Smart Electrical and Power Services Pty Limited v Geoffrey John Bednal & Ors

Supreme Court of NSW|2004-08-06|Before: Einstein J, Santow J, Mason P

CITATION : Smart Electrical and Power Services Pty Limited v Geoffrey John Bednal & Ors [2004] NSWSC 742 HEARING DATE(S) : 6/08/04 JUDGMENT DATE : 6 August 2004

JURISDICTION: Equity Division Commercial List JUDGMENT OF : Einstein J DECISION : Stay granted.

CATCHWORDS : Stay of proceedings in Commercial List pending determination of related proceedings before Industrial Relations Commission - Principles LEGISLATION CITED : Industrial Relations Act 1996 (NSW) CASES CITED : Environmental Group v Croudace [Santow J, Supreme Court of New South Wales, 7 August 1998, unreported] BC9803683 L & W Developments Pty Limited v Della (2003) NSWCA 140 Smart Electrical and Power Services Pty Limited ACN 087 777 428 (Plaintiff) Geoffrey John Bednal (First Defendant) PARTIES : Alexander Cernoy (Second Defendant) Gary John Arkle (Third Defendant) Mark Leonard Forland (Fourth Defendant) FILE NUMBER(S) : SC 50114/03 COUNSEL : Mr T Lee (Plaintiff) Ms Vera Culkoff (Defendants) Terence Lockyer Lee & Associates (Plaintiff) SOLICITORS : Peninsula Law (Defendants)

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION COMMERCIAL LIST

Friday 6 August 2004 ex tempore Revised 19 August 2004

50114/03 Smart Electrical and Power Services Pty Limited v Bednal, Cernoy, Arkle and Forland JUDGMENT 1 In proceedings number 50114 of 2003 there is before the Court a notice of motion filed by the defendants seeking an order staying these proceedings:

"That these proceedings be stayed, pending determination in the Industrial Relations Commission of New South Wales of proceedings File No. IRC 3656 of 2002 of Alex Cernoy -v- A J Lucas Group Limited (First Respondent) and Smart Electrical and Power Services Pty Limited (formerly known as A J Lucas Networks Pty Ltd) (Second Respondent), proceedings File No. 3641 of 2002 of Geoffrey John Bednal -v- A J Lucas Group Limited (First Respondent) and Smart Electrical and Power Services Pty Limited (formerly known as A J Lucas Networks Pty Ltd) (Second Respondent) and proceedings File No. 3640 of 2002 of Mark Leonard Forland -v- A J Lucas Group Limited (First Respondent) and Smart Electrical and Power Services Pty Limited (formerly known as A J Lucas Networks Pty Ltd) (Second Respondent)."

2 The present is a further example of the difficulties which sometimes arise in terms of litigation which is commenced both before the Industrial Relations Commission and the Supreme Court and in respect of which the Court must strike a delicate balance in terms of taking into account the legitimate forensic interests of both parties in the administration of justice. Problems of a similar type have arisen in a number of cases and each set of cases must be determined on its own merits, as is obvious. 3 Most recently the New South Wales Court of Appeal in L & W Developments Pty Limited v Della (2003) NSWCA 140, had occasion to identify some of the considerations to be weighed in balance on similar applications. 4 In that decision Mason P included in his statement of the relevant considerations the following matters:

That the IRC proceedings had been commenced eight months earlier than the Supreme Court proceedings in what his honour held to be a genuine invocation of the Commission's jurisdiction.

That the dispute fell squarely within the scope of section 106 at least in part and could not be said to be quintessentially commercial.

That the Supreme Court lacked the jurisdiction to grant the relief sought by the defendant in the IRC proceedings.

That if the Commission avoided or varied the contracts, or even just the remuneration aspects of the contract, this would impact upon any damages recoverable before the Supreme Court and that other aspects of the Supreme Court proceedings may also be affected by issues determined or orders made in the IRC proceedings.

That affidavits and statements used for the one proceeding could likely be used in relation to the issues remaining to be identified in the other.

That to allow both proceedings to press on together risked wasteful duplication of judicial resources and inconsistent judicial determination.

That if possible it was desirable to avoid an unseemly race to judgment between the two sets of proceedings in circumstances where the Court took into account the legitimate forensic interests of both parties in the administration of justice as being significant.

