A recent decision of the Federal Court has confirmed that a
Court cannot exercise its powers under the Independent
Contractors Act 2006 (Cth) (IC Act) to vary a
contract with retrospective effect. The decision substantially
limits the utility of the unfair contracts provisions in the IC Act
as a means for claimants to seek relief or redress by way of
compensation, where they have ceased to provide services under the
The overall aim of the IC Act is to encourage independent
contracting. One way in which the IC Act seeks to achieve this is
by giving Courts the power to review certain contracts for services
and make orders varying or setting aside the contracts if deemed
unfair or harsh.
In the case of Informax International Pty Limited v Clarius
Group Limited  FCA 183 (4 March 2011) (Informax
No 1) (which was the subject of a Middletons
eAlert! dated 18 March 2011), the Court was required to review
two contracts, one between a labour hire company and Woolworths,
pursuant to which the labour hire company provided IT services to
Woolworths, and the other between the labour hire company and an
independent contractor, who provided IT services.
The two contracts contained restraint clauses which had the
effect of preventing the independent contractor from working
directly for Woolworths for a period of six months after ceasing
work with the labour hire firm.
Upon reviewing the contracts, Perram J found that the contract
between the labour hire company and the contractor was unfair and
made an order to vary the contract so that the restraint clause
could not be enforced.
On the basis of this decision, the independent contractor sought
to amend its application to add a claim for damages for breach of
contract in respect of the conduct of the labour hire company which
took place prior to Perram J's order and which was contrary to
the varied contract (Informax International Pty Ltd v Clarius
Group Limited (No 2)  FCA 934 (18 August 2011)
(Informax No 2)).
In order to determine the application, Perram J was required to
consider whether the order made in Informax No 1 to vary the
contract between the independent contractor and the labour hire
company had retrospective effect.
Perram J found that the IC Act prohibited the making of
retrospective orders, citing section 16(4) which provides that
"an order under the Act takes effect as at the date of its
making or at some specified later date".
The effect of the decision is that the independent contractor
cannot sue for damages in respect of the loss suffered by it as a
result of the conduct of the labour hire company which occurred
before the contract was varied by the Court. As the independent
contractor had ceased working under the contract, a variation of
the contract going forward (which cannot give rise to a claim for
damages in relation to past conduct) is essentially a hollow
Perram J noted that remedying past unfair behaviours is not what
the legislation is about. He noted "those sections disclose a
scheme whose end is the reform of unfair contracts and not the
remediation of unfair behaviours which have not been contractually
However, given that the decision in Informax No 2 does not
suggest that the IC Act precludes Courts from amending terminated
contracts (so long as the amendment has prospective effect), it
will be interesting to see whether Courts will adopt the approach
of framing prospective orders in such a way that they may also have
the effect of alleviating past unfairness.
A party to a contract for services, regardless of whether the
contract has terminated or is still on foot, who wishes to obtain
relief in respect of conduct by the other party that has already
occurred should consider legal avenues other than the IC Act.
Parties who may benefit from making claims under the unfair
contract provisions in the IC Act will likely be those who are
still performing work pursuant to a contract and who wish to reform
the bargain between the parties going forward.
The decision in Informax No 2 is therefore likely to have the
effect of reducing the number of claims brought pursuant to the
unfair contract provisions in the IC Act.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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On 12th November 2016, new laws will commence to protect small businesses from unfair terms in standard form contracts.
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