FEDERAL COURT OF AUSTRALIA

Informax International Pty Ltd v Clarius Group Limited [2012] FCAFC 165

Citation: Informax International Pty Ltd v Clarius Group Limited

[2012] FCAFC 165

Appeal from: Informax International Pty Ltd v Clarius Group Limited

(2011) 192 FCR 210; [2011] FCA 183

Informax International Pty Ltd v Clarius Group Limited

(No 2) (2011) 282 ALR 405; [2011] FCA 934

Parties: INFORMAX INTERNATIONAL PTY LTD and

ISABEL MENANO-PIRES v CLARIUS GROUP

LIMITED

File number: NSD 1484 of 2011

Judges: BESANKO, JAGOT AND BROMBERG JJ

Date of judgment: 20 November 2012

Catchwords: CONTRACT – whether contract “unfair” within the

meaning of the Independent Contractors Act 2006 (Cth) –

validity of restraints of trade – relationship between

restraints of trade and the Independent Contractors Act

2006 (Cth)

CONTRACT – power of Court to make an order varying a

contract – time of operative effect of such order –

construction of ss 12(3) and 16(4) Independent Contractors

Act 2006 (Cth)

Legislation: Commonwealth Conciliation and Arbitration Act 1904-

1915 (Cth)

Independent Contractors Act 2006 (Cth)

Industrial Relations Act 1988 (Cth)

Industrial Relations Reform Act 1993 (Cth)

Workplace Relations Act 1996 (Cth)

Workplace Relations Amendment (Work Choices) Act 2005

(Cth)

Workplace Relations and Other Legislation Amendment

Act 1996 (Cth)

Workplace Relations Legislation Amendment (Independent

Contractors) Act 2006 (Cth)

Industrial Arbitration Act 1940 (NSW)

Industrial Relations Act 1991 (NSW)

Industrial Relations Act 1996 (NSW)

Restraints of Trade Act 1976 (NSW)

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Federal Court Rules 1979 (Cth)

Independent Contractors Bill 2006 (Cth)

Industrial Relations Legislation Amendment Bill 1992

(Cth)

Cases cited: AB v Western Australia (2011) 244 CLR 390; [2011] HCA

42

Adamson v New South Wales Rugby League Ltd (1991) 31

FCR 242

Aerial Taxi Cabs Co-operative Society Ltd v Lee (2000)

102 FCR 125; [2000] FCA 1628

Aerotek, Inc. v Burton 835 So 2d 197 (2001)

Re Alcan Australia Ltd; Ex parte Federation of Industrial,

Manufacturing and Engineering Employees (1994) 181

CLR 96

Allied Express Transport Pty Ltd v Mears [2010] NSWSC

1112

Aussie Home Loans v X Inc Services (2005) ATPR 42-060;

[2005] NSWSC 285

Australasian Memory Pty Ltd v Brien (2000) 200 CLR

270; [2000] HCA 30

Re Becker & Harry M Miller Attractions Pty Ltd (No 2)

[1972] AR (NSW) 298

Buchmueller v Allied Express Transport Pty Ltd (1999) 88

IR 465; [1999] FCA 319

Cactus Imaging Pty Ltd v Peters (2006) 71 NSWLR 9;

[2006] NSWSC 717

Columbus Medical Services, LLC v Thomas 308 SW 3d

368 (2009)

Commissioner for Railways (NSW) v Agalianos (1955) 92

CLR 390

Consultants & Designers, Inc v Butler Service Group, Inc

720 F 2d 1553 (1983)

Daley v New South Wales Rugby League Ltd (1995) 78 IR

247

Dalysmith Corporation (Aust) Pty Ltd v Cray Personnel

Pty Ltd (unreported, Supreme Court of New South Wales,

14 April 1997)

Dickins v Herald and Weekly Times Ltd (1994) 124 ALR

308

Re Dingjan; ex parte Wagner (1995) 183 CLR 323

Electrolux Home Products Pty Ltd v The Australian

Workers’ Union (2004) 221 CLR 309; [2004] HCA 40

Esso Petroleum Co. Ltd v Harper’s Garage (Stourport) Ltd

[1968] AC 269

Finch v Herald & Weekly Times Ltd (1996) 65 IR 239

Gerrard v Mayne Nickless Ltd (1996) 135 ALR 494

Hanna v OAMPS Insurance Brokers Ltd (2010) 202 IR

420; [2010] NSWCA 267

Hanover Insurance Brokers Ltd v Schapiro [1994] IRLR

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82

Harding v Ansvar Australia Insurance (1998) 91 IR 1

Harding v EIG Ansvar Ltd (2000) 95 IR 349; [2000] FCA

46

Herbert Morris Ltd v Saxelby [1916] 1 AC 688

Informax International Pty Ltd v Clarius Group Limited

(2011) 192 FCR 210; [2011] FCA 183

Informax International Pty Ltd v Clarius Group Limited

(No 2) (2011) 282 ALR 405; [2011] FCA 934

Jordan v Aerial Taxi Cabs Co-operative Society Ltd (2001)

108 IR 263; [2001] FCA 972

Kao, Lee & Yip (a firm) v Koo Hoi-Yan [1995] 1 HKLR

248

Keldote Pty Ltd v Riteway Transport Pty Ltd (2009) 185 IR

155; [2009] FMCA 319

Kores Manufacturing Co Ltd v Kolok Manufacturing Co

Ltd [1957] 1 WLR 1012

Kores Manufacturing Co Ltd v Kolok Manufacturing Co

Ltd [1959] Ch 108

Lindner v Murdock’s Garage (1950) 83 CLR 628

Office Angels Ltd v Rainer-Thomas [1991] IRLR 214

Papa v Finemores (Print L4930, AIRC, 31 August 1994)

Re Ranger Uranium Mines Pty Ltd; Ex parte Federated

Miscellaneous Workers’ Union of Australia (1987) 163

CLR 656

Stacks Taree Pty Ltd v Marshall (No 2) [2010] NSWSC 77

Standish v University of Tasmania (1988) 26 IR 342

Telegraph Newspaper Co Pty Ltd v Australian Journalists’

Association (1962) 3 FLR 39

Re Transport Workers Union of Australia (1993) 50 IR 171

Woolworths Ltd v Olson [2004] NSWCA 372

Blake HM “Employee Agreements not to Compete” (1960)

73 Harv L Rev 625

Heydon JD “How Far Can Trial Courts and Intermediate

Appellate Courts Develop the Law” (2009) 9(1) OUCLJ 1

Heydon JD, The Restraint of Trade Doctrine (3rd ed,

LexisNexis Butterworths, 2008)

Dates of hearing: 21-22 May 2012

Place: Sydney

Division: GENERAL DIVISION

Category: Catchwords

Number of paragraphs: 192

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Counsel for the Appellants: Mr M J Kimber SC and Mr N E Furlan

Solicitor for the Appellants: Harmers Workplace Lawyers

Counsel for the Respondent: Mr A Moses SC and Mr Y Shariff

Solicitor for the Respondent: Lander & Rogers Lawyers

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IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY

GENERAL DIVISION NSD 1484 of 2011

ON APPEAL FROM THE FEDERAL COURT OF AUSTRALIA

BETWEEN: INFORMAX INTERNATIONAL PTY LTD

First Appellant

ISABEL MENANO-PIRES

Second Appellant

AND: CLARIUS GROUP LIMITED

Respondent

JUDGES: BESANKO, JAGOT AND BROMBERG JJ

DATE OF ORDER: 20 NOVEMBER 2012

WHERE MADE: SYDNEY

THE COURT ORDERS THAT:

1. Any application by the appellants to amend the notice of motion dated 21 April 2011

is to be set out in writing and supported by such submissions as those parties wish to

make. Such documents are to be filed and served within seven days.

2. Any submissions in response by the respondent are to be filed and served within

fourteen days.

3. Any submissions in reply by the appellants are to be filed and served within seventeen

days.

Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

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IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY

GENERAL DIVISION NSD 1484 of 2011

ON APPEAL FROM THE FEDERAL COURT OF AUSTRALIA

BETWEEN: INFORMAX INTERNATIONAL PTY LTD

First Appellant

ISABEL MENANO-PIRES

Second Appellant

AND: CLARIUS GROUP LIMITED

Respondent

JUDGES: BESANKO, JAGOT AND BROMBERG JJ

DATE: 20 NOVEMBER 2012

PLACE: SYDNEY

REASONS FOR JUDGMENT

THE COURT:

THE PROCEEDING

1 Although this proceeding involves an appeal, a cross-appeal and contentions there are

two principal issues which must be determined. The first is whether the primary judge erred

in finding that certain contracts between Candle Australia Ltd, now known as Clarius Group

Limited (Candle), Informax International Pty Ltd (Informax) and Isabel Menano-Pires (Mrs

Menano-Pires) first executed in February 2007 and as extended thereafter are unfair or harsh

within the meaning of s 12(1) of the Independent Contractors Act 2006 (Cth) (the IC Act).

The second is whether, if such contracts are found to be unfair or harsh, an order may be

made that varies the contract with operative effect from a date which predates the making of

the Court’s order, having regard to the terms of s 16(4) of the IC Act (which provides that

“[a]n order takes effect on the date of the order or a later date specified in the order”).

2 To understand how these issues arise it is necessary to provide a brief review of the

facts and the way in which the primary judge resolved the proceeding in two judgments,

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Informax International Pty Ltd v Clarius Group Limited (2011) 192 FCR 210; [2011] FCA

183 (the first judgment) and Informax International Pty Ltd v Clarius Group Limited (No 2)

(2011) 282 ALR 405; [2011] FCA 934 (the second judgment).

BACKGROUND

The facts

3 Insofar as this proceeding is concerned there is no relevant factual dispute. As the

primary judge found, Mrs Menano-Pires is an experienced information technology (IT)

project manager. She provides her services through the company Informax. Candle is a

recruitment firm which specialises in the placement of IT contractors with large corporations.

Candle is a large business providing recruitment services across the Asia Pacific region.

Apart from those contractors whom it places in positions with its clients, it has more than 350

of its own staff located in major cities across the region such as Sydney, Melbourne, Hong

Kong, Beijing and Singapore as well as many others and operates across a number of sectors

including the IT sector.

4 One of Candle’s clients was Woolworths Ltd (Woolworths). On 23 August 2006

Candle and Woolworths entered into a contract referred to as the Woolworths Consulting

Services Agreement (the Candle-Woolworths contract). This contract involved Candle

supplying to Woolworths personnel to provide Woolworths with IT services.

5 In February 2007 Candle, Informax and Mrs Menano-Pires entered into a contract

(the Candle contract). The Candle contract involved Informax providing the services of Mrs

Menano-Pires to Candle’s client Woolworths. The Candle contract commenced on 5 March

2007 and concluded on 1 June 2007. By agreement, however, the Candle contract was

extended on the same terms and conditions on 2 June 2007 for a period of 26 weeks

concluding on 3 December 2007 (the first extension), 3 December 2007 for a period of 26

weeks concluding on 31 May 2008 (the second extension) and 1 June 2008 for a period of 4

weeks concluding on 30 June 2008 (the third extension).

6 In July 2008 Informax and Woolworths entered into a contract also referred to as the

Woolworths Consulting Services Agreement (the Informax-Woolworths contract). This

contract involved Informax providing Mrs Menano-Pires’ IT services to Woolworths as

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contemplated by the execution of a service schedule from 1 July 2008. The only service

schedule executed involved Informax providing Mrs Menano-Pires’ IT services to

Woolworths until 30 September 2008, although more service schedules continuing this work

were contemplated before 30 September 2008.

7 When Candle became aware of the Informax-Woolworths contract Candle

communicated to Woolworths its concern about Woolworths being in breach of provisions of

the Candle-Woolworths contract, specifically cll 7.2 and 7.3, by reason of its direct

contracting with Informax. Woolworths thus did not execute the further service schedules

contemplated between it and Informax under the Informax-Woolworths contract and, for

good measure, terminated the Informax-Woolworths contract (although, as the primary judge

noted, this contract had concluded on 30 September 2008 in any event).

8 In the proceedings before the primary judge Informax and Mrs Menano-Pires, insofar

as relevant for present purposes, claimed that the Candle contract (including the extensions)

is unfair and/or harsh and should be varied under the IC Act and also claimed damages for

breach of contract (the breach contemplated being breach of the contract as extended and as

sought to be varied under the IC Act). They also alleged a breach of cl 2.1 of the Candle

contract as entered into and extended. Candle cross-claimed against Informax alleging

breach of the Candle contract (as extended) and damages for the margin Candle said it would

have received on the work Mrs Menano-Pires carried out for Woolworths under the

Informax-Woolworths contract. In defence, Informax and Mrs Menano-Pires alleged that the

provision of the Candle contract on which Candle relied to assert breach, cl 4.4, was an

invalid restraint of trade.

9 Before explaining the primary judge’s reasoning it is convenient to identify the

relevant provisions of the agreements and the IC Act.

The Candle-Woolworths contract

10 The Candle-Woolworths contract defined Candle as the Supplier and otherwise

contained the following provisions.

1 About this Agreement …

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1.3 Non-exclusivity There is no obligation on Woolworths to obtain services of the type provided under

this Agreement exclusively from the Supplier.

1.4 Benefit This Agreement and each of the rights granted under it are for the benefit of all

members of the Woolworths Group, in order that they may exercise and enforce all

rights granted pursuant to this Agreement jointly and severally.

2 Services

2.1 Supplier to provide Services

The Supplier will provide the Services on the terms set out in this Agreement. The

precise details of the Services, including a description of the Deliverables, will be set

out in a Service Schedule.

2.2 Service Schedule Template If and when Woolworths wishes to order Services, the Supplier will prepare and

submit a draft Service Schedule to Woolworths. Each draft Service Schedule must

contain the details required in and be substantially similar in form to the Service

Schedule Template.

2.3 Incorporation of Service Schedule When a draft Service Schedule has been agreed by the parties, the parties will sign

the Service Schedule and it will be incorporated into this Agreement.

…

3 Term

3.1 Term of this Agreement This Agreement begins on the Commencement Date and continues until the later of:

a) 3 years after the date of this Agreement; or

b) termination or expiration of all Service Schedules,

unless terminated earlier in accordance with this Agreement (“Term”).

3.2 Term of a Service Schedule Each Service Schedule commences on the Service Schedule Commencement Date

and continues until the expiration of the Service Schedule Term unless terminated

earlier in accordance with this Agreement.

…

7 Personnel

7.1 Key Personnel The parties agree that if specified in a Service Schedule the Supplier must:

a) appoint the Key Personnel to provide the Services under that Service

Schedule;

b) uses the Key Personnel to provide those Services; and

c) unless otherwise agreed, only use Key Personnel to provide those

Services.

7.2 No solicitation Neither party nor any of its Related Bodies Corporate will directly or indirectly

employ, engage, solicit or otherwise retain any person who is, or has been a

Representative of the other party, to:

a) become an employee of the first party or any of its Related Bodies

Corporate; or

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b) provide services to the first party or any of its Related Bodies

Corporate (whether directly or indirectly, including through a related,

associated, subsidiary or labour hire company),

without the written consent of the other party.

7.3 Term of obligation The obligation in clause 7.2 (No solicitation) commences in respect of each

Representative on the date the Representative first becomes directly involved in the

provision of the Services and ends 12 months after the Representative ceases to be

directly involved in the provision of the Services.

7.4 General Advertisements Clause 7.2 (No solicitation) does not apply if a party in good faith recruits a

Representative of the other party for a position which has been publicly advertised by

or on behalf of that other party and to which that person has responded, provided

there has been no solicitation, inducement or encouragement of that person to apply

for that position.

8 Change Management …

8.2 Change request Woolworths may request a change to:

a) the scope or description of any of the Services; or

b) any of the Specifications;

(each a “Change”) by issuing a notice to the Supplier.

…

17.4 Definitions

…

Key Personnel means the Supplier’s personnel specified in the applicable Service

Schedule as amended from time to time in accordance with this Agreement.

…

Related Body Corporate has the meaning given to it in the Corporations Act 2001

(Cwlth).

Representative of a party includes an employee, agent, officer, director, auditor,

advisor, partner, consultant, contractor or subcontractor of that party.

…

Woolworths Group means Woolworths, its Related Bodies Corporate and its Joint

Venture Partners.

The Candle contract

11 The Candle contract as executed and extended on the three occasions set out above

defined Informax as the Contractor, Mrs Menano-Pires as the Principal Person and

Woolworths as the Client. It also contained the following provisions.

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2. SCOPE OF AGREEMENT 2.1 This Agreement, together with the conditions set out in the attached

Schedules, constitutes the entire agreement for the supply of services by the

Contractor to Candle and supersedes any representations, warranties,

agreements or statements of any kind, whether written or oral, on the subject

matter herein.

…

2.3 At any time during the term of this Agreement, Candle may offer to the

Contractor an extension to the Conclusion Date specified in Schedule A. If

the Contractor accepts the extension then, unless otherwise agreed to in

writing, the terms and conditions of this Agreement shall apply.

3. SERVICES TO BE PROVIDED 3.1 Candle has been engaged to supply contract personnel to the client named in

Schedule A (“Client”) and the Contractor agrees to provide Candle the

Principal Person named in Schedule A to perform the required services under

the direction and supervision of the Client (“Services”) and in accordance to

this Agreement.

…

4. RELATIONSHIP BETWEEN CANDLE AND THE CONTRACTOR

4.1 Nothing in this Agreement may be deemed to constitute a partnership, joint

venture, agency or other legal relationship between Candle and the

Contractor other than that of supplier and purchaser.

…

4.3 The Contractor and the Principal Person shall be entitled to carry out any

other work of whatsoever nature which may be offered to it by another party

other than the Client provided always that:

a) the performance of such other work shall not interfere with the

proper performance of the Services;

b) there has been no diversion of work away from Candle or the Client;

c) there is no conflict of interest between performing the Services and

carrying out such other work; and

d) the Contractor shall immediately notify Candle and/or the Client of

any situation referred to in item a), b) or c) above which may arise or

potentially arise during the term of this Agreement.

4.4 The Contractor and the Principal Person agrees that during the term of this

Agreement and for a period of six (6) months after the termination of this

Agreement, it shall not, either directly or indirectly through another

organisation, do any of the following:

a) work for or be engaged by the Client, unless otherwise agreed to by

Candle in writing;

b) employ or otherwise engage, or solicit or offer employment or other

engagement to any employee or contractor of the Client or Candle; or

c) induce, solicit or entice or attempt to induce, solicit, or entice from

Candle any of its clients.

d) solicit, interfere with, entice or cause to be enticed away from the

Client, any existing customer of the Client.

…

5. CANDLE RESPONSIBILITIES 5.1 Candle shall use all commercially reasonable efforts to promote the services

of the Contractor to the Client during the term of this Agreement to the

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mutual benefit of the parties.

5.2 Candle shall pay the Contractor the agreed Fees in accordance with clause 9.

…

7. TERMINATION AND TERM

7.1 Termination With Notice The Services of the Contractor may be terminated by notice in writing if:

a) The Services of the Contractor may be terminated by the Client

notifying Candle that the services of the Contractor are no longer

required for any reason other than those described in 7.2. In this case,

Candle will terminate this Agreement in writing on the same terms as

it receives from the Client.

…

7.2 Termination Without Notice Candle may immediately terminate this Agreement if:

a) the Client is dissatisfied with the performance of the Services by the

Contractor or its Principal Person;

…

7.3 No Compensation Upon termination of this Agreement in accordance with its express terms

neither the Contractor nor the Principal Person is entitled to claim any

compensation or damages from Candle or the Client in relation to that

termination howsoever caused.

7.4 Term This Agreement shall commence on the Commencement Date specified in

Schedule A and, unless otherwise extended by the parties or terminated in

accordance with any other provision of this Agreement, shall continue until

the Conclusion Date specified in Schedule A. Notwithstanding the forgoing,

any indemnity or any obligation of confidence under this Agreement is

independent and survives termination of this Agreement. Any other term by

its nature intended to survive termination of this Agreement survives

termination of this Agreement.

9. FEES FOR SERVICE 9.1 The Fees payable by Candle to the Contractor are set out in Schedule A,

Fees.

9.2 The Fees includes compensation for giving up the right to work for or be

engaged by any Client of Candle as set out in clause 4.4.

12 The Fees under the Candle contract which Candle paid Informax constituted the sum

of $792 including GST per day. Candle charged Woolworths for the provision by Informax

of Mrs Menano-Pires’ services the Fees payable to Informax and a margin. Candle’s margins

ranged from about 8% to 13% of the fees it charged clients under its various supply

agreements.

