Selman v Sweet [2003] NSWIRComm 14 (7 February 2003)

Last Updated: 7 March 2003

NEW SOUTH WALES INDUSTRIAL RELATIONS COMMISSION

CITATION : Selman v Sweet [2003] NSWIRComm 14

FILE NUMBER(S): IRC 130

HEARING DATE(S): 23/01/2003

DECISION DATE: 07/02/2003

PARTIES:

FIRST APPLICANT/APPLICANT ON NOTICE OF MOTION

Kim Bashkim Selman

SECOND APPLICANT

Barbara Kay Jecs

FIRST RESPONDENT/ RESPONDENT ON NOTICE OF MOTION

Frank Edward Sweet

SECOND RESPONDENT

Nellie Josephine Sweet

THIRD RESPONDENT

Ian Thomas Sweet

FOURTH RESPONDENT

Robrol Pty Limited

JUDGMENT OF: Boland J

LEGAL REPRESENTATIVES

APPLICANTS

Dr J P Berwick of counsel

Solicitor: Mr M Roper

Michael Geoffrey Roper

RESPONDENTS

Mr J G McVay of counsel

Solicitor: Mr A Wylie

Harris Wheeler Lawyers

CASES CITED: Castlemaine Tooheys Ltd v South Australia (1986) 161 CLR 148

Collison v Hewston (2001) 103 IR 403

Darvall v NZI Securities Australia Ltd (1990) 39 IR 215

Gibson v Western Sydney Area Health Service [2000] NSWIRComm 13

Hospital Products Ltd v Ballabil Holdings Pty Ltd [1984] 2 NSWLR 662

Kenoss Contractors Pty Limited v Allied Constructions Pty Limited (No2) (2001) 104 IR 66

Maharajah v 7 Eleven Stores Pty Ltd (unreported, IRC1150/97, Peterson J, 4 April 1997)

Metrocall Inc v Electronic Tracking Systems Pty Limited (No 2) (2000) 101 IR 66

Parsons v Martin (1984) 5 FCR 235

Sea Acres Rainforest Centre Pty Ltd v The State of New South Wales (2001) 109 IR 56

LEGISLATION CITED: Industrial Relations Act 1996

JUDGMENT:

- 13 -

INDUSTRIAL RELATIONS COMMISSION OF NEW SOUTH WALES

IN COURT SESSION

CORAM: Boland J

Date: 7 February, 2003

Matter No IRC 130 of 2003

KIM BASHKIM SELMAN AND ANOTHER v FRANK EDWARD SWEET AND OTHERS

Application under section 106 of the Industrial Relations Act 1996

INTERLOCUTORY JUDGMENT

1 On 10 January 2003 Kim Bashkim Selman (first applicant) and Barbara Kay Jecs (second respondent) filed a summons for relief under s 106 of the Industrial Relations Act 1996. The respondents named in the summons were Frank Edward Sweet (first respondent), Nellie Josephine Sweet (second respondent), Ian Thomas Sweet (third respondent) and Robrol Pty Limited (fourth respondent).

2 The background to the summons is that in October 1992 the applicants and the first second and third respondents entered into a partnership agreement for the purpose of carrying on the business of the Prospect Hotel/Motel, Great Western Highway, Prospect. The applicants and the first, second and third respondents were also shareholders in the fourth respondent and the applicants were employees of the fourth respondent. A dispute arose as to certain of the applicants' entitlements under the partnership agreement and their entitlements as employees of the fourth respondent.

3 In 2002 it was proposed by the first, second and third respondents that the disputes should be referred to arbitration. In a letter to the applicants' solicitors dated 12 August 2002 solicitors for the first, second and third respondents stated:

we are instructed to inform you that if your clients do not co-operate in referring allegations raised by your clients to arbitration, then our client will bring the partnership to an end by notice under clause 2 of the agreement. It will then move the court for the appointment of a receiver to the partnership assets and the business of the company. That is not the preferable course because it takes out of the hands of the respective clients the settlement by arbitration of the disputes which have arisen and the orderly sale of the partnership assets and the company business ...

