Industrial Relations Commission of New South Wales in Court Session CITATION : Maylord Equity Management Pty Ltd and anor v QSR Ltd [2003] NSWIRComm 366 FIRST APPLICANT/RESPONDENT ON THE MOTION Maylord Equity Management Pty Limited PARTIES : SECOND APPLICANT/RESPONDENT ON THE MOTION Peter James Batterham RESPONDENT/APPLICANT ON THE MOTION QSR Limited FILE NUMBER: IRC3452 of 2003 CORAM: Peterson J CATCHWORDS : Unfair contract - Notice of motion to strike out for want of jurisdiction - Whether arrangement whereby work performed in an industry - Motion dismissed. LEGISLATION CITED : Industrial Relations Act 1996 s106 General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125 Nagle (t/as W D & J L Nagle and Sons) v Tilburg and Anor (1993) 51 IR 8 Custom Credit Corporation Limited v Goldsmith and Ors (1976) AR 98 CASES CITED : Waltons Stores (Interstate) Limited v Maher (1988) 164 CLR 387 Mitchforce v Industrial Relations Commission of New South Wales and ors [2003] NSWCA 151 Production Spray Painting & Panel Beating Pty Ltd v Newnham (1991) 27 NSWLR 644 Caltex Oil (Australia) Pty Ltd v Feenan [1981] 1 NSWLR 169 Kennedy v Contract Transport Solutions Pty Ltd [2003] NSWIRComm 158, unreported, 19 May 2003. HEARING DATES: 09/12/2003 DATE OF JUDGMENT: 10/31/2003 APPLICANT/RESPONDENT ON THE MOTION Mr S C Rothman SC Solicitors Clayton Utz SYDNEY. LEGAL REPRESENTATIVES: RESPONDENT/APPLICANT ON THE MOTION Mr D E Grieve QC SOLICITOR Pryor Tzannes & Wallis MASCOT. JUDGMENT: - 12 - INDUSTRIAL RELATIONS COMMISSION OF NEW SOUTH WALES IN COURT SESSION CORAM: PETERSON J DATE: 31 OCTOBER 2003 Matter No IRC3452 of 2003 MAYLORD EQUITY MANAGEMENT PTY LTD AND ANOR v QSR LIMITED Application under s106 of the Industrial Relations Act 1996 INTERLOCUTORY JUDGMENT 1 This judgment concerns a motion by the respondent, QSR Limited ('QSR') for an order of dismissal for want of jurisdiction of a summons for relief filed pursuant to s106 of the Industrial Relations Act 1996 ('the Act'). The summons for relief is brought by Maylord Equity Management Pty Limited ('Maylord'), the family trustee company of the second applicant, Peter James Batterham. 2 At the conclusion of the hearing, I laid down a timetable for the filing of supplementary written submissions. These were filed by senior counsel for QSR within time, but well out of time for the applicants. Despite some criticism made by QSR concerning that lateness, I have taken them into account, there being no seeming prejudice arising therefrom. 3 The motion is brought upon the basis that the contracts, arrangements, conditions or collateral agreements the subject of the summons for relief are not contracts whereby a person performs work in an industry. 4 The summons, which contains a lengthy summary of matters of fact and law and is supported by a verifying affidavit by Mr Batterham, seeks declaratory orders that such contracts etc are unfair within the meaning of the Act and declaring them void in whole or in part. Particular orders are sought with respect to an option deed entered into between QSR and Maylord on 2 November 1999 as follows: 5. An order declaring that the Option Deed entered into by the Respondent and the First Applicant dated 2 November 1999 ("Option Deed") is unfair, harsh, unconscionable and contrary to the public interest. 6. An order that the Option Deed be varied so as to vest in the First Applicant the one million options granted to the First Applicant pursuant to the Option Deed. 7. In the alternative, an order that the Option Deed be varied so as to delete clause 2.4 of the Option Deed and to insert in its place the following clause: "The Company achieving the earnings per Share and dividends per Share forecast in the Prospectus and the Company achieving EBITDA of at least 18% of equity subscribed plus debt for the calendar years 2000, 2001 and 2002." 8. An order declaring that the contract, arrangement, condition or collateral arrangement between the Second Applicant and the Respondent whereby the Second Applicant performed work for the Respondent in an industry, including but not limited to the provision of management and administrative services to the property sub-committee of the Board of the Respondent, was unfair, harsh and unconscionable in that it permitted the Respondent to terminate any such arrangement without providing reasonable notice, or in the alternative, making a payment in lieu of reasonable notice. 9. An order varying the contract, arrangement, condition or collateral arrangement between the Second Applicant and the Respondent whereby the Second Applicant performed work for the Respondent in any industry to include a term that upon termination of any such arrangement the Respondent shall give the Second Applicant twelve months' notice or payment in lieu of twelve months' notice. 