Justin Samlal v Bill Doneski & ors

Corporations Act 2001 LEGISLATION CITED: Industrial Relations Act 1940 Industrial Relations Act 1996

AFMEPKIU, New South Wales Branch, v David & Ors [2006] NSWIRComm 206 Automotive Food, Metals, Engineering, Printing and Kindred Industries Union, New South Wales Branch v Alan Thomas David & Ors [2005] NSWIRComm 428 Domanko v Chloer Pty Limited (In Liquidation) formerly Business Catalyst International Pty Limited & Anor [2005] NSWIRComm 384 CASES CITED: Marshall v Proteus Solutions (In Liquidation) (2006) 162 IR 135 Minister for Youth & Community Services v Health & Research Employees' Association of Australia, NSW Branch & Ors (1988) 22 IR 35 Raynor v Guthega Alpine Pty Limited & Ors [2006] NSWIRComm 347 Rodgers v Radley & Ors (2000) 160 FLR 85 United Globalcom, Inc. v Industrial Relations Commission (NSW) in Court Session (2005) 142 IR 204

APPLICANT: Solicitor: Steven Penning LEGAL REPRESENTATIVES: Turner Freeman Lawyers

RESPONDENTS: No appearance

Application under section 106 of the Industrial Relations Act 1996

1 These are proceedings brought by way of a summons under s106 of the Industrial Relations Act 1996 in which Justin Samlal seeks relief in relation to a contract of employment between himself and Clean Connection Pty Limited (the third respondent). According to the applicant, the first respondent, Bill Doneski, was the owner, managing director and "controlling mind" of the third respondent. Roderick Gawler, the second respondent, was the third respondent's general manager. The matter has proceeded ex parte. The respondents, who were served with summonses and given notice of all subsequent court listings, never attended court, nor filed any documentation or otherwise sought to participate in any stage of the proceedings. 2 The third respondent operated as a cleaning company. In about December 2004, the applicant was approached by Mr Doneski to work for the third respondent as a business development manager. Following the approach, the applicant developed a business proposal. Shortly after, on 22 February 2005, he was offered employment and commenced work. He received a letter of appointment dated 1 March 2005 and a contract of employment which was apparently drafted by Mr Gawler. The parties to the contract were said to be the applicant and the third respondent. The letter of appointment was signed by Mr Doneski, managing director, "for and on behalf of" the third respondent. 3 During the course of his employment, the applicant says certain promises made to him by Mr Doneski before he commenced work were not honoured. These include the failure to assess his performance by reference to key performance indicators; the failure to pay his salary electronically which often resulted in late payments and consequential financial hardship; the failure to pay him superannuation entitlements; and the non-provision of a company vehicle and mobile telephone. 4 In around May 2005, following a disagreement with Mr Doneski, the applicant says Mr Doneski began to make threats against him and his partner. On 10 May 2005, the applicant telephoned Mr Gawler to request payment of all monies owing to him under the contract. He also wrote to Mr Doneski on the same day with the same request. He says he received no response to the letter. On 24 May 2005, the applicant obtained an interim apprehended violence order against Mr Doneski which became final on 18 July 2005. On 3 June 2005, the applicant wrote to Mr Gawler asking him to "organise payment of my entitlements". On the same day, Mr Gawler attended the applicant's house and handed him a letter purportedly signed by Mr Doneski. The letter stated that the applicant would receive all monies owing to him if he signed an agreement to the effect that he agreed to discontinue all legal proceedings and not institute any legal proceedings against Mr Doneski. The applicant refused to sign the agreement. The applicant's employment therefore, effectively came to an end without notice after a short period of employment of some ten weeks. (In submissions, the applicant says his employment was terminated on about 10 May 2005.) 5 The summons seeks orders in the following terms:

(i) an order declaring void in whole or in part or varying in whole or in part (save as to monies already paid or owing) either from its commencement or some other time, the Contract or the arrangement whereby the First Applicant performed work for the First Respondent in an industry ("the Contract");

(ii) further, in addition or in the alternative, an order declaring that the Contract was unfair, harsh or unconscionable, or against the public interest;

