QSR Limited v Industrial Relations Commission of NSW & Ors

LOWER COURT Industrial Relations Commission of NSW JURISDICTION : LOWER COURT 3452/03 FILE NUMBER(S) : LOWER COURT Peterson J JUDICIAL OFFICER :

• 3 - IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CA 41152/03

SPIGELMAN CJ MASON P HANDLEY JA

Wednesday 21 July 2004 QSR LIMITED v INDUSTRIAL RELATIONS COMMISSION OF NEW SOUTH WALES & ORS

Peter Batterham (the Third Opponent) promoted a scheme by which QSR Limited acquired a substantial restaurant business and was floated as a public company. He incurred a range of expenses for which he was personally liable as promoter of the scheme. As a founding director of QSR, one million options exercisable three years after issue upon the achievement of a performance benchmark formed part of his remuneration package. He continued to act as a director of QSR until April 2002 and as a member of the Property Sub-committee of its Board until the dissolution of that sub-committee. The performance benchmark, which required the achievement a certain rate of return on equity in each of three calendar years was not met, although it would have been met had an aggregate benchmark applied over the relevant three year period. Mr Batterham commenced proceedings in the Industrial Relations Commission pursuant to s106 of the Industrial Relations Act 1996. QSR sought to have Mr Batterham's summons for relief dismissed for want of jurisdiction. Peterson J refused to do so. QSR invoked the supervisory jurisdiction of the Court of Appeal, seeking an order in the nature of a writ of prohibition.

HELD A. (per Spigelman CJ, Mason P and Handley JA agreeing)

The issue of unfairness under s106 raises broad matters of judgment which can only be determined in the exercise of a supervisory jurisdiction in a clear case. The matters raised by the Claimant lack the requisite level of clarity. [34], [57], [58]

B. (per Spigelman CJ, Mason P and Handley JA agreeing)

No submission as to whether directors perform "work in any industry" having been made, Court of Appeal intervention is inappropriate. Any further jurisdictional challenge on this basis should be made to the Commission. [44], [57], [58], [82]

C. (per Spigelman CJ, Mason P and Handley JA agreeing)

The performance of work does not need to be obligatory as a matter of law to bring a contract or arrangement within s106. [47], [57], [58]

D. (per Mason P and Handley JA, Spigelman CJ dissenting)

The Claimant was not a party to any contract or arrangement pre-dating its incorporation and derived no benefit from such a contract or arrangement. The work done by Mr Batterham as promoter prior to the Claimant's incorporation was not within the jurisdiction of the Commission and the Claimant is entitled to an order of prohibition quo usque in this respect. [57], [65], [66], [88]

The question of whether the Commission lacks jurisdiction with respect to Mr Batterham's work as promoter prior to the incorporation of the Claimant was not sufficiently raised in the submissions and should be left to be argued in the Commission. [53], [55]

Johnston v Friends Motor Co Limited (1910) 10 CLR 365, R v Australian Stevedoring Industry Board; Ex parte Melbourne Stevedoring Co Pty Ltd (1953) 88 CLR 100, Brown v Rezitis (1970) 127 CLR 157, Ex parte Ashfield Brokers and Consultants Pty Ltd; Re Witek (unreported, NSW Court of Appeal, Sugerman P, Asprey and Holmes JJA, 29 June 1972), Ace Business Brokers Pty Ltd v Phillips-Treby (2000) 100 IR 420, Old UGC Inc v Industrial Relations Commission of NSW [2004] NSWCA 197 referred to.

ORDERS Industrial Relations Commission prohibited from hearing and determining proceedings under s106(1) and (5) of the Industrial Relations Act 1996 in respect of the Option Deed of 2 November 1999 commenced by the Second and Third Opponents against the Claimant, except insofar as those proceedings may be based on a contract or arrangement whereby a person performed work in an industry which came into existence after the incorporation of the Claimant and before the execution of the Option Deed. No order as to costs. IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CA 41152/03

SPIGELMAN CJ MASON P HANDLEY JA

Wednesday 21 July 2004 QSR LIMITED v INDUSTRIAL RELATIONS COMMISSION OF NEW SOUTH WALES & ORS Judgment 1 SPIGELMAN CJ: The Claimant seeks an order in the nature of a writ of prohibition restraining the Industrial Relations Commission from continuing to entertain proceedings instituted by Maylord Equity Management Pty Ltd and Peter James Batterham ("the Opponents") against the Claimant ("QSR"). It also seeks an order in the nature of a writ of certiorari that the proceedings be removed into this Court and dismissed. The proceedings in the Commission were brought pursuant to s106 of the Industrial Relations Act 1996 ("the Act"). 2 The Opponents took out a Notice of Motion in the proceedings in this Court seeking an order that the proceedings be dismissed pursuant to Pt 13 r 5 of the Supreme Court Rules or an order that the proceedings be stayed generally or until the s106 proceedings have been heard and determined by the Commission. 3 A constitutional issue was raised with respect to the validity of the privative provision in s179 of the Act. Notices under s78B of the Judiciary Act 1903 (Cth) were issued. The Attorney General of New South Wales has intervened and made submissions in this Court.

