McCausland v Surfing Hardware International Holdings Pty Limited & Ors

SECOND RESPONDENT: SHI Holdings Pty Limited (ACN 103 227 167) PARTIES: THIRD RESPONDENT: Surf Hardware International Pty Limited (ACN 085 260 920)

FOURTH RESPONDENT: Timothy Bosher

FIFTH RESPONDENT: Timothy Ford

Practice and Procedure - notice of motion - leave to amend summons - respondents oppose leave sought - whether new claims raised beyond Court's jurisdiction - whether amendments futile - leave granted CATCHWORDS:

LEGISLATION CITED: Industrial Relations Act 1996

Clough and Rogers v Frog (1974) 4 ALR 615 General Steel Industries Inc v Commissioner of Railways (NSW) (1964) 112 CLR 125 McDonald's Australia Holdings Limited & Anor v Industrial Relations Commission of New South Wales & 2 Ors [2005] NSWCA 286 CASES CITED: MMAL Rentals Pty Limited v Bruning [2004] NSWCA 451 Solution 6 Holdings Limited & Ors [2004] NSWCA 200

APPLICANT: Mr P Newall of counsel SOLICITORS: Dunstan Legal LEGAL REPRESENTATIVES:

RESPONDENT: Mr D Cross, solicitor SOLICITORS: Allens Arthur Robinson

• 8 - INDUSTRIAL RELATIONS COMMISSION OF NEW SOUTH WALES IN COURT SESSION

WILLIAM MCCAUSLAND v SURFING HARDWARE INTERNATIONAL HOLDINGS PTY LIMITED AND OTHERS

Application under s.106 of the Industrial Relations Act 1996

1 These proceedings were commenced in August 2004. The applicant seeks leave to amend the summons initiating the proceedings in various ways, to ensure that all of the issues which lie between the parties may be determined. The respondents oppose the leave sought in relation to paragraphs 25 to 28 of the claims advanced in the amended summons. It is the respondents' case that those claims are beyond the Court's power, because they do not have a close relationship with the performance of work. 2 It was common ground that the Court has a discretion to permit the amendment (see s 170 of the Industrial Relations Act 1996). It was the applicant's case that the discretion would here be exercised, to ensure that all issues lying between the parties could properly be determined, in circumstances where there was no prejudice to the respondents, it not as yet having put on any reply to the original summons. The only question here raised by the respondents was said to be the assertion that there was obvious futility in the amendment sought, which was denied. In any event, it was argued that no evidence had been led, which could permit a conclusion to that effect to be reached - the shareholders' agreement, for instance, was not in evidence. 3 The approach to be followed was submitted to be that discussed in Clough and Rogers v Frog (1974) 4 ALR 615 at 618: The principle according to which this power is to be exercised was stated by Bowen LJ in Cropper v Smith (1884) 26 Ch D 700 at 710-11: "… the object of courts is to decide the rights of the parties, and not to punish them for mistakes they make in the conduct of their cases …. I know of no kind of error or mistake which, if not fraudulent or intended to overreach, the court ought not to correct, if it can be done without injustice to the other party. … as soon as it appears that the way in which a party has framed his case will not lead to a decision of the real matter in controversy, it is as much a matter of right on his part to have it corrected, if it can be done without injustice, as anything else in the case is a matter of right." 4 The respondents accepted that the onus which fell upon them in resisting the amendment was high and submitted that the test is that outlined in General Steel Industries Inc v Commissioner of Railways (NSW) (1964) 112 CLR 125 at 129: It is sufficient for me to say that these cases uniformly adhere to the view that the plaintiff ought not to be denied access to the customary tribunal which deals with actions of the kind he brings, unless his lack of a cause of action - if that be the ground on which the Court is invited, as in this case, to exercise its powers of summary dismissal - is clearly demonstrated. The test to be applied has been variously expressed; 'so obviously untenable that it cannot possibly succeed'; 'manifestly groundless'; 'so manifestly faulty that it does not admit of argument'; 'discloses a case which the Court is satisfied cannot succeed'; 'under no possibility can there be a good cause of action'' ...

