ZAHOS & ANOR v INDUSTRIAL RELATIONS COMMISSION OF NSW & ORS

Court of Appeal (NSW)|2005-10-20|Before: Mason P, Basten JA

Background facts 3 The following facts are not in dispute. Many are taken from the matters pleaded by the IRC applicants in the latest form of their initiating process in the Commission, being a Further Amended Summons for Relief filed on 11 March 2004 (FASR). Others are taken from affidavits filed in the Commission that were tendered. A third source is a document that became Exhibit A in this Court. The document represents an amendment that the IRC applicants wish to make in the Commission. It was only formulated on the eve of the hearing in this Court and the opponents have not yet been called upon to indicate their attitude to it. It is proposed for insertion as a new par 14A of the FASR. The claimants accept that the proposed amendment represents material appropriate to be taken into account in these proceedings. 4 In about September-October 1998 the parties other than Laringo entered into negotiations that culminated in the opening of a restaurant known as Zimi in May 1999. 5 The IRC applicants, who are brother and sister, are experienced in the restaurant business. The second applicant is a head chef. 6 In about October 1998 the IRC applicants and the fourth and fifth opponents entered into what the IRC applicants describe as the "restaurant agreement" (FASR, par A1). This was not a written contract and its details appear to have been renegotiated from time to time. It included a term that a company would become the corporate vehicle for conducting the business, including acquisition of leasehold premises and of working plant and equipment. It has never been suggested that the claimants were parties to the restaurant agreement. 7 A shelf company, Laringo, was acquired. Its share capital was issued as follows: Poppy Michael - 15 shares, Harry Hatzistergos - 20 shares, George Papiamonis - 20 shares, Terry Zahos - 45 shares. The four restauranters became directors on 4 December 1998. 8 Laringo became the employer of the IRC applicants, each of whom seek variation of their employment contracts and consequential relief in the FASR (pars A6-15). 9 The restaurant was to be established on the ground floor of the premises at 224 King Street, Newtown belonging to the claimants. The claimants participated in the early discussions and had input about the nature of the fit-out. After all, this was their land and their son Terry would be acquiring a 45% interest in a business with persons who were family friends at the time. Nevertheless, negotiations relating to the formal Lease were at arms length, with separate solicitors representing the lessor and lessee interests. 10 A Lease was executed and delivered in late October 1998 accompanied by a Disclosure Statement pursuant to the Retail Leases Act. (The Lease refers to the lessee as "Larego Pty Ltd", a misdescription that is of no moment.) 11 There is some uncertainty about the commencement date and term of the Lease, to which there was a five year option for renewal. There is also some evidence that Ms Michael may have executed the Lease afresh in June 1999. But nothing turns on these matters because all parties acted on the basis that Laringo entered into occupation pursuant to the Lease from the time that it was effectively acquired for the four restauranters. 12 On 11 April 2003, the claimant Thomas Zahos swore an affidavit in the Commission setting out the rental falling due over the currency of the Lease. For the period 15/10/1998 - 14/05/1999 the information in the Schedule is as follows:

DATE PARTICULARS AMOUNT CUMULATIVE BALANCE OF RENT IN ARREARS WITHOUT INTEREST 15/10/1998 Rent due for the period 15/10/98 to 14/11/98 (Free as stated on lease) 0.00 0.00 15/11/1998 Rent due for the period 15/11/98 to 14/12/98 (Free as stated on lease 0.00 0.00 15/12/1998 Rent due for the period 15/12/98 to 14/01/99 (Verbally agreed between the parties as free) 0.00 0.00 15/01/1999 Rent due for the period 15/01/99 to 14/02/99 (Paid by Terry to Thomas) 8,666.66 8,666.66 15/01/1999 Rent Received for the period 15/01/99 to 14/02/99 (8,666.66) 0.00 15/02/1999 Rent due for the period 15/02/99 to 14/03/99 (Paid by Terry to Thomas) 8,666.66 8,666.66 15/02/1999 Rent Received for the period 15/02/99 to 14/03/99 (8,666.66) 0.00 15/03/1999 Rent due for the period 15/03/99 to 14/04/99 (Paid by Terry to Thomas) 8,666.66 8,666.66 15/03/1999 Rent Received for the period 15/03/99 to 14/04/99 (8,666.66) 0.00 15/04/1999 Rent due for the period 15/04/99 to 14/05/99 (Paid by Terry to Thomas) 8,666.66 8,666.66 15/04/1999 Rent Received for the period 15/04/99 to 14/05/99 (8,666.66) 0.00

