DECISION NO: 397/96 CATCHWORDS INDUSTRIAL LAW - INTERLOCUTORY INJUNCTION - whether mareva injunction available to secure unpaid commissions INDUSTRIAL LAW - TERMINATION OF EMPLOYMENT - HARSH, UNJUST OR UNREASONABLE INDUSTRIAL LAW - claims in ASSOCIATED JURISDICTION Industrial Relations Act 1998 (Cth) Industrial Relations Court Rules: O 25, R 2. Jackson v Stirling Industries (1987)162 CLR 612 Patterson v BTR Engineering (Aust) Limited (1989) 18 NSWLR 319 MARTIN SPEISER v LOCUMS FINANCIAL MANAGEMENT PTY LIMITED, BRIAN NORMAN CLARKE, PETER RONALD KIDD, JENNIFER ANNE GILLIAN AHEARNE, PAUL THOMAS AHEARNE, MARC AHEARNE, PETER HART LOCUMS FINANCIAL MANAGEMENT PTY LIMITED v MARTIN SPEISER AND SURENDRA PATHER NI 2748 of 1995 CORAM: MADGWICK J PLACE: SYDNEY DATE: 13 FEBRUARY 1996 IN THE INDUSTRIAL RELATIONS COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY No. NI 2748 of 1995 BETWEEN MARTIN SPEISER Applicant AND LOCUMS FINANCIAL MANAGEMENT PTY LIMITED First Respondent BRIAN NORMAN CLARKE Second Respondent PETER RONALD KIDD Third Respondent JENNIFER ANNE GILLIAN AHEARNE Fourth Respondent PAUL THOMAS AHEARNE Fifth Respondent MARC AHEARNE Sixth Respondent PETER HART Seventh Respondent BETWEEN: LOCUMS FINANCIAL MANAGEMENT PTY LIMITED Cross-Claimant AND MARTIN SPEISER First Cross-Respondent SURENDRA PATHER Second Cross-Respondent CORAM: MADGWICK J PLACE: SYDNEY DATE: 13 FEBRUARY 1996 MINUTES OF ORDER THE COURT ORDERS THAT: The notice of motion be dismissed. IN THE INDUSTRIAL RELATIONS COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY No. NI 2748 of 1995 BETWEEN MARTIN SPEISER Applicant AND LOCUMS FINANCIAL MANAGEMENT PTY LIMITED First Respondent BRIAN NORMAN CLARKE Second Respondent PETER RONALD KIDD Third Respondent JENNIFER ANNE GILLIAN AHEARNE Fourth Respondent PAUL THOMAS AHEARNE Fifth Respondent MARC AHEARNE Sixth Respondent PETER HART Seventh Respondent BETWEEN: LOCUMS FINANCIAL MANAGEMENT PTY LIMITED Cross-Claimant AND MARTIN SPEISER First Cross-Respondent SURENDRA PATHER Second Cross-Respondent CORAM: MADGWICK J PLACE: SYDNEY DATE: 13 FEBRUARY 1996 EX TEMPORE REASONS FOR JUDGMENT Revised from Transcript MADGWICK J: In these proceedings the applicant, by a notice of motion, seeks orders as follows, having abandoned other relief sought: "2. An order that any of the following monies, received by the first respondent whether by its employees, agents, attorneys or otherwise and whether prior to or after the date of this order, be paid forthwith to the Cross-Respondents' solicitors, namely, the Argyle Partnership, and held on trust by the same, pending the conclusion of these proceedings:- (i) commission, fees, volume bonuses and other monies payable to the First or Second Cross Respondents and/or Sumo International Pty Ltd including but not limited to:- (ii) first year commissions, (iii) real estate commissions, (iv) volume bonuses paid by insurance companies, (v) consultancy fees, finance application and establishment fees, (vi) monies paid or payable in respect of products sold or transacted or commissions generated by either of the cross-respondents and referred to as being paid or payable to either of them in annexures "A1" "A2" and "B1" "B2" to the affidavit in support of these orders sworn by Anna Obrart on 29 January, 1996. 3. An order that the third respondent, within 7 days, make and serve on the cross-respondents' solicitors, an affidavit disclosing the full value of the assets of the first respondent, identifying with full particularity, the nature of such assets, their whereabouts and whether the same are held absolutely by the first respondent or jointly with other persons and whether the same are held in the name of the first particular, and without prejudice to the generality of the foregoing, such affidavit to identify all bank and other accounts held by the first respondent in it's name (whether absolutely or jointly with others) or by nominees or otherwise on it's behalf, including the name of the bank in which the account is held, the name of the branch, the number of the account, the name or names of the persons in whose name the account is held, and the balance of any account as at the date of the affidavit. 4. An order that the third respondent, within 7 days, make and serve on the cross-respondents' solicitor, an affidavit disclosing the full value of all commission, fees, volume bonuses and other monies received by the first respondent to date, whether by its employees, agents, attorneys or otherwise, and payable to either of the cross-respondents in respect of products sold or transacted by either of the cross-respondents, but not paid or forwarded to the First or Second Cross-Respondents and/or Sumo International Pty Ltd, including but not limited to the monies referred to in sub-paragraphs 1(b)(i)-(v) hereof, such affidavit to identify with full particularity, the nature of the monies received, (whether commission, bonus etc.), what percentage of the total sums received by the first respondent such monies represent (whether 50% or some other percentage of commission, bonus etc.), the date of receipt and whereabouts of such monies and whether the same are held absolutely by the first respondent or jointly with other persons and whether the same are held in its name or by nominees or otherwise on its behalf." The application is made under Order 25 Rule 2 of the Rules of the Court. Order 25 deals with interim orders and Rule 2 deals with proceedings "concerning any property, or ... in which any question may arise as to any property", and proceedings "concerning the right of any party to a fund". The substantive proceedings are a claim for relief for harsh, unjust or unreasonable dismissal under the Industrial Relations Act 1998 (Cth) and a raft of claims in which this Court is said to have jurisdiction in its associated jurisdiction. Those claims include a claim for unpaid commissions, typically for a share of recurrent commissions paid to the respondent company for the renewal of insurance