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The IC Act

13 Section 3 sets out the objects of the IC Act in these terms:

(1) The principal objects of this Act are:

(a) to protect the freedom of independent contractors to enter into services

contracts; and

(b) to recognise independent contracting as a legitimate form of work

arrangement that is primarily commercial; and

(c) to prevent interference with the terms of genuine independent

contracting arrangements.

(2) The Act achieves these objects, principally, by providing for the rights,

entitlements, obligations and liabilities of parties to services contracts to be

governed by the terms of those contracts, subject to:

(a) the rules of common law and equity as applying in relation to those

contracts; and

(b) the laws of the Commonwealth as applying in relation to those

contracts; and

(c) the laws of the States and Territories as applying in relation to those

contracts, other (in general) than any such laws that confer or impose

rights, entitlements, obligations or liabilities of a kind more commonly

associated with employment relationships.

14 Section 5(1) provides that:

(1) A services contract is a contract for services:

(a) to which an independent contractor is a party; and

(b) that relates to the performance of work by the independent contractor;

and

(c) that has the requisite constitutional connection specified in subsection

(2).

15 Section 7 excludes certain State and Territory laws including such laws permitting

any services contract to be set aside, amended or varied on any unfairness ground. Section 9

specifies unfairness grounds in relation to a services contract in terms which include that the

contract is unfair, harsh, unconscionable, unjust or against the public interest.

16 By s 11, Pt 3 of the IC Act, relating to unfair contracts, applies to services contracts.

The IC Act thus embodies its own regime for the regulation of such contracts.

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17 Section 12, in Pt 3 of the IC Act, is in these terms:

(1) An application may be made to the Court to review a services contract on

either or both of the following grounds:

(a) the contract is unfair;

(b) the contract is harsh.

(2) An application under subsection (1) may be made only by a party to the

services contract.

(3) In reviewing a services contract, the Court must only have regard to:

(a) the terms of the contract when it was made; and

(b) to the extent that this Part allows the Court to consider other matters-

other matters as existing at the time when the contract was made.

(4) For the purposes of this Part, services contract includes a contract to vary a

services contract.

18 Section 15 provides as follows:

(1) In reviewing a services contract in relation to which an application has been

made under subsection 12(1), the Court may have regard to:

(a) the relative strengths of the bargaining positions of the parties to the

contract and, if applicable, any persons acting on behalf of the parties;

and

(b) whether any undue influence or pressure was exerted on, or any unfair

tactics were used against, a party to the contract; and

(c) whether the contract provides total remuneration that is, or is likely to

be, less than that of an employee performing similar work; and

(d) any other matter that the Court thinks is relevant.

(3) If the Court forms the opinion that a ground referred to in subsection 12(1) is

established in relation to the whole or a part of the services contract, the

Court must record its opinion, stating whether the opinion relates to the

whole or a specified part of the contract.

(4) The Court may form the opinion that a ground referred to in subsection 12(1)

is established in relation to the whole or a part of the services contract even if

the ground was not canvassed in the application.

19 Section 16 provides that:

(1) If the Court records an opinion under section 15 in relation to a services

contract, the Court may make one or more of the following orders in relation

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to the opinion:

(a) an order setting aside the whole or a part of the contract;

(b) an order varying the contract.

(2) An order may only be made for the purpose of placing the parties to the

services contract as nearly as practicable on such a footing that the ground on

which the opinion is based no longer applies.

(3) If an application under this Part is pending, the Court may make an interim

order if it considers it is desirable to do so to preserve the position of a party

to the services contract.

(4) An order takes effect on the date of the order or a later date specified in the

order.

(5) A party to the services contract may apply to the Court to enforce an order by

injunction or otherwise as the Court considers appropriate.

(6) Subject to section 14, this section does not limit any other rights of a party to

the services contract.

THE PRIMARY JUDGE’S REASONING

Unfair contract?

20 The primary judge dealt with this issue in the first judgment. The primary judge

identified cl 4.4 of the Candle contract and cll 7.2 and 7.3 of the Candle-Woolworths contract

as covenants in restraint of trade (at [23]). Informax and Mrs Menano-Pires were aware of

the terms of cl 4.4 of the Candle contract to which both were parties. They were not aware,

however, of cll 7.2 and 7.3 of the Candle-Woolworths contract to which neither was a party

(at [97]), despite the fact that the Candle-Woolworths contract was executed before the

Candle contract and contained a covenant potentially affecting the employment of Mrs

Menano-Pires by Woolworths for a longer period (12 months) than the Candle contract (6

months).

21 Insofar as the provisions in question constituted restraints of trade the primary judge

at [23] observed (and it is not in dispute) that:

At common law, a restraint of trade is contrary to public policy and void unless it can

be shown that the restraint is, in the particular circumstances of the case, a reasonable

one: Nordenfelt v Maxim Nordenfelt Guns and Ammunition Co Ltd [1894] AC 535 at

565 per Lord Macnaghten. Reasonableness, in that context, is to be judged having

regard to the legitimate interests of the person in whose favour the restraint operates:

Bridge v Deacons [1984] AC 705 at 714.

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22 The primary judge at [63] also noted (and again it is not in dispute) that s 4(1) of the

Restraints of Trade Act 1976 (NSW) (the Restraints of Trade Act) provides that a “restraint

of trade is valid to the extent to which it is not against public policy, whether it is in severable

terms or not”. The primary judge said (also at [63]):

The established operation of s 4(1) requires me, inter alia, to ask whether at the

critical time cl 4.4 was effective: Orton v Melman [1981] 1 NSWLR 583 at 587-588

per McLelland J. That time is the period between the time at which Ms Diduszko first

contacted Woolworths about her discovery that Mrs Menano-Pires was still working

at Woolworths, on 17 September 2008, through to the time Mrs Menano-Pires was

asked to leave Woolworths’ premises on 1 October 2008.

23 The primary judge (at [24]) characterised Candle’s case on the validity of the

restraints of trade as “reasonably protecting two quite distinct legitimate interests”. The

primary judge continued (at [24] to [26]):

The first is its interest in maintaining its customer connexion with Woolworths.

Putting the matter broadly, it says that it goes to considerable ends to obtain clients

such as Woolworths and it is legitimately entitled to protect itself against the risk of

contractors placed with such clients exploiting the relationship thereby developed by

poaching those clients from Candle.

The second interest is what Candle referred to as the interest in avoiding the risk of

“opportunistic disintermediation,” that is, the middleman’s risk of being cut out.

There is no doubt that the first interest, that is, customer connexion, is a recognised

category of legitimate interest for the purposes of the law concerning covenants

which are in restraint of trade. However, the second interest in avoiding opportunistic

disintermediation is not yet recognised in Australia. It being clear that the categories

of legitimate interest are not closed (see J D Heydon, The Restraint of Trade

Doctrine (3rd Ed, 2008) at 133) the question which arises is whether the interest

should now be recognised.

24 Candle, it is convenient to note, stressed in these proceedings that it had in fact

identified a single overarching commercial interest in maintaining its labour hire pool.

According to Candle the labels “customer connexion” and “opportunistic disintermediation”

are apt to obscure the nature of its interest and thus the proper analysis of the reasonableness

of the restraints.

25 The primary judge dealt with the interest described as customer connexion at [27] to

[44], reasoning as follows:

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(1) One legitimate interest long accepted by the Courts is an employer’s interest in

maintaining its connexion with its own customers against misappropriation by its

employees or contractors: Lindner v Murdock’s Garage (1950) 83 CLR 628 at 633-

634 per Latham CJ (Webb J agreeing at 647), 650 per Fullager J and 654 per Kitto J

(at [27]).

(2) The guiding principle appears to be that a covenant to restrain a former employee

from dealing with an employer’s clients will be supportable on the basis that it

protects the employer’s customer connexions where there is “some element in the

employee-customer relationship which causes customers to rely on the employee and

to regard the employee as the business to the exclusion of the employer”: Heydon JD,

The Restraint of Trade Doctrine (3rd ed, LexisNexis Butterworths, 2008) (Heydon

(2008)) at 121 (at [28]).

(3) At least at a theoretical level there is no particular obstacle standing in the way of a

conclusion that cl 4.4 may protect Candle’s interest in its customer connexion with

Woolworths. This is because, if such an interest in fact exists, it is not difficult to see

that it will justify some restraint on the ability of Informax and Mrs Menano-Pires to

work with the former client (at [30]). In the context of labour hire firms such an

interest had been recognised by Young J in Dalysmith Corporation (Aust) Pty Ltd v

Cray Personnel Pty Ltd (unreported, Supreme Court of New South Wales, 14 April

1997) (at [33]) (Dalysmith).

(4) However, such an interest cannot sustain cl 7.2 of the Candle-Woolworths contract

which, at least so far as this case is concerned, operates as a covenant by the client not

to be poached. It is one thing to say that Candle’s interest in its customer connexion

justifies a restraint on its staff or contractors eloping with Candle’s clients. It is

another thing altogether to suggest that such an interest could justify a fetter on the

client’s freedom to contract with whom it pleases. Of course, if Candle’s contract with

Woolworths were an exclusive arrangement other notions might well intrude. But it is

not such an arrangement and the primary judge did not see that any interest that

Candle has in maintaining its client base against the blandishments of its former staff

or contractors can justify a covenant binding the client itself not to leave Candle’s

stable. It follows that he did not accept that any interest of Candle in its customer

connexion with Woolworths can support cl 7.2 of the contract between them (at [31]).

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(5) As to cl 4.4 of the Candle contract, the conclusion in Dalysmith rested on the identity

of the employees and thus does not provide any assistance to Candle in this case (at

[37]).

(6) Candle did not advance a separate argument that the facts showed that Mrs Menano-

Pires had become Candle’s face to Woolworths so that, in accordance with principle,

it had a legitimate interest in customer connexion, although there was some material

which suggested that by reason of her position she might well have been afforded the

opportunity to control Woolworths’ business as if it were her own (also at [37])..

(7) Accordingly, the primary judge considered that he was bound to approach the matter

on the basis that Candle’s case on this issue was that it had an interest in customer

connexion only by reason of Dalysmith. As Dalysmith turned on its own facts the

primary judge rejected customer connection as a reasonable basis for the restraints in

cl 4.4 of the Candle contract and cll 7.2 and 7.3 of the Candle-Woolworths contract.

26 The primary judge dealt with the interest described as opportunistic disintermediation

at [45] to [67], reasoning as follows:

(1) The legitimate interest of a labour hire firm in avoiding the risk of opportunistic

disintermediation was accepted by the Eleventh Circuit Court of Appeals in

Consultants & Designers, Inc v Butler Service Group, Inc 720 F 2d 1553 (1983) (at

[47]). The existence of the same interest, at least at the level of principle, was

accepted by the Court of Civil Appeals of Alabama in Aerotek, Inc. v Burton 835

So 2d 197 (2001) at 203-204 and by the Tennessee Court of Appeals in Columbus

Medical Services, LLC v Thomas 308 SW 3d 368 (2009) at 389 (at [48]).

(2) The submission that those decisions should not be followed in this country because

they rest on the idea that a labour hire firm has a proprietary interest in a pool of

employees per se and hence are inconsistent with Australian and English authority

should not be accepted (at [49]).

(3) Something similar to the interest against the risk of opportunistic disintermediation

was recognised in Cactus Imaging Pty Ltd v Peters (2006) 71 NSWLR 9; [2006]

NSWSC 717 (Cactus Imaging) where Brereton J conducted an extensive review of

the authorities and concluded, at 27, as follows (at [51]):

… The employees, along with the suppliers and the customers make up the three

relations upon which the profitability of a business depends. The customers are not

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property, but their connection with the business adds value to the business and is

recognised as deserving of protection in the proprietor’s legitimate interest. Similarly,

employees are not property, but, all else being equal, a business with a stable trained

workforce will be more attractive to a purchaser and command a higher price than

one with a workforce which is unstable, disruptive or poorly trained, just as a loyal

and satisfied clientele makes a business more attractive and valuable. In my opinion,

staff connection constitutes part of the intangible benefits, which may give a business

value over and above the value of the assets employed in it, and thus comprises part

of its goodwill. It is amenable to protection by a covenant in a manner similar to

customer connection, even in the absence of protectable confidences.

(4) White J did not go this far in Aussie Home Loans v X Inc Services (2005) ATPR 42-

060; [2005] NSWSC 285 (Aussie Home Loans), preferring instead to recognise an

interest in maintaining a stable workforce as arising from an employer’s entitlement to

protect his or her confidential information in the identity and roles of its employees.

Nevertheless, the flow of authority in this country now supports the conclusion

reached by Brereton J. Bryson AJ thought the proposition for which Cactus Imaging

stands “well-established in New South Wales”: Allied Express Transport Pty Ltd v

Mears [2010] NSWSC 1112 at [14] (at [52]).

(5) The conclusion in Cactus Imaging, that an employer has an interest in staff

connexion, formed part of the ratio decidendi of the decision. Because the principles

at hand are common law ones Cactus Imaging is a statement about the common law

of Australia. It follows that as a Court of co-ordinate jurisdiction the primary judge

decided he was bound to follow Cactus Imaging unless persuaded that it is “plainly

wrong”: see, writing extra-curially, JD Heydon “How Far Can Trial Courts and

Intermediate Appellate Courts Develop the Law” (2009) 9(1) OUCLJ 1 at 22-23 (at

[53]). Cactus Imaging is not plainly wrong. To the contrary the analysis in Cactus

Imaging appears compelling (at [54]).

(6) Consequently, the primary judge considered that he was “bound to reject the

applicants’ argument that Australian law does not recognise any form of proprietary

interest in the arrangement of employees or contractors”. The primary judge said

further (at [57]):

In that circumstance, I can see no other reason not to follow the United States

authorities on the question of whether the disintermediation interest exists. I

conclude, therefore, that a labour hire firm has a legitimate interest in protecting itself

against the perils of opportunistic disintermediation.

(7) The interest, however, is an interest in recouping expenditure together perhaps with a

profit component or, to put it slightly differently, it is an interest in being permitted

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profitably to charge for the introduction of the contractor to the client. Whether such

an interest actually exists in this particular case inevitably directs attention to the

nature of Candle’s business (at [58]).

(8) The evidence shows that Candle did put considerable economic effort into arranging

the placement of contractors with its clients. But the evidence led did not descend to

the level of explaining what the value of this effort was, what Candle’s profits were or

how much of its investment had been recouped following Mrs Menano-Pires’ 15

month placement with Woolworths (at [63]). Candle has not (at [65]):

…demonstrated the extent of its disintermediation interest. As in the case of a

covenant sustained by an employer’s interest in customer connexion it may be

appropriate to approach the assessment of such interests in an impressionistic

fashion: cf IRAF Pty Ltd v Graham [1982] 1 NSWLR 419 at 429 per Rath J. But

even allowing that, Candle did not seek to rely, in this part of its case, on its daily

margin on Informax’s work (ie how much it was making) or what its overhead costs

were. On its cross-claim, Candle suggested it was making a margin of $75.15 per

day. I do not think that I can fairly use that figure in this part of the case as it was not

the subject of argument in the present context. It does, however, suggest that Candle

may well have recouped, during the 15 month period Mrs Menano-Pires worked for

Woolworths, in excess of $20,000 and this, in turn, may suggest that the questions

surrounding the extent of its disintermediation interest are far from trivial. In any

event, I am not satisfied that Candle has demonstrated that its legitimate interest in

avoiding disintermediation justified restraining Informax or Mrs Menano-Pires from

contracting with Woolworths during the period 17 September 2008 to 1 October

2008. It follows, during that period, cl 4.4 did not validly operate. No different

reasoning can apply to cl 7.2.

27 For these reasons, the primary judge concluded that “[n]either cl 7.2 nor cl 4.4 validly

operated between 17 September 2008 and 1 October 2008” (at [67]).

28 Having so concluded the primary judge declined to deal with the restraint of trade

issues under the guise of the IC Act. In this regard the primary judge, at [95], said:

Candle took the point – soundly – that if the clauses were invalid they did not form

part of the contract and could not therefore be reviewed under the Independent

Contractors Act.

29 Nevertheless, the primary judge dealt with the claims under the IC Act at [90]-[145]

of the first judgment. The primary judge expressed his conclusions in summary form at [96]

and [97] in these terms:

…by reason of the conclusions I have reached above about the restraint of trade

argument I accept that cl 4.4 was between 17 September 2008 and 1 October 2008 an

invalid restraint of trade and I conclude that, as at the time that Mrs Menano-Pires

- 21 -

was asked to leave Woolworths, it did not, in fact, prevent her from working for

Woolworths.

…I accept that Mrs Menano-Pires was not told about cl 7.2. I conclude that the

contract was unfair to the extent that it permitted Candle to seek to prevent Informax

and Mrs Menano-Pires from working with Woolworths when at the relevant time, no

legal fetters on their or its ability to do so existed.

30 The primary judge returned to the relationship between the restraint of trade doctrine

and the IC Act at [142] and [143] commenting that “[i]t is not necessary, in light of the way I

approach the case, to ascertain whether a contract in restraint of trade is also ‘harsh’ or

‘unfair’ within the meaning of s 12(1) of the Independent Contractors Act although the

applicants spent some time seeking to show that it was. This is because, at least in New South

Wales, where s 4(1) of the Restraints of Trade Act applies, the question cannot arise” and

“[i]f a term of a contract in restraint of trade is void it does not form part of the contract and

no question of its unfairness can arise”. Despite this the primary judge concluded (at [145])

that:

Candle and Informax had a bargain but it was not one (once the restraint of trade

doctrine was taken into account) which contemplated any ability on Candle’s part to

stop Informax working for Woolworths in the period 17 September 2008 to 1

October 2008. Yet Candle was in a position, by reason of its relationship with

Woolworths, to bring about a result which not only lay outside the contract but which

could not have been lawfully included in the contract as a covenant binding on

Informax. Given Mrs Menano-Pires did not know of cl 7.2, this was a one-sided state

of affairs and one which should be characterised as “unfair” within the meaning of

s 12(1).

31 The primary judge was satisfied that relief could be granted despite the fact that the

term of the Candle contract had expired. At [146] to [150] the primary judge, having

considered the decisions in Re Dingjan; ex parte Wagner (1995) 183 CLR 323 (Dingjan) and

Gerrard v Mayne Nickless Ltd (1996) 135 ALR 494 (Gerrard) about the operation of the

predecessor provisions to the IC Act in ss 127A and 127B of the Industrial Relations Act

1988 (Cth) (the IR Act), concluded that “Candle’s argument that the Court has no power to

review the contract between Candle and Informax because it had come to an end before the

applicants’ present application was filed” should be rejected (at [150]).

32 As to the relief which should be granted the primary judge noted at [155] that “[o]nly

the second variation (which occurred on 31 May 2008) and the third variation (which

occurred on 4 June 2008) have any connexion with the events the subject of this litigation and

- 22 -

only because the six month restraint provided for in each intersects with the period between

17 September 2008 to 1 October 2008” with the consequence that relief should be confined to

those two contracts. The primary judge concluded as follows at [158]:

…the contracts between Candle and Informax of 31 May 2008 and 4 June 2008

should be varied by the addition of the following terms (which are largely based on

those put forward by the applicants):

14. Candle will not take any step to enforce any provision in any contract

between Candle and the Client, the purpose or likely effect of which

would be (in whole or in part) to fetter, restrain or otherwise impede

the Contractor or the Principal Person from being directly or

indirectly engaged by the Client during the period of 17 September

2008 to 1 October 2008 (being a period after the expiry of this

agreement) including any restraint provision that exists before the

formation of this agreement.

15. Candle will not procure or encourage the taking of any step by the

Client to enforce a provision of the kind referred to in clause 14.

33 In the first judgment the primary judge declined to deal with a proposed amendment

to the pleadings by which Informax and Mrs Menano-Pires intended to seek damages for

breach of the provisions of the Candle contract inserted by cll 14 and 15 as set out above. At

[161] and [162] the primary judge said:

It [Candle] also submits that what the applicants effectively now wish to pursue is a

claim for damages for retrospective breach of a retrospectively varied contract. It is

said that this will give rise to complex issues.

At this stage, I think the appropriate course is to permit the parties to digest these

reasons and for the applicants to make any application to amend their proceeding by

notice of motion. The question of whether leave should be granted can then properly

be ventilated.

