Johnstone v Deutsche Australia Ltd; Deutsche Australia Ltd v Johnstone

[2003] NSWSC 933

CITATION:	Johnstone v Deutsche Australia Ltd; Deutsche Australia Ltd & Anor v Johnstone & Anor [2003] NSWSC 933
HEARING DATE(S):	27 October 2003
JUDGMENT DATE:	30 October 2003
JUDGMENT OF:	Gzell J
DECISION:	Registrar's decisions refusing leave to amend confirmed
CATCHWORDS:	PROCEDURE - Supreme Court Procedure - Amendment of pleadings - Review of Registrar's decisions - Whether an allegation of abuse of process not amounting to a plea in tort of collateral abuse of process is so futile that the amendment should be refused - Whether an allegation of abuse of process as unfair conduct is sufficient to invoke the Industrial Relations Act 1996, s 106
LEGISLATION CITED:	Supreme Court Rules 1970 Industrial Relations Act 1996 Supreme Court Act 1970
CASES CITED:	Comalco Aluminium Ltd v Ohtsu Tyre & Rubber Co (Aust) Ltd (unreported, 12 September 1983, NSWSC) In The Will of Sheppard [1972] 2 NSWLR 714 Re Brindle, ex parte FB & FA McMahon Pty Ltd (1992) 35 FCR 506 Queensland v J L Holdings Pty Ltd (1996-1997) 189 CLR 146 Macquarie Bank Ltd v National Mutual Life Association of Australia Ltd (1996) 40 NSWLR 543 Horton v Jones (No 2) (1939) 39 SR (NSW) 305 Gibson v Parkes District Hospital (1991) 26 NSWLR 9 Gambotto v John Fairfax Publications Pty Ltd (2001) 104 IR 303 Gregory Scott Bates v Finance Australia Pty Ltd [2002] NSWIRComm 42 Tszyu v Fightvision Pty Ltd (2001) 104 IR 225 Reich v Client Server Professionals of Australia Pty Ltd (2000) 49 NSWLR 551 Dodds v Premier Sports Australia Pty Ltd [2003] NSWSC 948 Premier Sports Australia Pty Ltd v Dodds [2001] NSWSC 707 Williams v Spautz (1991-1992) 174 CLR 509 Carson v Legal Services Commissioner [2000] NSWCA 308 R v Sang [1980] AC 402
PARTIES :	Ross Elliott Johnstone - Applicant Deutsche Australia Ltd - Respondent
FILE NUMBER(S):	SC 1780/03; 2288/03
COUNSEL:	Mr A Moses/ Mr A Metcalfe - Applicant Mr S Donaldson SC/ Mr P Braham - Respondent
SOLICITORS:	Harmers Workplace Lawyers - Applicant Minter Ellison - Respondent

LOWER COURTJURISDICTION:	Supreme Court
LOWER COURT FILE NUMBER(S):	1780/03 2288/03
LOWER COURT JUDICIAL OFFICER :	Registrar Berecry

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

GZELL J

THURSDAY 30 OCTOBER 2003

1780/03 ROSS ELLIOT JOHNSTONE v DEUTSCHE AUSTRALIA LTD
2288/03 DEUTSCHE AUSTRALIA LTD & ANOR v ROSS ELLIOT JOHNSTONE & ANOR

JUDGMENT

1 Ross Elliot Johnstone seeks review under the Supreme Court Rules 1970, Pt 61 r 3 of three decisions made by Registrar Berecry on 26 June 2003.

2 Johnstone, a former senior employee of Deutsche Australia Ltd, commenced proceedings against Deutsche in the Industrial Relations Commission of New South Wales claiming that his employment contract was unfair.

3 Deutsche and a related company commenced proceedings against Johnstone and his partner in the Federal Court of Australia alleging that Johnstone had made confidential information of Deutsche available to his new employer, Salomon Smith Barney Australia Pty Ltd, in breach of confidentiality obligations under his employment contract.

