Martin v Sheldon Commercial Interiors

APPLICANT Mr J R Clarke of counsel Solicitors: Clayton Utz (Mr J J Catanzariti and Ms F Bigelli)

LEGAL REPRESENTATIVES: RESPONDENTS Mr P M Skinner of counsel Solicitors: Andrew Priestley & Associates (Mr A Priestley)

INDUSTRIAL RELATIONS COMMISSION OF NEW SOUTH WALES IN COURT SESSION

JOHN MARTIN v SHELDON COMMERCIAL INTERIORS AND OTHERS

Application under s 106 of the Industrial Relations Act 1996

JUDGMENT (Extempore) [2001] NSWIRComm 265 1 The Court has before it today a notice of motion filed by the respondents on 31 July 2001 which, as now pressed, seeks an order that the second and third respondents be removed as parties to these proceedings. 2 It is to be observed that the other orders originally sought are no longer pressed as the respondents accept that those orders which deal with particulars do not require further consideration as particulars have been provided by the applicant. The parties will be referred to by their respective titles in the proceedings proper rather than by reference to their roles in the motion. The Court has been considerably assisted by the helpful submissions respectively Mr P M Skinner of counsel for the respondents and Mr J R Clarke of counsel for the applicant. 3 The solicitor for the respondents, Mr Priestley, swore an affidavit in support of the motion deposing that the applicant is a former employee of the first respondent and that, based on his instructions, the third respondent is not and has not been at any material time a director of the first respondent. He also provides documentary evidence that the second respondent is the sole director of the first respondent and that the only shareholders of that corporation are the second and third respondents. His affidavit contains a number of paragraphs which might appropriately be treated as helpful assistance to the Court as to the basis upon which the motion has been filed. Those paragraphs are in the following terms, although it may be noted that some of the text relates to the issue of particulars which has been overtaken by events: 7. The Applicant seeks in this proceeding compensation for the alleged breach of an arrangement referred to by the Applicant in his Summons for Relief as "the Transaction". The Transaction was allegedly constituted by communications [and] discussions occurring in and between March 1999 and November 2000. 8. The Applicant alleges that the Transaction involved the issue of shares in Sheldon Interiors, the issue of shares in any "Satellite" businesses, the sale of a further interest in Sheldon Interiors subject to a valuation of the company and the receipt of "bottom line net profits" at an indeterminate future time. 9. In light of the broad and vague description of the Transaction by the Applicant Sheldon Interiors and the Second and Third Respondents will require the provision of substantial particulars by the Applicant and discovery of all documents, if any, relevant to the Transaction alleged by the Applicant and denied by the Respondents. 4 These matters are to be read in conjunction with the grounds set out in the motion which refer to the fact that the applicant was employed by the first respondent; that at no time did he have a contractual relationship with either of the other respondents (who are respectively Mr and Mrs Law); and that the third respondent is not and was not at any material time a director of the first respondent. Further, that: 4. Mr Martin has no cause of action against Mr Peter Law or Mrs Robyn Law. 5. If he does have a cause of action against either Mr Peter Law or Mrs Robyn Law (which is not admitted but specifically denied) the Industrial Relations Commission does not have jurisdiction or it is a matter more appropriate for the District Court of New South Wales. 5 Before dealing with the submissions of the parties it is convenient to refer briefly to the summons filed by the applicant when the proceedings were commenced on 21 May 2001. Although some criticisms of the drafting of the summons are made in the respondents' submissions, it should be emphasised that nothing said in this judgment should be taken as an acceptance of those criticisms. Accepting that the dealings between the parties are correctly set out in the summons, which is the basis upon which this matter is to be considered, they involve a degree of complexity which seem to have been dealt with in an appropriate way in the summons. That of course does not mean that, as with any complex document or pleading, it may not have to be read carefully and in a way which relates, one to the other, provisions or sections of the document which, although set out some pages apart, may have a conceptual or logical connection requiring a deal of cross-referencing. 6 The summons seeks a number of orders. The primary order sought is a declaration that: [T]he contract, arrangement or collateral arrangement under which the applicant performed work for the respondents is unfair, harsh or unconscionable and contrary to the public interest. 7 The second and third orders are sought as alternative or ancillary to the primary order and are in the following terms: 2. Further or, in the alternative, an order varying the contract of employment or arrangement between the Applicant and the Respondents from its commencement or at some later time to include the following terms: (i) Upon termination of employment for any reason, the Respondents shall give the Applicant nine (9) months' notice of termination on total remuneration package or payment in lieu thereof; (ii) That the respondents allocate 10 per cent of the business of the First Respondent to the Applicant plus 50 per cent of any additional "Satellite" business of the First Respondent; (iii) That the Respondents sell to the Applicant a further 15 per cent of the business of upon a current valuation of the business of the First Respondent; (iv) That the Applicant receive 20 per cent of the bottom line net profits of the business of the First Respondent until the Applicant has purchased 15 per cent of the business of the First Respondent as described in paragraph 2.3 of this Summons. 3. A clause preventing the Respondents from using duress or other unfair practices in resolving any disputes with respect to termination or the payment in lieu of notice.

