Logan & Ors v WorldAudio Ltd & Ors

APPLICANTS Mr D H Patch of counsel SOLICITORS Paul Murphy & Associates LEGAL REPRESENTATIVES: RESPONDENTS Mr J V Murphy of counsel SOLICITORS FOR THE FIRST RESPONDENT Kemp Strang

INDUSTRIAL RELATIONS COMMISSION OF NEW SOUTH WALES IN COURT SESSION

Matter No IRC 1294 of 2003 GRAEME LOGAN & ORS v WORLDAUDIO LTD & ORS Application under s 106 of the Industrial Relations Act 1996

1 By summons filed in this Court on 11 March 2003 the first applicant Graeme Logan, the second applicant Logan Corporation Pty Ltd and the third applicant Perabo Investment Corporation Pty Ltd seek certain relief against the first respondent WorldAudio Ltd, the second respondent Andrew Peter Thompson, the third respondent Link Traders (Aust) Pty Ltd, the fourth respondent Everest Capital Ltd, the fifth respondent Grosvenor Pirie Management Ltd and the sixth respondent Zycare Trading Ltd under s 106 of the Industrial Relations Act 1996 ("the Act").

2 The relief sought in the summons is directed to a number of matters. The first relates to a consultancy agreement between the second applicant and the first respondent. The summons seeks orders for specific performance of that agreement, an order that the purported termination of that contract by the first respondent is unlawful, void "and of no effect" and other relief. The summons also seeks an order that the first applicant be reinstated as a director of the first respondent and certain relief with respect to a share acquisition agreement.

3 By notice of motion filed the same day the applicants sought certain orders on an interlocutory basis against the first respondent. These orders as reframed during the course of the proceedings were: "1. The first respondent, and its officers servants and agents, be restrained, until further order, from doing, or omitting to do, anything which would give effect to the purported termination of the Consultancy Agreement between the first respondent and the second applicant. 2. The first respondent, and its officers servants and agents, be restrained, until further order, from doing, or omitting to do, anything which would give effect to the letter dated 3 March 2003 from the first respondent to the second applicant. 3. The first respondent, and its officers servants and agents, be restrained, further order, from publishing, or further publishing, in any manner, to any person firm or corporation, any statement in or to the effect that the Consultancy Agreement between the second applicant and the first respondent has been terminated. 4. The first respondent, and its officers servants and agents, be restrained, until further order, from publishing, or further publishing, in any manner, to any person firm or corporation, any statement in or to the effect that the first or second applicant had not performed their obligations under the Consultancy Agreement between the second applicant and the first respondent. 5. The first respondent pay the costs of the applicants of the motion."

4 The first respondent consented to orders No 3 and 4 and orders were made accordingly. The remainder of the interlocutory proceedings were confined to orders 1, 2 and 5.

5 The factual circumstances which are relevant to the determination of these proceedings may be stated shortly. They are based on the affidavit material adduced by the parties for the purpose of the interlocutory proceedings. Mr Graeme Logan asserts he devised a business scheme to acquire a number of radio licences with a view to exploiting their aggregate value with particular regard to the introduction of digital broadcasting. Those licences entitled the holder to broadcast over a limited area at a number of centres throughout Australia including some capital city centres. He determined to exploit this situation together with Mr Andrew Thompson the second respondent. Eventually, as a result of funding provided by a number of investors Mr Logan and Mr Thompson became shareholders in the first respondent WorldAudio Ltd and became entitled to options to additional shareholding in the first respondent upon certain terms and conditions. Mr Thompson became an executive director of the second respondent. Mr Logan became a director also and the second applicant Logan Corporation Pty Ltd entered into a consultancy agreement with the first respondent. A copy of the agreement was tendered into evidence. There was, however, disagreement between the parties as to certain of its provisions and in particular as to the duties and responsibilities of Logan Corporation Pty Ltd under the agreement.

