Industrial Relations Commission of New South Wales in Court Session CITATION : Langley & Anor v Heath Fielding Australia Pty Ltd [2000] NSWIRComm 213 FIRST APPLICANT Andrew Clive Langley PARTIES : SECOND APPLICANT Lancedale Holdings Pty Limited RESPONDENT Heath Fielding Australia Pty Limited FILE NUMBER: IRC6173 of 1998 CORAM: Peterson J CATCHWORDS : Unfair contract alleged - Concurrent proceedings in Supreme Court in Equity - Notice of motion for a declaration that the Commission is without jurisdiction over respondent - motion dismissed. LEGISLATION CITED : Industrial Relations Act 1996 s106 Corporations Law S180 Lancedale Holdings Pty Limited & Anor v Heath Group Australasia Pty Limited & Anor (unreported, SC4373/98 - 23 June 1999) Lancedale Holdings Pty Limited & Anor v Heath Group Australasia Pty Limited & Anor [1999]NSWCA 460 CASES CITED : Bailey v New South Wales Medical Defence Union Limited (1995) 184 CLR 399 at 430 Voth v Manildra Flour Mills Pty Ltd & Anor (1990) 171 CLR 539 Environmental Group Ltd v Croudace BC9803683 Supreme Court of New South Wales Equity Division, 7 August 1998 HEARING DATES: 03/24/1999 DATE OF JUDGMENT: 11/02/2000 APPLICANTS/RESPONDENT ON MOTION Mr D D Knoll of counsel SOLICITOR Hegarty & Elmgreen SYDNEY. LEGAL REPRESENTATIVES: RESPONDENT/APPLICANT ON THE MOTION Dr A S Bell of counsel SOLICITOR Coudert Brothers SYDNEY. JUDGMENT: - 16 - INDUSTRIAL RELATIONS COMMISSION OF NEW SOUTH WALES IN COURT SESSION CORAM: PETERSON J DATE: 2 NOVEMBER 2000 Matter No. IRC6173 of 1998 ANDREW CLIVE LANGLEY & ANOR v HEATH FIELDING AUSTRALIA PTY LIMITED Application under s.106 of the Industrial Relations Act 1996. INTERLOCUTORY JUDGMENT 1 The first applicant, Mr A.C. Langley, is an insurance broker. The second applicant, Lancedale Holdings Pty Limited ("Lancedale") is a private company of which Mr Langley is a director. From about 1987 Mr Langley was a member of the "Fielding Partnership", a predecessor of the respondent, Heath Fielding Australia Pty Limited (now apparently known as Heath Group Australasia Pty Ltd) hereafter referred to as "Heath Fielding". Between about 1987 and 1990 Mr Langley carried out consultancy work for the Fielding Partnership. That partnership was dissolved and he became a full-time employee of Heath Fielding and in May 1990 he was appointed a director thereof. In 1992 he was appointed New South Wales Branch Manager and in January 1993 he was invited to participate in "The Heath Fielding Executive Share Plan" ("the Plan"). Participation in the Plan required entry into a contract of service with Heath Fielding for a period of not less than three years. This Mr Langley did upon accepting the invitation to participate. Mr Langley sought to have his allocation of shares issued to Lancedale, which was a "Family Company" within the meaning of the Plan rules. Those rules, a copy of which was supplied to him with the invitation of 11 January 1993, contained a number of provisions relevant for present purposes. Before turning to them, I note that Lancedale applied for 316,579 ordinary shares at 50 cents each and requested that Heath Fielding lend the aggregate issue price of $122,368.44. A loan agreement was duly executed by Heath Fielding and Lancedale. According to the Plan rules the shares were to be acquired by Heath Nominees Limited as trustee for Lancedale. The loan agreement provided for repayment in the following terms: 3. Repayment 3.1 Subject to the provisions of clause 3.2, the Principal Sum is repayable by the Executive - (a) in full, upon disposal by the Executive of all his Plan Shares; (b) in part, upon disposal by the Executive of some only of his Plan Shares, the partial repayment to bear the same proportion to the Principal Sum as the number of Plan Shares disposed of bears to the total number of Plan Shares held by the Executive immediately prior to the disposal. 3.2 If the Sale Price of any Plan Shares is less than the Issue Price, the Executive's liability to repay the Principal Sum shall be reduced by the aggregate difference between the Issue Price and the Sale Price of those Plan Shares. 2 The shares were issued to Heath Nominees which made a declaration of trust, thereby holding the shares in trust for Lancedale. 3 The other provisions of the Plan for present purposes included in Rule 6, Disposal of Plan Shares During Employment, which provided limited rights to dispose of the shares during employment, subject to the approval of "the Committee", a body appointed to administer the Plan, comprising the Managing Director and two nominees of Heath Fielding. Rule 6.4 provided: Subject to the provisions of Rules 6.1, 6.2 and 6.3: (a) no Executive may dispose of his Plan Shares during his employment with the Company; and (b) no Family Company may dispose of its Plan Shares while its Designated Executive is employed by the Company. 