34 The primary judge otherwise dismissed the claim of Informax and Mrs Menano-Pires

for breach of cl 2.1 of the Candle contract at [85] to [89]. At [86] the primary judge noted

their argument that cl 2.1 was “a warranty by which Candle should be taken to have promised

that there was ‘no other restraint provision … that did or could operate as a restraint on the

ability of the Applicants to work as IT contractors after the termination of any Services

Contract’” but cl 7.2 of the Candle-Woolworths contract constituted such a constraint in

breach of this warranty. The primary judge was satisfied, however, that properly construed

cl 2.1 simply defined the bargain between the parties to the Candle contract and no more (at

[89]).

- 23 -

35 The primary judge also dismissed Candle’s cross-claim for damages for its lost

margin on providing Mrs Menano-Pires’ services to Woolworths by reason of the alleged

breach of cl 4.4 of the Candle contract by Informax and Mrs Menano-Pires. At [164] the

primary judge said that:

Since I have concluded that cl 4.4 was not enforceable during the period 17

September 2008 to 1 October 2008 the cross-claim should be dismissed insofar as it

relates to that period. The same reasoning also supports the proposition that it has not

been shown to be enforceable in the period 1 July 2008 to 16 September 2008 (that

is, neither customer connexion nor disintermediation interests have been established).

The cross-claim must, therefore, be dismissed with costs.

36 If incorrect in this regard the primary judge said he would have assessed Candle’s

damages as follows (at [166]):

The amount paid to Informax under its final contract with Candle was $780 per day.

The amount paid by Woolworths to Informax under its direct contract was $900 per

day. The difference was $120 per day. Candle accepted that it incurred expenses of

$44.85 per day. Accordingly, it would have been entitled to $75.15 per day which

amounts to $4,959.90 for the period 1 July 2008 to 30 September 2008.

37 Accordingly, on 29 March 2011 the primary judge made the following orders:

1. The contracts between the Applicants and the Respondent of 31 May 2008

and 4 June 2008 be varied by the addition of the following terms:

“14. Candle will not take any step to enforce any provision in any contract

between Candle and the Client, the purpose or likely effect of which would

be (in whole or in part) to fetter, restrain or otherwise impede the Contractor

or the Principal Person from being directly or indirectly engaged by the

Client during the period of 17 September 2008 to 1 October 2008 (being a

period after the expiry of this agreement) including any restraint provision

that exists before the formation of this agreement.

15. Candle will not procure or encourage the taking of any step by the Client to

enforce a provision of the kind referred to in clause 14.”

“Retrospective” orders?

38 In the second judgment the primary judge noted (at [2]) that Informax and Mrs

Menano-Pires wished to amend their pleadings to allege that Candle, by persuading

Woolworths between 17 September 2008 and 1 October 2008 to dispense with the services of

Informax and Mrs Menano-Pires, breached the two terms of the contracts inserted by the

Court on 29 March 2011. The primary judge continued:

- 24 -

(1) Candle submits that this should not be permitted because as at 17 September 2008 – 1

October 2008 the contract contained no such terms (which were not inserted until the

orders of 29 March 2011 were made) and it cannot, therefore, have been in breach of

them (at [2]).

(2) Informax and Mrs Menano-Pires submit that the orders of 29 March 2011 should be

interpreted to be retrospective in effect so that the two terms set out above operate as

though they were contained in the contract at the relevant time in 2008. In the

alternative, they say that if the orders were not retrospective in that way, it is plain

from the reasons for judgment that they were intended to be and, to the extent

necessary, the orders should be amended pursuant to the slip rule (formerly O 35 r 7

of the Federal Court Rules 1979) to make that clear (at [3]).

(3) Informax and Mrs Menano-Pires also seek the insertion of another clause (prayer 3A)

into the Candle contract by a proposed order as follows (at [4]):

3A Further or in the alternative, an order varying the contracts between the

Applicants and the Respondent of 31 May 2008 and 4 June 2008 by the

addition of the following term:

“If Candle acts in a manner inconsistently with clause 14 or clause 15 Candle

will pay, on 1 July 2011, the Contractor the sum of $450,000 (being the loss

suffered by the Contractor from being engaged during the period from 17

September 2008 to 1 October 2008 and the loss of opportunity for the

Contractor being engaged during the period from 2 October 2008 to 30 June

2010.”

(4) Candle resisted this application for additional relief relying on case management

principles to contend that the making of such an application after judgment was too

late and that such a fundamental recasting should not be permitted at the eleventh

hour. In addition, it was said that the IC Act, by s 12(3), did not permit an

examination of anything after the date of the contract’s formation so that the Court

could not feasibly undertake an assessment of compensation arising from events post-

dating the contract (in this case Candle’s post-contract persuasion of Woolworths to

end its relationship with the applicants). Further, the clause proposed would, in any

event, amount to a penalty (at [5]).

39 The primary judge reasoned as follows:

(1) The order of 29 March 2011 cannot be read as if it included the words ‘which

variations are to take effect from the date of the formation of the contracts’.

- 25 -

Accordingly, the primary judge did not accept the submission that the orders of 29

March 2011 purported to vary the contracts with retrospective effect from September

2008 (at [10]).

(2) Nevertheless, it is correct that such a retrospective effect was what the reasons for

judgment, objectively viewed, assumed and, as such, there is jurisdiction to vary the

orders of 29 March 2011 to make plain what the reasons for judgment assumed, the

necessity for the variations’ retrospective effect (at [11]).

(3) Section 16(4) of the IC Act does not, however, permit the making of an order that

brings about a variation to a contract at a time prior to the making of the order (at

[12]). In summary:

(a) The High Court’s decision in Dingjan establishes that ss 127A-127C of the

Industrial Relations Act 1988 (Cth) authorised amendments to a contract

which has been terminated after the commencement of proceedings. The

particular amendment in question in Dingjan was prospective, not

retrospective, just as s 127B(4) apparently required (‘[a]n order takes effect

from the date of the order or a later date specified in the order’) (at [34]).

(b) Gerrard then extended this conclusion to contracts which were terminated

prior to the commencement of the proceedings. Again, the order in suit in

that proceeding was prospective in form and not retrospective (at [34]).

(c) Accordingly, neither Dingjan nor Gerrard provides support for the view

that s 16 of the IC Act may be used retrospectively to vary a contract (at

[35]).

(d) Keldote Pty Ltd v Riteway Transport Pty Ltd (2009) 185 IR 155; [2009]

FMCA 319 (Keldote) is authority to the contrary but the analysis of

Dingjan and Gerrard in Keldote is not persuasive and should not be

followed (at [36] to [38]).

(e) The words of s 16(4) are clear: the order may take effect on its making or

some later date. To permit s 16(4) to be read so as to authorise an order

taking effect prior to its making would render those words – apparently of

limitation – otiose (at [40]).

(4) Prayer 3A is prospective in form and hence does not run into difficulties with s 16(4)

(at [45]).

- 26 -

(5) However, prayer 3A (at [44]):

…assumes that Candle will have acted in breach of cll 14 and 15 (the clauses which

were inserted by the orders of 29 March 2011). However, because the orders of 29

March 2011 did not insert those clauses with retrospective effect, and because I have

declined to amend them so that they do, it seems to me somewhat difficult to

understand how the term in prayer 3A could ever be activated for Candle’s conduct

in September 2008 cannot have been inconsistent with cll 14 or 15 since they did not

then exist.

(6) Prayer 3A must also confront the terms of s 12(3) of the IC Act, leading to the

following observations (at [49]):

The structure of the provisions is as follows. Section 12(1) permits an application to

be made on the grounds that a contract is ‘harsh’ or ‘unfair’; that application is an

application to the Court ‘to review’; in conducting the review, the Court is limited to

the terms of the contract and matters existing at the time the contract was formed

(s 12(3)); if the Court forms the ‘opinion’ that the contract in question is ‘unfair’ or

‘harsh’ it must record that opinion (s 15(3)); the opinion is significant for the relief

the Court can give is delimited by it – the Court may make an order setting aside the

contract or varying it (s 16(1)) but whatever order is made this injunction applies:

‘An order may only be made for the purpose of placing the parties to the services

contract as nearly as practicable on such a footing that the ground on which the

opinion is based no longer applies’ (s 16(2)). What is to be remediated by any order

made is, therefore, the unfairness or harshness identified in the opinion and, by

reason of s 12(3), this can be based only on matters subsisting at the time of the

contract’s inception. In this case, s 12(3) has this effect: I concluded that the contracts

as formed were unfair because they left it open to Candle to seek to bring the

applicants’ engagement by Woolworths to an end when it had no legal rights as

against Woolworths or the applicants to do any such thing. That was an unfairness

existing at the time the contracts were formed. The remedy available must be one

which is at once both prospective (s 16(4)) and designed to address that, and no

other, unfairness (s 16(2)).

(7) For these reasons, the IC Act (at [51]):

… is concerned with the prospective remediation of unfair or harsh contracts (e.g.

s 16(4)) and that unfairness or harshness is to be judged by reference to the

circumstances existing at the time of the contract’s formation (e.g. s 12(3)). There is

no room in its provisions for attempts to obtain compensation for the fact of a

contract having been unfair in its operation in the past. Any attempt to formulate the

compensation for that past operation takes one directly into the forbidden area lying

between the moment of the contract’s inception and the making of the Court’s orders.

The effect of ss 12(3) and 16(4) is to operate as a bar on the consideration of events

falling in the range delimited by them.

(8) It follows that (at [53]):

The combined operation of ss 12(3), 16(2) and 16(4) is to prevent an examination of

the matters which would need to be examined in order to undertake an assessment of

the appropriate compensation.

- 27 -

40 For these reasons the primary judge dismissed the notice of motion for further relief

which Informax and Mrs Menano-Pires had filed as contemplated by [162] of the first

judgment.

41 It is also relevant to note that the notice of motion which the primary judge dismissed

referred to a proposed second further amended application which included not only prayer 3A

but also retained reference to relief sought in the application from as early as 5 July 2010,

being prayers 3(a), 3(b) and 3(c). Prayer 3A, in fact, was cast as an alternative form of relief

to that contained in prayers 3(a), 3(b) and 3(c). Prayers 3(a) and (b) sought an indemnity or

compensation for breach of: – (i) the terms Informax and Mrs Menano-Pires proposed be

included in the Candle contract (and which, by the primary judge’s orders of 29 March 2011

became cll 14 and 15 of the Candle contract, albeit in terms different from those which

Informax and Mrs Menano-Pires had proposed) and (ii) any step taken by Candle or

Woolworths to enforce any “Restraint” (a term defined to mean “any provision, in any

contract between Candle and the Client, the purpose or likely effect of which would be (in

whole or in part) to fetter, restrain or otherwise impede the Contractor or the Principal Person

from being directly or indirectly engaged by the Client at any time immediately following the

termination of this contract”). The primary judge did not deal with prayers 3(a), 3(b) and 3(c)

of the application in the first judgment other than an observation at [157] that there was “no

reason to impose an indemnity whose absence from the contract causes no harshness or

unfairness” and did not return to those prayers in the second judgment in which the focus was

prayer 3A.

THE CANDLE CONTRACT – UNFAIR OR HARSH?

A preliminary observation

42 The structure of the primary judge’s reasons in the first judgment, dealing with the

restraint of trade issues first and unfairness second, reflects a disputed issue of principle

between the parties. Candle submitted both to the primary judge and on appeal that to the

extent that cl 4.4 of the Candle contract and cl 7.2 of the Candle-Woolworths contract

constituted an unreasonable restraint, the clauses were void when made. Accordingly, the

clauses could not also be unfair or harsh within the meaning of s 12(1) of the IC Act. The

primary judge accepted that submission (see the first judgment at [95], [142] and [143]).

This acceptance founded Candle’s submission in the cross-appeal that, having accepted that

- 28 -

“[if] a term of a contract in restraint of trade is void it does not form part of the contract and

no question of unfairness can arise” (at [143]) and having found cl 4.4 and cl 7.2 to be void

(at [67]), it was not open to the primary judge to find the Candle contract unfair because Mrs

Menano-Pires did not know about cl 7.2 which formed part of the Candle-Woolworths

contract (at [145]). Candle submitted that it followed from the primary judge’s conclusion

that cl 4.4 and cl 7.2 were invalid restraints of trade that Mrs Menano-Pires’ lack of

knowledge of cl 7.2, an invalid and unenforceable provision of the Candle-Woolworths

contract, could not result in the unfairness of the Candle contract. Candle supported these

submissions by reference to the objects of the IC Act in s 3(2), particularly the statement that

the Act achieves its objects by providing for the rights and obligations of the parties to be

governed by the terms of the contract subject to, relevantly, “the rules of common law and

equity as applying in relation to those contracts”.

43 Candle’s fundamental proposition is that a contractual provision constituting an

unreasonable restraint of trade which is void at common law thereby does not form part of the

contract and can never be unfair or found a conclusion of unfairness. We do not accept this

proposition. Section 3(2) of the IC Act should not be construed as supporting that

conclusion. Section 3(2) is an objects provision which discloses that the IC Act is not

intended to displace the rules of common law and equity which otherwise would apply to

services contracts. Although these rules include those developed in respect of restraints of

trade there is nothing in s 3(2) or any other provision of the IC Act which indicates that the

Act’s own regime for the review of a services contract in Pt 3 may operate only in respect of

a contract or provision of a contract the validity of which is not in question by reason of the

rules of common law and equity.

44 The rules of common law and equity are wide ranging. They cover contract

formation, validity, construction, enforceability and termination. Any one or more of these

rules may be engaged in respect of a particular contract. The grounds of alleged unfairness or

harshness under Pt 3 of the IC Act (Pt 3) may or may not be co-extensive with the common

law cause of action or equitable rights or obligations. A party seeking review under Pt 3 is

not bound to fail in claiming a contract is unfair or harsh if the party cannot establish that the

contract or provision of the contract is void or unenforceable by reason of some common law

cause of action or equitable right or duty. So too a party which can establish that a contract

or provision of the contract is void or unenforceable by reason of some common law cause of

- 29 -

action or equitable right or duty is not bound to prosecute those claims alone or in advance of

a claim under Pt 3 of the IC Act; such a party may choose to claim relief under Pt 3 whether

or not the party may also have available other claims at common law or in equity. It must

follow from these propositions that it cannot be correct to accept Candle’s proposition that a

provision of a contract which is void as an unreasonable restraint of trade cannot also be

unfair or found a conclusion of unfairness within Pt 3 of the IC Act.

45 Other submissions by Candle should also be considered. Candle also proposed, by

way of corollary, that a provision of a contract which constitutes a reasonable restraint of

trade and, thereby, is not void cannot also be unfair or found a conclusion of unfairness

within Pt 3. Such a provision, said Candle, is reasonable as between the parties and not

contrary to public policy. Accordingly, as Candle put it, it would be inconsistent with the

objects of the IC Act to conclude that a restraint of trade that was otherwise valid and

enforceable was nevertheless unfair or harsh. Candle also proposed, either as part of this

submission or in the alternative, that the fact a restraint of trade had been found to be valid

and enforceable, being reasonable as between the parties and not contrary to public policy,

would be relevant to the question whether the contract or any part of it is unfair or harsh.

46 We do not doubt that if any particular review application under Pt 3 is associated with

or calls for consideration of a rule of common law or equity affecting the validity, terms or

enforceability of a contract, that rule of common law or equity may or most likely would be a

relevant consideration in determining whether the contract is unfair or harsh. As noted,

s 15(1)(d) provides that in reviewing a services contract the Court may have regard to “any

other matter that the Court thinks is relevant”. In the case of a contract which contains a

restraint of trade the validity or otherwise of the restraint may be relevant but, in our view, is

not necessarily determinative of the outcome of the review.

47 It will be apparent that Candle’s approach to a contract containing a restraint of trade

has the same consequence whether the restraint is valid or invalid. Either way it is said that

there can be no finding of unfairness or harshness based on the restraint. If invalid, the

restraint does not exist and thus cannot be said to be unfair or harsh. If valid, the restraint

exists and is enforceable and, by definition, is not unfair or harsh. We are unable to find

support for these propositions in the IC Act. It is apparent that the IC Act recognises that the

rules of common law and equity include rules where a contract is against the public interest

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(see s 9(1)(d) which describes this as an unfairness ground for the purpose of excluding the

operation of State and Territory laws), such as unreasonable restraints of trade. Pt 3 operates

to the exclusion of State and Territory laws in relation to unfairness grounds for services

contracts including, by s 9(1)(d), contracts against public policy. It must follow that the IC

Act contemplates that a services contract which may be against public policy in whole or in

part is nevertheless reviewable under Pt 3 on the grounds of unfairness or harshness. Insofar

as Candle’s submissions in this regard relied on s 3(2) the section cannot be read as dictating

the outcome of any review under Pt 3 by reason of the rules of common law and equity.

Those rules are preserved and may well be relevant to a review under Pt 3 but that review is

to be conducted on its own terms and within the framework established by the provisions of

Pt 3 itself. It is also apparent that it is not only the rules of common law and equity that are

preserved. Subsections 3(2)(b) and (c) refer to the rights of parties to a services contract

being governed by the terms of the contract, subject also to the laws of the Commonwealth

and the laws of the States and Territories (the latter as not otherwise excluded). The laws of

the Commonwealth include the IC Act itself. The fact that the rules of common law and

equity appear in subpara (a) of s 3(2) does not indicate that the effect of the operation of those

rules on a contract necessarily must be determined in advance of a claim under a law of the

Commonwealth including under Pt 3. The appropriate resolution of each case will depend

upon the circumstances of the case including the claims advanced by the parties for

resolution.

48 By s 12(3) of the IC Act, in reviewing a services contract, the Court must only have

regard to the terms of the contract when made and (to the extent permissible under Pt 3)

“other matters existing at the time when the contract was made”. The preamble to s 12(3)(b)

(“to the extent that this Part allows the Court to consider other matters”) is a reference to the

matters specified in s 15(1)(a) to (d) of the IC Act: see further at [144] below. It follows that

“any other matter that the Court thinks is relevant” as referred to in s 15(1)(d) is limited to a

matter that existed at the time the contract was made. Contracts which were not unfair or

harsh at inception, accordingly, cannot become unfair or harsh within the meaning of Pt 3 by

reason of circumstances coming into existence after the contract was made. Of course, a

“matter existing at the time when the contract was made” may include the existence of any

fact, matter or circumstance whether or not known to the parties or either of them. It may

also include an existing state of mind, such as a belief or contemplation, held by the parties or

either of them including a state of mind, such as a belief or contemplation, about the future.

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The criterion of reference of “other matters as existing at the time when the contract was

made” is sufficiently broad to encompass all potentially relevant facts and circumstances

existing at that time. We deal further with the scope of s 12(3) at [188] – [189].

No knowledge of cll 7.2 and 7.3

49 In the present case, the Candle contract, to which Mrs Menano-Pires and Informax

were parties, contained a restraint of trade clause as between Mrs Menano-Pires, Informax

and Candle. Clause 4.4 provided for a six month restraint after termination of the Candle

contract preventing Mrs Menano-Pires and Informax working for or otherwise being engaged

by the Client (Woolworths) without Candle’s consent in writing. However, at the time Mrs

Menano-Pires and Informax entered into the Candle contract, Candle had already entered into

the Candle-Woolworths contract. Candle knew or must have known that the Candle-

Woolworths contract included cl 7.2 which imposed mutual obligations on Candle and

Woolworths not to employ or retain a person who is or has been a Representative of the other

party without the written consent of the other party. By cl 7.3 of the Candle-Woolworths

contract this mutual obligation commenced on the date the Representative became directly

involved in the provision of the Services and ended 12 months after the cessation of this

direct involvement. Representative is defined as including an employee and a contractor or

sub-contractor. By entering into the Candle contract Mrs Menano-Pires became a

Representative within the meaning of the Candle-Woolworths contract on each occasion she

became directly involved in the provision of services to Woolworths. Mrs Menano-Pires’

status as a Representative in respect of whom Candle and Woolworths owed mutual

obligations under the Candle-Woolworths contract by operation of cll 7.2 and 7.3 occurred

without her knowledge or consent.

50 The fact that Mrs Menano-Pires and Informax were parties to the Candle contract and

not parties to the Candle-Woolworths contract creates an important difference between the

two contracts for the purpose of legal analysis. Not being parties to the Candle-Woolworths

contract, Mrs Menano-Pires and Informax could not apply for its review under Pt 3 of the IC

Act. Their application for review under Pt 3 was thus limited to the Candle contract to which

they were parties. In circumstances where Mrs Menano-Pires and Informax pleaded that

cl 4.4 of the Candle contract was both unfair and/or void as an unlawful restraint of trade, it

was appropriate in considering the matters to which s 12(3) and s 15(1) of the IC Act direct

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attention to take into account the restraint of trade doctrine and its effect on the contract in

issue between the parties. The IC Act, as noted, preserves the rules of common law and

equity (s 3(2)(a)). In a case such as the present it is difficult to contemplate how sensible and

effective relief under the IC Act could be granted without regard to the proper scope,

operation and effect of the contract.

