Heath Group Australasia Pty Ltd v Pengly & Ors

1st & 2nd RESPONDENTS LEGAL REPRESENTATIVES: Mr R Reitano of counsel SOLICITORS K P O'Donnell & Associates

3rd & 4th RESPONDENTS Mr J P Phillips of counsel SOLICITORS PricewaterhouseCoopers

INDUSTRIAL RELATIONS COMMISSION OF NEW SOUTH WALES IN COURT SESSION

CORAM: MARKS J Monday 8 October 2001 Matter No IRC 6296 of 2000 HEATH GROUP AUSTRALASIA PTY LTD v MICHAEL JAMES PENGLY & ORS Application under s 106 of the Industrial Relations Act 1996

JUDGMENT 1 These proceedings deal with a notice of motion filed on behalf of the third and fourth respondents which seeks, in effect, that claims brought against them in these proceedings be struck out. Before describing the substance of these proceedings it is necessary to refer briefly to other proceedings in this Court in which the applicant and the first respondent are involved. In matter number IRC 2755 of 2000 Michael James Pengly as applicant instituted proceedings against Heath Group Australasia Pty Ltd ("Heath") as respondent claiming certain relief under s 106 of the Industrial Relations Act 1996 ("the Act"). The summons centres around the circumstances in which Heath terminated the employment by it of Mr Pengly. Mr Pengly alleged as against Heath that the termination of his employment was unfair and that certain moneys should have been paid to him in lieu of appropriate notice and by way of other entitlements. The summons in those proceedings was filed on 19 June 2000.

2 The summons which has given rise to these proceedings was filed on 22 December 2000. The summons refers to the fact that the applicant Heath carried on an insurance broking business and that Mr Pengly became an employee. His services were provided in part through the second respondent E.U.A Investments Pty Ltd, a corporation associated with Mr Pengly. The third respondent Leonard Hanning was, during some relevant period, the managing director of Heath. Mr Hanning's employment was terminated by Heath on 3 July 1998. The summons alleges in effect that Mr Hanning conspired with Mr Pengly and the fourth respondent, an insurance broker in competition with Heath to arrange for a client of Heath, Abigroup, to cease to be a client and to become a client of the fourth respondent. Mr Hanning became the managing director of the fourth respondent. After Mr Pengly's employment with Heath was terminated Mr Pengly became a director of the fourth respondent. This situation created, it is alleged in the summons, circumstances whereby the contract of employment between Heath and Mr Pengly became unfair for the purposes of s 106 of the Act.

3 As against the third and fourth respondents the summons sought orders directed to the arrangement between Mr Pengly and the third and fourth respondents which was said to be collateral to the contract of employment between Heath and Mr Pengly. The order sought was that a finding of unfairness should be made with respect to the arrangement and that it be declared void.

4 The summons also sought orders that each of the respondents be jointly and severally liable to pay to the applicant moneys by way of just compensation, interest and costs.

5 There were two bases upon which the third and fourth respondents sought this interlocutory relief. The first was that the contracts and/or arrangements which were relied upon by Heath in the proceedings were not collateral contracts or arrangements as required to found jurisdiction under s 106 of the Act. In order to consider the argument in connection with this aspect it is necessary to set out the relevant provisions. Sections 105 and 106 are in the following terms:

105 Definitions In this Part: contract means any contract or arrangement, or any related condition or collateral arrangement, but does not include an industrial instrument. unfair contract means a contract: (a) that is unfair, harsh or unconscionable, or (b) that is against the public interest, or (c) that provides a total remuneration that is less than a person performing the work would receive as an employee performing the work, or (d) that is designed to, or does, avoid the provisions of an industrial instrument.