(iii) further, and in addition, an order varying the Contract from its commencement or at some later date by inserting the following provisions: (a) the Applicant's employment under the Contract shall not be terminated without the consent of the Applicant except for serious misconduct unless the Respondent provides to the Applicant six months' notice in writing or pays the Applicant an amount in lieu thereof equal to six months' remuneration payable under the Contract; (b) for the purpose of (a) above, payment in lieu of notice shall be calculated by reference to the total value of all benefits that the Applicant would have received during the notice period, including but not limited to base salary, superannuation contributions, bonus and other statutory entitlements; (c) the exercise of any discretion permitted under the Contract shall be exercised by the Respondents towards the Applicant in a manner that is at all times fair, just and conscionable, and in this regard the Respondent will afford to the Applicant natural justice and procedural fairness; (d) the Respondents will not so act as to be likely to destroy or seriously damage the relationship of confidence and trust between it and the Applicant; (e) the Respondents will not terminate the Contract, for any reason, without first affording the Applicant procedural fairness, including informing the Applicant of the proposed reasons for terminating the Contract and providing an opportunity for the Applicant to respond to those reasons and to be heard before a decision is made in relation to the termination of the Contract; (f) the Respondents will at all times act towards and in respect of the Applicant in a manner that is fair, just and conscionable; (g) the Respondents shall, in their dealings with the Applicant, at all times act with honesty and integrity and shall endeavour by all reasonable means to ensure that all information and representations conveyed by the Respondents to the Applicant are accurate and not misleading in any way; (h) the Respondents shall not renege upon or in any way depart from any representations made by the Respondents to the Applicant, whether such representations were made prior to or during the currency of the Contract, without the prior written approval of the Applicant to so renege or depart. 6 In written submissions, the applicant, through his solicitor, Mr Penning, characterised the claims for relief in different terms:

(i) an order declaring that the Contract of engagement or employment between the applicant and third respondent is unfair pursuant to s106 of the Industrial Relations Act ;

(ii) an order declaring void in whole or in part ab initio, or at some later date the Contract between the applicant and the third respondent under which the applicant performed work for the first and third respondents;

