Del Casale v Artedomus (Aust) Pty Ltd and anor [2005] NSWIRComm 40 (13 April 2005)

Last Updated: 14 April 2005

NEW SOUTH WALES INDUSTRIAL RELATIONS COMMISSION

CITATION : Del Casale v Artedomus (Aust) Pty Ltd and anor [2005] NSWIRComm 40

FILE NUMBER(S): 30

HEARING DATE(S): 17/02/2005

DECISION DATE: 13/04/2005

PARTIES:

APPLICANT

Antonio Del Casale

FIRST RESPONDENT

Artedomus (Aust) Pty Ltd

SECOND RESPONDENT

Angelo Schepis

JUDGMENT OF: Marks J

LEGAL REPRESENTATIVES

APPLICANT/RESPONDENT ON MOTION

Mr M Ashhurst of counsel

Solicitor: Ms L Berton

Kemp Strang Lawyers

RESPONDENTS/APPLICANTS ON MOTION

Mr A Moses of counsel

Solicitor: Mr D K Morris

Hunt & Hunt Lawyers

CASES CITED: David Jones Limited v Cukeric (1997) 78 IR 430

Euphoric Pty Limited v Ryledar Pty Limited and Anor [2002] NSWIRComm 136

Majik Markets Pty Ltd v Brake and Service Centre Drummoyne Pty Ltd (1991) 28 NSWLR 443 at 446

Mitchforce v Industrial Relations Commission (2003) NSWCA 151

Mitchforce v Starkey (No 2) (2003) 130 IR 378

Old UGC Inc v Industrial Relations Commission of New South Wales [2004] NSWCA 197

QSR Ltd v Industrial Relations Commission of New South Wales (2004) NSWCA 199

Solution 6 Holdings Limited v Industrial Relations Commission of New South Wales [2004] NSWCA 200

LEGISLATION CITED: Industrial Relations Act 1996 ss 105 106 108B

Industrial Relations Commission Rules 1996 s 18A(1)

JUDGMENT:

- 1 -

INDUSTRIAL RELATIONS COMMISSION OF NEW SOUTH WALES

IN COURT SESSION

CORAM: MARKS J

Wednesday 13 April 2005

Matter No IRC 30 of 2003

ANTONIO DEL CASALE v ARTEDOMUS PTY LTD AND ANOR

Application under s 106 of the Industrial Relations Act 1996

INTERLOCUTORY JUDGMENT

[2005] NSWIRComm 40

1 In these proceedings the applicant, Antonio Del Casale, seeks certain relief against the respondents, Artedomus Pty Ltd and Angelo Schepis, under s 106 of the Industrial Relations Act 1996 ("the Act"). Sections 105 and 106 of the Act are as follows:

105 Definitions

In this Part:

contract means any contract or arrangement, or any related condition or collateral arrangement, but does not include an industrial instrument.

unfair contract means a contract:

(a) that is unfair, harsh or unconscionable, or

(b) that is against the public interest, or

(c) that provides a total remuneration that is less than a person performing the work would receive as an employee performing the work, or

(d) that is designed to, or does, avoid the provisions of an industrial instrument.

106 Power of the Commission to declare contracts void or varied

(1) The Commission may make an order declaring wholly or partly void, or varying, any contract whereby a person performs work in any industry if the Commission finds that the contract is an unfair contract.

(2) The Commission may find that it was an unfair contract at the time it was entered into or that it subsequently became an unfair contract because of any conduct of the parties, any variation of the contract or any other reason.

(3) A contract may be declared wholly or partly void, or varied, either from the commencement of the contract or from some other time.

(4) In considering whether a contract is unfair because it is against the public interest, the matters to which the Commission is to have regard must include the effect that the contract, or a series of such contracts, has had, or may have, on any system of apprenticeship and other methods of providing a sufficient and trained labour force.

(5) In making an order under this section, the Commission may make such order as to the payment of money in connection with any contract declared wholly or partly void, or varied, as the Commission considers just in the circumstances of the case.

