Thomson and anor v Societe Generale Australia Limited

SECOND RESPONDENT Societe Generale France

LEGISLATION CITED: Industrial Relations Act 1996 ss 105 106

Majik Markets Pty Ltd v Brake and Service Centre Drummoyne Pty Ltd (1991) 28 NSWLR 443 Mayne Nickless Limited v Industrial Relations Commission of New South Wales [2004] NSWCA 359 CASES CITED: Nagle v Tilberg (1993) 51 IR 8 Old UGC Inc v Industrial Relations Commission of New South Wales [2004] NSWCA 197 Solution 6 Holdings Limited v Industrial Relations Commission of New South Wales [2004] NSWCA 200

APPLICANTS Mr B Hodgkinson SC with Mr A B Gotting Solicitor: Mr H Williamson Williamsons Solicitors

RESPONDENTS Mr T Blackburn SC with Mr I Raine Solicitor: Mr A Shanahan Shanahan Tudhope Lawyers

• 1 - INDUSTRIAL RELATIONS COMMISSION OF NEW SOUTH WALES IN COURT SESSION CORAM: MARKS J Wednesday 16 March 2005

Matter No IRC 1795 of 2002 MICHAEL THOMSON AND ANOR v SOCIETE GENERALE AUSTRALIA LIMITED AND ANOR Application under s 106 of the Industrial Relations Act 1996 INTERLOCUTORY JUDGMENT ON NOTICE OF MOTION [2005] NSWIRComm 68

1 These proceedings are currently constituted by a further amended summons for relief under s 106 of the Industrial Relations Act 1996 ("the Act"). That further amended summons was filed on 9 May 2003. The proceedings have been set down for hearing commencing on the 9th of May next and 5 weeks have been set aside for the hearing.

2 On 24 November 2004 the applicants filed a document entitled "Additional further and better particulars of the further amended statement of claim…" which purported to provide particulars additional to those previously provided on 12 June 2003. The particulars were said to be an amplification of paragraph A12 of the further amended summons.

3 The respondents have sought by motion to preclude the applicants from relying on the additional further and better particulars, essentially on three bases. The first is that they constitute in effect a new claim, thereby going beyond the applicants' case as contained within the further amended summons. Secondly, that the particular claim and other claims contained within the further amended summons were directed towards a particular deed which was beyond the jurisdiction and power of this court to deal with under s 106 of the Act, and thirdly because they were time barred under s 108B of the Act. The respondents' notice of motion was heard on 7 March 2005 and on that occasion the respondents presented arguments confined to the first two matters.

4 In order to deal with the first ground advanced by the respondents I set out hereunder a number of the claims made by the applicants against the respondents as contained in the further amended summons. 1. An order declaring void in whole or in part, or varying either from its commencement or from some other time the contract and arrangements between the applicants and the respondents whereby the 1st applicant performed work in an industry. 2. Further, in the alternative, an order declaring void in whole or in part, or varying, that part of the contract or arrangements between the applicants and the respondents whereby the 1st respondent paid monies to the 1st applicant upon the termination of the 1st applicant's employment. 3. Further, in addition, an order that the said contract or the said arrangements between the applicants and the respondents were unfair, harsh and unconscionable and contrary to the public interest.

  11. An order declaring void in whole or in part, or varying, either from its commencement or from some other time, the deed executed in February 2001 between the applicants and the 1st respondent.
  12. An order that the respondent pay to the 2nd applicant such amount of money in connection with the contract or arrangements (including the contract of employment and the deed entered into between the applicants and the 1st respondent in February 2001) so avoided or varied as may appear just in the circumstances.
  13. An order that the respondent pay to the 2nd applicant interest upon such amount of money as is ordered to be paid to the 2nd applicant in connection with the contract or arrangements as avoided or varied at the rates as were set from time to time by the Supreme Court of New South Wales.
  14. An order that the respondent pay each of the applicants' costs of these proceedings.

5 There follows a number of claims seeking variation of a contract of employment between the first applicant and the first respondent, followed by claims for orders for the payment of certain monies to the first applicant.