The s106 Proceedings 4 For the purposes of the proceedings in this Court, QSR accepts the allegations of fact contained in the Summons for Relief under s106. In the s106 proceedings in the Commission the Opponents seek orders setting aside contracts, conditions or arrangements, pursuant to which the Third Opponent, Mr Peter Batterham, performed work in an industry, which are said to be unfair, harsh and unconscionable and declaring the same void ab initio. The focus of attention is on a document entitled "Option Deed" entered into between QSR and the Second Opponent ("Maylord") dated 2 November 1999, under which Maylord became entitled to acquire certain shares in QSR. In the event, the conditions for the exercise of the option were not fulfilled and they lapsed. 5 QSR is a public company which acquired a substantial restaurant business in the form of forty one Kentucky Fried Chicken stores from the previous owner and operator. The Third Opponent, Mr Batterham, was, together with certain other persons, a promoter of the scheme by which QSR acquired the business and was floated as a public company. Maylord is the trustee of the Batterham Retirement Fund replacing its predecessor, Woodglint Pty Ltd. It performed, and its predecessor performed, no other function than to act as the corporate trustee of the Batterham Retirement Fund and the Batterham Family Trust. 6 From late 1998 to mid 1999 Mr Batterham and his fellow promoters negotiated an agreement for the acquisition of the forty one stores. In October 1999 QSR was formed to act as a vehicle for this acquisition. 7 During the course of negotiating the acquisition arrangement Mr Batterham and his colleagues incurred expenses for which they were initially personally liable as promoters. These included various fees and charges including legal expenses, the costs of a prospectus and printing expenses. The expenses which they had jointly incurred came to slightly less than half a million dollars. 8 The Summons for Relief set out the remuneration for the founding directors of QSR, which included Mr Batterham, in the following paragraphs: "[21] As part of the remuneration arrangements for the founding director (based upon advice received from UBS Warburg) each of the founding directors was to receive the following by way of remuneration: (a) 400,000 shares at one cent each; (b) directors fees of $36,000 per annum; and (c) one million options exercisable at 50 cents in three years after issue upon the achievement of a performance benchmark (the 'Options'). The shares had a $1 issue price through the prospectus. [22] The Promoters, who became the founding directors of the Respondent, received no other fees related to the transaction. The total remuneration (which was in compensation for work performed, the incurring of risk and forfeiting other opportunities) was to be solely in the form of equity and annual fees as set out above. [23] The Chief Executive, Chairman and other directors of the Respondent were also to receive similar options to those given to the Promoters. The Chief Executive initially received 300,000 options, which was subsequently increased to 400,000 options. The difference in the number of options granted was intended to reflect the varying contribution to, and risks associated with, successfully implementing the Restaurant Acquisition Deal." 9 The Summons in the Commission alleges that it was Mr Batterham who recruited the Chief Executive of QSR and identified its future Chairman. With respect to the period before the float, the other activities of Mr Batterham, the Second Applicant in the Commission, were set out as follows: "[42] The Second Applicant was involved in the preparatory work necessary to achieve the public offering of equity in the Respondent. In addition, the Second Applicant worked extensively on establishing the Deal. This included, inter alia , the establishment of the corporate function for the Respondent including the hiring of all relevant management staff. The Second Applicant also drew upon his extensive experience as an accountant and senior corporate commercial manager to establish corporate systems for the use of the Respondent and also engaged and supervised the work of systems consultants. The Second Applicant was required to undertake these tasks as the proposed Chief Financial Officer was at that stage working out his notice period with a previous employer. The role of the Second Applicant continued for a longer period than anticipated because of issues arising in respect of the performance of the Chief Financial Officer." 10 After the Claimant was floated on the Australian Stock Exchange, Mr Batterham continued to act as a director and as a member of the Property Sub-committee of the board. This Sub-committee was dissolved by the board at a meeting on 25 July 2000, a meeting attended by Mr Batterham. The minutes of the meeting do not suggest that there was any dissent from the proposal to disband the Sub-committee. However, on the s106 proceedings, Mr Batterham relies on the termination of his role on the Property Sub-committee. 11 The nature of his activities in this respect are set out in the Summons in the Commission as follows: "[43] For a period of seven months from December 1999 to July 2000, the Second Applicant carried out work in respect of the property related obligations of the Respondent. The agreement between the Respondent and Tricon in respect of the restaurants necessitated the relocation of 8 stores and the upgrading of 27 stores over an agreed period. These stores were identified during negotiations with Tricon which the Second Applicant was involved in. The management of the Respondent had no experience in property matters and accordingly the extensive property and expertise of the Second Applicant was required in order to give effect to the contractual obligations of the Respondent. In February 2000 the board formally established a property sub-committee of the Board with the Second Applicant, Peter Copulos and Steve Copulos as members. The Second Applicant was paid $5,000 per month for performing this role effective from December 1999. The Second Applicant performed this role from an office at the corporate headquarters at Willoughby, Sydney, New South Wales. The Copulos representatives performed their duties from country Victoria and were also paid $5,000 per month for their role effective February 2000. The Second Applicant did not receive any superannuation contributions in respect of those payments." 12 I have referred above to the remuneration of the promoters of QSR, including the issue of options exercisable upon achievement of a performance benchmark. It is this matter, particularly the detail of the performance benchmark which is at the heart of the dispute between the parties. As will appear from the full terms of the Option Deed, which I will set out below, the trigger for the right to take up the options was the achievement by the company of earnings before interest, tax and depreciation of at least 18 per cent on equity in the three calendar years referred to. In the event a rate of return of 18 per cent per annum was achieved over the course of the three years. This comprised a rate of return significantly higher than 18 per cent for the first two years (namely 22.2 per cent for 2000 and 19.2 per cent for 2001). However, the return on equity was only 16.2 per cent for 2002. On the basis that the contract as properly construed requires the achievement of the 18 per cent target in each of the three calendar years, the performance benchmark was not met. It is the "unfairness, etc" of this eventuality, in the circumstance that the benchmark was met on average over the three years, that is at the heart of the dispute. 13 The circumstances in which the benchmark was proposed and incorporated in the Option Agreement are set out in the Summons in the Commission as follows: "[25] It was the understanding of the Second Applicant, on the basis of discussions with UBS Warburg, that any performance benchmark in respect of the Options was to be measured against the average performance over a three year period. The performance benchmark was set on the basis of quantitative modelling by UBS Warburg which concluded that an average 18% internal rate of return was realistically achievable by the Respondent, particularly as the Promoters had negotiated the ability to sell properties on a "sale and lease back" basis for 9 of the 21 properties purchased in agreements with Tricon. These agreements enabled the funds employed to be reduced. Selling property on this basis would have produced an increase in return of funds employed particularly given that the properties were acquired on attractive terms as part of the "bulk" purchase of property and business assets. As such, the sale of property would have also had the effect of booking a profit on sale. [26] It is the further understanding of the Second Applicant that the options component of the remuneration was intended to provide an initial benefit to the Promoters equivalent to at least $500,000 each. For this reason the exercise price for the Options was set at 50 cents with the face value of the shares being $1.00. [27] The options were exercisable in the period 15 February 2003 to 15 March 2003 and, as such, acted as an incentive for the Promoters to remain with the Respondent for a period of 3 years and achieve the return on funds invested required to exercise the options. It was also a term of the agreements entered into with Tricon that the removal, resignation or replacement of any of them requires the written approval of Tricon as disclosed at page 47 of the prospectus. [28] Over the 3 year period before the Promoters were potentially eligible to exercise the Options, the Promoters steadily lost the ability to influence the operations of the Respondent to achieve the return of funds as stated in the Prospectus. By the third year, the only year in which the targets were not achieved, the ability of the Promoters to influence the strategy of the Respondent, and accordingly the return on funds employed was effectively nil. 14 The Prospectus for QSR stated that Mr Batterham was entitled to one million options exercisable at 50 cents between 15 February 2003 and 15 March 2003. The options were issued at 1 cent each. The Prospectus stated: "The exercise of all Options is conditional upon the Company meeting predefined performance criteria for the period up to 31 December 2002. The performance criteria are: the Company achieving the earnings per Share and dividends per Share forecast in this Prospectus and the Company achieving EBITDA of at least 18% of equity subscribed plus debt for the calendar years 2000, 2001 and 2002." 