5 The respondents argued, however, that the amended summons raised claims beyond the Court's jurisdiction. It submitted that the amended summons was an even clearer example than that considered by the Court of Appeal in Solution 6 Holdings Limited & Ors [2004] NSWCA 200, of a claim that does not have a close relationship with the performance of work, or that does not relate in some reasonably direct manner to the performance for work. Reliance was also placed upon McDonald's Australia Holdings Limited & Anor v Industrial Relations Commission of New South Wales & 2 Ors [2005] NSWCA 286. 6 It was the applicant's case, to the contrary, that this was not the time at which jurisdiction could be determined. In any event, not only was the case here advanced different in various relevant respects to that dealt with in Solution 6, in determining whether there was obvious futility in permitting the amendment, the Court could not ignore that the High Court had given leave to appeal the Court of Appeal's decision in Solution 6. In those circumstances, it could not be concluded that the claim advanced was a futility. The law was not settled. Consideration 7 It must immediately be observed, as has often been noted in authorities, that this is not a Court of strict pleading. It follows that the claims to which objection is taken, must be understood in the context of the claims otherwise made in the summons. On this approach, the claims made, for example, in paragraphs 1 and 24 of the amended summons, cannot be overlooked, when the claims made in paragraphs 25 to 28 are sought to be understood. Nor can the matters of fact and law said to support those claims, be read in isolation from each other and assigned, arbitrarily to one claim or another. The summons must be read as a whole. 8 Paragraphs 1 and 24 to 28 of the summons provide:

1. An order declaring that the contract or arrangement whereby, amongst other matters, the Applicant performed work as an employee of the First Respondent or any one of the First to Third Respondents in an industry in New South Wales ('the Contract') was unfair within the meaning of s.105 of the Industrial Relations Act 1996. ('the Act')

24. An Order declaring that the Contract included not only the employment contract under which the Applicant was employed but also all related contractual transactions including, inter alia, the Shareholders' Agreement entered into on 23 December 2002 ('the Shareholders' Agreement').

25. An Order declaring that so far as the Contract permitted the Respondents or any other person to acquire the shares in the Second Respondent owned by the Applicant for a price of 67c by the effect of a 'drag-along' clause in the Shareholders' Agreement, the Contract was unfair.

26. An Order varying the Contract so as to provide that the 'drag-along' clause in the Shareholders' Agreement could only apply after offers for the acquisition of shares by a third party being at arms length, and not the acquisition of the applicant's shares by any of the Respondents or other shareholders. 27. An Order declaring that the Contract so far as it provided in the 'drag-along' clause that the Applicant's shares could be acquired by existing shareholders at a price of 67c by effect of the clause, the Contract was unfair.

28. An Order that the Respondents pay the Applicant a sum equivalent to the difference between 67c and $3.00, or alternatively the difference between 67c and $1.00, or in the alternative between 67c and the highest market value achieved by the shares at the date of judgment, whichever difference is the greater, multiplied by the number of shares acquired from the Applicant.