(iii) further, and in the alternative to 2, an order varying from its commencement or at some later date the Contract by inserting provisions as to notice upon termination or the alteration of the duties of the applicant, the prohibition of action that would damage the confidence and trust in the relationship with the applicant. 7 When asked to clarify which respondent was said to be party to the contract, the applicant nominated the third respondent as a party to the contract. Following a further enquiry from the Court as to the significance, if any, of the references to the "respondent" and "respondents" in the orders sought, the applicant explained that the "Claims" section of the summons should consistently refer only to the first and second respondents. When asked to clarify which respondent was said to be a party to the contract, the applicant confirmed that the third respondent was a party to the contract. 8 The Court was then informed that the applicant was not proceeding against the third respondent because it had been placed under external administration sometime in April 2006. An extract from the Australian Security and Investments Commission (ASIC) setting out the relevant details was tendered by the applicant. 9 The Court was also informed that the applicant did not intend to seek the requisite leave to proceed against the corporate respondent. After the luncheon adjournment, the applicant filed in court a notice of discontinuance against the third respondent. 10 The relevant provision under the Corporations Act 2001 which deals with the requirements to seek leave to continue proceedings during the administration of a company is s440D which provides: 440D Stay of proceedings (1) During the administration of a company, a proceeding in a court against the company or in relation to any of its property cannot be begun or proceeded with, except: (a) with the administrator's written consent; or (b) with the leave of the Court and in accordance with such terms (if any) as the Court imposes. (2) Subsection (1) does not apply to: (a) a criminal proceeding; or (b) a prescribed proceeding. 11 Although in opening submissions, the applicant informed the Court that the impugned contract upon which he placed reliance was a contract of employment with the third respondent, later in oral submissions, he modified his position by advancing a submission that, "there was a level of uncertainty", as to the correct parties to the contract. According to the applicant, there is some support for this in the summons where it is pleaded that the applicant performed work for the first respondent (Mr Doneski). The Court directed the applicant's attention to other references in the summons to the third respondent, said to be the entity for whom the applicant performed the work as a business development manager, as well as express references to the contract of employment as one between the applicant and the third respondent. 12 Annexed to the summons is the letter of appointment dated 1 March 2005. The contents of this letter purport to offer the applicant a position with the third respondent as a business development manager effective from the date of the letter. Various terms and conditions including the applicant's remuneration payable by the third respondent are set out in the letter. It is signed by Mr Doneski as managing director, "for and on behalf of", the third respondent. I note also that the ABN on the letter corresponds with the ABN appearing on the ASIC extract. Attached to the applicant's affidavit, sworn on 17 July 2006, is an unsigned agreement dated 1 March 2005 between the applicant and the third respondent which purports to set out certain terms and conditions, including details as to the applicant's remuneration package said to comprise a base salary per annum of $60,000 and superannuation in an amount of $5,400, giving a total of $65,400. 13 It is reasonably clear from this documentation that the applicant was in fact employed by the third respondent as a business development manager from 1 March 2005. The relevant parties to the impugned contract therefore, for present purposes, are the applicant and the third respondent. 14 Under s440D, all proceedings in a court not being criminal proceedings or prescribed proceedings may not be begun or proceeded with against a corporation under administration, or in relation to any of its property, unless leave of the Court is obtained or the administrator consents in writing. Under s1382 of the Corporations Act, "proceeding" means a proceeding whether criminal or civil, before a court. The present proceedings are civil proceedings. No submission was advanced that the proceedings are prescribed proceedings. It follows that s440D is applicable to these proceedings. 15 The Court expressed a view at the commencement of proceedings that if the requisite leave to proceed against the third respondent was not obtained under s440D then the applicant could not proceed against the first and second respondents. The applicant disagreed submitting that s440D, although applicable to the corporate respondent, did not extend to the first and second respondents. Several authorities were relied upon by the applicant in support of the submission. 16 The first of these is Rayner v Guthega Alpine Pty Limited & Ors [2006] NSWIRComm 347. The case concerned an application under s106 against two individual respondents and a corporate respondent which was, at the time of the proceedings, in liquidation, and against which a notice of discontinuance had been filed by the applicant. Marks J, having noted these matters, then considered the applicant's claim against the second and third respondents who were the sole director and hotel manager, respectively, of the corporate respondent. His Honour found that the contract of employment in issue was unfair; that the individual respondents were involved in the management of the corporate respondent's business and benefited from its operations; and ordered them to pay the applicant a sum of money under s106(5). 17 There is nothing on the face of the judgment which indicates that, in the absence of leave being obtained to proceed against the corporate respondent, the applicant could not proceed against the two individual respondents against whom he sought orders under s106(5). The matter was not addressed by Marks J in the judgment. It is therefore of little assistance to the resolution of the present issue. 18 The second judgment relied on by the applicant in support of his submission that the Court can make orders for monetary relief against Messrs Doneski and Gawler, is the Full Bench decision of AFMEPKIU, New South Wales Branch v David & Ors [2006] NSWIRComm 206. According to the applicant, the judgment, consistent with the present proceedings, concerned a direct employment relationship between the applicant and a corporate respondent which was in liquidation at the time of the proceedings and against which the applicant had not obtained leave to proceed under s500(2), the relevant provision under the Corporations Act 2001. 19 The factual background, in brief, was that the applicant/trade union, on behalf of several former employees of a company, David Graphics Ltd, filed a summons under s106. The first respondent, Alan Thomas David, was a director and substantial shareholder in David Graphics. That company went into liquidation at about the time the contracts of employment of each of the employees were terminated. Upon liquidation of David Graphics, a sale of the stock and work in progress was made to another company, Digital Graphics Communications Pty Limited (Digital Graphics). It was alleged that Digital Graphics had purchased the stock and work in progress at an undervalue. Digital Graphics continued to operate the business formerly conducted by David Graphics from the same premises. There was nothing to indicate, on the face of the judgment, that leave to proceed had been obtained against David Graphics, or that there was any intention on the part of the applicant to proceed against David Graphics. 20 At first instance, an application to amend the summons to include Digital Graphics as an additional respondent was dismissed. On appeal, the Full Bench approached the issue of joinder by considering whether there was a real or close connection between Digital Graphics and David Graphics and whether the transfer of the business of one company to another was undertaken as a subterfuge to defeat or have the effect of defeating the applicant's claims. What was not addressed by the Full Bench (not surprisingly, because it was not of any apparent relevance to the appeal) was whether the applicant could proceed against the individual respondents (Mr David and John Lawrence Coates) in circumstances where the impugned contract of employment arrangement was with David Graphics, the company in liquidation. In the judgment at first instance, Marks J set out what he described as the essence of the applicant's case to join Digital Graphics as a party to the proceedings; namely, because David Graphics had gone into liquidation any orders made against it would be futile; and, Digital Graphics, "... had received the benefit of the contract with (David Graphics) ...". Later in the judgment, Marks J observed, "... (that) there is no suggestion of any contract or arrangement to which Digital Graphics was a party which would satisfy the definition of s105 of the Act:" Automotive Food, Metals, Engineering, Printing and Kindred Industries Union, New South Wales Branch v Alan Thomas David & Ors [2005] NSWIRComm 428. 21 It would appear from these comments that the issue of proceeding against the individual respondents in the absence of obtaining leave to proceed against the corporate employer and party to the contract of employment was not raised or otherwise identified. 22 A third authority upon which the applicant places reliance in support of the contention that s440D only has application to the corporate respondent under administration and does not extend to directors of the corporation or other individual respondents is United Globalcom, Inc. v Industrial Relations Commission (NSW) in Court Session (2005) 142 IR 204. That authority dealt with a transfer of funds from one corporation (Old UGC) to another, New UGC. The former corporation had been the applicant's employer. Following a restructure involving Old UGC and several other companies, New UGC was created and became the successor in interest and parent of Old UGC. At first instance, an application had been brought under s106 against Old UGC, New UGC and others. In the Court of Appeal, New UGC sought orders to prevent the Commission in Court Session from hearing the proceeding on the ground that it had no connection with the impugned contract or arrangement under s106. It was observed that if an applicant obtains an order under s106 against the respondent, for whom the work was performed, but the assets of that respondent have since passed to another company, then there may be jurisdiction under s106(2) to make a monetary order against the company to which those assets have passed on the basis that such an order may be properly regarded as a monetary payment "in connection with" a contract declared wholly or partly void and varied under s106(5): at [24]. 23 It would be immediately apparent from the above judgment that the question of jurisdiction to make orders against New UGC arose in the context of an order first being obtained against a respondent, "... for whom the applicant worked in an industry, that is, the applicant's employer, Old UGC which was a party to the proceedings. This finding, in my view, is consistent with a requirement to proceed against a respondent/party to an impugned contract under s106 if orders under s106(5) are being sought against respondents who are not parties to the contract.

