New South Wales Supreme Court CITATION : L & M Pastoral Company Pty Limited (formerly known as Sydney Environmental and Soil Laboratory Pty Limited) & Anor v Applied Soil Technology Pty Limited (subject to Deed of Company Arrangement) & Ors [2006] NSWSC 207 HEARING DATE(S) : 17/3/06 JUDGMENT DATE : 17 March 2006 JURISDICTION : Equity Division Commercial List JUDGMENT OF : Einstein J EX TEMPORE JUDGMENT DATE : 03/17/2006 DECISION : Notice of Motion dismissed. Costs reserved. CATCHWORDS : Practice and Procedure - Summary dismissal - Separate question regime LEGISLATION CITED : Industrial Relations Act (1996) Industrial Relations Amendment (Unfair Contracts) Act 2002 L & M Pastoral Company Pty Limited (formerly known as Sydney Environmental and Soil Laboratory Pty Limited) (First Plaintiff) Simon Walpole Leake (Second Plaintiff) PARTIES : Applied Soil Technology Pty Limited (subject to Deed of Company Arrangement) (First Defendant) Shannongrove Pty Limited ACN 069 873 749 (Second Defendant) Neville Pierse Gilmartin (Third Defendant) Susan Christine Gilmartin (Fourth Defendant) FILE NUMBER(S) : SC 50076/04 COUNSEL : Mr Kimber SC (Plaintiffs) Mr M Ashhurst (Second, Third and Fourth Defendants) SOLICITORS : Kells the Lawyers (Plaintiffs) Clayton Utz (Second, Third and Fourth Defendants) LOWER COURT DATE OF DECISION : 03/17/2006 IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION COMMERCIAL LIST Einstein J Friday 17 March 2006 ex tempore Revised 29 March 2006 50076/04 L & M Pastoral Company Pty Limited (formerly known as Sydney Environmental and Soil Laboratory Pty Limited) & Anor v Applied Soil Technology Pty Limited (subject to Deed of Company Arrangement) & Ors JUDGMENT The notice of motion 1 There is before the court a notice of motion filed by the first to third defendants ["the defendants"] seeking an order that the proceedings be dismissed. The proceedings 2 The proceedings were commenced in the Industrial Relations Commission of New South Wales on 10 June 2003 and were transferred to this Court pursuant to orders made on 28 May 2004. The present "Further Re-Amended Summons" relied upon by the plaintiffs was filed on 15 February 2006. 3 It is unnecessary to repeat the record. For present purposes it suffices to observe that the proceedings constitute a claim for relief under section 106 of the Industrial Relations Act (1996) (the "Act"). 4 There is a degree of difficulty in following with precision the complex of agreements, and/or arrangements pleaded in the summons. For present purposes the following overview is sufficient: i. The plaintiffs allege that the First Plaintiff (L & M Pastoral Company Pty Ltd) ("L&M") made an agreement with the First defendant (Applied Soil Technology Pty Ltd ("AST") whereby L&M would provide the environmental advisory services of the Second Plaintiff ("Leake") to AST (para A3 of the Summons). ii. The plaintiffs allege further that the said agreement was unfair, harsh and unconscionable within the meaning of s 106 of the Act (para A4 of the Summons). iii. In paragraph C1 of the Summons the plaintiffs plead that: i) Leake was an employee of L&M; ii) L&M was the corporate vehicle through which Leake provided environmental advisory services to AST; and iii) L&M was the vehicle through which Leake earned remuneration for the personal advisory services he provided to AST. iv. In paragraph C20 of the Summons the plaintiffs plead that from about February 1995 until 23 October 2002 Leake, through L&M performed work for and provided services to AST on the basis that an agreed proportion of AST's gross revenue would be passed to Leake as either salary, dividend or other drawings, by the payment of invoices issued by L&M. This agreement is described as the "Services Arrangement"). v. The plaintiffs also claim in paragraph C20 that the payments made to Mr Leake under the Services Arrangement constituted "almost 100% of Leake's entire income". vi. In paragraph 21 of the Summons the plaintiffs' describe the work conducted by Mr Leake under the Services Arrangement as including the sampling and analysis of waste, and soil analysis. vii. In paragraph 24(e) of the Summons the plaintiffs plead that Leake was paid, through L&M, approximately 8% of AST's gross revenue. viii. In paragraph 48 of the Summons the plaintiffs claim that Mr Leake was told " to reduce his remuneration earned via L&M under the Services Arrangement ". ix. In paragraphs 49-51 of the Summons the plaintiffs plead that they agreed to reduce the payments they were entitled to from 8% to 4 % of AST's gross earnings provided Leake's shareholding was increased to 33%. Further that notwithstanding the fact that Leake's shareholding