Industrial Relations Commission of New South Wales in Court Session CITATION : Minshull and Anor v Sepa Waste Water Treatment Pty Limited and Others [2004] NSWIRComm 204 ROGER ANDREW MINSHULL First Applicant REXULA PTY LIMITED (ACN 002 628 775) Second Applicant ACN 002 596 509 PTY LIMITED (formerly known as SEPA WASTE WATER TREATMENT PTY LTD) (in liquidation) PARTIES : First Respondent JOHN LAWRENCE MEYERS Second Respondent GEOFFREY TATTERSALL Third Respondent SEPA WASTE WATER TREATMENT PTY LIMITED (ACN 106 878 380) (formerly known as NEW SEPA PTY LIMITED) Fourth Respondent FILE NUMBER: IRC 5287 of 2003 CORAM: Schmidt J CATCHWORDS : Unfair contract - Notice of motion seeking stay - Notices under section 78B of the Judiciary Act - Apparent conflict between Industrial Relations Act 1996 and the Corporations Act 1991 (Cth) - Deed of Company Arrangement and Sale of Business Assets - Applicants' standing to seek declarations - Need for leave of Supreme Court under s444E of the Corporations Act - Leave required - Notices under Judiciary Act required - Parties to confer on terms of orders Annual Holidays Act 1944 LEGISLATION CITED : Corporations Act 2001 (Cth) Industrial Relations Act 1996 Judiciary Act 1903 (Cth) CASES CITED : Reich v Client Server Professionals of Australia Pty Ltd (Administrator Appointed) (2000) 49 NSWLR 551, (2000) 99 IR 69 HEARING DATES: 07/16/2004 DATE OF JUDGMENT: 07/19/2004 APPLICANTS: Mr S Golledge, solicitor SOLICITORS: The Argyle Partnership FIRST AND SECOND RESPONDENTS: Mr M Howlin, solicitor LEGAL REPRESENTATIVES: SOLICITORS: Gibson Howlin Lawyers THIRD AND FOURTH RESPONDENTS: Mr D Knoll of counsel and Mr J Watson of counsel SOLICITORS: Thompson Norrie JUDGMENT: - 11 - INDUSTRIAL RELATIONS COMMISSION OF NEW SOUTH WALES IN COURT SESSION CORAM: Schmidt J DATE: 19 July 2004 Matter Number IRC 5287 of 2003 ROGER ANDREW MINSHULL AND ANOTHER v SEPA WASTE WATER TREATMENT PTY LIMITED AND OTHERS Application under s106 of the Industrial Relations Act 1996 JUDGMENT 1 These proceedings were brought under s106 of the Industrial Relations Act 1996 ('the Act') in September 2003. A conciliation was conducted in March 2004, pursuant to s109 of the Act, but no agreement was reached. 2 This judgment concerns a motion filed by the third and fourth respondents seeking that orders made by Marks J on 19 and 20 May be vacated; that the proceedings be stayed while notices are given under s78B of the Judiciary Act 1903 (Cth); and that in the alternative, it be found that a Deed of Company Arrangement and an agreement for the sale of business assets, are not contracts in respect of which the Court has jurisdiction under the Act. 3 The applicants filed an amended summons on 16 April 2004, which sought various relief, in addition to orders varying the contract of employment between the first applicant, Mr Minshull and the first respondent. That relief was directed to a Deed of Company Arrangement entered by the first respondent in October 2003, ('the Deed') and to an agreement for the purchase of the first respondent's business by the fourth respondent, entered in November 2003, ('the Agreement'). The applicants sought orders that the Deed and the Agreement were designed to defeat any judgment given by this Court in these proceedings and that they were unfair, within the meaning of the Act. No orders of avoidance or variation of either the Deed or the Agreement, were however sought. 4 Money orders were pursued against all four respondents on a joint and several basis. In the case of the third and fourth respondents, those orders rested on the allegation that they had received the benefit of the unfairness complained of. 5 It was the applicants' claim that the first applicant held an interest in the first respondent, through a shareholding owned by the second applicant. The first respondent was incorporated in 1983. Its business was in waste water treatment in Australia, New Zealand and South East Asia. The business was effectively operated as a partnership between the first applicant and the second respondent, who also had a shareholding in the first respondent, held through another corporate entity. 6 The first applicant worked in the business, performing engineering, research and design work. In March 2003, the first applicant's employment was terminated by the second respondent, the first respondent's managing director. The applicant subsequently received one month's pay in lieu of notice. The summons claimed that the employment contract was unfair in failing to provide for adequate notice of termination; payment of outstanding leave entitlements; redundancy pay and an amount in respect of the applicants' shares in the first respondent. Money orders of over $900,000 were sought, including over $118,000 for 12 months' notice of termination; over $197,000 for redundancy pay; over $118,000 for outstanding annual leave and $560,000, for the alleged value of the shares in the first respondent. 7 As to the latter claim, it was the applicants' case that the shares in the first respondent were now valueless; that its assets and business were now in the hands of the fourth respondent and that the second and third respondents were now the effective owners of those assets and business. 