5 The parties agree that the principles applicable to the strike-out motion are those set out in the judgment of Barwick J in General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125, particularly at 129. That approach has been widely adopted in respect of matters such as this and it is useful to restate some of what the Chief Justice then said: The plaintiff rightly points out that the jurisdiction summarily to terminate an action is to be sparingly employed and is not to be used except in a clear case where the Court is satisfied that it has the requisite material and the necessary assistance from the parties to reach a definite and certain conclusion. . . . . It is sufficient for me to say that these cases uniformly adhere to the view that the plaintiff ought not to be denied access to the customary tribunal which deals with actions of the kind he brings, unless his lack of a cause of action - if that be the ground on which the court is invited, as in this case, to exercise its powers of summary dismissal - is clearly demonstrated. The test to be applied has been variously expressed; "so obviously untenable that it cannot possibly succeed"; "manifestly groundless"; "so manifestly faulty that it does not admit of argument"; "discloses a case which the Court is satisfied cannot succeed"; "under no possibility can there be a good cause of action"; "be manifest that to allow them" (the pleadings) "to stand would involve useless expense". At times the test has been put as high as saying that the case must be so plain and obvious that the court can say at once that the statement of claim, even if proved, cannot succeed; or "so manifest on the view of the pleadings, merely reading through them, that it is a case that does not admit of reasonable argument"; "so to speak apparent at a glance". 6 In addition, the parties accept that the court should approach the matter consistently with the judgment of the Full Court of the Industrial Court of New South Wales in Nagle (t/as W D & J L Nagle and Sons) v Tilburg and Anor (1993) 51 IR 8 where this was said: As a general proposition, we think that all issues arising should be dealt with in the substantive proceedings unless the basis for a challenge, either on jurisdictional grounds, as here, or for lack of a reasonable cause of action, be clearly demonstrated. As was said by Mason and Jacobs JJ (with whom Barwick CJ and Stephen J agreed) in Stevenson v Barham (at 202, 204): "We have been told that the Commission follows the practice of permitting questions of jurisdiction to be argued without requiring a party to elect not to call evidence. There is much to commend this approach. As a general rule it is desirable that an objection to jurisdiction be determined as early as circumstances will conveniently admit so that the tribunal does not embark on a hearing which it lacks authority to conduct. . . . The discretion of a court to determine a case at an early stage, when appropriate, has been repeatedly asserted (see Young v Rank [1950] 2 KB 510 ; Ramdsen v Ramsden [1954] 2 All ER 623 at 624; Union Bank of Australia Limited v Puddy [1949] VLR 242; Sampson v Edwards [1949] VLR 6)." The principle to apply by a court entertaining a challenge to jurisdiction in a preliminary or threshold way was considered by the Supreme Court of New South Wales, Court of Appeal in Majik Markets Pty Limited v Brake and Service Centre Drummoyne Pty Limited (1991) 28 NSWLR 443; 39 IR 169. Kirby P observed (at 446; 170): "Such a course is often a sensible one where a party has a substantial threshold argument which, if it succeeds, will knock out the claim and save the costs and inconvenience that attend a protracted hearing of proceedings on the merits. But, as with any threshold relief of this kind, it must be conserved to a clear case where it is plain that the invocation of the jurisdiction impugned is wholly misconceived or, upon analysis, lacks an arguable legal foundation. Necessarily, refusal of relief at the threshold will not finally determine that jurisdiction exists for any order which the Commission might make between the parties. This is because, to secure relief, the claimants must demonstrate that no order could be made which would be within jurisdiction. This burden, which is a heavy one, was accepted by the claimants." . . . We would draw from those authorities the proposition that whilst it is desirable for a case to be determined at an early stage it is only open to do so at the appropriate stage of the proceedings, that is, where the facts, either established by evidence or