13 Thereafter there were periods in which the rent is said to have fallen into arrears, followed by it being brought up to date by the beginning of 2000, thereafter progressing into widening arrears. According to Mr Zahos, the claimants were owed $165,388 as at March 2003. The Lease was terminated for default in late May 2004. The important matters for present purposes are that the affidavit shows the claimants accepting that (a) the Lease was in force from October 1998; (b) there was a rent-holiday for various reasons between 15/10/98 and 15/01/1999 and (c) there were no arrears in rent as at 14/05/99. 14 The IRC applicant Harry Hatzistergos filed an affidavit dated 18 October 2004 responsive to Mr Zahos' affidavit of 11 April 2003. There is no dispute about the evidence concerning rent summarised above. 15 Clause 3.02 of the Lease stated that the lessee's liability to pay rent did not arise until 56 days after the "commence date" stated in cl 7 of the Appendix. There was in fact no such date. However, the evidence set out above shows the parties in agreement that the commencement date was to be treated as 15 October 1998, with the lessee being given two months rent-free "as stated on lease". 16 The detailed covenants of the Lease appear to be in standard form. They include a clause negating any partnership (cl 12.06) and a "whole agreement" clause (cl 12.08). 17 The Lease obliged the Lessor to effect certain structural repairs (cl 10.04). No similar obligation is imposed on the Lessee. 18 The permitted use under the Lease was a restaurant. The parties contemplated that the premises (which had previously been used as a cafe) would be fitted out extensively for the new Zimi restaurant. The Lease contained no prescription as to the work to be done. Rather, there was a standard prohibition upon the Lessee making alternations or additions without the prior approval in writing of the Lessor (which approval was not to be unreasonably withheld) (cl 7.03). 19 Clause 19 of the Lease contained a guarantee by the shareholders/directors of the Lessee, each of whom signed the Lease. The Guarantors agreed to be bound jointly and severally. 20 The four guarantors entered into a Deed of Agreement on 21 October 1998 to the effect that they would contribute by way of indemnity, in the event that the guarantee under the Lease was called up, in proportions corresponding with their respective shareholdings. 21 The IRC applicants allege in the FASR that the claimants were also party to this Deed of Agreement. On the evidence in this Court, they face an uphill battle given that the claimants did not sign the Deed. It is impossible to see what difference it could make even if the claimants had adhered to the Deed in some manner. The Deed recognises that the four guarantors may be proceeded against by the lessors in accordance with the Lease. It represents an agreement "to contribute by way of indemnity in accordance with the … percentage contributions" that correspond with the shareholdings. In the course of submissions, counsel for the second and third opponents indicated that this claim (FASR, A16) would not be pressed. This appropriate concession means that there is no need for this Court to be concerned further with any issue touching the Deed of Agreement. 22 According to the IRC applicants, they provided funding for the restaurant venture and worked without drawing wages from the opening of Zimi on 6 May 1999 until March 2000. Thereafter they drew wages at less than a commercial rate for their services. They began to have disagreements with their fellow restauranters and on 5 July 2000 were purportedly dismissed by them. By the end of August 2000 Mr Papiamonis and Mr Terry Zahos had excluded them from the operation of Zimi and of Laringo (Ex A, sub-pars 11-12, 22-26). These allegations lie at the heart of the claim that the "restaurant agreement" was or became unfair. These issues are the subject of contested proceedings in the Commission. 23 The IRC applicants further contend that the claimants assisted their son and Mr Papiamonis in the exclusion of the applicants from the business in mid-2000 (Ex A, sub-par 28), and that Mr Zahos snr also took unfair advantage of Laringo's difficulties and ensuing liquidation (sub-pars 36-39). These allegations do not proceed from any allegation attracting the jurisdiction of the Commission. They are cognisable if at all in proceedings in the Equity Division, including proceedings under the Corporations Act. The proposed Amendment to the pleading avers no matters that would indicate that the conduct of the claimants in and after 2000 stemmed in any way from the contractual relationship of 1998 represented by the Lease. These foreshadowed allegations may therefore be disregarded since they could not possibly ground any basis for jurisdiction in the Commission. 24 On 6 May 2004 Laringo went into liquidation pursuant to a creditors' voluntary winding-up. The Lease was terminated for default on about 20 May 2004 when the claimants re-took possession. 25 On 3 August 2004 the claimants granted a new Lease over the ground floor premises to a third party, FACC Pty Ltd. It is for a term of five years with an option to renew. 26 The claimants have filed a Proof of Debt in the liquidation of Laringo with respect to the arrears of rent. It does not appear that they have yet pursued rights under the guarantee clause in the Lease.