4 Paragraphs 7.1 and 7.6 of Rule 7, Disposal of Plan Shares After Termination of Employment, is significant: 7.1 The Company shall for a period of 60 days ("the Buy-Out Period") from the Termination Date in respect of an Executive or Family Company (as the case may be) have the right (but not the obligation) to purchase or to arrange for another person to purchase all (but not only some) of the Plan Shares of that Executive or Family Company (as the case may be), in accordance with the following provisions. 7.6 If the Company does not exercise its right under Rule 7.1 then, subject to the Articles of Association of the Company, the Executive or Family Company (as the case may be) may after expiry of the Buy-Out Period dispose of his or its Plan Shares to any third party. 5 Mr Langley's employment with Heath Fielding ended on or about 7 August 1995. Heath Fielding took no step within the following 60 days to exercise the right conferred by Rule 7.1 of the Plan rules to purchase or arrange the purchase of the shares in question. 6 Rule 13.1(d) of Rule 13, Powers and Procedures of the Committee, is also of significance in the history of the matter. That provision was as follows: 13.1 The Plan shall be administered by the Committee which shall have power to: (d) alter, modify, add to or repeal the Rules (even where such alteration, modification, addition or repeal might adversely affect existing rights or otherwise disadvantage an existing Plan participant). 7 Subsequent to the cessation of Mr Langley's employment there was a dispute with Heath Fielding in relation to the amount of money payable to him as a result of that cessation. The dispute was the subject of litigation in the Supreme Court, resolved by agreement on 10 February 1998. On 19 February 1998 Heath Fielding wrote offering to acquire the shares from Lancedale Holdings. This offer recognised that the buy-back period had expired but nevertheless expressed an interest in acquiring the shares because the controlling shareholders policy was said to be that only executives working for Heath Fielding should hold its shares. 8 About six days later, on or about 25 February 1998, Mr Langley received a letter of that date from Heath Fielding advising of an amendment to the Plan Rules, one of which was the deletion of Rule 7.6 which had permitted the holder of the shares to dispose of them to any third party if the company had not exercised its right of buy-back within the 60 day limitation period. It was substituted it with two new provisions, the effect of which was to permit the holder of the shares, by notice in writing, to require Heath Fielding to acquire its shares after the termination of employment. In the event that the company did not buy back the shares within 90 days of receiving the notice the holder would have the right to dispose of the shares to any third party permitted by the Committee in its absolute discretion and subject to such terms and conditions as the Committee may see fit. The Committee could not be required to give any reasons for withholding approval to a proposed sale of Plan shares to any transferee. 9 By letter dated 25 March 1998 Heath Fielding on behalf of Heath Nominees Limited notified Mr Langley of an Extraordinary General Meeting of Heath Fielding called to pass resolutions to approve those amendments to the Plan Rules. 10 On 7 April 1998 Lancedale sold the beneficial interest in the shares to Mr Langley's wife, Wendy Langley, for the sum of $100.00. Mr Langley's solicitors, Messrs Heggarty and Elmgreen, objected to the proposed amendments that were being put to the Extraordinary General Meeting and informed Heath Fielding of the transfer of shares to Mrs Langley and the basis upon which the price for the sales of the beneficial interest in the shares was calculated. They sought registration on Heath Fielding's share register of the transfer to Mrs Langley. 11 By its letter of 19 February 1998 Heath Fielding, through its solicitors Dunhill Madden Butler, expressed the view that the shares had a zero valuation either on a capitalisation basis or on a net assets basis. Taking that view into account solicitors for Mr Langley advised Heath Fielding in their letter of 15 April that Lancedale had transferred the shares to Mrs Langley for the sum of $100.00 and accordingly, pursuant to the loan agreement between the parties, $100.00 was payable by Lancedale to Heath Fielding. A cheque in that amount was enclosed. 