On 21 November 2012 the Full Federal Court handed down a significant ruling on remedies available under the Independent Contractors Act 2006 (Cth) (IC Act) in relation to an appeal brought by an IT Project Manager seeking to vary an independent contractor agreement and obtain compensation from Clarius Group Limited (previously Candle Australia Ltd).
The decision adopts a technical process of statutory construction to achieve the outcome of enabling orders to be made under the IC Act that have, for all practical purposes, a retrospective application.
The IT project manager (the Principal) provided her services through the company Informax International Pty Ltd (Informax), which entered into a contract with Candle Australia Ltd (Candle) in February 2007 (the Candle Contract). Candle agreed to provide personnel to Woolworths pursuant to a contract dated 23 August 2006 (the Woolworths Contract) which, following a series of extensions, ceased on 30 June 2008. In July 2008, Informax and Woolworths entered into a contract stating that Informax would provide the Principal's services to Woolworths until 30 September 2008 pursuant to the execution of a service schedule. After Candle became aware of this agreement, Candle accused Woolworths of being in breach of the provisions of the Woolworths Contract. Clause 7.2 of the Woolworths Contract precluded Woolworths from soliciting any person whose services had been supplied by Candle to provide services for Woolworths, without the written consent of Candle for 12 months after the date when the services ceased to be provided. Following this, Woolworths did not execute any further service schedules with Informax.
Informax and the Principal (together the Applicants) claimed:
- that the Candle Contract was unfair and/or harsh and should be varied under Section 16 of the IC Act; and
- damages for breach of Clause 2.1 of the Candle Contract.
The Applicants also argued that Clause 4.4 of the Candle Contract (which precluded Informax or the Principal for a period of 6 months after termination of the contract from working for Woolworths) was an invalid restraint of trade.
In March 2011, Justice Perram found that neither Clause 4.4 of the Candle contract nor Clause 7.2 of the Woolworths Contract were valid because they were unlawful restraints of trade. As such, it was not considered whether these restraints were harsh or unfair within the meaning of Section 12 of the IC Act. Orders were made to vary the Candle Contract to preclude Candle from taking any step to enforce the restraint against Informax or the Principal. Justice Perram did not accept that there had been any breach of Clause 2.1 of the Candle Agreement.
In August 2011, the Applicants made an application to amend their pleadings to allege that Candle, by persuading Woolworths to dispense with the services of Informax and the Principal, breached the terms of the Contract inserted by the Court in March 2011. Justice Perram rejected the application because Section 16(4) of the IC Act provided that an order varying an unfair contract takes effect from the date of the order or a later date specified in the order, rather on a retrospective basis.
Decision of the Full Federal Court
On appeal to the Full Federal Court there were two issues to be determined:
- Whether the primary judge's finding that the Candle Contract was unfair or harsh within the meaning of Section 12(1) of the IC Act was correct; and
- If such contract was found to be unfair or harsh, whether an order may be made to vary the contract with effect from a date which predates the Court order having regard to Clause 16(4) of the IC Act.
In reversing the second decision of Justice Perram the Court relied on the following reasoning:
- Notwithstanding the invalidity of the restraints of trade in the Candle Contract and the Woolworths Contract, such clauses could also be unfair or harsh within the meaning of Section 12(1) of the IC Act. A party may choose to claim relief under Part 3 of the IC Act whether or not the party may also have available other claims in common law and equity.
- The application in relation to Part 3 of the IC Act was limited to the Candle Contract to which the Applicants were parties; they could not have applied for such relief in relation to the Woolworths Contract. That the Principal did not know of Clause 7.2 of the Woolworths Contract was characterized as unfair within the meaning of Section 12(1) of the IC Act, as was the fact that the restraint period in the Woolworths Contract was for 12 months whereas the restraint period in the Candle Contract was only for 6 months.
- It was unfair for the extended contracts to contain the restraint in Clause 4.4 without qualification and this restraint should only have effect if Candle had made real and consistent efforts to secure ongoing work for the Principal under the extended Candle Contract.
- The restraint in Clause 4.4 should be valid for a period of 4 weeks rather than totally invalid. However, to the extent that it was valid it was unfair given that Clause 7.2 of the Woolworths Contract purported to impose a 12 months restraint of the same conduct. Specifically in relation to labour hire contracts, the Court stated that the short-term nature of these engagements and the diminished nature of the exposure to risk compared to that generally faced by an employer from the solicitation of customers by a former long term employee means that adequate protection would generally be afforded to a labour hire firm by a shorter period of restraint than which would be required by a former employer.
- In relation to the making of retrospective orders, the Court held that the construction of Section 16(4) (that orders may only be prospective in operation) does not mean that such orders may not have a remedial effect on events or transactions which predate the date upon which an order is made. Further, it does not mean that any order made may not give rise to any duty, obligation or liability which operates from a time prior to making the order. The Court reasoned that this construction was consistent with the text of Section 16(4) and the plain meaning of the words "takes effect". Moreover, the Court held that the intention of the Parliament in regard to Section 16(4) was that the mischief it seeks to rectify be identified at its source (being when the contract was made) also be remedied from its source (from when the contract was made). It further held that to construe any other meaning would render the scheme of the Act almost certainly inapplicable to contracts which have been terminated and this outcome was inconsistent with the High Court decisions in Dingjan; Exparte Wagner (1995) 183 CLR 323 and Gerrard v Mayne Nickless Ltd (1996) 135 ALR 494 on the basis that the scheme considered by those authorities has been essentially re-enacted in the IC Act.
Based on this reasoning, the Full Court held that it was open for Informax to have sought and for the Court to have made, an order which varied the Candle Contract which had a remedial scope going back to the date of the contracts formation but with an operative effect from the date of the Court's order. The relevant unfairness in this case was the failure of the contract to prevent Woolworths employing the Principal and Informax at the time when the Candle Contract no longer restrained Informax or the Principal from doing so. The potential for unfairness could have been remedied at its source by an order which varied the Candle Contract from the date of making the order by including a term in that contract to the effect that Candle would be liable for any loss or damage suffered by Informax or the Principal resulting from such conduct.
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