Ekera Dental Pty Ltd v Creative Smiles Pty Ltd
[2025] VSCA 149
•27 June 2025
| Termination SUPREME COURT OF VICTORIA COURT OF APPEAL |
| S EAPCI 2023 0083 S EAPCI 2023 0091 |
| EKERA DENTAL PTY LTD (ACN 163 686 146) | Applicant/Cross‑respondent |
| v | |
| CREATIVE SMILES PTY LTD (ACN 116 150 353) | First Respondent/Cross‑applicant |
| AND | |
| JOHN GOODMAN | Second Respondent/Cross‑applicant |
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| JUDGES: | LYONS, ORR and KENNY JJA |
| WHERE HELD: | Melbourne |
| DATE OF HEARING: | 29 August 2024, 9 May 2025 |
| DATE OF JUDGMENT: | 27 June 2025 |
| MEDIUM NEUTRAL CITATION: | [2025] VSCA 149 |
| JUDGMENTS APPEALED FROM: | [2022] VCC 2281; [2023] VCC 745; [2023] VCC 1083; [2023] VCC 1181 (Judge Cosgrave) |
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EMPLOYMENT – Sale of dentistry practice – Director of corporate vendor retained as dentist and manager of dentistry practice under services agreement – Services agreement operated during period where dentistry practice required to meet annual earnings targets for vendor to receive final tranches of purchase price – Whether director of vendor was employee or independent contractor when managing dentistry practice during this period – Terms of services agreement did not establish an employment relationship – Commercial context and purpose of services agreement relevant – Leave to appeal granted – Appeal allowed.
Construction, Forestry, Maritime, Mining and Energy Union v Personnel Contracting Pty Ltd (2022) 275 CLR 165; ZG Operations Australia Pty Ltd v Jamsek (2022) 275 CLR 254; Rinehart v Hancock Prospecting Pty Ltd (2019) 267 CLR 514; Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451; Stevens v Brodribb Sawmilling Co Pty Ltd (1986) 160 CLR 16.
CONTRACT – Sale of dentistry practice – Contract provided for purchase price to be paid by an upfront payment and two tranches, with each of the tranches dependent on dentistry practice meeting an annual earnings target – Expenses not arising in the ordinary course of business of the dentistry practice to be excluded in calculating earnings of practice for purpose of annual earnings target – Whether amount of money received in fees paid by patients at the practice but not banked by the practice was an expense arising in ordinary course of business of the practice – No error by judge in concluding that unbanked money was such an expense.
Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104.
COSTS – No order as to costs – Consolidated proceeding – Consolidation of proceeding involving commercial dispute between two corporate entities and proceeding in which director of one corporate entity sought relief under the Fair Work Act 2009 (Cth) from other corporate entity – Trial judge applied s 570 of Fair Work Act 2009 (Cth) to consolidated proceeding – No error by trial judge in applying s 570 – Trial judge declined to order costs under s 570(2)(b) because refusal of offers of compromise was not unreasonable – No error by trial judge.
Fair Work Act 2009 (Cth), s 570.
Joseph v Parnell Corporate Services Pty Ltd (2021) 284 FCR 546; Melbourne Stadiums Ltd v Sautner (2015) 229 FCR 221; O’Grady v Northern Queensland Co Ltd (1990) 169 CLR 356.
PRACTICE AND PROCEDURE – Jurisdiction – Cross-vesting – Special federal matter – Whether special reasons exist to not transfer proceedings to Federal Court – Significant court time, public expense and delay constitute special reasons – Order made under s 6(3) of Jurisdiction of Courts (Cross-vesting) Act 1987 (Cth).
Fair Work Act 2009 (Cth), s 565; Jurisdiction of Courts (Cross-vesting) Act 1987 (Cth), ss 3, 6.
Palmer v Ayres (2017) 259 CLR 478; Re Wakim; Ex parte McNally (1999) 198 CLR 511; Fencott v Muller (1983) 152 CLR 570; Krongold Constructions (Aust) Pty Ltd v Thurin (2023) 414 ALR 1; Truthful Endeavour Pty Ltd v Condon (2015) 233 FCR 174; NEC Information Systems Australia Pty Ltd v Lockhart (1992) 36 FCR 258; Huynh v Attorney-General (NSW) (2023) 112 NSWLR 149.
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| Counsel | |||
| Applicant/ Cross‑respondent: | Mr J L Bourke KC with Mr A Petridis | ||
| Respondents/ Cross‑applicants: | Mr M J Rivette with Mr A D H Denton (29 August 2024) Mr R Murray (9 May 2025) | ||
Solicitors | |||
| Applicant/ Cross‑respondent: | Hassett & Co Lawyers | ||
| Respondents/ Cross‑applicants: | RM Commercial & Family Lawyers | ||
TABLE OF CONTENTS
Introduction
The parties’ proposed grounds
Factual background
Issues in the proposed appeal and cross-appeal
Appeal Ground 1: Was Dr Goodman an employee of Ekera?
Trial judge’s findings regarding the employment issue
Ekera’s submissions regarding the employment issue
Submissions of Creative Smiles and Dr Goodman regarding the employment issue
Consideration: Was Dr Goodman an employee of Ekera?