plainly agreed in terms, enable the Court to determine what the contract or arrangement is or, at least, the parameters of the contract or arrangement. In other words, it seems to us, unless the facts are sufficiently established to enable the Court to be satisfied it has the necessary material to reach a clear and final decision on the question then the appropriate stage has not been reached for such a a determination to be made. 7 Additional evidence was adduced on the motion by QSR in the form of two affidavits of Francis Farmakidis, solicitor, one of which annexed the option deed to which the summons for relief directs; minutes of a board meeting of QSR at which it was resolved to dissolve a sub-committee of the board and the prospectus issued in the process of the incorporation of QSR. The other adverted to matters concerning the need, in the view of QSR, for the matter to be dealt with urgently, factors which do not seem to bear upon the real question for present determination, namely, the question whether the summons, as it were on its face, fails to raise the jurisdiction of the Commission. The Factual Background 8 Maylord is the successor in title, as the trustee of the Batterham Retirement Trust, to Woodglint Pty Limited ('Woodglint'). Woodglint was a party to a deed made on 2 November 1999 with QSR by which Woodglint, as "the option holder", was granted 1 million options to subscribe for unissued ordinary shares at $0.01 per option. The options were exercisable at any time during an exercise period defined as 15 February 2003 to 15 March 2003, provided a condition specified in cl.2.4 of the deed was satisfied. Clause 2.4 reads: 2.4 It is a condition to the exercise of the Option the Company: 2.4.1 achieves the earnings per share and dividends per share forecast in the Prospectus for the financial years ending 30 June 2000 and 30 June 2001; and 2.4.2 achieves an earnings before interest, taxation, depreciation and amortisation level in each of the calendar years 2000, 2001 and 2002 of 18% of Average Funds Invested for the relevant calendar year. 9 It will be seen that cl.2.4.2 of the deed required the earnings described (which I will refer to as 'EBITDA') reach 18% of average funds invested "in each of the calendar years 2000, 2001 and 2002". One of the contentions of the summons is that the parties had intended that the EBITDA relate to the period 2000 to 2002 as a whole, rather than requiring an 18% earnings level in respect of each separate year. It is an accepted fact, at least for present purposes, that in 2000 and 2001 the EBITDA achieved by QSR exceeded 18% but reached only 16.2% in the year ending 31 December 2002. Were the earnings averaged over the three years, the 18% barrier would be exceeded. QSR relies upon the failure to achieve 18% in 2002 as the basis for the lapsing of the options. The summons for relief seeks a remedy in relation to that matter. 10 The other facts relevant for present purposes relate to the circumstances which gave rise to the incorporation of QSR. So far as is ascertainable on the basis of the limited material before me, given that the proceedings were commenced only on 24 June 2003 and the evidence in the substantive proceedings has not been put on (indeed conciliation has not yet occurred), QSR operates approximately 41 Kentucky Fried Chicken stores acquired from the previous owner and operator, Tricon Restaurants Pty Limited. These stores were acquired as the result of an acquisition deal which was identified and seemingly motivated by Mr Batterham who, with a Mr Steven Gillard, negotiated the acquisition with Tricon. These negotiations produced a heads of agreement subsequent to which an associate of Mr Gillard's, Anthony Veale, also became involved. The summons treats the three gentlemen concerned as "the promoters". 11 In October 1999 QSR was formed to act as the vehicle for the acquisition, the promoters becoming the three directors of QSR. 12 The promoters incurred substantial expenses, exceeding $800,000, some $343,750 of which was a liability contingent upon the acquisition being completed. 13 The summons alleges that as part of the remunerations for the founding directors each was to receive: (a) 400,000 shares at 1 cent each; (b) directors' fees of $36,000 per annum; and (c) one million options exercisable at 50 cents in three years after issue upon the achievement of a performance benchmark. 14 It is paragraph (c) to which the options deed relates. 15 The summons contends: 22. The Promoters, who became the founding directors of the Respondent, received no other fees related to the transaction. The total remuneration (which was in compensation for work performed, the incurring of risk and forfeiting other opportunities) was to be solely in the form of equity and annual fees as set out above. 