning of the word 'contract', as defined by s 105 and the effect of that definition on s 108, the Court turned to the evidence and noted that:

17 Her Honour was determining the interlocutory application before her on the basis of the limited evidence filed at that stage by the first respondent in the proceedings proper and the second respondent in relation to his motion. It is unnecessary for us to traverse that evidence. It is, however, sufficient to note the primary ground the first respondent relied on in the summons originally filed was that it performed work in an industry pursuant to a contract from approximately August 1991 whereby the appellant granted an exclusive licence to the applicant to market, lease, operate and maintain a system referred to as the "Pronet Tracking System" in Australia. There was evidence to support that claim. There was also evidence which showed that the second respondent was the managing director of the applicant and personally carried out the significant majority of the work in relation to the grant of the exclusive licence and attempts to market the system and to obtain contracts in relation to it. As such, it was open to the trial judge to find for the purposes of the motion that there was, or was arguably, an arrangement involving the appellant and both respondents to which the second respondent was a party. Accordingly, it was therefore open to the trial judge to find the second respondent could have himself commenced proceedings under s 106 in relation to that arrangement on the basis that he was a party to that arrangement and therefore a party to a contract, in its extended sense, pursuant to s 108.

18 Accordingly, the appellant's submissions that it was not open to the trial judge to exercise her discretion in the way she did because the second respondent was not a "party" to a contract in terms of s 108 should be rejected. 26 As the Full Bench observed, in a case such as that here before Marks J, the proper test to apply in determining the motion was whether it was open to find, for the purposes of the motion, that there was, or was arguably, an arrangement between the appellant and the respondent, to which Mr Krauss was a party. Given what was here asserted in the amended summons and the parties' acceptance that as the appellant's sole director and an employee who devoted his personal services to the achievement of the appellant's contractual obligations to the respondent, we are satisfied that the question of joinder ought to have been decided on the material put forward by the appellant. 27 The judgment in Nagle did not provide a proper basis for declining, at that stage, to deal with the motion. There the Court was concerned with the question of the time at which a jurisdictional issue which would result in a claim being struck out, could properly be decided. It was concluded that despite the parties' agreement that the question could be dealt with on a preliminary basis, the state of the facts at that point was such that separate determination of the jurisdictional question was premature (see Nagle at p13). 28 In this case, once the appellant had established that there was an arguable basis for the claim that Mr Krauss was a party to the arrangement, as in Metrocall, the proper approach was to permit the joinder, so that the question of whether or not the necessary facts could be established, was left to be determined on the evidence at the hearing. Absent a joinder order, there would be no basis upon which the question could arise for determination at trial. This approach is entirely consistent with that in Nagle (see, for example, Stonham (No 4) at [10]). 29 This aspect of the appeal should therefore be upheld. 30 As to the argument in relation to s 108B, it must be noted that these proceedings were commenced in 2002, after the enactment of the section, which provides:

(1) An application for an order under this Division in relation to a contract that has been terminated must be made not later than 12 months after the termination of the contract.

(2) The Commission does not have jurisdiction to extend the time for making any such application or to accept an application made after the time prescribed by subsection (1). 31 In Crowe the Court was dealing with an application to add a respondent, after the time fixed in the section had elapsed. The Full Court observed at [44] that "[i]t is significant that s 108B imposes a limitation by reference to 'an application for an order under [the relevant] Division in relation to a contract' rather than by reference to, for example, the parties to the contract." 32 After referring to the provisions made in s 108A, enacted at the same time as s 108B, the Full Court held:

51 The "application" referred to in these provisions is, we consider, an application to exercise the substantive power of the Division; that is, an application for an order under s 106(1) directed to, or made in respect of, the particular contract or arrangement sought to be declared "wholly or partly void" etc pursuant to the terms of s 106(1).

52 Clearly, the original summons filed constitutes an application for an order under s 106(1) in respect of a particular contract or arrangement. It was filed well before the commencement of s 108B and the original summons and the orders sought therein are therefore not affected by the limitation period created by that section. What then, is the effect of the amendment sought to the summons? Does it constitute a separate application for an order under the Division or should it be characterised as being an amendment to an application for an order already made and with respect to which s 108B has no effect? Or, to put the matter in a slightly different way, does the amendment, in substance rather than in mere form, give rise to an application for an order declaring wholly or party void or to vary the same contract or arrangement as that identified in the original application, or does it amount to an application for an order in respect of a different contract or arrangement? 33 It was concluded that leave to amend the summons to add the respondent could be granted in that case. It was held:

55 While the proposed amended summons seeks to join additional respondents, the joinder is based upon their alleged participation in the circumstances which gave rise to the initial application for an order under s 106 constituted by the original summons. In these circumstances, the conclusion is available that the application to amend the summons and the proposed amended summons do not constitute a fresh application for an order, but are in substance an amendment to an application for an order made under s 106(1) prior to s 108B coming into effect. The amendment sought and, if granted, the resulting amended summons are therefore not precluded by s 108B.