premiums, the insurance business having been effected by the applicant during his period of employment by the respondent company. It was argued that, because there was an arrangement between the applicant and the respondent that the applicant would receive a given share of such commissions received by the company, the company became a constructive trustee of the applicant's share of such commissions. No authority was cited to me in support of this, nor can I see the argument. An employer is not a trustee of monies with which to pay wages to an employee and I do not see that an employer who remunerates his employee partly or entirely by commission becomes pro tanto a trustee of commissions received by the employer and which form the basis of ascertainment of the employee's commission. The position simply is that the employer has a debt to the employee. Employees, as a category of creditor, have no special protection in equity that other creditors do not. Hence, in my view, Order 25 provides no power in the court at all to act. This Court has, however, the same implied power as the Federal Court to protect its processes against improper defeat or frustration. It is beyond argument and, indeed, it was not argued, that the Court would not have sufficient power under sections 418 and 419 of the Industrial Relations Act generally to grant, where warranted, Mareva-type injunctions. Two questions arise: (1) whether any case has been made out at all for any kind of Mareva-type injunction and (2) what order, if any, would be appropriate, having regard to the proper purposes of such injunctions. As Deane J said in Jackson v Stirling Industries (1987) 162 CLR 612 at 625: ... it appears to me that, when an order for the preservation of assets goes beyond simply restraining the defendant from disposing of specific assets until after judgment, it must be framed so as to come within the limits set by the purpose which it can properly be intended to serve. That purpose is not to create security for the plaintiff or to require a defendant to provide security as a condition of being allowed to defend the action against him. Nor is it to introduce, in effect, a new vulnerability to imprisonment for debt, or rather for alleged indebtedness, by requiring a defendant, under the duress of the threat of imprisonment for contempt of court, to find money, which he may or may not have (whether or not at some point of time it may have been available to him), to guarantee to a plaintiff that any judgment obtained will be satisfied. It is to prevent a defendant from disposing of his actual assets (including claims and expectancies) so as to frustrate the process of the court by depriving the plaintiff of the fruits of any judgment obtained in the action. It may be appropriate in a rare case that such an order requires the defendant actually to deliver assets to a named person or even to the court itself or (in "a most exceptional case") extends to the appointment of a receiver of all or part of the assets of a defendant company (see the discussion in the judgment of Street C.J., Ballabil Holdings (1985) 1 N.S.W.L.R. 155, at p.159ff.) Even in such cases however, the order must be confined to preserving assets until after judgment or, arguably, until there has been an opportunity to seek execution: it should not purport to create security over them in favour of the plaintiff and it should make clear that it goes no further than to deprive the defendant of possession of them for the purpose of precluding his disposal of them so as to defeat a judgment. (my emphasis). Thus, the purpose of the Mareva-type remedy is not to provide a security for a plaintiff but to prevent a defendant disposing of assets in such a way as might frustrate the plaintiff's enjoyment of any judgment that he may legitimately obtain. In Patterson v BTR Engineering (Aust) Limited (1989) 18 NSWLR 319 at 325, Gleeson CJ rejected a test propounded by the judge at first instance that there was a "more than usual likelihood" that a particular defendant would dispose of his assets in order to defeat a judgment and rejected an alternative test that the plaintiff must establish the likelihood of such a disposition upon the balance of probabilities. Gleeson CJ continued, however, at page 325: ... I consider that Giles J was correct in taking the view that the evidence as to the nature of the scheme in which the appellant was allegedly involved, which established a prima facie case against him, was such as to justify the conclusion that there was a danger that the appellant would dispose of assets in order to defeat any judgment that might be obtained against him and that such danger was sufficiently substantial to warrant the injunction. Meagher JA said, at page 326: To obtain such an injunction a plaintiff must prove two ingredients: first, that he has a prima facie case against the defendant, and secondly, that there is some risk of a dispersal by the defendant of his assets so as to defeat the value of the plaintiff's victory if he ultimately wins. Normally proof of the first ingredient alone will not suffice; normally one cannot infer a risk of dissipation of assets from the mere fact that the plaintiff has a prima facie cause of action ... However, in exceptional cases ... one can infer the existence of the latter ingredient partly or wholly from proof of the former. Rogers A-JA agreed with the reasons of the Chief Justice, but reserved his opinion upon the statement of principle by Meagher JA because it might be too inflexible. In the absence of other guidance (and this is an interlocutory application and I have not had the benefit of exhaustive argument), I think there is, with respect, a great deal to be said for the approach of Gleeson CJ because, plainly, there may be a danger that disposition of assets, if not in order to defeat a judgment, would nevertheless very likely have that effect. The danger must of course be sufficiently substantial, in all the circumstances, to warrant the