51 The restraint in the Candle-Woolworths contract stands in a different position. It was

a relevant matter arising at the time when the Candle contract was made within s 12(3)(b) of

the IC Act. The Candle-Woolworths contract needs to be considered according to its terms

and not after the application of the restraint of trade doctrine. It is true that the primary judge

was required to consider the validity of the Candle-Woolworths restraint by reference to the

restraint of trade doctrine. This came about for a number of reasons, the most important of

which appears to be the claim by Informax and Ms Menano-Pires that Candle’s conduct

towards Woolworths between 17 September 2008 and 1 October 2008 involved a

contravention of s 52 of the Trade Practices Act 1974 (Cth).

52 The need to consider the Candle-Woolworths restraint according to its terms for the

purposes of the review of the Candle contract under Pt 3 of the IC Act results from a number

of circumstances.

53 First, Woolworths was not a party to the proceeding before the primary judge and, as

far as is known, neither Candle nor Woolworths has ever suggested that the Candle-

Woolworths restraint is other than a valid and effective restraint. Candle has argued strongly

in this proceeding that that is the case. It may be assumed that at the time of the Candle

contract, Candle and Woolworths intended to abide by the Candle-Woolworths restraint.

While the state of mind of the contracting parties cannot be determinative of the

reasonableness of the restraint (as considerations of public policy are involved) it may be

inferred that, at the time the Candle contract was made, Candle and Woolworths shared an

assumption that cll 7.2 and 7.3 of the Candle-Woolworths contract were valid and would

regulate their mutual dealings with each other’s Representatives. This inferred shared

assumption is itself a matter existing at the time the Candle contract was made.

54 Second, cll 7.2 and 7.3 of the Candle-Woolworths contract in the terms in which they

appear are matters existing at the time the Candle contract was made.

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55 Third, validity or invalidity of cl 4.4 of the Candle contract cannot affect the presence

of cll 7.2 and 7.3 in the Candle-Woolworths contract.

56 Further, that Candle was a party to the Candle-Woolworths contract and thus must

have known of the terms of cll 7.2 and 7.3 of that contract (and that on becoming directly

involved in providing services to Woolworths, Mrs Menano-Pires would become a

Representative in respect of whom Candle and Woolworths owed each other mutual non-

employment obligations for 12 months) are all matters existing at the time the Candle

contract was made. That Mrs Menano-Pires had no knowledge of cll 7.2 and 7.3 of the

Candle-Woolworths contract (a fact found by the primary judge and not challenged on

appeal) also constitutes a matter existing at the time the Candle contract was made. These

matters are all relevant to the review of the Candle contract under Pt 3 within the meaning of

s 15(1)(d).

57 The primary judge’s application of the restraint of trade doctrine meant that he

concluded that cl 4.4 of the Candle contract was void. Our analysis (at [65]-[102] below)

results in a conclusion that the restraint in cl 4.4 was valid and effective for a period of four

weeks. Either way, Candle was not able to prevent Informax from working for Woolworths

between 17 September 2008 and 1 October 2008 by reason of the Candle contract. However,

by reason of cl 7.2 of the Candle-Woolworths contract, Candle was able to prevent Informax

from working for Woolworths during this period. As the primary judge said, given that Mrs

Menano-Pires did not know of cl 7.2 of the Candle-Woolworths contract, this was a “one-

sided state of affairs” and one which should be characterised as “unfair” within the meaning

of s 12(1) of the IC Act. The fact that the Candle-Woolworths restraint was for a longer

period than the restraint in the Candle contract is crucial to this conclusion of unfairness.

58 If, contrary to the conclusion set out above, it is appropriate to consider both restraints

before the application of the restraint of trade doctrine, then although there would be

unfairness in not disclosing a restraint which was twice as long as the restraint contained in

the Candle contract, there would be a difficulty in granting any relief because Candle’s

conduct between 17 September 2008 and 1 October 2008 was within the period of the

restraint in the Candle contract. Further, and also if contrary to the conclusion set out above,

it was appropriate to consider both restraints after the application of the restraint of trade

doctrine and both were for the same period (i.e., four weeks) then it is difficult to conclude

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that the non-disclosure by Candle of a restraint that placed no additional burden or

disadvantage on Informax or Ms Menano-Pires than that of which they were aware was

unfair.

59 In accordance with s 15(3) the Court must record its opinion if it forms the opinion

that a ground referred to in s 12(1) is established, stating whether the opinion relates to the

whole or a specified part of the contract. Because the issue is one of failure to disclose a

relevant matter in the Candle contract, being the existence and terms of the restraint in the

Woolworths-Candle contract for a period exceeding the four weeks which we consider a

valid restraint under the Candle contract, the opinion of unfairness relates to the Candle

contract as a whole.

60 For these reasons ground 9 of Candle’s cross-appeal, alleging that the primary judge

erred by considering unfairness by reference to the existence of cl 7.2 of the Candle-

Woolworths contract, must be dismissed. The primary judge was required to consider

whether there were any matters relevant to the question of unfairness under s 15(1)(d). By

s 12(3)(b) the primary judge was entitled to consider the provisions of the Candle-

Woolworths contract as those provisions were matters existing at the time the contract was

made.

Cl 4.4 not conditional

61 Mrs Menano-Pires and Informax relied on the primary judge’s finding at [39] in the

first judgment that:

…after she started in March 2007, it became rapidly apparent that Candle had very

little to do with the placement of Mrs Menano-Pires into further project management

roles within Woolworths. After her initial placement by Candle on the centralised

fuel price management project, it was Mrs Menano-Pires who thereafter procured her

successive placements on other projects. As she came to the end of each project, it

was Mrs Menano-Pires who was able to find, or was approached internally by

Woolworths’ managers to work on, further projects. All of this she did by herself.

Although Candle, from time to time, extended her contract with it to facilitate her

continuing to work for Woolworths on these various fresh projects, it is apparent this

was always as a response to steps which had already been taken by Mrs Menano-

Pires to procure actual work inside Woolworths.

62 This caused Mrs Menano-Pires and Informax to contend that after the conclusion of

the initial Candle contract on 1 June 2007 it was unfair for the three extended contracts (also

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referred to above as the Candle contract) to contain the restraint in cl 4.4 without a

qualification that cl 4.4 had effect only if Candle had made real and consistent efforts to

secure ongoing work for Mrs Menano-Pires and Informax. In effect, Mrs Menano-Pires and

Informax submitted that it was unfair when the extended Candle contracts were made for

cl 4.4 not to be subject to Candle complying with its obligation in cl 5.1 (that “Candle shall

use all commercially reasonable efforts to promote the services of the Contractor to the Client

during the term of this Agreement to the mutual benefit of the parties”). The matter founding

unfairness at the time of the extensions was said to be the common knowledge of the parties

at those times that “it was Mrs Menano-Pires who thereafter procured her successive

placements on other projects” not Candle.

63 It may be accepted that, at the time of each extension, it was Mrs Menano-Pires who

had secured the further work at Woolworths to the mutual benefit of herself, Informax and

Candle and not Candle. It may also be accepted that Mrs Menano-Pires, Informax and

Candle each knew this to be the case at the time of the extensions of the Candle contract.

Both this fact and the parties’ knowledge of it are matters which existed at the time the

Candle contract was made within the meaning of s 12(3)(b) of the IC Act. Accordingly, they

are matters capable of being thought relevant as provided for in s 15(1)(d) of the IC Act. The

difficulty with the submission for Mrs Menano-Pires and Informax is that it appears to

depend not only on the fact that Mrs Menano-Pires had secured the further work leading to

the particular extension but also hindsight that this would be so for all subsequent extensions.

If neither party anticipated at the time of each extension that it would necessarily be Mrs

Menano-Pires who secured further work for herself from Woolworths during the extended

term, then it is difficult to see any unfairness in cl 4.4 not being subject to a condition that

Candle comply with cl 5.1 or an obligation to similar effect. It is not apparent that the parties

held any such anticipation. To the contrary the submission is based on the hindsight

knowledge that in fact Mrs Menano-Pires always secured the further work leading to the

three extensions. Hindsight of that kind is excluded by s 12(3)(b) and thus can never be a

relevant matter to the question of unfairness in s 15(1)(d) of the IC Act.

64 There are other difficulties with the submission. The parties to the Candle contract as

extended knew at the time of each extension that Mrs Menano-Pires had secured the work

leading to the extension. There is no suggestion that Mrs Menano-Pires and Informax were

in a substantially weaker bargaining position than Candle in respect of the extensions (see

- 36 -

s 15(1)(a) of the IC Act). It might be thought, to the contrary, that the fact that Mrs Menano-

Pires had secured the work leading to the extension increased the strength of her bargaining

position. There is no evidence of any undue influence, pressure or unfair tactics used by

Candle against Mrs Menano-Pires and Informax at the time of any extension (see s 15(1)(b)).

Again, to the contrary, it seems that all three parties were content for the Candle contract

simply to roll over for a new term without any negotiation at all about the terms. There is no

suggestion in the evidence that the total remuneration paid to Mrs Menano-Pires was less

than that of an employee performing similar work (see s 15(1)(c) of the IC Act). All there is

at the time of each extension is the fact that it was Mrs Menano-Pires who had secured the

work leading to the extension rather than Candle. It is difficult to see any unfairness in the

extensions of the Candle contract merely because they did not contain a condition making

cl 4.4 subject to Candle complying with cl 5.1 (or some such similar obligation).

Cl 4.4 and cll 7.2 and 7.3 as restraints of trade

65 For the reasons given above it is not strictly necessary that we consider the application

of the restraint of trade doctrine to cll 7.2 and 7.3 of the Candle-Woolworths contract. Our

primary conclusion, as noted, is that cll 7.2 and 7.3 must be taken at face value as facts

existing at the time the Candle contract was made. For the sake of completeness, and in the

event that our primary conclusion in this regard is incorrect, we consider the application of

the doctrine to both the Candle contract and the Candle-Woolworths contract.

66 As conveniently explained by Brereton J in Cactus Imaging at [10]:

Although at common law a restraint of trade is contrary to public policy and void

unless it is justified by the special circumstances of the particular case (for which

purpose it is sufficient justification that the restriction is reasonable having regard to

the interests of the parties concerned and in reference to the interests of the public, so

that while affording adequate protection to the party in whose favour it is imposed, it

is not injurious to the public) [Nordenfelt v Maxim Nordenfelt Guns & Ammunition

[1894] AC 535 at 565; Herbert Morris Ltd v Saxelby [1916] 1 AC 688 at 706 and

707; Lindner v Murdock’s Garage (1950) 83 CLR 628 at 653], in New South Wales

a restraint is valid to the extent to which it is not against public policy, even if not in

severable terms [Restraints of Trade Act, 1976 (NSW) s 4(1); Koops Martin

Financial Services Pty Ltd v Reeves [2006] NSWSC 449, [26]–[27]]. The effect of

the Restraints of Trade Act is that, in New South Wales, one approaches this type of

case by determining, first, whether the alleged breach (independently of public policy

considerations) does or will infringe the terms of the restraint properly construed;

secondly, whether the restraint in its application to that breach is against public

policy; and thirdly, if it is not, then in its application to the alleged infringing

conduct, the restraint is valid unless the court makes an order under Restraints of

Trade Act, s 4(3) [Orton v Melman [1981] 1 NSWLR 583; Woolworths Ltd v Olson

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[2004] NSWCA 372, [42]]. That is because the effect of the Restraints of Trade Act,

s 4(1), is to require that, for the purpose of determining the validity of a restraint,

attention be focussed on the actual or apprehended breach, rather than on imaginary

or potential breaches.

67 These considerations suggest that if a party benefiting from a restraint can establish

that the restraint protects a legitimate interest and is reasonable as between the parties and it

is not otherwise unreasonable as a matter of public policy it may be difficult for the party

subject to the restraint to succeed in a claim that the restraint was nevertheless unfair or

harsh, at least insofar as the claim of unfairness or harshness relates to the substance of the

restraint rather than some other circumstance (such as, in the present case, the fact that

Candle knew about cll 7.2 and 7.3 of the Candle-Woolworths contract when the Candle

contract was executed but Informax and Mrs Menano-Pires did not).

68 The submissions of Mrs Menano-Pires and Informax of present relevance concern the

substance of the restraint of trade provisions. Each is said to be a matter in existence at the

time the Candle contract was made and which is relevant to the question whether that

contract is unfair or harsh in whole or part. In summary they said:

(1) The second extension of the Candle contract was for a term of six months. Measured

against that term the six month restraint in cl 4.4 was unreasonably long and thus

unfair.

(2) The third extension of the Candle contract was for a term of four weeks. Measured

against that term the six month restraint in cl 4.4 was unreasonably long and thus

unfair.

(3) The short term of the extensions shows that cl 4.4 had enormous potential to sterilise

Mrs Menano-Pires and Informax form working for numerous companies even if the

work for those companies was on a short-term basis only.

(4) The unreasonableness of cl 4.4 is supported also by the fact that Candle was entitled

to terminate the Candle contract immediately if Woolworths was dissatisfied with the

services provided and otherwise on the same terms as Candle received from

Woolworths (cl 7.1(a) of the Candle contract). Under the Candle-Woolworths

contract cl 9.1 provided for termination with 10 days’ notice for any reason.

Accordingly, Mrs Menano-Pires and Informax could be terminated on 10 days’ notice

- 38 -

whereas the restraint in cl 4.4 operated for six months irrespective of the

circumstances in which the contract concluded.

(5) Clause 4.4 applied to Woolworths and its related entities with no geographical limit

and no limit in respect of the capacities in which Mrs Menano-Pires would be

prevented from employment by Woolworths. The restraint thus has no sensible or

legitimate limit referable to the interests sought to be protected, particularly given that

Mrs Menano-Pires was to carry out work for Woolworths in one location only and

Woolworths is a multinational business.

(6) Informax is not a labour hire company and was not in a position to take the

Woolworths labour hire business away from Candle.

(7) By reason of her role Mrs Menano-Pires and Informax did not have access to any of

Candle’s confidential information.

(8) Candle had not had to train or otherwise make Mrs Menano-Pires marketable and had

not expended any resources in so doing.

(9) Mrs Menano-Pires was not an employee of Candle. Nor was she Candle’s agent.

Given her limited role she was not and could not be Candle’s “human face” to

Woolworths.

(10) Clause 4.4 is disproportionate in that its effect was to protect an income stream for

Candle of $4,959 per quarter whilst depriving Informax and Mrs Menano-Pires of an

income of $900 per day for six months.

(11) Any protectable interest of Candle was limited to that relating to its introduction of

Mrs Menano-Pires to Woolworths. That interest could have been protected by a fee

payable by Woolworths to Candle on Woolworths directly employing Informax and

Mrs Menano-Pires.

(12) Insofar as the interest against opportunistic disintermediation is concerned there is no

such protectable interest by reason of the fundamental proposition that people are not

property. There can be no proprietary interest of Candle in the skills and capacities of

Mrs Menano-Pires.

69 Submissions to the same effect were made in respect of cll 7.2 and 7.3 of the Candle-

Woolworths contract.

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70 It will be apparent that these propositions are fundamentally directed at the

reasonableness of the restraints as between Mrs Menano-Pires and Candle. In this sense the

submissions relate alleged unreasonableness to unfairness. Given this, it is not apparent that,

in the present case at least, there is capacity to find the restraints both reasonable and yet

unfair on the basis alleged.

71 We are not concerned by the fact that the primary judge treated Candle as supporting

the reasonableness of the restraints by reference to “two quite distinct legitimate interests” (at

[24] of the first judgment). Although we agree in principle with Candle’s submission that it

would be “incorrect to allow convenient labels such as customer connection and opportunistic

disintermediation to mask the substance of the underlying interest contended for by Candle”

we do not consider that the primary judge did so. We accept also that Candle asserted the

existence of a commercial interest capable of protection being its interest in not only

protecting its connection with (and thus income stream from) Woolworths but also its

connection with Informax which was one of Candle’s pool of contractors. Insofar as the

primary judge dealt with the interests of Candle as distinct we agree with Candle’s

submission that its case was not limited to an assertion of customer connection based only on

the recognition of that interest in Dalysmith and nothing more (see the first judgment at [33]

to [42]). Candle relied on the undisputed facts of the case that it had introduced Mrs

Menano-Pires and Informax to Woolworths and arranged her initial placement at Woolworths

enabling her to develop contacts with relevant Woolworths employees to obtain further work

and, when she no longer wished to deal through Candle, to deal directly with Woolworths for

the provision of the same services to the same part of Woolworths into which Candle had

initially placed her. To the extent that Candle’s case was rejected because it did nothing

more than rely on Dalysmith we accept Candle’s submissions to the contrary.

72 Many of the submissions of Mrs Menano-Pires and Informax did not directly grapple

with the true nature of Candle’s asserted interest. As Candle submitted, the uncontested

evidence before the primary judge established (consistent with the primary judge’s findings)

that:

(1) Candle assiduously pursued the acquisition of clients who were large corporations

with significant IT needs under long-term labour supply agreements. These were

known as “Preferred Supplier Agreements” (or PSAs). Under these long-term

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arrangements Candle was able to secure large volumes of work through the

continuous and on-going engagement of contractors (at [5] of the first judgment).

(2) About 65% of Candle’s business came through PSAs. Considerable efforts went into

procuring clients under PSA arrangements. Usually these resulted from a tender

process which involved a careful assessment of matters such as likely future volume,

margin and profitability. Sometimes in excess of 100 hours of staff time might be

required to prepare such a tender. If a PSA was secured there were then substantial

costs in its administration. The largest of these were staff costs. Two types of

employees were involved: these were, at one end, account managers who liaised with

the relevant client and arranged the placement of appropriate contractors; and, at the

other end, consultants who were assigned to look after the interests of the contractors.

The rationale behind that approach was the need to maintain a pool of contractors who

were readily available to meet the demands of the clients (at [60] of the first

judgment).

(3) At the same time, the maintenance of the pool of contractors was an important aspect

of Candle’s business which necessarily depended on an ability rapidly to be able to

service the needs of its clients. Thus significant expenditure was incurred in finding

appropriate contractors to be placed in the pool, satisfying the needs of those

contractors (to encourage them to stay in the pool) and keeping track, in an orderly

way, of the skill set that the pool contained. Ms Quick gave evidence that Candle’s

single largest cost was the on-going maintenance of its contractor database which

required a substantial workforce of recruiters and contractor care consultants together

with attendant infrastructure and advertising costs (at [62] of the first judgment).

(4) Candle thus put considerable economic effort into arranging the placement of

contractors with its clients (at [63] of the first judgment).

73 Insofar as the interest was labelled as opportunistic disintermediation it may be

accepted that no such interest had been recognised in Australia. Nevertheless as the primary

judge said at [28] of the first judgment the categories of legitimate interest are not closed

(citing Heydon (2008) at 133). Moreover, the primary judge’s analysis at [45] to [52] of the

first judgment is compelling. We agree with the primary judge that “there may be a real

conceptual distinction between the notion that an employer might have interests in the

arrangement of its staff as a whole and the notion that it has an interest in any particular

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employee” (at [50] of the first judgment). We agree too with the primary judge’s analysis of

the decisions in Aussie Home Loans and Cactus Imaging.

