Industrial Relations Commission of New South Wales in Court Session CITATION : Hall v Sagacious Group [2002] NSWIRComm 69 APPLICANT/ RESPONDENT ON NOTICE OF MOTION Rodney Frank Hall FOURTH RESPONDENT / APPLICANT ON NOTICE OF MOTION BMW Australia Finance Limited PARTIES : FIRST RESPONDENT Sagacious Group Pty Ltd SECOND RESPONDENT SGSC Pty Limited THIRD RESPONDENT Fukura Pty Limited FILE NUMBER: IRC 6596 of 2001 CORAM: Boland J CATCHWORDS : Unfair Contract - Notice of Motion - Application by Fourth Respondent seeking to be struck out - Whether a Deed of Assignment of Hire Purchase Agreement is a collateral arrangement - Determination of objection to jurisdiction at interlocutory stage - Application dismissed. LEGISLATION CITED : Industrial Arbitration Act 1940 Industrial Relations Act 1996 Ace Business Brokers Pty Ltd v Phillips-Treby (2000) 100 IR 420, [2000] NSWIRComm 163 Bartolacci v Permanent Custodians Ltd (1992) 44 IR 388 Bartolacci v Permanent Custodians Ltd (No.2) (1992) 94 IR 122 Beahan v Bush Boake Allen Australia Limited (1999) 93 IR 1 Brown v Rezitis ((1970) 127 CLR 157 CASES CITED : Custom Credit Corporation Ltd v Goldsmith [1976] AR (NSW) 98 Gambotto v John Fairfax Publications Pty Ltd (2001) 104 IR 303 Heath Group Australasia Pty Ltd v Pengly [2001] NSWIRComm 241 Legal & General Assurance Society Limited v Stock (1993) 49 IR 464 Reich v Client Server Professionals of Australia Pty Limited (Administrator Appointed) (2000) 99 IR 69 Virtue v New South Wales Department of Education and Training (1999) 92 IR 428 HEARING DATES: 03/12/2002 DATE OF JUDGMENT: 04/15/2002 APPLICANT / RESPONDENT ON NOTICE OF MOTION Mr J P Phillips of counsel Solicitor: Mr R Farago Langes Solicitors FOURTH RESPONDENT/APPLICANT ON NOTICE OF MOTION LEGAL REPRESENTATIVES: Mr R Moore of counsel Solicitor: Mr K Rook Dickson Fisher Macansh FIRST, SECOND AND THIRD RESPONDENT Solicitor: Mr A Williams Williams Oates Lawyers JUDGMENT: - 14 - INDUSTRIAL RELATIONS COMMISSION OF NEW SOUTH WALES IN COURT SESSION CORAM: BOLAND J Monday 15 April, 2002 Matter No IRC 6596 of 2001 RODNEY FRANK HALL v SAGACIOUS GROUP PTY LTD and others Notice of Motion - Application under s 106 of the Industrial Relations Act 1996 INTERLOCUTORY JUDGMENT 1 On 5 October 2001 Rodney Frank Hall ("the applicant") filed for relief pursuant to ss 105 and 106 of the Industrial Relations Act 1996. The respondents named in the summons were Sagacious Group Pty Ltd ("first respondent"), SGSC Pty Ltd ("second respondent"), Fukura Pty Ltd ("third respondent") and BMW Australia Finance Ltd ("fourth respondent"). 2 On 9 November 2001, the fourth respondent filed a notice of motion seeking that it be struck out. The background to the motion is that in about August 2000 the applicant alleged that he entered into an agreement or arrangement whereby he would become a director and shareholder of the first respondent and an employee of the second respondent, which was a subsidiary of the first respondent. Part of the arrangement involved the applicant also becoming a director of SITS, another subsidiary of the first respondent, with the idea being the applicant and another director, Mr Mark Ohlin, would establish SITS as an information systems and technology division of the Sagacious group of companies. The applicant was, amongst other benefits, to receive a base salary of $180,000 per annum, together with a bonus and dividend. The applicant's motor vehicle lease payments of up to $20,000 per annum were to be included within the applicant's base salary. 3 It was alleged in the summons for relief that the first and second respondents had not met their obligations under the agreement or arrangement made with the applicant in August 2000 and that, therefore, it was unfair. For the purpose of determining the strikeout application it is not necessary to canvass the detail of the applicant's claims against the respondents other than in relation to the so-called "vehicle arrangement". 4 In or about early August 2000 it was alleged by the applicant that Mr Paul O'Shanassy, managing director of the first respondent, said to the applicant that he (Mr O'Shanassy) had a Mercedes Benz car that he was leasing and he needed to get rid of it because he had a new car. It was alleged that Mr O'Shanassy told the applicant he had arranged to have the Mercedes car transferred into the applicant's name and all that the applicant had to do was "sign an agreement." 5 Mr O'Shanassy, through a company partly owned by him named Fukura Pty Ltd (the third respondent), had leased the Mercedes vehicle under a lease agreement with the fourth respondent. It was alleged that on 10 August 2000, the applicant signed a "Deed of Assignment of Hire-Purchase Agreement" between himself, the third respondent and the fourth respondent, thus becoming liable for the obligations of the third respondent in respect of the vehicle. 6 The first respondent paid the first three payments payable under the Deed in accordance with what the applicant alleged was an oral agreement with Mr O'Shanassy made in August 2000. After these payments were made the applicant alleged that Mr O'Shanassy asked the applicant to make the payments because "We're a bit stretched at the present", and the applicant would be reimbursed. The applicant made two payments but was not reimbursed. In July 2001 the vehicle was re-possessed. On 4 October 2001 the applicant received a statement of claim from the fourth respondent claiming an amount of $35,835.88, being the shortfall between what the applicant allegedly owed and what was received on the sale of the vehicle. 