That if the Supreme Court proceedings were completed first there could well remain issues to be decided in the IRC proceedings. 5 What follows in this judgment makes good the proposition that each of those eight considerations equally apply in the current contest for jurisdiction. 6 It is necessary to however, return to the basic template to follow precisely how the parties have reached the present stage. I proceed to endeavour to do that. 7 The IRC proceedings were commenced on 21 June 2002. The Supreme Court proceedings were commenced in August 2003. 8 The parties to the Supreme Court proceedings are Smart Electrical & Power Services Pty Limited as plaintiff and Messrs Bednal, Cernoy, Arkle and Forland as defendants. 9 The summons in the Supreme Court proceedings seeks relief for negligent misstatement generally concerning alleged representations said to have been made, at points in time when what was being negotiated was the purchase by Smart Electrical ["Smart Electrical" or "Smart"] of the business and undertaking of the Smart Communications Group Limited [which apparently took place in or about November 2001], it being the plaintiff's case that that purchase was on the advice of the defendants, said to have been given negligently and said to have therefore caused the plaintiff in the Supreme Court proceedings to incur substantial loss and damage. 10 There is a cross-claim in the Supreme Court proceedings pursued by all four defendants both against the plaintiff as second cross-defendant and against A J Lucas Group Limited ["the A J Lucas Group" or "Lucas"] as first cross-defendant. It is apparently common ground that the A J Lucas Group was at material times the holding company of Smart Electrical. 11 The cross-claimant's contentions include an allegation that in about November 2001 they entered into contracts with A J Lucas Group Limited on its own behalf or with A J Lucas Group Limited through its nominee, Smart Electrical whereby the cross-claimants were to be employed in certain specified capacities for the development of the business of Smart Electrical for a stipulated minimum period of time at a stipulated base salary per annum. Those contracts are alleged to have contained a term requiring A J Lucas Group Limited to also issue a stipulated number of shares and options within a stipulated period of time. Breaches of those alleged terms of alleged contracts are then contended for in the points of defence. 12 Turning to the IRC proceedings, the position is that the applicants for relief before the IRC are Messrs Bednal, Cernoy and Forland. Mr Arkle, whom as I have said is a defendant to the Supreme Court proceedings, is not a party to the IRC proceedings, apparently because he was out of time in terms of being in a position to become an applicant there. Before going further I should indicate that Ms Culkoff of counsel [who appears today for the four defendants to the Supreme Court proceedings], has instructions from Mr Arkle that he is content for the Supreme Court proceedings to be stayed pending conclusion of the IRC proceedings, notwithstanding that his cross-claim in the Supreme Court proceedings would be held up if the IRC proceedings were to continue. It is apparently hoped that the result of the IRC proceedings one way or another [or perhaps by settlement or persuasion], will lead to Mr Arkle's cross-claim in the Supreme Court being settled. That is a discretionary consideration which removes from contention the proposition that the mere fact that the record in each of the two sets of proceedings is not exactly the same, should be regarded as a reason for not granting the stay presently sought. 13 The IRC proceeding's respondents are Smart Electrical and A J Lucas Group. There are no cross-claims in the IRC proceedings. 14 Turning to the content of the IRC proceedings, that may be gleaned from the originating process in each of the cases. Centrally the applicants seek to raise a number of causes of action but most importantly they seek to invoke section 106 of the Industrial Relations Act 1996 for orders declaring their contracts unfair, harsh or unconscionable or declaring void in whole ab initio or otherwise their contracts, or orders varying their contracts by particular provisions. That of course is a remedy which is not open to the Supreme Court of New South Wales. 15 It is necessary in referring to the relief sought in the Industrial Relations Commission to also refer to what can only be described as a plethora of litigation between these parties thrown up and identified in the various affidavits before the Court. A number of cases were brought before the District Court of New South Wales concerning the circumstance that it was alleged that Messrs Bednal, Cernoy and Arkle were entitled to an indemnity in relation to guarantees given by them to the Commonwealth Bank of Australia and to Capital Finance Australia Pty Limited. Those were in fact cross-claims in the relevant District Court proceedings. As I understand the position, the parties commencing the District Court proceedings were the Commonwealth Bank of Australia and Capital Finance Australia Pty Limited. 