Proceedings in the Commission and this Court 27 Proceedings were commenced in the Commission in February 2002. The Summons for Relief was first amended on 20 January 2003. 28 Mitchforce Pty Ltd v Industrial Relations Commission of New South Wales & Ors (2003) 57 NSWLR 212 was decided on 13 June 2003. Thereafter, the present claimants applied in the Commission for the dismissal of the Amended Summons insofar as relief was sought against them. It was asserted that the Lease was on all fours with the lease considered in Mitchforce. 29 On 15 August 2003 Kavanagh J ordered that the claimants' Notice of Motion for dismissal be stood over until the hearing of the Amended Summons. In brief extempore reasons, her Honour stated that she was unable to conclude in any clear way whether jurisdiction had been established at that stage of the proceedings. (Few of the affidavits had yet been filed.) 30 On 1 September 2003 the claimants filed an Application for Leave to Appeal and Appeal, challenging Kavanagh J's order before the Full Bench of the Commission. The appeal proceedings were fixed for hearing on 22 March 2004. 31 On 4 March 2004 the IRC proceedings were listed before Marks J on the application of the IRC applicants for the purpose of further amending the Summons for Relief. Over the objection of the claimants, his Honour granted leave to amend by filing the FASR. The Application for Leave to Appeal and Appeal were consequently discontinued on terms that each party pay their own costs. 32 The Summons in this Court was filed on 25 May 2005. There was a directions hearing before the Registrar on 6 June 2005. The hearing was fixed and the parties directed to exchange written submissions, as they subsequently did. 33 On 7 October 2005 the IRC applicants notified the parties in the Commission that they wished further to amend their Summons. A Notice of Motion and draft Amendment were served. That Motion was subsequently abandoned and the foreshadowed amendment was withdrawn. It was replaced, on the eve of the hearing in this Court, with the proposed Amendment in the form of Ex A.

The claims in the Commission referable to the orders sought in these proceedings 34 The claimants seek by these proceedings to prohibit the taking of any further steps in the Commission against themselves on the ground that the Commission lacks jurisdiction. The governing principles are explained in Solution 6 Holdings Ltd v Industrial Relations Commission of New South Wales & Ors (2004) 60 NSWLR 558. 35 It is now well established that a claimant for prohibition in such matters must establish a clear threatened excess of jurisdiction. This usually involves taking the allegations of the IRC applicants at their highest unless the evidence points incontrovertibly to a more restricted view of the facts. The Court views the situation through the prism of the latest form of the summons for relief filed in the Commission. If, however, it is on the cards that the applicants will be seeking to amend their originating process in the Commission then it may be appropriate to have regard to the foreshadowed amendment as representing the shape of the proceedings which the claimant in this Court seeks to prohibit. 36 The ambit of the claims in the Commission still pressed by the IRC applicants may be determined by reference to the relief claimed and the allegations pleaded in the FASR. To that should be added the matters raised in the foreshadowed Amendment to Pleading that became Exhibit A. 37 The relief sought appears in Part A of the FASR. The matters of fact and law which form the basis of the application are specified in summary in Part B of that document (see Industrial Relations Commission Rules 1996, r18A(1)). 38 As indicated, a substantial part of the claims for relief in the IRC proceedings relate to the "restaurant agreement", the IRC applicants' employment and the Deed executed by the restauranters on 21 October 1998. No relief is now sought in this Court that would curtail the exercise of that jurisdiction. 39 Two of the claims referable to the claimants were indicated as withdrawn during the hearing in this Court (FASR, A16-18 and 24). The first relates to the alleged involvement of the claimants in the Deed of Agreement (par 21 above). The second relates to an application purportedly in pursuance of s154 of the Act that is clearly beyond the Commission's jurisdiction. 