7 In his summons for relief the applicant sought a variation to the contract or arrangement with the first respondent in the following terms: Notwithstanding any agreement to the contrary, the Sagacious Group Pty Ltd shall, at all relevant times, including after termination of the (sic) Mr Hall's employment for any reason, be responsible for all obligations, and remain liable to the Fourth respondent, in respect of the Mercedes Benz motor vehicle registration AHL26M ("the vehicle") the subject of the Deed of assignment between Mr Hall, Fukura Pty Ltd and the Fourth Respondent dated 10 August 2000 and shall indemnify and release to the fullest extent possible Mr Hall in respect of any liabilities relating thereto. 8 The applicant also sought a variation to the Deed of Assignment in the same terms as above. 9 The fourth respondent contended that the lease agreement between the third respondent and the fourth respondent, in respect of which the rights and obligations had been assigned to the applicant, was not a contract or arrangement "admissible to the jurisdiction of the Commission in Court Session exercising power under Section 106." It was further contended that "The entry into the Deed by the Applicant, Third Respondent and Fourth Respondent cannot alter or affect the terms and conditions of the Prestige Lease Agreement such as to bring the Agreement within this jurisdiction." 10 Mr R Moore of counsel appeared for the fourth respondent. Mr Moore contended that the deed of assignment did not constitute a collateral arrangement to the contract of employment between the first respondent and the applicant. Mr Moore described the fourth respondent as "an arm's length player" with "no real interest in the proceedings as to who in fact makes payments under the hire purchase contract" save that as far as the fourth respondent was concerned, as matters stood, it was the applicant who was legally bound to make the payments under the deed of assignment. Mr Moore referred to Custom Credit Corporation Ltd v Goldsmith [1976] AR (NSW) 98 and submitted that unlike the circumstances in that case the fourth respondent had no connection with the third respondent other than it agreed to a deed of assignment whereby the applicant assumed the rights and obligations that the third respondent held under the lease agreement with the fourth respondent. It was further submitted by Mr Moore that the applicant's summons for relief sought no orders against the fourth respondent. 11 Mr Moore relied on Beahan v Bush Boake Allen Australia Limited (1999) 93 IR 1 as authority for the proposition that where there is a substantial threshold argument going to jurisdiction which, if it is successful will knock out the claim, it is appropriate to determine the jurisdictional objection at an early stage. Mr Moore submitted that there was sufficient evidence available to the Court to determine that there was "an insufficient basis on which to continue to have BMW [the fourth respondent] as part of these proceedings." 12 Mr J P Phillips of counsel appeared for the applicant in opposing the motion. Mr Phillips contended that: · The deed of assignment is a collateral arrangement within the meaning of s 105 of the Act. · The deed of assignment was made as a consequence of the employment contract between the applicant and the first respondent; the deed of assignment would not have come into existence but for the contract of employment. · The fourth respondent was on notice of the applicant's employment arrangements regarding the provision of a motor vehicle allowance and that ultimately the payments due to the fourth respondent under the deed of assignment would be sourced from the first respondent. However, the fourth respondent made no inquiry as to the capacity of the first respondent to make the necessary payments to the applicant so that he could meet his obligations under the deed of assignment. · Mr O'Shanassy said to the applicant that he had "arranged" to have the Mercedes vehicle transferred into the applicant's name, which raises the question of with whom the arrangement was made. · The first respondent made the first three payments under the deed of assignment. · The fourth respondent is not at arm's length from the contract between the first respondent and the applicant. · The applicant seeks a variation of the deed of assignment to which the respondent is a party and consequently natural justice demands the presence of the fourth respondent in the proceedings. 13 Mr Phillips contended that the circumstances in this case were similar to those in Custom Credit where the Court held the existence of a collateral contract. Mr Phillips also referred to a judgment of Marks J in Heath Group Australasia Pty Ltd v Pengly [2001] NSWIRComm 241 where his Honour said: 6. There is reference in the decision of the Full Bench of the former Industrial Court of New South Wales in Bartolacci v Permanent Custodians Ltd (No 2) (1992) 94 IR 122 to the meaning of the words "collateral arrangement". The Full Bench observed that ""collateral" must itself require a relationship between the collateral arrangement and a "contract or arrangement" under the section. "Collateral" as senior counsel for the respondent pointed out in the appeal proceedings, by dictionary definition means: "situated at the side; running side by side; accompanying; attendant; auxiliary"; …. a "collateral" arrangement must of its very nature have a relationship with the contract or arrangement to which it is collateral." (at 125). 