15 The Summons in the Commission states: "[33] It was the understanding of the Second Applicant at all times that this performance benchmark required the Respondent to achieve an EBITDA (earnings before interest, tax, depreciation and amortisation) of finance raised through debt or equities subscribed for of at least 18% on average over the calendar years 2000, 2001 and 2002." 16 The Summons then outlines the circumstances in which the Deed came to contain a provision inconsistent with this "understanding". "[34] The Prospectus was lodged on 3 November 1999. On the day prior to the lodging of the Prospectus, solicitors acting for the Respondent, Henry Davis York, presented an Option Deed to be executed in respect of the options referred to above and as disclosed in the Prospectus. [35] Clause 2.4 of the Option Deed provides as follows: " it is a condition to the exercise of the Option of the Company : 2.4.1 achieves the earnings per share and dividends per share forecast in the Prospectus for the financial years ending 30 June 2000 and 30 June 2001; and 2.4.2 achieves an earnings before interest, taxation, depreciation, and amortisation level in each of the calendar years 2000, 2001 and 2002 of 18% of Annual Funds Invested for the relevant calendar year". (emphasis added). [36] The timing did not permit independent legal advice to be obtained in respect of the Option Deed nor was it suggested to the Second Applicant at any time that such independent advice be sought. There was intense pressure to finalise the transaction prior to the Christmas break. The focus in respect of documentation was to ensure that the claims made in the Prospectus were accurate and that there had been full disclosure in the Prospectus. [37] The Second Applicant assumed that the wording adopted in respect of the performance benchmark in the Option Deed was consistent with that adopted in the Prospectus. At the relevant time the difference between the terms of the performance benchmark as expressed in the Prospectus as opposed to the Option Deed was not drawn to the attention of the Second Applicant. [38] The Second Applicant did not become aware that the terms of the Option Deed were inconsistent with the terms of the Prospectus until it was brought to his attention at the beginning of December 2002. [39] The Second Applicant executed the Option Deed on behalf of Woodglint Pty. Ltd in his capacity as Managing Director. Woodglint Pty. Ltd. entered into the Option Deed as trustee for the Batterham Retirement Trust". 17 The Summons sets out the circumstances in which control of QSR changed and the progressive marginalisation of Mr Batterham, leading eventually to his resignation. It asserts that QSR failed to ensure a proper return on capital by taking decisions which had the consequence that the 18 per cent benchmark was not attained in the third year. 18 The Summons concludes: "[77] It is the submission of the First and Second Applicants that if the test for the exercise of the Options as set out in the Prospectus applied, the First Applicant would be able to exercise the Options as the Respondent would have satisfied the performance benchmark. [78] Further, or in the alternative, the conduct of the Respondent in adopting a strategy of retaining properties and increasing the level of funds employed, a strategy contrary to representations contained in the Prospectus and objected to by the Second Applicant and other significant shareholders, led to a reduction in the EBITDA such that the Options could not be exercised. In the event such a strategy was not adopted, and the Respondent had acted consistent with representations made in the Prospectus, the Respondent would have satisfied the Performance Benchmark and the Options would have been exercisable. [79] Further, or in the alternative, the Option Deed was unfair, harsh, or unconscionable or contrary to the public interest in that it required an EBITDA of 18% to be achieved for each of the 3 years rather than using an aggregate measure of EBITDA over the relevant 3 year period. A superior measure of the value of the contribution of the Promoters (in particular the Second Applicant) to the Respondent is to take an average performance over 3 years as opposed to requiring a level of return to be required in each of those years. The latter measure leads to the remuneration for the Promoters susceptible to short term factors that may impact adversely on EBITDA. [80] Further, or in the alternative, the Option Deed was unfair, harsh, or unconscionable or contrary to the public interest in that it failed to take account of circumstances where the Promoters, in particular the Second Applicant, would lose the ability to be involved in management decisions of the Respondent, particularly decisions that led to the Respondent resiling from strategies established for the Respondent by the Promoters. These strategies, and the financial returns forecast to be achieved on the implementation of these strategies, were stated in the Prospectus. This financial modelling also formed the basis for the performance benchmarks established for the Options for the purpose of remunerating the Promoters. The changes in strategy effectively led to the Second Applicant being denied remuneration for his services in acting as Promoter of the Respondent. [81] The conduct of the Respondent was unfair, harsh, or unconscionable or contrary to the public interest in that the Second Applicant was capriciously removed as, first a member of the property sub-committee of the Board and, subsequently, a director of the Respondent. The Second Applicant was neither offered nor received any payment or compensation for his removal as either member of the property sub-committee, or the Board. The Second Applicant was also not appointed to the Audit and Compliance Committee of the Respondent notwithstanding that he was the best qualified amongst the directors to hold such a position. This unfairness is compounded by payment of $500,000 made to another Promoter by the major shareholder, the Copulos Group, in similar circumstances, 12 months earlier, prior to formal valuations of the Respondent being available." 19 The orders sought with respect to the Option Deed are: "5. An order declaring that the Option Deed entered into by the Respondent and the First Applicant dated 2 November 1999 (" Option Deed ") is unfair, harsh, unconscionable and contrary to the public interest. 6. An order that the Option Deed be varied so as to vest in the First Applicant the one million options granted to the First Applicant pursuant to the Option Deed. 7. In the alternative, an order that the Option Deed be varied so as to delete clause 2.4 of the Option Deed and to insert in its place the following clause: ' The Company achieving the earnings per Share and dividends per Share forecast in the Prospectus and the Company achieving EBITDA of at least 18% of equity subscribed plus debt for the calendar years 2000, 2001 and 2002.' " 20 Further orders are sought as follows: "8. An order declaring that the contract, arrangement, condition or collateral arrangement between the Second Applicant and the Respondent whereby the Second Applicant performed work for the Respondent in an industry, including but not limited to the provision of management and administrative services to the property sub-committee of the Board of the Respondent, was unfair, harsh and unconscionable in that in it permitted the Respondent to terminate any such arrangement without providing reasonable notice, or in the alternative, making a payment in lieu of reasonable notice. 9. An order varying the contract, arrangement, condition or collateral arrangement between the Second Applicant and the Respondent whereby the Second Applicant performed work for the Respondent in any industry to include a term that upon termination of any such arrangement the Respondent shall give the Second Applicant twelve months' notice or payment in lieu of twelve months' notice."

