Silbermann v One.Tel Limited

SECOND APPLICANT Bema Pty Ltd PARTIES: FIRST RESPONDENT One.Tel Limited (in liquidation)

SECOND RESPONDENT American Express International Inc

CATCHWORDS: s 106 - strike out application by second respondent - provision of business credit facilities by second respondent to first respondent - applicant employee of first respondent - first respondent in liquidation - whether provision of credit facilities a related condition or collateral contract to applicant's employment contract with first respondent - s 106(2A) - whether an arguable legal foundation exists - held arguably collateral contract or arrangement - motion dismissed - costs.

Industrial Relations Act 1996 LEGISLATION CITED: Industrial Relations Amendment Act 2005

Bartolacci v Permanent Custodians (1992) 44 IR 388 Grygiel v Baine & Ors [2005] NSWCA 218 CASES CITED: Majik Markets Pty Ltd v Brake Service Centre Drummoyne Pty Ltd (1991) 28 NSWLR 443 at 446 Old UGC Inc v Industrial Relations Commission of New South Wales & Anor [2004] 60 NSWLR 620 Solution 6 Holdings Limited & Ors v Industrial Relations Commission of New South Wales & Ors (2004) 60 NSWLR 558

APPLICANTS Mark Silbermann (in person)

FIRST RESPONDENT LEGAL REPRESENTATIVES: No appearance

SECOND RESPONDENT Mr M Ashhurst of counsel Solicitor: Ms A King Kemp Strang Lawyers

CORAM: MARKS J Friday 23 December 2005

Matter No IRC 5512 of 2001 MARK ALAN SILBERMANN AND ANOR v ONE.TEL LIMITED (IN LIQUIDATION) AND ANOR Application under s 106 of the Industrial Relations Act 1996 JUDGMENT ON STRIKE OUT APPLICATION [2005] NSWIRComm 477

1 By summons, the first and second applicants, Mark Alan Silbermann and Bema Pty Limited respectively, have sought certain relief under s 106 of the Industrial Relations Act 1996 ("the Act") against the first respondent, One.Tel Limited (in liquidation) ("One.Tel"), and the second respondent, American Express International Inc ("AMEX"). The narration of facts contained within the summons states that Mr Silbermann provided services to One.Tel as its Chief Financial Officer, Chief Operating Officer and Executive Director through a contract between the second applicant, Bema, and One.Tel.

2 AMEX was said to have provided a credit charge facility to the directors of One.Tel, including Mr Silbermann and "merchant services" to One.Tel. This facility was used by One.Tel to pay suppliers of its business. The summons further asserts that with the knowledge of AMEX, One.Tel provided authorities to employees to pay for its business expenses using the AMEX credit card facilities. One.Tel paid annual fees and interest to AMEX. It is further alleged that AMEX provided a merchant service to enable One.Tel customers to pay accounts for which AMEX received a 2% commission.

3 There are allegations concerning rights of set-off and other aspects of the arrangements between One.Tel and AMEX with which it is not presently necessary to deal.

4 Finally, there is an assertion that it was a requirement of the arrangements between One.Tel and AMEX that Mr Silbermann be a signatory to the credit card.

5 Although not referred to in the summons, there is evidence before the Court that upon the entry into liquidation of One.Tel, the sum of $382,161.14 was owing to AMEX with respect to the corporate card issued to Mr Silbermann. AMEX has claimed that amount from Mr Silbermann personally, together with interest accruing since 31 August 2001 on that amount at the rate of 3% per month.

6 The summons claims that Mr Silbermann, One.Tel and AMEX were parties to a contract or arrangement whereby a credit card was issued by AMEX to Mr Silbermann for use as part of the facility to enable One.Tel to acquire services and property using the AMEX credit card. It is claimed, in effect, that the contract or arrangement is unfair in that Mr Silbermann, an employee of One.Tel, is held personally liable by AMEX to pay it debts incurred by One.Tel which AMEX knew were incurred only for the purpose of One.Tel's business. It was said that both One.Tel and AMEX were aware or should have been aware that in the event that One.Tel was unable to pay the amount of any indebtedness to AMEX that Mr Silbermann would not have the resources to pay such indebtedness, especially on demand.