6 It was common ground that Logan Corporation Pty Ltd was only required in general terms to devote one day a week to its work under the agreement. In addition to a retainer of $8,000 per month, the consultant was entitled to payment of commission on acquisition or disposal of assets and on amounts payable under any sponsorship arrangement where the sponsor was introduced by the consultant. That commission was 15 percent of moneys received under the sponsorship arrangement.

7 The consultant was required to engage only "Approved Personnel" to provide or assist it in the provision of its services under the agreement. Approved personnel were defined in item 2 to the schedule to the agreement as being Graeme George Logan and "any other person proposed by the Consultant and approved in writing by the Company for the purposes of this Agreement."

8 Item 1 of the schedule set out the services to be provided. Significantly, for the purpose of these proceedings three of the services to be provided were: "Implement designated aspects of the marketing and public relations plan of the Company", "Visit and promote the Company to major potential sponsors including but not limited to Commonwealth and State Government departments, local Government organisations, local pressure groups and lobbyists, SME, major advertising agencies and large corporate advertisers" and "Plan sponsorship of the Company by organisations in conjunction with marketing events." There was controversy between the parties as to the precise nature of the obligations of Logan Corporation Pty Ltd under the agreement with respect to the services to be provided. Reports made by Logan Corporation Pty Ltd to the first respondent indicated that it had involved itself in an overall sponsorship programme to raise revenue for the company and had been actively engaged in endeavouring to introduce sponsors. In December 2002 Mr Andrew Thompson wrote to Logan Corporation Pty Ltd asserting that "budget figures" that had been provided by it to the first respondent had not been met and referring to Logan Corporation Pty Ltd "as a specialist industry consultant in the area of radio sponsorship sales." The letter sought to require Mr Logan to attend weekly sales coordination meetings, provide a weekly update report as to activity levels and the like and to attend a monthly performance evaluation. Mr Logan responded by reference to the obligations of Logan Corporation Pty Ltd under the consultancy agreement, but did not specify precisely what he was referring to in this regard. On 5 December 2002 Mr Logan wrote to Mr Peter Solomon Chairman of the first respondent complaining about the actions of Mr Thompson and maintaining that Logan Corporation Pty Ltd was "honouring its commitments" in respect to the agreement. He also said: "In addition to add further value and service, Logan Corporation is now in the process of recruiting a professional representative (or personnel) to be working in an area of sponsorships, sales and marketing."

9 On 23 December 2002 Mr Thompson wrote to Logan Corporation Pty Ltd with respect to the "sponsorship sales structure" and complaining also of non-compliance with the directions given in the letter earlier that month.

10 Subsequently Logan Corporation Pty Ltd nominated Louise O'Brien as an approved person under the consultancy agreement. The first respondent approved that nomination by letter dated 22 January 2003 but the approval was for a period expiring 28 February 2003 only. In the same letter the first respondent purported to set budget figures for sponsorship sales of $24,000 in January 2003 and $40,000 in February 2003. That letter was also said to constitute a notice that Logan Corporation Pty Ltd was in breach of its obligations under the consultancy agreement and that unless the budget sales targets were achieved a notice of termination would be given.

11 There followed correspondence between Mr Andrew Thompson on behalf of the first respondent and Mr Graeme Logan of Logan Corporation Pty Ltd containing allegations and counter allegations as to the precise role to be performed by Logan Corporation Pty Ltd with respect to sales and revenue generation on behalf of the first respondent. Each of the parties took opposing views. Mr Logan accused the first respondent of engaging in "continuing endeavours to frustrate the consultancy agreement", of having been in breach of the agreement in connection with the payment of certain moneys, of having caused substantial damage to Logan Corporation Pty Ltd and Mr Logan personally, of having made "gratuitous and vituperative comments to members of staff", of having displayed animosity towards Logan Corporation Pty Ltd and having been guilty of "injurious falsehood". In his correspondence Mr Thompson on behalf of the first respondent rejected these allegations, stating that he considered himself as carrying out his duties within the realms of "World's best practice" corporate governance and stated that he did not wish "to continue to engage with you in nonsensical globular rhetoric."