8 Orders are also sought as to the payment to the applicant of monies in accordance with the variations to the contract of employment claimed in these terms: 4. An order that the Respondents forthwith pay to, and be jointly and severally liable for the payments to, the applicant of monies in accordance with the variations to the Contract of Employment above. 5. An order that the Respondents pay to, and be jointly and severally liable for payment to, the Applicant of interest to be paid or any monies ordered to be paid, such interest to be calculated in accordance with the Supreme Court scales for the relevant period. 6. An order that the Respondents be jointly and severally liable for payment of the Applicant's costs as agreed or assessed. 9 In the final part of the summons there is (correcting an apparent typographical error) an allegation that the respondents conducted themselves in an unfair manner in relation to the contract by reason of the circumstances referred to earlier in the summons. 10 It is also alleged that the applicant has suffered loss and damage "as a result of the unfairness of his contract of employment with the respondents, the unfair operation of the contract of employment and the unfair conduct of the respondents in relation to [that] contract". It is claimed that as a consequence of the loss and damage alleged the respondents ought to pay the applicant the amounts claimed in section D of the summons. The amount claimed is set out and particularised. 11 I have referred to those paragraphs from both the beginning and the end of the summons since, notwithstanding the different locations of those parts of the applicant's claim, orders 4 and 5 sought in section A of the summons and those set out towards the end (in paragraphs 23 and 24 of section B) of the summons are, at least in part, claims for orders "as to the payment of money in connection with [a] contract declared wholly or partly void, or varied" as the Court considers just in the circumstances as contemplated by s 106(5) of the Industrial Relations Act . 12 In the applicant's summary of matters of fact and law (section B) of the summons, considerable detail is provided as to the relations and dealings between the applicant and the respondents. For present purposes it is sufficient to extract the first eight paragraphs of that section and also the tenth paragraph, as follows: B Summary of Matters of Fact and Law 1. The First Respondent, Sheldon Commercial Interiors, was at all times and is a company capable of being sued in and by its corporate style and title. 2. The First and Second Respondents are and were at all times directors of the First Respondent. 3. On or about March 1999, the Applicant was approached by the Second and Third Respondents, to assist them in putting together a business plan to improve the business of the First Respondent. 4. On or about July 1999, the Applicant entered into a consultancy arrangement with the First Respondent on a full time basis. 5. On or about March 2000, the Applicant indicated to the Second Respondent that his consultancy agreement with the First Respondent was due to end in June 2000, and in this respect, he had a desire to become re-involved in the Information Technology industry. 6. On or about March 2000, the Second Respondent approached the Applicant and asked the Applicant to become formally involved in the business of the First Respondent on a full time basis upon the following business arrangement ("the Transaction"): (a) That the Second and Third Respondents give 10 per cent of the business of the First Respondent to the Applicant plus 50 per cent of any additional "Satellite" business of the First Respondent; (b) that the Second and Third Respondents sell a further 15 per cent of the business of the First Respondent upon a current valuation of the business to the applicant; and (c) that the Applicant receive 20 per cent of the bottom line net profits of the First Respondent until such time as the Applicant purchases 15 per cent of the business of the First Respondent (as per paragraph (b) above). 7. On or about April 2000, the Second and Third Respondents of the Applicant orally and formally agreed upon the above Transaction. At this time, at the Second Respondent's request, the Applicant took on the role of Managing Director of the First Respondent. 8. On or about July 2000, a formal announcement was made to all staff of the First Respondent that the Applicant " had become a partner " of the First Respondent.

