Industrial Relations Commission of New South Wales in Court Session CITATION : Gough & Gilmour Holdings v Caterpillar of Australia [2001] NSWIRComm 112 FIRST APPLICANT Gough & Gilmour Holdings Pty Ltd SECOND APPLICANT Harcourt David Gough PARTIES : THIRD APPLICANT Anthony Lansley Gilmour FIRST RESPONDENT Caterpillar of Australia Limited SECOND RESPONDENT Caterpillar Inc. FILE NUMBER: IRC 5227 of 2000 CORAM: Boland J CATCHWORDS : Unfair Contract - Preliminary issue - Leave to Proceed against a Foreign Corporation - Tests to be applied - Leave to proceed granted. LEGISLATION CITED : Industrial Relations Act 1996 Industrial Relations Commission Rules 1996 CASES CITED : Gough & Gilmour Holdings Pty Ltd and ors v Caterpillar of Australia Ltd [2001] NSWIRComm92 Harmer v Caltex Petroleum Pty Limited & ors [2000] NSWIRComm 100 HEARING DATES: 05/16/2001; 05/18/2001 DATE OF JUDGMENT: 05/23/2001 APPLICANTS: Mr M J Kimber SC with Mr I Taylor of counsel Solicitor: Mr J Robinson Harmers Workplace Lawyers LEGAL REPRESENTATIVES: RESPONDENT: Mr P M Hall QC with Mr D T Kell of counsel Solicitor: Mr T Gooch Mallesons Stephen Jaques JUDGMENT: - 4 - INDUSTRIAL RELATIONS COMMISSION OF NEW SOUTH WALES IN COURT SESSION CORAM: BOLAND J 23 May, 2001 Matter No IRC 5227 of 2000 Gough & Gilmour Holdings Pty Limited & ors v Caterpillar of Australia Limited Application under s 106 of the Industrial Relations Act 1996 Interlocutory Judgment No. 5 - Leave to Proceed against a Foreign Corporation - 1 This is an application by Gough & Gilmour Holdings Pty Limited ("first applicant"), Harcourt David Gough ("second applicant") and Anthony Lansley Gilmour ("third applicant") pursuant to r 112(4) of the Industrial Relations Commission Rules 1996 to proceed against Caterpillar Inc., a foreign corporation, by way of a second further amended summons under s 106 and s 107 of the Industrial Relations Act 1996. 2 There is also a notice of motion filed by Caterpillar Inc. in Court on 16 May, 2001 that is required to be dealt with but before coming to that notice it is necessary to explain the background. 3 In an earlier interlocutory judgment of the Court (Gough & Gilmour Holdings Pty Ltd and ors v Caterpillar of Australia Ltd [2001] NSWIRComm 92), the applicants were successful in having Caterpillar Inc. joined as the second respondent to the proceedings under ss 106 and 107 of the Act. 4 At par 111 of the judgment the Court stated: However, in the event that the applicants were unsuccessful in obtaining the primary relief they seek, namely, continuation of the contracts in amended terms, the alternative relief sought, if unfairness were found, is compensation for loss by virtue of the termination of the contract. In this respect, I have found that it is arguable that there was a connection, in the Brown v Rezitis sense, between Caterpillar Inc. and the contracts or arrangements that are the subject of these proceedings to the extent that money orders could be made against Caterpillar Inc. in the event that it was found that Caterpillar Inc. had acted unfairly. Accordingly, I consider that the applicants have made out a good arguable case for this connection. 5 The Court went on to consider whether to grant leave to the applicants to proceed against Caterpillar Inc. At pars 115 to 125 the Court stated: 115 An important consideration in the exercise of discretion is whether the applicants' claims have insufficient prospects of success to warrant putting Caterpillar Inc. to the time, expense and trouble of defending the claims. The first thing to note about this question is that, in my opinion, any claims against Caterpillar Inc. could only arise if the applicants were unsuccessful in obtaining their primary relief, that is, continuation of the contracts on different terms. Only then might the question arise as to whether the applicants have any claim against Caterpillar Inc. for loss caused by any unfairness on the part of Caterpillar Inc. 116 Whilst the role of Caterpillar Inc., as the respondent's parent, may have had an indirect impact on the applicants, overwhelmingly the major relationship and the main transactions appear to have occurred between the applicants and the respondent. Perhaps it may be inferred that Caterpillar Inc. ultimately approved the dealership being awarded to the applicants in 1989, but most probably this was made on a recommendation of the respondent. Similarly, the termination of the dealership may have been approved by Caterpillar Inc. but again, it appears, on the recommendation of the respondent. In respect of the article by the chairman of Caterpillar Inc. Mr Fites, and the 'good faith' approach he espoused in the Harvard Business Review towards Caterpillar dealerships around the world, I note that it was brought to the attention of the applicants by the respondent. 