Issues in this Court 21 The Claimant invokes the supervisory jurisdiction of the Court. It does so on the basis that it accepts, for purposes of these proceedings, each of the facts alleged in the Summons filed in the Commission. The Claimant relied on an affidavit to which was appended the prospectus for the float of QSR, the Option Deed hereinbefore referred to, the Summons under s106, and minutes of the meeting of directors of QSR Limited of 21 February 2000. 22 The Claimant sought by Notice of Motion an order in the Commission that the Summons be dismissed for want of jurisdiction. It filed in this Court a copy of that Notice of Motion, QSR's summary of argument and a copy of the judgment of Peterson J dismissing the Motion: Maylord Equity Management Pty Ltd v QSR Limited [2003] NSW IRComm 366. The Opponents filed an affidavit in which they set out their own submissions in the proceedings before Peterson J and an additional copy of his judgment. 23 The normal orders for the filing of affidavits by the parties in these proceedings were made in this Court. Other than in the form of an affidavit annexing the documents that I have referred to, the Opponents did not seek to place any additional evidence before the Court. 24 The Opponents argued that the Summons in this Court should be treated as premature. They relied on the practice of the Industrial Relations Commission in dealing with challenges to jurisdiction under s106. This practice was urged on this Court on the basis that further evidence may emerge in the Commission which is relevant to the jurisdictional issue. No evidence has yet been filed or adduced in the proceedings in the Commission. It was submitted that only when evidence has been adduced will the Commission, or this Court, be in a position to determine whether there was an arrangement for the performance of work in an industry and whether the Option Deed (which it is conceded it is not itself a contract whereby work is performed in an industry) forms part of the remuneration for work in an industry and, therefore, part of the overall arrangement or was collateral to the overall arrangement. 25 A similar submission was put before this Court in Solution 6 Holdings Limited v Industrial Relations Commission of NSW [2004] NSWCA 200, judgment in which will be delivered simultaneously with this judgment. For the reasons set out in pars [47]-[51] of that judgment, this Court should not treat a summons for prerogative relief in a case such as this as premature, if it is satisfied that the relevant facts are before the Court. 26 Part 3 r 18A of the Industrial Relations Commission Rules requires an application under s106 to: "specify in summary the matters of fact and law which form the basis of the application, but not the evidence by which those facts are to be proved".