12 It appears that at an Extraordinary General Meeting held on 17 April the amendments to the Plan Rules were confirmed. Contentions on behalf of Mr Langley that the amendments were invalid were refuted by those acting for Heath Fielding and they countered that the transfer of the beneficial interest in the shares to Mrs Langley appeared to be invalid. The cheque for $100.00 was returned with an indication that a transfer of shares to a third party required first the issue of a notice under Rule 7.6 to Heath Fielding to buy back its shares. 13 On 19 May 1998 Heath Fielding issued a buy back notice pursuant to Rule 7.1 of the Plan Rules (as amended). It nominated the buy-back price pursuant to Rule 7.3 as, in the circumstances, the issue price of $122,368.44 being the sum loaned to Lancedale under the Loan Agreement. Heath Fielding expressed the view that the payment of the buy-back price was to be satisfied by the extinguishment of the loan. 14 On 23 November 1998 Mr Langley and Lancedale had commenced these proceedings. On 11 January 1999 Heath Fielding filed the notice of motion the subject of this judgment. On 24 March 1999 the motion was heard. 15 On 23 October 1998 Lancedale and Mrs Langley commenced proceedings in the Equity Division of the Supreme Court seeking seven declarations, the most vital of which for me were that Lancedale entered into a contract with Heath Fielding for the acquisition of shares which contract incorporated Plan Rules 7.1 and 7.6 in their January 1993 form; Heath Fielding had no power to vary the said contract by varying Rule 7.1 and deleting Rule 7.6 and substituting new Rules 7.6 and 7.7; that the transfer by Lancedale to Mrs Langley on or about 7 April 1998 was valid and effective; that the purported acquisition by Heath Fielding of the beneficial interest in Lancedale's shares on or about 27 May 1998 was invalid and of no effect; that the purported cancellation by Heath Fielding of the shares on or about 27 May 1998 was invalid and of no effect; that Lancedale was entitled to discharge the loan upon payment by it to Heath Fielding of the sum of $100.00; and a declaration that Mrs Langley was absolutely entitled to the whole of the beneficial interest in the shares. The defendants to those proceedings were Heath Fielding and Heath Nominees; they took steps to have Mr Langley joined as a defendant. 16 The summons initiating the substantive proceedings in this Court claimed relief under s106 of the Industrial Relations Act 1996 ("the Act") including: (i) declarations that the Share Plan was either · an "arrangement" collateral to the contract of employment between Mr Langley and Heath Fielding; or · a part of a "arrangement" that constituted the contract of employment between those parties; · that the contract of employment was varied unfairly by the purported amendment to the Share Plan and declaring void that variation; (ii) an order varying the contract of employment including the Share Plan to require that any offer by Heath Fielding to buy the shares be at a fair market value determined by an independent person specially expert in the field; (iii) other related relief. 17 At the date of hearing of the motion, 24 March 1999, the Equity Division proceedings had been placed in the Short Matters List of the Equity Division. They were in fact heard on 23 April 1999 and judgment was given by Bryson J in the matter on 23 June 1999. I refer to the judgment of Bryson J solely for the purpose of illustrating the way in which aspects of the case relevant for my purposes were dealt with and resolved. 18 In relation to the purported sale of the shares to Mrs Langley by Lancedale for $100.00 Bryson J said: The sale was effected by an Agreement under seal, and I regard the sale as an effectual equitable assignment of the beneficial ownership of the shares for value. However this conclusion is subject to the question of the operation of the alteration of Rule 7.1 which was made on 25 February 1998, with which I deal elsewhere. 19 I intend no discourtesy to his Honour's seamless and interesting judgment by extracting the following aspects therefrom: As a matter of language, the defendants are in a strong position because of the apparent breadth of the language in which the power of alteration is conferred by Rule 13.1(d). The operation of the Plan Rules is contractual; they have force because they are incorporated in the contractual relationship between a particular Executive or Family Company and Heath Fielding Australia. They do not operate in the way in which Articles of Association operate, and they are not subject to statutory powers of amendment. The plaintiffs' counsel contended that the Committee was not at liberty to alter a contractual relationship retrospectively, that is to say was not able to alter some entitlement which had already come into existence, by an alteration made after it came into existence. Counsel characterised the amendment as a retrospective deprivation of an accrued right to sell to a third party, and of an accrued right to beneficial ownership of the shares. 