117 Clearly, Caterpillar Inc. had a business in New South Wales but it seems that it was operated at arms length through a substantial corporation, namely, the respondent. There is little, if any, material to suggest that Caterpillar Inc. made any decisions about the applicants' dealership, or conducted itself, independently of advice from its Australian subsidiary. Indeed, it would be surprising if this were the case. One exception to this, which is presently apparent, is the standard form contract issued by Caterpillar Inc. and upon which the dealership appears to be based. This is, I think, Caterpillar Inc.'s Achilles Heel. 118 However, even if the applicants were not successful in achieving their primary relief but the Court was, nevertheless, inclined to make orders pursuant to s 106(5), it is arguable that these could be made exclusively against the respondent without giving rise to any injustice. In this connection, having argued vigorously for the exclusion of Caterpillar Inc. from the proceedings, and assuming the respondent was successful in this argument, the respondent would be in no position, if unfairness were found, to seek to transfer any part of the blame to Caterpillar Inc., based on an argument related to the standard form contracts having emanated from Caterpillar Inc., in order to offset any liability for compensation. 119 Another factor to be weighed up is that if it were not for the applicants' concern that assets of the respondent may be moved off-shore, the applicants would, most probably, not have turned their minds to the involvement of Caterpillar Inc. and would have been content to proceed solely against the respondent. 120 It may be discerned from what I have said that I do not consider the applicants' prospects of success against Caterpillar Inc. to be particularly strong. However, for the present, I refrain from finding that there is an insufficient prospect of success and, therefore, at this stage I am not prepared to refuse leave to proceed. In this respect, I am reminded of what McHugh JA said in Minister for Youth and Community Services v Health and Research Employees at 74, albeit in respect of an intra-jurisdictional respondent: "Who then can properly be a respondent to the proceedings? In my opinion any person whose rights or legitimate expectations will or may be affected by the exercise of the power conferred by s 88F is a necessary respondent." 121 This raises the question that if, for example, I were to make an order pursuant to s 107 prohibiting the use by Caterpillar Inc.'s Australian subsidiary of its standard form contract in New South Wales, I could be affecting Caterpillar Inc.'s rights and so, before finally deciding the issue of leave to proceed, not only should I give the applicants and the respondent the opportunity to make further submissions in the light of this judgment but Caterpillar Inc. should be given the opportunity to consider its own position. That is, Caterpillar Inc. will have to decide, in the light of this judgment, whether it will file a Notice of Appearance and defend the claims made against it or, take its chances on leave to proceed being refused. Even if leave is refused, there is the risk for Caterpillar Inc. that if unfairness is found any orders may, nevertheless, impact on its rights or legitimate expectations and I cite the example of the standard form contracts. 122 I intend, therefore, to grant the application for joinder. In the event that Caterpillar Inc. does not appear the applicants are required to seek leave to proceed against the second respondent. 123 I accept that on the basis of the evidence of Ms Pritchard in the form of an affidavit sworn on 27 March 2001 that service has been properly effected on Caterpillar Inc. pursuant to r 112. 124 I order that Caterpillar Inc. be joined as the second respondent in these proceedings. Caterpillar Inc. may file a Notice of Appearance by 4.00 pm Monday 7 May 2001. This matter is listed for further directions at 4.00 pm on Tuesday 8 May 2001. 125 Costs are reserved. 6 Caterpillar Inc. did not file a notice of appearance by the due date and, consequently, the application for leave to proceed was set down for hearing on 16 and 18 May 2001. Submissions for the applicants 7 Mr M J Kimber SC with Mr I Taylor of counsel continued their appearances for the applicants and, similarly, Mr P M Hall QC with Mr D T Kell of counsel appeared for the first respondent. On 16 May 2001 Caterpillar Inc., represented by Mr Hall and Mr Kell, filed in Court a notice of motion moving the Court for orders under r 82 of the Industrial Relations Commission Rules that: 1. This motion be returnable instanter. 2. The Commission decline in its discretion to exercise its jurisdiction over the Second Respondent in respect of the subject matter of the proceedings. 3. The Second Further Amended Summons for Relief served on the Second Respondent be set aside. 4. Costs. 8 In addressing the application for leave to proceed, Mr Kimber submitted that while the Court in the joinder application had not been prepared to consider a submission by the applicants that Caterpillar Inc. had been part of an "overall arrangement" with the applicants and the first respondent because the submission had been put in reply (see pars 36-40 of the earlier interlocutory judgment), it was contended that it was open to the Court, in the application for leave to proceed, to now consider this submission. 