King v Cake It Away Pty Ltd & Ors

FILE NUMBER: IRC 6142 of 1998 CORAM: Marks J CATCHWORDS : Cross claim by respondents against cross respondent - By rule 89(5) Supreme Court practice adopted - Cross claim must be based on cause of action within power and jurisdiction - No cause of action disclosed - Cross claim struck out Industrial Relations Act 1996 s105 s106 s175 LEGISLATION CITED : Supreme Court Act s78 Rule 89 Industrial Relations Commission Rules HEARING DATES: 03/08/2002 DATE OF JUDGMENT: 03/15/2002

APPLICANT Gregory John King (in person)

CROSS RESPONDENT Ms E S Brus of counsel SOLICITORS Riley Gray-Spencer

1st to 7th RESPONDENTS & CROSS CLAIMANTS LEGAL REPRESENTATIVES: Mr S A Levitt LMG Solicitors & Attorneys

8th & 9th RESPONDENTS Mr J J E Fernon of counsel SOLICITORS Watson & Watson

INDUSTRIAL RELATIONS COMMISSION OF NEW SOUTH WALES IN COURT SESSION CORAM: MARKS J Friday 15 March 2002

Matter No IRC 6142 of 1998 GREGORY JOHN KING v CAKE IT AWAY & ORS Application under s 106 of the Industrial Relations Act 1996

INTERLOCUTORY JUDGMENT ON APPLICATION T0 STRIKE OUT CROSS CLAIM

1 By amended summons for relief the applicant Gregory John King has commenced proceedings under s 106 of the Industrial Relations Act 1996 against a number of respondents. The third to seventh respondents inclusive are either directors or shareholders or otherwise associated with the first and second respondents, Cake It Away Pty Ltd and Cake It Away Franchising Pty Ltd. The proceedings in essence allege unfairness with respect to a franchise arrangement whereby the applicant secured a "Cake It Away" franchise. The eight and ninth respondents, St George Bank Ltd and Advance Leasing Ltd have been joined because of their alleged involvement in and about the financing of the applicant's purchase of the Cake It Away franchise.

2 The claim brought by the applicant against the first to seventh respondents is based inter alia on certain representations alleged to have been made to the applicant about the franchise including disclosure statements. It is fair to assume for the purpose of these interlocutory proceedings that the franchise agreement and ancillary documentation will attract a great deal of attention in the substantive proceedings..

3 The documentation which was given by the principal respondents to the applicant to sign included within the franchise agreement itself a provision for a Solicitor's Certificate. A solicitor was required to certify that he or she was employed "independently of and do not act for Cake It Away Franchising Pty Ltd" and to further certify that the solicitor had explained to the franchisee the effect of the agreement prior to it being signed by the franchisee. The certificate concluded: "The signatories appear to be fully aware of (sic) legal effect of this Agreement and have consciously and freely signed this document."

4 The evidence is that Mr King attended upon Mr Stephen Smart, solicitor prior to signing the franchise agreement and other documentation, was given certain advice by Mr Smart and that Mr Smart signed the certificate which was physically part of the documentation.

5 The first to seventh respondents inclusive filed a document entitled "Notice of Cross Claim". That document named them as first to seventh cross applicants and Stephen Smart as cross respondent. The notice of cross claim sought a number of orders against Mr Smart. Relevantly they are: 1. An order declaring that to the extent that the Cross-Applicants or any of them may be found to be liable to the Applicant on his claim, the Cross-Applicants be indemnified in full by the Cross-Respondent, including without limitation, for costs and interest. 2. An order declaring that by providing the Solicitor's Certificate, comprising page 39 of the Franchise Agreement, which Certificate was dated 7 May, 1997, the said Cross-Respondent breached Section 42 of The Fair Trading Act, 1987 (NSW). 3. Further or in the alternative, a declaration that by providing the said Solicitor's Certificate of Independent Advice to the Applicant, the Cross-Respondent did so negligently in full knowledge and contemplation of the likelihood that the Franchise Agreement, along with the said Solicitor's Certificate, provided by the Cross-Respondent, would be provided to and relied upon by the Cross-Applicants and in particular, by the First and Second Cross-Applicants, in respect of the entry into and performance of the Franchise Agreement between the Applicant and the Cross-Applicants. 4. An order declaring that in the event that the Court finds that the Franchise Agreement formed part of an unfair contract between the Applicant and the Cross-Applicants or in the alternative, an unfair arrangement between the Applicant and the Cross-Applicants, that the Cross-Respondent pay to the Applicant, the whole of the sum, together with costs and interests, which the Cross-Applicants may be adjudged to pay to the Applicant in connection with the unfair contract or the unfair agreement. 5. An order that the Cross-Respondent fully indemnify the Cross-Applicants for all costs, expenses, loss of opportunity and other liabilities incurred by them in connection with their entering into and performing the Franchise Agreement with the Applicant, pursuant to and in reliance upon the Cross-Respondent's Solicitor's Certificate of 7 May, 1997. 6. An order that the Cross-Respondent pay the Cross-Applicants' costs. 7. Such further or other relief/orders as the Industrial Relations Commission may deem just in the circumstances, including for damages pursuant to s 68 of The Fair Trading Act, 1987 (NSW).