6 I have also set out claims 11 and 12 because they are of particular significance in dealing with this matter.

7 As is required by the rules of this Court the applicants were obliged to set out a summary of matters of fact and law upon which they relied in the proceedings. I set out below paragraphs 1 to 26 of the summary of matters of fact and law. I emphasise that there are other matters which are contained within the further amended summons which refer in particular to allegations of unfairness with respect to the contract or arrangement between the first applicant and the respondents. The material which I have extracted is of assistance in determining this particular matter.

B. Summary of Matters of Fact and Law 1. The 1st applicant was employed by the 1st respondent under a written contract of employment, ("the contract") which was signed by the 1st applicant on 21 February 2001. 2. The 1st respondent is a corporation, and a financial institution, and is a wholly owned subsidiary of Société Generale, France, the 2nd respondent. The 2nd respondent earns profits from the operations of the 1st respondent, and the operations of the 1st respondent are subject to the control of the 2nd respondent. 3. The 2nd applicant is a corporation, and is wholly owned by the 1st applicant. The 1st applicant is the sole person entitled to profit from the operations of the 2nd applicant. 4. There was an arrangement between the respondents whereby some of the profits from deals made following the introduction of clients and transactions by the 1st applicant to the 1st respondent were entered into the books of the 2nd respondent. Also, there was an arrangement whereby the profits from those transactions accrued to the 2nd respondent. The 1st applicant was not aware of these arrangements at the time he entered into the employment contract, and at the time that the deed between the applicants and the 1st respondent was executed in February 2001. 5. At the time the 1st applicant entered into the employment contract, and at the time that the deed between the applicants and the 1st respondent was executed in February 2001, the 1st applicant understood that all the profits from the transactions and clients introduced by him would be entered into the books of the 1st respondent and that, therefore, he would be entitled to commissions/bonuses from the profits of those transactions. 6. The 1st applicant would not have entered into the contract of employment, and the applicants would not have executed the deed in February 2001, if the 1st applicant had known that there was the possibility that he would be not entitled to, or denied, commissions/bonuses from the profits made by the respondents from deals made following the introduction of clients and transactions by the 1st applicant to the 1st respondent, because of the arrangements between the respondents set out in paragraph 4 above. 7. The effect of the arrangements set out in paragraph 4 above, taken together with the contract of employment, was to deprive the 1st applicant of commissions/bonuses from the very large profits made by the respondents from deals made following the introduction of clients and transactions by the 1st applicant to the 1st respondent, and to which he would otherwise have been entitled. That was unfair. 8. The contract or arrangements between the applicants and the respondents in respect of which the 1st applicant performed work were unfair because they operated in a way that unfairly deprived the 1st applicant of commissions, and because the 2nd respondent was able to earn very large profits, in respect of clients and transactions introduced by the 1st applicant without having to pay the 1st applicant any commissions. 9. The 1st applicant commenced employment with the 1st respondent on 26 February 2001. 10. The 1st respondent terminated the 1st applicant's employment on 6 March 2002. 11. The 1st applicant's employment was terminated summarily, and there was no valid reason for the termination of the 1st applicant's employment. 12. The contract is unfair because it has operated in such a way that a situation has arisen whereby the 1st applicant's employment was terminated as above. 13. Prior to entering the employ of the 1st respondent, the 1st applicant was a very senior, experienced and successful foreign exchange expert, specialising in the resource sector. The respondents knew that. 14. Prior to entering the employ of the 1st respondent, the 1st applicant had been working independently. He, and the 2nd applicant, had established working relationships with several financial institutions and were in the process of arranging significant deals between his clients and those financial institutions by which the applicants would have earned a large income by way of consulting fees, and by way of splitting commissions with financial institutions to whom they introduced clients and with whom they arranged deals on behalf of those clients. The respondents were aware of these circumstances prior to the signing of the contract, and prior to the execution of the deed between the applicants and the 1st respondent in February 2001. 