106 Power of the Commission to declare contracts void or varied (1) The Commission may make an order declaring wholly or partly void, or varying, any contract whereby a person performs work in any industry if the Commission finds that the contract is an unfair contract. (2) The Commission may find that it was an unfair contract at the time it was entered into or that it subsequently became an unfair contract because of any conduct of the parties, any variation of the contract or any other reason. (3) A contract may be declared wholly or partly void, or varied, either from the commencement of the contract or from some other time. (4) In considering whether a contract is unfair because it is against the public interest, the matters to which the Commission is to have regard must include the effect that the contract, or a series of such contracts, has had, or may have, on any system of apprenticeship and other methods of providing a sufficient and trained labour force. (5) In making an order under this section, the Commission may make such order as to the payment of money in connection with any contract declared wholly or partly void, or varied, as the Commission considers just in the circumstances of the case. 6 There is reference in the decision of the Full Bench of the former Industrial Court of New South Wales in Bartolacci v Permanent Custodians Ltd (No 2) (1992) 94 IR 122 to the meaning of the words "collateral arrangement". The Full Bench observed that ""collateral" must itself require a relationship between the collateral arrangement and a "contract or arrangement" under the section. "Collateral" as senior counsel for the respondent pointed out in the appeal proceedings, by dictionary definition means: "situated at the side; running side by side; accompanying; attendant; auxiliary"; …. a "collateral" arrangement must of its very nature have a relationship with the contract or arrangement to which it is collateral." (at 125).

7 The factual background to Bartolacci demonstrates that for an arrangement to be collateral to a contract or arrangement it is not merely sufficient that it exist concurrently with the contract or arrangement in any temporal sense. There needs to be a closer nexus or, as Peterson J succinctly summarised the matter in Gambotto v John Fairfax Publications Pty Ltd (2001) NSWIRComm 87, "a necessary connection" between the arrangement and the contract or arrangement.

8 In his submissions on behalf of the applicant Heath, Mr Kite SC identified the necessary connection by way of the impact that the alleged collateral arrangement had on the contract of employment between Heath and Mr Pengly. The arrangement, it was said, between Mr Pengly, Mr Hanning and the fourth respondent was one whereby Abigroup was induced to cease to be a client of Heath and become a client of the fourth respondent at a time when Mr Pengly was an employee of Heath. This impacted upon Mr Pengly's fiduciary obligations towards Heath arising out of the employer/employee relationship.

9 Part of the difficulty in considering this matter is that, in most cases, the collateral arrangement relied upon as having the necessary connection with the employment contract is one in which both parties to the employment contract usually participate.

10 The difficulty with which I am faced in these proceedings is that there has been filed only such documentation as is necessary to enable the mandatory conciliation process under s 109 to have been undertaken. The parties have not yet filed any of the substantive affidavit material upon which they rely. This creates difficulty in determining the factual matrix against which an assessment needs to be made as to whether the necessary connection exists between the arrangement alleged to have been entered into between the first, third and fourth respondents and the employment contract between Heath and the first respondent. This in turn raises the question as to whether this is the "appropriate" time at which to consider this aspect of these interlocutory proceedings.

11 Indeed, Mr Kite submitted that this was not the appropriate time, relying upon the relevant principles established by this Court and its predecessors in this area. It is not necessary that I discuss these principles in any detail. Fortunately they have been collected and restated by Wright J, President in this Court in Virtue v New South Wales Department of Education and Training (1999) 92 IR 428. The principles as summarised by his Honour are as follows: "1) The discretion of a court to determine a case at an early stage, when appropriate, has been repeatedly accepted. 2) 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 course of a court entertaining a challenge to jurisdiction in a preliminary or threshold way is often a sensible one where a party has a substantial threshold argument which, if it succeeds, will knock out the claim and save the costs and inconvenience that attend a protracted hearing of proceedings on the merits. 3) However, a further general proposition is that all issues arising should be dealt with in the substantive proceedings unless the basis for a challenge, either on jurisdictional grounds, or for lack of a reasonable cause of action, be clearly demonstrated. 4) Threshold relief of the kind sought here must be conserved to a clear case where it is plain that the invocation of the jurisdiction impugned is wholly misconceived or, upon analysis, lacks an arguable legal foundation. 5) Necessarily, refusal of relief at the threshold will not finally determine that jurisdiction exists for any order which the Court might make between the parties. This is because, to secure relief, the claimants must demonstrate that no order could be made which would be within jurisdiction. The resulting burden is a heavy one. 6) Accordingly, 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. In other words, unless the facts are sufficiently established to enable the Court to be satisfied it has the necessary material to reach a clear and final decision on the question then the appropriate stage has not been reached for such a determination to be made. 7) Similarly, the jurisdiction to terminate an action summarily for want of a cause of action is to be sparingly employed and ought not to be used save where the lack of the cause of action was clearly demonstrated." (at 447-8).