40 The orders sought in the Commission concerning the claimants (the fourth and fifth respondents in the Commission) that remain are as follows: 5. An order that the Fourth and Fifth Respondents indemnify the Third Respondent [Mr Zahos jnr] in respect to any orders made against the Third Respondent and that are not met by the Third Respondent in relation to the restaurant agreement. … 19. An order declaring void in whole or in part or varying in whole or in part either from its commencement or from some other time the Lease between the Applicants and the First, Second and Third Respondents on one part and the Fourth and Fifth Respondents on the other (the "Lease") under which the Applicants performed work in an industry, or in the alternative, is collateral to the restaurant agreement whereby work is performed in an industry by the Applicants. 20. Further, in addition, an order that the Lease was unfair, harsh and unconscionable and contrary to the public interest. 21. Further, in addition, an order varying the Lease from its commencement so as to include the following terms: [10 amendments are proposed] 22. Further, in addition, an order that the Fourth and Fifth Respondents pay to the Applicants such amount of money in connection with the Lease so avoided or varied as may appear to be just in the circumstances. 23. An order that the Fourth and Fifth Respondents are persons connected with the making, performance, variation and avoidance of the restaurant agreement. 41 The proposed orders fall into two groups, namely those involving or proceeding from the variation of the Lease stemming from a finding that it was unfair or collateral to the restaurant agreement which was unfair (A19-22); and orders effectively requiring the claimants to stand behind their son, indemnifying the IRC applicants with respect to moneys ordered to be paid by Mr Zahos jnr consequent upon findings to be made against him as to the unfairness of the restaurant agreement and/or the Deed of Agreement (A5, 23).

(1) Is the Lease a contract whereby a person performs work in any industry? 42 In proceedings under s106, the critical jurisdictional fact requiring identification is a contract etc "whereby a person performs work in any industry" in the sense determined by the High Court in Stevenson v Barham (1977) 136 CLR 190. The principles are expounded fully in Mitchforce, Solution 6 and later Court of Appeal decisions of this Court. 43 The FASR pleads the Lease as a contract. The question becomes whether it was one that led directly to a person working in an industry. 44 The claimants submit that the Lease contained no requirement that directly envisaged performance of work or that had a recognisable impact on the conditions of employment or work (see Mitchforce at 218[13]). Its clauses were of the usual kind concerned with rent, repair and maintenance, and other provisions tailored to the particular use of the premises and the restaurant. The requisite jurisdictional fact is not established by the existence of provisions designed to maintain the property safe from unauthorised alteration. Merely because the Lease contemplated physical activity on the premises was not enough to establish that the lessee (or its shareholders) were in any sense working for, or even with, the lessor (see Mitchforce at [45], [49]-[50], [53]-[56], [178]-[179]. See also Solution 6 at 572[35]). 45 I accept these submissions, finding that the present situation is relevantly indistinguishable from Mitchforce. This was an arms-length lease containing no provisions capable of attracting the jurisdiction of the Commission under s106. 46 The IRC applicants point to evidence that Mr Zahos snr was involved in issuing "directions" as to the fit-out of the premises (Affidavit of Poppy Michael, sworn 23 December 2002, par 20). The evidence also discloses that Mr Zahos snr was actively involved in keeping a close eye on the fit-out work as it progressed over several months. 47 A proposed Amendment recently produced by the IRC applicants (Ex A) raises certain allegations against the present claimants, Thomas and Anna Zahos. It alleges in part: 13. Thomas, on his own behalf and on behalf of his wife, Anna, actively participated in the design, planning and construction process. 14. In the course of this process Thomas insisted that work be done to change the layout of the restaurant including the removal of the substantial bar/staff counter which has been substantially constructed on one side of the premises to the other side of the premises and the installation of air-conditioning. In return Thomas agreed to vary the lease of the premises to provide for an extra two weeks free rent for each change. … 17. The lease did not provide for these extra rent-free periods and is unfair in this respect. 