The Summons filed in the Commission provides such a summary. It indicates the nature of the case in sufficient detail to enable this Court to determine some of the jurisdictional issues that arise. 27 The summary of facts is accepted by the Claimant as the basis of its application in this Court. The Claimant is entitled to rely on the relevant assertions of fact and of law set out in summary form in the Summons in the Commission. If some aspect of that summary needed to be the subject of pertinent elaboration or explanation, the Opponents had the opportunity, in this Court, to file further evidence. Other than in the limited respects referred to above, the Opponents did not file any evidence in this Court. 28 The Opponents accept that the Option Deed was not in and of itself a contract whereby a person performed work in an industry. However, they submitted that it formed part of the consideration for the performance of work and therefore was part of an arrangement for the performance of work in an industry. It was said in submissions that the Opponents did not concede that this arrangement was not itself a contract or that it was not enforceable. They may, notwithstanding the absence of any assertion to that effect in their Summons, assert that the overall arrangement was enforceable. However, nothing seems to turn on that in view of the extended definition of contract in s105 which encompasses an "arrangement". In the alternative, the Opponents assert that the Option Deed was "collateral" to an arrangement for the performance of work and, accordingly, fell within the definition of contract in s105. 29 In Solution 6 Holdings, the Court decided to exercise its supervisory jurisdiction on two grounds. The first was that the power to vary or void a contract conferred on the Commission by s106 should be read down so as to refer to matters which relate to the performance of work. No submission to that effect was made in the present proceedings and it would not be appropriate to determine the proceedings on that basis. 30 The other basis upon which Solution 6 was decided does apply. If there were an overall arrangement, it must still lead directly to the performance of work. The Option Deed itself did not do so. 31 The work said to be performed was identified by the Opponents in terms of the application of the expertise of Mr Batterham as an accountant and as a property developer in the implementation of the scheme for the purchase and development of restaurants, the formation of QSR and public issue of its shares. It was submitted, on behalf of the Opponents, that the options were part of the remuneration for this work. 32 The alternative relief sought by the Opponents in the Commission, not directly related to the terms of the Option Deed, concerned the activities of Mr Batterham as a Director of QSR and as a member of its Property Sub-committee, from which it is alleged he had been terminated. 33 Unlike Solution 6, in this case there was no express contract of employment. The Option Deed is said to be part of the remuneration for the performance of work pursuant to an overall arrangement. Other remuneration is identified with respect to service on the Property Sub-committee. The two kinds of alleged "work" - as a promoter and as a director - are quite distinct.

