Industrial Relations Commission of New South Wales in Court Session CITATION : Kelly v NSW Institute of Training Pty Ltd [2004] NSWIRComm 119 APPLICANT Warren Timothy Kelly PARTIES : RESPONDENT NSW Institute of Training Pty Ltd FILE NUMBER: 1341 of 2003 CORAM: Staff J CATCHWORDS : Practice and procedure - Application to join additional respondents - Degree of relevant or sufficient connection with subject matter of proceedings - Absence of 'close' or 'real' connection with making of contract - Evidence culpably involved in termination - Joinder ordered Brown v Rezitis (1970) 127 CLR 157 CASES CITED : Ace Business Brokers Pty Ltd v Phillips-Treby [2000] NSWIRComm 163 Reich v Client Server Professionals of Australia Pty Ltd (Administrator Appointed) (No 2) [2000] NSWIRComm 196 Gough & Gilmore Holdings Pty Ltd & Ors v Caterpillar of Australia Ltd (No 2) (2001) 106 IR 274 HEARING DATES: 04/27/2004 DATE OF JUDGMENT: 05/13/2004 APPLICANT Mr I Latham of counsel Solicitor: Mr M Jones Bryan Gorman & Co. LEGAL REPRESENTATIVES: RESPONDENT Mr M Gibian of counsel Solicitor: Mr G Pritchard Duffield & Duffield JUDGMENT: - 1 - INDUSTRIAL RELATIONS COMMISSION OF NEW SOUTH WALES IN COURT SESSION Coram: Staff J 13 May 2004 Matter No IRC 1341 of 2003 WARREN TIMOTHY KELLY v NSW INSTITUTE OF TRAINING PTY LTD Application for orders under s 106 Industrial Relations Act 1996 INTERLOCUTORY JUDGMENT [2004] NSWIRComm 119 1 On 12 March 2003 Warren Timothy Kelly ("the applicant") filed a summons for relief under s 106 of the Industrial Relations Act 1996 ("the Act"). 2 The respondent named in the summons was NSW Institute of Training Pty Limited (ABN 89 086 651 541). 3 On 3 December 2003 the applicant filed a notice of motion seeking to join the following persons and entity as additional respondents to the proceedings: Neil Gibson Jebb; Gregory Stuart Andrews; Monteray Pty Ltd 4 The applicant advanced the following grounds and reasons in support of the notice of motion: 1. That the proposed Respondents, Neil Gibson Jebb and Gregory Stuart Andrews, were at all material times the Directors of the Respondent and, as such, were parties to the contract. 2. That at all material times the proposed Respondent, Monteray Pty. Limited, was a company which was a shareholder in the Respondent and, as such as the company from which the Respondent evolved and whose Directors were the proposed Respondents, Neil Gibson Jebb and Gregory Stuart Andrews. 3. That, on 27th May, 2003, the Respondent was placed under Administration and an Administrator was appointed pursuant to Section 436A of the Corporations Act, 2001. 5 An affidavit of Michael Dean Jones in support of the notice of motion was filed on 3 December 2003 and tendered in the proceedings before me. Mr Jones is a solicitor employed by Bryan Gorman & Co., solicitors for the applicant. The affidavit annexed a company search of the respondent dated 26 May 2003 recording the directors as being Neil Gibson Jebb and Gregory Stuart Andrews. Mr Jebb is also recorded as the company secretary. Under the heading "Current Share/Interest Holders" Monteray Pty. Ltd. is recorded as holding 950 shares with Mr P A Johnson holding 50 shares. Also annexed to Mr Jones' affidavit was a company search dated 23 June 2003 of Monteray Pty. Ltd. This search recorded Gregory Stuart Andrews and Neil Gibson Jebb as being directors of that company and Mr Jebb, its secretary. The current share/interest holders are recorded as being Obeah International Inc and Calton Securities Ltd both of Vanuatu and holding 6 shares each. Mr Jones also annexed a letter from Gregory J Shilton & Co., Chartered Accountant dated 29 May 2003 advising that Mr Shilton had been appointed Administrator of the respondent and giving notice of a meeting of creditors. The respondent entered into a deed of company arrangement on 16 June 2003. 6 Mr M Gibian of counsel who appeared for the respondent tendered an affidavit of Grant William Pritchard sworn 14 April 2004 and filed in the Registry on 15 April 2004. Mr Pritchard is a solicitor employed by Duffield & Duffield, the solicitors for the respondent. Mr Pritchard's evidence was that Mr Jebb and Mr Andrews were appointed directors of the respondent on 12 April 2002. The respondent was previously known as J & S Training Services Pty Limited and was incorporated on 15 March 1999. In or around 12 March 2002 Monteray Pty Ltd became a shareholder in the respondent. The respondent effected a name change on 16 August 2002 to its present name. 7 Mr Pritchard annexed a copy of a deed of company arrangement dated 25 June 2003. This deed makes provision for "excluded creditors" and provides that such excluded creditors shall not participate in any distributions or payments made by the deed administrator. Included in the excluded creditors are Monteray Pty Ltd; Neil Gibson Jebb and Gregory Stuart Andrews. 