48 It is entirely understandable that a landlord who had entered into a Lease in the present terms and the instant circumstances, would "actively participate" in the manner alleged in sub-par 13. This in itself does not render the Lease a contract whereby a person performs work in an industry, nor could it conceivably generate a right to relief against that person as a third party to an unfair contract. 49 Section 106 is relevantly concerned with a contract, not with free-standing conduct. Some of Mr Zahos snr's hands-on conduct may have preceded entry into the Lease. Some of it occurred during the fit-out stage, resulting in the agreement to provide four weeks additional rent holiday in return for particular modifications to the premises. The important point is that these discussions took place in the context of the landlords exercising the right to grant or withhold permission for modifications to be made and/or in the context of negotiations to vary the rent covenant in return for particular changes being made. There was no requirement that the work be done by a particular person or even that its performance be made a contractual obligation of the lessee. The Lease in no sense "directly envisaged" performance of the work. 50 Sub-paragraph 14 (in Ex A) alleges in terms that the Lease was varied (see esp sub-pars 8-10, 14). The evidence to which I have referred shows that this variation is not disputed, in that the claimants allow a one month rent-holiday for the period 15/12/98 to 14/01/99 on the basis alleged. In these circumstances, the suggestion in proposed sub-para 17 that the Lease was unfair for not "providing for" (ie documenting) the allegation also strikes me as so untenable as to constitute an abuse of process. 51 Alternatively, the IRC applicants submitted that the Commission's jurisdiction to consider the Lease was engaged because the Lease and the restaurant agreement were "inseparable parts of one transaction concerning the operation of a restaurant business" (Outline of Submissions, par 34). This, however, is not the way that the matter is pleaded in the FASR. Furthermore, the evidence shows the negotiations concerning the Lease to have proceeded at arms-length, with separate firms of solicitors being involved, and independently of the formation of Laringo as the corporate vehicle for the "restaurant agreement". 52 There is an additional problem with this alternative submission touching the Lease. It fails to grapple with the principle established in Solution 6 as to the need for an allegedly collateral agreement itself to lead directly to a person working in an industry. 53 Portions of the proposed amendment to the FASR are free-standing allegations of exclusionary and inequitable conduct in and after 2000 (see par 14A.25-14A.41, set out below). There is no attempt to link this conduct to the Lease or otherwise to show that it is capable of attracting the Commission's jurisdiction. I deal further below with this material in the context of the Brown v Rezitis claim.

(2) Brown v Rezitis claim 54 The prayers for relief in A5 and 23 of the FASR (par 40 above) seek at their highest to engage the principles in Brown v Rezitis (1970) 127 CLR 157. The IRC applicants want the claimants to be ordered to indemnify them with respect to any monetary relief granted against Mr Zahos jnr consequent upon a finding that the restaurant agreement, the employment agreement or perhaps the Deed of Agreement were unfair. 55 Brown established that the persons who may be party to proceedings under the predecessor of s106 are not confined to the parties to the relevant contract etc. The power of the Commission to make an order for the payment of money under the provision now found in s106(5) is not limited to the making of an order for the payment of money by one of the parties to the contract etc found to have been unfair. The remedial power extends to such orders as can reasonably be thought to have a real connexion with the making, variation or avoidance of that contract etc. 56 The remedial power is not, however, at large. It depends upon facts being alleged and ultimately established that link the third party in a manner and to a degree identified in Brown. The relevant power is to "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" (s106(5), emphasis added). 