14 Mr Phillips also submitted that in the absence of any substantive affidavit material in relation to the facts in issue in the proceedings it was not an appropriate time to consider the fourth respondent's strikeout application. Consideration 15 As I understand the submission of the applicant, it was not argued that the deed of assignment constituted part of an overall "arrangement" whereby the applicant performed work in an industry. Consequently, the issue for determination is whether the deed itself is a collateral arrangement in relation to, or running side by side with, or accompanying or attendant upon, the employment contract between the applicant and the first respondent, that contract being one "whereby a person performs work in any industry": Bartolacci v Permanent Custodians Ltd (No 2) (1992) 94 IR 122 at 126. 16 There was no debate about whether or not the deed of assignment was an "arrangement" for the purpose of determining what is a "collateral arrangement" in s 105 of the Act. I am prepared to accept that it was having regard to the wide meaning given to that term: Legal & General Assurance Society Limited v Stock (1993) 49 IR 464 at 480-481; Reich v Client Server Professionals of Australia Pty Limited (Administrator Appointed) (2000) 99 IR 69 at 75-77; Bartolacci v Permanent Custodians Ltd (1992) 44 IR 388 at 398-400. 17 Was the deed of assignment "collateral" to the alleged contract or arrangement between the applicant and the first respondent? In Custom Credit a company carried on business by entering into contracts with individuals (referred to as dealers) under the terms of which the company sold equipment to the dealers who were to hire out that equipment to the public. The company was paid the purchase price and a commission on each hiring. The company also offered to arrange a personal loan on behalf of dealers so that they could pay the purchase price to the company. A number of dealers entered into separate contracts with the company and in each case a personal loan was arranged for the dealer with the appellant, Custom Credit. Applications by the dealers were made under s 88F of the Industrial Arbitration Act 1940 seeking declarations that the dealership agreements and the loan contracts were void and further sought orders for the payment of certain sums of money. 18 The Commission at first instance made orders avoiding both the dealership agreements and the loan contracts. On appeal, the Commission in Court Session (McKeon, Cahill and Dey JJ) held that the evidence established there was a deliberately made plan or arrangement between the company and Custom Credit for the purpose of advancing the business interests of both and that neither the dealership agreements nor the loan contracts stood isolated from the other. The Court held that when the initial plan or arrangement between the company and Custom Credit was widened by the involvement of the dealer who entered into a contract with the company and a loan contract with Custom Credit, a new arrangement whereby a person performed work in an industry sprang into existence. This arrangement fell within the ambit of s 88F. The parties to the arrangement were the company, Custom Credit and the dealer, and the components of the arrangement were the dealership agreement and the loan contract. 19 In Bartolacci v Permanent Custodians Ltd 44 IR 388, the applicant brought a claim originally pursuant to s 88F of the Industrial Arbitration Act 1940 on the basis that a mortgage was part of a contract or arrangement or a condition or collateral arrangement relating thereto whereby the applicant performed work in the fashion accessories industry. It was alleged the mortgage was unfair, harsh and unconscionable within the meaning of pars (a) and (b) of s 88F(1). Hungerford J summarised the facts of the case as follows: The applicant performed work for the company as a buyer in an industry under a contract of employment. However, she had been performing that work for some three years before any question arose of her offering her home as security for a loan to be made to her employer; it appears the initiative for the proposal came from her and not from her employer, and, importantly, with no evidence of any deliberate plan or arrangement between the company as her employer and the respondent. Further, she had perceived advantages in being able to discharge the loan on her home over a period of only four years, interest free, and by the payment to her by the company of an annual fee in consideration of her providing the facility. It is true the company benefited also in being able to have available the property of one of its employees to secure a loan to meet its financial difficulties, but of the three persons participating two were employees and one was not. The deed of 10 July 1990 in its terms made no reference, either expressly or by implication, that the arrangements entered into between the company and the applicant were in any way referable to the employment relationship between them; and neither did the mortgage nor the deed of guarantee and indemnity. A perusal of the applicant's affidavit and of the many documents tendered in the proceedings, the main points of which I have endeavoured to summarise earlier herein, discloses no evidence of any necessary connection between the mortgage sought to be impugned and the medium through which work was performed, namely the contract of employment. Neither, in my view, is there disclosed any material which would establish some plan or arrangement as between the company and the respondent to have the effect of otherwise encouraging the applicant as an employee to advance the business interests of both the company and the respondent by her lending moneys to her employer obtained from the respondent. As I view the transactions concerned, they represent separate contracts standing in isolation from each other. In respect of the mortgage itself, it is to be noted the applicant obtained independent advice. 