Determination of the Issues 34 A significant proportion of the Claimant's submissions was directed to establishing the proposition, in various ways, that the contract or arrangement relied upon in the present case was incapable of being "unfair". This is a matter upon which this Court would intervene with the greatest of reluctance. It is true that the Opponents had the opportunity of putting on evidence which could place agreed or clearly established facts in a different light and did not do so. Nevertheless, the issue of unfairness under the Act raises broad matters for judgment which only in a clear case could be determined in the absence of a hearing. None of the matters raised have the requisite level of clarity. 35 Mr D E Grieve QC, who appeared for the Claimant, first emphasised that the work done by Mr Batterham in the course of the preparation of the float was such that he may never have received remuneration for it. There were many events, for example those identified in the prospectus itself to which Mr Batterham was a signatory, which could have led to the venture not proceeding or succeeding. He submitted that the alleged overall arrangement, of which the Option Deed was a part, was "inherently speculative" and subject to "numerous uncertainties". 36 This submission goes to the issue of fairness rather than to the existence of a relevant contract or arrangement. The mere existence of such contingencies does not require a conclusion that the contract or arrangement could not be unfair. 37 Mr Grieve QC submitted that the mere fact that the benchmark rate of return was not achieved in the third of three years could not support the exercise of the statutory power. He submitted that the lower rate of return in the third year was the result of commercial policies adopted by the Claimant and the Commission should not inquire into the wisdom or prudence of such decisions. Again, this is a matter going to the question of fairness which cannot be properly assessed simply on the pleadings and the other material before this Court. 38 With respect to the termination of Mr Batterham's membership of the property sub-committee, Mr Grieve QC relied on a board minute indicating that Mr Batterham himself joined in the resolution by which this sub-committee was dissolved. It is difficult to see how the act of dissolution of the sub-committee could constitute relevant unfairness. However, the pleadings go beyond this aspect of the decision-making process and encompass other steps in the conduct of the affairs of the company leading to Mr Batterham's marginalisation and eventual resignation. Again these matters go to questions of fairness which ought not be determined at this stage. 39 Finally, the Claimant asserted that in order that a contract be found to be "unfair" there must be a measure of "inequitable, or even dishonest, conduct by the party against whom the claim is made to the disadvantage or deprivation of the party making the claim". Mr Grieve QC submitted that it was not sufficient for the Opponents to simply assert that they were disappointed that the arrangement did not live up to their hopes or expectations. He submitted that it cannot be said that "QSR 'unfairly' exploited Mr Batterham's labour. It simply did not derive sufficient revenue so as to trigger his entitlement to exercise the options granted to his company." 40 Section 105 contains a broad definition of "unfair contract", which cannot be restricted in the manner submitted. Whether or not the present contract is held to be "unfair" will depend on a broader range of facts than those contained in this submission. The submission on the part of the Claimant in this regard appears to be no more than a complaint that a contract can be rewritten by a court. That, however, is precisely what the Parliament has said can be done under s106 so long as the contract, etc. is one "whereby work is performed in an industry". 41 The principal issue in the present appeal is whether or not anything Mr Batterham did can fall within the concept of 'performance of work in any industry'. The alleged "work" fell within two distinct phases. First, his conduct as a promoter and secondly, his conduct as a director, particularly as a member of the Property Sub-committee. 42 I have difficulty with the proposition that either period of Mr Batterham's involvement constitutes 'performance of work in any industry' within the meaning of s106. Some element of subordination by the person said to be performing the work to the other party or parties to the contract or arrangement is required to satisfy the concept of "work in an industry" in the context of this statute. (See Production Spray Painting & Panel Beating Pty Ltd v Newnham (1991) 27 NSWLR 644 esp at 654-655.). Matters of this character can change over time. In Mitchforce Pty Ltd v Industrial Relations Commission of NSW (2003) 57 NSWLR 212, Handley JA came to a different view from the majority on this basis. He found that at an early stage of the conduct of the relationship the lessees of the hotel business there under consideration could be said to be working for themselves. However, the substantial increases in rent led to the situation that "in a real sense" they were "working for the landlord" (see at [191]-[194]). 43 There is authority in the Commission that performance of functions as a director does not satisfy the jurisdictional test. (See Brandster v Tryak Pty Ltd (1989) 28 IR 329 at 333 per Glynn J.) The role of a promoter would not appear to differ in this regard. 44 In the present case, whether Mr Batterham was acting as a promoter or as a director and a participant in a committee of a board, there does not seem to be evidence suggesting an element of subordination of the character required for the purposes of the applicable jurisdictional test. It is not, however, appropriate for this Court to intervene on this basis. A submission of this character was not made in the proceedings. If there is to be a further jurisdictional challenge on this basis it should be made to the Commission. 45 Similarly, no submission was made in this Court that the power of the Commission to grant relief under s106 did not extend to the variation of the Option Deed. (Cf the analysis in Solution 6 Holdings at [67]-[95].) 46 Mr Grieve QC submitted that for any contract or arrangement to be within s106 the performance of work had to be obligatory as a matter of law. He submitted that has to be so because no contract or arrangement could be characterised as unfair when the person said to be a worker is at liberty to abandon it. In the present case, it was submitted, Mr Batterham conducted his activities both as a promoter, and subsequently as a director, entirely voluntarily, although in the expectation that the venture would succeed. He submitted that a s106 claim was untenable where the alleged work was wholly voluntary. 47 It is clear from the definition of "contract" in s105 that it extends beyond a "contract" to an "arrangement". There is no reason to read the word "arrangement" as being restricted to the performance of work pursuant to a legal obligation. Indeed, the whole point of expanding the definition of contract to encompass an "arrangement" was to include situations where work was in fact performed although there was no legal obligation to do so. The submission should be rejected. 48 I have read the judgment of Handley JA in draft. His Honour concludes that there was no relevant contract or arrangement prior to the incorporation of QSR. 49 I note, with respect to one step in his Honour's reasons, that I have left open the issue of whether the words "whereby work performed in an industry" qualify the words "related condition or collateral arrangement" in the definition of contract in s105 (see Solution 6 Holdings at [68]-[77]). 50 His Honour concludes that the Commission lacks jurisdiction with respect to Mr Batterham's pre-incorporation work as a promoter because QSR was neither a party to a contract or arrangement prior to its incorporation, nor was it, before that moment, a person "deriving benefit from" the relevant contract or arrangement in the sense identified by Barwick CJ in Brown v Rezitis (1970) 127 CLR 157 at 164. 51 Mr Grieve QC did submit that the work Mr Batterham did as a promoter preceded the establishment of QSR and, therefore, the Option Deed. He submitted that there was no contract or arrangement extant during this period whereby work was performed. However, this assertion was made in the context of other submissions and was not, in my opinion, sufficiently related to the course of reasoning accepted by Handley JA. 52 Orders under s106 can be made against a person who is not a party to a contract or arrangement. (See Brown v Rezitis at 164-165; Ex parte Ashfield Brokers and Consultants Pty Ltd; Re Witek (unreported, NSW Court of Appeal, Sugerman P, Asprey and Holmes JJA, 29 June 1972); Ace Business Brokers Pty Ltd v Phillips-Treby (2000) 100 IR 420 at 436-437, 439). 