57 The IRC applicants have pleaded the facts intended to be relied upon as capable of generating a Brown v Rezitis order against the claimants. They are set out in pars B7-B10 and B14A (as proposed according to Ex A) of the FASR. These allegations should be set out, so far as presently relevant. (The claimants in this Court are the fourth and fifth respondents in the Commission): 7. The primary purpose of the Second and Third Respondents in acting as alleged in paragraph 4, was to acquire and harness to their own advantage through the benefit of the First Respondent, the expertise and know-how of the First and Second Applicants in respect of the establishment, management and conduct of a restaurant on King Street, Newtown (given that at the time, the First and Second Applicants, in partnership, owned and managed the restaurant known as "Cinque" at 261A King Street, Newtown) and to obtain a cash injection by way of the investment by the Applicants of $108,175.00 advanced free of interest, to the extent of $45,483.00, by the First Applicant and $62,692.00 by the Second Applicant, for the purposes of the refurbishment and improvement of the Fourth and Fifth Respondents' premises to establish the restaurant business. 8. A purpose of the Respondents, other than the Fifth Respondent, in procuring the entry of the First Respondent into the Lease, and the guarantees of the First and Second Applicants under the Lease, and the investment of the Applicants time and money in the First Respondent, was to improve the assets of the Fourth and Fifth Respondent and extract an indemnity from the Applicants against loss by the Fourth and Fifth Respondents of their mesne profits from the restaurant premises. 9. The Third and Fourth Respondents negotiated ostensibly in the interests of the Applicants and of the First, Second and Third Respondent but in fact, acted only in the interests of the Second and Third Respondents in respect of the restaurant business and in the interests of the Third, Fourth and Fifth Respondents in respect of the negotiation and settlement of the Lease of the Fourth and Fifth Respondents' building. Particulars The Lease provided:- (a) for a rent which was higher than the market rental for comparable restaurant premises at the time of the commencement of the Lease; (b) for payment by the Third Respondent of his proportionate contribution to the rent of the restaurant premises, namely 45%, to be waived in advance of the restaurant business becoming self-supporting, namely between approximately December 1998 and mid-May 1999; (c) For an inadequate rent-free period (namely only eight (8) weeks), having regard to the substantial investment of the Applicants and the First Respondent in the refurbishment of the premises, and the time taken to refurbish the premises (in excess of seven (7) months); (d) in breach of their fiduciary duties as directors of the First Respondent to the co-directors and to the other shareholders of the First Respondent, the Second and Third Respondents but particularly the Third Respondent acted in concert with the Fourth and Fifth Respondents, in a manner which was entirely partial towards the interests of the Third Respondent in respect of the arrangement constituting the unfair contract and, at the Third Respondent's request, toward the interests of the Second Respondent. 10. The Fourth and Fifth Respondents permitted the Third Respondent, from about the end of July 2000, to relocate the office of the First Respondent in premises owned by the Fourth and Fifth Respondents at 224A King Street, Newtown, upstairs from the restaurant premises but outside of the area demised to the First Respondent under the Lease. Together with the Third Respondent, the Second, Fourth and Fifth Respondents have wrongfully continued to deny the Applicants or either of them access to the office of the First Respondent in the Fourth and Fifth Respondents said upstairs premises. 14A.18 Thomas and Anna knew at all relevant times, alternatively at all times from early 1999, that Poppy and Harry were contributing their labour, skill and expertise in and about the design, construction and first year of operation of the restaurant without receiving any immediate remuneration and in the expectation that they would be able to participate in the benefits of the café if it were to be successful. …. 14A.25 On 5 July 2000 Terry and George purported to "dismiss" Poppy and Harry. 14A.26 By the end of August 2000 Terry and George excluded Poppy and Harry from the operation of "Zimi" and the operation of Laringo. 14A.27 At this point "Zimi" was a successful and valuable business and had paid rent up to date or almost up to date. 14A.28 Thomas and Anna (acting by Thomas) assisted Terry and Harry in the exclusion of Poppy and George.