(6) In making an order under this section, the Commission must take into account whether or not the applicant (or person on behalf of whom the application is made) took any action to mitigate loss.

2 The proceedings are constituted by a further amended summons filed on 11 June 2004. The respondents, by notice of motion, have sought interlocutory orders and declarations to the effect that parts of the applicant's claims as constituted by the further amended summons are beyond the jurisdiction and power of this court. This judgment deals with this interlocutory matter.

3 The further amended summons seeks the making of certain orders directed to "any contract or arrangement, or any related condition or collateral arrangement, between the applicant and the respondents whereby the applicant performed work for the respondents in the stone and tile industry...". The relief extends to a finding that any such contract or arrangement etc was unfair and that it or they be declared void or varied. The further amended summons then seeks an order directed to "the share and unit purchase agreement" dated 31 October 2002 to which the applicant and the first respondent are parties. The orders seek, in effect, that clause 7 of that agreement be excised insofar that it contains a non-competition clause.

4 Presumably, the orders sought with respect to variation of the share and unit purchase agreement ("SUP") are consequential upon a finding of unfairness which impacts in some way upon the SUP either as a contract or arrangement or a related condition or collateral arrangement as defined for the purpose of s 106.

5 Consequential relief is also sought, the details of which are not important for the purpose of this interlocutory judgment.

6 The summons, as is required by the rules of this Court, contains a summary of matters of fact and law upon which the applicant relies. Relevantly, the applicant was employed by the first respondent, Artedomus, and was a director and secretary of the first respondent. The second respondent, Angelo Schepis, was a director of that company. Another corporate entity which, I shall assume is in some way controlled or owned by the applicant, owned shares in Artedomus. On 28 June 2002 the applicant was notified in an email from Mr Schepis that his employment with Artedomus was terminated because his position had been made redundant. The further amended summons states that the applicant was paid certain monies in lieu of notice of termination and possibly for other purposes on 1 July 2002. It also states that "during the period after the termination of his employment, the applicant unsuccessfully attempted to negotiate with Artedomus and Mr Schepis about payment of a redundancy payment... During the period, the applicant also sought to negotiate with third parties in respect of the sale of his company's shareholdings in Artedomus ...". On 31 October 2002 a share and unit purchase agreement was executed by the applicant and the other parties to the agreement. The further amended summons alleges that that agreement "is collateral to the contract or arrangement under which work is performed in an industry". It is further alleged that "on or about 24 October 2002 the applicant agreed to accept $260,000 from the respondent in accordance with the terms of (that) agreement".

7 Clause 7 of the Agreement is in the following terms:

Resignation of and Payment of Redundancy to Office Holder

7. In Consideration for the payment to him by the Company of a redundancy payment of $40,000 (forty thousand dollars) by bank cheque on the Settlement Date contemporaneously with other payments due to the Vendors pursuant to this Agreement on that date the Officeholder hereby agrees to tender his resignation as a Director and Secretary of the Company and the Trustee. The Officeholder agrees not to compete with the Company for a period of three years nor pursue any legal claim against the Company or hold himself out as an employee or officer of the Company and to keep confidential any commercially sensitive information he may be in possession of or have become aware of during his employment by the Company and the Trustee.

8 The controversy between the parties centred around whether or not the agreement of which clause 7 formed part fell within s 106. By reason of the definition of contract contained within s 105 the agreement must be one of the following:

1. a contract.

2. part of an arrangement; or

3. a condition related to, or an arrangement collateral to, such a contract or an arrangement.

9 In all of these cases, however, the agreement must be one whereby a person performs work in an industry. This latter requirement extends not only to the contract or arrangement but extends also to a condition related to, or arrangement collateral to, a contract or an arrangement (see the decision of the New South Wales Court of Appeal in Solution 6 Holdings Limited v Industrial Relations Commission of New South Wales [2004] NSWCA 200; and see also QSR Ltd v Industrial Relations Commission of New South Wales (2004) NSWCA 199).

