On 22 August 2008, the Federal Magistrates Court issued judgment in the first case to deal with the "unfair contracts" remedy contained in the Independent Contractors Act 1996 (Cth) (the Act).
Section 12 of the Act, allows the Court to review a "services contract" on the grounds that the contract is unfair or harsh.
A services contract is a contract for services to which an independent contractor is party and which relates to the performance of work by the independent contractor. At least one party to the contract must be a constitutional corporation.
The Act provides that in determining whether the contract is unfair or harsh a Court must have regard to:
- the terms of the contract when it was made;
- the relative strengths of the bargaining positions of the parties;
- whether any undue influence or pressure was exerted, or any unfair tactics used;
- whether the contract provides total remuneration that is, or is likely to be, less than that of an employee performing similar work;
- any other matter that the Court thinks is relevant.
The matters in (2) to (5) above must be considered as at the date that the contract was made.
If a Court concludes that a contract was unfair or harsh then it may make an order for the purposes of placing the parties as nearly as practicable on such a footing that the unfairness or harshness no longer applies.
In practice this means that the Court can issue orders varying or avoiding the contract (in whole or part) and may also award monetary compensation.
Practical Significance - Keldote Pty Ltd & Ors v Riteway Transport Pty Ltd  FMCA 1167
The case is significant because it illustrates the boundaries of this particular remedy – in particular, the manner in which the Court is to assess the contract for unfairness or harshness.
Although the unadorned words of the Act suggest that the Court's focus is to be restricted only to those matters which were evident at the time the contract was created, this case establishes that the Court may examine later events (including the conduct of the parties) if doing so will shed light on matters of unfairness that existed at the time the contract was created.
The case concerned a services contract between a carrier (L&D) and the principal (Riteway). Under the contract, the carrier would transport goods at the request of Riteway.
The contract contained the following relevant terms:
- Riteway could instruct the carrier to make changes to its vehicle, without any requirement that Riteway contribute to the costs of so doing.
- The carrier was to be paid for each "leg" of the transportation on the basis of a fee. The contract did not set out a mechanism for determining the fee.
- The contractor was prevented from assigning the contract to another carrier for an amount which exceeded $20,000.
Riteway issued instructions to the carrier to substantially modify its vehicle. The contractor claimed to be unable to do so because of the expense. Riteway construed this as an indication from the carrier that it could no longer comply with the contract and, consequently, the contract was terminated.
The carrier initiated proceedings under section 12 of the Act and claimed that the following aspects of the contract were unfair or harsh:
- The contract failed to require Riteway to compensate the carrier for acquiring new equipment pursuant to Riteway's direction.
- The contract failed to contain an adequate mechanism for determining the price for each "leg".
- The cap on "goodwill" of $20,000.
- The contract did not contain a mediation or arbitration procedures.
- The contract did not contain a requirement that negotiations between the parties be conducted in good faith.
- The contract provided total remuneration less than that of an employee performing similar work.
The Court rejected all claims except the first one.
Riteway had argued that the first claim should fail because it did not constitute an allegation that the contract was unfair or harsh at the time of its creation – rather, the carrier was asking the Court to judge the contract by reference to something which had happened later on. The Court concluded that the unfairness of a services contract as at the date of its creation can be judged by looking at, among other things, events which occurred during the course of the relationship. Those later events may serve to show that the agreement was unfair from its inception, but in ways that could not be appreciated without looking at those later events.
When this jurisdiction was introduced it was thought to be a good deal narrower than the unfair contract jurisdiction which existed under section 106 of the Industrial Relations Act 1996 (NSW). In that jurisdiction, the Industrial Court was specifically authorised to examine the conduct of the parties during the course of the relationship. It appears on the basis of this judgment that the jurisdiction under the Act is likely to develop in such a way that the principal's conduct during the course of the relationship will be a legitimate object of attention.
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