… 14A.29 Terry, George and Thomas operated Laringo and ran "Zimi" to the exclusion of Poppy and Harry from late August 2000 until at least mid-2004. 14A.30 Terry, George and Thomas failed to cause Laringo to pay rent to Thomas and Anna following the exclusion of Poppy and Harry. 14A.31 Terry, George and Thomas failed to cause Laringo to meet taxation and GST obligations following the exclusion of Poppy and Harry. … 14A.36 Terry and George placed Laringo into voluntary administration on or about 23 March 2004 and on 6 May 2004 Laringo was wound up voluntarily on a motion seconded by Thomas. 14A.37 On or about 1 June 2004 Thomas purchased from the liquidator the assets of the business for the sum of $30,000 plus GST. 14A.38 At this point Thomas and Anna owned the restaurant business designed, built and established and brought to success in large part by the unpaid efforts and expertise of Poppy and Harry. 14A.39 Poppy and Harry have been left with substantial indebtedness to the Australian Taxation Office in relation to matters occurring after they had been excluded but remained as directors and with obligations to Thomas and Anna under the guarantee contained in the lease. 14A.40 The agreement or arrangement made between Poppy, Harry, Terry and George and Thomas and Anna in or about September 1998 as varied was unfair in that it required Poppy and Harry to do work but did not secure to them compensation for that work. 14A.41 In the premises Thomas and Anna received the proceeds of the agreement or arrangement pleaded in sub-paragraphs 8 and 9 above and/or were culpably associated with the making and operation of that agreement or arrangement. 58 Speaking in Brown of the purpose of the legislative scheme, Barwick CJ (with whom McTiernan, Windeyer and Owen JJ agreed) said (at 164): 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. … [The] avoidance of the contract or arrangement may be a step in uncovering the real transaction benefiting at the expense of the worker parties other than those in whose name the contract or arrangement was apparently made… In some cases … 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. 59 The Chief Justice nevertheless recognised that the power contained in [s106(5)] is not without limitation. He said (at 165, 166, 168 emphasis added): 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. Whist 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 … [The power] 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. … [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. 60 Various examples were provided by the Chief Justice. See also per Menzies J at 170. 61 These principles were applied in Brown, culminating in certiorari quashing the order made by the Commission for the payment of money by persons (the Logans) who were trustee shareholders of the contracting party and a salesman (Joyce) who had participated in arranging the impugned contract and received payment for his work. Each of these persons had been ordered to be jointly or severally liable, together with the party to the unfair contract, to repay the sum of $7,579 being the sum repayable by way of restitution upon the avoidance of the contract. The orders were found by the High Court to have no conceivable connection with the contractual arrangement varied or avoided. 62 One of the examples suggested by Menzies J in Brown (at 170) was that of a harsh and unconscionable arrangement between an insolvent company and two workers for the installation of swimming pool at the home of a director of the company. Menzies J considered that it would be within the power of the Commission, in setting aside the arrangement, 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 the employees of the director. 63 Mr McGrath, who represented the IRC applicants in this Court, sought to draw an analogy between Menzies J's example and the situation of his clients. The clients were said to have built a modern Italian pizza café in a joint venture with the son of the landlords in circumstances where the landlords, due to the behaviour of the son, ended up with the ownership of the café. In my opinion, the two situations are distinguishable because the putative benefits derived by the claimants are not derived through a contract that attracts the Commission's jurisdiction. 64 In Unitedglobalcom Inc & Ors v Industrial Relations Commission of NSW in Court Session & Anor [2005] NSWCA 131, 142 IR 204 this Court refused prohibition on the basis that the claimants had not discharged the onus of establishing clearly facts that showed an absence or excess of jurisdiction. The claimants were the threatened objects of orders based on the reasoning in Brown v Rezitis. The claimants were entities to whom a business had been transferred after the end of the contract or arrangement pursuant to which work had been performed that attracted the Commission's jurisdiction. 65 The leading judgment was given by Hodgson JA, with whom Handley JA and Brownie AJA agreed, Handley JA adding some supplementary reasons. Hodgson JA said (at 24): 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. 66 In the outline of submissions filed in this Court the IRC applicants seek to justify the Brown v Rezitis claim on the basis that the claimants have received some of the proceeds and/or the benefit of the restaurant agreement and/or have been culpably associated with its making or operation. The IRC applicants further submit that the FASR alleges a "subterfuge" between the claimants and their son Terry. 