8 It was common ground that on or about September 2002 the respondent was notified by the NSW Training Accreditation Board that its accreditation would not be renewed. All employees of the respondent were made redundant between mid 2002 to February 2003 with the respondent going into administration on 29 May 2003. Submissions of the Parties 9 Mr I Latham of counsel appeared for the applicant seeking the joining of a number of additional respondents, relying upon the principles set out in the decision of the High Court in Brown v Rezitis (1970) 127 CLR 157. Mr Latham particularly referred to the decision of Barwick CJ at 165-168 and summarised the circumstances which could lead to orders against a non party as being: restitution requires that they be joined; the non parties received a benefit of the contract; the non parties were culpably associated with the making or operation of the contract. 10 Mr Latham also referred to a decision of the Full Bench of this Commission in Ace Business Brokers Pty Ltd v Phillips-Treby [2000] NSWIRComm 163 which concluded that the proper approach and applicable principles are laid down in Brown v Rezitis. 11 Mr Latham submitted that the potential respondents receive the benefit of the contract between the applicant and the respondent being directors and shareholders and that the way in which they had structured their affairs could only be described as a subterfuge. It was further submitted that the potential respondents were directly or indirectly involved with every aspect of the operation of the contract. Mr Latham tendered an affidavit of the applicant. The only aspect of the affidavit relied upon on the motion for joinder was an employment separation certificate signed by Mr Jebb annexed to the affidavit. The applicant was not required for cross examination. Mr Latham conceded that the potential respondents were not involved in the making of the contract with the applicant. 12 Mr Gibian's principal submission was that the applicant needed to establish a "real and close" connection between the potential respondents and the contract between the applicant and the respondent. Mr Gibian accepted that the principles for determining joinder were set out in Brown v Rezitis but contended that this did not give the Court unlimited power. It was submitted that it had to be demonstrated that there was a real connection with the making, variation or avoidance of a contract or arrangement which has been varied or avoided. Mr Gibian submitted that it could not be established that the potential respondents were culpably involved in any wrongdoing. Counsel rejected that the potential respondents had entered into any subterfuge pointing to the deed of company arrangement in which they are included as excluded creditors. As such no funds or assets of the business can be received by the proposed respondents. In rejecting that the potential respondents were culpably involved or associated with the making of the contract Mr Gibian contended that Mr Jebb and Mr Andrews only became directors of the respondent on 12 April 2002 noting the applicant had commenced employment on 5 March 2001. 13 Mr Gibian further observed that although the applicant relies on representations made by a Mr Douglas and a Mr Warnock, these persons were never employees of the respondent but were sales agents engaged by MIB (Marketing) Pty Limited. Finally, Mr Gibian submitted that the administration itself is no basis for the joinder of respondents unless a close and real connection with the making, variation or avoidance of the contract or arrangement is established. It was submitted that no application to amend the summons had been made and that no relief was presently sought against potential respondents. It followed that the Court was not in a position to make the orders sought and the summons should be dismissed. Consideration 14 The applicant's notice of motion seeks orders allowing the joinder of additional respondents to the proceedings. 15 It was common ground between the parties that statements by Barwick CJ in Brown v Rezitis set out the principles to be applied in determining joinder of parties. 16 Barwick CJ stated at 164 - 165: … 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 in-adequate: 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 connection with the making, variation or avoidance of the contract or arrangement which has been varied or avoided (emphasis added). 17 In Ace Business Brokers Pty Ltd v Phillips-Treby (2000) 100 IR 420, Wright J President, Glynn and Hungerford JJ were of the view that it was timely and appropriate for the application of the principal in Brown v Rezitis to be revisited. The Full Bench said at 439: Our review of the authorities results in the conclusion, as to which we are in no doubt, that the proper approach and applicable principles are as laid down, particularly by Barwick CJ and Menzies J, in Brown v Rezitis. Those aspects were extensively considered by the Court of Appeal in Ashfield Brokers and Consultants; Re Witek and were summarised therein by Asprey JA with Sugarman P (with whom Holmes JA agreed) to a similar effect. We respectfully agree with the relevant principles as formulated in the four propositions stated by Asprey JA (at pp 5-6); those propositions have been cited earlier by us with emphasis and there is nothing we can usefully add to them. Suffice it to say that each case will depend on its own facts as illustrated by the extracts we have quoted from TNT Management v White, Grace v Baker and Monahan v Gibbons. However, and in a very real sense, it seems to us that the Industrial Commission in Court Session in TNT Management v White encapsulated the relevant test (at 335) as being whether the monetary order could "reasonably be thought to have a real connection with the making, variation or avoidance of the contract or arrangement which had been varied or avoided". 