Industrial Relations Commission of New South Wales in Court Session CITATION: William James Kerr v Bigspace Technologies Pty Limited and Anor [2005] NSWIRComm 235 Applicant: William James Kerr First Respondent: PARTIES: BigSpace Technologies Pty Limited Second Respondent: Murray Edington Ellen FILE NUMBER(S): IRC5340 of 2003 CORAM: Kavanagh J CATCHWORDS: Joinder application under s170 of the Act - two further respondents named in joinder application - due to use of technology and/or financial dealing connection to the impugned contract established - joinder allowed - application under s108A dismissed - further conciliation ordered Industrial Relations Act 1996 s108 LEGISLATION CITED: s170 Solution 6 Holdings Limited & Ors v Industrial Relations Commission of New South Wales & Ors [2004] NSWCA 200 QSR Ltd v Industrial Relations Commission of NSW [2004] NSWCA 199 CASES CITED: Balco v Software Engineers (NSW) [2002]NSWIRComm 135 Unitedglobalcom.Inc. & Ors. v The Industrial Relations Commission of New South Wales in Court Session & Anor [2005] NSWCA 131 HEARING DATES: 03/23/2005; 06/08/2005 EXTEMPORE JUDGMENT DATE: 06/10/2005 Applicant: Mr A.R. Moses of counsel Solicitors: Mr S.Rogers Holman Webb LEGAL REPRESENTATIVES: Respondents: Ms K. T. Nomchong of counsel Solicitors: Mr A. Rummery Verekers JUDGMENT: - 14 - INDUSTRIAL RELATIONS COMMISSION OF NEW SOUTH WALES IN COURT SESSION CORAM: Kavanagh J 10 June 2005 Matter No IRC5340 of 2003 WILLIAM JAMES KERR v BIGSPACE TECHNOLOGIES PTY LIMITED & ORS Application under section 106 of the Industrial Relations Act 1996 EX TEMPORE JUDGMENT [2005] NSWIRComm 235 1 HER HONOUR: This matter comes before me by way of two Notices of Motion. The applicant filed a Summons for Relief under s106 of the Industrial Relations Act 1996 against BigSpace Technologies Pty Limited (BigSpace) as the named first respondent and Murray Edington Ellen as the named second respondent. The first respondent to the Summons for Relief is in liquidation. 2 On 23 August 2004, the second respondent to the Summons for Relief filed the first Notice of Motion, which Motion asked for an order of the court to delete a significant number of paragraphs of the Summons for Relief and further, a declaration that the Industrial Relations Commission in Court Session has no jurisdiction to deal with the arrangement in relation to the issue of shares in the first respondent. The ground relied upon for the latter order was a judgment of the New South Wales Court of Appeal in Solution 6 Holdings Limited & Ors v Industrial Relations Commission of New South Wales & Ors [2004] NSWCA 200. 3 The applicant then filed its Notice of Motion seeking to amend the Summons for Relief by way of joining two further respondents, a third respondent, namely, ME2 Corporation Pty Ltd and a fourth respondent, namely, S2 Corporation Pty Limited. The applicant alleged the third and fourth respondents: (a) derived a benefit from the operation of the contract and/or arrangement which is contended to be unfair in the proceedings; and (b) were culpably associated with the operation of the contract and/or arrangement that is contended to be unfair in the proceedings. 4 It is necessary to recite a number of facts. The first named respondent, BigSpace Technologies Pty Limited, was a company which designed steel structures and/or licensed the technology to a contractor. A particular design for the construction of large span steel structures for use in facilities such as aircraft hangers and warehouses was the design at the heart of the dispute. There had been an application made to patent this design Patent No.W00196679. 5 The design of the structures would be licensed for a fee. In addition, in the course of the construction, BigSpace would arrange the stressing and grounding of the structure. This arrangement protected, to a certain degree, BigSpace's intellectual property by preventing third parties becoming familiar with an essential element of the technology being used. 6 BigSpace was a company in which there were two shareholders, William James Kerr (the applicant) and Murray Edington Ellen (the second respondent). The applicant, held a 10 percent share of the company. The second respondent held the balance. Both were directors of BigSpace. Both worked for the company. 7 The chronology is as follows: · On 20 October 1999 the first respondent set up as BigSpace Structures Pty Limited. Both the applicant and the second respondent were appointed as directors. The applicant commenced employment on that date with the first respondent. · On 1 February 2001 the applicant acquired 10 shares in BigSpace Structures Pty Limited, that is 10 shares out of 99. The balance were held by the second respondent. BigSpace Structures became BigSpace Technologies Pty Ltd on 8 February 2002. · On 12 June 2002, the applicant was demoted by way of letter from the second respondent, and his salary was reduced. He was, however, offered a $20,000 bonus on completion of projects. · On 24 July 2002, the applicant resigned as director of the first respondent. · On 2 December 2002, the applicant's employment was terminated. · On 23 June 2003, a company named Tough Turtle Pty Limited was incorporated. The second respondent was appointed a director. I will refer to that company later. · On 24 June 2003, a service agreement was entered into between the second respondent and the first respondent. · On 28 August 2003, the company, Tough Turtle Pty Limited, changed its name to ME2 Pty Limited and the second respondent was appointed as a director. ME2 Pty Limited is the name of the third respondent to the joinder application. · On 25 September 2003, the applicant filed his Summons for Relief. · On 5 January 2004, the second respondent instructed WHK Corporate Advisory Limited to value BigSpace Technologies Pty Ltd to assist in determining a valuation for the purpose of sale to an unrelated party. · On 7 May 2004, an administrator was appointed to the first respondent. · On 12 May 2004, S2 Corporation Pty Ltd was incorporated. 