was not increased AST only paid the plaintiffs 4% of AST's gross earnings. x. In paragraph 60 of the Summons the plaintiffs plead that AST failed to pay outstanding invoices to the First Plaintiff at the agreed base of 8% and did not pay any invoices at all that were issued to AST during July to 21 October 2002. xi. Finally, in paragraph 62 of the Summons the plaintiffs claim that the defendants diverted business from AST to the detriment of L&M and Leake. xii. The plaintiffs plead (in paragraph 63) that they received $165,160.66 in the 12 months immediately prior to the termination of the relevant agreement. However, the plaintiffs have since filed an affidavit of Patricia Evans (sworn 10 March 2006) in which Ms Evans deposes to an updated figure of $187,836.24. xiii. In addition to the $187,836.24 that the plaintiffs state they received in the relevant 12 months, they claim that they should also have received the following payments during that period: i) $208,500.21 (outstanding invoices); ii) $144,633 (income underpayment for Sydney Operations) iii) $28,242 (income underpayment for Hunter Valley Operations) iv) $278,726 (diverted income). This sum of $278,726 is the proportion of the amount of $812,736 claimed in the Summons (Schedule B) pertaining to the relevant 12 months - see Table 2.12 of the report of Hugo Loneragan at page 60 of exhibit "AJD1" to the affidavit of Andrew James Dienhoff sworn 13 February 2006). (see " Schedule B to the Re Amended Summons " - at page 25 of the Summons). xiv. In summary, the plaintiffs have pleaded that: i) Leake was an employee of L&M; ii) L&M was the corporate vehicle through which Leake performed his environmental advisory services for AST; iii) there existed between Leake, L&M and AST a contract, arrangement or related or collateral arrangement for the provision of these services; and iv) that the remuneration paid by AST (to L&M and then through L&M to Leake) for these services was $187,836,24 during the relevant year with further unpaid entitlements for that year of over $650,000 being payable. The issues on the notice of motion 5 The issues centre around the operation of s108A of the Industrial Relations Act enacted on 24 June 2002 as an amendment: Industrial Relations Amendment (Unfair Contracts) Act 2002. This provides as follows: An application cannot be made for an order under this Division if the application relates to a contract of employment under which: a) a remuneration package that exceeds the remuneration cap is paid or received (or is payable or receivable) during the period of 12 months immediately before the application is made (or, if the application concerned relates to a contract that has been terminated, immediately before the termination). 6 "Contract of employment" is defined as: "any contract or arrangement under which work is done by a person in the capacity of an employee, and includes a related condition or collateral arrangement with respect to such a contract". 7 The defendants contend that: i. the current proceedings constitute an application that is expressly excluded from the operation of the Act by the monetary limits imposed by s 108A of the Act. ii. This application cannot be made for an order under this division as the application relates to (seeks to vary): (a) the arrangement (described in the Summons as either the JVA or the "Services Arrangement") between Leake, L&M and AST under which work was done by Leake as an employee of L&M, because the remuneration payable under that arrangement during the relevant period was greater than the prescribed amount of $200,000; or alternatively; (b) the arrangement (described in the Summons as either JVA or the "Services Arrangement") between Leake, L&M and AST that was collateral to Leake's employment contract with L&M, because the remuneration payable under that collateral arrangement during the relevant period was greater than the prescribed amount of $200,000. 8 The plaintiffs contend that s 108A has no application whatever to the proceedings for the reason that the summons does not seek to impugn a contract or arrangement under which work was performed by the second plaintiff in the capacity of an employee. 9 Ultimately the three substantive issues which were raised were: (1) Is the JVA or services arrangement an arrangement pursuant to which work was done by Leak in his capacity as an employee? (2) Is the joint venture arrangement or services arrangement a collateral arrangement to Leak's employment contract with L&M? (3) Questions going to remuneration payable to Mr Leak under the remuneration payable to Mr Leak. [It was agreed at the commencement of the proceedings by the parties that the first plaintiff was either in fact paid more than $200,000 during the material 12 months or that that amount was payable to the first plaintiff]. 