4 In December 2002 the first, second and third respondents gave notice to the applicants of retirement from the partnership to take effect from 10 January 2003. On that day the applicants filed a summons for relief under s 106 of the Industrial Relations Act 1996. The summons sought the following orders:

1. An order declaring that save for clause 14 the contract or arrangement entered into in or about October 1992 between the Applicant and the First, Second and Third Respondents whereby the Applicants performed work in an industry in New South Wales is:

(a) unfair;

(b) harsh or unconscionable; and

(c) against the public interest.

2. An order varying in whole or in part and either ab initio or from some other time the contract, except to the extent that the Applicant received remuneration and benefits under the contract or was or became entitled to such remuneration and benefits.

3. An order declaring that the separate collateral arrangement under which the Applicants were employed by the Fourth Respondent was:

(a) unfair;

(b) harsh or unconscionable;

(c) against the public interest.

4. An order that the First, Second, Third and Fourth Respondents pay $2,000,000 to each Applicant.

5. An order that the First, Second, Third and Fourth Respondents be jointly and severally liable for any order that money be paid to the Applicants.

6. In the alternative to order 4 an order that First, Second, Third and Fourth Respondents pay an amount of money which the Commission considers just in the circumstances of the case.

7. That the Respondents pay the costs of the Applicants incurred of and incidental to the proceedings.

8. Interest.

9. Any other order which the Commission in Court Session deems appropriate for the just disposition of the matter.

5 On 10 January 2003 the applicants also filed a notice of motion seeking an order that pending the outcome of proceedings under s 106, the first, second and third respondents be restrained from approaching the Supreme Court to seek an order to appoint a Receiver to the affairs of the partnership previously subsisting between the first, second and third respondents and the applicants. In their grounds supporting the motion the applicants stated:

...

5. The appointment of a Receiver by the Supreme Court will affect the power of this Commission to make orders which can only be made effective in money terms by the disposal of the Prospect Hotel.

6. The Commission has injunctive power to protect assets necessary for the effective disposition of its orders.

7. The Receiver does not have the power to take into account the matters of fact and law set out at Part B of the Summons for Relief filed and served in these proceedings. This is especially so in regard to the operation of the Loan Account which is at the heart of the complaint made by the Applicants about the operation of the partnership.

8. At the present time the Hotel is trading profitably.

9. The First and Second Applicants are currently the managers of the Hotel. There is no need for them to interact with the First, Second and Third Respondents.

6 The applicants contended that there was every likelihood the first, second and third respondents would apply to the Supreme Court to appoint a Receiver, that a Receiver would be appointed and in the normal course, in the winding up process, would determine entitlements to the partnership's assets according to the partnership's accounts. It was submitted that the accounts did not reflect a true and correct picture as to how the assets were to be shared amongst the former partners. Consequently, given that neither the Supreme Court nor the Receiver were obliged to have regard to the considerations of fairness imposed on this Court by the terms of ss 105 and 106 of the Industrial Relations Act, and that it was only this Court that possessed the necessary jurisdiction and power, there was every prospect that the applicants would not receive their fair share of the assets. Accordingly, it was submitted the Court should make the injunctive orders sought to ensure that any final order that may be made by the Court is not frustrated. The applicants referred to the Full Bench decision in Metrocall Inc v Electronic Tracking Systems Pty Limited (No 2) (2000) 101 IR 66 at pars [78] and [82] as to the Commissions powers under s106.

7 It was common ground between the parties that they were in serious dispute over the partnership agreement and it seems to me that, upon proper application, there is a real prospect that the Supreme Court would appoint a Receiver.

8 There are two main issues for this Court to determine in relation to the motion by the applicants. First, whether the Court has power to make an order restraining the first, second and third respondents from approaching the Supreme Court to appoint a Receiver to the affairs of the previously subsisting partnership. Second, if it has the power, whether the Court should exercise its discretion to make the order sought.

9 It is well settled that this Court has the power to provide interlocutory relief to protect its processes including that any final order that may be made will not be frustrated or put at nought: see in particular Darvall v NZI Securities Australia Ltd (1990) 39 IR 215; Maharajah v 7 Eleven Stores Pty Ltd (unreported, IRC1150/97, Peterson J, 4 April 1997); Gibson v Western Sydney Area Health Service [2000] NSWIRComm 13; Kenoss Contractors Pty Limited v Allied Constructions Pty Limited (No2) (2001) 104 IR 66. According to these cases, however, the power in the Court to grant injunctive relief is quite circumscribed.