8 It was common ground that the first applicant was a director of the first respondent, before the termination of his employment. The third respondent thereupon became a director of the first respondent. He, too, had a shareholding in the first respondent through another corporate entity. The fourth respondent purchased the first respondent's business assets, a transaction dealt with in the Deed. The second and third respondents were also directors of the fourth respondent and also each had a shareholding in the fourth respondent, through other corporate vehicles. 9 The reply filed by the third and fourth respondents on 24 June 2004, amongst other things, denied that they had any culpable association with the unfairness alleged in relation to the employment contract, or that they were the beneficiary or inheritor of the consequences of any unfairness. As to the orders sought against them, it was said that the Court had no jurisdiction to make such orders and even if it did, there was no proper basis for them. It was also noted that the applicants had not sought the leave required under the Corporations Act 2001 (Cth) to commence the proceedings against the first respondent, nor had the consent of the administrator of the first respondent been sought. 10 It was the respondents' case that the first respondent was placed into insolvent administration on 2 October 2003, after payment of $275,000 to the first applicant, pursuant to a creditor's statutory demand. The first respondent had earlier unsuccessfully sought to have the Supreme Court set that demand aside. Mr John Lord was appointed administrator of the first respondent on 2 October 2003, pursuant to s436A of the Corporations Act. The Deed was executed on 29 October 2003, whereupon Mr Lord became the Deed administrator. The fourth respondent was incorporated and on 13 November the first respondent sold its businesses assets to the fourth respondent. 11 Shortly prior to the hearing of the motion, the third and fourth respondents commenced proceedings in the Federal Court seeking certain declaratory relief and in the Supreme Court, seeking costs vesting orders in relation to these proceedings. 12 The case advanced at the hearing for the third and fourth respondents by Mr Knoll appearing with Mr Watson of counsel, was that the Corporations Act provides that a deed of arrangement binds all creditors of a company in respect of claims arising before the date specified therein. It also provides exhaustive remedies whereby a Court may set aside such a deed on the basis that it is unfair. This Court has no power to exercise that jurisdiction and State law could not validly exempt a creditor from the consequences of such a deed. The applicants' claim, therefore, led to a direct inconsistency between the Act and the provisions of the Corporations Act, a federal law, pursuant to s109 of the Constitution. The Judiciary Act required the giving of certain notices in those circumstances. Such notices should be given by the applicants once the proceedings were cross vested in the Supreme Court. 13 In any event, the Deed and the Agreement were not contracts whereby work was performed in any industry and the Court therefore had no power to deal with them under s106. Nor were the applicants parties to either the Deed or the Agreement. The Deed only bound the applicants because of the operation of the Corporations Act, given that 75% of creditors had approved the Deed. The applicants therefore had no standing to attack them in these proceedings, given the provisions of s108 of the Act. 14 The case advanced for the applicants by Mr Golledge was that the application for a stay was misconceived, whether based on non compliance with s444E of the Corporations Act, or the Judiciary Act. 15 Section 444E required consideration of whether these proceedings were caught by the Deed, given the claims here advanced; how the section dealt with persons bound by the Deed, the terms of the Deed and the circumstances in which such persons were required to obtain leave to maintain proceedings against the company in question. It was submitted that any person who had a claim as defined in the Deed against the first respondent as at 30 September 2003 was caught by the Deed. Otherwise, no question of leave arose. 16 In the case of the first applicant, he advanced no claim caught by the deed. At most, he had a right to take proceedings under s106 to vary his contract. Until any order was actually made under the section, no obligation on the first respondent was created. It followed that the Deed did not apply to this action and the proceedings and any judgment which resulted from it, cannot have any effect on the validity, operation or effectiveness of the Deed. It would continue to operate as between the first respondent and the creditors whose claims were covered by it. 17 It also followed that no inconsistency could arise under s109 of the Constitution between the Corporations Act and the Act. Section 444D was concerned with claims arising on or before the day specified in the Deed. It was not concerned with the adjudication or enforcement of claims which arose afterwards. The Deed might be a factor to be taken into account in the exercise of the discretion given by s106, but it could not oust jurisdiction to make an order. 