23. The Chief Executive, Chairman and other directors of the Respondent were also to receive similar options to those given to the Promoters. The Chief Executive initially received 300,000 options, which was subsequently increased to 400,000 options. The difference in the number of options granted was intended to reflect the varying contribution to, and risks associated with, successfully implementing the Restaurant Acquisition Deal. 16 I have pruned the facts to what seem to me to be the bare minimum necessary for present purposes. The summary of matters of fact and law set out in the summons for relief consist of some 13 pages of detailed history and related material. 17 As the basis for contending jurisdiction, the applicants seek to rely upon the term "arrangement" within the definition of "contract" in s 105 of the Act, which was considered by the Industrial Commission of New South Wales in Court Session, in relation to the predecessor s 88F, in Custom Credit Corporation Limited v Goldsmith and Ors (1976) AR 98 at 131: ". . . . it is significant that Parliament did not see fit to include in the Act any definition of "arrangement", which is not a term of art and is not a word which has a very precise meaning. Looking at the setting in which it is used in s88F, we are of the opinion that in one of its meanings "arrangement" embraces transactions which do not give rise to contracts or obligations, that is to say, obligations enforceable at law; but we are also of the opinion that in another meaning it embraces a situation where there exist two or more separate contracts which, notwithstanding their separateness, are, given the facts, so sufficiently associated with each other in a practical sense as together to constitute an arrangement of which each contract is a part." 18 The latter part of that exposition seems to relate particularly to the facts in anticipation in that case. The observation is significant for present purposes in describing transactions which do not give rise to a contract or obligations enforceable at law. Mr Grieve of Queen's Counsel for QSR submits that, to that extent at least, Custom Credit was wrongly decided. 19 Mr Grieve submitted that to argue that the term "arrangement" would not have been used by the legislature if all that was in mind was enforceable contracts, involves an error of principle. It ignores cases such as Waltons Stores (Interstate) Limited v Maher (1988) 164 CLR 387 where parties who intended or at least contemplated entering into a contract did not do so but by reason of their conduct were bound by what may be described as an enforceable arrangement. It is wrong to say that there is no such thing as an enforceable arrangement. 20 QSR contended that the option deed cannot be characterised as a contract whereby a person performs work in any industry; thus a crucial condition of jurisdiction is absent, at least so far as Maylord's claim is concerned. 21 An attack is also made on the claim that the contract was unfair in that it permitted QSR to terminate it without reasonable notice or pay in lieu of reasonable notice. This claim relates to the alleged capricious removal of Mr Batterham as a member of the property subcommittee. It was submitted this claim is unsustainable for the reason that the board minutes demonstrate the removal was the result of a unanimous vote of the three board members present, including Mr Batterham. The office of a director comes to an end upon, among other things, his resignation. Here, he resigned as a director. Neither the "removal" as a member of the property subcommittee of the Board or as a director can constitute conduct on the part of QSR. 22 It was submitted, adopting the approach taken by the Court of Appeal in Mitchforce v Industrial Relations Commission of New South Wales and ors [2003] NSWCA 151, that a number of propositions may be stated. Firstly, for a contract to be within jurisdiction it must have as its purpose the performance of work; work is not to be an accidental incident of the contract (per Spigelman CJ at par [18]); secondly, the contract must lead directly to work (par. [13]); thirdly, semble, the contract must expressly require work; fourthly, the contract must have an industrial colour or flavour (par. [58]); and fifthly, the contract must have a recognisable impact on conditions of employment (par. [58]). Further, adopting the approach of Priestley and Handley JA in Production Spray Painting & Panel Beating Pty Ltd v Newnham (1991) 27 NSWLR 644 at 655-6, the term "whereby" in the phrase "whereby work is performed in any industry" means "in fulfilment of which" thus resolving the alternatives postulated by the Privy Council in Caltex Oil (Australia) Pty Ltd v Feenan [1981] 1 NSWLR 169, where the other alternative given was "in consequence of which". 