... 10. On or about late November, the formalities of the Applicant's contract of employment and, the Transaction had been finalised by way of oral agreement.

The particulars provided by the applicant amended the allegation in paragraph 2 that the first and second respondents were directors of the first respondent by substituting reference to the second and third respondents. There is an issue whether the statement that the third respondent is a director of the first respondent is correct. However, I do not consider anything turns on any possible error in that respect for present purposes. 13 Reference is then made to a rather complex series of events which led to the cessation of the relations between the applicant on the one hand and the respondents on the other which do not need to be detailed at this time. It is sufficient to note that, in paragraphs 17 to 20, the applicant states that he felt he had no option but to resign from his position as the Managing Director of the first respondent which he asserts "thereby [led] to the applicant's constructive dismissal of employment with the respondent"; that the applicant has attempted to telephone the second respondent on a number of occasions to communicate his desire to withdraw his resignation and to discuss resolution of the situation but that such telephone calls were not at any time returned nor was any attempt made by respondent to contact him. Further, that at no stage did the respondents undertake any formal investigation or further consult with him in respect of the events which are said to have occurred which ultimately led to the constructive dismissal. Detailed particulars are given of the basis upon which the applicant alleges the contract of employment whereby he performed work with the respondents was (to paraphrase) an unfair contract as defined in s 105 of the statute and as read with other definitions in that section.