12 In the course of further correspondence, Mr Logan on behalf of Logan Corporation Pty Ltd wrote to Mr Thompson on 24 February 2003 stating, in part, "How you hold down a Managing Director position of a public company astounds me. Andrew, if I treated my staff, partners, consultants and shareholders the way you do, I would not have a business or directorship. Andrew, if you want the best practice from your team you have to treat people with a little more respect. Lies and hiding behind your new Public Company profile will not protect you from your public perception in the marketplace. And believe me people talk. And let me say .. from what I hear in the marketplace you need a great deal of help." The letter concluded "my advice, let us get on with the job we all contracted to do, build the company and share price and you pay your bills on time and stop being obstructive."

13 By letter dated 3 March 2003 Mr Peter Solomon Chairman of the first respondent wrote to Logan Corporation Pty Ltd complaining that that company had failed to remedy a breach of the consultancy agreement described in previous correspondence and stating that the first respondent "hereby terminates forthwith the consulting Agreement with Logan Corporation Pty Ltd, as of close of business on the 28 February 2003…."

14 In support of the interlocutory orders sought in these proceedings the applicants emphasised a number of matters being: 1. That the termination of the services of Logan Corporation Pty Ltd by the first respondent would have a widespread impact upon the reputation of Logan Corporation Pty Ltd and Mr Logan personally which would impact upon other arrangements and other negotiations which were being conducted in connection with the radio industry. The termination of the services of Logan Corporation Pty Ltd for alleged non-performance could potentially destroy other business opportunities in which Logan Corporation Pty Ltd might participate. 2. Logan Corporation Pty Ltd had engaged the services of two employees, Louise O'Brien and Dennis Jones to enable it to raise advertising and sponsorship revenue for the first respondent. Although it asserted that it was not required to undertake these activities under the consultancy agreement nevertheless it did this "in order to maintain an amicable and productive relationship with the first respondent and its management." If the injunction were not granted Logan Corporation Pty Ltd would be required to terminate the employment of both these persons which would impact upon them and which would financially disadvantage Logan Corporation Pty Ltd by reason of the requirement to make payment in lieu of notice or to continue to pay wages with no work to be performed by them. 3. Notwithstanding the difficulties that had arisen between the applicants and the first respondent and between Mr Logan and Mr Andrew Thompson personally, if the relief sought were to be granted the applicants were confident that Mr Logan would be able to work "effectively" with Mr Thompson "and the other people involved with the first respondent." This was because he had worked with these persons for a long time, and it was in his interests to promote the financial viability of the first respondent in which he was a shareholder. 4. Mr Logan was entitled to participate in the allocation of 7.5 million performance based shares in the first respondent if certain performance criteria were met by that company as a result of the efforts of Mr Logan and Mr Thompson. If Mr Logan were precluded from being involved through the consultancy of Logan Corporation Pty Ltd in the promotion of the first respondent then he would be denied the opportunity to participate in the allocation of these shares.

15 The relevant principles which apply to applications for interlocutory relief of the kind which is the subject of these proceedings have recently been considered comprehensively by Haylen J in this Court in Sea Acres Rainforest Centre Pty Ltd & Ors v State of New South Wales (2001) NSWIRComm 207 reported at (2002) 109 IR 56. In considering the relevant principles his Honour has also thoroughly reviewed the relevant authorities. I respectfully embrace and adopt the review of the authorities and the summation of the principles contained within the judgment of Haylen J in Sea Acres and it is not necessary to deal with these matters in any detail for the purpose of determining these proceedings.