12 In essence, the description of the arrangement upon which the third and fourth respondents rely for the purpose of these interlocutory proceedings is as described in the initiating summons. The assertions contained in court process of this kind can rarely be said to establish facts sufficiently to enable the Court to be satisfied that "it has the necessary material to reach a clear and final decision on the question".

13 It will be rare, in my opinion, for the identification of the terms of an arrangement to be considered as having been dealt with at "an appropriate time" when no factual material has been established, at the least by the filing of appropriate evidentiary material. In making these observations I am conscious also of the caution with which a court must move in determining to dismiss an action summarily as referred to in principle number 7 set out above. I conclude, therefore, that this is not the appropriate time to consider this basis for the attack made by the third and fourth respondents. As Wright J pointed out in Virtue this will not preclude this aspect of the matter being revisited at an appropriate time.

14 I should mention in passing an alternative argument advanced by Mr Kite. This was that even if I had considered that this was an appropriate time to determine these interlocutory proceedings, nevertheless the summons brought by Heath should not be struck out because Heath was entitled to seek relief against the third and fourth respondents on the basis of the principles discussed by Barwick CJ in the High Court of Australia in Brown v Rezitis (1970) 127 CLR 157 at 163-4. That is that the third and fourth respondents were persons involved in the circumstances giving rise to the proceedings who "are not parties to the contract or arrangement but who are in reality the actors deriving benefit from the making or execution of the contract or arrangement" (at 164), and against whom orders for payment of money may be made in appropriate circumstances. Mr Kite contended that the summons for relief filed by Heath contained such an allegation and that the orders sought comprehended orders for the payment of money as against the third and fourth respondents. Mr Phillips counsel who appeared for the third and fourth respondents contended that his clients had not read the summons as creating a claim of this kind against them. For my part I have a great deal of sympathy for the third and fourth respondents in not having understood the summons to have comprehended within its terms such a claim. I invited Mr Kite to consider an amendment to the summons so that the claim might be more explicitly set out, but he declined to do so. In any event, it is not necessary for me to determine this issue at this stage, although the manner in which the summons has been framed may arguably fall for consideration during the case management process.

15 The next basis upon which the third and fourth respondents sought interlocutory relief in these proceedings involved a consideration of the provisions of s 108 of the Act, which is in the following terms:

An order may be made under this Division on the application of: (a) any party to the contract, or (b) any person who, but for the making of such an order, would be a party to the contract, or (c) an industrial organisation of employers whose members employ persons working in the industry to which the contract relates, or (d) an industrial organisation of employees whose members are employed in the industry to which the contract relates, or (e) an association registered under Chapter 6 of which a party to the contract is a member, and not otherwise.

16 It was submitted by Mr Phillips that s 108 limited the class of persons who were entitled to apply for relief under s 106. Relevantly, for present purposes, this was a party to the contract, as that word is defined in s 105. That is, a party to the contract or arrangement or any related condition or collateral arrangement. This in turn refers to the contract with respect to which an order is sought under s 106(1) and a finding is sought under s 106(2).

17 The summons filed by Heath as applicant was confined as against the third and fourth respondents to an attack on "the arrangement between the first respondent on the one hand and the third and fourth respondents on the other" which was said to be collateral to the contract of employment between the applicant Heath and the first respondent Mr Pengly. The applicant Heath was not alleged to be a party to the arrangement between the first respondent and the third and fourth respondents. It was that arrangement which was attacked by Heath and sought to be the subject of orders under s 106. Because Heath was not a party to the arrangement it was said to be precluded from initiating these proceedings by the provisions of s 108.

18 The origin of s 108 is conveniently summarised by Wright J, President in Hyde v Energy Australia (1999) 92 IR 409 commencing at 423. His Honour's observations were adopted by a Full Bench of this Court in Metrocall Inc v Electronic Tracking Systems Pty Ltd (No 2) (2000) NSWIRComm 260, 102 IR 309. The Full Bench confirmed that when considering the meaning of "the contract" where used in s 108, it is necessary to take into account the definition of "contract" contained within s 105.