8 The second respondent alleges there was no requirement or connection between any work done by the applicant and the share issue and the design of the structures. He asserts the applicant's employment with the first respondent was not related to or conditional upon the issue of shares in the first respondent. He asserts the issue of the said shares did not require the applicant to perform any work on behalf of the first respondent or to carry out his duties as an employee of the first respondent in any particular way. 9 The applicant and the second respondent both gave evidence and were cross-examined. The applicant's employment with BigSpace Technologies was severed prior to the first respondent entering into liquidation. The first respondent was first put into administration. That occurred after the filing of the Summons for Relief. 10 Evidence reveals the second named respondent at first resolved to sell the business of BigSpace Technologies Pty Ltd to another company and had the business and assets of BigSpace independently valued for the purpose of sale. There was a motion recorded by BigSpace Technologies Pty Ltd to that effect on 7 April 2003. However the applicant, a shareholder of the BigSpace Technologies Pty Ltd was given no notice of such a proposed resolution. The second respondent did not go ahead with that proposition. 11 In the preparation of WHK Corporate Advisory Limited Report (to give a valuation of the first respondent) consideration was given to the following information provided by the second respondent: · The level of remuneration paid by the company to yourself has increased from approximately $143,600 to $172,800 in 2002 and 2003 respectively. We have relied on the assumption that you are to charge a higher fee to the company for the provision of your services. This would reduce the level of future earnings for BST; and · We have been advised that the value attributable to the patents currently being filed are closely linked to your employment with BST. Also, considerable expenditure (approximately $30,000) is expected to be required before the patents are registered. Based on the above factors we have determined that the 2003 year is the most reflective of current operations of BST. We note that the changes to your employment arrangements will have impacted the profitability. This, combined with the lack of future prospects for the business, indicate that the future maintainable earnings will be nil or negligible. This assessment is supported by the year to date trading position as discussed in section 6. Section 4 of the report also notes: Fee for your services and intellectual property; you will continue to provide your services to BST for the purposes only of enabling the company to complete its current projects and a fee will be charged for these services. It is likely that this fee would be in excess of historical salary levels. 12 Also placed before me were some of the financial records of the BigSpace Technologies Pty Limited. In the Reconciliation of 13 June 2003, there was recorded to Tough Turtle Pty Limited a payment of $172,948.60. It is, relevant to my consideration that Tough Turtle Pty Limited was the predecessor of ME2 Corporation Pty Ltd, the company which is nominated as the third respondent in the joinder application. The Reconciliation reveals financial transactions between BigSpace Technologies Pty Limited and Tough Turtle Pty Ltd. The second respondent had controlling interests in both companies. 13 In a later BigSpace Technologies Pty Limited Reconciliation of 30 August 2003, ME2 Corporation Pty Limited is listed as owed $140,013.60. 14 Therefore, there appears to have been a financial relationship between the third joinder respondent and an associated company of the second respondent from the first respondent - a company in which the applicant held shares. 15 Further, on 11 June 2003, evidence revealed the second respondent recorded the technology in the named patent was "unique" and with respect to "a changeover program to BST" that there would be "a Patent's Assignment". This document came into existence the time Tough Turtle Pty Limited, a company of the second defendant, was established. 16 On 7 May 2004, a Mr Frederick Thomas was appointed administrator of the first respondent. On 2 June 2004, he was appointed liquidator of the first respondent. 17 The applicant has not received any payment by way of dividend or otherwise from the administration of BigSpace. However, by way of correspondence, the administrator, Mr Thomas, on 26 May 2004 approved the purchase of assets of BigSpace by the second respondent. One of the assets was the trademark "BigSpace" purchased by the second respondent for $1,000 and a patent (not recorded as to its identification) was purchased for $22,577. 