16 I am able to attend to some of the arguments advanced by the applicant briefly. To some extent the complaints made by the applicants concerning the good name and reputation of Mr Logan and Logan Corporation Pty Ltd are satisfied by the consent of the first respondent to submit to orders Nos 3 and 4. In addition, there is evidence that when the first respondent announced to the Australian Stock Exchange the fact of termination of the consultancy agreement with Logan Corporation Pty Ltd, reference was made to the fact that the company disputed the entitlement of the first respondent to terminate the agreement and that Logan Corporation Pty Ltd had anticipated the commencement of legal proceedings. To some extent this must ameliorate the impact of the announcement. Obviously, however, if the applicants succeeded in obtaining orders substantially in the form of orders Nos 1 and 2 as sought in these proceedings, this would substantially enhance their respective positions. I shall return to this aspect when dealing with the more fundamental question as to whether these orders ought to be made.

17 In his judgment in Sea Acres Haylen J referred to the detriment that might be caused to third parties if an injunction were refused as a matter to be taken into account. By analogy, the interests of the innocent third parties was said to be those of the employees Louise O'Brien and Dennis Jones. However Ms O'Brien's employment was only approved by the first respondent under the terms of the consultancy agreement to 28 February 2003, being the date of termination of that agreement. There is no evidence that approval was ever sought by Logan Corporation Pty Ltd for the appointment of Dennis Jones under the consultancy agreement and there is no evidence that any such approval was granted. Accordingly, it may be surmised for the purpose of these interlocutory proceedings that whilst the future employment of Ms O'Brien and Mr Jones by Logan Corporation Pty Ltd may be problematical, there is no justifiable basis for holding the respondents responsible for their employment status under the terms of the consultancy agreement or on any other basis advanced in these proceedings.

18 This leaves outstanding the three remaining factual areas namely the loss of income and loss of reputation suffered by Logan Corporation Pty Ltd directly and Mr Logan indirectly by reason of the termination of the consultancy agreement and the loss of the ability to satisfy the performance criteria which would impact upon entitlement to the performance based vendor shares. These three matters were all said to justify the making of orders Nos 1 and 2.

19 This requires attention to be given to two aspects of the proceedings. The first focuses attention on the basis for the exercise by this Court of any interlocutory application. That basis is concerned with whether or not the processes of the Court in connection with the substantive proceedings will be frustrated unless relief in the nature of injunctive relief is granted, so as to prevent an abuse of the process of the Court. This principle and the underlying authorities are considered in detail by Haylen J in Sea Acres at paras 26 and following. Such a consideration requires a determination as to whether it is just in all the circumstances that the applicant be confined to the payment of "just compensation" pursuant to s 106 (5), which is the relief ultimately sought in general terms by applicants in s 106 proceedings.

20 The matter for determination requires an examination of whether firstly the awarding of compensation would be adequate in the sense that such relief would be appropriate to remedy any unfairness ultimately found to exist and secondly whether the processes of the Court would be unduly hindered or frustrated by an award of the payment of compensation as part of any final relief granted. In Sea Acres the applicant company held a lease of property upon which an educational and tourist facility was operated. There was an allegation that the applicant corporation was entitled to a long-term lease and the principal relief sought was to keep the lease situation in existence, albeit in a varied form, for a long period of time. It was alleged by the applicants that this principal relief was more significant than any claim for compensation. At para 52 and following Haylen J dealt with the difficulties in determining this issue and the proper approach to be adopted by the Court. In determining that damages would not be an adequate remedy and that the grant of an interlocutory order was appropriate his Honour took into account the degree of difficulty that the applicants faced in proving the quantum of any damages at trial, that compensation might be inadequate to the extent that the applicants had suffered loss which could not be taken into account in assessing compensation including loss of goodwill and trade reputation and that the applicants would suffer substantial losses if they were removed from the premises and would also have lost the opportunity of selling the business as a viable concern.

21 In the circumstances of these proceedings it might be thought that the balance of convenience favoured the applicants. I leave aside the question of damage to reputation. More importantly, the applicants argue that the business undertaken by the first respondent was originally conceived by Mr Logan, that it was he who introduced Mr Thompson to the business and that his skills, experience and expertise were needed to ensure the success of the operations of the first respondent. Not only would the fortunes of the first respondent therefore suffer, on this analysis, with a consequent impact upon the reputation of Mr Logan, and the value of his interests associated with his shareholding in the first respondent but also his ability to ensure that the performance criteria established with respect to the grant of a further 7.5 million shares in the first respondent would be met.