10 In Darvall Hungerford J found there was no jurisdiction to grant interlocutory relief in the form of an order restraining a respondent from selling a property the subject of a collateral arrangement with the applicant where such a sale would not frustrate the court's due process in considering final relief. Hungerford J found that the Court did have power to make Mareva orders but only because of their "very special nature". In Gibson Peterson J said that the scope for making interlocutory orders under s 106 did not extend to orders directed at maintaining the status quo pending a final hearing where the final orders that might be made would not be frustrated if the interim relief was declined. Wright J in Kenoss followed the approach in Gibson.

11 In Sea Acres Rainforest Centre Pty Ltd v The State of New South Wales (2001) 109 IR 56 Haylen J expressed the view at par [49] that "an interlocutory order will be made if a party takes some step which will render less effective any judgment or order which may be obtained or to overcome any attempted thwarting of the Court's process." This appears to be a broader test than that propounded in the Darvall, Gibson and Kenoss line of cases and it seems to me Haylen J considered that if it was necessary to ensure the effectiveness of any final order by preserving the status quo an injunction may issue for that purpose. In Sea Acres Haylen J said:

It is far too early in these proceedings to decide that the making of an order for the payment of money is the most appropriate order in this case such that a protective order to preserve the whole of the Court's jurisdiction should not issue. In this case it would be highly unsatisfactory to refuse the applicants' interlocutory order thus effectively reducing the width of the Court's jurisdiction to make suitable orders at the conclusion of the evidence, if such orders are justified.

...

If an interlocutory order is not made preventing the respondent from giving full effect to the Notice to Quit then a significant part of the Court's jurisdiction will be effectively removed from the reach of the applicants should they make out a case for final relief. The Court would be left with the only significant power being to order the payment of money in compensation for any unfairness found in the contract. Just as Marks J was able to say in Bowker, I am of the view that money may not satisfactorily recompense these applicants and the business for any damage done to their reputations because of the manner in which they are sought to be removed from the operation of the Centre. The nature of the damage in the two cases is clearly different but the element of damage to business reputation is a relevant factor in the present case.

12 In Sea Acres the applicants sought the variation of a lease and Deed of Assignment and/or the creation of a new lease with certain protections to the applicants written into it in circumstances where the arrangement between the parties continued. In the alternative the applicants sought compensation. In light of Haylen J's finding that it was too early to decide that the making of an order for the payment of money was the most appropriate order such that a protective order to preserve the whole of the Court's jurisdiction should not issue, his Honour made an order restraining the respondent from taking any steps to give effect to the Notice to Quit until further order of the Court.

13 An important consideration in Sea Acres was that in light of the relief sought by the applicants, Haylen J was not satisfied that an order for the payment of money in compensation for any unfairness found in the contract would be an adequate remedy and that "If an interlocutory order is not made preventing the respondent from giving full effect to the Notice to Quit then a significant part of the Court's jurisdiction will be effectively removed from the reach of the applicants should they make out a case for final relief."

14 In the present case the primary relief sought by the applicants is compensation for the alleged unfairness. That is, that the first, second, third and fourth respondents pay $2,000,000 to each applicant and that these respondents be jointly and severally liable for any order that money be paid to the applicants. Under Haylen J's approach, it seems to me that the applicants would still have to satisfy the requirement that in order to achieve an interlocutory order restraining the respondents from seeking to have a Receiver appointed, it was necessary to show that unless the order was made any final order would be rendered less effective or the Court's processes would be thwarted. In other words, given that the primary relief they seek is compensation, the applicants would have to show that if an interlocutory order restraining the respondents was not made there was the very real prospect that any order granting the applicants' money claim would be rendered nugatory.