24 It does not appear that the first two authorities upon which the applicant places reliance are of any real assistance. Neither Raynor v Guthega, nor AFMEPKIU v David, addressed the consequences which may arise in relation to the application of s106(5) in the event a corporate employer and party to the contract of employment is under administration or in liquidation and the requisite leave has not been obtained to proceed against it. United Globalcom raised an issue as to whether the applicant's employer, Old UGC, had transferred its assets to New UGC, and whether, as a consequence, orders under s106(5) could be made against New UGC, in circumstances where Old UGC was the party to the impugned contract. 25 The Court handed to the applicant a decision of Boland J in Domanko v Chloer Pty Limited (In Liquidation) formerly Business Catalyst International Pty Limited & Anor [2005] NSWIRComm 384 which directly raises the issue of whether in the absence of leave being obtained to proceed against the corporate respondent under administration, the applicant could still proceed against Messrs Doneski and Gawler, as non-parties to the contract. 26 In that judgment, the corporate respondent was in liquidation but no leave had been sought under s500(2) of the Corporations Act 2001 to continue proceedings against it. The second respondent, Zia Qureshi, a former director of the corporate respondent, contended that unless leave was granted to proceed against the corporate respondent, no orders could be made against him under s106. Three reasons were advanced to support the contention:

(i) the impugned contract was claimed to be between the applicant and the first respondent;

(ii) any order declaring the contract wholly or partly void or any order varying the contract could not be made because of the provisions of s500(2) of the Corporations Act ;