23 It was submitted that the contract must be discharged by a person performing work and the performance of work must be a term or condition entitling the other party to claim damages or rescind the contract. It was also submitted, as I earlier noted, that the contract must be legally enforceable in order that jurisdiction be invoked and, if not, it cannot be unfair. As I have said, this submission was made in the face of the judgment in Custom Credit Corporation v Goldsmith (ibid). 24 It was also submitted that Mr Batterham resigned in April 2002 but the summons for relief was not filed until 24 June 2003. Accordingly, by s108B of the Act the application was filed more than 12 months after the termination of the contract or arrangement and is thus stale. 25 Mr Rothman SC, for the applicants submitted that the option deed is accepted as not being a contract whereby work is performed in an industry. Rather, the applicants rely upon the arrangement involving the applicant and others from which the respondent benefited. The work undertaken by Mr Batterham before the incorporation of QSR was work in an industry. 26 It was submitted that the matters raised by the summons are reasonably arguable and do not satisfy the very stringent tests imposed by the principles flowing from General Steel Industries. 27 It was submitted it would be unusual to dismiss at an interlocutory stage a summons whereby an arrangement is alleged, particularly given that the existence of an arrangement will be dependent upon the evidentiary matters which will support it. Thus, the motion is premature. 28 With respect to the option deed, it was executed between QSR and Mr Batterham's family trust company. It provided remuneration in respect of the work undertaken by Mr Batterham. The arrangement by which this was effected did not cease with his resignation in April 2002 because the arrangement contemplates a continuing relationship (as an option holder). In any event, the applicants rely upon the judgment of the court in Kennedy v Contract Transport Solutions Pty Ltd [2003] NSWIRComm 158, unreported, 19 May 2003, to the effect that the applicants' right to sue in relation to events arising in April 2002 are not affected by the amendment which imposed the 12 months limit through s108B, it coming into effect only upon 24 June 2002. 29 It was submitted that the judgment of the Court Appeal in Mitchforce does not assist QSR. Mitchforce does no more than establish the law as it has been for many years. In any event, that case was not about an arrangement but about a lease. It did not decide that a contract to be within jurisdiction must be enforceable. To adopt that approach would render otiose the reference to "arrangement" in the definition of contract in s105. Consideration 30 The starting point for consideration of jurisdiction in a matter such as this was set out in Nagle v Tilburg this way (relating to the phrase then operable under the 1991 Act, but to no different effect): The answer depends upon the relevant jurisdictional fact as to whether the transaction concerned was one, to use the words of subsection (1) of the section, "under which a person performs work in any industry": Stevenson v Barham (1979) 136 CLR 190 at 201; Caltex Oil (Australia) Pty Limited v Feenan [1981] 1 NSWLR 169 at 171 and Minister for Youth and Community Services v Health and Research Employees' Association of Australia, NSW Branch (1987) 10 NSWLR 543 at 558; 22 IR 59 at 74. The reference to "a transaction" may be taken to refer to a contract as defined in s105, meaning "any contract or arrangement, or any related condition or collateral arrangement", widening the ordinary meaning of the phrase in s106(1) "any contract whereby a person performs work in any industry". 