15 In Collison v Hewston (2001) 103 IR 403 I expressed the view at par [39] that the Court, as a superior court of record, albeit a statutory court, had a general power to grant interlocutory relief incidental and necessary to the exercise of the jurisdiction or powers conferred on the Court by the Industrial Relations Act 1996. The reference to "incidental and necessary" is derived from the judgment of the Full Court of the Federal Court in Parsons v Martin (1984) 5 FCR 235 at 240-241:

In our opinion a Court exercising jurisdiction conferred by statute has power expressly or by implication conferred by the legislation which governs it. This is a matter of statutory construction. We are of the opinion also that it has in addition such powers as are incidental and necessary to the exercise of the jurisdiction or the powers so conferred.

In view of the way in which the phrase 'inherent jurisdiction' is used in many of the cases, it seems advisable generally to avoid the use of it to refer to this incidental and necessary power of a statutory court.

16 Taking the broader view, reflected in the judgment in Collison v Hewston, of the Court's power to grant interlocutory relief the question becomes whether it is incidental and necessary to the exercise of the Court's powers under s 106 to make an order restraining the first, second and third respondents from approaching the Supreme Court to appoint a Receiver?

17 In taking this approach it may be seen that I reach the same point of consideration as if the approach in Sea Acres were to be taken, namely, is it necessary to make the interlocutory order sought by the applicants to ensure any final orders under s 106 are effective?

18 An affidavit of Robert Ronald Stevens was tendered by the applicants. The affidavit referred to the consolidated accounts of the partnership for the year ended 30 June 2002. The accounts showed that total assets were $4,438,741 (including property, plant and equipment valued at $4,395,818) and total liabilities were $2,401,305 leaving net assets at $2,037,436. The applicants' summons for relief stated that the Hotel was said by the respondent's solicitors to be worth $9,000,000 although no proper valuation of the Hotel was in evidence.

19 Whilst the net assets of the partnership of $2,037,436 would not meet the applicants' claim (if that were the amount available to meet any final order after the Receiver had done its work), there was no evidence of the respondents' personal assets and no indication on the evidence that, even if a Receiver was appointed and wound up the partnership in the usual manner, that the respondents could not meet any money order in the applicants' favour. The applicants at least carry the onus of showing there is a real prospect that the respondents could not meet any final order if unfairness were found. It is not for the Court to assume they could not. The applicants have not satisfied me that there is a danger that the respondents would default on any final order and it, therefore, does not appear to me that to ensure the integrity of any final order it is necessary to make the interlocutory order sought be the applicants. Consequently, I consider that I do not have the power to make the interlocutory order.

20 In Jackson v Sterling the High Court was concerned with the Federal Court's power to make orders requiring the appellant to "provide security in the sum of $3,000,000". In that case the majority held that the Federal Court had the power to grant relief in the nature of a Mareva injunction but that orders to provide security in the sum of $3,000,000 "fall in a different category to any interlocutory order for the preservation of assets" (per Deane J at 624). His Honour, who delivered the leading majority judgment, said at 624:

If the order had been restricted to injunctive relief preventing the

appellant from disposing of so much of that $4.3m. (or the assets representing that money) as remained in his possession, it would have clearly been within the powers of the Federal Court under s 23 of the Act.

21 Deane J held that the security orders were beyond power. At 625 his Honour said:

There are three related grounds upon which these combined orders are susceptible of attack. First, they required the appellant to pay into court not money identified as being within his possession but money which he was required to provide or obtain regardless of source. Second, they go beyond a mere order for the preservation of assets pending judgment or execution in that they specifically required that the money be paid into court as "security". Third, they failed to identify either what the money paid "to any Registrar" was to secure or what the entitlement of the appellant (or any one else) was in relation to it after it has been so paid. Put in positive form, it appears to me that, when an order for the preservation of assets goes beyond simply restraining the defendant from disposing of specific assets until after judgment, it must be framed so as to come within the limits set by the purpose which it can properly be intended to serve. That purpose is not to create security for the plaintiff or to require a defendant to provide security as a condition of being allowed to defend the action against him. Nor is it to introduce, in effect, a new vulnerability to imprisonment for debt, or rather for alleged indebtedness, by requiring a defendant, under the duress of the threat of imprisonment for contempt of court, to find money, which he may or may not have (whether or not at some point of time it may have been available to him), to guarantee to a plaintiff that any judgment obtained will be satisfied. It is to prevent a defendant from disposing of his actual assets (including claims and expectancies) so as to frustrate the process of the court by depriving the plaintiff of the fruits of any judgment obtained in the action.

