Illawarra Breads Pty Limited and ors v Baker's Delight Holdings Limited

Industrial Relations Commission (NSW)|2007-08-08|Before: Walton J, Boland J, Backman J, Mr J

CITATION: Illawarra Breads Pty Limited and ors v Baker's Delight Holdings Limited [2007] NSWIRComm 223

FIRST APPLICANT Illawarra Breads Pty Limited

SECOND APPLICANT South Coast Bakeries Pty Limited (In Liquidation)

FIFTH APPLICANT Mark Andrew Massie

RESPONDENT Baker's Delight Holdings Limited

CORAM: Walton J Vice-President; Boland J; Backman J

Unfair contract - Interlocutory issue - Reference to Full Bench - Whether application to further amend summons for relief barred by s 108B of the Industrial Relations Act 1996 - Whether proposed amendments futile - Application to amend granted CATCHWORDS: Practice and procedure - Unfair contract - Interlocutory issue - Reference to Full Bench - Whether application to further amend summons for relief barred by s 108B of the Industrial Relations Act 1996 - Whether proposed amendments futile - Application to amend granted

LEGISLATION CITED: Industrial Relations Act 1996 s 105, 106, s 108B, s 108B(3), s 193

CASES CITED: Crowe v UCS Developments Pty Ltd (2003) 130 IR 266

APPLICANTS Mr S E J Prince of counsel Solicitor: Mr B Belling Home Wilkinson Lowry LEGAL REPRESENTATIVES:

RESPONDENT Mr J P Phillips SC Solicitor: Mr M Tooma Deacons

CORAM: WALTON J, Vice-President BOLAND J BACKMAN J

ILLAWARRA BREADS PTY LIMITED AND ORS v BAKER'S DELIGHT HOLDINGS LIMITED

Application under s 106 of the Industrial Relations Act 1996

1 Illawarra Breads Pty Ltd, South Coast Bakeries Pty Limited (in liquidation), South Coast Breads Pty Limited (in liquidation), Deanne Donna De Leeuw and Mark Andrew Massie are the applicants in these proceedings. The fourth and fifth named applicants are husband and wife. They were directors and shareholders of the first three named applicants, which were franchise businesses operated by the fourth and fifth applicants at Vincentia, Kiama and Shellharbour under franchise agreements made with the franchisor, Baker's Delight Holdings Limited, the respondent in these proceedings. 2 The applicants filed a summons in November 2005 under s 106 of the Industrial Relations Act 1996 (the Act) seeking relief from what was asserted to be unfair contracts or arrangements arising from the franchising arrangements between the applicants and the respondent. On 5 May 2006 the applicants filed an amended summons. On 7 May 2007, following unsuccessful conciliation proceedings, the respondent filed a notice of motion seeking a declaration that the Court did not have jurisdiction with respect to various franchise and licence agreements and an order that the amended summons be dismissed. The motion was referred to the President under s 193 of the Act for his Honour's consideration as to whether the motion should be dealt with by the Full Bench. Subsequently, the matter was referred to the Full Bench and directions made for the hearing of the motion, which was scheduled for 8 August 2007. 3 On 11 July 2007, the respondent filed its written outline of submissions in support of its motion to dismiss the amended summons. On 2 August 2007, in light of the respondent's submissions, the applicants, by notice of motion, sought to further amend the summons. The applicant's motion to further amend was opposed on two grounds: (i) The proposed Further Amended Summons is so materially different to the original Summons, and to the Amended Summons, that it amounts to a new application which is made outside the period stated in section 108B of the Industrial Relations Act 1996 (NSW); and

(ii) The proposed amendments are futile as they do not cure the defect in this Court's jurisdiction.