7 Consequential relief is sought based on any finding of unfairness.

8 AMEX has filed a notice of motion seeking to have the applicants' claim brought against it struck out for want of jurisdiction. Material admitted into evidence for the purpose of the hearing of the notice of motion included a copy of the corporate card membership form completed by One.Tel which was to be issued to Mr Silbermann. It is clear that Mr Silbermann's involvement in the application was as a nominated employee only. There is a declaration that the corporate card is to be utilised only for the purposes of the business of the applicant company, namely One.Tel.

9 The corporate card employee application form contained the following: "Your employer is implementing the American Express Corporate Credit Card to consolidate business spending under one uniform method. This benefits both you and the organisation". There is then a reference to a number of "reasons" why the applicant would find that the corporate card "is the card for business". These include easy reconciliation of expenses, convenience, the flexibility of having no preset spending limit and the like. The material provided by AMEX makes it clear that as part of the conditions for the issue of the corporate card that the card holder is to be held liable in the event of default by the employer. This includes, as I have said, liability to "liquidated damages" of 3% per monthly statement. It appears that the 3% is charged each month on a cumulative basis.

10 In order to deal with the competing submissions of the parties I set out hereunder the provisions of ss 105 and 106 of the Act:

s 105 Definitions In this Part: "contract" means any contract or arrangement, or any related condition or collateral arrangement, but does not include an industrial instrument. "unfair contract" means a contract: (a) that is unfair, harsh or unconscionable, or (b) that is against the public interest, or (c) that provides a total remuneration that is less than a person performing the work would receive as an employee performing the work, or (d) that is designed to, or does, avoid the provisions of an industrial instrument.

s 106 Power of the Commission to declare contracts void or varied (1) The Commission may make an order declaring wholly or partly void, or varying, any contract whereby a person performs work in any industry if the Commission finds that the contract is an unfair contract. (2) The Commission may find that it was an unfair contract at the time it was entered into or that it subsequently became an unfair contract because of any conduct of the parties, any variation of the contract or any other reason. (2A) A contract that is a related condition or collateral arrangement may be declared void or varied even though it does not relate to the performance by a person of work in an industry, so long as: (a) the contract to which it is related or collateral is a contract whereby the person performs work in an industry, and (b) the performance of work is a significant purpose of the contractual arrangements made by the person. (3) A contract may be declared wholly or partly void, or varied, either from the commencement of the contract or from some other time. (4) In considering whether a contract is unfair because it is against the public interest, the matters to which the Commission is to have regard must include the effect that the contract, or a series of such contracts, has had, or may have, on any system of apprenticeship and other methods of providing a sufficient and trained labour force. (5) In making an order under this section, the Commission may make such order as to the payment of money in connection with any contract declared wholly or partly void, or varied, as the Commission considers just in the circumstances of the case. 6) In making an order under this section, the Commission must take into account whether or not the applicant (or person on behalf of whom the application is made) took any action to mitigate loss.

11 At the time that the AMEX notice of motion was filed the relevant applicable law in this area was that set out by the New South Wales Court of Appeal in Solution 6 Holdings Limited v Industrial Relations Commission of New South Wales & Ors (2004) 60 NSWLR 558. In essence, the situation was that whilst there was a contract of employment between Bema Pty Ltd and One.Tel which was one whereby Mr Silbermann performed work in an industry, any contract between Mr Silbermann, One.Tel and AMEX would not meet this test so as to fall within s 106. It would be necessary for the applicants to rely on an argument that any contract or arrangement between Mr Silbermann, One.Tel and AMEX by which the corporate card was issued was a related condition or collateral arrangement to the contract whereby Mr Silbermann performed work for One.Tel. Solution 6 and the later case of Old UGC Inc v Industrial Relations Commission of New South Wales & Anor (2004) 60 NSWLR 620, also in the New South Wales Court of Appeal established that in order to attract relief under s 106 the related condition or collateral contract must also be a contract in which work is performed in an industry. Clearly, as was asserted by AMEX, the contract or arrangement pursuant to which the corporate card was issued did not satisfy this requirement.

12 The notice of motion was heard on 1 December 2005. On that date the New South Wales Parliament enacted the Industrial Relations Amendment Act 2005, which was proclaimed to commence on 9 December 2005. Subsection (2A) of s 106, the provisions of which have been earlier set out, was inserted into the Act by that amendment.

13 Section 19B of the amendment act contains transitional provisions with respect to the operation of s 106(2A) . That subsection is stated to apply to a contract made before the commencement of that provision and to proceedings pending in the Commission at that commencement that have not been finally determined by the Commission…".