18 The applicant asserts the services being provided by the joinder third respondent, namely, ME2 Pty Limited, pursuant to the said contracts with third parties, are services which the first respondent provided to its customers, and which it would have provided to those parties had it not been placed in liquidation. The applicant asserts but for the actions of the second respondent, the first respondent would have had the benefit of such contracts. 19 The fourth named respondent in the joinder, S2 Corporation Pty Limited, was incorporated on 12 May 2004. The second respondent was also the named director of this company. It is alleged, as it was alleged against the joinder third respondent, that S2 Corporation Pty Limited entered into contracts with third parties to carry on the type of business previously conducted by the first respondent, and purportedly using the technology of the said patent. 20 As to the evidence before me as to the activities of S2, of particular note is a letter dated 26 May 2004. It is an email from the second respondent, 2004, under the letterhead of S2 Corporation Pty Limited, and says: Just a quick note to let you know that in order to further our ideas and technology and to continue to grow and provide further benefits to your organisation, we are undergoing some changes. One of these entails a change to our corporate structure, and the formation of S2 Corporation Pty Limited (S2 equals stressed steel). A change in the structure will allow the company to deliver not just clear open space, but new innovative products and services to the market, using new stressed steel ideas. The positive spirit of BigSpace lives on - same people, different space. 21 The second respondent sent this email signed Murray Ellen, Director S2 Corporation Pty Limited to a business colleague. 22 A second document, which was placed in evidence is an article published in the July 2004 issue of "Steel Edge" being a publication of BlueScope Steel, a third party to the proceedings. It is an article entitled "BigSpace venture begins" and state: BlueScope Steel has entered the growing Asian metal building market for buildings with clear spans of over 60 metres. Under a licence agreement with fellow innovative Australian company S2, BlueScope Steel has exclusive use of Bigspace clear span building technology in Asia. The article goes on to explain the technology. 23 The applicant further contends S2 Corporation Pty Limited, the joinder fourth respondent, has entered into contracts with third parties pursuant to which it purported to license to those third parties technology comprised in the said patent, and also asserts S2 Corporation carries on a business previously conducted by the first respondent. 24 The applicant contends that both the proposed third and fourth respondents are parties who have derived a benefit from the operation of the employment contract between the applicant and the first respondent (in liquidation), which is alleged to be unfair and two joinder respondents, the proposed third and forth respondents, entered into arrangements which arrangements affected unfairly the employment of the applicant. 25 The applicant asserts the contracts entered into by the proposed fourth respondent are contracts from which the first respondent would have had the benefit, and are contracts now being utilised by the second respondent. It therefore asserts that the third and fourth respondents derived a benefit from the operation of the employment contract or arrangement. For example, given the applicant's shareholding in the first respondent, the joinder respondents are equitably associated with the operation of the employment contract or arrangement, which is contended to be unfair. 26 The second respondent however challenges the both joinders, relying on the authority in QSR Ltd v Industrial Relations Commission of NSW [2004] NSWCA 199, to assert the work performed by the applicant as enunciated in these proceedings the incorporation of both the third and fourth respondents. 27 Further, he asserts there is a limitation by s108B of the Act now placed on filing of applications commenced 12 months after the termination of the relevant contract of employment. The second respondent contends the application for joinder of the two named respondents is not, in its form, an amendment to existing proceedings, but brings a new cause of action such that it is sustainable to the application of s108B of the Act. The second respondent also submits there is no relevant association or real connection between the third and fourth respondents, and any contract or arrangement held by the third or fourth respondents in relation to the applicant and/or the first and/or second respondent. There must be a real connection such a contract the second respondent submits. 28 The second respondent contends both named joinder respondents have no culpable association with the applicant. The third and fourth named joinder respondents received no benefit from the operation of the contract being reviewed and there was no evidence of any improper conduct by the second respondent. The second respondent assert that the sale by the administrator/liquidator of the patent to the second respondent is an issue that is solely related to the decision of the administrator/liquidator and any relevant litigation should be directed to the administrator/liquidator. 29 Reliance is placed by the respondent generally on the provisions of the Corporations Code in support of this proposition. Consideration 30 It is necessary to recite a number of authorities which guide this determination. In accordance with s170 of the Industrial Relations Act the Commission has power to make any amendment to the proceedings that "the Commission considers to be necessary in the interests of justice". 