Unitedglobalcom, Inc. & Ors. v. The Industrial Relations Commission of NSW in Court Session & Anor. [2005] NSWCA 131

Brown v. Rezitis (1970) 127 CLR 157 Crown v. UCS Developments Pty. Ltd. (2003) 130 IR 266 QSR Limited v. Industrial Relations Commission of NSW [2004] NSWCA 199, 208 ALR 367 CASES CITED: Reg v. Foster Ex parte Commonwealth Life (Amalgamated) Assurances Ltd. (1952) 85 CLR 138 Solution 6 Holdings Limited v. Industrial Relations Commission of NSW (2004) 60 NSWLR 558 The Queen v. Alley Ex parte NSW Plumbers & Gasfitters Employees Union (1981) 153 CLR 376 The Queen v. Australian Stevedoring Industry Board Ex parte Melbourne Stevedoring Co. Pty. Ltd. (1953) 88 CLR 100

Unitedglobalcom, Inc. - 1st claimant Austar United Communications Ltd. - 2nd claimant Michael Fries - 3rd claimant PARTIES: John Porter - 4th claimant The Industrial Relations Commission of New South Wales in Court Session - 1st opponent Donald F. Hagans - 2nd opponent

Mr. G. Hatcher SC with Mr. G.W. McGrath for claimants COUNSEL: Mr. J. West QC with Mr. J. Smith for 2nd opponent Submitting appearance by 1st opponent

Thomson Playford, Sydney for claimants SOLICITORS: Harmers, Sydney for 2nd opponent

IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CA 40745/04

HANDLEY JA HODGSON JA BROWNIE AJA

Wednesday 4 May 2005 UNITEDGLOBALCOM, INC. & ORS. V. THE INDUSTRIAL RELATIONS COMMISSION OF NEW SOUTH WALES & ANOR. Judgment 1 HANDLEY JA: In this matter I have had the benefit of reading the reasons for judgment of Hodgson JA in draft. I agree with his reasons but will add some supplementary reasons of my own. 2 A claimant or prosecutor who seeks an order in the nature of prohibition has the burden of establishing the facts which show an absence of jurisdiction: The Queen v Alley Ex parte NSW Plumbers & Gasfitters Employees Union (1981) 153 CLR 376, 192 per Gibbs CJ. In the same case Mason J said at 392: "It is for the prosecutor seeking a writ of prohibition to establish and to establish clearly the facts which show an absence or excess of jurisdiction." 3 Mason J then referred (392-3) to the decision in Reg v Foster Ex parte Commonwealth Life (Amalgamated) Assurances Ltd (1952) 85 CLR 138 where the High Court refused prohibition because the prosecutor had failed to exclude the possibility that the Commission had jurisdiction. 4 This onus becomes particularly important when prohibition is sought before the lower court or tribunal has determined the facts or made a decision. The Queen v Australian Stevedoring Industry Board Ex parte Melbourne Stevedoring Co Pty Ltd (1953) 88 CLR 100 was a case of this kind. There Dixon CJ and three other Justices referred to the onus on the prosecutor in such a case. At p 118 they said that prohibition would go "if on the facts no basis could exist for exercising the power" and on the same page they said by way of contrast "if the facts are not inconsistent with the existence of a basis for exercising the … power". 5 As Hodgson JA has demonstrated the claimants have not discharged this onus. The summons should be dismissed with costs. 6 HODGSON JA: In this application, the four claimants New UGC, Austar, Mr. Fries and Mr. Porter, seek orders having the effect of preventing the first opponent (the IRC) determining proceedings brought by the second opponent (Mr. Hagans) as against each of the claimants. 7 The Amended Summons in the relevant proceedings in the IRC claims relief pursuant to s.106 of the Industrial Relations Act 1996 (the Act) against nine respondents, of whom New UGC is the ninth, Austar the sixth and Mr. Fries and Mr. Porter respectively the seventh and eighth. Schedule A to this Amended Summons sets out the matters of fact and law that formed the basis of the claim in the IRC. In that schedule, Mr. Hagans alleges that he was employed by first respondent to those proceedings (Old UGC or UIH/UGC) from about January 1994 to December 1997, during which time he also did work for the second, fourth and fifth respondents (UAP, CTV and STV). He alleges that there were representations and promises to the effect that he was to receive certain levels of salary, and also an incentive compensation package and options to take up fully-paid shares in the issued capital of Old UGC. He seeks orders varying or declaring void various contracts and arrangements, and for payment of money so as to give him the benefit of options (about $15.5 million), the value of an incentive compensation package (about $10 million), and about $1 million that he would have earned if his employment had continued in accordance with its terms. 8 As against New UGC and Austar, the schedule contains the following allegations: 16. In or about 1998 or 1999 Austar acquired, inter alia, the business of CTV and ST. UAP holds an interest in Austar. 17. From January 2002, UIH/UGC was restructured and several companies were merged and ultimately UIH/UGC changed its name to UGC Holdings, Inc. and then to Old UGC, Inc. 18. A new company was created which was then given the name UnitedGlobalCom, Inc. (being New UGC) which became the successor in interest and the parent of the first respondent, the ultimate parent of the second respondent and the parent of the third respondent. 19. New UGC, a publicly listed company, now ultimately operates the share option plans and incentive schemes that are the subject of the proceedings. 20. The options and incentive rights granted under the share option plans and schemes, the subject of these proceedings, became options in shares in New UGC.