14 Accordingly, it is clear that subsection (2A) is to have effect as and from 9 December 2005 and therefore now governs these proceedings.

15 Section 106(2A) requires that if there is a related condition or collateral contract, it does not need to "relate to the performance by a person of work in an industry" so long as the contract to which it is related or collateral to satisfies the necessary requirement and "the performance of work is a significant purpose of the contractual arrangements" made by the person performing the work.

16 AMEX accepted that the summons should only be struck out on a summary basis if it was clear that "the invocation of the jurisdiction impugned is wholly misconceived or, upon analysis, lacks an arguable legal foundation", per Kirby P in Majik Markets Pty Ltd v Brake Service Centre Drummoyne Pty Ltd (1991) 28 NSWLR 443 at 446. Put another way, if the applicants have an arguable case against AMEX then it would be impermissible to strike out the summons against AMEX summarily.

17 It is certainly arguable that the contract or arrangement pursuant to which Mr Silbermann performed services for One.Tel, whether directly or through Bema Pty Ltd, is a contract whereby work was performed by Mr Silbermann in an industry.

18 The question then arises as to whether it is arguable that there is a contract between Mr Silbermann, One.Tel and AMEX, constituted by the issue of the corporate card that can be said to be a related condition or collateral arrangement.

19 AMEX relied on a discussion of what constituted a collateral arrangement in the judgment of Hungerford J in the Industrial Court of New South Wales in Bartolacci v Permanent Custodians (1992) 44 IR 388. At 398 His Honour said: "The phrase 'collateral arrangement' requires consideration in terms of the meaning of the two words which comprise it. 'Collateral' in its commonly accepted meaning, according to The Concise Oxford Dictionary 6th ed, 1976, means 'side by side, parallel; subordinate but from same source; contributory, connected but aside from main subject, course, etc'. The proposition that somehow a collateral arrangement could relevantly be within the section as sitting side-by-side with or parallel to, but not related to, a contract or arrangement under which work is performed in an industry does not sit comfortably with what the word 'collateral' ordinarily means. It seems to me that to be collateral to something there must be some necessary connection with or necessary relation to the primary thing, that is, subordinate to but from the same source, and even though that which is collateral may be separate or aside from the main subject. In other words, in the context of s 275, unless there be some necessary connection or relationship between the collateral arrangement and the primary contract or arrangement under which work is performed, then, in my view, there would be no relevant function for 'collateral arrangement' to perform in the context of s 275 which is essentially concerned with what might be called in a shorthand way 'work contracts or arrangements'."

20 The submissions fastened on the observations of Hungerford J that to be collateral to something there had to be a necessary connection with or necessary relation to a primary thing, that is "subordinate to but from the same source…". It was submitted that the AMEX corporate card contract was not from the same source as the employment contract. In my opinion, this submission focuses too narrowly on one aspect only of His Honour's observations. The principal observation requires a necessary connection with or necessary relationship to the collateral arrangement. In my opinion, the necessary connection with or necessary relationship between the AMEX corporate card contract and Mr Silbermann's employment arrangement with One.Tel is arguably that the AMEX corporate card facility was directed to, and solely concerned with, the business activities of One.Tel and Mr Silbermann's participation in that corporate card contract was solely as an employee of One.Tel. The source of the necessary connection or relationship is the employment of Mr Silbermann by One.Tel as necessary to the issue of the AMEX corporate card to One.Tel. On this basis, therefore, it is arguable that the AMEX corporate card is a contract or arrangement which is collateral to the contract of employment. However, there is, in my opinion, authority in addition to that of Bartolacci which assists in this area. That authority also casts doubt on the requirement that the collateral contract be subordinate to the employment contract as referred to by Hungerford J.