67 There are references to "subterfuge" and "culpable association" in Brown, but such matters in themselves do not provide the relevant jurisdictional connection. The role of the salesman Joyce in Brown may have been culpable in that he represented the business agent that acted on behalf of the contracting party in arranging the contract with the worker. But this was not enough to engage the jurisdiction of the Commission in a manner supporting the orders under challenge in Brown. The High Court accepted that the contracting party had no means to pay the award wages that were due, consequent upon the setting aside of the contract. But this offered no reason why Mr Joyce, the salesman, should have been ordered to pay an amount by way of compensation for non-receipt of such wages. It was not an order made "in connection with contract or arrangement" which the Commission had avoided (see at 167). As pointed out by Barwick CJ (at 168) and by Menzies J (at 171-2), the vice of the order that made Joyce jointly and severally liable for the whole of the moneys payable by the contracting party was that such an order did not have the requisite real connection with the contract or arrangement that had itself attracted the Commission's jurisdiction. 68 Similar reasoning applies in the present case. The matters alleged against the claimants concerned dealings that occurred during the currency of the Lease and in consequence of its forfeiture by them acting as lessors. Such dealings may or may not have attracted equitable jurisdiction under the general law or statutory jurisdiction under the Corporations Act (assuming the claims at their highest). But the impugned conduct of the claimants is not said to arise out of or in connection with the restaurant agreement, the employment agreement or the Deed of Agreement, these being the contracts whereby work was putatively performed in an industry by the IRC applicants. Nothing in the pleading suggests that the claimants had any connection with the making of the restaurant agreement or the employment contract such as to render them within the scope of the principles recognised in Brown. Rather, the attempt to link the claimants culpably with the conduct of their son attaches upon the benefits flowing to the claimants through the Lease and dealings that (at their highest) were the exercise of rights given by the Lease. Yet the Lease itself does not attract the jurisdiction of the Commission, for the reasons already given. 69 As in Brown, the IRC applicants seek no more than a blanket indemnity order, treating the claimants as guarantors of any liability found against their son consequent upon the proper exercise of the Commission's jurisdiction under s106. 70 The reversion of the land to the claimants consequent upon the forfeiture of the Lease could not be a matter capable of giving rise to a Brown v Rezitis order given that the Lease itself was not a contract whereby work was to be performed in an industry. Once this path to any indemnity order is seen to be blocked, the IRC applicants' claim is exposed as an untenable one. Assuming, as I do, that the Commission may avoid the contractual arrangements between the IRC applicants and Terry Zahos, with consequential orders for the payment of money in favour of the IRC applicants, there remains nothing in the pleaded allegations capable of generating in the IRC applicants a claim deriving from the Act that the parents stand guarantors for their adult son's obligations. Assuming, for present purposes, that the son may become liable to the full extent asserted by the IRC applicants, the blanket nature of the claim for indemnity suffers from the same vices as the orders that were quashed in Brown. 71 The case is distinguishable from Unitedglobalcom Inc because in that case the company referred to as New UGC had assumed rights and benefits in respect of the very contractual arrangements sought to be impugned in the Commission, being contracts or arrangements that themselves attracted the Commission's jurisdiction. I referred above to dealings that (at their highest) were an exercise of rights given by the Lease. In reality, some of the conduct alleged does not even bear this connection. I include the alleged breaches of fiduciary duty (FASR, par B9(d)) and the permission granted by the claimants for their son to relocate Laringo's office outside the demised area (FASR, par 10).

Disposition 72 The submission of the IRC applicants that this Court's jurisdiction is expelled by s179 of the Act by virtue of the 2003 proceedings before Kavanagh J must be rejected. Her Honour was at pains not to make any decision on the jurisdictional question and the only order that she made was that the claimants' notice of motion for dismissal of the IRC proceedings be stood over until the hearing of the then Amended Summons. These matters did not engage s179. 73 For these reasons the claimants are entitled to an order prohibiting the further conduct of the proceedings in the Commission so far as they concern claims for relief against the claimants. The second and third opponents should pay the claimants' costs in this Court and the costs of the other opponents as submitting parties. 74 BASTEN JA: I agree with the reasons of the President and the orders proposed. 75 BROWNIE AJA: I agree with Mason P. **********

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.

CITATION: ZAHOS & ANOR v INDUSTRIAL RELATIONS COMMISSION OF NSW & ORS [2005] NSWCA 427

Brown v Rezitis (1970) 127 CLR 157 Mitchforce Pty Ltd v Industrial Relations Commission of New South Wales & Ors (2003) 57 NSWLR 212 CASES CITED: Solution 6 Holdings Ltd v Industrial Relations Commission of New South Wales & Ors (2004) 60 NSWLR 558 Stevenson v Barham (1977) 136 CLR 190 Unitedglobalcom Inc & Ors v Industrial Relations Commission of NSW in Court Session & Anor [2005] NSWCA 131, 142 IR 204

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