24. In or about January 1994, and in accordance with the UIH/UGC Contract, the applicant received UIH/UGC Options to take up 40,000 shares in UIH/UGC, in part to vest immediately, with the balance to vest over a four year period. 25. These options if the applicant still held them, would now represent options to take up 160,000 shares in New UGC, as shares in UIH/UGC have split twice since January 1994 and options in UIH/UGC became options in New UGC from 2002. 26. In 1995, 12,000 further share options in UIH/UGC were granted to the applicant, which have since been split once, so that the applicant would become eligible to hold 24,000 share options on this account, as set out in paragraph 25 above.

77. Beginning in the last quarter of 1998, UIH/UGC restructured UAP and its interests in CTV, STV and XYZ in order to take the various businesses public as one entity, now Austar as aforesaid. 78. UIH/UGC and Austar were thereby obliged by the Early 1995 Representations to negotiate in good faith to restructure the applicant's CTV and STV Incentive Compensation Package and XYZ Incentive Compensation Package, but they have failed to do so. 79. On 28 December 1999, the applicant caused to be delivered to UIH/UGC written notice that he was exercising all of his UIH/UGC Options. 80. On 29 December 1999, UIH/UGC notified the applicant by a letter, a copy of which is served with this summons, that it would refuse to allow the applicant to exercise his UIH/UGC Options. In refusing to allow the applicant to exercise his UIH/UGC Options, UIH/UGC claimed, inter alia, that, if not void, his options became void because they were not exercised prior to 31 March 1998. This refusal was contrary to UIH/UGC's 1997 Promise and UIH/UGC's 1998 Promise, upon which the applicant had relied as aforesaid.