20 After referring to the judgment of McHugh and Gummow JJ in Bailey v New South Wales Medical Defence Union Limited (1995) 184 CLR 399 at 430 to the effect that "a power which might be construed so as to curtail or abrogate what otherwise would be rights or interest in favour of one party to the contract is construed as operating prospectively." Bryson J said: Rule 13.1(d) may well have been drafted with this principle under consideration, as its parenthesis appears to displace the principle. 21 His Honour's conclusions, again recorded by me in a disjointed form, were: Defendants' counsel stood firmly on the breadth of the language in Rule 13.1(d). In this I think he was justified. Drafting can achieve intended results, however surprising they are, if it is sufficiently clear, and I think that Rule 13.1(d) is sufficiently clear. I hold that according to its terms the alteration of the Plan Rules took effect on its date, 25 February 1998; and that as the alteration was effectual it prevented the purported assignment to Mrs Wendy Langley from having effect. The Buy-out Period had been extended permanently before 7 April 1998, and the assignment was not authorised by but was contrary to the provisions limiting transfer under New Rule 7.7 without first going through the Notice of Procedures in Clause 7.6. Those provisions prevent the assignment from having effect. The question whether the shares truly have value is speculative and unknown, and it was reasonable for Mr A.C. Langley and Mrs Langley to act on the basis expressed in evidence that one day the shares may be worth something. On that basis, and from the point of view of Mr Langley and Lancedale Holdings, $100 from Mrs Langley was the better offer. Although I approach the construction of Rule 13.1(d) with a sense that it is anomalous that the power should extend to an alteration which took away some contractual right or advantage which had already accrued to the Executive or the Family Company before the alteration was made, and with a disposition to adopt a construction in which an alteration can only operate prospectively on such a right, the parenthesis appears to me to make it completely clear that the power to make an alteration extended to allow the imposition of disadvantages on any rights of the Executive or Family Company, accrued or yet to accrue. The alterations made on 25 February 1998 appear to me to show clearly an intention actually to effect existing rights as well as to act prospectively. The power of alteration is a qualification of the grant or concession made by the employer, and must be regarded as part of any definition of what was granted. The terms of Rule 13.1(d) including the parenthesis make this sufficiently clear. The Share Plan is not a trust instrument and the Committee are not trustees. It is very common to find that the manner of exercise of powers is limited by requiring that they be exercised in good faith and for the purposes for which they were conferred; . . . . . . In my view a limitation of that kind applies to the exercise of the power of amendment in Rule 13(1)(d), but it has no practical effect in view of the width of the purposes for which the power of alteration exists and of their extension to securing and enhancing the employer's position. 22 In the result Bryson J ordered that the proceedings be dismissed with costs. On 13 July 1999 an application for Leave to Appeal was filed. 23 On 23 September 1999 solicitors acting for the applicants in the proceedings in this Court sought that the matter be the subject of conciliation. At that time I was absent overseas on extended leave. The matter was allocated to Maidment J who listed the matter; it was stood over on the basis that the parties would seek to have it revisited once the Court of Appeal had disposed of the appeal. On 31 August 2000 the applicant's solicitors wrote to my Associate informing her that the appeal from Bryson J had been dismissed by the Court of Appeal and seeking that these proceedings now go ahead. On 17 October 2000 the matter was mentioned and the parties expressed a desire that judgment now be given on the motion. It is sufficient for my purposes to say that the Court of Appeal upheld the decision of Bryson J for the reasons he gave; it is unnecessary to say more of it. 24 The notice of motion seeks (a) to set aside process; (b) a declaration that the Commission has no jurisdiction over the respondent, and (c) an order that the Commission declines, as a matter of discretion, to exercise jurisdiction. 