22 It is clear from Jackson v Sterling that an asset preservation order must come within the limits set by the purpose which it can properly be intended to serve. That purpose is not to require a defendant, under the duress of the threat of imprisonment, to find money that he may not have to guarantee to a plaintiff that any judgment obtained will be satisfied.

23 By analogy, what the applicants seek to do here is to preserve the assets of the partnership in order to guarantee that any judgment will be satisfied. They seek to do this by restraining the respondents from approaching the Supreme Court to appoint a Receiver. However, it seems to me that such an order goes well beyond what might be necessary to ensure that any final order under s 106 would be met. The effect of the order would be to restrain the respondents from exercising their legal right to have a Receiver appointed to wind up the affairs of the partnership for the period it takes to determine the application under s 106. That is, for the relevant period the respondents would be denied access to any of the partnership assets that may rightfully be theirs. Thus, to grant the interlocutory order would do more than simply ensure any final order could be satisfied, it would also adversely impact, significantly, on the legal rights of the respondents. This would be in circumstances where it has not been demonstrated to the Court that even if a Receiver deals with the partnership assets in the usual way, there is a real prospect that any final orders under s 106 may not be satisfied.

24 Assuming that there is power to grant the order sought by the applicants, the question becomes one of whether the Court should exercise its discretion to do so. In considering this question the analogy between what the applicants seek in these proceedings and applications for asset preservation orders is, I believe, a legitimate one. And, in that respect, I note in exercising the discretion to grant relief in the nature of a Mareva injunction, it is to be done with great prudence and a predisposition against the making of an order: Hospital Products Ltd v Ballabil Holdings Pty Ltd [1984] 2 NSWLR 662 at 688.

25 A discretionary consideration against granting the applicants' order is that it is open to the applicants, upon any approach by the respondents to the Supreme Court to have a Receiver appointed, to seek to place some constraints on the Receiver in finally determining the respective entitlements to the partnership's assets. I acknowledge that the Commission in Court Session has exclusive jurisdiction in relation to matters arising under s 106. But that is not to preclude the applicants, in any proceedings in the Supreme Court, from pointing out the fact that there are proceedings on foot pursuant to s 106 and that this should be taken into account. It may be relevant, for example, in any consideration by the Supreme Court as to the appointment of a Receiver that s 109 of the Industrial Relations Act requires that the Commission "must endeavour, by all means it considers proper and necessary, to settle a matter under this Division by conciliation".

26 I turn to the traditional tests governing the grant or refusal of injunctions identified by Mason ACJ in Castlemaine Tooheys Ltd v South Australia (1986) 161 CLR 148 at 153. Firstly, it was acknowledged by the parties that there exists a serious dispute between them as to their respective entitlements to the assets of the partnership and the applicants' entitlements as employees of the fourth respondent. I consider there is a serious question to be tried.

27 As to the second test, namely, whether the applicants will suffer irreparable injury for which damages will not be an adequate compensation unless an injunction is granted, I am not satisfied that this test has been met. There is no indication on the evidence that damages would not be adequate compensation. The applicants have contended that they may not obtain any damages, or sufficient damages, if the Receiver is appointed. But as I found earlier, I am not satisfied this would be the case.

28 As to balance of convenience, the applicants contended that the hotel is currently trading profitably and there is no likelihood of the respondents being seriously prejudiced by the s 106 proceedings and an injunction protecting the position of the applicants. However, in terminating the partnership and announcing an intention to wind it up, the respondents obviously no longer wish to conduct the business of a hotel. An injunction that has the effect of preventing a Receiver being appointed would prevent the respondents from accessing any part of the assets of the partnership that may rightfully be theirs for what could be a period of many months. I am not satisfied the balance of convenience lies in granting the injunction.

29 I have decided to refuse the application by the applicants for an order restraining the respondents from approaching the Supreme Court for the purpose of appointing a Receiver and I order accordingly.

LAST UPDATED: 07/02/2003