89. New UGC became the formal successor of UIH/UGC and assumed rights and benefits in respect of the share option plans and incentive schemes that were initiated and operated by UIH/UGC, and the option and incentive interests of its employees were effectively assumed by New UGC. 90. In the premises, the Ninth Respondent was an ultimate actor in, or beneficiary of, the making or operation of the said unfair contracts, including the UIH/UGC Contract, the UIH/UGC Option Plan, the Late 1994 Representations, the Early 1995 Representations, the 14 February 1995 Representations, the 22 February 1995 Representations, the 1996 Representations, UIH/UGC's 1997 Promise and UIH/UGC's 1998 Promise. 9 As against Mr. Fries and Mr. Porter, the schedule alleges that Mr. Fries was the Chief Executive of Old UGC and is the President, Chief Operating Officer and a director of New UGC; and that Mr. Porter is the Managing Director of Austar. It alleges that Mr. Fries made certain representations on behalf of Old UGC, and a promise about the extension of options on behalf of Old UGC in 1997. It alleges that in September 1997, Mr. Porter told him there was going to be no work for him and that Mr. Fries would like him to resign. And it alleges: 88. In the premises, the seventh and eighth respondents are or were actors in, or beneficiaries of, the making or operation of the said unfair contracts. 10 The concluding allegation of the schedule is: 91. The First to Ninth Respondents are jointly and severally liable as to the said unfair contracts.

STATUTORY PROVISIONS 11 The provisions of the Act relevant to this application are s.106, and also s.108B (which was introduced after the commencement of the proceedings in the IRC on 14 February 2000). 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.

108B Time for making application (1) An application for an order under this Division in relation to a contract that has been terminated must be made not later than 12 months after the termination of the contract. (2) The Commission does not have jurisdiction to extend the time for making any such application or to accept an application made after the time prescribed by subsection (1). 12 It is to be noted that "contract", as the word is used in s.106, is defined in s.105 to mean "any contract or arrangement, or any related condition or collateral arrangement, but does not include an industrial instrument".

CONTENTIONS OF THE CLAIMANTS 13 For the claimants, Mr. Hatcher SC submitted that the Court of Appeal has a supervisory jurisdiction over the IRC: Solution 6 Holdings Limited v. Industrial Relations Commission of New South Wales (2004) 60 NSWLR 558. 14 He submitted that New UGC was not formed until about three years after Mr. Hagans ceased working for any of the respondents, and Austar was not incorporated until about eighteen months after Mr. Hagans ceased working for any of the respondents. Accordingly, he submitted, they could not have any connection with the contracts or arrangements pursuant to which Mr. Hagans performed work in an industry so as to justify an order against them under s.106. 15 Mr. Hatcher submitted that the allegations against New UGC that it operates the share option plans and incentive schemes that are the subject of the proceedings, and that the options and incentive rights granted under such plans and schemes became options in shares in New UGC, and that New UGC became the formal successor of Old UGC and assumed the rights and benefits in respect of such plans and schemes, were plainly incorrect as a matter of fact and law. Accordingly, he submitted, New UGC could not be an actor in or beneficiary of the making or operation of the alleged unfair contracts. The arrangements made by New UGC with its then employees long after Mr. Hagans's employment ceased could not be any part of an arrangement whereby Mr. Hagans performed work in an industry. 16 Similarly, he submitted, the allegation against Austar that various businesses were taken public as one entity Austar was insufficient to make Austar subject to orders under s.106. The involvement alleged of Mr. Fries and Mr. Porter was likewise insufficient. 17 Mr. Hatcher pointed to the provisions of Part 8 of the Act, and in particular s.101, and submitted that there was very limited provision protecting entitlements on the transfer of a business. This provision excluded payment of remuneration. He submitted that it would be strange if s.106 gave wider rights to pursue entities to whom businesses had been transferred after the end of the contracts or arrangements pursuant to which work had been performed. 18 In circumstances where the proceedings sought to be brought against New UGC were in fact brought by way of an amendment made in May 2004, he submitted that these proceedings were barred by s.108B of the Act. He also submitted that the twelve-month limit imposed by s.108B tended to confirm that s.106 did not enable orders against successors to businesses by way of asset chasing.