74 In Aussie Home Loans the issue was the interest an employer might have in

preventing a former employee from enticing current employees away from the employer (at

[20]). At [24], White J observed that previous decisions indicated “that a covenant against

poaching employees of a former employer is not necessarily invalid. The employer may be

able to demonstrate a legitimate interest against this particular form of competition, but the

restraint will be invalid if it goes wider than is necessary to protect such an interest”. In

Cactus Imaging the issue was also (amongst others) soliciting of current employees by a

former employee. At [25] Brereton J also conveniently summarised the principles underlying

the proposition that an employer may have a legitimate interest in protecting its customer

connection as follows:

It is plain that an employer’s customer connection is an interest which can support a

reasonable restraint of trade [Hitchcock v Coker (1837) 6 Ad & El 438 at 454 ;

[1835–42] All ER Rep 452, 456–7 (Tindal CJ); Herbert Morris Ltd v SaxelbyDewes

v Fitch [1920] 2 Ch 159 at 181; Coote v Sproule (1929) 29 SR (NSW) 578 at 580

(Harvey CJ in Eq); Lindner v Murdock’s Garage, 633–634 (Latham CJ, Webb J

agreeing), 650 (Fullagar J), 654 (Kitto J); Koops Martin v Reeves [Koops Martin

Financial Services Pty Ltd v Reeves [2006] NSWSC 449], [29]–[33]]. Such a

restraint is legitimate if the employee has become, vis-à-vis the client, the “human

face” of the business, namely the person who represents the business to the customer

— or, as it was put by Hoover J in Arthur Murray Dance Studios of Cleveland Inc v

Witter 105 NE (2d) 685, 706 (Ohio, 1951): “The personal relation between the

employee and the customer [is] such as to enable the employee to control the

customer’s business” [Twenty-First Australia Inc v Shade (NSWSC, Young J, 31

July 1998, unreported), BC9803667, 12; Koops Martin v Reeves, [34]]. While the

employer is not entitled to be protected against mere competition by a former

employee, the employer is entitled to be protected against unfair competition based

on the use by the employee after termination of employment of the customer

connection which the employee has built up during the employment — which,

because the employee has in effect represented the employer from the customer’s

perspective during the employment, might at least temporarily appear attached to the

employee, but in truth belongs to the employer [Koops Martin v Reeves, [30]].

75 At [32] to [33] in Cactus Imaging Brereton J also noted that:

[32] Were the restraint in cl 9.1.2 supported solely by customer connection, it would

be prima facie excessive insofar as it prohibited solicitation of customers other than

those with whom Mr Peters dealt, and in particular those who had become customers

only since he had left Cactus [Coote v SprouleHarlow Property Consultants Pty Ltd v

Byford [2005] NSWSC 658, [30]; Konski v Peet [1915] 1 Ch 530 at 539; Smith v

Ryngiel [1988] 1 Qd R 179 at 186].

[33] However, such a restraint may be reasonable, notwithstanding that it extends

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beyond customers with whom the employee has personal contact, in particular where,

despite the absence of personal contact, the employee may have acquired influence

over or special knowledge of the clientele as a result of the seniority of his or her

position, or where the employee’s role includes obtaining and extending custom for

the employer’s business [Stenhouse Australia Ltd v Phillips [1974] AC 391;

Guildford Motor Company v Horne [1933] 1 Ch 935; G W Plowman & Sons Ltd v

Ash [1964] 1 WLR 568 ; [1964] 2 All ER 10; Business Seating (Renovations) Ltd v

Broad [1989] ICR 729 at 733; Normalec Ltd v Britton [1983] 9 FSR 318 at 324;

Dean, The Law of Trade Secrets, 2nd edn, [11.150]; Koops Martin v Reeves [Koops

Martin Financial Services Pty Ltd v Reeves [2006] NSWSC 449], [44]]. Mr Peters’

position as State Sales Manager places him in that category in respect of the New

South Wales clientele, even those with whom he did not personally deal.

76 At [36] in Cactus Imaging Brereton J also recorded the following principles:

Generally, the test of reasonableness for the duration of a non-solicitation covenant,

when it is supported by customer connection, is what is a reasonable time during

which the employer is entitled to be protected against solicitation, which in turn

depends on how long it would take a reasonably competent replacement employee to

show his or her effectiveness and establish a rapport with customers [Stenhouse v

Phillips; Daly Smith Corporation (Australia) Pty Ltd v Cray Personnel Pty Ltd

(NSWSC, Young J, 14 April 1997, unreported)]. A related, albeit subsidiary,

consideration is how long might the hold of the former employee over the clientele

be expected to last before weakening [Koops Martin v Reeves, [88]].

77 At [41] his Honour said:

As White J has said in Aussie Home Loans v X Inc Services [2005] NSWSC 285,

[36], the reasonableness of the duration of an otherwise justifiable restraint is often

difficult to gauge, and where the parties have equal bargaining power it will often be

appropriate to regard them as the best judges of what length of period is reasonable

— although, as the result of that case itself shows, such considerations are far from

conclusive.

78 Brereton J also gave detailed consideration to the restraint concerning the non-

solicitation of current employees at [43] to [56]. At [55] and [56] his Honour concluded in

these terms:

[55] But apart from protection against misuse of confidential information, does an

employer have a protectable interest in staff connection — that is, in maintaining a

stable trained workforce? The cases denying that there is any such legitimate interest

emphasise that an employer does not own the workforce, as if employees were akin

to stock-in-trade. That is self-evident, but nor does an employer own the customers,

who are also not akin to stock-in-trade; yet a connection with customers is

unquestionably amenable to protection by covenant. The employees, along with the

suppliers and the customers, make up the three relations upon which the profitability

of a business depends. The customers are not property, but their connection with the

business adds value to the business and is recognised as deserving of protection in the

proprietor’s legitimate interest. Similarly, employees are not property, but, all else

being equal, a business with a stable trained workforce will be more attractive to a

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purchaser and command a higher price than one with a workforce which is unstable,

disruptive or poorly trained, just as a loyal and satisfied clientele makes a business

more attractive and valuable. In my opinion, staff connection constitutes part of the

intangible benefits, which may give a business value over and above the value of the

assets employed in it, and thus comprises part of its goodwill. It is amenable to

protection by a covenant in a manner similar to customer connection, even in the

absence of protectable confidences.

[56] In the absence of confidential information, similar considerations inform the

reasonableness of such a covenant in respect of its duration as are relevant to the

reasonableness of a covenant protecting customer connection: essentially, how long

might the hold of the former employee over the other employees be expected to last

before weakening. That will be influenced, inter alia, by the seniority of the former

employee. There is unlikely to be any influence over employees with whom the

former employee did not have contact, except perhaps in the case of senior staff.

Another consideration is that it is within the capacity of an employer to ensure the

stability of its workforce by offering key staff long term contracts of employment, so

that solicitation of staff with such contracts would constitute the tort of inducing

breach of contract [cf Lumley v Gye (1853) E&B 216 at 118 ER 749]. It is difficult to

see why, as a matter of policy, an employer who wishes to maintain flexibility in its

labour force by engaging staff on contracts terminable on relatively short notice on

either side, should at the same time be entitled to insist on maintaining stability by a

covenant of the type in question here.

79 The term “opportunistic disintermediation” is more apt to describe the mischief which

is to be avoided rather than the interest to be protected. We doubt its utility as a descriptor of

a protectable interest and also the validity of the suggestion that all “middle men” have a

protectable interest and that such an interest is always the same. Protectable interests will

vary from case to case and may not exist at all. In this case, the commercial interest

warranting protection was Candle’s connection with its clients and with the contractors

within its pool as a whole. Candle was entitled to seek to protect that interest from harm by

guarding against the risk of being cut out by direct contracting between a contractor from its

pool and its client. Whether it validly did so is a different question. We do not share the

primary judge’s characterisation of the interest as limited to “recouping expenditure together

perhaps with a profit component” (at [58] of the first judgment). We think that

characterisation of the nature of the interest is both too narrow and operates at too great a

degree of specificity.

80 The proper characterisation of the nature of the interest explains another issue.

Having accepted Candle’s evidence about the efforts it made to secure PSAs by a process of

tender and to maintain its pool of contractors, the primary judge nevertheless rejected

Candle’s case on the basis that Candle had not adduced evidence explaining the value of the

effort in placing contractors with clients, its profits or how much it had recouped from Mrs

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Menano-Pires’ placement at Woolworths (at [63] of the first judgment) and had not

demonstrated the extent of its disintermediation interest because it had not adduced evidence

of its daily margins, overhead costs or amounts recouped (at [65] of the first judgment).

Because of the nature of the interest we have identified, we take a different view.

81 Informax and Mrs Menano-Pires were a part of a pool of contractors that Candle had

accumulated in order to, amongst other things, meet the service needs of the clients with

whom Candle had established PSAs. Candle had proved that it assiduously pursued the

acquisition of clients who were large corporations with significant IT needs under PSAs. It

had proved that considerable effort went into procuring clients under PSA arrangements and

that if a PSA was secured there were then substantial costs in its administration. It had

proved that the maintenance of the pool of contractors was an important aspect of the

business which necessarily depended on an ability to be able to service rapidly the needs of

its clients and that significant expenditure was incurred in finding appropriate contractors to

be placed in the pool, satisfying the needs of those contractors (to encourage them to stay in

the pool) and keeping track, in an orderly way, of the skill set that the pool contained. In the

face of this evidence we do not agree that Candle’s interest was dependent on proving how

much it had recouped from Mrs Menano-Pires’ placement at Woolworths.

82 Contrary to the submissions of Informax and Mrs Menano-Pires, Candle undoubtedly

had a commercial interest in maintaining its connections with both the client under the PSA,

being Woolworths, and its pool of contractors. It is not to the point that Candle has no

proprietary interest in the skills and capacities of Mrs Menano-Pires. Candle did not assert

any proprietary interest in Mrs Menano-Pires’ skills and capacities which it accepted were

her own and in no way belonged to Candle. The evidence which Candle adduced and which

the primary judge accepted established the existence of its interest as described, in its

connections with Woolworths as the client under the PSA and with Informax and Mrs

Menano-Pires as part of the pool of available contractors. This interest (which is better

described as “commercial” than “proprietary”) had been created by Candle’s efforts.

Recognition of this interest is thus consistent with the observation of Lord Wilberforce in

Stenhouse Ltd v Phillips [1974] AC 391 (at 400) that:

The employers’ claim for protection must be based upon the identification of some

advantage or asset inherent in the business which can properly be regarded as, in a

general sense, his property, and which it would be unjust to allow the employee to

appropriate for his own purposes, even though he, the employee, may have

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contributed to its creation.

83 We also do not accept the submission for Informax and Mrs Menano-Pires that the

primary judge’s acceptance of the proposition that Candle’s interest could be protected by the

payment of a fee by Woolworths to Candle (at [64]) necessarily should have led to the view

that the restraints were unreasonable. First, because of the different characterisation of the

interest discussed above, we are not persuaded that Candle’s interest necessarily could have

been protected by the mere payment of a fee. Second, even if the interest could have been

protected in that way, we do not consider the decision in Office Angels Ltd v Rainer-Thomas

[1991] IRLR 214 (Office Angels) supports the submission. It is true that in Office Angels at

[49]-[50] the UK Court of Appeal rejected the proposition that in reviewing a restraint of

trade a court is not entitled to consider whether or not a provision of a narrower nature would

have sufficed, but this is not the same as the submission in the present case. It may also be

accepted that in Stacks Taree Pty Ltd v Marshall (No 2) [2010] NSWSC 77 (Stacks Taree)

McDougall J considered that where a restraint contained both a non-solicitation covenant and

a covenant not to compete “the reasonableness of the latter must be assessed by reference to

the adequacy of the protection, for the legitimate interests of the covenantee, offered by the

former” so that it “will only be if the former does not provide adequate protection for the

legitimate interests of the covenantee that the latter may be upheld” (at [63]). Again, this is a

different proposition from that made for Informax and Mrs Menano-Pires.

84 We also accept Candle’s submission that cl 7.2 of the Candle-Woolworths contract

cannot be characterised as a covenant by Woolworths “not to be poached” (at [31] of the first

judgment). Clause 7.2 of the Candle-Woolworths contract is a mutual covenant by

Woolworths and Candle not to poach each other’s employees and contractors. Accordingly,

cl 7.2 is not a fetter on Woolworths’ right to contract with a labour hire company other than

Candle and does not, as the primary judge put it, bind Woolworths “not to leave Candle’s

stable” (at [31] of the first judgment). So understood cl 7.2 of the Candle-Woolworths

contract is a natural corollary of cl 4.4 of the Candle contract. Candle has an interest in

protecting its pool of contractors from direct engagement by Woolworths and Woolworths

presumably has an interest in protecting its employees from becoming part of Candle’s pool

of contractors. On this basis and from Candle’s perspective, cl 7.2 of the Candle-Woolworths

contract is referable to the same interest as that underpinning cl 4.4 of the Candle contract.

- 46 -

85 None of these considerations, however, determine the question of the reasonableness

of the restraints as between the parties or the extent to which they are supportable on public

interest grounds. Although there is force in Candle’s submissions about Mrs Menano-Pires

having been able to exploit the connections she developed in Woolworths by reason of her

placement there by Candle under the PSA, none of the submissions contend with the essential

question whether the restraints “afford no more than adequate protection to the party in

whose favour it is imposed” (Herbert Morris Ltd v Saxelby [1916] 1 AC 688 at 707), or

whether the public interest limb of the test for validity is infringed.

86 The issue in relation to cll 7.2 and 7.3 is one of the reasonableness of the restraint

having regard to the interests of Candle and Woolworths and the public interest. The

observations by Jenkins LJ in Kores Manufacturing Co Ltd v Kolok Manufacturing Co Ltd

[1959] Ch 108 at 125-126 (Kores Manufacturing) remain relevant:

…an employer has no legitimate interest in preventing an employee, after leaving his

service, from entering the service of a competitor merely on the ground that the new

employer is a competitor. The danger of the adequacy and stability of his

complement of employees being impaired through employees leaving his service and

entering that of a rival is not a danger against which he is entitled to protect himself

by exacting from his employees covenants that they will not, after leaving his

service, enter the service of any competing concern. If in the present case the

plaintiffs had taken a covenant from each of their employees that he would not enter

the service of the defendants at any time during the five years next following the

termination of his service with the plaintiffs, and the defendants had taken from their

employees covenants restraining them in similar terms from entering the employment

of the plaintiffs, we should have thought that (save possibly in very exceptional cases

involving trade secrets, confidential information and the like) all such covenants

would on the face of them be bad as involving a restraint of trade which was

unreasonable as between the parties. Here the plaintiffs and the defendants have, as it

seems to us, sought to do indirectly that which they could not do directly by

reciprocal undertakings between themselves not to employ each other's former

employees, entered into over the heads of their respective employees, and without

their knowledge. It seems to us to be open to question whether an agreement such as

that, directed to preventing employees of the parties from doing that which they

could not by individual covenants with their respective employers validly bind

themselves not to do, should be accorded any greater validity than individual

covenants by the employees themselves would possess.

87 Although, at least insofar as Candle is concerned, we do not consider cl 7.2 as merely

a covenant against competition, the clause is a reciprocal undertaking between Candle and

Woolworths which has the effect of imposing a restraint on a third party. That consideration

alone dictates that the provision warrants close scrutiny. As Dillon LJ observed in Hanover

Insurance Brokers Ltd v Schapiro [1994] IRLR 82 (at [15]), there are difficulties in law with

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non-poaching agreements between employers. Those difficulties, as Dillon LJ noted, arise

because of the right of an employee to work for his or her employer of choice. In a similar

context, Wilcox J in Adamson v New South Wales Rugby League Ltd (1991) 31 FCR 242

(Adamson) (at 267 and 280-81) said:

[T]he right to choose between prospective employers is a fundamental element of a

free society. It is the existence of that right which separates the free person from the

serf.

88 Such a right of course may be compromised by a covenant freely given by the

employee. However, that an employee’s ability to earn a living may be sterilised or

diminished by contractual or other arrangements made or imposed by others raises issues as

to the validity of such a restraint on public interest grounds.

89 The non-poaching covenant the subject of the litigation in Kores Manufacturing was

struck down on the public interest ground by Lloyd-Jacob J at first instance ([1957] 1 WLR

1012). The Court of Appeal expressed some doubt that the covenant was defensible on that

basis (see at 126-128) but preferred to strike down the restraint on the ground that it was

unreasonable in the interests of the parties. Lord Reid in Esso Petroleum Co. Ltd v Harper’s

Garage (Stourport) Ltd [1968] AC 269 (at 300) thought that it would have been more correct

to hold that the restraint was against the public interest. Lord Hodson suggested the same (at

319). That approach was followed by the Hong Kong Court of Appeal in Kao, Lee & Yip (a

firm) v Koo Hoi-Yan [1995] 1 HKLR 248 (at 252-253). In that case a covenant restrained a

former partner from employing any employee of the partnership whether or not that

employment had been solicited by the former partner. The Court considered such a clause to

unjustifiably restrain competition in the labour market and that agreements of that nature

were contrary to the public interest. Restraints affecting third parties have also been struck

down on the public interest ground in a range of cases involving sporting professionals and

the imposition of bans or other restrictions by clubs and sporting associations: see the

discussion in Heydon (2008) at 262; and the cases discussed by Hungerford J in Daley v New

South Wales Rugby League Ltd (1995) 78 IR 247 at 280-287.

90 Clauses 7.2 and 7.3 of the Candle-Woolworths contract prohibit the employment or

engagement of third parties irrespective of whether the employment was solicited by a party

to that contract. When read with cl 7.4 that prohibition does not apply to positions which

have been publicly advertised and where no solicitation occurred. In other circumstances, the

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prohibition on employment irrespective of any solicitation remains. On that basis alone,

having regard to the authorities to which we have just referred, cl 7.2 does not withstand

scrutiny on the public interest ground. However, that was not the basis upon which cl 7.2 (or

cl 4.4) was challenged either before the primary judge or in this appeal. The challenge made

was fundamentally based on the restraint being unreasonable as between Woolworths and

Candle. For reasons we will explain, the provision also does not withstand scrutiny on that

basis. This is so because, amongst other things, it is relevant to take into account the interests

of third parties when assessing whether the restraint goes no further than is reasonably

necessary to protect the legitimate interests of the persons imposing the restraint: Adamson

(at 246-8 (Sheppard J), at 266-267 (Wilcox J) and at 289-290 (Gummow J)).

91 The validity of a restraint is assessed at the time of entry into the contract and by

reference to what the restraint entitled or required the parties to do rather than what they

intend to do or have actually done: Woolworths Ltd v Olson [2004] NSWCA 372 at [40]. On

this basis the restraint in cl 7.2 goes far beyond what might be thought reasonable to protect

the interest of Candle which has been identified. Insofar as it must have been in the

contemplation of the parties that cl 7.2 would apply to a person such as Mrs Menano-Pires it

is apparent that the restraint: – (i) operates for the period of 12 months irrespective of the

length of time for which the person might have been involved as a Representative in the

provision of the Services, (ii) applies to Woolworths as a whole and its related entities in all

locations irrespective of the location within which the Representative provided the Services,

and (iii) applies to all Representatives directly involved in the provision of the Services

irrespective of their level of involvement or the nature of their role. It seems to us that cl 7.2

is patently excessive having regard to the nature of the interest of Woolworths and Candle in

preventing poaching of each other’s employees and contractors.

92 Section 4 of the Restraints of Trade Act was explained in Woolworths Ltd v Olson at

[42] to [47]:

[42] This provision was authoritatively expounded by McClelland J in Orton v

Melman [1981] 1 NSWLR 583. First, the court determines whether the alleged

breach (independently of public policy considerations) does or will infringe the terms

of the restraint properly construed. Next, the court determines whether the restraint,

so far as it applies to that breach, is against public policy. If it is not, the restraint is

valid, subject to any order which may be made under s 4(3).

[43] McClelland J continued (at 587–8):

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Whether, and if so the extent to which, the court will have to define the outer

limits of validity of a restraint in a particular case, will depend upon the

nature, and degree of generality, of the relief which in that case it is

necessary or proper for the Court to grant. For example, where injunctive

relief is granted, the duration of a valid restraint of any breach enjoined will

have to be determined. In applying s 4(1) the court should consider the

circumstances of the particular case before it and determine the validity of

the restraint to the extent that it purports to operate in those circumstances,

and it is unnecessary to consider its purported operation in other conceivable

sets of circumstances. Other considerations may of course arise in an

application under subs (3) of s 4. In my opinion the enactment of s 4(1) has

succeeded in requiring attention to be concentrated on “the actual breach”

rather than “imaginary breaches” for the purpose of determining validity of a

restraint.

[44] These principles have been endorsed in later decisions, including cases in this

Court …In Industrial Rollformers [Industrial Rollformers Pty Ltd & Anor v

Ingersoll-Rand (Australia) Ltd [2001] NSWCA 111] Giles JA (with whom Priestley

and Meagher JJA agreed) said (at [165]):

The operation of s 4(1) of the Act is now relatively well settled. It does not

permit the Court to remake the contract or a covenant in it, and although

sometimes it is said that it allows the covenant to be read down or redrafted

that is really an inaccurate description. The provision looks to the postulated

breach, and permits the Court to enforce a covenant otherwise invalid as

against public policy if the restraint in the covenant so far as it applies to the

postulated breach is not contrary to public policy. The Court is given the

capacity to enforce a reasonable restraint of trade falling within the expressed

restraint although the expressed restraint is too widely stated. It is sufficient

to refer to Kone Elevators Pty Ltd v McNay (1997) ATPR 41-564 at 43,833

and the cases there cited, which include Orton v Melman.