15. It was because the respondents were aware of the circumstances set out in the above paragraph that they insisted that the applicants enter into the above-mentioned deed in February 2001. 16. Around the end of the year 2000, a number of opportunities for currency hedging contracts became known to the 1st applicant, because of his long history in the finance industry, and his extensive contacts with senior executives in a large number of companies, especially, but not limited to, resource companies. By taking advantage of these opportunities, the applicants would have earned significant sums of money. During the negotiations leading up to the signing of the contract, the 1st applicant informed the respondents of these opportunities. The respondents were very interested in securing those opportunities for themselves. 17. Because the 1st applicant entered into the contract of employment with the 1st respondent, and because the applicants executed the deed in February 2001 with the 1st respondent, the applicants gave up those opportunities, and did not earn the significant sums of money from those opportunities that they would have earned. 18. From around the end of the year 2000, the 1st applicant was in discussion with a number of other prospective employers. The respondents were aware of that. The 1st applicant gave up those other employment opportunities when he entered the employ of the respondent. The respondents knew that at the time. 19. It was an important aspect of the arrangement entered into between the applicants and the respondents that the applicants would give up, to the respondents, any rights to profit from the 1st applicant's knowledge and contacts as aforesaid. 20. The applicants only agreed to give up the rights to profit independently from the 1st applicants knowledge and contacts as aforesaid in return for the 1st applicant receiving payments of commission and bonuses as set out in paragraph 5 of the orders sought in this summons. 21. The contract is unfair because it has operated in such a way that a situation has arisen whereby the respondents have refused or failed to pay the 1st applicant the commissions or bonuses to which, in fairness, he is entitled. 22. The contract is unfair because the "Special Condition" clause did not accurately reflect the true nature of the agreement between the 1st applicant and the 1st respondent. 23. Alternatively, the contract is unfair because the "Special Condition" clause did not accurately reflect the 1st applicant's understanding of the true nature of the agreement between the 1st applicant and the 1st respondent, which understanding had been induced as a result of the misrepresentations of the 1st respondent, and its officers agents and employees, and the failure of the 1st respondent to inform the 1st applicant of the arrangements between the respondents set out in paragraph 4 above. 24. The contract is unfair because the "Special Condition" clause was ambiguous, and the contract has therefore operated in such a way that a situation has arisen whereby the respondents have refused or failed to pay the 1st applicant the bonuses and commissions to which, in fairness, he is entitled. 25. The contract is unfair because it has operated in such a way that a situation has arisen whereby the respondents have wrongfully and unfairly refused or failed to pay the 1st applicant bonuses and commissions in the sums and in the manner contemplated by the parties when the 1st applicant agreed to enter the employ of the 1st respondent, and when the applicants and the 1st respondent executed the deed in February 2001. 26. The contract is unfair because it has operated in such a way that a situation has arisen whereby the respondents have refused or failed to pay the 1st applicant a fair sum in bonuses or commissions in respect of clients and transactions introduced to the respondents by the 1st applicant, in a situation where the applicants would probably have been able to earn equivalent or greater sums in respect of the "deals" those clients transacted if the 1st applicant had not entered the employ of the respondent and given up his right to operate independently of the respondent, and if the applicants had not executed the deed in February 2001.