BROWN V. REZITIS 19 The most pertinent consideration that relates to the scope of s.106(2) is in the judgment of Barwick CJ in Brown v. Rezitis (1970) 127 CLR 157. In that case, joint and several orders had been made under the section which was the predecessor of s.106 against an employer company, two shareholders of the company who held shares in trust (one of whom was the accountant/secretary of the company), the beneficiary of the trust who was the manager of the company, a business agent company which acted on behalf of the company, the shareholders of that company who were managing director and secretary, and an employee of that company. The High Court held that there had been an excess of jurisdiction in making joint and several orders for payment against all those persons, because some parts of the moneys ordered to be paid could not be regarded as being "in connection with the contract or arrangement" as against each of the respondents. 20 At 163, Barwick CJ considered a submission that the words in ss.(2) of the then provision (to similar effect to s.106(5) of the current provision) "in connection with any contract, arrangement, condition or collateral arrangements" required that the money the subject of an order for payment must be money paid or payable in connection with the contract or arrangement varied or avoided, so that the order under ss.(2) must be confined to money paid or payable by one of the parties to the other party or parties to the contract or arrangement. In relation to this submission, Barwick CJ said this: In my opinion, even if the proceedings for the variation or avoidance of the contract or arrangement must be initiated by one of the parties to the contract or arrangement, the parties to the proceedings are not necessarily limited to those parties. It must be borne in mind that one of the purposes of the section is to deal with subterfuges, subterfuges which will take the worker out of the relationship of master and servant and therefore out of the operation of an industrial award designed, amongst other things, for the protection of workers in industry. There may be persons involved in the subterfuge who are not parties to the contract or arrangement but who are in reality the actors deriving benefit from the making or the execution of the contract or arrangement. 21 Barwick CJ then went on to discuss the question more generally, at 164-166, as follows: The five grounds on which the Commission may vary or avoid contractual arrangements are not homogeneous. Only two of them refer to the avoidance of the award for the underpayment of a worker in industry. Consequently the nature of the orders which may be made under sub-s.(2) will of necessity cover a wide field. But underlying sub-s.(2) is I think a broad concept of a restitution of the parties to a situation which existed before the making of the contractual arrangement as well as in an appropriate case to make remedial provision for what has taken place or been done under the contract in the meantime. This, it seems to me, cannot of necessity and in all cases and with relation to an arrangement varied or avoided on each of the grounds in sub-s.(1) be confined to an order for payment of money by one of the parties. In some cases, as I have said, there will be persons who are not the parties to the contract but who have in fact participated in its making and there may be persons who have received money indirectly from one of the parties to the contract or who may be holding money derived therefrom for one of the parties. Consequently, I am of opinion that the power to order the payment of money is not limited to the making of an order for the payment of money by one of the parties to the contract or arrangement varied or avoided.

But though there is a generality in the language employed in the sub-section the power to make an order for the payment of money is not, in my opinion, unlimited particularly as to the persons against whom such an order may be made. The problem is to ascertain the limitation by construction of the section. It seems to me that the expression "in connection with" the contract or arrangement varied or avoided provides the necessary limitation as to the nature of the orders for payment of money which can be made and as to the person against whom they may be made. The draftsmanship of the section is inadequate: but I think the expressed intention as to this limitation can be derived from the sub-section read as a whole. Whilst it can be said that the expression "in connection with" is of wide import, it does emphasize the need for a close connexion between the order made and the contract or arrangement varied or avoided. In my opinion, the power to make an order for the payment of money is at best no more than a power to make such an order as can reasonably be thought to have a real connexion with the making, variation or avoidance of the contract or arrangement which has been varied or avoided. It may in truth be limited to a power to make an order for payment of money which has in fact a real connexion with the making, variation or avoidance of the contract or arrangement. However, in either case it will, of course, include power to make an order for payment of money which has been paid or which was payable under the contract arrangements themselves. But, in my opinion, the power will not be limited to the making of such orders. It will extend to ordering the payment of money where the order on the larger view of the jurisdiction given by the sub-section could be considered to be appropriate to effect wholly or partially the restitution of the parties to their former position upon the variation or avoidance of the contract or arrangement. In my opinion, the limitation of the power to order the payment of money to such orders either as are or as may be considered in the circumstances to be connected with the making, performance, variation or avoidance of the contract or arrangement sufficiently limits the power and leaves room for supervision of the Commission by a Court having power to issue prerogative writs so as to confine the Commission within the granted power. Consequently I am unable to accept the submission made by the appellants that an order made by the Commission for the payment of money by any person other than a party to the contract or arrangement varied or avoided is necessarily beyond the power of the Commission. Whether or not it is so depends upon all the circumstances and the terms of the order itself. 22 In deciding what if any orders could properly be made against certain individuals, Barwick CJ said this: I have already indicated the relationship of the appellants Logan to the company. Assuming that the Commission was entitled to go behind the incorporation of the company and to include its managers and shareholders in the orders for payment of money made in the case - and, as at present advised, I see no reason why under a section such as s.88F the Commission should not do so - it seems to me that persons who were not beneficial shareholders could not be included in an order for the payment of money made in connexion with the varied or avoided contract or arrangement merely because they held shares in the company on trust for some known person, even if that person had been connected with the making or operation of the contract or arrangement.