20 Hungerford J found that the mortgage was not a collateral arrangement to the contract of employment. His Honour said at 402-403: And so it may be said here that by the applicant entering into the mortgage, and even the deed of 10 July 1990 with the company as her employer, the fact was there was no change in any direct sense in the work which she performed for the company nor in the terms and conditions of her employment. The fact that her employer, because of its financial difficulties, subsequently went into liquidation and the applicant lost her job cannot, in my view, be called in aid to establish the necessary connection between the mortgage and the employment contract. It follows, I would conclude, that the mortgage here was not a collateral arrangement in any relevant sense to the contract of employment nor that it formed part of an overall contract or arrangement under which work was performed in any industry. The objection to jurisdiction is upheld. The applicant's claim must therefore fail, and with costs. 21 In the course of his judgment Hungerford J considered the meaning of "collateral arrangement". At 398, after referring to the dictionary meaning of the word "collateral", his Honour said: The proposition that somehow a collateral arrangement could relevantly be within the section as sitting side-by-side with or parallel to, but not related to a contract or arrangement under which work is performed in an industry does not sit comfortably with what the word "collateral" ordinarily means. It seems to me that to be collateral to something there must be some necessary connection with or necessary relation to the primary thing, that is, subordinate to but from the same source, and even though that which is collateral may be separate or aside from the main subject. In other words, in the context of s 275, unless there be some necessary connection or relationship between the collateral arrangement and the primary contract or arrangement under which work is performed, then, in my view, there would be no relevant function for "collateral arrangement to perform in the context of s 275 which is essentially concerned with what might be called in a shorthand way "work contracts or arrangements". 22 Bartolacci was affirmed on appeal: Bartolacci v Permanent Custodians Ltd (No2). 23 In Gambotto v John Fairfax Publications Pty Ltd (2001) 104 IR 303 the issue arose as to whether contractual relations between the respondents and employees other than the applicant constituted collateral arrangements for the purpose of s 105 of the Act. Peterson J said: 17 The first matter for determination concerns the attempt by the summons to impose duties upon the respondent in relation to the contractual arrangements between it and its journalists other than the applicant. These contractual relationships, either as employees or subcontractors, are said by the applicant to constitute collateral arrangements for the purposes of the definition of a contract provided by s105 of the Act. 24 After referring to the Full Bench judgment in Bartolacci (No 2), Peterson J said: 19 Counsel for the applicant, applying the dictionary definition referred to by the Full Court in Bartolacci, contends that the situation in these proceedings exists within those parameters. I am not able to see how that can be so. The relationship between the respondent and its journalists other than the applicant is not a relationship which is in any sense collateral to that between the respondent and the applicant. The two relationships may be seen to stand alongside each other but not in the sense conveyed by the word "collateral". In order that one arrangement be collateral to another there must be a necessary connection between them. Here, any connection is, I consider, essentially coincidental. The various journalists happen to work, either as employees or contractors, for the same publisher, and the contract or arrangement between the applicant and the respondent may be seen to be of the same character, for present purposes, as those between the respondent and its other journalists. The terms of the contract between the respondent and another journalist are not in any sense collateral to the terms of the applicant's contract. 25 In the present proceedings it was the applicant's submission that the deed of assignment only came into existence as a direct result of the contract of employment between the applicant and the first respondent. It was also submitted that the applicant was told by the managing director of the first respondent that he, the managing director, had arranged to have the Mercedes car transferred into the applicant's name and all that the applicant had to do was "sign an agreement", that the fourth respondent was aware of the provisions in the employment contract regarding the financing of a vehicle and, that the first respondent paid the first three instalments under the deed. It was these circumstances that, as I understand the applicant's contention, gave rise to the necessary connection or relationship between the contract or arrangement whereby the applicant performed work in an industry (being the contract of employment between the applicant and the first respondent) and the arrangement that was said to be collateral (being the deed of assignment). 