10 The meaning of the words "whereby a person performs work in an industry" has recently been the subject of decisions of the New South Wales Court of Appeal and a Full Bench of this Court. I refer in particular to Mitchforce v Starkey (No 2) (2003) 130 IR 378, Mitchforce v Industrial Relations Commission (2003) NSWCA 151 and Solution 6 Holdings Limited v Industrial Relations Commission of New South Wales [2004] NSWCA 200.

11 The thrust of these authorities is to the effect that if a contract or arrangement etc is to be characterised as one whereby a person performs work in an industry it must lead directly to the performance of work in an industry by a person. In Solution 6, Spigelman CJ observed that:

"Although it is not an alternative test, I find it difficult to conceive of a contract, etc, which can be said to directly lead to the performance of work unless the contract, etc, both envisages the performance of work and has an impact upon the conditions of such performance. It may well be that these are minimum conditions for the conclusion of 'directness' to be drawn" (at [58])". These indicia of the type of contract or arrangement which falls within s 106 are consistent with observations and judgments of this Court (see Mitchforce v Starkey (No 2) (2003) 130 IR 378 and the authorities therein referred to).

12 This leads to a consideration as to whether or not, if the agreement were to stand alone, it may be characterised as one whereby a person performs work in an industry. The applicants submitted that clause 7 "has a direct relationship to the performance of work in an industry. Firstly the restraint is said to be given in consideration of a redundancy payment. Secondly, and more importantly, it purports to restrain the Applicant from performing any work that competes with the First Respondent. It is difficult to imagine a provision that would have a closer connection with the performance of work in an industry".

13 The contrary position was put by Mr Moses of counsel on behalf of the respondents. Mr Moses emphasised that the non-compete provision contained within clause 7 was a "negative covenant" which operated only beyond the expiration of the contract of employment between the applicant and the first respondent. In those circumstances it was submitted that such a covenant could not lead, either directly or indirectly, to the performance of work. Indeed, it had the reverse effect by precluding work being performed.

14 I agree with Mr Moses. Clause 7 is designed to preclude the applicant from carrying out work for anyone if that work is competitive with the activities of the first respondent, in circumstances where the agreement is made after the employment relationship has come to an end and, as I am prepared to assume, after the contract of employment has come to an end. There will obviously be circumstances where a negative covenant of this kind will not detract from the ability to characterise a contract or arrangement as one whereby work is performed in an industry. But, in the most obvious case, such a negative stipulation would operate concurrently with provisions of a contract or arrangement which lead directly to the performance of work in an industry.

15 Accordingly, the applicant may only succeed in establishing jurisdiction with respect to the provisions of clause 7 if the agreement of which that clause forms part is, in some way, part of an overall arrangement between the applicant and the first respondent (presumably constituted by that agreement itself and the contract of employment) or if the agreement operates in some way as a variation of the pre-existing contract of employment (see Old UGC Inc v Industrial Relations Commission of New South Wales [2004] NSWCA 197). The applicant sought to rely on both of these characterisations.

Did the SUP form part of an arrangement?

16 The applicants based their submissions in defence of the strike out application to a large part on the existence of an arrangement. That which constitutes an arrangement was discussed by Wright J, President and Walton J, Vice-President, in some detail in Mitchforce v Starkey (No 2). In paragraph [132] their Honours said:

"What may constitute an "arrangement" insofar as the section is concerned was discussed by the Full Bench in Legal & General Assurance Society Limited v Stock (1993) 49 IR 464 (at 480 - 481):

The authorities make clear that the term "arrangement" where used in the section is a wide one and encompasses transactions or plans which are not legally enforceable agreements. The following principles may be drawn from decided cases in the matter in relation to the ambit and reach of the term "arrangement" where used in the section (Unconscionable Contracts and Economic Duress - Peter M Hall, at 55-56):

(1) The word 'arrangement' in its ordinary meaning and particular statutory context is a word of much wider import than the word 'contract'.