4 The proceedings in the Commission and in the Federal Court were transferred to this Court to be heard together.

5 In the proceedings transferred from the Commission, the Registrar refused Johnstone leave to amend his amended summons to include paragraphs alleging that Deutsche’s commencement of proceedings in the Federal Court constituted an abuse of process and unfair conduct in that Deutsche’s predominant purpose was to place pressure on Johnstone to discontinue or to settle the proceedings transferred from the Commission.

6 In the proceedings transferred from the Federal Court, the Registrar refused Johnstone leave to amend his defence to include a like allegation of abuse of process.

7 The third decision by the Registrar was a refusal to order Deutsche to serve a verified list of documents evidencing or recording deliberations and reasons for the commencement of the proceeding in the Federal Court and evidencing or recording communications between Deutsche and Johnstone’s new employer. The parties are agreed that the Registrar’s refusal to order this category of discovery does not raise any additional issues from those with respect to his decision to refuse leave to amend Johnstone’s defence, the review of which will determine this issue as well.

8 Deutsche’s offer of employment to Johnstone was contained in a letter of 14 March 1995. Clause 10 was in the following terms:

“All records, reports, computer software, client lists or other documents, information or material obtained, written or prepared by you in the course of your employment (whether on or off Group premises) or relating to the affairs of any member of the Group or their clients (collectively “the Confidential Information”) is confidential.
During your employment the Confidential Information may not be used or disclosed except as authorised or required by your duties and after termination of your employment may not be used or disclosed for any purpose. The Confidential Information must never be used for the personal advantage of employees or others. On termination of your employment you will be required to promptly return to the Group all of the Confidential Information in your possession and must not retain any copies, extracts or reproductions in whole or in part of any of the Confidential information. All right, title, interest and copyright in and to material prepared by you during the course of your employment will belong to the Group.”

9 The Industrial Relations Act 1996, s 106(1) provides that 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. Section 106(2) provides that 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.

10 In his summons before the Commission, Johnstone originally sought an order declaring his contract of employment with Deutsche an unfair contract and an order that the contract be varied to include terms relating to its variation and termination, Deutsche’s exercise of discretions and Johnstone’s entitlement to bonuses.

11 Johnstone applied to the Commission to amend his summons by including three further claims: an order declaring cl 10 of the letter of offer void ab initio; in the alternative, an order declaring that cl 10 be varied so that the definition of Confidential Information was limited to information not in the public domain, which remained current and which was commercially sensitive; and the following claim:

“5. An order declaring that the Respondent pay to the Applicant any amount ordered to be paid by the Applicant to the Respondent, and any costs incurred by Applicant, as a result of the Respondent commencing any proceedings against the Applicant which seek damages in respect of alleged breaches of Clause 10 of the letter of offer.”

When these amendments were sought, Deutsche had commenced the Federal Court proceedings alleging a breach by Johnstone of cl 10.

12 Deutsche did not oppose the first two amendments. It opposed the inclusion of par 5. On 19 November 2002, Marks J allowed each of the amendments. In the course of argument, counsel for Deutsche questioned whether an order under par 5 could ever be made as it could only arise after a judgment in another Court. His Honour remarked:

“It may be that in the exercise of discretion it is not made but there may be circumstances which might lead a judge to make it because of, for example – and I am only giving this hypothetically, I know nothing about these proceedings or the High Court proceedings – but hypothetically there may be a determination in the proceedings in this Court that on the evidence, the institution of the Federal Court proceedings, constituted an abuse of process and arguably a contempt of this Court by reason of the fact that there was absolutely no basis for their commencement and the only reason for commencement was to dissuade the applicant from continuing with these proceedings or to dissuade the applicant to accept some miserly offer from Deutsche Bank.”

13 Registrar Berecry rejected the application to amend the amended summons on two grounds. First, that there was not a sufficient nexus between the commencement of the proceedings in the Federal Court and the terms and conditions of the contract of employment. Secondly, that the pleading of conduct amounting to an abuse of process without a plea that damage was suffered thereby, did not raise a cause of action.