26 On the face of the material available to me in these interlocutory proceedings, I find it difficult to see how it can be said that the deed of assignment is collateral to the contract of employment alleged to have existed between the applicant and the first respondent. In my opinion, the material so far advanced indicates that the deed of assignment is a commercial transaction quite separate from the contract of employment. To use the words of Hungerford J in Bartolacci, the contract of employment and the deed of assignment appear to "represent separate contracts standing in isolation from each other". It may be true that the deed of assignment only came into existence as a consequence of the contract of employment. But the deed has an independent existence to the contract of employment; it bears no relevant relationship to the contract of employment. 27 My impression is that the fourth respondent, in agreeing to the deed of assignment, simply followed the normal commercial procedure associated with such transactions. The fourth respondent had the applicant complete an "application for finance" and, in the knowledge that the Sagacious group employed the applicant, presumably satisfied itself that the applicant had the capacity to pay the monthly instalments of $1502.90. Upon the applicant agreeing to take over the third respondent's obligations under the hire purchase agreement the applicant agreed to pay the instalments due under the hire purchase agreement and the third respondent was released of any such obligation. The fact that the first respondent may have agreed with the applicant to pay the instalments on his behalf and then allegedly breached that agreement is a separate matter between the applicant and the first respondent. In my opinion, on the material before me, the dispute between the applicant and the first, second and third respondents has nothing to do with the fourth respondent. 28 Of course, if it could be established that there was some "deliberately made plan or arrangement" of the type referred to in Custom Credit between the first, second or third respondents and the fourth respondent, whereby it could be said that such a plan or arrangement existed for the purpose of advancing the business interests of those respondents, then it might be successfully contended that the necessary connection between the contract of the employment and the deed did exist or that the deed was part of an overall arrangement, although the latter proposition was not contended by the applicant. 29 In other words, if it were the case that an arrangement existed, say, between the first respondent and the fourth respondent whereby the first respondent referred business to the fourth respondent for some consideration or advantage, then there may be an argument available to the applicant that this constituted the necessary connection. But as matters stand there is no evidence of this. The only indication of such an arrangement is an assertion in the summons for relief that Mr O'Shanassy said to the applicant "I have arranged to have the old Mercedes transferred into your name." This statement could mean a variety of things and on its own, as a bald assertion, provides no basis for arriving at a conclusion that there was an arrangement of the type referred to in Custom Credit between any of the respondents. 30 Alternatively, if it could be shown that the fourth respondent was culpably involved in the Brown v Rezitis ((1970) 127 CLR 157) sense, or was involved in a manner similar to the appellants in Ace Business Brokers Pty Ltd v Phillips-Treby (2000) 100 IR 420; [2000] NSWIRComm 163, then the necessary connection might be said to exist. But again there is, at least at this stage of the proceedings, no evidence of this. 31 In his submissions, Mr Phillips contended that it was not the appropriate time to consider the fourth respondent's strikeout application. No evidence has been filed, not even an affidavit verifying the matters of fact in the summons for relief, the inference being that once the Court has the whole of the evidence the connection between the contract or arrangement and the collateral arrangement will become clear. 32 In Virtue v New South Wales Department of Education and Training (1999) 92 IR 428, Wright J, President summarised the principles relating to the determination of an objection to jurisdiction at the interlocutory stage. Principle 6) was as follows: 6) Accordingly, 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 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, 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 determination to be made. 33 Whilst I might be sceptical about the applicant's ability to show that the deed is a collateral arrangement or that there exists a necessary connection between the fourth respondent and the contract or arrangement between the applicant and the first, second and/or third respondent, I do not consider that I have all of the necessary material to reach a "clear and final decision" to grant the fourth respondent's strikeout application. 34 In the circumstances, I am not prepared to delete BMW Australia Finance Limited as a respondent to the proceedings in Matter No IRC 6596 of 2001 and the application is dismissed. Ultimately, of course, if the applicant is unable to prove the necessary connection that would make the fourth respondent amenable to an order under s 106, a costs order would presumably be available against the applicant. 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.