22 However the second aspect of the orders sought by the applicants has mitigated against the grant of relief on the balance of convenience. What is sought by way of interlocutory relief would constitute, in effect, an order for specific performance of the consultancy agreement. The orders would have the effect of requiring the first respondent to continue to pay a consultancy fee to Logan Corporation Pty Ltd and to maintain Mr Logan as an approved person in this connection in circumstances where it is quite clear that there is a great deal of personal acrimony between Mr Logan and the Managing Director, Mr Thompson. That such acrimony exists is a matter of evidence and it is neither necessary nor appropriate to make any determination as to culpability or justification concerning the circumstances which have arisen. I am not able from the evidence which has been presented to the Court for the purpose of these interlocutory proceedings to make any determination that the applicants have a case which is prima facie so strong that it is inevitable or almost certain that they will succeed in demonstrating that the conduct of the first respondent and the other respondents named in the proceedings was unfair in the sense that the first respondent was not justified in purporting to terminate the consultancy agreement. In making these observations I am conscious that in proceedings of this kind it is more usual to consider whether an applicant for relief has a "good arguable case". I have deliberately put the matter in a more restrictive way for the purpose of these proceedings because, as I have said, to order the relief sought would in essence constitute an order for specific performance of the consultancy agreement. Because of matters which I regard as being significant in this context and because I have come to the view that a court would only order specific performance of a contract for personal services in exceptional cases, it is appropriate in my opinion that the applicants' case be assessed for the purpose of these interlocutory proceedings by applying a higher test than normal. In this regard I should add that although the applicants maintained Logan Corporation Pty Ltd was not responsible for and was not required as an obligation under the consultancy agreement to create budgets for and satisfy budgetary expectations for the sale of sponsorship and the generation of earnings by the first respondent, there is evidence that these activities were in fact undertaken by Logan Corporation Pty Ltd. It is not necessary at this stage to determine whether there was a contractual obligation on the part of Logan Corporation Pty Ltd to carry out this work or whether it was assumed as a result of some altruistic generosity on the part of Mr Logan. It is sufficient to observe that these issues are to be fiercely contested by the parties and, no doubt, there are arguments available to each side.

23 The general principles which have concerned courts in determining whether to order specific performance of a contract of service have been usefully summarised by Wilcox and Ryan JJ in the Federal Court of Australia in Gregory v Philip Morris (1988) 80 ALR 455 at 481-2. Their Honours said: "Specific performance By para 8 of his application, the appellant sought an order "that the respondent observe and perform the terms of its contract of employment with the applicant by allowing him to work according to the terms of that contract". The order sought is an order in the nature of specific performance;