19 Mr Kite submitted that the approach to construction contended for by Mr Phillips was incorrect. He argued that "the contract" referred to in s 108 was any contract or arrangement contemplated by the definition of contract under s 105. That is, Heath was a party to the employment contract between itself and Mr Pengly and this, per se, gave it standing under s 108 to commence proceedings under s 106 designed to impact upon the collateral arrangement between Mr Pengly and the third and fourth respondents. Mr Kite conceded that such an argument had not been considered by the Full Bench in Metrocall or, it appears, in any other proceedings before this Court.

20 In my opinion, the submission of Mr Kite must be rejected because it strains the ordinary language used within s 108 when read in conjunction with ss 105 and 106. That is, it is necessary to consider the ordinary language used in the context of the totality of the provisions. Section 108 is intended to limit those persons who are entitled to institute proceedings under s 106 (and, for completeness, s 107). That s 108 is intended to be restrictive and not expansive can be gleaned from the final words contained within the section, namely "and not otherwise".

21 The jurisdiction and power to make orders under s 106 is derived from subs (1). Once there is a finding of unfairness orders may be made declaring void or varying any contract whereby a person performs work in any industry. The contract is defined in s 105 relevantly to mean "any contract or arrangement, or any related condition or collateral arrangement ….". (I note, for completeness, that the related condition or collateral arrangement does not of itself need to be one whereby a person performs work in any industry, so long as the contract or arrangement falls within this description). Accordingly, what may be the subject of an order made under s 106(1) is a contract, an arrangement, or a condition related thereto or an arrangement collateral thereto. By s 108 an application for such an order may be made, for relevant purposes, only by a party to the contract, the arrangement, the related condition or the collateral arrangement which is the subject of the order sought under s 106(1). It follows that in these proceedings the applicant Heath may seek orders declaring void the contract of employment or arrangement between itself and Mr Pengly and itself and the second respondent E.U.A. Investments Pty Ltd. It follows also that the applicant Heath has no standing to seek an order declaring void the arrangement alleged to be made between the first respondent Pengly and the third and fourth respondents, Hanning and Miller & Associates Insurance Broking Pty Ltd even though that arrangement is alleged to be collateral to the contract of employment between Heath and Pengly. This is because the applicant Heath is not a party to the arrangement as alleged.

22 The matter may be tested in another way. If it is assumed that the construction contended for by Mr Kite is correct, then a party to a collateral arrangement would be entitled to seek an order under s 106 to vary or avoid the underlying contract to which the arrangement was collateral. The collateral arrangement could, conceivably, be one by which a motor vehicle dealer supplied a motor vehicle to an employee pursuant to separate arrangements made between firstly the employer and the employee and secondly the employer and the motor dealer, or even the employee and the motor dealer. In either scenario, the motor dealer would have standing as a party to the collateral arrangement to have the underlying contract of employment varied or otherwise attacked under s 106 as being unfair, perhaps as it impacted upon the motor dealer. Such a result would, it is suggested, be outside what is contemplated by a more orthodox reading of s 108 in the context of the provisions of ss 105 and 106.

23 It follows, therefore, that those paragraphs of the summons for relief which seek orders on behalf of the applicant Heath, with respect to arrangements to which Heath is not a party should be struck out. These are paras 3 and 6 of the summons.

24 This leaves extant a notice of motion filed by the applicant Heath in these proceedings that these proceedings and proceedings in Matter No IRC 2755 of 2000 (to which I have earlier referred) be joined and heard and determined together. In my opinion it is premature to consider this application at this stage of the proceedings, when none of the affidavit evidence has been filed. I agree with the submission made by Mr Reitano of counsel who appeared for Mr Pengly and E.U.A Investments Pty Ltd that it is a matter which should be considered in conjunction with the case management of both sets of proceedings.

25 Both sets of proceedings will shortly be listed for directions. I ask that in the interim the legal practitioners representing all of the parties endeavour to reach some sensible agreement on a timetable which will allow both sets of proceedings to be determined in a timely, efficient and cost-effective manner.

26 The question of costs was not argued, and I intend to reserve costs accordingly. I grant liberty to apply generally with respect to both sets of proceedings.

1. Paragraphs 3 and 6 of the summons filed in these proceedings are struck out.

3. Liberty to apply generally with respect to the proceedings. _____________________

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