31 It is apparent that the summons for relief proceeds upon the basis that the steps taken in the formulation of the acquisition deal; the incorporation of QSR and the execution of the option deed between Maylord and QSR all relate to an arrangement under which work was performed by Mr Batterham for the benefit of QSR. While it is apparently true that (at least some of) this work was performed before QSR came into existence, I am not persuaded at this stage that QSR could not have become a party to the arrangement and accepted some burden thereunder or, alternatively could not be made a party to the proceedings, even if not a party to the arrangement, if it may be shown that QSR took the, or some, benefit under it. 32 I regard myself as effectively, although perhaps not strictly, bound by the view taken of the term "arrangement" by the Industrial Commission in Court Session in Custom Credit. There, three members of the Commission were considering the meaning of the same phrase, in substantially the same context as the present statute. Thus, the following observations of the Commission in Court Session I treat as applicable now: "Looking at the setting in which it is used in s88F, we are of the opinion that in one of its meanings "arrangement" embraces transactions which do not give rise to contracts or obligations, that is to say, obligations enforceable at law". 33 Taking the meaning of "arrangement" in the wider way construed in Custom Credit, there is sufficient evidence to conclude on an interlocutory basis that work was performed by Mr Batterham in an industry and was a necessary and essential part of the arrangement. The work does not appear to have been an "accidental incident or consequence" of the transaction (per Mahoney JA) in Production Spray Painting v Newnham (ibid at 649E). A feature supporting this conclusion is the receipt of payment or reward, or as the applicants contend "remuneration" for that work. The concept of payment does not fit comfortably with work being merely incidental to the arrangement. 34 As to the argument based on Waltons v Maher, whether the principles of estoppel operate to hold a party bound to a contract not completed, seems to me to be somewhat distant from a consideration of the extent of jurisdiction conferred by s106. That the law may regard an arrangement not constituting a complete contract to nevertheless be binding does not seem to me to speak at all about the scope of s106. That a relevant contract, otherwise enforceable at law, is within the section's scope is seemingly beyond debate. It may be that an arrangement, not constituting a contract, otherwise enforceable at law is also within the section's scope. There is, however, no warrant in my view for restricting the section's reach to such enforceable arrangements. As Custom Credit v Goldsmith holds, the term "arrangement" is capable of embracing unenforceable arrangements. 35 Accordingly, there is no necessity that the arrangement be enforceable at law - if that were so, the reference to "arrangement" in the definition would seem otiose. 36 The applicants' concession that the option deed is not, of itself, a contract whereby work is performed in an industry does not exclude the possibility of its constituting a part of an arrangement within jurisdiction. 37 As to the resignation of Mr Batterham in April 2002, I consider the summons is not statute barred by reason of s109, for the reasons given in Kennedy v Contract Transport Solutions. There it was said: 25 In my view that authority demonstrates that any substantive right obtained by the applicant in February 2002 to commence this action will not be affected by the retrospective operation, as here the argument by CTS must involve, of a statutory provision such as s108B in the absence of an express intention in the statute. 26 Maxwell v Murphy was a case which concerned an attempt to invoke the provisions of the Compensation to Relatives Act which had been amended to extend a time limit for the bringing of an application from 12 months to six years. The particular case was one in which the 12-month time bar had actually operated, because the application had not been filed within 12 months. The subsequent amendment of the Act to provide six years time limitation was held not to have retrospective effect such that it could revive the right which had expired with the effluxion of the earlier time bar. In a sense that case is the mirror image of the present matter where an extended "time limit" is sought to be cut back by a later amendment. Therefore, I conclude that upon this approach to the construction of s108B(1) the Act does not provide a 12 months limitation which could exclude the summons for relief in this matter. 38 Whether Mr Batterham's resignation was a "removal", "capricious" or had features otherwise relevant to a finding of unfairness is a matter which should depend on the evidence in a hearing on the merits. 39 In these circumstances, I consider QSR has not established in the overwhelming way necessary at an interlocutory stage that the summons is beyond the reach of the jurisdiction of the Commission. Whether that remains so in the light of the evidence ultimately adduced remains open. 40 I dismiss the motion with costs to the applicants as agreed or, in the absence of agreement, as assessed. 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