(2) An 'arrangement' will be found to exist where there is a bilateral or multilateral plan or concerted action to bring about a particular result.

(3) An 'arrangement' may envisage a transaction in the nature of a bargain which may not be legally binding or enforceable, something in the nature of an understanding between two or more persons.

(4) The section speaks of an arrangement of a particular kind, namely, an arrangement whereby a person performs work in an industry, that is, a transaction which directly leads to the performance of work in an industry.

(5) The term 'arrangement' possessing a broad and extensive meaning may be found disclosed in a document comprising or specifying its terms, or there may be no document specifying the arrangement in which event resort will be had to oral evidence of discussions whilst in other cases an arrangement may be implied or inferred from the circumstances or the conduct of the parties. An arrangement may be discovered in a combination of documentary or verbal communications and the conduct of the parties. The relationship between the parties may itself manifest an arrangement.

(6) There may exist two separate contracts each forming part of a specific arrangement and together constituting the means by which it is effectuated so as to produce particular results and whereby a person performs work in an industry.

(7) The section accordingly comprehends not only the initial plans but all transactions by which the arrangement is carried into effect. It applies to any dealing the purpose or the effect of which is to achieve a situation as a consequence of which or wholly or partly in fulfilment of which a person performs work in an industry.

(8) The term 'arrangement' embraces a situation where there exists two or more separate contracts which, notwithstanding their separateness, are, in a particular factual context, so sufficiently associated with each other in a practical sense as together to constitute an arrangement of which each contract is a constituent part.

(9) The arrangement, including the relationship leading to the performance of work and another contract, need not necessarily have sprung into existence at the same time."

17 Later, their Honours said:

[135] "For an "arrangement" to be one whereby work is performed in an industry, there need merely be "a plan or concerted action by a number of persons to bring about [that] particular result": see Hall v Alison Clint Floral Delivery Pty Ltd at 64; and also Custom Credit Corporation Ltd v Goldsmith at 131, where the Full Bench held:

But it must be true to say, we think, that it is significant that Parliament did not see fit to include in the Act any definition of "arrangement", which is not a term of art and is not a word which has a very precise meaning. Looking at the setting in which it is used in s 88F, we are of the opinion that in one of its meanings "arrangement" embraces transactions which do not give rise to contracts or obligations, that is to say, obligations enforceable at law; but we are also of the opinion that in another meaning it embraces a situation where there exist two or more separate contacts which, notwithstanding their separateness, are, given the facts, so sufficiently associated with each other in a practical sense as together to constitute an arrangement of which each contract is a part.

[136] It is difficult to speak of an element of a "plan or concerted action by a number of persons" as being a "term" of such an arrangement in the manner with which that word was used by the majority in Production Spray Painting. Whilst such language was clearly appropriate in the circumstances of that matter, in the context of an arrangement, as we have described it, such a word is somewhat misplaced. We agree with the respondent that in such circumstances, a reference to "purpose" will clearly be of greater utility and directs attention to the substance of the transaction between the parties.

[137] What may constitute an arrangement against which the jurisdictional test (as earlier identified by us) is to be measured is clearly a matter of fact to be determined in all the circumstances.

[138] One thing, however, is certain and was emphasised by Mahoney JA in Majik Markets (at 455) "it is in principle necessary [to] know what the arrangement in question is so that [the Court] can determine whether the arrangement is one which falls within s 88F" (our emphasis). This is consistent with observations within the first Full Bench consideration of the section in In Re Becker & Harry M Miller Attractions Pty Limited (No.2) [1972] AR (NSW) 298, where it was stated at 304:

Merely reading the contract in vacuo supplies no answer on the issues both jurisdictional and discretionary which will face the single judge".