18 As to the claims against the third and fourth respondents, they could only be determined after the evidence relevant to the question of whether two or more separate contracts were sufficiently associated with each other, so as to enliven jurisdiction, or whether the respondents had derived a benefit from any unfairness found. These were matters which could not be determined at this stage of the proceedings. In any event, the applicants did not seek orders varying or avoiding the Deed and the Agreement. They relied upon them only to demonstrate the benefit unfairly derived as a result. Consideration 19 The applicants are not party to either the Deed or the Agreement. That being so, I cannot see that they have standing to seek the declarations which are sought in the amended summons. Section 108 of the Act makes relevantly clear that it is only parties to the contract in question, who have standing to bring proceedings under s106 in relation to that contract. It was explained that it was not the applicants' case that the Deed and the Agreement form a part of some wider arrangement between the parties. While no order avoiding or varying the Deed or the Agreement was sought, the summons does seek orders declaring that the Deed and the Agreement are unfair within the meaning of the Act. 20 I am satisfied that the applicants have no standing to seek such declarations. As their case was explained in submissions, such orders are unnecessary for the case which the applicants wish to press. If that truly be so, the summons requires amendment. 21 In any event, while the Deed and the Agreement might evidence that the third and fourth respondents have been the beneficiary of the unfairness complained about, given their terms, it is difficult to see that either the Deed or the Agreement are contracts in respect of which this Court has jurisdiction under s106 of the Act, to make the declarations sought. It is, however unnecessary to decide this point. 22 It was common ground between the parties that the Deed bound the first applicant in relation to his right to payment of annual leave under the Annual Holidays Act 1944, which crystallised on the termination of his employment in March 2003, prior to the Deed being executed in the following October. 23 Mr Golledge sought to explain how, in those circumstances, a claim for outstanding annual leave entitlements could be pursued in these proceedings, without leave of the Supreme Court first being obtained, as required by s444E(3) of the Corporations Law. I am entirely satisfied that acceptance of that argument would be to prefer form over substance. The authorities show that such claims are often advanced with in proceedings brought under s106. That is because it is just in such circumstances that orders be made in favour of an applicant who has not been paid outstanding annual leave entitlements, pursuant to s106(5) of the Act, rather than requiring the parties to separately litigate the sum due under the Annual Holidays Act. A similar approach has been adopted in relation to long service leave claims. 24 It follows that the summons as it presently stands may not be further pressed, without the necessary leave being sought and granted. 25 The same conclusion flows from the claim advanced in relation to the payment made to the applicant after the termination of his employment, in lieu of the contractual obligation that the first respondent give him reasonable notice of termination. It was common ground that this contract contained no express term as to notice. In those circumstances, the law implied a term that reasonable notice be given. One month's notice was paid after the termination. It follows that the failure to give reasonable notice of termination involved a breach of the contractual term. Payment in lieu of twelve months' notice is claimed in the summons. The claim, so advanced, may be entertained in these proceedings, given the view taken by the majority in Reich v Client Server Professionals of Australia Pty Ltd (Administrator Appointed) (2000) 49 NSWLR 551; (2000) 99 IR 69, that an alleged breach of such a contractual term provides the necessary jurisdictional basis for relief under s106. 26 Nevertheless, again, it seems to me to prefer form over substance to conclude that leave to pursue such a claim in s106 proceedings is not required under s444E of the Corporations Act, in the circumstances here before the Court. The claim that reasonable notice of termination was not given when this employment came to an end, crystallised with the failure to give any notice of termination, in March 2003. Characterising such a breach of contract as conduct which shows the unfairness of the contract, so as to empower this Court to grant relief in proceedings brought under s106 of the Act, does not alter the fact that it is an alleged breach of contract arising upon the termination of the first applicant's employment, upon which this aspect of the claim, in reality, rests. This is another good reason for concluding that leave is required before the summons in its present form may be pressed further. 