9 The thrust of Mr Kimber's submission on leave to proceed was that whilst he acknowledged the earlier observations of the Court about the applicants' prospects of success against the second respondent not being particularly strong, a great deal of material had come to light, through the discovery process, which demonstrated the significant and direct role of the second respondent in the appointment, operation and termination of the dealership. Accordingly, Mr Kimber invited the Court to substantially revise its thinking about the role of Caterpillar Inc. 10 Mr Kimber tendered a number of volumes of material that he submitted supported five propositions: 1. the first respondent was wholly owned by the second respondent and was, therefore, part of a single international business; the first respondent was not an autonomous arm of a foreign corporation; 2. the second respondent played a significant role in promoting the appointment of the applicants as the Caterpillar dealer; 3. the second respondent played an important role in determining the way in which the applicants operated their business and was regularly involved in decisions about how the first applicant should be managed; 4. the second respondent made decisions pertaining to the dealership and was intimately involved in all aspects of the termination process and had some level of involvement in the proposed sale of the dealership; 5. the second respondent decided to reduce the number of dealers in Australia and that on the material there was a proper foundation for the assertion that there may have been a direct connection between the decision of the second respondent to rationalise the number of Australian dealers and the decision to terminate the dealership held by the applicants. 11 Mr Kimber submitted that in seeking to rely on this evidence to support the necessary connection, both in the context of the termination arrangement as pleaded and the overall arrangement, there was no prejudice to the respondents. He contended that 90 per cent of the material tendered was material derived from Caterpillar Inc. during the discovery process, and therefore, it could not be said to have come as a surprise to the second respondent. Mr Kimber said that if the material had been available at the time the joinder application had been made it would have been submitted at that time. 12 Mr Kimber contended that in determining whether leave should be granted to the applicants to proceed it was not necessary for the Court to come to any final conclusion about the culpability of Caterpillar Inc. The issue was whether the applicants' claims had insufficient prospects of success. Mr Kimber submitted that this involved only a preliminary consideration by the Court of the material before it. The material, Mr Kimber submitted, suggested a strong connection of Caterpillar Inc. with the contracts or arrangements between the applicants and the first respondent. Whether Caterpillar Inc. had a culpable connection was an issue to be determined in the substantive proceedings but, Mr Kimber contended, the material strongly suggested that there were real questions to be tried, including, for example, the second respondent's culpability in deciding to terminate the dealership without giving the applicants an opportunity to give their side of the story and the second respondent's role in promising the second and third applicants a good price for the dealership and failing to deliver on that promise. Submissions for the respondents 13 Mr Hall submitted that the Court's finding of a sufficiency of connection such that a money order under s 106(5) of the Act could possibly be made against Caterpillar Inc. is the limit of the Court's finding on good arguable case. He said it served to mark the basis on which the applicants' application for leave to proceed can be advanced. It was not now open, Mr Hall contended, to the applicants to seek leave to have the Commission revisit matters that have already been the subject of decision in the context of the joinder application. Mr Hall submitted that in the same way that the proposed pleading, that is, the second further amended summons, provided relevant boundaries in the context of the joinder application, the same boundaries necessarily also apply in the context of the leave to proceed application. For this reason, it was submitted, the applicants cannot, in the context of the present leave application, properly ask the Court to act upon an alleged "overall arrangement" involving Caterpillar Inc. 14 It was submitted that in determining an application for leave to proceed against a foreign corporation, it is to be done on the basis of the process served on the foreign corporation. In this case, the process served was the second further amended summons which did not plead an overall arrangement. 15 Mr Hall contended that what the applicants were now seeking to do by arguing an "overall arrangement" was to attempt to "outflank" the Court's expressed view about the lack of strength in the applicants' case. Mr Hall submitted that on the eve of a long and complicated case the applicants should not be permitted to rely on an "overall arrangement"; it would be contrary to procedural fairness. 