14 Turning then to the respondents' submissions, they observe that whatever is the relationship between the parties only that between the applicant and the first respondent is a contract of employment; also, that it is important to note that the applicant's summons alleges an agreement between the applicant and the second and third respondents as set out in paragraphs 6 to 9 of Part B and termed "the Transaction". The summons thereby draws a distinction between the transaction, as defined, and the applicant's contract of employment with the first respondent, and so much is confirmed by the affidavit sworn by the applicant on 28 August 2001 and filed in the proceedings. Therefore, the respondents contend, the applicant, in effect and in substance, seeks to specifically enforce the alleged transaction between himself and the second and third respondents by means of varying the contract of employment between him and the first respondent to include in it terms which were on his own case never intended by any party to be binding on the first respondent. Further, that as a consequence of the formulation of his case in that way, the applicant seeks to rely on those matters to seek monetary relief pursuant to s 106(5) of the Industrial Relations Act . It is submitted that this is an abuse of process and that "the applicant seeks to enliven the jurisdiction of this honourable Court in respect of a claim against the second and third respondents which is properly justiciable in the District Court". 15 Counsel for the respondents also, fairly it might be said, conceded that the motion should perhaps have more squarely raised an attack on the applicant's attempt to rely upon what is described in the summons as "the Transaction" as a significant part of his s 106 claim. 16 Notwithstanding some hesitation in this regard, I am nevertheless prepared to consider the matter on both bases raised by the applicant since I consider it is in the interests of the parties properly considered, and also in the public interest, that so far as is feasible the matters in issue between them in terms of this motion be dealt with completely. Equally important to these considerations is that I do not consider the decision in the matter would be any different whether the matter was approached in terms of the original formulation of the attack on the applicant's summons or the relatively minor way in which it has been differently formulated. 17 The conceptual and practical starting point of the consideration of the attack as initially formulated is that the attack is limited to the joining of the second and third respondents or, on the respondents' alternative or further approach, the raising by the applicant as relevant to the claim for relief under s 106 of "the Transaction" in which the second and third respondents figure significantly and in which it appears, at least in the strictly legal sense, the first respondent may not. 18 Whichever way the respondents seek to conceptualise the proceedings or to portray them somewhat differently for the purposes of the litigation, and although it is perhaps understandable that they might seek to do so, nevertheless it is clear that those attempts if successful would lead to a highly artificial approach to the litigation. As earlier observed, the Court in an application of this kind, being in substance a strike-out application, has to accept the way in which the case is framed by the applicant at its highest. Approaching the matter accordingly, the way in which the dealings between the parties are set out, understandably and perhaps inevitably, has led to the case being framed in the rather complicated way it has, and make it appropriate for the second and third respondents to be joined as parties in addition to the first respondent. To the extent it is necessary to make a finding in proceedings of this kind, I consider the case as framed is a case which conceptually falls within the jurisdictional categories relevant to proceedings under s 106, in that it might be claimed, in terms of the extended definition of the word "contract" in s 105 of the Industrial Relations Act , that the various dealings between the parties could comprehensively be described as an "arrangement"; or, again merely by way of illustration, a "contract … or any related condition or collateral arrangement" in terms of that definition. Further, if it is said to be an arrangement each of the elements of it (that is, the original consultancy contract and the subsequent "Transaction" when effected) could be said to have been set out or "pleaded" in the summons on the basis that they are contracts "whereby a person performs work in [an] industry" in terms of s 106(1). 19 In making these observations I am of course not making any judgment as to the appropriateness of the claim or as to the application succeeding, but merely making limited findings as appropriate on the very limited basis necessary for the purposes of this interlocutory application. 20 In Virtue v The New South Wales Department of Education and Training (1999) 92 IR 428 at 449 I made the following observations for the preliminary consideration of a strike out application in those proceedings: For relief to be available or granted under s 106 there must be, logically or sequentially, the following steps: (1) a finding that the contract (as defined in s 105) is an unfair contract (also as defined in s 105 but also as elaborated in s 106(2)); (2) an order that the contract be declared wholly or partly void or varied, pursuant to s 106(1); (3) an order as to the payment of money in terms of s 106(5) and subject to the terms of that provision.

See, for example BNY Australia Limited v James (1992) 40 IR 1 at 2, 27, 36 - 38, 54 - 55.