27 Different conclusions may be available in relation to the claims made in the summons, in relation to redundancy and the value of the shares in question. It is unnecessary to determine this however, given what is otherwise pressed in the summons. 28 That the relief sought against the second and third respondents depends upon the acceptance of claims that they have been the beneficiaries of the unfairness evidenced by the Deed, however raises another consideration, which must lead to the conclusion that if this aspect of the summons is to be pressed, notices under the Judiciary Act should be given. 29 Section 445D of the Corporations Act establishes a regime whereby various courts other than this Court, may terminate the Deed, if it, or an act or omission done under it, is oppressive, or unfairly prejudicial, or unfairly discriminatory against a creditor such as the first applicant. Applications for such orders may be made by a creditor of the first respondent, the company or other interested persons. 30 That there may be an inconsistency between the provisions of the Corporations Law and the Act, given the powers granted to this Court under s106; the orders here sought; the regime established by Part 5.3A of the Corporations Act, and the submissions which the parties respectively advanced, is apparent. While the applicants argued that they do not seek to interfere with what has been established by the Deed, it cannot be overlooked that money orders are sought on a joint and several basis against all of the respondents, including the first. If successful, the applicants would not be limited to the moneys available under the Deed, to recover what they seek in these proceedings, so far as the first respondent is concerned. 31 The applicants resisted this conclusion, arguing that until an order is made in their favour under s106 of the Act, they have no 'claim', as that term is defined in the Deed, against the first respondent, with which the Corporations Law is concerned. For their part, the respondents argued that the relevant provisions of the Corporations Law formed a code and that the orders sought under s106 would be inconsistent with the regime so established. 32 The argument depends, in part, upon the proper construction of the legislation, as well as the proper construction of the Deed, in the context of the various claims here advanced. 33 While it was explained that the Deed and the Agreement were, in reality, raised in the summons in order to evidence how it was that the third and fourth respondents were culpably associated with the alleged unfairness of the contracts between the applicants and the first respondent, and how they became the beneficiaries of such unfairness, I am satisfied that an arguable constitutional point does arise, given what is sought in the amended summons. In those circumstances, the Judiciary Act does require the giving of the notices. That does not mean that I accept what has been advanced by either party. Nevertheless, before the points argued are considered to their finality, the required notices should be given. 34 As the applicants accepted, the onus to give notices under the Judiciary Act rests upon them in these proceedings. Until the notices are given, the question of such constitutional inconsistency cannot be considered further. 35 Given the views which I have otherwise reached, the timing of any notices given is a matter which requires sensible consideration by the parties. The respondents appear to have obligations to give such notices in the proceedings which they have commenced in the Federal and Supreme Courts. Whether they wish to pursue those applications, given the views which I have here reached, will plainly require further consideration. 36 There is no impediment to this Court giving consideration to the proper construction of the Corporations Act, or to the question of whether this Court has jurisdiction to deal with the claims here advanced. Such questions are not reserved to other courts by the Corporations Act. If they arise in proceedings brought before this Court, it will be obliged to determine them, unless of course the Supreme Court decides that such proceedings are to be cross vested with proceedings brought in some other Court, upon such application being made and pressed. 37 If that eventuates in this case, certain consequences will follow. Much may depend on what steps the parties now take in light of the conclusions which I have reached on the cases here advanced. 38 The parties should confer on the course which the various proceedings to which I have referred should now sensibly take, as well as upon the terms of the orders to be made to reflect this judgment. Draft orders should be filed promptly. 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