8 Some flavour of the factual background to the proceedings as a whole may be gained from paragraphs 13 to 20 of the summary of matters of fact and law. In essence the first applicant, Michael Thomson, alleges that he was a successful foreign exchange expert specialising in the resource sector and was induced to enter into a contract of employment with the first respondent, SG Australia Limited. The first applicant was a director and shareholder of the second applicant, Bengoal Pty Ltd ("Bengoal"), which operated a consultancy business and which gave advice with respect to currency risk management strategies. This factual background is supplemented by two documents which were entered into at about the same time, namely on or about 21 February 2001, prior to the first applicant commencing employment on 26 February 2001. The first document is a contract of employment constituted by signed acceptance by the first applicant of terms and conditions upon which employment was offered. There is a provision in that contract to the following effect: "This offer of employment is conditional upon Michael Thomson agreeing to procure Bengoal to enter into a DEED, a copy of which is provided with this letter of offer". Under the heading "Special Conditions" the first respondent is said to recognise that Mr Thomson had "existing relationships with specific clients that are contemplating hedging activities in the next six months. It is also agreed that a key job performance objective for you is to introduce new clients and transactions to (the first respondents)".

9 The deed, which is undated but apparently executed on or about 21 February 2001, is made between the second applicant, Bengoal Pty Ltd, the first respondent and the first applicant. The recitals refer to the fact Thomson is a director and shareholder of Bengoal, that Bengoal operates a consultancy business with respect to currency risk management strategies, that the first respondent has offered Thomson employment which he has accepted, that there is an acknowledgment by all of the parties of the potential for conflicts of interest between the first respondent, Bengoal, Thomson and the first respondent's clients which might arise during the course of Thomson's employment if he continued to provide services to the clients of Bengoal. Finally, the recitals refer to the fact that the parties have agreed to deal with "such potential conflicts" on the terms set out in the deed.

10 The operative provisions of the deed refer to the employment by the first respondent of Thomson on the terms and conditions of the letter of offer dated 21 February 2001, to which I have earlier referred, a copy of which was attached to the deed. There is a covenant by Bengoal that it will not engage in or conduct business of a type the same or similar to that conducted by the first respondent for so long as Thomson is employed by the first respondent and is a shareholder or office of Bengoal. There is a covenant by Thomson to the effect that he will procure that Bengoal comply with those obligations of Bengoal. There are other provisions to which I need not refer for the purpose of this interlocutory judgment.

11 Correspondence was exchanged between the solicitors for the parties in May and June 2003 whereby particulars were sought and given of the applicant's claim. When the applicants were asked to identify the arrangements referred to in the further amended summons it was stated that they consisted of the Bengoal deed, the understandings that Mr Thomson and representatives of the respondents had prior to the employment contract being entered into, and the arrangements between the respondents in relation to the conduct of their business activities in Australia. It was conceded by Mr Blackburn SC who, together with Mr Raine of counsel appeared for the applicants, that those particulars were incorrect. It was submitted that the arrangement was constituted by the two contracts, namely the contract of employment and the deed.

12 The particulars about which the respondents complained and which they asserted constituted a new claim were particulars given concerning claim number 12 which I have earlier set out. The particulars were in the following terms: "Including an order that the respondents pay to the 2nd applicant receipts of the respondents or either of them in respect of transactions with Wambo Pty Ltd or any associated entity insofar as such receipts do not relate to transactions in respect of which within these proceedings the first respondent has been ordered to make a payment to the first applicant ("the forgone Wambo/Excel connection earnings"). The amount claimed under this clause will be particularised following production by the respondents of documents relating to earnings of the respondents from the forgone Wambo/Excel connection earnings".

13 The respondents complained that this was the first occasion upon which the applicants had made a claim for monies payable with respect to transactions which occurred after the contract of employment between the first applicant and the first respondent had come to an end. It was submitted by Mr Hodgkinson SC, with whom Mr A B Gotting of counsel appeared for the respondents, that such a claim as particularised was outside and not supported by any of the claims made by the applicants against the respondents as contained in the further amended summons.

14 There can be no doubt that claim number 12 made in the further amended summons seeks an order for payment to the second applicant of monies by reference to any avoidance or variation of an arrangement constituting the contract of employment and the deed. It is true that the summary of matters of fact and law makes no reference to any transactions with Wambo. However, order 6 contained within the further amended summons, lists a number of entities and seeks and order for payment by the respondents to the first applicant of monies with respect to transactions involving those entities. Contained within that list is Wambo Mining Corporation, with respect to which a claim is made of $1,505,000. I should add for completeness that additional further and better particulars of the further amended statement of claim filed by the applicants on 24 November 2004 are indicative that the applicants rely, in order to justify a finding of unfairness, on the fact that "the second applicant also gave up the opportunity to participate at all in the market and gave up its connection with Wambo and associated entities. In effect it handed over that connection to the first respondent…the second applicant would not have done that if it had been aware of the meaning of the special conditions which would be contended for by the respondents. In effect, therefore, it would have retained the benefit of the Wambo and associated entities connection". Amongst the particulars is an allegation that the respondents have, since the date of the last transactions the subject of the claim by the first applicant "made very significant profits in respect of business with Wambo and its associated entities…".