In Francis v Kuala Lumpur (at 1417-18) the Judicial Committee referred to "the general principle of law that the courts will not grant specific performance of contracts of service". This was not put as a rule of law but the Committee observed that special circumstances will be required before a court exercises its discretion to make such an order. Despite recent judicial criticism of the assumptions underlying the general principle referred to in Francis - see C H Giles Co Ltd v Morris [1972] 1 WLR 307 at 318-19 and Turner v Australasian Coal and Shale Employees' Federation (FCR at 192-3) - the claim is made in Meagher, Gummow and Lehane: Equity - Doctrines and Remedies, 2nd ed, para 2011, that "one may search in vain for a reported case in which equitable relief would have compelled the maintenance of a personal relationship or the performance of personal services (except where they are of a minor nature and an incidental part of a contract otherwise specifically enforceable ... )". In Ridge v Baldwin [1964] AC 40 at 65, Lord Reid went so far as to say that "There cannot be specific performance of a contract of service". In Chappell v Times Newspapers Ltd [1975] 1 WLR 482 at 501, Lord Denning MR treated the decision in Hill v CA Parsons & Co Ltd [1972] Ch 305 as being an exception to the general principle, but the relief granted in Hill was not really of specific performance. The order of the court was merely to restrain the employer from treating as valid a particular notice of dismissal. The invalidation of that particular notice was important to the plaintiff. In any event, the case was unusual because, as Lord Denning pointed out in Chappell "both employers and Mr Hill had complete confidence in one another". The notice of dismissal had been given under pressure from a trade union. Likewise in Irani, another "exception" relied upon by the present appellant, the injunction went to restrain the employer only from implementing a dismissal notice before carrying out the disputes procedure laid down in the plaintiff's conditions of service. The order sought in the present case does not relate to a particular notice of dismissal. It is designed to compel the respondent to restore its previous relationship with the appellant. The order falls into the category which is subject to the general principle referred to in Francis. We do not regard that principle as immutable. As was suggested in Turner, it may be that, under modern conditions and in connection with large employers, the circumstances which gave rise to the general principle will not apply. We would not wish to give any endorsement to the view that there may never be an order in the nature of specific performance of a contract of employment. But the making of such an order is a matter within the discretion of the court. Where such an order is sought, careful consideration must always be given to the likely consequences of the order. The evidence in the present case suggests that industrial difficulties would occur if Gregory were now to be re-employed. Each of the traditional reasons for denial of specific performance - a loss of confidence between the parties and the problem of supervision of the relationship - applies in this case. In the exercise of the court's discretion, an order for specific performance ought to be refused. By way of an alternative to specific performance, the appellant seeks a declaration that his employment was not lawfully terminated. There are circumstances in which the making of a declaration upon such a matter may serve a useful purpose; for example, where some ancillary benefit can thereby be obtained. But in this case, if specific performance is refused, the making of a declaration will not achieve any useful purpose . We bear in mind what was said by Barwick CJ and Jacobs J in Neeta (Epping) Pty Ltd v Phillips (1974) 131 CLR 286 at 307; 3 ALR 151 at 168: "Unless the parties are agreed on the consequences which flow from a declaration that such a contract has or has not been validly rescinded it is generally undesirable that the court should so declare without any orders for consequential relief." That comment was made about a contract for the sale of land. It seems to us that it applies even more strongly to a case where a contract of employment has been breached in circumstances of industrial tension." See also Brennan CJ, Dawson and Toohey JJ in the High Court of Australia in Byrne v Australian Airlines Ltd (1995) 185 CLR 410. ("….a court will not, save in exceptional circumstances, order specific performance of a contract of personal service." (at 428)).

24 Although the parties to the consultancy agreement are corporations and although it is an agreement which established a relationship of principal and independent contractor, the agreement is one by which Mr Logan would be required to perform work for the respondents and would be required to perform that work ultimately under the direction of Mr Thompson. I have already observed that a great deal of personal acrimony has been created between these two gentlemen, and certainly on the part of Mr Logan. There is also a fundamental difference of opinion between them as to the precise nature and extent of the duties, responsibilities and obligations on the part of each of the parties as created by the consultancy agreement. These are compelling matters which, in my opinion, militate against the making of the orders sought by the applicants. There is nothing in the evidence to suggest that the assertion by Mr Logan that he will be able to work cooperatively with Mr Thompson represents anything other than pious hope. It is more appropriate, in my opinion, to consider the relationship between the applicants and the first respondent as having broken down to a significant extent.

25 I conclude, therefore that it would be inappropriate to grant the relief sought in orders Nos 1 and 2.

26 This leaves outstanding the question of costs. On the one hand the applicants have had some partial success by reason of the concession made by the first respondent. On the other hand, the length of the proceedings has been extended by reason of the controversy with respect to orders Nos 1 and 2. I shall reserve costs in the event that the parties are unable to reach agreement concerning them.

27 I make the following orders: 1. That part of the notice of motion directed to orders Nos 1 and 2 is dismissed. 2. Costs are reserved. 3. Liberty to apply with respect to costs. ________________________________-

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