25 The motion also sought, in effect in the alternative, that the proceedings be stayed or stood out of the list pending the determination of the proceedings (including any appeals) in the Equity Division of the Supreme Court. With the history of this matter, as I have summarised it above, this aspect of the motion became redundant. The Arguments on the Motion 26 Dr A.S. Bell of counsel for Heath Fielding made a number of submissions. Firstly, that the proceedings were inconsistent with those in the Supreme Court. There, Lancedale and Mrs Langley were arguing that the shares had been validly transferred to the latter. Mr Langley had never held the shares although he was a director of Lancedale. Here, Mr Langley and Lancedale seek to establish an interest in the shares and to satisfy the requirements of s106 with the view to relief including compensation. 27 Mr Langley never held any shares and Lancedale, on its own case which is asserted not only on affidavit through Mr Langley in this Court but also in the form of a summons in the Equity Division of the Supreme Court, divested itself of its shares on 7 April 1998 entirely of its own accord and for a consideration chosen by it. In truth, the applicants are strangers to the litigation. Their interest is historical. Party A, who assigns the benefit of his contract with Party B to Party C has no interest, right or standing to participate in a contractual dispute between B and C, still less a right to seek any relief in respect of that contract. 28 Lancedale, moreover, and Mr Langley should not be permitted to run against the same defendant two quite inconsistent cases in superior courts of this State (Mr Langley must be taken to be the controlling mind of Lancedale). This is an argument of principle and not mere timing. It is effectively an abuse of process. 29 Heath also puts a separate argument as to why the proceedings should be set aside. It is submitted that Lancedale is not and has never been party to any contract within the meaning of s106 of the Act and that the Share Plan was neither (i) an "agreement collateral to the contract of employment" between Langley and Heath nor (ii) part of an arrangement that constituted the contract of employment between Langley and Heath. As the relief sought in the proceedings is entirely confined to the Share Plan and not the contract of employment proper, if the Share Plan does not form part of the "contract" for the purposes of s106, then the Commission in Court Session lacks jurisdiction. 30 It was Lancedale and not Mr Langley that participated in the Share Plan. The consequence of Lancedale's participation was that a statutory contract arose between Heath and Lancedale: Corporations Law, s180(1). This contract is not a collateral arrangement within the meaning of the Act. It is itself a contract but it is not one "whereby" Mr Langley performed work. Langley did not provide his services to Heath through Lancedale as a service company. Furthermore, because it was undoubtedly an agreement, it cannot be claimed as an "arrangement". Arrangement must have the meaning of a non-contractual understanding otherwise the reference in the definition of "contract" to "arrangement" must be otiose. 31 Participation in the Share Plan through Lancedale was not part of any contract whereby Mr Langley performed work in any industry. 32 Mr Knoll of counsel submitted that as a matter of fundamental principle the applicants are entitled to have their case come to trial. The issue is whether the conduct of the respondent has fallen foul of s106, not whether one interpretation of a share plan is to preferred over another. It was submitted that the Supreme Court proceedings address a narrower technical point that does not affect Mr Langley's rights under the contract of employment and only affect Lancedale's rights under the collateral contract by way of settling a point of construction. They do not address the unfair conduct of Heath Fielding. Once a jurisdictional nexus is established the respondent is required to persuade the Court that it is a "clearly inappropriate forum for the determination of the dispute" (Voth v. Manildra Flour Mills Pty Ltd & Anor (1990) 171 CLR 539). Conclusions 33 I am not satisfied that the respondent has established that the Commission lacks jurisdiction to deal with the summons for relief. Similarly, there is no warrant for the Commission at this stage to decline to exercise jurisdiction. 