[45] Section 4(1) allows the court to ignore the fact that the restraint goes beyond

what is reasonable, provided the restraint can be enforced to an extent that is

reasonable. The subsection permits the court to enforce a covenant whose provision

is overextensive as regards area, time or extent….

[46] The court may not rewrite the covenant while exercising the power under s 4(1).

In the language of this Court in ICT Pty Ltd v Sea Containers Ltd (1995) 39 NSWLR

640 at 674:

… a restraint validated by the section must fall wholly within the scope of the

contractual provision. Amputation is directed but reconstruction is not.

[47] “Amputation” is not confined to blue-pencilling. As Sheller JA pointed out in

Kone Elevators [Kone Elevators Pty Ltd v McNay & Anor (1997) ATPR 41-564] (at

p 43,833):

If the Court can read down a covenant in restraint of trade, otherwise void as

against public policy, to an extent that makes its enforcement not against

public policy, the Court may restrain a breach of the covenant so read down.

… . By this means a party may be able to restrain a particular breach of a

covenant even though the covenant is expressed in terms so wide as to be

void as against public policy at common law. Section 4(1) of the Act has

confirmed and enlarged the capacity of the Court to enforce just and

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reasonable covenants which may on their face be too widely expressed.

93 In terms of s 4(1) of the Restraints of Trade Act the restraint in cl 7.2 of the Candle-

Woolworths contract applied to Informax and Mrs Menano-Pires for periods of 12 months

commencing on 1 June 2007 for the Candle contract, 3 December 2007 for the first

extension, 31 May 2008 for the second extension and 30 June 2008 for the third extension.

The actions in breach of the restraints occurred between 1 July and 30 September 2008 when

Informax and Mrs Menano-Pires were directly engaged by Woolworths at the same location

where Mrs Menano-Pires had been placed by Candle. During this period cl 7.2 in each of the

three contracts as extended applied. As noted, the extensions were for periods of 26 weeks,

26 weeks and four weeks respectively.

94 The issue is the length of the restraint. Brereton J in Cactus Imaging in the passage

already quoted at [75] above posed the test for reasonableness in relation to the duration of a

non-solicitation covenant given by an employee as dependent upon how long it would take a

reasonably component replacement employee to show his or her effectiveness and establish a

rapport with customers. His Honour relied upon the observations of Young J in Dalysmith

who in turn relied upon the American cases considered by Professor Harlan M Blake in his

article “Employee Agreements not to Compete” (1960) 73 Harv L Rev 625, 677. Other

judges have preferred a different approach which focuses upon the time that it would take to

sever the relationship built up between the former employee and the clients for whom work

was performed: Stacks Taree (at [66]-[72]). Considering the two approaches, Allsop P (with

whom Hodgson JA and Handley AJA agreed) in Hanna v OAMPS Insurance Brokers Ltd

(2010) 202 IR 420; [2010] NSWCA 267 (at [43]-[44]) thought that there is no legally

required test and that the use of one test or another depended upon what was required, in the

circumstances, to protect the connection of the former employer. Allsop P noted that there is

a balance to be struck between reasonable protection to which the former employer was

entitled and the right to practice a trade or profession of the former employee. We agree with

this approach.

95 In this case, the risk to which Candle was exposed was less than that ordinarily faced

by an employer from a former employee soliciting a customer or customers. There was no

risk of Informax taking the whole of Woolworths’ custom from Candle. The risk was far

more limited. It was confined to that custom which Candle could expect to provide to

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Woolworths through Mrs Menano-Pires and Informax. Mrs Menano-Pires provided IT

services to Woolworths. She was not involved in any aspect of the management of Candle’s

business in respect of Woolworths. She was not involved in any aspect of the management of

Woolworths’ business in respect of Candle. While her placement by Candle enabled her to

develop contacts at Woolworths, Mrs Menano-Pires was but one of Candle’s pool of

contractors and did not in any way control the flow of work from Woolworths to other

Candle contractors, except to the extent that she herself performed part of the IT services

Woolworths required.

96 In common with the primary judge at [66] of the first judgment, insofar as cl 7.2

applies to Informax and Mrs Menano-Pires, we can see no basis for a restraint of 12 months

irrespective of the length of time of the contracts in question.

97 If reasonable protection for Candle is to be assessed by reference to the time it would

take Candle to introduce to Woolworths a replacement Representative and for that

Representative to show her or his effectiveness and establish a rapport with Woolworths, our

impression is that a restraint of four weeks would suffice in this case. We take that view

because, amongst other things, Candle’s business model involved retaining a pool of

contractors who, like Mrs Menano-Pires, could rapidly understand a client’s needs and

perform the required services with no delay.

98 If on the other hand, reasonable protection for Candle is to be assessed by reference to

the time it would take to sever the relationship likely to be built up between a Representative

like Mrs Menano-Pires and Woolworths, our impression is a restraint of three months would

likely be required. That conclusion is not affected by the diminishing lengths of term for

each of the extensions. The interest remains the same and the extensions were contracted

back-to-back.

99 The disparity in result between the two approaches is troubling. It probably reflects

the fact that those approaches were formulated in a different context from that in which a

labour hire firm operates. The short-term nature of the engagements organised by labour hire

firms 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, suggests

that, ordinarily, adequate protection would be afforded to a labour hire firm by a shorter

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period of restraint than that which would be required by a former employer. Accordingly, the

preferable course is to focus on the time it would take for the labour hire firm to organise the

introduction of a replacement worker including the time that it can be expected that a

competent replacement will be able to show his or her effectiveness and develop a rapport

with the customer. This approach enables the capacity for the exploitation by the worker of

the labour hire firm’s introduction of the worker to be negated by the opportunity given to the

labour hirer to introduce and secure a replacement worker. On this view, we consider that a

restraint of four weeks was reasonable to adequately protect Candle’s interest. We reach the

same conclusion in relation to cl 4.4 of the Candle contract. This result achieves a proper

balance between the reasonable protection to which Candle was entitled and the right of Mrs

Menano-Pires to practise her trade or profession.

100 Accordingly, we consider that insofar as the restraint encompassed a period of four

weeks it would be reasonable and thus valid by operation of s 4 of the Restraints of Trade

Act. This does not alter our opinion that the potential operation of cl 7.2 of the Candle-

Woolworths contract is a factor which made the Candle contract unfair as, at the time

Informax and Mrs Menano-Pires entered the Candle contract, they had no knowledge of any

restraint beyond that in cl 4.4 of the Candle contract. Insofar as cl 4.4 encompassed a

restraint of four weeks from 30 June 2008, it would be reasonable and thus valid by operation

of s 4 of the Restraints of Trade Act. However, and as discussed, Candle does not press its

cross-claim and thus damages for breach of cl 4.4 is not in issue.

101 Our conclusion that cl 4.4 of the Candle contract is reasonable and thus valid insofar

as it restrained Informax and Mrs Menano-Pires from direct engagement by Woolworths for a

period of four weeks means that the Candle contract is unfair given that cl 7.2 of the

Woolworths-Candle contract, being a fact existing at the time the Candle contract was made,

purports to impose a restraint of 12 months on the same conduct. We would not accept,

however, that the provisions of the Candle contract to the extent to which they are valid under

that Act are otherwise unfair or harsh under Pt 3 of the IC Act.

102 For these reasons ground 11 of the notice of appeal should be dismissed. Ground 12

should also be dismissed because, as explained above, the primary judge did not in fact

decline to decide whether the Candle contract was unfair because it contained cl 4.4. Also,

although we have sustained some of Candle’s grounds of cross-appeal (specifically, grounds

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1, 2, 3, 4 and 6) those grounds do not lead to any relief in the circumstances. We otherwise

would dismiss grounds 5, 7 (as the primary judge did not fail to consider Candle’s interest

against opportunistic disintermediation), and 8 and 9 of the notice of cross-appeal for the

reasons given above.

Clause 2.1 of the Candle contract

103 The primary judge dealt with this claim at [85] to [89] of the first judgment, the core

conclusion being that cl 2.1 was not a warranty by the parties to the Candle contract to each

other that no other agreement existed (in which event Mrs Menano-Pires and Informax

claimed breach because of the existence of the Candle-Woolworths contract) but a provision

which defined the bargain between the parties to the Candle agreement.

104 Mrs Menano-Pires and Informax contended that the primary judge erred in so

concluding (grounds 13 and 14 of the notice of appeal). They submitted that: – (i) the clause

is to be construed as part of the Candle contract as a whole which includes cl 4.4, (ii) cl 4.4

limited the restraint on Mrs Menano-Pires and Informax to a period of six months yet the

restraint in cll 7.2 and 7.3 of the Candle-Woolworths contract doubled the time of that

restraint to 12 months, (iii) the purpose of cl 2.1 should be seen to be protective as it is

designed to ensure the parties’ rights under the Candle contract will not be affected by either

party seeking to rely on any other agreement or prior representation in a way that adversely

affects the other party’s rights, (iv) this purpose is defeated if cl 2.1 is not construed as a

warranty, and (v) the purpose should not be permitted to be defeated particularly where, as

here, the primary judge accepted the clause is ambiguous so that both constructions are

available (at [89] of the first judgment).

105 The issue is one of construction only. It is true that the clause must be construed in

the context of the contract as a whole. The terms of the contract as a whole, including cl 4.4,

do not support the construction of cl 2.1 as a warranty by the parties to each other. The

ordinary meaning of cl 2.1, construed in context, is that it embodies the agreement between

the parties that, as between them, the Candle contract represents their entire agreement and

supersedes all earlier dealings between them on the same subject matter. Numerous factors

support this construction: – (i) the clause appears in an agreement between these parties, (ii)

the clause appears under a heading “scope of agreement” which is a reference to the

agreement between the parties, (iii) cl 2 as a whole deals only with the agreement between

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the parties, and (iv) cl 2.1 provides for earlier mentioned dealings to be superseded – as a

matter of contract law such supersession can only relate to agreements between the parties

and not to third parties.

106 We are satisfied that the primary judge did not err in his construction of cl 2.1.

Accordingly, these grounds of appeal must be dismissed.

THE CANDLE CONTRACT – “RETROSPECTIVE” ORDERS?

Legislative history and significant authorities

107 The IC Act came into force on 1 March 2007. However, the power conferred by

federal legislation to make orders in relation to contracts made by independent contractors, on

grounds including that a contract is unfair or harsh, dates back to 23 July 1992. At that time,

ss 127A-127C of the IR Act came into operation and, for the first time, federal legislation

provided a scheme for the review of contracts made by independent contractors. The power

to conduct such a review and make orders setting aside or varying such contracts (s 127B(1))

was reposed in the federal industrial tribunal then called the Australian Industrial Relations

Commission (the AIRC) and now known as Fair Work Australia.

108 Section 127A(1) of the IR Act defined the term ‘contract’ and identified the contracts

to which ss 127A-127C had application. They were limited to contracts binding on an

independent contractor which related to the performance of work (other than work for private

and domestic purposes). Other limitations were imposed by s 127C by reference to

constitutional considerations of no relevance to the matters raised by this appeal.

109 Section 127A(2) identified the grounds for review of a contract and was in the

following terms:

Application may be made to the Commission [the AIRC] (constituted by a

Presidential Member or a Full Bench) to review a contract on any or all of the

following grounds:

(a) the contract is unfair;

(b) the contract is harsh;

(c) the contract is against the public interest.

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110 Section 127A(3) identified the persons who may bring an application. Section

127A(4) set out the matters that the AIRC could have regard to in reviewing the contract. It

was in the following terms:

In reviewing the contract, the Commission [the AIRC] may have regard to:

(a) the relative strength of the bargaining positions of the parties to the contract

and, if applicable, any persons acting on behalf of the parties; and

(b) whether any undue influence or pressure was exerted on, or any unfair tactics

were used against, a party to the contract; and

(c) whether the contract may have an adverse effect on the development of the

skills of employees performing work of the relevant kind in the industry,

including any system designed to provide a trained labour force (for example,

apprenticeship or any arrangement for improving the skills of employees);

and

(d) whether the contract provides total remuneration that is, or is likely to be, less

than that of an employee performing similar work; and

(e) any other matter that the Commission thinks relevant.

111 If the AIRC formed the opinion that a ground referred to in s 127A(2) was

established, it was required by s 127A(5) to record its opinion. Section 127B then dealt with

the making of orders and included the following subsections of relevance to the issues raised

by this appeal:

(1) If the Commission records an opinion under section 127A in relation to a

contract, it may make one or more of the following orders in relation to the

opinion:

(a) an order setting aside the whole or part of the contract, as the case may be;

(b) an order varying the contract.

(2) An order may only be made for the purpose of placing the parties to the

contract as nearly as practicable on such a footing that the ground on which the

opinion is based no longer applies.

(3) …

(4) An order takes effect from the date of the order or a later date specified in the

order.

(5) ...

(6) …

112 The Explanatory Memorandum to the Industrial Relations Legislation Amendment

Bill 1992 (Cth) (the 1992 Bill), which resulted in the introduction of ss 127A and 127B into

the IR Act, relevantly said:

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Orders may only be prospective in operation [proposed subsection 127B(4)] and,

under subsection 127B(2), may only be made for the purpose of placing the parties to

the contract as nearly as practicable on a footing which redresses the unfairness.

[emphasis added]

113 The terms of ss 127B(2) and (4) to which the Explanatory Memorandum referred are

not relevantly different to those now found in s 16(2) and (4) of the IC Act.

114 When delivering the second reading speech to the 1992 Bill, the Minister mentioned

that similar provisions had existed in New South Wales for a long time and said:

…the unfair contracts review procedure is a more limited procedure than that now

available under some State laws. Such a procedure has existed in New South Wales

for many years, and has recently been carried over by the Greiner Government into

the New South Wales Industrial Relations Act 1991. The procedure proposed in this

bill will only operate in respect of a limited class of unfair contracts.

115 The reference to the New South Wales procedure made by the Minister was a

reference to what was then s 275 of the Industrial Relations Act 1991 (NSW). That provision

succeeded what had been s 88F of the Industrial Arbitration Act 1940 (NSW) (s 88F of the

NSW Act).

116 Sections 127A-127C first came to be interpreted by the AIRC in Re Transport

Workers Union of Australia (1993) 50 IR 171 (Transport Workers Union). One of the

central matters that Munro J had to consider in that case was whether the power conferred

upon the AIRC to vary a contract could be exercised in relation to a contract which had been

terminated whilst the application relating to it was pending before the AIRC. Munro J

determined that it could. In so concluding, Munro J (at 193-194) rejected a contention that no

“retrospective operation” was provided for by ss 127A and 127B so that those provisions

could have no application to a contract which had been terminated between the date of

application to the AIRC and the date of any order made by the AIRC. That contention relied

upon the extensive use of the present tense in the language utilised by ss 127A and 127B. As

Munro J observed at 194, a similar argument in relation to s 88F of the NSW Act had been

rejected in Re Becker & Harry M Miller Attractions Pty Ltd (No 2) [1972] AR (NSW) 298

(Becker). On the basis that Munro J considered that ss 127A and 127B were “drafted with

the NSW legislation in consideration”, his Honour adopted the reasoning in Becker that the

use of the present tense was descriptive of the class of contracts to which the provisions

applied, rather than indicative of a temporal requirement that the contract be current.

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Consistently with the approach taken in Becker, Munro J was driven to that conclusion

mainly because he reasoned that a construction which denied the applicability of ss 127A-

127C to contracts terminated whilst proceedings were pending would have been inimical to

the remedial purpose of ss 127A to 127C as that purpose could be readily defeated by the

strategic termination of the contract under review: see at 194-195.

117 Munro J characterised the orders he made as orders that would vary the relevant

contracts in order to “substantially meet the purpose of removing the unfairness on a

prospective basis” (at 223). The orders made by Munro J specified that they were effective

from the date of their making (30 June 1993).

118 In relation to the contract made with the sub-contractor Anthony Dingjan, the orders

made included the following order:

It is a term of this contract that in addition to any other sums payable under this

contract the harvest contractor shall pay to the subcontractor [Dingjan] on or before

30 July 1993 or other agreed date a sum of $25,000 the receipt of which amount shall

be deemed and acknowledged as between the parties to the original contract and this

contract, to be an offset against any liability that the harvest contractor may incur, or

may have incurred in relation to the subcontractor, including without limiting the

generality of the forgoing liability in relation to payments in respect of work

withheld, or not allocated pursuant to the original contract or in relation to any failure

on the part of the harvest contractor to give reasonable notice of termination of the

contract.

119 The orders made by Munro J were the subject of prerogative relief considered by the

High Court in Dingjan. One of the issues determined by that judgment was whether the

power to vary contracts given by ss 127A and 127B of the IR Act extended to a contract

which came to an end whilst a review was pending in the AIRC. That issue was dealt with by

Gaudron J, whose reasoning on that matter had majority support (Mason CJ, Deane and

Toohey JJ). At 362-363, Gaudron J said:

No question arises in this case as to whether the Commission’s jurisdiction is

confined to contracts that are current when application is made to it under ss 127A

and 127B. That question may raise a different issue from that involved in this case.

In particular, it may raise the issue whether ss 127A and 127B were intended to have

retroactive operation. Whatever the position in that regard, ss 127A and 127B are

not, in my view, confined to contracts which are current when the particular power of

review or variation comes to be exercised. That construction would allow the

Commission to review a contract that is current when the review takes place, but not

to vary the contract if it comes to an end or, as is more likely, if it is brought to an

end before an order is made under s 127B. It cannot be supposed that Parliament

intended that consequence, particularly in the context of contracts relating to the

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performance of work by an independent contractor where, in the nature of things, the

power to terminate without notice or on short notice may well be the very matter

which makes the contract unfair, harsh or against the public interest. That being so

and given that “binding” is often used to mean “enforceable”, the use of the present

tense in ss 127A and 127B is merely discriptive of the nature of the contracts which

may be the subject of the Commission's powers, namely, contracts enforceable

against an independent contractor and whose terms or operation may be described as

unfair, harsh or against the public interest. Contrary to the argument advanced on

behalf of the prosecutors, its use does not signify that the Commission's powers

under ss 127A and 127B are confined to contracts that are current when it comes to

exercise those powers [footnotes omitted].

120 As Wilcox CJ, Ryan and Marshall JJ later observed in Gerrard (at 504): “For

Gaudron J, the most significant point was one of policy”. In that respect her Honour’s

approach was consistent with that taken by Munro J and the New South Wales Industrial

Relations Commission before him.

121 Whilst the challenge to the decision of Munro J in Transport Workers Union was

pending before the High Court, a number of matters of some significance occurred. On 30

March 1994, amendments made to ss 127A and 127B by the Industrial Relations Reform Act

1993 (Cth) commenced operation. The effect of those amendments was to vest in the former

Industrial Relations Court of Australia the jurisdiction previously vested in the AIRC. In

effecting those amendments, one of the grounds for review of a contract – “that the contract

is against the public interest” – was removed. In all other relevant respects, the terms of

ss 127A and 127B remained the same.

122 The second matter of significance was that, prior to the AIRC losing its jurisdiction, a

fresh application was commenced before the AIRC in 1993 which, coincidently, was also

dealt with by Munro J. That application sought the review of contracts made between a

transport company and its drivers: Papa v Finemores (Print L4930, AIRC, 31 August 1994)

(Finemores). As the contracts of the drivers had been terminated prior to the application

made to the AIRC, the case directly raised the issue (left unresolved by Dingjan) of whether

the AIRC had jurisdiction in relation to a contract which had been terminated prior to the

commencement of the review proceeding in the AIRC.

123 In resolving the application in Finemores, Munro J concluded at [5.2.6] that the

contracts in question were unfair because they provided an inadequate period of notice of

termination of the contracts in the event that operations at the respondent’s depot, where the

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sub-contractor drivers worked, were closed or transferred. Munro J rejected the contention

that ss 127A and 127B had no application to the terminated contracts, relying on his

reasoning in Transport Workers Union (at [3.2]). The order made by Munro J is set out at

[29] of the second judgment of the primary judge. The effect of the order was to vary the

contracts in question by inserting a term to the effect that in the event of the closure or

transfer of the respondent’s depot (an event which had already occurred), the period of notice

to be given by the respondent to the drivers of the termination of their contracts be that period

specified in the order. The order also provided for payment in lieu of notice should notice not

be given. In practicable terms, given that the closure or transfer of the operations in question

had occurred many months earlier, the orders made imposed obligations on the respondent to

pay to the drivers monies in lieu of notice of termination.