56 There may be circumstances in which an amendment to an original application may be so substantial or its nature such as to warrant the conclusion that it could be characterised as an application for an order caught by s 108B. That is not the situation here. 34 This conclusion followed from a consideration of the original summons and what was proposed by way of amendment. Here, such a comparison reveals that clause 1 of the original summons sought:

An order declaring that the contracts and/or arrangements between the applicant and the respondents whereby work was performed in an industry were in whole or in part unfair, harsh, unconscionable and against public interest. 35 In the amended summons what was sought in clause 1 was, (with changes proposed underlined):

An order declaring that the contracts and/or arrangements between the first applicant, the second applicant and the respondents, including the sales Agency Agreement between the first applicant and the second respondent sighed on or about 20 January ("The SAA") and the related conditions and collateral arrangements , whereby the second applicant performed work in an industry ("the arrangements ") were in whole to in part unfair, harsh, unconscionable and against public interest. 36 The orders of variation to the contract sought in clauses 2 to 6 of the summons were not amended. In order 7 the new termination provision sought was amended by inserting a reference to Mr Klaus, introducing, on termination, an obligation to pay him compensation for the balance of the term of the agreement, as well as to the appellant. 37 In the supporting summary of matters of fact and law relied upon, the reference made to Mr Klaus was amended to describe him as the second applicant and a new description, that the appellant was the 'vehicle created by Mr Klaus to enable him to enter into agency arrangements with the second respondent', was inserted. The third amendment was to assert an implied term in the Sales Agency Agreement, that Mr Klaus would devote his personal services to the performance of the work required for the appellant to meet its obligations under the Sales Agency Agreement, and in the alternative, that this was a term of the wider arrangement between the parties. 38 The final amendment, apart from the insertion of one further reference to Mr Klaus, was clause 2:

In the premises, the first applicant, the second applicant and the respondents were party to the Arrangements constituted by, inter alia, the SAA and the related conditions and collateral arrangements set out in paragraphs 4 to 18 of Part B.

39 There was no alteration to the money orders sought. 40 So understood, there can be no doubt that, as in Crowe, in this case joinder was based upon Mr Krauss' alleged participation in the circumstances which gave rise to the initial application for an order under s 106, constituted by the original summons. The original summons was concerned with the contracts and/or arrangements between the appellant and the respondents, whereby work was performed in an industry by Mr Kraus. It alleged that the necessary work was performed by Mr Kraus. The amended summons introduced his involvement in the proceedings, as a party to those contracts and/or arrangements. The same complaints were, however advanced in the amended summons and the same relief by way of variation and money orders sought, other than that payment was to be made to Mr Kraus, as well as to the appellant. 41 In those circumstances it must be concluded that the amended summons does not constitute a fresh application, but an amendment to the original application for an order, as contemplated by s 170(1) of the Act. The amended summons seeks to attack the fairness of the same contract or arrangement and in similar terms to those advanced in the original summons. The change resulting from the joinder of Mr Kraus, as an applicant in the proceedings, is that a second alleged party to the contract or arrangement, joins in the attack on the fairness of the contract or arrangement already on foot in the proceedings. There is no separate 'application for an order' resulting from the joinder of Mr Kraus. The joinder application does not, in this case, amount to an application for an order. 42 That conclusion is confirmed by the approach of the Court of Appeal in Unitedglobalcom Inc v The Industrial Relations Commission of New South Wales in Court session & Anor [2005] NSWCA 131, where Hodgson JA held at [29]:

29 In my opinion also, the proceedings against New UGC are not affected by s.108B. In my opinion, the application in this case was brought when the proceedings were commenced, and the addition of New UGC as a party following on the re-structuring of the relevant group of companies was not an application for an order in relation to a contract within s.108B. This is supported by Visalli v. Southwell (1988) 12 NSWLR 502, and Crowe v. UCS Development Pty. Ltd . (2003) 130 IR 266. 43 Handley JA and Brownie AJA agreed with his Honour. There under consideration was a joinder application, where the new corporate respondent had not existed until after the time fixed by s 108A had elapsed. Still it was concluded that the application was brought when the proceedings were commenced and the addition of such a party was not an application for an order within s108B. 44 This approach was followed in BEA Systems Pty Limited v Lowe [2005] NSWCA 227, where it was concluded at [17] that the joinder of a parent company as a respondent was precluded by s 108B, because the applicant did not seek to add the US parent for the sole purpose of obtaining consequential relief against it, but to initiate a separate application for an order, as the Full Bench in Crowe described at 280, where:

"… the amendment in substance … [would] amount to an application for an order in respect of a different contract or arrangement." 45 Here, as we have noted, it is the same contract in respect of which relief under the section is sought and on the same basis. 46 Accordingly, it follows that the appeal must also succeed on this basis. Costs

47 As to costs, the appellant sought an order for costs in relation to the appeal, the respondent's unsuccessful motion in relation to security for costs on appeal and in respect of the proceedings before Marks J. Costs in respect of the latter two matters, should be payable within 21 days. The respondent's position was that costs should be reserved and the application that costs be payable within 21 days was opposed.

48 We are satisfied that in this case there should be no departure from the ordinary approach taken to awarding costs. They should follow the event and should be as agreed, or assessed. The application to reserve costs is accordingly refused as is the appellant's application for a special order as to the payment of its costs. Orders

49 For the reasons given, we order that leave to appeal be granted; the appeal upheld; the joinder of Mr Krauss ordered and leave to proceed on the amended summons be granted. 50 We further order that the respondents should bear the appellant's costs of the appeal, including the costs of the proceedings before Backman J, where the respondents' application for security for costs on appeal was refused; as well as the costs of the joinder hearing at first instance; all such costs to be as agreed or assessed.

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