34 While the arguments on the motion were heavily weighted towards the question then extant of whether the proceedings here should be permitted to continue simultaneously with the concurrent proceedings in the Supreme Court, that issue has dissipated with the effluxion of time and the conclusion of the Supreme Court proceedings by the judgment of the Court of Appeal. What remains for determination in these proceedings is the relief sought which goes to the conduct of Heath Fielding and the questions raised in respect thereof. The question whether Heath Fielding was entitled, at law, to act as it did has been resolved. Whether the contract or arrangement which permitted that conduct may be said to be unfair within the meaning of s106 of the Act was not an issue for determination in the Supreme Court proceedings and can only be determined in these proceedings. Whether consequential relief ought flow is a necessary incident of these proceedings. 35 Mr Knoll's supplementary submissions filed in September 1999 prior to the matter being left to await the outcome of the Supreme Court proceedings seem to me to make an appropriate response, at this interlocutory stage, to the suggestion that the applicants are strangers to the litigation. His submissions were: 1. This is a dispute about whether unilateral action by the Respondent can properly reduce the applicant's remuneration package, and whether it can do so by changing the terms of that package, without the applicant's consent, after the first applicant's employment has ended. And it is about whether the respondent can prevent the second applicant from selling its interest in the shares. 2. The applicants say that the respondent's action in February 1998 was unfair conduct in so far as it took away rights which had accrued to the second applicant from and after October 1995 to hold its interest in those shares free of the ability of the respondent to transfer that interest to the respondent when such a forced transfer was not provided for at any time up to when the first applicant's employment ended. 3. The applicants say that the respondent's action constitutes unfair conduct, and that they - and not the respondent - must be allowed to determine what to do with the fruits of the first applicant's labour. 36 The juxtaposition of proceedings arising from the same or similar facts in both this Court or the Supreme Court is not unusual . Mr Knoll cited an illustration in the Environmental Group Ltd v Croudace BC9803683 Supreme Court of New South Wales Equity Division Santow J 7 August 1998. 37 While the objective of the plaintiff in that matter was to achieve a stay of the Supreme Court proceedings on the basis that all issues could be dealt with in this Commission rather than the Court, nevertheless the distinction between the available powers in both courts was adverted to by Santow J as follows: Clearly enough, neither the Supreme Court of New South Wales, nor the Industrial Relations Commission of New South Wales in Court Session have plenary powers to dispose of all the matters in dispute between the parties, as emerges from what follows (ibid at 25). . . . . . Several things are therefore clear. First, neither the Supreme Court nor the IRC can deal with all matters in dispute between the parties. Second, if all matters are to be litigated it would be inevitable there will be two sets of proceedings. Thus while "the law should strive against permitting multiplicity of proceedings in relation to similar issue", here a multiplicity of proceedings may prove unavoidable (ibid at p.27) . . . . . It is certainly unduly simplistic for the Defendants to say that both sets of proceedings merely seek the same end, namely avoidance of the three agreements, leaving as the residual issue what incidental relief should be given to adjust the respective interests of the parties upon those agreements being set aside. Firstly, a variation of the agreements by the Industrial Relations Commission ex hypothesi does not avoid them. Second in the absence of a cross-claim from the Defendants for wrongful dismissal, the Supreme Court proceedings do not deal with the Service Agreement at all - certainly not to avoid or vary it. . . . (ibid at 28) 38 As I have said it is differences of this kind which operate in this matter as between the distinctive nature of the relief sought here and that which was sought but not attained in the Supreme Court. 39 I conclude that the respondent's motion should be dismissed with costs as agreed or as assessed. The matter will be listed for a conciliation conference by arrangement with the parties. 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.