124 The orders made in Finemores were the subject of appeal to a Full Bench of the AIRC

which, in turn, referred a number of questions for determination by a Full Court of the

Industrial Relations Court of Australia. One of the questions referred was whether the

powers conferred by ss 127A-127C were exercisable in respect of a contract which had been

terminated before the application was made to the AIRC. That question was dealt with by the

Full Court in Gerrard (Wilcox CJ, Ryan and Marshall JJ).

125 The Full Court in Gerrard examined Dingjan and concluded that the powers

conferred by ss 127A and 127B were available to be utilised even where the contracts in

question had been terminated prior to the commencement of proceedings (at 506). The Full

Court relied largely on the reasoning of Gaudron J in Dingjan that it ought not be supposed

that Parliament intended that the remedies provided could be readily avoided by the

termination of a contract. At 506, Wilcox CJ, Ryan and Marshall JJ said:

It would be strange if the legislation permitted the Commission to intervene only if

the independent contractor had been well-informed and efficient enough to file an

application before the other party could terminate the contract. The legislation being

protective in character, it is unlikely that parliament intended it to operate in such a

way as to disadvantage those less able to look after themselves.

126 Whilst the meaning of s 127B(4) was not directly in issue, the Full Court did consider

whether an order could be made which was “retrospective” in operation. At 505-506,

Wilcox CJ, Ryan and Marshall JJ said:

Technically, it is incorrect to say that an order made by the Commission in respect of

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a terminated contract has retrospective operation; s 127B(4) provides that an order

takes effect from its date or a later date specified in the order. However, in a

practical sense, an order will always involve an element of retrospectivity. The rights

and obligations of parties to a contract crystallise on termination. If an order varying

the contract is subsequently made, it must affect those rights and obligations.

127 The Full Court went on to consider (at 506) whether, if ss 127A and 127B had a

retrospective operation in the sense identified above, the provisions should be read down by

reference to the general principle of statutory construction that legislation should be

construed to avoid a retrospective operation unless a contrary intention is evinced. The Full

Court determined that a contrary intention was evinced by reason of the parliamentary

intention recognised by Gaudron J in Dingjan to which we have earlier referred at [125].

128 The Full Court in Gerrard also referred to an earlier and contrary judgment of Keely J

in Dickins v Herald and Weekly Times Ltd (1994) 124 ALR 308 (Dickins). That case

involved an application made to the Industrial Relations Court of Australia under ss 127A

and 127B of the IR Act. The application was made shortly after the jurisdiction was

transferred to that Court and was determined prior to the publication of the reasons in

Dingjan. Keely J was called upon to consider whether the proceeding should be summarily

dismissed because the powers conferred upon the Court extended only to existing contracts

and not to terminated contracts. The judge held that ss 127A and 127B did not authorise the

making of orders varying or setting aside the whole or part of a contract which was no longer

in existence. Keely J was persuaded to that conclusion including by the present tense of the

language of s 127B(4) as well as the language of s 127B(2) and in particular the words “such

a footing that the ground…no longer applies” (at 314). His Honour concluded that the

language utilised did not support the contention that the provisions were intended “to have

retrospective operation” (see also at 314). The Full Court in Gerrard (at 507) regarded

Dickins as inconsistent with the later reasoning in Dingjan and that the judgment should be

treated as overruled.

129 In Finch v Herald & Weekly Times Ltd (1996) 65 IR 239, North J considered the

question whether ss 127A and 127B of the IR Act were invalid because they invested the

Industrial Relations Court of Australia with a jurisdiction which was not a part of the judicial

power of the Commonwealth. The judge determined that there was no investiture of non-

judicial power. In arriving at that conclusion, his Honour needed to construe the meaning of

s 127A and reasoned (at 251) that s 127A was “concerned only with unfairness and harshness

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at the time the contract was made”. That view of s 127A of the IR Act was subsequently

followed by Spender J in Harding v EIG Ansvar Ltd (2000) 95 IR 349; [2000] FCA 46

(Harding) (to which we shall shortly return); by Sackville, Katz and Kenny JJ in Aerial Taxi

Cabs Co-operative Society Ltd v Lee (2000) 102 FCR 125; [2000] FCA 1628 at [132] and

[137]; and by Madgwick J in Jordan v Aerial Taxi Cabs Co-operative Society Ltd (2001) 108

IR 263; [2001] FCA 972 at [36].

130 The relevance of that accepted construction of s 127A of the IR Act is of some

importance to the construction of s 12(3) of the IC Act, a matter to which we will return.

131 On the passage of the Workplace Relations and Other Legislation Amendment Act

1996 (Cth), the jurisdiction to review harsh or unfair contracts was transferred to this Court.

There are a number of decisions of this Court of relevance.

132 Buchmueller v Allied Express Transport Pty Ltd (1999) 88 IR 465; [1999] FCA 319

(Buchmueller) involved a proceeding in which a sub-contractor driver sought relief.

Dowsett J considered that the applicant’s agreed remuneration as an independent contractor

was substantially less than that which he would have been entitled to had he been an

employee performing the same work. By reference to the applicable award for such an

employee, the judge was satisfied that unfairness was demonstrated (see [41]-[43]). At [44]-

[46], Dowsett J discussed the orders which should be made to redress the unfairness. His

Honour considered that inserting a term into the contract requiring parity with the applicable

award may have been appropriate if the contract had not been terminated. In circumstances

where the relationship had ended and although Dowsett J thought it “somewhat artificial”, the

judge at [45] determined that:

…the needs of the parties will be met by making an order which finally crystallises

their mutual obligations. This will be achieved by inserting into the contract

regulating the relationship of principal contractor and contract carrier a clause

terminating all obligations pursuant to the contracts upon the payment by the

respondent to the applicant of a sum which represents the amount of the applicant’s

disadvantage.

133 Dowsett J then set out the basis upon which he regarded $13,080 as an appropriate

sum. His Honour took into account the shortfall between the award rates that would have

applied if the contractor had been an employee and the payments made to the contractor

under the contract. The judge ordered that the relevant contract be varied by inserting a

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provision dealing with the contract’s termination (an event which had already occurred) as

follows:

Upon termination hereof, the principal contractor will pay to the contract carrier the

sum of $13,080, and upon such payment all rights and liabilities of the parties hereto

arising pursuant to this contract or pursuant to another contract made this day

between the same parties will be released and discharged.

134 In Harding, Spender J dealt with an application relating to a contract made between

an insurance agent and the insurance company that the agent represented. An application for

interim relief was made which was dealt with by reasons published as Harding v Ansvar

Australia Insurance (1998) 91 IR 1. In those reasons, Spender J considered whether interim

relief should be refused on the basis that damages would provide an adequate remedy. The

judge was concerned whether, if the contract in question was terminated by the time of the

final hearing, the Court would have the power at the final hearing to make orders varying the

contract and compensating the applicant in conformity with the contract as varied. His

Honour considered that the respondent had conceded that the Court would have such a power

and declined to grant interim relief. The judge specifically referred to and set out the terms of

s 127B(4) and said at 3:

The ordinary powers in contract are available to the applicant in the accrued or

associated jurisdiction. The case has been conducted by Ansvar, and my decision in

respect of interim relief has been substantially influenced by the stance of Ansvar

that on the final hearing of the application it would be competent for the Court to

order [sic] to pay to Mr Harding any moneys properly due to him pursuant to the

contract, as varied as the Court thinks it should be.

135 By the time of the final hearing, the contract had been terminated. Spender J

considered that the provision of 30 days’ notice in the terminated contract was “unfairly

short” (at [56]). His Honour then considered what damage had been suffered by the applicant

as a result of the unfairly short period of notice provided for by the contract. At [58] to [59]

his Honour assessed the damage suffered by the applicant and at [59] concluded that he ought

to order “that, by way of compensation for the unfair term of notice in the contract, Ansvar

pay to the applicant $5,000”. An order was made that the contract be varied so that, “upon

termination of the contract, the insurer pay to the agent the sum of $5,000”.

136 On 27 March 2006, by the passage of the Workplace Relations Amendment (Work

Choices) Act 2005 (Cth), ss 127A-127C were renumbered as ss 832-834 of the Workplace

Relations Act 1996 (Cth) (the WR Act). On 1 March 2007 the Workplace Relations

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Legislation Amendment (Independent Contractors) Act 2006 (Cth) excised the scheme for the

review of harsh or unfair contracts from the WR Act.

137 The IC Act commenced operation on 1 March 2007. By Pt 3 of that Act, the terms of

what had been ss 127A-127C of the IR Act and ss 832-834 of the WR Act were substantially

re-enacted. Other than in one minor respect, of no relevance to the issue raised in this

proceeding, the terms of s 16 of the IC Act mirror those of the former s 127B. The subject

matter that was dealt with by the former s 127A was distributed across ss 11-15 of the IC Act.

The type of contract to which the unfair contract provisions applied was narrowed by s 11(1)

of the IC Act. The grounds set out for review of a contract (unfairness or harshness) in

section 12 of the IC Act mirror the grounds in the former s 127A(2). Some limitations as to

who may make an application for review of a contract were introduced by ss 13 and 14 of the

IC Act but are of no relevance to this appeal. The matters that the Court may have regard to

in reviewing the contract are set out in s 15 of the IC Act and are the same as those that were

contained in s 127A(4).

138 The terms of s 12(3) of the IC Act did not appear in the former s 127A. That sub-

section provides:

In reviewing a services contract, the Court must only have regard to:

(a) the terms of the contract when it was made; and

(b) to the extent that this Part allows the Court to consider other matters—other

matters as existing at the time when the contract was made.

139 Whilst Pt 3 largely re-enacted what had been ss 127A-127C of the IR Act and more

recently ss 832-834 of the WR Act, the subject matter dealt with by the IC Act is wider. Pt 2

of the IC Act provides for the exclusion of State and Territory laws of the kind identified in

s 7. The laws there identified include laws which deem a party to a services contract to be an

employee or employer and laws which empower a court, commission or tribunal to set aside

or vary a services contract on the ground of unfairness. That wider scope of the IC Act is

reflected in the objects set out in s 3 which include protecting the freedom of independent

contractors to enter into services contracts and preventing interference with the terms of

genuine independent contracting arrangements.

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140 The Explanatory Memorandum to the Independent Contractors Bill 2006 (Cth) (the

2006 Bill), which introduced the provisions enacted as the IC Act, provides a very

comprehensive outline of the background considerations taken into account in the

formulation of the objectives of the IC Act. It is evident that those who designed the scheme

which the IC Act created were concerned to exclude access to remedies available under

particular State and Territory legislation. Relevantly to the issues we need to consider, the

Explanatory Memorandum specified a concern about the scope of s 106(2) of the Industrial

Relations Act 1996 (NSW). Section 106 of that Act is the successor provision to s 275 of the

Industrial Relations Act 1991 (NSW) to which we earlier referred. By s 106(2) the New

South Wales Industrial Relations Commission is empowered to find that a contract was

unfair, not only at the time it was entered into, but also because “…it subsequently became an

unfair contract because of any conduct of the parties…”.

141 That capacity was criticised in the Explanatory Memorandum for adding

“uncertainty” (page 8) and for being overly “interventionist” (page 19). It is in that context,

together with the broader categories of contracts with independent contractors amenable to

the jurisdictions conferred by State legislation in New South Wales and in Queensland, that

the Explanatory Memorandum spoke of the New South Wales and Queensland provisions as

being “more expansive” than the federal unfair contracts regime in place at that time (at page

19).

142 Despite the comprehensive review of the federal scheme which they evidence, neither

the Explanatory Memorandum nor the Supplementary Explanatory Memorandum to the 2006

Bill indicate any concern that the case law (to which we have referred) had interpreted the

then existing federal unfair contracts regime as extending to terminated contracts. Nor is

there anything in the Explanatory Memoranda to suggest that the Bill was designed to address

any concern about the manner in which s 127B(4) of the IR Act had been interpreted and the

nature, form or scope of the remedial orders made under that provision.

143 The purpose of what became s 12(3) of the IC Act was specified in [25]-[28] of the

Supplementary Explanatory Memorandum to the 2006 Bill. The motivation for that

provision appears to have been sourced in the same concern which motivated the desire to

override the operation of s 106(2) of the NSW IR Act. However, contrary to the view taken

by the primary judge at [52] of the second judgment, the Supplementary Explanatory

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Memorandum explains that the purpose of s 12(3) was to confirm the prevailing

interpretation given by the case law rather than to introduce a new or additional restriction to

the facts and circumstances the Court may have regard to in reviewing a contract. At [26]-

[27], the Supplementary Explanatory Memorandum stated:

Proposed paragraph 12(3)(a) would provide that in reviewing a services contract, the

Court must only have regard to the terms of the contract at the time it was made.

This would reflect the prevailing Commonwealth case law regarding the

interpretation of the existing unfair contracts provisions in the Workplace Relations

Act 1996. The current case law supports the proposition that the existing federal

unfair contracts jurisdiction is concerned only with the unfairness or harshness of a

contract at the time the contract is made.

These cases further emphasise that considerations of harshness or unfairness at any

point after the contract has been entered into by the parties are irrelevant (see Finch

& Ors v Herald and Weekly Times Ltd (1996) 65 IR 239; Harding v EIG Ansvar Ltd

[2000] FCA 46; Aerial Taxi Cabs Co-operative Society Ltd (t/as Canberra Cabs) v

Lee [2000] FCA 1628; and Jordan v Aerial Taxi Cabs Co-operative Society Ltd (t/as

Canberra Cabs) [2001] FCA 972).

144 Consistently with the view we have expressed at [48], paragraph 28 of the

Supplementary Explanatory Memorandum also explains that, in relation to what became

s 12(3)(b) of the IC Act, the “other matters” to which that paragraph refers are those

considerations listed in s 15(1) of the IC Act which the Court is to have regard to when

reviewing a services contract.

145 Keldote is the only authority brought to our attention in which a claim made pursuant

to Pt 3 has been made. That claim, brought in the Federal Magistrates Court, involved

contracts that were on foot at the commencement of proceedings and which were terminated

prior to the substantive hearing. In that case, Federal Magistrate Cameron, having found

unfairness in the contracts in question, made an order which varied the contracts “as from the

time when the contract was made” by the insertion of a particular term. The Federal

Magistrate considered that Gerrard and in particular the passage set out at [126] above was

authority for the proposition that an order could be made “which has a retrospective quality”

(at [33]).

146 There is one further matter of some importance to the proper construction of s 16(4)

of the IC Act, which requires elaboration by reference to the origins of that provision

(s 127B(4) of the IR Act) and the jurisdiction and practice of the authority (the AIRC) in

which the power to make orders of the kind contemplated by the provision were first reposed.

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147 The functions of the AIRC and its predecessors involved the creation of new rights

and obligations by the exercise of arbitral power to settle an industrial dispute. However, it

has long been recognised that in performing that function, the AIRC was empowered to

resolve a dispute relating to past transactions, events and conduct: Re Ranger Uranium Mines

Pty Ltd; Ex parte Federated Miscellaneous Workers’ Union of Australia (1987) 163 CLR

656 (at 663).

148 It has long been the practice of industrial tribunals to make awards and other

industrial agreements which impose a prospective duty or obligation on a person (usually an

employer) by reference to past transactions or events. The most common example is an

award which requires back-payment of wages for work which had already been performed

prior to the making of the award.

149 The validity of an award which required the payment of additional wages in respect of

work which had been performed prior to the making of the award was first tested in the High

Court in Federated Engine-Drivers’ and Firemen’s Association of Australasia v Adelaide

Chemical and Fertilizer Co Ltd (1920-21) 28 CLR 1 (Federated Engine-Drivers’). At the

time, s 28 of the Commonwealth Conciliation and Arbitration Act 1904-1915 (Cth) (the

C&A Act) relevantly provided that an award was to:

…continue in force for a period to be specified in the award, not exceeding five years

from the date of the award.

150 The High Court considered the power conferred by the C&A Act upon the

Commonwealth Court of Conciliation and Arbitration to settle an industrial dispute. It was

recognised by Knox CJ, Gavan Duffy and Starke JJ (at 10) that past conditions or rates of

wages may be the subject of demands and that the time taken to resolve a dispute may of

itself delay the making of an award and that consequentially, the power to “deal with these

conditions and rates as to a time past” was required if an industrial dispute was to be settled

as the C&A Act apparently contemplated. Knox CJ, Gavan Duffy and Starke JJ continued:

But sec. 28 must be considered. In sub-sec. 1 it is provided that the award is to

continue in force for a period to be specified in the award, not exceeding five years

from the date of the award; and it is said that an award for a specified period must

necessarily look only to future conditions and rates, or its prescribed term will be

exceeded. The argument cannot be supported. The provisions of sec. 28 of the Act

prescribe the period during which the award, when made, shall be operative, but do

not restrict its operation to questions arising out of the relations of the parties during

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that period. The fact that the award makes some provision in respect of matters

arising before the date of the award does not extend its duration. The award operates

during the period therein specified, and neither before nor afterwards, subject, of

course, to the provisions of sec. 28 (2). If the award prescribes a payment in respect

of wages for work done prior to the award, the duty of obedience arises in the

specified period and neither before nor afterwards. It is a mistaken notion that

persons on whom rests the duty of obedience to the award have committed an offence

or breach of the award because the conditions or wages in respect of a period

anterior to the award were not observed or paid during that period. The duty of

obedience arises only upon the making of the award, and continues during the

specified period.

[emphasis added]

151 The plurality in Federated Engine-Drivers’ drew a distinction between the time at

which the rights and obligations arising under or conferred by an award take force, and the

period upon which the award may operate. That construction was arrived at including by

reference to the purpose of the scheme of which s 28 formed part.

152 Federated Engine-Drivers’ was relied upon in Telegraph Newspaper Co Pty Ltd v

Australian Journalists’ Association (1962) 3 FLR 39 in relation to an agreement deemed by

the C&A Act to be an award. The agreement had been varied to increase rates of pay in

relation to work performed during a period which predated the making of the variation. The

issue before the Commonwealth Industrial Court was whether an employee no longer

employed at the time of the variation was nevertheless entitled to back-payment of wages at

the increased rate of pay. The Commonwealth Industrial Court held that the employee was so

entitled. At 41, Spicer CJ, Dunphy and Joske JJ said:

An agreement, therefore, is in the same position as an award and may be varied, and

varied retrospectively (R. v. Commonwealth Court of Conciliation and Arbitration;

Ex parte North Melbourne Electric Tramways and Lighting Co. Ltd). A retrospective

award may be made in respect of matters which were in issue in the dispute and can

be made as to any period covered by the actual dispute; and it may order payment in

respect of work done after the point of time when as a fact the industrial dispute

began and before the award is made (Federated Engine-drivers' and Firemen's

Association of Australasia v. Adelaide Chemical and Fertilizer Co. Ltd).

[Footnotes omitted]

153 In Standish v University of Tasmania (1988) 26 IR 342, Northrop J considered s 57 of

the C&A Act which, by that time, was the provision in the C&A Act dealing with when an

award shall “have effect”. Section 57 provided:

An award of the Commission constituted by a single member of the Commission

shall not, unless all parties to the industrial dispute who appear or are represented

before the Commission consent or the Commission otherwise directs, have effect

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until after the expiration of 28 days from the date of the award.

154 The award in question had a stated operative date which predated the date on which it

was made. Northrop J acknowledged that Federation Engine Drivers’ was authority for the

proposition that an award could be made “with effect from a date prior to the making of the

award” (at 345) and that in the period between the stated operative date and the date of its

making, the award in question was “in operation” but that “it would not give rise to duties

and obligations until after it was made” (at 346).

155 It is apparent then that at the time ss 127A-127C were introduced into the IR Act,

there was a well-recognised and long standing capacity for the AIRC (and its predecessors) to

create new rights and obligations by reference to past events or transactions but with only

prospective operation (in the sense that those rights and obligations had no force or effect

prior to the making of the order which created them).

The second judgment and the grounds of appeal

156 In the second judgment at [20], the primary judge concluded that s 16(4) of the IC Act

does not permit the Court to vary a contract with “retrospective effect”. The manner in which

the primary judge reasoned to that conclusion is summarised at sub-paragraphs (1)-(3) of [39]

above. As a result, the primary judge concluded that he lacked the power to amend the order

he made on 29 March 2011 so as to bring about, from the commencement of the Candle

contract, the inclusion into the contract of cll 14 and 15. Clauses 14 and 15 are set out at [37]

above.