18 Brown v Rezitis stands for the proposition that orders can be made against persons who had a "close" or "real" connection with the making, variation or avoidance of the contract or arrangement which has been (or is sought to be) varied or avoided, even though the persons were not a party to the contract or arrangement. 19 In the summary of matters of fact and law set out in the applicant's summons for relief the applicant states that he commenced employment with the respondent on or about 5 March 2001; that he was told by Mr Douglas and Mr Warnock that there was no need to worry about his job and that he was a great asset to the company and was going to receive a pay rise; Mr Douglas also suggested to the applicant that the respondent was going to open a branch office in far north Queensland, possibly Cairns, and that the applicant would be regional manager; the applicant was encouraged to start making plans for a move. 20 On 25 September 2002 the applicant was contacted by Mr Carney, the NSW State Manager of the respondent and told that all of the trainers including himself had been made redundant and that the work was outsourced. Mr Carney told the applicant that Mr Douglas was working out a redundancy package for him. 21 The applicant claimed two years' notice/redundancy package having received two weeks' salary in lieu of notice together with his outstanding statutory entitlements at the time he was made redundant. 22 It was contended by Mr Latham that the way in which Mr Jebb and Mr Andrews structured their affairs could only be described "as a subterfuge in the common meaning of an attempt to avoid censure by evasion". Upon being ordered to pay any debt they simply placed the respondent into administration so submitted Mr Latham. There is no evidence before me to make any such finding and I reject the submission. The evidence is that Mr Jebb, Mr Andrews and Monteray Pty Ltd will receive no funds from the administration. Furthermore, the evidence is that the Department of Education and Training withdrew the accreditation of the respondent as a training organisation which led to all employees of the respondent being made redundant between mid 2002 and February 2003. There is no evidence that the applicant relied on representations from Mr Jebb or Mr Andrews in remaining in the employ of the respondent. To the extent that representations were made regarding the applicant's future, such representations were made by Mr Douglas and Mr Warnock who were not employees of the respondent. It does not seem to me that a "subterfuge" of the Brown v Rezitis type has been perpetrated against the applicant by Messrs Jebb and Andrews. 23 Mr Latham contended that Mr Douglas and Mr Warnock were "agents" of the proposed respondents. The difficulty with this submission is that there is no evidence before the Commission which would enable it to make a decision regarding the connection that these persons had with the potential respondents and whether they were blameworthy in any way regarding the termination 24 A further ground advanced by Mr Latham was that it would be impossible for any restitution to be made if orders cannot be made against the respondents sought to be joined. It was submitted that by the conclusion of the case the respondent will probably have been liquidated. Mr Latham contended that it was clear from the administrator's report that there was no likelihood of the company trading out of administration. 25 It seems to me that the placing of a company in administration, without more, is no basis to join additional respondents who may also be, or have been directors of a respondent company. It is necessary to demonstrate that the potential respondents had a 'real' or 'close' connection with the making, variation or avoidance of the contract. 26 The only reference to Mr Andrews and Mr Jebb in the applicant's summons is to be found in par 9 of the summary of matters of fact of law which is as follows: 9. In early 2002, the Respondent was sold to Mr. Greg Andrews and Mr. Neil Jebb. Under the new ownership of the Respondent, two new managers were brought in to supervise the office being Mr. Colin Warnock and Mr. John Douglas. There is no reference to Monteray Pty Ltd in the summons. 27 The purchase of the respondent by Mr Andrews and Mr Jebb occurred approximately one year after the applicant commenced employment with the respondent. These persons did not, on the evidence before me, have a "close" or "real" connection with the making of the contract between the applicant and the respondent. The applicant claims an order varying, from the commencement or at some later date, the contract of employment between the applicant and the respondent by the insertion of appropriate notice and redundancy provisions into the contract. 