16 Mr Hall submitted there was no possibility that the Court would make a compensation order against Caterpillar Inc. under s 106(5) of the Act and that this provides the basis for the refusal of leave. This was so for a number of reasons including: 1. That there is no need for the applicants to obtain leave to proceed against Caterpillar Inc. in order to obtain compensatory relief that they seek in the alternative to the primary relief. Moreover, the evidence filed by the applicants does not establish an evidentiary basis on which, questions of utility aside, the Court could make an order under s 106(5) against Caterpillar Inc. In particular, in the applicants' evidence that has been filed there is no attempt to establish any or all of the following elements that are prerequisites before an order can be contemplated against a third party who is not a party to the contract impugned under s 106: (a) that Caterpillar Inc. made any pre-contractual representations to the applicants, let alone any representations of materiality in culpability terms; (b) any course of conduct either before or after the dealership agreements were signed on 17 February 1989 of any materiality on which to base an allegation of culpability; (c) any false or misleading or deceptive conduct by Caterpillar Inc; and, (d) any conduct by Caterpillar Inc. sufficient to found an estoppel based on any representations made by it. 2. The latest documents tendered by the applicants do not provide an evidentiary basis to support any of the matters referred to above. None of the material would support a finding of any conduct by Caterpillar Inc. which would establish either pre or post-contractual conduct which could lend itself, even on a prima facie basis, to an interpretation or conclusion of culpability by Caterpillar Inc. on any material aspect of the case, or indeed any matter; none of the material evidences culpability sufficient to ground a money order under s 106(5). 3. As there is no evidence of culpable conduct, there is no basis for allowing the applicants to proceed against Caterpillar Inc. and it would be unreasonable in the extreme to subject a foreign corporation to the jurisdiction on what is properly regarded as a belated application that is unsupported by evidence. 4. The Court's previously expressed views that the prospects of success against Caterpillar Inc. are not strong are amply demonstrated to be accurate. 17 It was also contended by Mr Hall that there was no real possibility that the Court would make an order under s 107 against Caterpillar Inc. There is no evidence that Caterpillar Inc. has ever entered into a distributorship agreement in the form of the agreements at issue in the present proceedings with any person in New South Wales. The use of such an agreement has been only by the first respondent. 18 Mr Hall also submitted that it was relevant to ask why it was, at this late stage of the proceedings, the applicants were so intent on roping Caterpillar Inc. into the proceedings; what was the utility of it when it was open to the applicants to pursue any remedy against the first respondent. Consideration 19 Both the issue of joinder and the question of leave to proceed against Caterpillar Inc. have been difficult and, obviously, contentious issues. An important consideration is that the applicants' application to join Caterpillar Inc. and their subsequent application for leave to proceed, were made very late in the day. Moreover, the very significant issue of whether there existed an overall arrangement was only put by the applicants in reply in the joinder proceedings and, accordingly, I was not, over the first respondent's objection, prepared to countenance the submission. The additional evidence brought by the applicants in the leave to proceed application, however, would suggest that Caterpillar Inc. may have had a significant role to play in the dealership, not only from the outset, but one which continued up to the purported termination of the dealership. If the additional material had been available to me in the joinder proceedings I may have come to different conclusions. Should I now have regard to it? 20 Mr Kimber strongly contended that I should have regard to the additional material. He said that the material only came to light as a consequence of the discovery process and if it had been available at the time of the joinder application he would have put it before me. Moreover, he said that the great bulk of the material was discovered from the second respondent and, consequently, it could not now complain that the material came as a surprise or that it would be prejudicial and unfair for the Court to have regard to it. I note that in his earlier submissions on joinder, Mr Kimber foreshadowed that in bringing any application for leave to proceed, if that became necessary, he intended to bring further evidence. 