This judgment deals with the motion to further amend. Whether further amended summons is barred by s 108B of the Act

4 On 21 December 2004, the respondent issued a Notice of Termination of Franchise Agreement upon each of the franchise businesses effective as at 28 February 2005. The applicants do not concede that termination of all of the contracts or arrangements in respect of which they plead were terminated on 28 February 2005 and the Full Bench was faced with being left in the position of not knowing, with the necessary degree of certainty for the purpose of applying s 108B, when the relevant contracts and/or arrangements were terminated. 5 However, in light of our conclusions, we have approached the matter by assuming that, for the purpose of determining the s 108B issue, the contracts and/or arrangements, which are the subject of the applicants' pleadings in the proposed further amended summons, were terminated on 28 February 2005. 6 As we have noted, on 24 November 2005 the applicants filed a summons for relief under s 106. On 5 May 2006, the applicants filed an amended summons for relief in respect of which leave had been granted to amend by consent. 7 The question for the Full Bench is whether the proposed further amended summons constitutes a new and separate application that is statute barred by virtue of the operation of s 108B of the Act? 8 Section 108B of the Act provides: 108B Time for making application (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, subject to subsection (3), to accept an application made after the time prescribed by subsection (1).

(3) The Commission may accept an application made within 3 months after the time prescribed by subsection (1) if the applicant satisfies the Commission that there are exceptional circumstances justifying the making of the late application. 9 Section 108B was considered by the Full Bench in Crowe v UCS Developments Pty Ltd (2003) 130 IR 266. There the Full Bench stated at [52] and [55]-[56]: [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 partly 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? … [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 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.

10 The proposed further amended summons represents a very significant restructuring and alteration of the amended summons. Indeed, the extent of the restructuring and alteration, prima facie, raises a real question of whether the proposed further amended summons is a new and different application by the applicants. However, any inquiry to determine whether an amended summons is statute barred by virtue of s 108B is not to be directed to the quantity of the amendments but rather their true nature or character, in the sense that the question has to be asked whether, in substance, the amendments constitute an application of such a different quality or character to the original application that it may be said the application incorporating the amendments has not been made within the time prescribed by s 108B. 11 The essence of the applicants' complaint in the amended summons was that franchise and license agreements between the applicants and the respondent in relation to Shellharbour, Kiama and Vincentia, and a "Disclosure Document" provided to the applicants by the respondent prior to the applicants entering into the franchise agreements were, jointly and severally, an unfair contract within the meaning of s 105 of the Act. Significantly, and in addition, it was also claimed that "the arrangements between the applicants jointly and severally and the respondent", together and severally with the franchise and license agreements and the Disclosure Document, were unfair contracts. The amended summons was quite vague about what constituted the "arrangements". 12 In the further amended summons the contracts and arrangements that were asserted to be unfair were: · The "1st Arrangement", which essentially involved the system of control exercised by the respondent over the nature, operation and terms of work, training and ongoing support, etc, of the applicants in the performance of work by the applicants at the various locations; · The Operations Manuals and directions provided from time to time by the respondent in respect of the operation of any Baker's Delight Bakery by the applicants; · The Vincentia Franchise Agreement; · The Kiama Franchise Agreement; · The Shellharbour Franchise Agreement; · An arrangement which encompassed the entirety of the above and being an overall arrangement whereby each of the Baker's Delight stores were operated by the respective applicants.

It was noted in the proposed further amended summons that a reference to the "Franchise Agreements" meant the Shellharbour Franchise Agreement, the Vincentia Franchise Agreement, and the Kiama Franchise Agreement. 13 Additionally, and in the alternative, the proposed further amended summons stated that each of the contracts or arrangements identified in the foregoing paragraph were contracts or arrangements that "were at all material times collateral to or related to each other and the performance of work is a significant purpose of those arrangements so made." 14 The proposed further amended summons also stated that the following contracts or arrangements at all material times were collateral or related to all or any of the contracts or arrangements whereby work was performed in the baking franchise industry and the performance of work was a significant purpose of the arrangements so made:

· a license agreement between the First Applicant and the Respondent entered into on or about 29 January 2004 (the "Shellharbour License agreement"); · a license agreement between the Second Applicant and the Respondent entered into on or about 14 December 2001 (the Vincentia License agreement); · a license agreement between the Third Applicant and the Respondent entered into on or about 12 August 2003 (the Kiama License agreement); · a document styled "Disclosure Document" provided by the Respondent to the Applicants prior to the Applicants entering into the Franchise Agreements. 15 It is apparent that the franchise and license agreements and the Disclosure Document were common to both summons; these contracts or arrangements lie at the heart of the applicants' claims. Whilst the amended summons contained a vague reference to other arrangements, these have now been elucidated in the proposed further amended summons. In substance, the contracts and arrangements pleaded in the proposed further amended summons are the same as those pleaded in the amended summons, although the applicants have sought to be more precise in identifying what are the contracts and what are the arrangements in respect of which they seek relief, with particular reference to the fundamental question of performance of work under each of those contracts or arrangements. We do not regard this aspect of the amendments as constituting an application of a different character. 16 Another area of significant amendment related to the nature of the relief sought. The amended summons sought an extensive list of quite specific variations to the contract. The variations sought, inter alia, to: · protect the franchisee's interests in circumstances where the bakeries were sold by the franchisor or the franchise agreements were terminated by the franchisor including payment of all entitlements; · protect the franchisee's businesses from interference by any other franchisee; · ensure proper training was provided; · ensure supply of material and services was maintained on a proper basis including at reasonable cost; and · protect the franchisee's interests in relation to expenditure and fees charged by the franchisor and to protect the franchisee's income. 17 In relation to the relief sought, the proposed further amended summons sought to declare the contracts or arrangements wholly or partly void or, in the alternative, to vary the contracts or arrangements to, inter alia, ensure: · the relevant applicant working in the store earned an amount of total remuneration not less than a person performing the work would receive as an employee; · the franchisor did all things necessary so that during the term of the franchise, any of the applicants may perform work in any store without let or hindrance; · the franchisor may not terminate the contracts or arrangements whereby the applicants perform work in the bread franchise industry without first: · giving 12 months' written notice of termination; · continuing to allow the applicants to fully perform work in the bread franchise industry during the period of notice without let or hindrance; · doing all things necessary to enable the applicants to transfer the franchise at fair value during the notice period. 18 Despite the significant differences between the summonses in the way the relief claimed was framed, ultimately the applicants, in both summonses, sought variations to the contracts or arrangements designed to protect their interests, including their income and the level of support provided by the franchisor, whilst the franchise businesses were operating as going concerns, and to protect their interests in the event the contracts or arrangements were terminated. We note that the orders sought in relation to the payment of monies in connection with the contracts or arrangements declared void or varied, are essentially the same in both summonses. We would have expected that if the relief claimed for the alleged unfairness in the proposed further amended summons was of a different character to that claimed in the amended summons, the money orders sought would necessarily have been different. 19 The summonses also differ to the extent that the proposed further amended summons provides more information regarding pre-contractual representations made to the franchisees and the alleged inadequacy of training provided by the franchisor. It also contained additional assertions regarding the nature of the claimed unfairness, for example, assertions relating to the inadequate level of income received by the franchisees and the degree of control exercised by the franchisor to the detriment of the franchisees. This additional material, however, did not, in our opinion, alter the fundamental character or quality of the claims being made by the applicants against the franchisor to the extent that the proposed further amended summons should be regarded as a claim for relief that had not previously been advanced. 20 We find that the proposed further amended summons is not barred by s 108B of the Act. Whether proposed amendments are futile

21 The respondent submitted that the proposed further amended summons significantly altered the structure and nature of the claims for relief made by the applicants by removing a series of claims for variations that were clearly beyond the jurisdiction of this Court, even if the critical jurisdictional fact was established. It was submitted that the changes offended the imperative found in s 108B that applications for orders outside the 12 months' period after termination of the contract were not to be made (save for the 3 months' extension found in s 108B(3) which is not relevant in these proceedings). The proposed amendments, it was submitted, could not affect the proper construction of the franchise and allegedly related agreements that would determine whether the critical jurisdictional fact is established. Counsel submitted that a mere assertion by the applicants that they performed work pursuant to the terms of the franchise agreements was hardly determinative of the underlying question, which was one of construction.