injunction. In my view, the material in this case falls far short of establishing the second of these requirements, even if, which I doubt, the first is made out. The respondents are the company and the shareholders other than the applicant himself. The applicant at a certain point became a shareholder in the respondent company, and as I understand it, he so remains. When he became a shareholder, a document called "Heads of Agreement" was drawn up and among other things provided that: All decisions within the company for any expense greater than $500 will require the agreement of all shareholders. The company has traded as a provider of financial services to professional people and other economic entities. Of course, it has, in the ordinary course of its business, had expenses greater than $500. Since the termination of the applicant's employment with the company, one gathers that he has not been consulted about any of these expenses. It is said therefore that, in relation to him, every time the company pays a bill in excess of $500, or incurs one, it is acting illegally. That sounds correct. There is evidence that, after the institution of these proceedings (the evidence does not establish because of them), some modest amounts were, in the circumstances just discussed, paid out. A resolution was passed by the directors on 23 August 1995 for: Repayment of proprietors' loans to Peter Kidd and Brian Clark (both Directors and Shareholders) together with interest at the rate of 9 per cent per annum. Cheques to be drawn forthwith. And that: An honorarium of $1000 per month is to be paid to Peter Kidd and Paul T. Ahern (another Director). The retrospective payment of the honorarium will be sufficient to offset the debt of Paul T. Ahern to the company. For the financial year ending 30 June 1995 the company had a turnover of over half a million dollars. Those payments and any others like them, on the assumption that there have been some, hardly appear designed to frustrate the applicant here, nor do I get any impression that they would be likely to have the effect of so doing. Nothing was put before me to indicate that the supposed loans were sham loans or that there was no warrant for payment of honoraria, so called, to Messrs. Kidd and Ahern. Much was made of the fact that the 1995 accounts had not, contrary to the requirements of the Corporations Law, been filed in the appropriate governmental office. Lamentable as that is, it seems to me to be drawing a very long bow to ask that, on that account, in effect, the 1995 accounts as drawn up and proved in evidence be disregarded and that regard be had to the 1994-filed accounts which showed a small loss of a few thousand dollars. As if all this was not amply enough, in my opinion, for the applicant to fail, the personal respondents instructed their solicitor to put forward an undertaking in the following terms. The respondents have not and will not deal with the finances of the first respondent [ie the company] in any way other than the ordinary course of business. In particular the first respondent will not have its assets stripped or disposed and will be in a position to meet any and all verdicts comprehended by the statement of claim and application herein. What is more, the respondents suffered Mr Rothman of senior counsel to tell the court that his clients had been advised of their liability to the court and at the hands of the applicant in respect of these undertakings and expressly to state that it was accepted that enforcement possibilities would include liability to equitable damages, if it turned out the plaintiff should receive a verdict and the first respondent would not "be in a position to meet" that verdict. In my view this is very handsome indeed, and ample to show positive good faith on the part of the respondents generally. It is not only intention that might be relevant. I accept that there can be circumstances in which simply the effect of transactions might be to frustrate the prospect of a plaintiff succeeding and enjoying his judgment. But the material before me would indicate that the respondents are more or less competent business people, bona fide doing their best to make some money out of their company and through their personal efforts. In my view there is certainly no danger of their proceeding such that their conduct would have the effect referred to, at least not to an extent which would warrant the court's intervention as sought. In relation to the particular relief sought of requiring them to set out by affidavit what all their assets are and precisely what commissions have been received and so forth, all of that can be ascertained by discovery or interrogatories in the course of the proceedings, and I see no reason for me to intervene. A particular claim was made that, because there are still being paid to the first respondent, by various insurers for example, some recurrent commissions, to a portion of which the applicant has an entitlement, at least in respect of future receipts of such commissions, the plaintiff's admitted entitlements should be set aside in some trust fund pending the outcome of litigation. It is not shown, however, that the cross-claim against the applicant is either hopeless or would be necessarily satisfied by set‑off against the share of commissions thus far payable to the applicant and, because of the attitude of the respondents as evidenced by their undertaking, I do not intend to do anything in that regard either. I will extend the time until 19 February for the applicant to file any affidavits previously ordered to be filed. I certify that this and the preceding 9 pages are a true copy of the Ex Tempore Reasons for Judgment of His Honour Justice Madgwick. Associate: Dated: APPEARANCES Counsel for the Applicant: J Pentelow Solicitor for the Applicant and Cross Respondents: The Argyle Partnership Counsel for the Respondent: S Rothman SC Solicitor for the Respondent: Dunhill Madden Butler Date of hearing: 13 February 1996