21 I think that, notwithstanding Mr Hall's well-argued defence of his client's position, in the interests of justice I should have regard to the material. I draw the following information from the material: 1. The second respondent was a wholly owned subsidiary of Caterpillar Inc. There was regular communication between the first respondent and Caterpillar Inc. on matters relating to the applicants. In particular, reviews of the performance of the applicants by the first respondent were conveyed to Caterpillar Inc. 2. Caterpillar Inc. operated a global business and the first applicant was one discreet component of that business; Caterpillar Inc. considered that the whole network of dealers throughout the world was its business and Caterpillar Inc. appears to have taken an active role in the way dealerships were run. Caterpillar Inc. regarded dealers as "partners". 3. When a dealership became available, Caterpillar Inc. approved the person who was to take the dealership. 4. In order to obtain the dealership in 1989 the applicants made presentations, including to representatives of Caterpillar Inc. The second respondent appears to have played a role in promoting the appointment of the applicants as the Caterpillar dealer. 5. The contracts that the applicants entered into with the respondent were in standard terms used by Caterpillar Inc.'s business throughout the world. Any changes to the terms of contracts with the applicants appear to have required the approval of Caterpillar Inc. 6. The use of trademarks by the applicants was a matter under the direction and control of Caterpillar Inc. 7. Caterpillar Inc. appears to have been consulted by the first respondent and approval sought on financing arrangements concerning the applicants. 8. Any major change of dealership required the approval of the Chairman of Caterpillar Inc. 9. Caterpillar Inc. was directly involved in discussions with the second and third applicants about the sale of the dealership. The second and third applicants were informed by a senior representative of Caterpillar Inc. that "it just did not make sense to go on." The applicants have put in issue that, in proposing that the applicants sell the dealership, Caterpillar Inc. said to the applicants that it would help them to get a good price. The applicants have put in issue Caterpillar Inc.'s role in assisting to "get a good price". 10. Whilst the recommendation to terminate the applicants' dealership emanated from the first respondent, the ultimate decision to terminate it appears to have been made by Caterpillar Inc. The applicants have put in issue whether the decision to terminate was one that the applicants claim was made without any procedural fairness and without proper grounds. 11. The second respondent decided to reduce the number of dealers in Australia. The applicants have put in issue whether there may have been a direct connection between the decision of the second respondent to rationalise the number of Australian dealers and the decision to terminate the dealership held by the applicants. 22 The additional material produced by Mr Kimber in his application for leave to proceed, would seem to indicate that the role of Caterpillar Inc. in relation to the applicants' dealership was more than that of a distant and disinterested parent who relied wholly on its Australian subsidiary to manage the local business, including dealerships. The impression I now have of Caterpillar Inc.'s involvement is that it maintained close monitoring and overall supervision of its Australian operations, including the applicants' dealership; it could not be said to have remained aloof or at arms length from issues impacting on the applicants' dealership. This seems to have flowed in part from the fundamental importance Caterpillar Inc. placed on its network of dealerships and the critical role these dealerships played in the second respondent's international business. 23 Caterpillar Inc. appears to have had at least some role in: Appointing the applicants as the Caterpillar dealer in New South Wales and the ACT; in terminating the dealership; and, in seeking to assist the applicants in negotiating a sale of the business. The applicants contend that in carrying out this role Caterpillar Inc. was culpably connected with the contracts or arrangements that are the subject of the substantive proceedings. 24 It was Mr Hall's submission, however, that the additional material relied upon by the applicants did not reveal any culpable connection with the subject contracts or arrangements. In other words, that there was no evidence to suggest there was a real possibility of a money order being made against Caterpillar Inc. because of any culpability on its part. 25 Of course, at this preliminary stage I am not required to make any finding of culpability, only to consider the applicants' prospects of success. In this respect, the additional material produced to support the application for leave to proceed has put a different complexion on the second respondent's involvement in the subject contracts or arrangements. The applicants have established, in my opinion, a closer involvement by Caterpillar Inc. than I originally considered to be the case, and, accordingly, I consider that there is a serious question to be tried as to whether orders might be made against Caterpillar Inc. under s 106(5) and s 107 of the Act. 26 Mr Hall submitted that there was in fact no need for the applicants to obtain leave to proceed against Caterpillar Inc. in order to obtain compensatory relief