31 Regard is had to the decision in Bowker & Anor v Software Engineers Australia (NSW) Pty Ltd [2002] NSWIRComm135, in which the relevant principles for determining whether or not an application for joinder should be granted by the Commission, are enunciated. The test in a joinder application is whether a sufficient evidentiary basis has been established for the joinder. The Commission has to consider whether it is appropriate that a proposed third party be joined, inter alia, to have before the Commission all the parties in order to fully and properly resolve and determine the issues raised in the proceedings (see Wong v Cheng & Anor t/as Artist Productions (1999) 91 IR 369). 32 The question of joinder depends on whether the proposed third and fourth respondents have a sufficient connection with, and/or involvement in the contract or arrangement with the applicant (Bell & Anor v Macquarie Bank Ltd & Anor (No 4) (1999) 93 IR 191 at 207). 33 The second respondent particularly relies upon QSR Limited where the New South Wales Court of Appeal held: [66] Before its incorporation the claimant was not a person "who … in reality [was] the actor deriving benefit from the making … of the contract or arrangement" in the words of Barwick CJ in Brown v Rezitis (1970) 127 CLR 157, 164. It was not in any sense "an actor" during this period. Following its incorporation the claimant accepted the benefit of the work done by its promoters prior to incorporation but any contract or arrangement to this effect was not one whereby a person performed the pre-incorporation work. In my judgment therefore the Commission lacked jurisdiction in proceedings against the claimant over any contract or arrangement which pre-dated its incorporation. 34 The applicant relies upon a very recent decision of the New South Wales Court of Appeal, Unitedglobalcom.Inc. & Ors. v The Industrial Relations Commission of New South Wales in Court Session & Anor [2005] NSWCA 131 which the applicant asserted distinguished relevant facts from those considered in QSR Limited and therefore rejected the proposition that QSR Limited was authority generally as to a bar to a jurisdiction and determined jurisdiction is determined from the relevant facts. Hodgson JA held: [24] In my opinion, if an applicant obtains an order under s.106 against a respondent for whom the applicant worked in an industry, and it is shown that the assets of that respondent have since passed, by reason of some corporate reorganisation within a group of companies, to another company in that group, there may be jurisdiction under s.106(2) to make an order against the entity to which those assets have passed. If it be the case that the assets that have so passed have been augmented by the work done by the applicant, and if it be the case that the re-structuring has left the original entity for which work was done without sufficient funds to make an appropriate payment, it may be that such a payment is properly regarded as a payment of money in connection with a contract declared wholly or partly void or varied, as those expressions are used in s.106(5). I think that is supported by what Barwick CJ says in Brown , particularly his reference to persons who have received money indirectly from one of the parties to the contract. It is also consistent with the reference in his judgment to subterfuges: the re-structuring of a group of companies so as to transfer the business of one company in the group to another company in the group may not be undertaken as a subterfuge to defeat an applicant, but it could possibly have that effect, and in my opinion it may not be beyond the power of the IRC to make orders under s.106(5) to avoid that effect. [25] In the present case, it is alleged that New UGC is the formal successor to Old UGC, that New UGC assumed rights and benefits in respect of the share option plans and incentive schemes in which Mr. Hagans was promised participation, and that New UGC effectively assumed the interests of the employees of Old UGC in such plans and schemes. Particularly in circumstances where it appears that this may have been consequent on re-structuring of a group of companies, associated with court proceedings in the USA, these allegations could possibly support an order for payment against New UGC. There is some evidence to suggest that these allegations are not without foundation, and any contention to the contrary is not made out to the extent that would justify the dismissal of proceedings under the General Steel test; and in my opinion at least that degree of certainty must be established before this Court would issue an order in the nature of prohibition against the IRC, in advance of the hearing of a case. [26] Similarly, the allegation that Austar acquired the businesses of CTV and STV for which Mr. Hagans did work (and accordingly, may be taken to have benefited then from the work that he did pursuant to allegedly unfair contracts) could if proved possibly ground an order against Austar on a similar basis. [27] It may also be that under American law New UGC is liable for the obligations of Old UGC. However, there is little evidence as to the nature and effect of the corporate restructuring under American law, and the claimants have not excluded this possible basis for orders against New UGC. [28] We were referred to the decision of the Court of Appeal in QSR Limited v. Industrial