It will happen in some cases that an order of the kind referred to in step (3) is not necessary or appropriate (see, for example Daley v New South Wales Rugby League Limited (1995) 78 IR 247 at 287 - 288) but in order for step (3) to be taken, steps (1) and (2) are necessary. Similarly, the jurisdictional prerequisite to an order in terms of step (2) is a finding under the first step. The logical or sequential series of steps which were observed as necessary for the grant of relief under s 106 seem to have been relied upon in the way in which the applicant has framed his case here. 21 Also in the judgment in Virtue (at 447 - 448) I set out the principles to be applied in relation to an application to strike out on an interlocutory basis a summons filed under s 106 where it is alleged the Commission lacks jurisdiction. Although the formulation of the principles relied substantially on a number of cases cited in the judgment, particularly the judgment in Nagle (T/as W D and J L Nagle & Sons) v Tilburg (1993) 51 IR 8 at 10 - 12, nevertheless the principles were slightly reformulated to deal with some slightly broader considerations than had the judgment in Nagle v Tilburg . It might be noted that Marks J in Heath Group Australasia Pty Limited v Pengly [2001] NSWIRComm 241 at [11] recently adopted and applied those principles in dismissing a strike out application in those proceedings. 22 It is clearly necessary to adjust those principles for application in this case in recognition of the fact that the application here is not a strike out application simpliciter but an application limited to the striking out of two of the three respondents or, on the alternative formulation, to strike out either a cause of action or part of a cause of action. In formulating the matter in the latter way I accept it may be somewhat inaccurate to attempt to adapt general pleading concepts to proceedings under s 106. The description nevertheless provides a useful insight into what appears to be the issues in this motion. 23 Applying the principles as appropriately adapted to the present circumstances, I consider there is no basis either to remove the second and third respondents or alternatively to strike out the cause of action identified; that is, the aspect of the applicant's claim referred to as "the Transaction". The proceedings have been, as indicated, framed in a way available under, and consistent with, s 106 and cannot at this stage be held to be an abuse of process. I do not consider that any of the matters raised by the respondents demonstrates that there is an abuse of process. 24 Before concluding, I should note that counsel for the applicant in his submissions in defence of the way in which the applicant has framed his case referred to a number of well known authorities on s 106 and its predecessors such as Visalli v Southwell (1988) 12 NSWLR 502, Fernance v Wreckair Pty Limited (1991) 22 NSWLR 439, Brown v Rezitis (1970) 127 CLR 157, Hoffman v Industrial Commission (NSW) (1990) 33 IR 139, Wong v Cheng (1999) 91 IR 369 and TNT Management Pty Limited v White (1984) 7 IR 331. 25 Because of the way in which this matter has been decided, it may not be necessary to rely on those judgments or the principles for which they stand. Nevertheless, I consider that the submissions made by counsel for the applicant based on those authorities are, generally speaking, correct. For example, the jurisdiction of the Court is available if it be shown that there is a contract or arrangement or related condition or collateral arrangement whereby a person performs work in an industry; although jurisdiction to make an order under s 106 does not depend upon the presence before the Court of particular parties, because a person against whom the Court might make an order in the proper exercise of its discretion ought to be before the Court and the requirements of natural justice or procedural fairness demand that a person in that situation have an opportunity to be heard, it is appropriate that such person be joined as a respondent to the proceedings; and it is also appropriate as a practical matter both in terms of procedure and elementary notions of fairness that such joinder occur at the earliest possible time. The authorities also make clear that mere association with transactions or dealings between the parties is not sufficient to provide a basis to make orders against a person. Such orders may, however, be made against those who, for example, have received proceeds or have derived benefits from an impugned contract or arrangement or were in some way culpably associated with its making or operation. On one view, the high point for the making of such an order may be discerned from the long standing judgment of the then Industrial Commission of New South Wales in Court Session in TNT Management Pty Limited v White where an order was made against a respondent who, it was held, could reasonably have been considered to have had a real connection with the making, variation or avoidance of the contract or arrangement which had been varied. It is to be stressed that these principles are relevant because of the nature of the present application which is made at the commencement of the proceedings and do not determine whether any orders could or should be made, as a matter of discretion, against any party. 26 Although, as earlier noted, it may not be necessary to rely on such matters for the purposes of the present motion I do not consider there is anything in those authorities, a number of which are binding on me and which I consider lay down well established principles, which would lead me to consider that the way in which the applicant has framed his case is such that either of the claims for relief which the respondents now seek should be granted. I therefore make the following order: 1. The Court dismisses the respondents' motion.

[Counsel addressed on costs] 27 I have had the benefit of counsel's submissions on the question of costs. It appears to be common ground that it is inappropriate for any costs order to deal with the question of the seeking or provision of particulars. I agree with that view. The question of particulars may be relevant to the progress of the matter generally including the conciliation and trial. Such matters should therefore be left to the trial Judge or to another Judge dealing with the matter. Nevertheless I consider the position with the motion is different to the situation of particulars and the costs of the motion should follow the event. I therefore make the following additional order: 2. The respondents shall pay the applicant's costs of and incidental to the notice of motion heard today.

28 [After hearing counsel further the Court made directions as follows:] 3. The proceedings are, by consent, stood over for further directions at 9.30 a.m. Thursday 15 November 2001. The parties have liberty to apply on reasonable notice in the meantime. ___________________

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