53 There is a strong argument in favour of the proposition accepted by Handley JA, that QSR cannot be said to receive a "benefit", in the sense identified by Barwick CJ in Brown v Rezitis. However, this issue was not sufficiently raised in the submissions to this Court and, in my opinion, it is not appropriate to determine it. 54 Peterson J referred to the issue in his judgment (Maylord Equity Management Pty Ltd v QSR Limited [2003] NSW IRComm 366): "[31] … While it is apparently true that (at least some of) this work was performed before QSR came into existence, I am not persuaded at this stage that QSR could not have become a party to the arrangement and accepted some burden thereunder or, alternatively could not be made a party to the proceedings, even if not a party to the arrangement, if it may be shown that QSR took the, or some, benefit under it." 55 Given the state of the submissions in this Court, this jurisdictional issue should also be left to be argued in the Commission. 56 The proceedings should be dismissed with costs. 57 MASON P: I agree with Handley JA. 58 HANDLEY JA: In this matter I have had the benefit of reading the reasons for judgment of the Chief Justice in draft. He sets out the relevant facts and the history of the proceedings and I need not repeat these matters. I respectfully agree with much of what the Chief Justice has written. I agree that in this case all questions of fairness are for the Commission alone. I also agree that this Court cannot find on the evidence and submissions made to date that any contract or arrangement pursuant to which Mr Batterham worked for the claimant as a director or member of its property sub-committee is outside the jurisdiction of the Commission under s 106(1). 59 I have come to a different conclusion with respect to the work done by Mr Batterham as a promoter before the incorporation of the claimant on some date in October 1999. The Option Deed, which is the principal focus of the proceedings in the Commission, was executed on 2 November 1999 on the same day as the prospectus which was lodged with ASIC on 3 November. The public issue pursuant to the prospectus closed on 10 December fully subscribed. Later that month the claimant completed the purchase of the 41 restaurants referred to in the prospectus and was listed on the Stock Exchange. 60 Under the Deed Woodglint Pty Ltd, the trustee of Mr Batterham's Retirement Trust was granted the option to acquire 1,000,000 shares in the claimant at a cost of 1¢ each at an exercise price of 50¢ a share. The options were exercisable between 15 February and 15 March 2003 subject to the claimant achieving defined financial performance targets during the calendar years 2000, 2001 and 2002. On the terms of the Deed as executed those targets were not met. 61 A principal objective of the s 106 proceedings is to secure orders varying the Deed so as to make the options exercisable for the benefit of Maylord Equity Management Pty Ltd, the current trustee of Mr Batterham's Retirement Trust. 62 Mr Rothman SC, who appeared for the opponents other than the Commission, acknowledged that the Deed was not itself a contract or arrangement whereby a person performed work in an industry. This concession was inevitable. The performance targets were impersonal, and not linked to work to be done by Mr Batterham. The options could have been exercised although Mr Batterham died later on the day the Deed was executed. It cannot be said that the Deed led directly to the performance by him of work in an industry. 63 In Solution 6 Holdings Ltd v Industrial Relations Commission & Ors [2004] NSWCA 200 (Solution 6) this Court held that the jurisdiction of the Commission over related conditions and collateral arrangements does not extend beyond those which can themselves be characterised as ones "whereby a person performs work in any industry". The fact that the related condition or collateral arrangement is linked to a contract or arrangement of the requisite character is not sufficient. 64 The Deed can only be within the jurisdiction of the Commission if it formed part of some earlier, informal, arrangement of the requisite character to which the claimant was a party. 65 Any contract or arrangement prior to the incorporation of the claimant, whereby Mr Batterham performed work, was one made with his fellow promoters. See Johnston v Friends Motor Co Ltd (1910) 10 CLR 365. The claimant was not then in existence and could not be a party to any contract or arrangement. The Corporations Law made provision in s 183 for a company to be able to ratify a pre-incorporation contract made on its behalf. No such contract was relevant in this case, and unsurprisingly the section made no provision for the ratification of pre-incorporation arrangements. 66 Before its incorporation the claimant was not a person "who … in reality [was] the actor deriving benefit from the making … of the contract or arrangement" in the words of Barwick CJ in Brown v Rezitis (1970) 127 CLR 157, 164. It was not in any sense "an actor" during this period. Following its incorporation the claimant accepted the benefit of the work done by its promoters prior to incorporation but any contract or arrangement to this effect was not one whereby a person performed the pre-incorporation work. In my judgment therefore the Commission lacked jurisdiction in proceedings against the claimant over any contract or arrangement which pre-dated its incorporation. 67 The Chief Justice considers that the present point was not raised by Mr Grieve QC in a way that would allow this Court to act on it in granting relief. Although only passing reference was made to the point during oral argument (T 5), it was dealt with at some length in the written submissions and in my respectful opinion the Court is entitled to act on it. 68 Some of the grounds on which the claimant sought relief depended on the fact that the third opponent was a promoter and director of the claimant. However these submissions were presented on a global basis without emphasis on the particular difficulties which apply where reliance is placed on a contract or arrangement which pre-dated incorporation. 69 The summons for relief in the Commission sought orders in relation to the Deed (prayers 5-7) and orders in relation to the contract or arrangement whereby the second applicant "performed work for the Respondent in an industry" (prayers 8-9). Paragraph 19 of the summons referred to the formation of the respondent in October 1999. Paragraph 22 alleged that the promoters who became the founding directors were to receive only shares and options to recompense them for their work prior to incorporation. Paragraph 42 referred to the work done by the second applicant before incorporation and some of the work done afterwards. 70 The claimant applied for the proceedings in the Commission to be dismissed for want of jurisdiction but its motion was dismissed by Peterson J on 31 October 2003. His Honour referred to the incorporation of the company (para 11). He noted the concession by Mr Rothman SC that the Deed was not itself a contract whereby work was performed in an industry. He also noted that the applicants relied upon an arrangement from which the company benefited, and alleged that the work performed by the second applicant before incorporation was work in an industry (para 25). His Honour said (para 31): "… the summons for relief proceeds upon the basis that the steps taken in the formulation of the acquisition deal; the incorporation of QSR and the execution of the option deed between Maylord and QSR all relate to an arrangement under which work was performed by Mr Batterham for the benefit of QSR. While it is apparently true that (at least some of) this work was performed before QSR came into existence, I am not persuaded at this stage that QSR could not have become a party to the arrangement and accepted some burden thereunder or, alternatively could not be made a party to the proceedings, even if not a party to the arrangement, if it may be shown that QSR took the, or some, benefit under it." 71 Mr Grieve's written submissions to this Court referred to the incorporation of the claimant in October 1999 (para 2) and para 9 stated: "In the present case neither Maylord nor Mr Batterham do not, and cannot, assert that any contract was at any time made between either of them, on the one hand, and QSR, on the other which met any of the criteria affirmed in Mitchforce … Their case, as understood, is that at some unspecified time some ephemeral arrangement came into existence under which work was performed (by Mr Batterham) for which he has been insufficiently remunerated. That 'arrangement' was seemingly reflected, at least in part, by the option deed. But whatever work Mr Batterham did quite evidently preceded that deed by a considerable period. Indeed QSR was not in existence when the work was performed ." (emphasis supplied) 72 The written submissions of Mr Rothman SC for the second and third opponents stated (paras 7, 8 & 9): "… there was an arrangement between the third opponent … and a number of other persons under which arrangement Batterham agreed to perform work in the area of property development, corporate finance, promotion and implementation of the purchase and development of restaurants and under which Batterham incurred expenses.