21 There has been a recent discussion of the term "collateral contract" in the New South Wales Court of Appeal in Grygiel v Baine & Ors (2005) NSWCA 218. Mason P agreed with the reasons for judgment of Basten JA. Basten JA said: "[66] The question is whether the statutory reference to a contract being "collateral to" another contract invokes a term of art, having a particular legal connotation. The concept of a collateral contract was developed in relation to a promise or representation by one party to another, as a result of which the latter either enters into a separate contract with a third party, or enters into a contract with the representor. In each case, the promise or representation is the consideration for the subsequent contract: see generally Heilbut Symons & Co. v Buckleton [1913] AC 30 at 47; Kavanagh v Blissett [2001] NSWCA 79 and Matland Holdings Pty Ltd v NTZ Pty Ltd [2004] FCA 710 (Kenny J). It follows that a "collateral contract" cannot be formed after the main contract has come into existence, as otherwise that contract would constitute an inadequate (past) consideration for the new contract: see Hercules Motor Pty Ltd v Schubert (1953) 53 SR(NSW) 301. [67] The term "collateral contract" may be used in relation to a contract involving at least one third party, namely a person not party to the principal contract, to which the other was collateral. As is illustrated by State Rail Authority of New South Wales v Heath Outdoor Pty Ltd (1986) 7 NSWLR 170, pre-contractual representations could attract equitable relief where "the enforcement of strict rights is unconscionable because the assurances given before the execution of a written contract were made orally": per McHugh J at p.195C. Relief of a similar kind may now be obtained under the Trade Practices Act 1974 (Cth) or the Fair Trading Act 1987 (NSW). Indeed, these considerations suggest that reliance on a collateral contract will rarely be necessary if the supplier or recipient of building services has some claim for payment of money (or other relevant relief) arising from the supply. Where services are supplied which fail to meet some expectation based upon a representation, the supply will be an inevitable element of the claim and the claim will, in that sense arise from the supply, as well as from breach of the representation. [68] Even if there are some cases in which it is necessary to rely upon a contract collateral to the contract for supply, this reasoning suggests that no constrained meaning should be given to the word "collateral" in this statutory context. In this regard, counsel for the Claimant took the Court to David Securities Pty Ltd v Commonwealth Bank of Australia (1992) 175 CLR 353, where the High Court considered the meaning of the term "collateral agreement" in s 261(5) of the Income Tax Assessment Act 1936 (Cth). That section related to payment of income tax on interest payable under a mortgage and defined the term mortgage to include "any charge, lien or encumbrance to secure the repayment of money, and any collateral or supplementary agreement ...". The case involved loan agreements and securities by way of mortgage, and the argument below had turned upon whether the concept of a collateral agreement involved the notion of primacy and, if so, which agreement was primary and which subordinate. In the course of rejecting such a notion, the joint judgment of Mason CJ and Deane, Toohey, Gaudron and McHugh JJ stated, at 365: "Collateral contracts are so-called not because they are subordinate or of lessor importance (although they may well be, depending on the facts of the case), but because they impinge upon and are related to another contract. ... Once the notion of primacy is jettisoned, 'collateral' must be understood in the sense of 'related to' or even 'in addition to'." There is no reason to be derived from the present statutory context not to apply a similar analysis. (See also Spigelman CJ in Solution 6 Holdings Ltd v Industrial Relations Commission of NSW [2004] NSWCA 200 at [41].)"

22 I would respectfully adopt the reasoning of Basten JA set out above in terms of the statutory interpretation of the meaning of "collateral arrangement" in subsection (2A). That is, there needs to be an "appropriate connection" between the employment contract and the contract constituted by the AMEX corporate card. In my opinion, such an appropriate connection arguably exists because it is clear from the documentation to which I have earlier referred that AMEX marketed its corporate card to employer corporations, to enable employees to incur charges for the purpose of the business of the employer. Indeed, the conditions under which the corporate card is issued confine its use to the business activities of the employer.

23 In circumstances, therefore, where an employer applies for a corporate AMEX card for the sole purpose of its business activities, it is arguable that this is a contract or arrangement which is collateral to the contract of employment. It is also arguable that it is related to the contract of employment and thus becomes a "related condition".

24 For completeness I add that it is arguable that it would be unfair for AMEX to enforce a debt personally against an employee who had incurred expenses confined to the business activities of the employer by use of an AMEX corporate card, as was apparent and known to AMEX, where the corporate employer has gone into liquidation. Of course, these observations are made by reference only to those facts which have been referred to for the purpose of the hearing of the notice of motion, assuming these facts at their highest in favour of the applicants and are not intended to reflect any final determination. These observations are, therefore, confined to a consideration as to whether or not there is an arguable case at this stage of the proceedings.

25 For these reasons, the notice of motion must fail, and should be dismissed. There seems to be no reason why the costs incurred by the applicants in relation to this motion should not be paid by AMEX.

26 ORDERS I make the following orders:

1. The notice of motion is dismissed; 2. The second respondent is to pay any legal professional costs properly incurred by the applicants in relation to this notice of motion in an amount assessed in default of agreement.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.