that they seek in the alternative to the primary relief sought. Schmidt J considered this issue in Harmer v Caltex Petroleum Pty Limited & ors [2000] NSWIRComm 100: 19 The necessity for the joinder may be debatable, given the concession of the existing respondents, that if they are unsuccessful, the absence of Caltex Nominees as a respondent would provide no bar to the money orders sought being made against them, although those respondents may seemingly themselves take different views as to how such orders should apply, as between them, in the event the applicant succeeds. This concession may also, at the end of the day, be relevant to any costs order made. 20 Nevertheless, such considerations cannot, in my view at this stage, properly prevent the joinder of Caltex Nominees as a party to the proceedings, it plainly holding money derived from the trustees of the Pension Plan, which the applicant seeks to recover and on that basis falls within the categories of persons against whom money orders may be made under s106(5), following the approach of Barwick CJ outlined above. That it was not in existence at the relevant time and not culpably associated with the events in question, does not necessary preclude relevant orders being made against it. 27 Here I am dealing with an application to proceed against a foreign corporation, but in the absence of any inconvenience or hardship in the international law sense or any suggestion that the Court is an inappropriate forum (see Gough & Gilmour Holdings Pty Ltd and ors v Caterpillar of Australia Ltd [2001] NSWIRComm92 at pars 112-114), I am unable to see why I should not follow Schmidt J on this issue. 28 I have considered whether Caterpillar Inc. may have gained a false sense of security or taken comfort from my remarks about the strength of the applicants' case made in the course of my judgment on joinder and on that basis decided not to file a notice of appearance. If that were the case I have considered whether it could be seen to be unfair to now grant leave to proceed. In this respect, the observations I previously made about the applicants' case were only preliminary and Caterpillar Inc. would have seen from the earlier judgment that there was always the possibility that leave would be granted to the applicants to proceed against it. Moreover, Mr Kimber made it clear in his written submissions in the joinder application, that if it were necessary to apply for leave to proceed, he would be seeking to file further evidence to support his application. Finally, it is reasonable to believe that Caterpillar Inc. would have been aware from the material discovered by the applicants that it would be highly likely that in tendering further material, Mr Kimber would seek to rely on that discovered material obtained from Caterpillar Inc. Accordingly, I do not consider that Caterpillar Inc. would be prejudiced if I were to now grant leave to the applicants to proceed. 29 The second respondent submitted that the Court should only determine the leave to proceed application on the basis of the second further amended summons served on Caterpillar Inc., which only pleaded a "termination arrangement" and did not raise the broader aspects of Caterpillar Inc.'s involvement in the subject contracts or arrangements. I note firstly, that the jurisdiction is not one of strict pleading. Secondly, given what I said earlier, Caterpillar Inc. should have been on notice that in any application for leave to proceed, the applicants would seek to introduce the broader aspects of the relationship in order to strengthen their case that Caterpillar Inc. was more than an observer on the sideline. Consequently, it should not have come as a surprise that the applicants would seek to contend an overall arrangement. 30 I have also considered, in the context of procedural fairness, whether by addressing the question of leave to proceed in the joinder application and having made some preliminary remarks regarding the prospects of success that I have, in effect, given the applicants a "second bite of the cherry" so to speak. My decision not to decide the question of leave until I had heard further from the parties was as much to ensure natural justice to Caterpillar Inc. as to provide all parties with the opportunity to make further submissions on the question of leave. Having decided not to file a notice of appearance, it was open to Caterpillar Inc. to contest the leave application as it saw fit knowing, or it should have known, of the applicants' intention to seek to produce further evidence of Caterpillar Inc.'s involvement in the subject contracts or arrangements. I do not consider, therefore, that Caterpillar Inc. would be, in any way, prejudiced by granting the applicants leave to proceed. Orders 31 I make the following orders: 1. Leave is granted to the applicants in these proceedings pursuant to r 112(4) of the Industrial Relations Commission Rules 1996 to proceed against the second respondent, namely, Caterpillar Inc. 2. The applications in the notice of motion filed by Caterpillar Inc. in Court on 16 May 2001 are refused. 3. Costs are reserved. 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.