28 In circumstances where neither Mr Jebb nor Mr Andrews had any connection with the making of the contract, I cannot see how they can be joined as respondents on this basis. 29 However, the signing of the employment separation certificate by Mr Jebb under the heading "Signature of employer or representative" connects Mr Jebb with the termination of the contract. The certificate also gives as the reason for termination "shortage of work or redundancy". There is no allegation contained in the summons that there were any representations made by the proposed respondents in respect of the termination of the applicant's employment. The only reference to any persons involved in the interaction which took place regarding the applicant's termination is a reference to discussions between the applicant and Mr Carney, the NSW State Manager and Mr Douglas who was brought into the company by Mr Jebb and Mr Andrews when it was purchased. Mr Jebb signed the employment separation certificate, and therefore had an involvement in the termination at a time that the applicant complains his employment contract operated unfairly because of its failure to provide for a severance payment. 30 The jurisdiction of the Commission requires a finding that a person was culpably responsible for acts said to give rise to unfairness: Ace Business Brokers Pty Ltd. There is evidence before me (the employment certificate) that may enable such a finding to be made against Mr Jebb. His name on the employment separation certificate may demonstrate that he was culpably involved in the termination. I am therefore of the view that it is appropriate to join Mr Jebb as a respondent. Whether any orders are ultimately made against Mr Jebb will be a matter for the trial judge. 31 Mr Gibian referred the Commission to the decision of Hungerford J in Reich v Client Server Professionals of Australia Pty Ltd (Administrator Appointed) (No 2) [2000] NSWIRComm 196 where his Honour ordered that two directors and shareholders of the respondent company be joined as respondents. Mr Gibian submitted that this case is distinguishable from the present case. In Reich the directors, although not parties to the contract, were directors of the respondent at the time the contract was entered into. They were not initially joined as it was not considered that the respondent had any financial difficulties. Hungerford J found that Mr Petrat and Mr Jones were the principals of the corporate entity, they were the persons who managed and controlled its affairs; they were the persons who were jointly concerned with offering the applicant employment and setting the terms and conditions of that employment; they were the persons who controlled the performance of the employment and, significantly, they were the persons involved in the discussions with the applicant which ultimately led to the proceedings, namely, the conduct of the respondent in reducing the applicant's remuneration as to which the applicant made objection. 32 As I have observed neither Mr Jebb, Mr Andrews or Monteray Pty Ltd were involved in the entering into the contract with the applicant, nor on the evidence did they make any representations to the applicant during his employment. However, as directors Mr Jebb and Mr Andrews were the principals of the corporate entity; at the very least controlled the affairs of the respondent and Mr Jebb was directly involved in the termination of the applicant. 33 The second case which Mr Gibian submitted was distinguishable from the present case relates to a decision of Boland J in Gough & Gilmore Holdings Pty Ltd & Ors v Caterpillar of Australia Ltd (No 2) (2001) 106 IR 274. In that case his Honour joined Caterpillar Inc a company incorporated in Delaware USA. Boland J found that even though Caterpillar Inc was not a party to the dealership agreements or to any collateral arrangement, there was at least an arguable case that it had a sufficient connection with those agreements to the extent that money orders and an order under s 107 of the Act could be made against Caterpillar Inc. 34 In my view Gough & Gilmore is not readily distinguishable. There is, at least, an arguable case that Mr Jebb and Mr Andrews had a sufficient connection with the termination of the contract and that money orders could be made against them. 35 For the reasons given, I am persuaded that Mr Jebb and Mr Andrews should be joined as respondents in this matter. Monteray Pty Ltd should not be joined as there is no allegation directed to it in the summons, nor evidence of any connection with the applicant. The involvement of Monteray Pty Ltd, if any, is remote. ORDERS 1. The notice of motion dated 3 December 2003 is granted to the extent that Neil Gibson Jebb and Gregory Stuart Andrews are joined as respondents to these proceedings. 2. The respondents are to file a reply to the summons within 21 days of the date of this judgment. 3. I reserve the question of costs. 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.