6 Under the heading "Summary of Matters of Fact and Law" the notice of cross claim document contained the following particulars: 1. On or about 7 May, 1997, the Cross-Respondent provided a Solicitor's Certificate to the Applicant, attesting to his having given advice independently of the Franchisors (the First and Second Cross-Applicants) to the Applicant, as to the effect of the Franchise Agreement between them and the Applicant and noting that the Applicant appeared to be fully aware of the legal effect of the Agreement and to have consciously and freely signed it.

2. In providing the said Certificate, appended to the Franchise Agreement, dated 4 May, 1997, the Cross-Respondent by presumption of Law, was assumed to have considered and explained the effect of all the Franchise Agreements which the Franchisor (the First and Second Cross-Applicants) was required to produce to the Franchisee or prospective Franchisee (being the Applicant), under the Franchise Code of Conduct and also pursuant to legislation and regulations affecting the conduct of franchises in force in the State of New South Wales and the Commonwealth of Australia.

3. The Cross-Respondent further provided the said Certificate in the full knowledge or contemplation that it was likely to be produced to the Franchisors (the Cross-Applicants and in particular, the First and Second Cross-Applicants) and relied upon by them in deciding to enter into and generally, to perform the Franchisors' obligation under the Franchise Agreement.

4. In so acting the Cross-Respondent failed to discharge his duty of care to the Cross-Applicants and in particular, to the First and Second Cross-Applicants, in truly and honestly satisfying himself that the Applicant did indeed understand and appreciate the full commitment which he was making and the effect of the agreement which he was entering into, namely the Franchise Agreement of 4 May, 1997.

5. To the extent that the Cross-Respondent did not perform due diligence with respect to the matters antecedent to the Applicant's entering into the Franchise Agreement, by representing that he had given advice and was able to appreciate that the Applicant appeared to be "fully aware of the legal effect of this Agreement" ("the Franchise Agreement"), the Cross-Respondent was engaging in conduct which was misleading and deceptive or likely to mislead and deceive the Cross-Applicants and in particular but without limitation, the First and Second Cross-Applicants, in breach of s42 of The Fair Trading Act, 1987(NSW).

7 Stephen Smart by his solicitors filed two notices of motion, to similar effect, seeking to have the notice of cross claim set aside. Apart from a procedural ground, the substantial ground advanced was that this Court has no jurisdiction in respect of the subject matter of the cross claim. This judgment deals with these notices of motion.

8 It should immediately be observed that the notice of cross claim does not in essence seek the addition of a further respondent to the substantive proceedings. It is more in the nature of a traditional cross claim, that is, the cross claimants seek to be indemnified with respect to any liability to compensate the applicant arising out of the giving of the Solicitor's Certificate and the circumstances in which that certificate was given.

9 Ms Brus of counsel who appeared for the cross respondent in support of the strike out motion submitted that in essence the cross claim of itself was a substantive proceeding between the cross applicants and the cross respondent, that this Court must have jurisdiction and power to deal with the subject matter of the cross claim, and that no such jurisdiction or power existed. Accordingly, Ms Brus sought that it be struck out.

10 There is no provision within the Industrial Relations Commission Rules 1996 for a procedure by way of cross claim. Rule 89(5) states that where the Rules of the Commission are silent, there is no established practice, procedure or usage and no other rule, order, direction or practice direction is in force then "the practice, procedure or usage for the time being of the Supreme Court …. is, as far as practical, to regulate the practice, procedure or usage of the tribunal." Ms Brus submitted that r 89(5) should not be applied on the basis that the application of Supreme Court rules and directions is a temporary arrangement until such time as appropriate practice directions have been made by the Industrial Relations Commission. No practice directions having been made with respect to cross claims within s 106 proceedings, Ms Brus submitted that there was no provision for cross claims to be made.

11 I do not propose to read down the provisions of r 89(5) in this way. I do not regard the sub-rule as being intended to create a temporary position only but is rather intended to ensure that there is appropriate recourse to practices and procedures in the event that they may not have been the subject of a practice direction or other rules applying generally to the Commission. In so concluding I rely on the comprehensive approach contained within Pt 13 of the Rules entitled "General Procedure" and in particular rr 84 and 85.