14 The principles applicable to a review of a Registrar’s decision are not in issue. The Supreme Court Rules 1970, Pt 61 r 3(1) is in general terms. Where a Registrar makes an order, the Court may review the decision and may make such order by way of confirmation, variation, discharge or otherwise as the Court thinks fit.

15 There is a clear contrast between this language and that in the Supreme Court Rules 1970, Pt 60 r 10 which provides that an appeal shall lie to the Court from any decision of a Master except where an appeal lies to the Court of Appeal pursuant to r 17.

16 The Supreme Court Act 1970, s 75A(8) provides that where an appeal is from a judgment after trial or hearing on the merits, the Court shall not receive further evidence except on special grounds. That provision is limited by the terms of s 75A(1) to an appeal to the Court and to an appeal in proceedings in the Court. It has no application to a review under the Supreme Court Rules 1970, Pt 61 r 3 (Comalco Aluminium Ltd v Ohtsu Tyre & Rubber Co (Aust) Ltd (unreported, 12 September 1983, NSWSC).

17 Upon review, the Court is entitled to scrutinise all aspects of a Registrar’s findings as well as the actual decision. The Court is not limited to the question whether the Registrar acted upon some mistaken principle (In The Will of Sheppard [1972] 2 NSWLR 714).

18 The Court is not bound by the material before the Registrar when the decision under review was made. Evidence of subsequent events, where appropriate, is admissible (Re Brindle, Ex parte FB & FA McMahon Pty Ltd (1992) 35 FCR 506).

19 The principles relevant to an application to amend a pleading are also not in doubt. Justice is the paramount consideration in determining such an application and, while case management is a relevant consideration, it should not be allowed to prevail over the injustice of shutting an applicant out from raising an arguable defence and thus precluding the determination of an issue between the parties (Queensland v J L Holdings Pty Ltd (1996-1997) 189 CLR 146 at 155, Macquarie Bank Ltd v National Mutual Life Association of Australia Ltd (1996) 40 NSWLR 543 at 554).

20 There is an exception. An amendment that is so futile that it would be struck out if it appeared in an original pleading, will not be allowed (Horton v Jones (No 2) (1939) 39 SR (NSW) 305 at 310, Gibson v Parkes District Hospital (1991) 26 NSWLR 9 at 15).

21 Counsel for Johnstone pointed out that post-employment conduct may render a contract unfair for the purposes of the Industrial Relations Act 1996, s 106(1). That proposition is not in doubt. So much is clear from the language of s 106(2).

22 In Gambotto v John Fairfax Publications Pty Ltd (2001) 104 IR 303 at 312, Peterson J said that just as the termination of a contract could cause it to be found unfair because of its deficiencies, so post-employment conduct might make the contract unfair in the statutory sense.

23 In that case, the applicant was a freelance journalist with the Sydney Morning Herald. She alleged that after her employment contract came to an end, she was defamed. It was successfully argued that the contract under which her work was performed was unfair in that it did not prevent the respondent acting in an unfair way after its termination and required variation to impose a series of duties upon the respondent that would prevent such conduct. The impugned conduct was linked to the unfairness of the contract.

24 In the instant circumstances, the proposed amendments link the impugned conduct to the continuation of the proceedings in the Federal Court. They do not link the conduct to the unfairness of the contract of employment. What is proposed is an allegation that the Federal Court proceedings were commenced for an improper purpose. It is not proposed to allege that the contract was unfair in failing to prevent Deutsche from seeking to enforce cl 10.

25 In Gregory Scott Bates v Finance Australia Pty Ltd [2002] NSWIRComm 42 at par 71, Peterson J concluded that a contract became unfair by reason of the conduct of the respondents. Again, there was a link between the impugned conduct and the unfairness of the contract.

26 Counsel for Johnstone pointed out that the jurisdiction of the Commission to make orders under the Industrial Relations Act 1996, s 106 is broader than the jurisdiction of this Court in reliance upon common law or equitable principles (Tszyu v Fightvision Pty Ltd (2001) 104 IR 225 at 236-237).