18 Mr Moses submitted that the applicant was precluded from relying on any argument that the SUP constituted part of an overall arrangement. He asserted that the applicant was bound by the manner in which the further amended summons was formulated. In particular, paragraph B23, when referring to the SUP, stated that that agreement "is collateral to the contract or arrangement under which work is performed in an industry". This would appear to be the only specific reference to the manner in which the SUP is to be characterised for the purpose of the proceedings.

19 However, if it were not for the provisions of paragraph B23, it would be possible to read the claims for orders formulated in the further amended summons as being capable of embracing the SUP itself within the reference to arrangement or any related condition or collateral arrangement. This is because the further amended summons does not describe in precise and clear terms what is the contract or arrangement or related condition or collateral arrangement to which the orders are directed. Neither does the summary of matters of fact and law contained within the further amended summons assist in this process. However, paragraph B29 states that the contract or arrangement between the applicant and the respondents was unfair in a number of ways, including that it "fails to provide appropriate measures to ameliorate the effects of dismissal on the Applicant, or to allow for the possibility of him maintaining his status and income level either elsewhere in the respondents' employ or elsewhere within the same industry". At its face value, this constitutes an assertion of unfairness which is capable of being directed to the non-compete clause in the SUP.

20 This is not a court of strict pleading. The contents of a summons seeking relief under s 106 are the subject of rule 18A(1) of the Industrial Relations Commission Rules 1996 which is in the following terms:

18A New procedure under section 106 (Unfair contracts)

(1) An application to the Commission to exercise the powers conferred on it by section 106 must be in Form 12A and must:

(a) specify in summary the matters of fact and law which form the basis of the application, but not the evidence by which those facts are to be proved, and

(b) contain sufficient information to allow the Commission to carry out its duty to conciliate under section 109 by a succinct summary.

21 It will be seen that it is necessary that the summons set out with sufficient particularity the matters of fact and law upon which the applicants rely. Arguably, the identification with some precision of the contract or arrangement etc upon which the applicant relies are matters both of fact and law which should be contained within the summons.

22 The difficulty with which the court is confronted in these proceedings is that, the applicant not having identified the contract or arrangement etc in the further amended summons with any necessary particularity, it might be inappropriate to entertain the respondents' strike-out motion on the basis of lack of jurisdiction. Assuming that the further amended summons is capable of being read as relying on an arrangement constituted by both the contract of employment and the SUP (including clause 7), and assuming that the applicant can eventually prove the existence of such an arrangement, this might arguably justify jurisdiction under s 106 to deal with the totality of the arrangement and therefore, the provisions of clause 7. I should not be seen to be expressing any concluded view about the ultimate outcome of the proceedings, nor could I for the purpose of this interlocutory judgment. The possibility is postulated in support of a conclusion that this is not the appropriate time at which to determine the question of jurisdiction. It may well be that such a determination cannot be made until all the issues are eventually revealed at the end of the substantive hearing and all of the evidence has been heard. At that stage, the applicant may again be faced with the same question as to whether clause 7 may be characterised as being closely related to the performance of work. As Spigelman CJ said in Solution 6, "once jurisdiction is established, I have no doubt that the Commission can void or vary any aspect of a contract or arrangement which is closely related to the performance of work..." (at paragraph [73]). These observations were cited with approval by Mason P in Mayne Nickless Limited v Industrial Relations Commission of New South Wales [2004] NSWCA 359 at[57] (Hodgson and McColl JJA agreeing).

23 For the purpose of determining these proceedings I again refer to the well-established line of authority in this Court concerning the circumstances and the basis upon which a determination should be made that this Court lacks jurisdiction to deal with the matter, such determination being made on an interlocutory basis. The authorities are referred to in the Full Bench decision in Euphoric Pty Limited v Ryledar Pty Limited and Anor [2002] NSWIRComm 136. Accordingly, the burden on the respondents in securing an order dismissing the summons for lack of jurisdiction is a heavy one. It has to be "plain that the invocation of the jurisdiction impugned is wholly misconceived, or upon analysis, lacks an arguable legal foundation" (see Kirby P (as his Honour then was) in the New South Wales Court of Appeal in Majik Markets Pty Ltd v Brake and Service Centre Drummoyne Pty Ltd (1991) 28 NSWLR 443 at 446).