157 That conclusion, that the Court lacked the power to bring about the variation of the

Candle contract from the time it was made, is challenged by ground 4 of Informax’s grounds

of appeal. For reasons which we will explain, ground 4 should be dismissed, despite there

being aspects of the primary judge’s reasoning with which we respectfully disagree. It

follows that a number of the other grounds of appeal (grounds 1, 2, 8, 9 and 10) should also

be dismissed. Those grounds raise related issues but their determination is of no consequence

given the conclusion we have reached that the primary judge was correct to conclude that the

Court lacked the power to bring about a contractual variation from the commencement of the

Candle contract.

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158 The reasoning of the primary judge which led to the judge rejecting the insertion of an

alternative clause relied upon by Informax and contained in prayer 3A of the proposed

Second Further Amended Application and Mrs Menano-Pires is summarised at sub-

paragraphs (4)-(8) of [39] above. The terms of prayer 3A are set out in sub-paragraph (3) of

[38] above.

159 Relying upon the terms of s 16(4) and related provisions in Pt 3, the primary judge

concluded that the IC Act “is concerned with the prospective remediation of unfair or harsh

contracts” and that it would be impermissible for the Court to make orders which provided

relief by reference to the manner in which the contract had operated in the past. The primary

judge concluded that ss 12(3) and 16(4) “operate as a bar on the consideration of events”

falling between the inception of the contract and the making of the Court’s orders (at [51]).

160 Those conclusions and their consequences are challenged by grounds 3, 5, 6 and 7 of

Informax and Mrs Menano-Pires’ grounds of appeal. For reasons we will explain, although

we agree with the primary judge’s ultimate conclusion that an order which varied the Candle

contract in terms of prayer 3A should not have been made, we respectfully disagree with

aspects of the primary judge’s reasoning leading to that conclusion. Given that grounds 3, 5,

6 and 7 of the grounds relied upon by Informax and Mrs Menano-Pires are all ultimately

directed at the primary judge’s refusal to order a variation in terms of prayer 3A, each of

those grounds should also be dismissed.

The proper construction of s 16(4)

161 The proper construction of s 16(4) of the IC Act is central to all of the issues raised in

relation to the second judgment.

162 Our task of statutory construction must focus on the text of s 16(4), but the meaning

of that text will require consideration of the purpose and policy of the provision in the context

of the IC Act as a whole. As French CJ, Gummow, Hayne, Kiefel and Bell JJ said in AB v

Western Australia (2011) 244 CLR 390; [2011] HCA 42 (at [10]) (by reference to the

observations of Dixon CJ in Commissioner for Railways (NSW) v Agalianos (1955) 92 CLR

390 (at 397)), the context, general purpose, policy and fairness of a statutory provision are

guides to its meaning. Their Honours continued:

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The modern approach to statutory interpretation uses "context" in its widest sense, to

include the existing state of the law and the mischief to which the legislation is

addressed. Judicial decisions which preceded the Act may be relevant in this sense,

but the task remains one of the construction of the Act.

[footnotes omitted]

163 We recognise, as the Full Federal Court did in Gerrard (at 506) in relation to

ss 127A-127C of the IR Act, that the legislation we are dealing with is of a remedial and

beneficial kind. In that circumstance, the terms of the legislative provisions in question

should be given “a fair and liberal interpretation in order that they achieve the Act’s

beneficial purposes”: AB v Western Australia (at [38]). The approach that should be taken to

the construction question is one that gives effect to the evident purpose of the legislation and

is consistent with its terms: AB v Western Australia (at [23]).

164 It is perhaps best to commence our consideration of the primary judge’s conclusion

that the terms of s 16(4) of the IC Act preclude the making of a “retrospective” order, by

saying (as Gleeson CJ, McHugh, Gummow, Hayne and Callinan JJ said at [25] of

Australasian Memory Pty Ltd v Brien (2000) 200 CLR 270; [2000] HCA 30 (Australasian

Memory)), that the terms “prospective” and “retrospective” are terms that are sometimes used

in different senses. In the context of this case, these are terms which are better avoided

unless the sense in which the terms are used is clearly identified.

165 We consider it unhelpful to construe the scheme of Pt 3 of the IC Act by reference to

the question of whether or not it is a scheme which precludes the making of a “retrospective”

order. A far more helpful question is whether the scheme of Part 3 allows for the unfairness

or harshness of a contract to be remedied from the time it was made or, alternatively, only

from the time at which the Court makes its order.

166 Section 16(4) of the IC Act deals with when an order “takes effect”. Of and by itself,

s 16(4) does not provide an answer to the question of the remedial scope of a permissible

order. To answer that question, it is necessary to consider the scheme more generally,

commencing as we will with the subject matter with which an order may deal.

167 Section 16(4) may well say something about the subject matter with which an order

may deal. However, that issue is dealt with more directly by s 16(1) which identifies that by

its order, the Court may either set aside the contract, in whole or in part, or vary it. What an

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order may deal with is also illuminated by s 16(2) which sets out the purpose for which an

order may be made. An order may only be made “for the purpose of placing the parties to the

services contract as nearly as practicable on such a footing that the ground on which the

opinion is based no longer applies”.

168 Section 15(3) makes it clear that the “opinion” referred to in s 16(2) is the Court’s

opinion that a ground referred to in s 12(1) is established. That is, that having reviewed the

contract, the Court is of the opinion that the contract is unfair, is harsh or is both unfair and

harsh. In the review required by s 12(1), s 12(3) demands that the Court only have regard to:

(i) the terms of the contract when it was made; and

(ii) other matters (those set out in s 15(1)) as existing at the time when the contract

was made.

169 In construing the scheme provided by Pt 3, and in particular the remedial scope of the

orders that may be made, the primary judge placed much weight on the terms of s 12(3) and

its requirement that the opinion which may be formed as to unfairness or harshness may only

be formed by reference to the terms of the contract when made and not by reference to any

unfairness or harshness experienced in the operation of the contract during its term ([49]-[51]

of the second judgment).

170 The primary judge drew a distinction between unfairness found in the terms of the

contract when made and unfairness in the actual operation of the contract. The primary judge

concluded, and we agree, that the scheme of Pt 3 is only concerned to remedy unfairness in

the contract as existing when the contract was made. The terms of ss 12(1) and 12(3) and the

Supplementary Explanatory Memorandum to the 2006 Bill at [26]-[27] (see [143] above)

make that clear. However, to look at the terms of a contract when made and consider

whether the contract is unfair is an exercise in which the Court considers whether the terms of

the contract (and the s 15(1) circumstances existing at the time it was made) demonstrate a

potential for the contract to operate unfairly. It is by reference to the potential of the contract

to operate unfairly and/or harshly that the Court forms an opinion as to whether the ground of

unfairness or harshness referred to in s 12(1) is established.

171 Largely by reference to the terms of s 12(3), the primary judge reasoned at [50] that

because the scheme was limited to addressing unfairness in the contract rather than unfairness

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in the way the contract actually operated, s 16(4) was to be construed as “similarly limited” in

that it was available to cure the unfairness in the contract and not the unfairness actually

experienced as the result of its operation. On that premise, the primary judge concluded at

[51] that Pt 3 is only concerned with “prospective remediation of unfair or harsh contracts”.

It is not absolutely clear what the primary judge meant by “prospective remediation”. Insofar

as he meant that the remedial scope of the scheme is limited to only addressing the potential

for future unfairness in the operation of the contract, we would respectfully disagree.

172 It does not follow from the fact that the scheme was designed to deal with the

potential for a contract to operate unfairly (rather than its actual unfairness in operation) that

Parliament intended that the available remedy should be limited to addressing the potential

for future unfairness as and from the date of any remedial order. It is far more likely that a

scheme which requires that the mischief it seeks to rectify be identified at its source (ie when

the contract was made) intends that the mischief be remedied from its source (ie from when

the contract was made). There are a number of matters which support that conclusion.

173 To construe the scheme as being confined to only addressing the potential for future

unfairness in the period which post-dates the order of the Court would render the scheme

almost entirely inapplicable to contracts which have been terminated. It is difficult to

reconcile that outcome with Dingjan and Gerrard and the fact that the scheme considered by

those authorities has been essentially re-enacted.

174 In the first judgment at [146]-[150], the primary judge rejected Candle’s contention

that s 12(1) of the IC Act did not apply to terminated contracts. That finding is not

challenged and in our view it is plainly correct. The language utilised in Pt 3 of the IC Act is,

for relevant purposes, not materially different to that utilised by ss 127A and 127B of the IR

Act which both Dingjan and Gerrard (and the case law which has applied those decisions)

interpreted as applying to terminated contracts. It is unlikely that Parliament enacted Pt 3 of

the IC Act without an awareness of the judicially accepted interpretation placed on ss 127A

and 127B and, with that awareness, utilised the same language despite having an intent that

the accepted understanding associated with that language be overridden: Electrolux Home

Products Pty Ltd v The Australian Workers’ Union (2004) 221 CLR 309; [2004] HCA 40 (at

[8] Gleeson CJ; [62] McHugh J; [162] Gummow, Hayne and Heydon JJ); Re Alcan Australia

Ltd; Ex parte Federation of Industrial, Manufacturing and Engineering Employees (1994)

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181 CLR 96 (at 106 Mason CJ, Brennan, Deane, Dawson, Toohey, Gaudron and McHugh

JJ).

175 We recognise that some obligations imposed by a contract can survive beyond its

termination. However, the case law on ss 127A and 127B denies any suggestion that the

scope of those provisions to deal with terminated contracts was confined to the very limited

class of contractual provisions which survive termination. The nature and extent of surviving

provisions is so limited that it is unlikely that the continued applicability of the scheme

provided by Pt 3 of the IC Act to terminated contracts was founded upon such a narrow

remedial objective.

176 Further, it is abundantly clear that all of the decided cases dealing with ss 127A and

127B – Transport Workers Union, Finemores, Harding and Buchmueller – were resolved by

the making of orders which were not focused upon nor confined to the remediation of future

unfairness as and from the date of the making of the orders therein made. The primary judge

sought to distinguish those authorities on the basis that the scheme then in place did not

contain the equivalent limitation to that found in s 12(3) of the IC Act. For the reasons set

out at [143], s 12(3) is not a new limitation and does not provide a basis for the distinction

which the primary judge drew. As we earlier stated at [142], despite the comprehensive

review of the federal scheme which proceeded the enactment of the IC Act, no concern about

the nature, form or remedial scope of orders made pursuant to the former s 127B(4) is

apparent from the Explanatory Memoranda to the 2006 Bill. Neither the inclusion of s 12(3)

nor any other matter supports the contention that the manner in which the scheme had

operated in relation to the making of orders and the scope of the remedial relief provided was

intended to be radically altered upon the enactment of the IC Act.

177 Furthermore, to construe the scheme as limited to the remediation of future unfairness

may lead to capricious results, at least in relation to applications dealing with extant

contracts. On that construction, every day that it takes for a pending application to be

determined, is a day for which a remedy is denied. While s 16(3) provides for the making of

interim orders, it seems unlikely that Parliament intended that the utility of the final relief the

Court could grant would substantially depend upon the time taken to commence, conduct and

determine an application.

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178 It was contended by Candle that the terms of s 16(2) support a construction that the

scheme was limited to the making of remedial orders confined to addressing future

unfairness. The argument relied upon the words “no longer applies”. The use of the present

tense was said by Candle to emphasise that only a “prospective remediation” from the date of

an order was intended. Whilst that contention has some initial attraction, the tense utilised

does not really assist in answering what is to no longer apply. Is it the potential for

unfairness from the outset of the contract or that potential as and from the date upon which an

order is made? The answer to that question requires an examination of “the ground” to which

s 16(2) refers and which is to no longer apply. That ground, as we have said, is identified by

ss 12(1) and 12(3) as the potential for unfairness as at the time the contract was made.

Further, when the Explanatory Memorandum to the 1992 Bill explained the predecessor

provision to s 16(2) (see [112] above), it gave its purpose as that of “redressing” (as distinct

from addressing) the unfairness found in the contract.

179 In our view (and utilising the words employed by the Explanatory Memorandum to

the 1992 Bill), s 16(4) orders “may only be prospective in operation”. That 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. It does mean that any order made may not give rise to any

duty, obligation or liability which operates or has force from a time prior to the making of the

order. That construction is consistent with the text of s 16(4) and the plain meaning of the

words “takes effect”. The construction is also supported by the legislative history of s 16(4)

and the fact that when s 127B(4) of the IR Act was first enacted, the AIRC had an accepted

capacity to make awards which operated prospectively but whose remedial scope extended to

the remediation of events or transactions which pre-dated the date of the award.

180 Whilst we accept that the words of s 16(4) include a temporal requirement, that

requirement does not “…preclude the making of an order with future effect but in respect of

past matters or events”: Australasian Memory at [26] (Gleeson CJ, McHugh, Gummow,

Hayne and Callinan JJ).

181 The construction we prefer gives effect to the evident purpose of Pt 3 and is consistent

with its terms.

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182 On that construction and on the facts of this case, it was open for Informax to have

sought, and for the Court to have made, an order which varied the contract between Informax

and Candle which had a remedial scope dating back to the contract’s formation but an

operative effect from the date of the Court’s order.

183 In the context of there having been no disclosure to Mrs Menano-Pires of cl 7.2 of the

Candle-Woolworths contract, the unfairness which the primary judge found in the Candle

contract was the failure of the contract to protect Informax by prohibiting Candle from

preventing Woolworths from employing Mrs Menano-Pires at a time when the Candle

contract no longer restrained Informax or Mrs Menano-Pires from working with Woolworths

(see at [145] of the first judgment). That potential for unfairness could have been remedied at

and from its source by an order which varied the Candle contract as and from the date of the

making of the order, by including a term in the Candle contract to the effect that Candle

would be liable for any loss or damage suffered by Informax or Mrs Menano-Pires resulting

from such conduct (ie conduct by Candle which had the effect of preventing Informax and

Mrs Menano-Pires from working for Woolworths at a time when the Candle contract no

longer restrained Informax and Mrs Menano-Pires from doing so).

184 Such a variation would not have varied the contract from a date earlier than the date

upon which the order was made. The order would not have given rise to any duty, obligation

or liability upon Candle which operated or had force from a time prior to the making of the

order. It would in that respect have satisfied the requirement of s 16(4) that the order not take

effect prior to the date upon which it was made. The order, however, would have redressed

(from the time that the contract was made) the potential in the Candle contract to unfairly

impose loss or damage upon Informax and Mrs Menano-Pires by providing a basis for any

such loss or damage to be negated. If it were necessary, a suit for breach in the accrued

jurisdiction of the Court could have been entertained (see the reasons given by the primary

judge at [53] of the second judgment). Such an order for the variation of the Candle contract

would thereby have placed Candle and Informax, as nearly as practicable, on such a footing

that the potential for unfairness in the contract when made, no longer had application.

185 The difficulty for Informax is that even if its Further Amended Application did seek

relief of that kind (and arguably prayer 3(b)(ii) did), any refusal by the primary judge to grant

such relief is not the subject of this appeal. The relief Informax seeks on this appeal is a

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variation to the Candle contract which is to have operative effect from a time which predates

the making of the orders to be made. The inclusion into the Candle contract of cll 14 and 15

from the date that the Candle contract was made would impose upon Candle duties,

obligations or liabilities which would operate from a time prior to the making of the order

granting that relief. For the reasons we have explained, s 16(4) does not permit the making of

an order of that kind.

186 The alternative relief sought by Informax from the primary judge, and on the appeal,

depended on the variation of the Candle contract by the inclusion of the term set out in prayer

3A. As the primary judge identified at [44] of the second judgment and as Candle contended

on the appeal, the difficulty with prayer 3A is that it is premised upon the variation of the

Candle contract by the inclusion of cll 14 and 15 from the date of the commencement of the

contract. No such variation was made nor, for the reasons we have explained, is such a

variation possible. It follows that there can be no utility in the variation sought by prayer 3A

and that no relief directed to that end should be granted on the appeal.

187 We should comment upon one aspect of the primary judge’s reasoning for rejecting

prayer 3A with which we respectfully disagree. The primary judge observed that through

prayer 3A, Informax sought compensation by reference to facts and circumstances that Pt 3

excludes from consideration. He concluded at [51] of the second judgment that the Court

was barred from taking into account facts and circumstances which occurred in the

“forbidden area lying between the moment of the contract’s inception and the making of the

Court’s orders”. However, in our view the fact that the review required by s 12(1) of the IC

Act is a review directed to unfairness in the contract, and not unfairness in the actual

operation of the contract, does not lead to the conclusion that facts and circumstances which

arose after the contract was made are barred from consideration by the Court for all purposes,

including the formulation of relief.

188 First, s 12(3) identifies the subject matter which the Court may have regard to and not

the evidence that may be relevant to a consideration of that subject matter. It is not to be

supposed, for example, that a review of the terms of a contract is to be conducted without

evidence which may help to determine the intended meaning of those terms. Further, given

that the nature of the exercise required by s 12(1) is to consider whether the terms of the

contract demonstrate a potential for the contract to operate unfairly, evidence as to how the

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contract operated in practice may shed light on that potential. That kind of evidence may also

be relevant to the limited subject matters that the Court may have regard to pursuant to

s 12(3).

189 Second, facts and circumstances arising after the contract’s formation may be relevant

to the exercise of the discretion conferred by s 16(1) as to whether an order should be made

and the extent of the relief which the Court should grant. It is unlikely that the exercise of the

Court’s discretion was intended to be circumscribed by the limited subject matters that

s 12(3) identifies. In our view, when s 12(3) speaks of the Court “reviewing a services

contract” it is not speaking of the entirety of the Court’s task in determining the application

before it, but is addressing the more limited task of reviewing a contract for unfairness or

harshness in order to consider whether the opinion to which s 15(3) refers is established.

DISPOSITION

190 Accordingly, we agree with the primary judge that cll 14 and 15 cannot operate from

a time prior to the grant of relief. The two reasons the amendment to add prayer 3A was not

allowed by the primary judge were that, although prospective in form, the proposed order

purported to operate by reference to past events (see [39(5)] above) and the proposed order

was based on conduct said to be inconsistent with cll 14 and 15 and those clauses could not

operate from a time prior to the grant of relief (see [39(6), (7), (8)] above). We have held that

the primary judge erred in relying on the first reason (see [171]-[180] and [187]-[189] above).

We have held that the primary judge did not err in relying on the second reason (see [186]).

If the matter rested there then the appropriate order in relation to the appeal would be that it

be dismissed.

191 It will be clear from our reasons (at [183]) that there is an order that could have been

made and which is not dissimilar to the order contained in prayer 3A and, in general terms, to

paragraph 3(b)(ii) of the Further Amended Application dated 2 July 2010. That is the case in

a context in which we have upheld the primary judge’s finding of unfairness within s 12(1) of

the IC Act and where the primary judge said in his second judgment (at [57]) that he did not

discern any real prejudice to Candle by reason of the amendment and that he would have

allowed it but for the legal difficulties identified. In these circumstances, it is arguable that

even at this late stage Informax and Mrs Menano-Pires should be permitted to amend their

notice of motion to claim an order which is within the Court’s power to make. It is true that

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there appear to be powerful reasons against allowing such an amendment to the notice of

motion including the fact that the appeal has been heard and the fact that the Court’s power to

remedy any prejudice by an order for costs appears to be limited by s 17 of the IC Act.

Nevertheless, in the somewhat unique circumstances of this case, we propose to give

Informax and Mrs Menano-Pires the opportunity to apply to this Court to amend their notice

of motion to claim an order which is within power. If such an application is made and is

successful, the notice of motion will be referred back to the primary judge for hearing and

determination in accordance with the reasons of this Court. If it is unsuccessful, then the

appeal will be dismissed. In either event, the cross-appeal must be dismissed.

192 Unless one or both of the parties request an oral hearing before this Court within two

days, the Court will determine any such application on the papers. We will make the

following orders:

1. Any application by Informax and Mrs Menano-Pires to amend the notice of motion

dated 21 April 2011 is to be set out in writing and supported by such submissions as

those parties wish to make. Such documents are to be filed and served within seven

days.

2. Any submissions in response by Candle are to be filed and served within fourteen

days.

3. Any submissions in reply by Informax and Mrs Menano-Pires are to be filed and

served within seventeen days.

I certify that the preceding one

hundred and ninety-two (192)

numbered paragraphs are a true copy

of the Reasons for Judgment herein

of the Honourable Justices Besanko,

Jagot and Bromberg.

Associate:

Dated: 20 November 2012