(iii) if no declaration or order could be made in respect of the contract between the first respondent and the applicant, no money order under s106(5) could be made against the second respondent. 27 Boland J upheld the contention that no orders could be made against Mr Qureshi under s106(5) unless leave was first granted to proceed against the corporate respondent. His reasons were expressed as follows: [35] I do not consider there can be any doubt that these proceedings may be regarded as "an action or other civil proceeding" for the purpose of s500(2) of the Corporations Act and that the applicant requires the leave of the Supreme Court to proceed with his claim. Further, I accept the second respondent's submission that unless such leave is granted, no orders can be made in connection with the impugned contract. An order or declaration made under s106(1) of the Act would undoubtedly be a step in an "action, cause or matter" that advanced the action. [36] Where does that leave the second respondent? It would seem to be somewhat pointless in the matter going to trial in circumstances where no orders could be made against the second respondent for the reasons submitted by him. That is, in the absence of leave being granted to proceed against the first respondent no order could be made in respect of the impugned contract and, consequently, no orders could be made against the second respondent under s106(5)." 28 In my view, the approach adopted by Boland J must be correct. The parties to an impugned contract, and the party or parties against whom orders are sought, must be parties to the proceedings. 29 A similar approach to that taken in Domanko v Chloer was adopted by Palmer J in Marshall v Proteus Solutions (In Liquidation) (2006) 162 IR 135. Before Palmer J was an application for leave to proceed against the corporate respondent placed in voluntary liquidation under s500(2) of the Corporations Act. The applicant had entered into a contract of employment with the corporate respondent. In the application under s106 of the Act the applicant sought orders for the payment of money against the second respondent, P Sneddon. The application under s500(2) was opposed by Ms Sneddon on the basis that the corporate respondent was a party to the contract, the subject of the s106 proceedings, and therefore was a necessary party to the litigation. In deciding to grant leave to the applicant to proceed under s500(2), his Honour said: [8] In my opinion, in this case leave should be granted under s502(sic). If leave were refused at this stage then a substantial claim between Mr Marshall and Ms Sneddon would be frustrated in the sense that a hearing on the merits would be denied. [9] I do not need to enter at all into the substance of the claim between Mr Marshall and Ms Sneddon. It is clear that the claim by Mr Marshall against Ms Sneddon is of a derivative nature in that Mr Marshall must first establish that the contract between himself and Proteus is unfair so as to attract the jurisdiction of the Industrial Court under s106. Then and only then may the Court make orders of a consequential nature against Ms Sneddon. It is also clear that Mr Marshall, realising the futility of endeavouring to obtain satisfaction of any judgment against Proteus, intends to recover whatever he is entitled to recover as a result of the Industrial Court proceedings, from Ms Sneddon. 30 The effect of these two authorities is, therefore, that parties to a contract or arrangement in an application under s106 must be parties to the litigation so that the Court has the necessary jurisdiction to make orders declaring void or varying the contract and to make consequential orders for monetary relief against non-parties to the contract under s106(5). It follows from the foregoing analysis that no monetary orders under s106(5) may be made in the present proceedings against Messrs Doneski and Gawler unless the third respondent, as a party to the impugned contract of employment, is also a party to the proceedings under s106, and the requisite leave to proceed against it has been obtained under s440D of the Corporations Act. 31 Support for this conclusion is also found in the judgment of McHugh JA in Minister for Youth & Community Services v Health & Research Employees' Association of Australia, NSW Branch & Ors (1988) 22 IR 35 at 74, 75 where his Honour, in commenting on s88F Industrial Relations Act 1940, a predecessor provision to s106, said: The jurisdiction of the Commission under s88F depends upon the existence of a contract, arrangement or condition answering the relevant description and nothing else. Unlike an action or suit at law or in equity, jurisdiction does not depend upon the service of a writ or summons. It does not depend on the service of process on any particular respondent. Who then can properly be a respondent to the proceedings? In my opinion any person whose rights or legitimate expectations will or may be affected by the exercise of the power conferred by s88F is a necessary respondent: Kioa v West (1985) 159 CLR 550. Obviously, the parties to an agreement the subject of the application are necessary respondents. But other persons may also be subject to orders under s88F: Brown v Rezitis (1970) 127 CLR 157. They too are necessary respondents. 32 The applicant sought initially to distinguish Chloer v Domanko on the basis that the present proceedings do not involve a voluntary winding up. In my view, this is a distinction in form rather than substance. Section 500(2), which fell for consideration in Domanko v Chloer, is similar in its operation, purpose and effect to s440D of the Corporations Act 2001. Section 500(2) of the Corporations Act provides: "(2) After the passing of the resolution for voluntary winding up, no action or other civil proceedings is to be proceeded with or commenced against the company except by leave of the Court and subject to such terms as the Court imposes." 33 The two provisions were the subject of comment by Warren J in Rodgers v Radley & Ors (2000) 160 FLR 85. In considering whether s440D had the effect of staying oppression proceedings against a corporate respondent under administration, and other respondents, his Honour, in rejecting an argument to the contrary, said: [13] [s440D] has the purpose of staying proceedings because the placement of the company in administration has the effect of "freezing" the affairs of the company pending assessment by the administrators and further determination by the creditors pursuant to the statutory scheme. In this respect, s440D shares a similar purpose to that underlying s467(7) (staying proceedings after the filing of a winding up application) and s500(2) (staying proceedings after the resolution for a voluntary winding up). The purpose of these provisions is to ensure that the role of the administrator or the liquidator, as the case may be, is not frustrated or interfered with or distracted by other matters such as legal proceedings. 34 The applicant rejected an invitation extended by the Court to enable him to consider his position in light of the Court's view expressed at the commencement of the proceedings that he could not proceed against the first and second respondents unless and until leave had been obtained under s440D of the Corporations Act to proceed against the corporate respondent. 35 In the circumstances, it is not necessary to decide the substance of the application. The matter cannot proceed at this stage for the reasons expressed. I propose to make orders dismissing the summons but those orders will not become final orders until 14 days from the date of this judgment so that the applicant has an opportunity, if he so chooses, to make any further application to the Court. ORDERS

2. Order 1 will not become a final order until 14 days after the date of this judgment. 3. The applicant has 14 days from the date of this judgment to make any further application to the Court in relation to the proceedings.

   ---

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.