16 Those District Court proceedings were commenced as separate proceedings in early 2003 and the claims by the plaintiffs have been settled leaving only remaining the cross-claims. 17 Recently the Supreme Court has ordered that the cross-claims be removed into the Supreme Court to be heard together with the Supreme Court proceedings 50114 of 2003. 18 The overlap between the IRC proceedings and the Supreme Court proceedings is firstly, an overlap in terms of the cross-claims pursued by Messrs Bednal, Cernoy and Forland in the Supreme Court proceedings which, as I have already indicated, raise the contracts of employment and the terms thereof, including the issues concerning the minimum periods of employment. The second overlap concerns the fact that in the IRC proceedings relief is sought in terms of the applications to vary the contracts by an order that the respondents assume all the obligations of the applicants pursuant to personal guarantees and indemnities provided by the applicants, not only to Capital Finance Australia Limited and the Commonwealth Bank of Australia, but also to two other entities apparently having similar claims to those of Capital Finance and Commonwealth Bank, the other entities being CBFC Limited and CIT Group Australia Limited. 19 The Court has been informed that CBFC and CIT Group (Australia) have apparently held their hand in relation to pursuing the guarantors pending the result of the litigation currently on foot. I infer that that position will continue if these proceedings are stayed up to and including the IRC proceedings resolution, or may well do. 20 One of the allegations leading to the guarantee circumstance concerned the assertion that part of the contract or arrangement entered into between the parties had included an agreement for A J Lucas Group Limited/Smart Electrical to assume all of the obligations of Messrs Cernoy and Bednal, pursuant to personal guarantees and indemnities provided by them to those institutions which I have named. 21 The submissions of the applicants make the point that Smart Electrical concedes that it undertook its own due diligence exercise in relation to the acquisition of the business and undertakings of the Smart Communications Group and that that due diligence exercise is conceded as having involved the services of a number of external parties [including KPMG Accountants and Minter Ellison] in relation to the purchase of the business and undertaking of Smart Communications. 22 Smart Communications is a company which had apparently entered into voluntary administration on 25 October 2001. The alleged misrepresentations to which I have referred are said to have occurred from 25 October 2001 until 7 November 2001. 23 There is limited evidence before the Court that the Supreme Court proceedings have limited prospects of being successful. In the nature of things that evidence can be regarded as of only the weight capable of being given where one party or its legal advisers put the proposition forward. 24 In relation to the timetable, the points of defence and cross-claim in Supreme Court proceedings were filed on behalf of the applicants on 23 December 2003 alleging breach of contract. Returning to the position concerning Mr Arkle, he on 18 June 2003 commenced proceedings in this Court against both the A J Lucas Group and Smart Electrical alleging breach of contract. There has been an agreement reached that all Supreme Court proceedings are to be heard together in order to avoid costs and to avoid litigation in multiple jurisdictions or courts. 25 In relation to the state of readiness of the two sets of proceedings, the position is that the plaintiffs claim to have filed all their evidence in the Supreme Court and have submitted that they are still to file their evidence before the IRC. Mr Lee has indicated that the respondents to the IRC proceedings are in a position to file their evidence in the IRC very soon. 26 Ms Culkoff of counsel for the applicants has however, made the point that the applicants have filed their evidence in the IRC and that, to the extent that the respondents even now have not formally filed their evidence before that tribunal, there have been very substantial interlocutory skirmishes and that the materials mobilised in those skirmishes are highly likely to simply be re-engaged by the respondents. She has indicated that the current timetable requires all evidence before the IRC to be on by early September and that discovery and inspection is completed. As I have understood the position, if this Court does not stay these proceedings there are high prospects of a hearing date being allotted by the IRC some time towards the end of the year, whether by giving a date for a later hearing or by giving a date, not being entirely clear to me. 27 Turning then to the proper exercise of the Court's discretion one should take into account the recent forensic situation. On 20 November 2003 Marks J of the IRC refused a stay of the proceedings sought by the Lucas and Smart Companies and relied inter alia upon the proposition that the Supreme Court does not have the power to avoid or vary the contract of employment stating inter alia that:

"[T]o order a stay would deprive the applicants of an opportunity of litigating the issues against the respondents which were not capable of relief granted by the Supreme Court because… these claims are not the subject of any proceedings between the three applicants and the respondents in the Supreme Court." 28 Marks J also apparently on pages 3 and 7 of his Judgment of 20 November 2003 held that finalisation of the proceedings in the Supreme Court would not determine the issues before the Court and in addition that it was possible for most, if not all, of the issues before the parties to be litigated before the IRC by way of cross-claim by the two respondents to the proceedings. His Honour took into account the concession then made by Mr Lee that it was at least hypothetically possible for the respondents in the IRC proceedings to maintain claims there in the nature of cross-claims [alleging unfairness with respect to the contracts of employment by reference to alleged negligent misstatements made by the applicants which may be asserted led the respondents to enter into the contracts of employment]. His Honour made the point that if the respondents chose to bring claims of that kind then it seemed to his Honour that most if not all of the issues between the parties and the respondents would be able to be litigated before the IRC. 29 It seems that albeit that back in mid-May 2003 Mr Lee, on behalf of the respondents, Lucas/Smart, had said that there would be substantial cross-claims raised in the IRC proceedings, no such cross-claims have been filed in those proceedings. Rather in mid-June 2004 the Lucas and Smart entities filed a further application to stay the IRC proceedings. 30 On 29 July 2004 Justice Marks deferred the hearing of that motion pending the hearing of the motion presently before the Court. 31 There has also been a delay in the expeditious prosecution of the IRC proceedings caused by sundry interlocutory steps taken by Messrs Lucas and Smart including the motion seeking a stay of the IRC proceedings refused by Marks J, the further notice of motion seeking a stay of those proceedings which is still pending [cf see the chronology of delay outlined in paragraph 10 of annexure A to Mr Bingham's affidavit of 15 July 2004]. 32 As to the financial position of the parties, Lucas is a publicly listed company with significant financial resources at its disposal. Smart, as I have said, is a wholly owned subsidiary of Lucas. 33 I accept that the applicants in the IRC proceedings are likely to suffer severe financial disadvantage if the Supreme Court proceedings were to continue in terms of a real degree of wasted legal costs and resources. 34 Returning to other considerations, the Supreme Court of course, as I have already indicated, does not have the jurisdiction to make orders under section 106 of the Industrial Relations Act. It lacks jurisdiction to grant the relief sought by Messrs Cernoy, Bednal and Forland in the IRC proceedings. In the Environmental Group v Croudace [unreported, Supreme Court of New South Wales, 7 August 1998] Santow J put the matter as follows: "Moreover the basis for allowing or withholding the relief sought under the Act in the Industrial Relations Commission depends on the application of principles not able to be invoked by the defendants in the Supreme Court." (at 27) 35 Santow J also made the point that even where proceedings are first commenced in the Supreme Court a stay will be granted because the relief available in the Industrial Relations Commission would be granted or refused on principles not available in the Supreme Court. 36 My own view is that this last statement is not to be read as fettering the Court's undoubted discretion to decline to order a stay of the Supreme Court proceedings. As I have already indicated everything depends upon the particular case and issues in terms of the proper adjudication of the interests of justice. 37 It is I accept, a relevant consideration that the Supreme Court proceedings were commenced almost 14 months after the IRC proceedings and that the District Court proceedings were also commenced well after the IRC proceedings, with cross-claims filed ten months after the IRC proceedings. 38 I note in the same respect that the Arkle proceedings commenced in this Court were commenced some 12 months after the IRC proceedings. 39 The status of the Supreme Court proceedings is that pursuant to orders made by the Court on 13 February 2004, the Lucas/Smart entities were to file their evidence in chief by 7 June 2004 and on or about 27 July 2004 they served three unsealed affidavits which are yet to be filed. It is said to be unclear whether this is the entirety of the evidence-in-chief to be relied upon by Lucas/Smart. That was said by Ms Culkoff. 40 On the other hand Mr Lee has now clarified the position by, as I understand it, his statement that the plaintiff should be taken as having filed every skerrick of its evidence in the Supreme Court proceedings and I proceed accordingly on that statement by the solicitor on the record for the plaintiff. 41 These are situations where the Court can only approach the matter in terms of accepting that there are grounds for each of the contending groups to be pursuing the litigation in their preferred forum. To my mind the Court is not constrained in the proper exercise of the jurisdiction to order a stay in the interests of justice but certainly should take into account situations where the vortex of a dispute, in terms of the substantial centre of gravity of the dispute, may be seen to involve a major commercial piece of litigation. There are such cases. 42 In the present instance the Court has had to look fairly closely through the materials to try to identify to what extent it may be said that the matters being sought to be litigated in the IRC, in terms of the centre of gravity of the central issues, should dictate that the commercial list is the place for determination of those proceedings. 43 My own view is that when one looks very closely indeed at each of the issues which is sought to be litigated, the representations concerning the negotiations leading to the acquisition of the Smart Communications Group cannot be said to be so central, in terms of a vortex or centre of gravity as to mandate the proper exercise of the Court's discretion being to decline to grant the stay now sought. To the contrary, to my mind, standing back from all of the litigation and having looked closely at the issues sought to be litigated, this is a circumstance where the interests of justice justify the proper exercise of the Court's discretion being in favour of making order 1 in the notice of motion. Orders 44 The Court's order are:

I make order 1 in terms of the notice of motion filed on 8 July 2004.

I order that the plaintiff pay the applicant's costs of that motion.

I stand the Supreme Court proceedings 50114 of 2003 over to the first Friday of 2005 following the commencement of term which is Friday 6 February 2005 at 9.15am before the list Judge for directions.

I certify that paragraphs 1 - 44 are a true copy of the reasons for judgment herein of the Hon. Justice Einstein given on 6 August 2004ex tempore and revised 19 August 2004

      Susan Piggott
      Associate

19 August 2004

Last Modified: 08/27/2004 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.

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