22 The amendments, it was contended, were advanced in an attempt to cure what now seemed to be acknowledged defects in the nature of the relief sought by the applicants, and to influence the resolution of the issue of construction integral to whether the critical jurisdictional fact was established. To that extent, it was submitted the amendments were futile and should not be permitted, for that reason alone. 23 We are in no position, on what has been put to us thus far, to determine one way or the other whether the amendments contained in the proposed further amended summons are futile. We have not been taken at all to any evidence about whether or not the contracts or arrangements that are the subject of the pleadings are contracts or arrangements whereby work is performed in an industry nor have we been taken to the proposed further amended summons for the purpose of demonstrating its futility in a jurisdictional sense other than in the context of s 108B. Other reasons claimed for leave to be refused

24 It was submitted for the respondent that if the Full Bench were to decide that the proposed further amended summons did not constitute a separate application, the respondent, nevertheless, submitted that the applicants should not be granted leave to file the proposed further amended summons for the following reasons: (i) The Applicants have already amended the original Summons in these proceedings on a previous occasion and have previously been given leave to file a further Amended Summons (post-conciliation directions made on 28 March 2007) which they declined to do;

(ii) The proceedings have progressed on the basis of the current pleadings and the Respondent has requested and been provided with a response to particulars in relation to the Amended Summons;

(iii) Significant time has expired since date the Applicants were granted leave to file a Further Amended Summons. At no time during the conduct of the proceedings have the Applicants indicated that they proposed to seek leave to amend the Amended Summons in the manner now foreshadowed;

(iv) The unsatisfactory nature of the proposed Further Amended Summons;

(v) The significant prejudice that the Respondent would suffer if the Applicants were granted leave to amend in the form proposed; substantial costs have been expended, which would be thrown away. An order that the applicants pay the cost thrown away by reason of the amendment does not constitute complete compensation for the grant of the amendment: GSA Industries Pty Ltd v NT Gas Ltd (1990) 24 NSWLR 710 per Samuels JA agreeing with Lord Griffiths' statement in Ketteman v Hansel Properties Ltd [1987] AC 189; [1987] 2 WLR 312; [1988] 1 All ER 38 that justice cannot always be measured in financial terms; and

(vi) The amendments will also substantially delay the proceedings, in effect returning them to an early stage of preparation. In Holcombe v Coulton (1988) 17 NSWLR 71, McHugh JA said that he could not accept that the interests of justice require that cases should be heard and re-heard until every conceivable factual pattern or every conceivable legal principle of relevance that finally occurs to the parties have been litigated.

25 Implicit in this submission by the respondent is its objection to the lateness of the applicants' amendments, they having been made following one amendment already to the summons and as a late attempt to overcome the jurisdictional objections raised in the respondent's submissions supporting its application to dismiss the amended summons. 26 Undoubtedly, the applicants' conduct has caused some delay. The proceedings, nevertheless, are still at a relatively early stage and, in fact, paused to deal with a threshold jurisdictional argument raised by the respondent. We do not consider the applicants' conduct to be such that in the interests of justice, or because the respondent would be so prejudiced, that we should refuse the amendments contained in the proposed further amended summons. In fact, we do not consider that the respondent has demonstrated any real prejudice.

27 Costs, of course, become a particularly relevant consideration and the respondent has foreshadowed a claim for costs on an indemnity basis. In this regard, the respondent is to file and serve its submissions on costs of the motion within seven days of the date of this judgment. The applicants have a further seven days in which to file and serve a response. Unless one or both parties make a request to be heard orally, the Full Bench will deal with the question of costs on the papers. Orders

(1) The applicants' application to further amend the summons in the terms set out in the further amended summons is granted;

(2) Within seven days of the date of this judgment the respondent shall file and serve its submissions in relation to costs of the applicants' notice of motion to amend. The applicants have a further seven days in which to file and serve a response. Unless one or both parties make a request to be heard orally, the Full Bench will deal with the question of costs on the papers.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.

At a glance

Court

Decision date

Before

Source

Judgment (37 paragraphs)

Parties

Legislation Cited (1)

Cases Cited (3)

Cited By (2)