9 The respondents submitted that 'the only paragraphs in Part B of the proposed further summons which are tied to the prayer for relief in paragraphs 25 to 28, are paragraphs 106, 107 and 108(t) to (w)'. These paragraphs make allegations concerning the applicant's status as a shareholder of the second respondent and the manner in which he was treated in that capacity. 10 The summary of matters of fact and law in the summons asserts that the applicant was an employee of either the first or second respondent and a director and shareholder of the second respondent. He was a founder of the business in which he had worked for some 18 years. In 2003, his two partners sold their shares to investors, who included a Macquarie Bank consortium and a second consortium. The applicant retained his shareholding and continued working in the business. 11 It is also asserted that in the course of the negotiations about this transaction and subsequently, various representations were made to the applicant about the transaction and his ongoing employment and entitlements, as an employee, director and shareholder. Those representations were not honoured and the respondents embarked upon a course of conduct which resulted in the applicant's dismissal from his employment and the compulsory acquisition of his shareholding. 12 The conduct complained of included the reduction of the applicant's remuneration from $250,000 to $150,000, on the basis of a representation that shareholders, including he, would be enriched by a multiple of the sum he had foregone, with the result that the value of his shareholding would thereby be significantly increased. The respondents excluded the applicant from information about the business and involvement in business decisions. His resignation was sought under threat of dismissal and it was proposed that instead, he provide consultancy services. When he declined, he was dismissed and his shares compulsorily acquired. 13 The summons complains that there was, effectively, a single contract or arrangement between the parties which included the contract of employment and the shareholders' agreement. The summons seeks relief of various kinds, including in relation to the price at which the applicant's shares were compulsorily acquired from him under the shareholders' agreement, pursuant to what is called a 'drag-along clause'. 14 While the respondents placed reliance upon the approach of the Court of Appeal in Solution 6 and McDonalds, to support the view that it would be futile to permit the amendment, as being beyond jurisdiction, I am unable to come to that conclusion. 15 I am unable to see why, in the context of the amended summons as here sought to be advanced, it is not possible that the applicant could make out the claim that there was effectively a single contract or arrangement, which was unfair, as claimed, in whole or in part. Such a claim was made out in MMAL Rentals Pty Limited v Bruning [2004] NSWCA 451. There Spigelman CJ accepted the conclusions reached by Young CJ in Eq at first instance pursuant to s 106, that the contract 'whereby work was performed in an industry' in that case, was a single contract or arrangement comprised of a management agreement and a share allotment agreement (at [126]). One of the issues in the case was whether Mr Bruning received lower compensation as part of his remuneration package, by reason of the fact that he was an investor and was to receive a return on capital by dividends or capital gains. (See [127]) Similar claims are advanced here by the applicant. 16 It was in that context that Spigelman CJ concluded that the power in s 106 extended to permit variation of the price determination formula provided in the contract. At [143], his Honour observed; What is required is a close relationship between the performance of work and the aspect of the relevant contract that the Court is called upon to declare void or to vary. (See Solution 6 supra at [83]-[95].) I reiterate the view I there expressed at [94] that: "It is not appropriate ... to take a narrow approach to the total package of benefits, conditions, rights and obligations which relate to performance of work." 17 Mason P and Hodgson JA agreed with the conclusions the Chief Justice reached. 18 In this case, the respondents' objections go to that part of the amended summons where the applicant seeks to attack the fairness of the shareholders' agreement, which permitted the compulsory acquisition of the applicant's shares at a price of 67c per share. In parts of the summons not pointed to by the respondents, but which are plainly relevant to the claims advanced, the applicant complains that the price he received was unfair, in circumstances where his remuneration under his contract of employment was reduced by $100,000, so that the value of the shares, including his own, would be increased. One of the complaints advanced was that the result was that he lost the benefit both of the remuneration he had foregone and the increase in the value of the shares which it was represented to him would result, when his shares were compulsorily acquired. 19 In that context, I am satisfied that to accept the approach urged by the respondent would be to take a narrow approach to the 'total package of benefits, conditions, rights and obligations which relate to the performance of work', which the Chief Justice warned against in Solution 6 and MMAL. 20 I am satisfied, in those circumstances, that justice requires that the leave sought to amend the summons must be granted. I am unable to conclude that the amendment sought would be obviously futile, as the respondent submitted. Nor was it suggested that any injustice would flow to the respondents, if the leave sought be granted. Indeed, given the stage which the proceedings have reached, no such suggestion was available. The amendment will assist in ensuring that the real matter in controversy between the parties is put before the Court in these proceedings.

21 For the reasons given, I grant the applicant leave to proceed on the further amended summons filed on 18 August 2005.

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