10 Careful written and oral submissions have been put at length by the parties. It is unnecessary to travel through the detail of the extensive submissions for the reason that I have formed the view that this being a summary dismissal application, must fail on conventional principles. 11 It is fair to observe that during the course of the hearing of the application I paid considerable attention to the possibility that it may be appropriate to travel through the extensive analytical and statute construction issues. However, bearing in mind that one does have, as I understand it, for the first time a fairly vital and arguable question of statutory construction and that there are still some factual issues which would require to be determined on this application, I have determined that the appropriate way forward is to dismiss the application made on the notice of motion. 12 The just, quick and cheap approach to litigation mandated by the overriding purpose rule does seem to me to be appropriate for mention. I had wondered from time to time why it was that the defendants have not sought to have separated out as a separate question for determination, the questions which are essentially being put before the court on the strike out application. 13 It is true that it is not always a simple matter to gain the court's acquiescence in a separate question order regime. Commonly where the parties are able to agree on facts and if it is clear that a decision one way or the other will be the end of the proceedings, the court will be persuaded in appropriate cases to make a separation order. My own view is that if the parties can agree on agreed facts, the present is eminently likely a circumstance in which a separate order may properly be made. If the parties prove unable to reach agreement on the factual substratum to underpin a separate question regime, the matter may still be a candidate for such a regime although it would have to be closely considered. 14 One of the matters that has crossed my mind during the hearing of the whole of the strike out application was the absence of the Solicitor-General for New South Wales or his representative at the bar table. There are cases where vital interests in terms of statutory construction of novel points mean that it is appropriate for the Court to have such assistance. To my mind a separate question regime would be a vehicle for including at least a request to the Solicitor-General for an indication of whether or not this case is seen as appropriate for that assistance. I particularly have in mind in that regard, counsel for the plaintiffs repeated emphasis on the Second Reading Speech, on what is put as the clear policy and what is put as an adverse consequence should the defendants' construction be acceded to. 15 Presently the only orders which are going to be made will be orders dismissing the notice of motion and costs to be argued. 16 Hopefully, the broader approach to a separate question will receive careful consideration by the parties to whom I commend the notion of endeavouring to discuss at least whether or not it is likely that an agreed platform by way of agreed facts could be reached so as to quite possibly permit the time and effort which has gone into the application today to be not wasted. Arguably, depending on the state of the list, the whole exercise could be fixed fairly soon for a return to the Court. I certify that paragraphs 1 - 16 are a true copy of the reasons for judgment herein of the Hon. Justice Einstein given on 17 March 2006 and revised 29 March 2006 ___________________ Susan Piggott Associate 29 March 2006 17 Following the delivery on 17 March of the ex tempore judgment the parties have furnished written submissions in relation to what costs orders if any should presently be made concerning the notice of motion ordered to be dismissed. 18 In my view the proper exercise of the Court's discretion is to simply reserve costs of the notice of motion. 19 In the event that a separate question regime is ordered the net result following that hearing may require to be taken into account in assessing costs of the unsuccessful motion. 20 Neither party is prejudiced no matter when the issue of costs on the motion is crystallised. The matter is conveniently presently left in abeyance. Orders 21 Order dismissing the notice of motion filed on 13 February 2006 seeking that an order that the proceedings be dismissed. 22 Order that costs of the notice of motion be 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.