The only other basis for an order for payment of money against these appellants in this case could be that they had received the proceeds of the contract or arrangement or were in some way culpably associated with its making or operation. But, though one of them received money from the company apparently without giving any consideration therefor, I can see no evidence of any connexion between that payment and the formation or execution of the contract. Further, in any case, in my opinion, an order for the payment by these appellants of a sum of money which was not limited in amount to represent their association with the making or execution of the contract could not be thought in the circumstances of the case to be an order for the payment of money in connexion with the contract or arrangement. This reasoning if applied to the case of the salesman Joyce necessarily leads to the conclusion that an order for the payment by him of the total sum of $7,579.19 could not possibly be regarded as an order within the jurisdiction of the Commission. 23 McTiernan J, Windeyer J and Owen J agreed with the Chief Justice. Menzies J expressed the following view on the extent of the power under ss.(2), at 170: It is to be noticed that the limitation upon this ancillary power is that the payment ordered must be "of money in connection with" the contract or arrangement avoided or varied. This requirement is readily enough applicable if the contract or arrangement be but varied, for, in such a case, there remains a contract or arrangement which can, as varied, be enforced. It is, however, more difficult to apply the words used in a case where the contract or arrangement has been altogether avoided. In such a case, what is a payment of money "in connection with" the avoided contract or arrangement? It seems to me, without exhausting the meaning of the phrase, that a payment of money in respect of (1) work done, or (2) money spent, or (3) obligations incurred, under the avoided contract or arrangement, is properly to be regarded as a payment in connexion therewith so long as the person who is ordered to make the payment is a person who was connected in some way with the making of the contract, or the work done, or the expenditure made, or the obligation incurred thereunder. Such persons could, I think, be ordered as it were to recompense the worker for what he has lost. Thus, if, under a harsh and unconscionable arrangement between an insolvent company and two workers, a swimming pool had been installed at the home of a director of the company, it would be within the power of the Court, in setting aside the arrangement and after giving him an opportunity to be heard, to order the director to make a payment which would put the workers in the same position as if, in doing the work, they had been his employees. I think it would be a like case if work were to have been done for a shareholder of a company which made such an arrangement. I would not think; however, that work done for the advantage of a director could be the basis of an order against a shareholder who had nothing to do with the matter, even if he held his shares beneficially. Unless something more were to appear - such as, for instance, that the company was a one-man company - a mere shareholder would be a stranger to any of the matters for which the section provides a remedy arising out of a contract or arrangement by a company.