27 In Reich v Client Server Professionals of Australia Pty Ltd (2000) 49 NSWLR 551, the respondent recruited the appellant from the United States of America. He was paid $250,000 per annum when the managing director indicated that because of economic constraints his remuneration would be reduced to $130,000. The appellant rejected this proposal and negotiation between the parties failed to resolve the impasse. The appellant left on the first day he was paid under the revised package.

28 The judge at first instance dismissed the appellant’s claim. On appeal, counsel for the respondent, in supporting the primary judge’s findings, submitted that since the contract proscribed unfair conduct it could not be an unfair contract. He submitted that unfairness in a contract was demonstrated by unfair conduct that was consistent with the contract.

29 In dealing with this submission at 567, the majority of the Commission took the view that unfairness in a contract was also demonstrated by unfair conduct that was inconsistent with the contract. Their Honours said that conduct by an employer which was unfair and which breached the employment contract, even though not permitted by the terms of that contract, nevertheless rendered the contract unfair and amenable to relief. Their Honours went on to say:

“We would only add the comment that to us it seems an utterly arid exercise in semantics to find conduct as part of the operation of a contract to be unfair but not thereby to find also the contract to be unfair because such unfair conduct was not permitted by the otherwise fair contract — we think it should be stated as plainly as it may be, and as we think the authorities and s 106(2) do, that a contract may be found to be unfair because of any conduct of the parties.”

30 Counsel for Johnstone submitted that Reich was authority for the proposition that unfair conduct, whether or not referable to the terms of the contract of employment, may be subject to relief under the Industrial Relations Act 1996, s 106(2). He submitted that the commencement of the proceedings in the Federal Court was unfair conduct that grounded the claim to indemnity in par 5 of the amended summons.

31 I do not understand the passage in Reich to go so far. Their Honours were at pains to dismiss the argument that unfair conduct inconsistent with the terms of a contract could not render that contract unfair. Their Honours were of the view that it could. Any conduct could render a contract unfair. Their Honours did not say that a finding of unfair conduct was sufficient to enliven the Industrial Relations Act 1996, s 106(2). They said that such conduct might render the contract unfair. It remains necessary to conclude that the contract is unfair as a result of the unfair conduct to enliven the statute. In my view Registrar Berecry was correct in his conclusion that that exercise requires some nexus between the impugned conduct and the terms and conditions of the contract.

32 In this case, the contract is claimed to be unfair because of its failure to include terms as to variation and termination, Deutsche’s discretions, Johnstone’s entitlement to bonuses, its inclusion of cl 10 or the width of cl 10. There is no claim that the commencement of the Federal Court proceedings rendered the contract unfair. The proposed additional paragraphs of the amended summons raise the argument that the commencement of the Federal Court proceedings was an abuse of process because they were brought for an improper purpose.

33 In Dodds v Premier Sports Australia Pty Ltd [2003] NSWSC 948 at par 14, Palmer J repeated his earlier observation in Premier Sports Australia Pty Ltd v Dodds [2001] NSWSC 707 at par 19 and said that in the absence of a finding that a contract was unfair, there was no power to make any declaration or order under the Industrial Relations Act 1996, s 106. That view was criticised by counsel for Johnstone. I agree with his Honour.

34 Nor do I regard the proposed additional paragraphs of the amended summons as a pleading of the factual allegations justifying an order in terms of the indemnity claim in par 5 as was submitted on behalf of Johnstone.

35 That relief was dependent upon a finding that cl 10 was void or should be limited. It addressed the circumstance that the separate proceedings in the Federal Court might have resulted in judgment in favour of Deutsche before Johnstone’s proceedings in the Commission were determined. If the Commission subsequently determined that cl 10 was void or should be so restricted that the Federal Court proceedings, if then conducted, would have given rise to a different result, an indemnity was appropriate relief.

36 It was submitted on behalf of Johnstone that the above-quoted remarks of Marks J constituted a proper basis for the indemnity claim and that Deutsche’s opposition to the proposed additional paragraphs of the amended summons was tantamount to a challenge to his Honour’s reasons not open in the absence of an appeal from his Honour’s determination.