24 Accordingly, taking the assertions contained within the summons at their highest in favour of the applicant I am not persuaded that this is the appropriate time at which to determine the jurisdictional arguments advanced by the respondents on this issue.

25 It follows that the same approach should be taken with respect to the alternative submission by the applicant that the SUP operated as a variation of the pre-existing contract of employment so as to create, in effect, a single contract of employment constituted by reading together the initial contract of employment (albeit an oral one) and the subsequent SUP. I should add for completeness in this context that the applicant relied on the approach taken in the New South Wales Court of Appeal in Old UGC. As Mr Moses was quick to point out, the factual circumstances in those proceedings were significantly different to those which prevail in these proceedings. In Old UGC a compensation and release agreement, notwithstanding that it was reached in the context of termination of employment, was negotiated and entered into whilst the employee continued to be employed by the employer. In addition, the employee continued to work for a short period after the compensation and release agreement was executed. However, whether and to what extent it may ultimately be asserted in favour of the respondents that the factual circumstances in Old UGC are sufficiently dissimilar from those in these proceedings as to militate towards a different result, is not a matter to be appropriately determined at this stage of these proceedings, and must await determination during the course of the substantive hearing for the same reasons as previously given.

26 I should record, for completeness, that counsel's submissions helpfully canvassed the concepts of collateral contracts and examined in some detail the judgment of the Full Bench of this Court in David Jones Limited v Cukeric (1997) 78 IR 430 and in particular the manner in which the Full Bench characterised the release entered into between the employer and the employee after termination of the contract of employment in those proceedings. For reasons which I have previously given, these are matters which must await determination at another stage of the proceedings.

27 For the above reasons I propose to dismiss the respondents' notice of motion. The question of costs was not argued before me and, arguably, the failure of the applicant to describe with any great particularity the contract or arrangement etc upon which he relies has created an impediment to a determination of the proceedings at this stage. Accordingly, I propose to reserve costs.

28 On one basis the manner in which the proceedings are constituted is unsatisfactory because of the failure of the applicant to describe sufficiently the contract or arrangement etc upon which he relies. In a note to counsel for each of the parties dated 1 March 2005, my Associate asked that consideration be given to a number of matters, including whether or not the further amended summons complied with rule 18A. Mr M Ashhurst, counsel for the applicant, did not specifically address this issue in reply but did indicate that "The Applicant concedes that the Further Amended Summons does not expressly claim that clause 7 of the Share and Unit Purchase Agreement was part of the overall contract of employment or constituted a variation of this contract. Further, in light of that concession it is appropriate for the Court to order the Applicant to amend its originating process in the manner described in paragraph 2 of your letter of 1 March 2005. The Applicant requires 7 days from the making of any such order to comply with that order".

29 Mr Moses submitted that the further amended summons did comply with rules 18A, but submitted further that the applicant should be required to apply formally to further amend the amended summons supported by notice of motion. It is obvious that the current state of the proceedings is unsatisfactory and should be rectified as soon as possible. Accordingly, the applicant is directed to file any notice of motion seeking to further amend the proceedings within 14 days of this judgment. The matter will then be listed for directions in the usual manner.

30 I make the following orders:

1. So much of the respondents' notice of motion filed 19 November 2004 which seeks to have the further amended summons dismissed for lack of jurisdiction, other than with respect to any argument based on s 108B of the Act, is dismissed.

2. The balance of the notice of motion is stood over with liberty to apply.

3. Costs are reserved.

4. Liberty to apply with respect to costs so reserved.

5. The applicant is to file and serve notice of motion and affidavit in support seeking to amend the proceedings within 14 days.

LAST UPDATED: 13/04/2005