15 Claim number 12 as framed makes specific reference to arrangements, including the deed entered into between the applicants and the first respondent in February 2001 by which the second applicant, Bengoal, was constrained to withdraw from certain activities. It is my opinion that the particulars contained within the additional further and better particulars are capable of being read so that they are consistent with the claim made by the applicants in claim number 12. In the same way the claim as particularised and about which complaint is made by the respondents is consistent with the matters set out by way of summary of matters of fact and law in paragraphs 14 to 26 which I have earlier set out. These emphasise the relationship between the first applicant and the activities of the second applicant through the services of the first applicant with the various contacts and clientele of both applicants. There is an emphasis on both applicants having given up opportunities to earn monies from those contacts by reference to promises allegedly made by the first respondent to the first applicant. Seen in this way I am unable to agree with the submissions of the respondents that the additional particulars furnished constitute a new claim, one which is not consistent with or flows from the claims made in the further amended summons. It is certainly true that the claim as sought to be quantified traverses beyond transactions which had been effected prior to the first applicant leaving the first respondent's employment. However this quantification does not per se constitute a new claim as contended for by the respondents. It is capable of being read as a variation of the quantification of an existing claim asserted by the applicants against the respondents. The first basis as advocated by the respondents is rejected.

16 It is next necessary to deal with the second basis for attack made by the respondents, namely one asserting a lack of jurisdiction. In order to deal with this matter it is necessary to set out the provisions of s 105 and 106 of the Act:

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.

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. (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.

17 It will be seen from the above that the jurisdiction and power of this Court under s 106 of the Act may only be invoked if there is found to be unfair a contract or arrangement "whereby a person performs work in any industry". It was the submissions of the respondents that so much of the claims made and orders sought by the applicants which went to or concerned the deed were beyond jurisdiction and power because the deed did not constitute a contract whereby work was performed in an industry. To the contrary, it was asserted that the impact of the provisions of the deed was to preclude Bengoal from undertaking certain activities with the resultant effect that it precluded Mr Thomson or any other persons from performing work in undertaking those activities.

18 The respondents relied principally on the judgment of the Chief Justice in the New South Wales Court of Appeal in Solution 6 Holdings Limited v Industrial Relations Commission of New South Wales [2004] NSWCA 200. Mason P and Handley JA agreed in the reasons for judgment of the Chief Justice. Those proceedings arose out of a share sale agreement, the completion of which was said to be conditional upon a Mr Fish entering into an employment contract with the purchaser and key employees not having resigned or not having expressed an intention to resign. Spigelman CJ held that the share sale agreement should be characterised only as a contract for the purchase and sale of a business. In describing a contract which was one whereby work was performed in an industry his Honour said that he would expect that such a contract would directly lead to the performance of work.

19 At paragraph [58] his Honour said: "Although it is not an alternative test, I find it difficult to conceive of a contract, etc, which can be said to directly lead to the performance of work unless the contract, etc, both envisages the performance of work and has an impact upon the conditions of such performance. It may well be that these are minimum conditions for the conclusion of 'directness' to be drawn".

20 His Honour held that the share sale agreement did not directly lead to the performance of work, nor that it directly envisaged the performance of work or had a recognisable impact on the conditions of the performance of work. Nor was the performance of work the purpose of the share sale agreement. Even thought the share sale agreement envisaged the continuation of an employment relationship and, in the case of one employee, the creation of an employment relationship, this would lead to the performance of work "only in an indirect or remote or consequential manner" (at paragraph [59]).

21 It followed from his Honour's observations that it was the contract of employment itself made between the purchaser and Mr Fish that constituted the contract whereby work was performed. The respondents asserted that in the context of these proceedings the deed between Bengoal and the first respondent should be seen in the same way.

