The long standing Court battle between Caterpillar and its
Australian distributor Gough & Gilmour had its latest
instalment in the Court of Appeal last month with the Court of
Appeal finding that the distribution agreement was not a contract
for the performance of work in an industry. But comments from the
Bench about franchising agreements means the struggle still has
someway to go.
David Gough and Anthony Gilmour were the owners of, and worked
fulltime as, the senior executives of Holdings Limited. In 1991
Caterpillar (the applicant) entered into three
Dealership Agreements with Holdings for the sale and servicing of
the applicant's construction and mining equipment. When
Caterpillar terminated their dealership agreement, Gough and
Gilmour lodged an unfair contract claim in the Industrial Relations
Commission of New South Wales alleging that the dealership
agreement was a contract for the performance of work in an industry
and that it was unfair.
As we reported in earlier Franchising Focus editions, the IRC
determined that the contractual arrangement was unfair and made
orders varying the contractual arrangement. Caterpillar
unsuccessfully appealed the decision to the Full Bench of the IRC.
Caterpillar then challenged the jurisdiction of the IRC to order
the variation of the contractual arrangements. Caterpillar's
principal argument was that the IRC had no jurisdiction to
determine the proceedings because there was no "contract
whereby a person performs work in any industry."
The NSW Court of Appeal confirmed that the words "whereby a
person performs work in any industry" within section 106(1),
must be read and understood in an industrial context. The
definition of "industry" in the IRA means "any
trade, manufacture, business, project or occupation in which
The Court of Appeal had no doubt that Gough and Gilmour
performed work. However, the main issue was whether the way in
which the contract or arrangement was performed was "in
accordance with" or "according to" the Dealership
Agreements. The Court found that it was not.
Importantly, however, the Court of Appeal accepted that there
are cases where the working proprietor of a franchise or dealership
do perform "work in an industry" in accordance with the
dealership or franchise agreement. However, the surrounding
circumstances must be reviewed to assess whether the relationship
is analogous to an employee/employer relationship and is capable of
falling within the industrial context required by the section. In
the case of Gough and Gilmour, they were the only investors and
occupied the senior managerial positions of a very large
dealership. Gough and Gilmour were entrepreneurs who conducted a
business of significant scale involving tens of millions of dollars
of capital investment with 700 employees over numerous locations.
As a result, the Court of Appeal decided that Gough and Gilmour did
not "perform work in an industry" "according
to" the Dealership Agreements within the meaning of section
106 of the IRA. The range of activities to be undertaken by Gough
and Gilmour, as envisaged by or required by the agreement or
arrangement, was devoid of any "industrial" content, and
therefore lacked the necessary "industrial element" in
their work required for a section 106 claim to be upheld.
The decision is yet another reminder to franchisors to review
their franchise agreements to remove terms that may give it the
"industrial character" which will attract the unfair
It is rather ironic that the unfair contract jurisdiction which
has its origins in employment arrangements, as a result of
successive legislative reforms in workplace relations laws, no
longer applies to employment agreements or contractor agreements,
but potentially applies to franchise agreements.
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