The arrangements … involved and required the performance of work in an industry …

Part of the arrangements was the formation of QSR as the vehicle to obtain the benefit of the acquisition and QSR, it is alleged, became party to the arrangement on its formation ." (emphasis supplied) 73 Mr Grieve's written submissions in reply referred (para 7) to the need for an applicant under s 106 to establish that at some stage a contract or arrangement came into existence between himself and a respondent, to the fact that "it simply cannot be said that QSR 'unfairly' exploited Mr Batterham's labour" (para 7), and to the difficulty where considerable effort has been expended in the promotion of a company (para 9). 74 Although the summons in the Commission seems to rely on a contract or arrangement for the performance of work which pre-dated the formation of the company, Mr Rothman did not attempt to support a case of that width. Instead he relied on a contract or arrangement which came into existence after incorporation under which the company took the benefit of the pre-incorporation work. 75 A contract or arrangement cannot be characterised as one whereby a person performed work in the past especially where that was performed under a contract or arrangement between different parties. The word "whereby" in s 106(1) requires the contract or arrangement to pre-date the relevant work and cause it to be performed. 76 Mr Rothman's written submissions sought to deal with this difficulty by asserting (para 11) that the options arrangements were part of the consideration for the performance of work and "in those circumstances are part of the arrangement for the performance of work in an industry". The Deed cannot be part of any contract or arrangement for the performance of work before the claimant was incorporated, and it cannot be part of the consideration for work performed prior to its execution. 77 Mr Rothman submitted in the alternative (para 12) that the Deed, as part of the remuneration for the performance of work was "collateral to the arrangement for the performance of work", and cited a passage from David Securities Pty Ltd v Commonwealth Bank of Australia (1992) 175 CLR 353, 364-5. This does not support his submission because the High Court approved a statement that "one thing is collateral to another if it exists side by side with the other" and they referred to the dictionary meaning of collateral as "situated or running side by side, parallel". The Deed and any post-incorporation contract or arrangement cannot be collateral with any pre-incorporation contract or arrangement because they never did exist side by side and did not co-exist when the pre-incorporation work was performed. 78 An informal contract or arrangement between the claimant and the promoters, with terms relating to the grant of options, may have come into existence on or shortly after incorporation. If so it could only have subsisted until the execution of the Deed on 2 November. Thereafter any contract or arrangement between Mr Batterham and the claimant whereby he performed further work did not contain terms relating to the grant of options. 79 After 2 November the continuing rights of the parties in respect of options were in the Deed. The rights of Woodglint Pty Ltd under it were independent of the rights, expectations or understandings created by any continuing contract or arrangement whereby Mr Batterham worked for the claimant. 80 Any informal contract or arrangement that existed between Mr Batterham and the claimant between incorporation and execution of the Deed which included terms relating to the grant of options may have been one whereby Mr Batterham performed work for the claimant until 2 November. If these matters were established that contract or arrangement could be within the jurisdiction of the Commission. 81 The distinction between such a case and Solution 6 is that here any informal contract or arrangement which came into existence shortly after incorporation preceded the only relevant work and the Deed whereas in Solution 6 the Share Sale Agreement preceded the employment contract and the relevant work. The position in this case after the Deed was executed is indistinguishable from that in Solution 6. 82 The issues raised by the Chief Justice in paras 41-3 of his judgment were not argued and it would not be appropriate for this Court to express any opinion on them. Company promoters and directors as such may not work in any industry. One wonders whether there could ever be an industrial dispute between a company and its directors. 83 If the Commission were to find that an informal contract or arrangement of the necessary kind came into existence after the incorporation of the claimant and subsisted until the execution of the Deed a finding might be open that the Deed was executed pursuant to this contract or arrangement. If it did not properly reflect the terms of that contract or arrangement the Commission could consider whether any differences made the Deed unfair. 84 An analogous situation, which in my judgment would not be distinguishable from the above, could arise where informal and unenforceable promises had been made by an employer during an employment relationship relating to superannuation, commission or an incentive scheme. If payments or provision made at the end of the relationship failed to fairly match the earlier promises the fact that work was not thereafter performed by the employee for the employer would not quarantine those promises and payments from the Commission's jurisdiction. This view is supported by the decision of this Court in Old UGC & Ors v Industrial Relations Commission & Anor [2004] NSWCA 197 in relation to the Compensation and Release Agreement. 85 In this case unlike Solution 6 the Commission did make a decision. It did so when Peterson J dismissed the claimant's motion for summary dismissal of the proceedings for want of jurisdiction. However he did not decide that the Commission had jurisdiction but left open that question to be determined at the trial. 86 Section 179(1)(b) provides that a decision or purported decision of the Commission may not be "called in question" in any Court whether on an issue of fact, law, jurisdiction or otherwise. The expression "called in question" is commonly found in privative clauses and has been judicially considered in this context. See Anisminic Ltd v Foreign Compensation Commission [1969] 2 AC 147; South East Asia Fire Bricks Sdn Bhd v Non-Metallic Mineral Products Manufacturing Employees Union [1981] AC 363; Houssein v Undersecretary of Industrial Relations and Technology (1982) 148 CLR 88. 87 Peterson J dismissed the motion because the claimant failed to discharge the heavy onus that applies in such a case in accordance with General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125. An interlocutory decision of this kind does not pre-judge the final decision or create any res judicata or issue estoppel. A final decision in the Commission that it lacked jurisdiction in whole or in part would not call in question the interlocutory decision that the case should go to trial. The position is no different here. The fact that this Court, after fuller argument, might conclude that the Commission's jurisdiction does not extend to any contract or arrangement which pre-dated the incorporation of the claimant would not call into question the interlocutory decision of Peterson J. Accordingly s 179 does not bar the grant of prerogative relief in this case. 88 Although the claimant is not entitled to prohibit the Commission from granting any relief in respect of the Deed in my opinion it is entitled to prohibition quo usque to prohibit the Commission considering the claims of the second and third opponents in respect of the Deed except insofar as they are based on an alleged contract or arrangement with the claimant which existed after its incorporation until the execution of the Option Deed. 89 The nature of prerogative relief by prohibition quo usque was explained in The Queen v Australian Stevedoring Industry Board Ex parte Melbourne Stevedoring Co Pty Ltd (1953) 88 CLR 100, 118. In all the circumstances, including the claimant's limited success in this Court and the extent to which its arguments for wider relief, and on other grounds have failed, I would make no order as to the costs of these proceedings. 90 The Court should make the following orders:

1. Order that the Industrial Relations Commission be prohibited from hearing and determining the proceedings under s 106(1) and (5) of the Industrial Relations Act 1996 in respect of the Option Deed of 2 November 1999, commenced by Mr Batterham and Maylord Equity Management Pty Ltd against the claimant, except insofar as those proceedings may be based on a contract or arrangement whereby a person performed work in an industry which came into existence after the incorporation of the claimant and before the execution of the Option Deed.

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