DECISION 24 In my opinion, if an applicant obtains an order under s.106 against a respondent for whom the applicant worked in an industry, and it is shown that the assets of that respondent have since passed, by reason of some corporate reorganisation within a group of companies, to another company in that group, there may be jurisdiction under s.106(2) to make an order against the entity to which those assets have passed. If it be the case that the assets that have so passed have been augmented by the work done by the applicant, and if it be the case that the re-structuring has left the original entity for which work was done without sufficient funds to make an appropriate payment, it may be that such a payment is properly regarded as a payment of money in connection with a contract declared wholly or partly void or varied, as those expressions are used in s.106(5). I think that is supported by what Barwick CJ says in Brown, particularly his reference to persons who have received money indirectly from one of the parties to the contract. It is also consistent with the reference in his judgment to subterfuges: the re-structuring of a group of companies so as to transfer the business of one company in the group to another company in the group may not be undertaken as a subterfuge to defeat an applicant, but it could possibly have that effect, and in my opinion it may not be beyond the power of the IRC to make orders under s.106(5) to avoid that effect. 25 In the present case, it is alleged that New UGC is the formal successor to Old UGC, that New UGC assumed rights and benefits in respect of the share option plans and incentive schemes in which Mr. Hagans was promised participation, and that New UGC effectively assumed the interests of the employees of Old UGC in such plans and schemes. Particularly in circumstances where it appears that this may have been consequent on re-structuring of a group of companies, associated with court proceedings in the USA, these allegations could possibly support an order for payment against New UGC. There is some evidence to suggest that these allegations are not without foundation, and any contention to the contrary is not made out to the extent that would justify the dismissal of proceedings under the General Steel test; and in my opinion at least that degree of certainty must be established before this Court would issue an order in the nature of prohibition against the IRC, in advance of the hearing of a case. 26 Similarly, the allegation that Austar acquired the businesses of CTV and STV for which Mr. Hagans did work (and accordingly, may be taken to have benefited then from the work that he did pursuant to allegedly unfair contracts) could if proved possibly ground an order against Austar on a similar basis. 27 It may also be that under American law New UGC is liable for the obligations of Old UGC. However, there is little evidence as to the nature and effect of the corporate restructuring under American law, and the claimants have not excluded this possible basis for orders against New UGC. 28 We were referred to the decision of the Court of Appeal in QSR Limited v. Industrial Relations Commission of NSW [2004] NSWCA 199, 208 ALR 367, in which a majority of the Court of Appeal held that the IRC did not have jurisdiction to make an order against a company in respect of work performed by an applicant prior to its formation. However, it is to be noted that the claim in that case was only against the company, and not against any person with whom the applicant made a contract or arrangement prior to its formation. In my opinion, if the applicant had alleged performance of work in an industry pursuant to a contract or arrangement made with some other person prior to the formation of the respondent company, claimed that the IRC should declare void or vary that contract or arrangement, and alleged that the company when formed took the benefit of assets created or improved by the work done prior to its formation, the result could have been different. If the company had thus taken advantage of work performed pursuant to a contract found to be unfair, an order for the payment of money by that company could possibly be in connection with that contract, so as to support an order under s.106(5). 29 In my opinion also, the proceedings against New UGC are not affected by s.108B. In my opinion, the application in this case was brought when the proceedings were commenced, and the addition of New UGC as a party following on the re-structuring of the relevant group of companies was not an application for an order in relation to a contract within s.108B. This is supported by Visalli v. Southwell (1988) 12 NSWLR 502, and Crowe v. UCS Development Pty. Ltd. (2003) 130 IR 266. 30 Finally, as regards Mr. Fries and Mr. Porter, the allegation in paragraph 88 of the schedule that they were actors in or beneficiaries of the making or operation of the unfair contract is not adequately supported in other parts of the pleading; but evidence has been produced giving some support to those allegations. In those circumstances, again it could not be said that the General Steel test for dismissal of proceedings was satisfied; and in my opinion this is fatal to a claim for prohibition at this stage.

ORDERS 31 For those reasons, in my opinion the proceedings should be dismissed with costs. 32 BROWNIE AJA: I agree with Hodgson JA. **********

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