37 An observation made by a judge in the course of argument does not constitute a decision by the judge. Furthermore, I have, with due respect to his Honour, some difficulty with his reasoning. If Deutsche had absolutely no basis for the commencement of the proceedings in the Federal Court there would be no judgment in its favour that would call for an indemnity. In any event, the utility of the indemnity claim in par 5 is spent. Now that the proceedings in the Federal Court and those in the Commission have been cross-vested into this Court the prospect of inconsistent decisions has been eliminated. If this court forms the view that there is no basis for Deutsche’s proceedings, there will be no judgment in its favour with respect to which any indemnity might be necessary.

38 In my opinion Registrar Berecry was correct in refusing to allow the amendments on the basis that there was an insufficient link between the impugned conduct and the contract of employment. An allegation that conduct constitutes an abuse of process is an allegation of unfair conduct. But an allegation of unfair conduct alone is insufficient to invoke the Industrial Relations Act 1996, s 106. That allegation must be linked to an allegation that the unfair conduct caused the contract to become unfair. That is not the case Johnstone seeks to make. His case is that the impugned conduct was directed at causing him to abandon the proceedings initiated before the Commission.

39 It is unnecessary for me to deal with the Registrar’s alternative basis for rejecting the amendments.

40 In refusing leave to amend the defence, Registrar Berecry took the view that the proposed additional paragraph did not go to any item pleaded in Deutsche’s statement of claim and was appropriately the subject of an application to strike out the whole or portion of the statement of claim.

41 Counsel for Johnstone submitted that there was no authority for the proposition that a matter appropriate to a strike out application could not be the subject of a defence. It was submitted that it was equally appropriate that a claim be dismissed at the conclusion of a hearing as it was for summary dismissal.

42 In my view the Registrar’s decision was correct. An abuse of process can arise in the prosecution of a prima facie case (Williams v Spautz (1991-1992) 174 CLR 509 at 522). It is not the irregularity of the cause of action that gives rise to the abuse. It is the improper motive in maintaining the proceedings that is the gravamen of the abuse. Thus, if a litigant has a genuine cause of action which the litigant wishes to pursue in any event to a conclusion, there is no abuse or impropriety in its prosecution even if the litigant has an ulterior purpose as a desired by-product of the litigation (Carson v Legal Services Commissioner [2000] NSWCA 308 at par 107).

43 It follows, in my view, that a plea of abuse of process is an inappropriate defence. It does not go to negate an element in the cause of action. Rather it is related to the supervening purpose of prosecuting the cause of action.

44 Nor do I think it is open to a litigant to ask a Court to consider an assertion of an abuse of process at the conclusion of a trial unless the litigant has pleaded the tort of collateral abuse of process. If there be an abuse of process, a Court is duty bound to protect itself against that abuse (R v Sang [1980] AC 402 at 455). The public interest in the administration of justice requires a Court to protect its ability to function as a Court of law by ensuring that its processes are used fairly. Furthermore, unless the Court protects its ability so to function in that way, its failure will lead to an erosion of public confidence by reason of concern that the Court’s processes may lend themselves to oppression and injustice (Williams at 520).

45 It follows, that if an allegation of abuse of process outside a pleading of the tort of collateral abuse is raised, the Court is duty bound to determine the issue there and then. It is inappropriate for the Court to defer its determination until the conclusion of a trial.

46 That being so, I am of the view that it is inappropriate to raise the issue of abuse of process as a matter of defence to be determined by the Court at the conclusion of the proceedings. In my view the Registrar was correct in concluding that the proposed addition to the defence was not a matter of defence and was not an issue to be determined at the conclusion of the trial.

47 It follows, in accordance with the common ground between the parties, that the third decision of Registrar Berecry was also correct, on the reasoning I have adopted.

48 I am of the opinion, therefore, that each of Johnstone’s applications for review fails. I will hear the parties on costs. I direct the parties to bring in short minutes of orders reflecting these reasons.

**********

Last Modified: 11/03/2003