12 The relevant provisions of the Supreme Court Act applying to cross claims by defendants are found in s 78, which is in the following terms: (1) Subject to subsection (3), the Court may grant to the defendant in any proceedings (in this section called the first proceedings) all such relief against any person as the Court might grant against that person if the person were a defendant in separate proceedings commenced by the defendant for that purpose. (2) The relief which the Court may grant under this section shall include relief in respect of any equitable estate or right, or other matter of equity, or in respect of any legal estate, right or title claimed or asserted by the defendant. (3) The Court may not, under this section, grant against a person not a plaintiff in the first proceedings relief not relating to or connected with the subject of the first proceedings. (4) Subject to the rules, a person against whom relief is claimed under this section - (a) shall, if not a party to the first proceedings, become a party to the first proceedings; and (b) shall have the same rights in respect of the person's defence against the claim as if the person were a defendant in separate proceedings commenced by the defendant for the purpose of that claim.

13 It will be seen that an ability to bring a cross claim is predicated on the basis that the Supreme Court has power to grant relief against the cross defendant as if the cross defendant were a defendant in separate proceedings commenced by the cross claimant. The relief sought in these proceedings by the cross claimants is clearly framed in the manner of a cross claim. It must be distinguished from an application to have Mr Smart joined as an additional respondent to the proceedings.

14 Accordingly, if one adopts the procedure for a cross claim brought by a defendant as contained within s 78 of the Supreme Court Act, it is necessary for the cross claimants to demonstrate that they would be entitled to relief pursuant to power and jurisdiction of this Court as if they were applicants for relief in separate proceedings commenced against the respondent in this Court.

15 Although this Court is a superior court of record, it nevertheless has limited jurisdiction. The jurisdiction is circumscribed by the provisions of the Industrial Relations Act 1996.

16 Sections 105 and 106 of that Act are as follows: 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.

17 The notice of cross claim does not purport to be based on the provisions of s 106 of the Act nor, indeed, on any other provision of the Industrial Relations Act which might found jurisdiction and power. Whilst there is reference to the franchise agreement which prima facie might be said to be a contract whereby a person performs work in an industry, as provided for in s 106, proceedings under that section may only be commenced by a party to the contract itself by reason of s 108(a) or by other persons who, for present purposes, are irrelevant to any circumstance requiring attention for the purpose of these interlocutory proceedings. Whilst "contract" is defined in s 105 in wide terms to include an arrangement, a related condition or collateral arrangement, there is no attempt made in the cross claim document to identify any arrangement, related condition or collateral arrangement involving the cross respondent to which the cross applicants are a party, save for the franchise agreement itself. There was, for example, no attempt to describe any arrangement to which the cross applicants were a party which involved some form of mutual understanding with the cross respondent. Whether any such arrangement exists or not does not presently call for consideration in view of the conclusion to which I have come concerning the disposal of these interlocutory proceedings. Perhaps, however, the fact that the cross respondent certified that he was employed independently of the franchisor might account for the lack of any such assertion.

18 As framed, therefore, the notice of cross claim does not purport to rely on s 106 to found the necessary jurisdiction or power.

19 Mr Levitt, solicitor who appeared for the cross applicants to oppose the motion asserted that s 175 of the Industrial Relations Act gave this Court power and jurisdiction to deal with the cross claim. S 175 is in the following terms: 175 Powers of interpretation The Commission may, for the purpose of exercising its functions in connection with a matter before it, determine any question concerning the interpretation, application or operation of any relevant law or instrument (including the industrial relations legislation and any industrial instrument).

20 Mr Levitt said that the claim against the cross respondent was based in part on a breach of s 42 of The Fair Trading Act, that this Court had power to determine a question concerning the interpretation, application or operation of that section and therefore this was sufficient to found power and jurisdiction. I reject Mr Levitt's submission because s 175 only creates powers of interpretation and the like for the purpose of exercising the functions of the Court in connection with a matter before the Court. That is, the power of interpretation and the like created by s 175 is conditional upon and may only be exercised in relation to matters which are otherwise properly before the Court and with respect to which the Court has power and jurisdiction. Section 175 does not create an independent source of power or jurisdiction.

21 Accordingly, I conclude that the notice of cross claim as framed is not based upon, related to or otherwise relevantly associated with any relief which this Court has power and jurisdiction to grant at the suit of the cross applicants against the cross respondent in separate proceedings commenced by the cross applicants seeking the relief claimed.

22 It follows, therefore, that the notice of motion must succeed and the notice of cross claim struck out.

23 The cross respondent sought costs and I see no reason why costs should not follow the event.

24 I make the following orders: 1. The notice of cross claim is struck out. 2. The cross applicants shall pay the costs of the cross respondent to be assessed in default of agreement. _________________________________________

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