Relations Commission of NSW [2004] NSWCA 199, 208 ALR 367, in which a majority of the Court of Appeal held that the IRC did not have jurisdiction to make an order against a company in respect of work performed by an applicant prior to its formation. However, it is to be noted that the claim in that case was only against the company, and not against any person with whom the applicant made a contract or arrangement prior to its formation. In my opinion, if the applicant had alleged performance of work in an industry pursuant to a contract or arrangement made with some other person prior to the formation of the respondent company, claimed that the IRC should declare void or vary that contract or arrangement, and alleged that the company when formed took the benefit of assets created or improved by the work done prior to its formation, the result could have been different. If the company had thus taken advantage of work performed pursuant to a contract found to be unfair, an order for the payment of money by that company could possibly be in connection with that contract, so as to support an order under s.106(5). [29] In my opinion also, the proceedings against New UGC are not affected by s.108B. In my opinion, the application in this case was brought when the proceedings were commenced, and the addition of New UGC as a party following on the re-structuring of the relevant group of companies was not an application for an order in relation to a contract within s.108B. This is supported by Visalli v. Southwell (1988) 12 NSWLR 502, and Crowe v. UCS Development Pty. Ltd . (2003) 130 IR 266. The Court of Appeal therefore distinguished QSR and made comment as to the true effect of s108B. 35 Ms Nomchong for the second respondent asserts Unitedglobal simply augments the decision in QSR. She submits the Commission would have jurisdiction to make an order against a company that was not in fact at the time of the work the subject of the contract, if "the company when formed, (had) the benefit of assets created or made by the work done in the company prior to its formation". Ms Nomchong asserted the patent ownership and the ownership of the shares, (which are also reflected in the patent ownership), did not relate to the work done by the applicant. 36 I am satisfied from the evidence outlined above, that there is sufficient evidentiary basis to establish both joinders sought. From the evidence I am satisfied there has been a financial connection and a movement of finances from the first respondent to the third joinder respondent ME2. 37 I am further persuaded from the evidence there has been the use of the relevant patent by both the joinder companies. I am satisfied there has been commercial dealings by the joinder respondents employing the same or similar patent and the same work done by the first respondent sufficient to persuade there is a connection with the contract impugned. 38 I am therefore satisfied the third and fourth joinder respondents have sufficient connection with the employment contract and/or arrangement to order joinder. I find as to both respondents they may have derived a benefit from the operation of the contract or arrangement which is contended to be unfair, and have been associated with the operation of the contract or arrangement which is contended to be unfair. Accordingly, I believe it appropriate they be joined in order to have before the Commission, all parties necessary in order to resolve and determine the issues raised in the Summons for Relief. 39 That is not to say, however, the applicant has made out any basis for final relief being ordered against any respondent. They have not. The only question currently before me is the determination of whether there is sufficient evidentiary basis for the joinder. Whether or not the applicant is ultimately successful in having any orders made in his favour, or any further orders made against each or every respondent are questions to be determined on all the evidence led in the proceedings. 40 As to the proposition that the claims would be but brought against the liquidator - that is a matter for the relevant respondents in the proceeding and if successful will clearly be an issue as to any costs orders. Further, the challenge to the status of the relevant patent is one of the fundamental issues for the primary proceedings and not one which, on the evidence so far, could be determined (Nagle (t/as ND & LJ Nagle Sons) v Tilburg (1993) 51 IR 8). 41 I accept there are facts sufficient to persuade on the authority of Unitedglobal and the reasoning at [29] that the joinder application is not affected by s108B. 42 I therefore grant the application for joinders moved by the applicant. 43 As to the Notice of Motion of the respondent, the only issue pressed in the proceeding in relation to that Notice of Motion is the respondent seeks costs. Given the history of this matter, and the way the applicant has proceeded, it is my view costs for the respondent's Notice of Motion should be allowed against the applicant. The respondent's Notice of Motion is otherwise dismissed. 44 As to the costs of the applicant for the Notice of Motion for joinder, I order those costs be determined as cost in the cause. 45 Given the joinder order, it is appropriate, given my court's timetable, to set thE matter down for further conciliation, so that the parties do not suffer any further delay. Matter set down for Conciliation on Monday, 26 September 2005. 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.