22 It must be remembered that these are interlocutory proceedings and that, in order to succeed, the respondents bear a heavy onus of proof. I refer to the well-known authorities typified by the Full Bench decision in Nagle v Tilberg (1993) 51 IR 8. It has to be "plain that the invocation of the jurisdiction impugned is wholly misconceived or, upon analysis, lacks an arguable legal foundation" (see Kirby P (as his Honour then was) in the New South Wales Court of Appeal in Majik Markets Pty Ltd v Brake and Service Centre Drummoyne Pty Ltd (1991) 28 NSWLR 443 at 446).

23 In accordance with well-accepted principles, in considering such an interlocutory application I shall assume that the allegations contained within the further amended summons can be established by the applicants at their highest in their favour. Of course, whether ultimately the applicants are able to sustain these allegations either wholly or in part must await a determination at any substantive hearing.

24 It will be remembered that the further amended summons in claims 1, 2 and 3 refers to a contract or arrangements made between the applicants and the respondents. In addition order 12 refers specifically to the contract or arrangements, including the contract of employment and the deed. Furthermore, the summary of matters of fact and law makes reference in a number of its provisions to an arrangement and a contract which is capable of encompassing both the contract of employment and the deed. I instance by way of example paragraphs [6], [14], [16], [19] and [26], the provisions of which have earlier been set out.

25 Assuming that the assertions in the further amended summons may be taken at their highest in favour of the applicants, they are capable, in my opinion, of enabling the contract of employment and the deed to be considered together as an arrangement between the first and second applicants and the first respondent. It was submitted on behalf of the applicants that these two documents when considered together would also constitute a contract at law between the same parties. On the basis of the material contained within the further amended summons I am unable to conclude that such an assertion is wholly misconceived or lacks an arguable legal foundation. In so concluding I take into account in particular that each of the contract of employment and the deed is inextricably interwoven in its respective terms. They both refer to each other and it is arguable that they were made contemporaneously and that one would not have been made without the other. Certainly, it is arguable that the contract of employment would not have been entered into had the applicants not entered into the deed. So much is, in my opinion, so patently obvious from the terms of both documents that no further elaboration is required. Seen in this way the deed may be considered as operating concurrently with the contract of employment and as forming part of an overall arrangement. This is a markedly different situation considered by the Court of Appeal in Solution 6 where the share sale agreement contemplated a new contract of employment being entered into and that contract of employment was a condition precedent to the discharge of the executory obligations created by the share sale agreement. There was nothing executory in the formal sense about the contract of employment and deed the subject of these proceedings. They were both entered into contemporaneously and were intended to operate concurrently shortly thereafter.

26 I perceive this approach to be consistent with that taken by the New South Wales Court of Appeal in Old UGC Inc v Industrial Relations Commission of New South Wales [2004] NSWCA 197, especially at [57]; and in Mayne Nickless Limited v Industrial Relations Commission of New South Wales [2004] NSWCA 359, especially Hodgson JA at [77].

27 For the above reasons I am not persuaded that the jurisdiction of this Court can under no circumstances be utilised by the applicants for the purpose of these proceedings. The respondents have not established that the invocation of the jurisdiction is wholly misconceived or lacks an arguable legal foundation. I emphasise, however, that the conclusions which I have drawn in this regard are made solely for the purpose of considering this interlocutory application and can have no possible bearing on the outcome of the substantive proceedings in which no evidence has as yet been adduced.

28 For the above reasons, so much of the respondents' notice of motion as deals with the two bases which I have considered is dismissed. There seems no reason why costs should not follow the event. The respondents are to pay the applicants' costs of the notice of motion assessed under the Legal Profession Act in default of agreement.

29 I urge the legal practitioners to reach sensible agreement concerning any remaining interlocutory issues and in particular such steps as need to be taken by way of quantification of the claim as now sought to be made by the applicants under paragraph A12 of the further amended summons. The liberty to apply which I previously granted remains, which may be exercised by any party making telephone contact with my Associate.

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