Commercial context and purpose of the contractual arrangements
Provisions of the Services Agreement tending against employment relationship
(a) Remuneration
(b) Work at own risk
(c) Supply of services by Ekera to Dr Goodman
(d) Dr Goodman’s agreement to indemnify Ekera
(e) Ekera’s limited right to terminate the contract
Provisions of the Services Agreement tending to support an employment relationship
(a) Management of the Roster and provision of non-clinical services
(b) Practice obligations
(c) Obligations to act in a way that protects the goodwill held by Ekera
(d) Restraint provisions
(e) Distinction between work as dentist and work as Practice Principal in Recitals
Provisions pointing both ways: Attendance and leave provisions
Conclusion
Appeal Ground 2: Liability of Ekera to pay superannuation
Appeal Ground 3: Missing Monies
Trial judge’s findings regarding the Missing Monies
Ekera’s submissions regarding the Missing Monies
Submissions of Creative Smiles and Dr Goodman regarding the Missing Monies
Consideration: Status of the Missing Monies
Cross-Appeal Grounds 1–3: Penalties to be paid by Ekera
Cross-Appeal Grounds 4 and 5: Costs
Trial judge’s findings regarding s 570 of the FWA
Submissions of Creative Smiles and Dr Goodman
Ekera’s submissions
Consideration
An order under s 6(3) of the Commonwealth Cross-vesting Act
Conclusion
LYONS JA
ORR JA
KENNY JA:
Introduction
There are two applications before the Court. In the first, Ekera Dental Pty Ltd (‘Ekera’) seeks leave to appeal from the judgment of a judge of the County Court of Victoria delivered on 16 December 2022 in proceeding CI-19-04997 (the ‘First Reasons’).[1] In the second, Creative Smiles Pty Ltd (‘Creative Smiles’) and Dr John Goodman seek leave to cross-appeal from three subsequent judgments in the same proceeding, delivered on 12 May 2023 (the ‘Penalty Reasons’),[2] 28 June 2023 (the ‘Costs Reasons’),[3] and 12 July 2023 (the ‘Final Orders Reasons’).[4] Each of the judgments is reflected in final orders made on 17 July 2023.
[1]Creative Smiles Pty Ltd v Ekera Dental Pty Ltd [2022] VCC 2281.
[2]Creative Smiles Pty Ltd v Ekera Dental Pty Ltd [No 2] [2023] VCC 745.
[3]Creative Smiles Pty Ltd v Ekera Dental Pty Ltd [No 3] [2023] VCC 1083.
[4]Creative Smiles Pty Ltd v Ekera Dental Pty Ltd [No 4] [2023] VCC 1181.
In the course of preparing reasons for judgment, this Court identified s 565 of the Fair Work Act 2009 (Cth) (‘FWA’), which provides that an appeal from a decision of an eligible State or Territory court exercising jurisdiction under the FWA lies to the Federal Court of Australia, rather than to this Court. The County Court, which is an eligible State or Territory court,[5] exercised jurisdiction under the FWA in hearing and deciding proceeding CI-19-04997. It is clear that the parties ought to have instituted appellate proceedings in the Federal Court, rather than this Court. Nonetheless, for the reasons stated hereafter,[6] the Court has determined that it should make an order under s 6(3) of the Jurisdiction of Courts (Cross-vesting) Act 1987 (Cth) (‘Commonwealth Cross-vesting Act’) to determine the two applications for leave to appeal.
[5]See FWA, s 12 (definition of ‘eligible State or Territory court’).
[6]See [186]–[206] below.
The parties’ proposed grounds
In its application for leave to appeal, Ekera proposed the following three grounds of appeal in respect of the First Reasons:
1.The Judgment erred as a matter of law in determining the second respondent was an employee of the [applicant] at [513], supported by reasoning at [513]–[517] of the Judgment and [34]–[37] of the [Penalty Reasons]. The correct application of the test of employment in Construction, Forestry, Maritime, Mining and Energy Union v Personal [sic] Contracting Pty Ltd [2022] HCA 1; (2022) 398 ALR 404 at [40]–[48] (Kiefel CJ, Keane and Edelman JJ), [172]–[173] (Gordon J), and ZG Operations Australia Pty Ltd v Jamsek [2022] HCA 2; (2022) 398 ALR 603 at [8] (Kiefel CJ, Keane and Edelman JJ), [109] (Gordon and Steward JJ) should have resulted in no relationship of employment being found.
2.The Judgment erred as a matter of law in determining the [applicant] was liable to make superannuation payments pursuant to s 12(3) of the Superannuation Guarantee [(Administration)] Act 1992 (Cth) at [559]–[577]. No such claim was pleaded. The issue was not before the court.
3.The Judgment erred in construing clause 4.5(b)(II)(A)(ii) [sic] of the Dental Practice Acquisition Agreement dated 30 June 2016 as operating to mean that missing monies in issue fell within an exception provided by that clause at [445]–[450]. Correctly construed, the missing monies did not fall within the exception.
These are referred to below as the ‘appeal grounds’.
In their application for leave to cross-appeal, Creative Smiles and Dr Goodman proposed the following five grounds of cross-appeal in respect of the Penalty Reasons, the Costs Reasons and the Final Orders Reasons:
Penalty
1The Primary Judge erred in finding that it was not appropriate to order a pecuniary penalty under section 546 of the FWA by failing to adequately carry out the task of determining the need for specific deterrence and/or the need for general deterrence.
2.The Primary Judge erred in his treatment of the evidence of Dr Coulepis at the Penalty Hearing.
3.The decision by the Primary Judge not to impose any pecuniary penalty was manifestly inadequate.
Costs
4.The Primary Judge erred in finding that section 570(1) of the [FWA] applied to the commercial dispute between Creative Smiles Pty Ltd and Ekera Dental Pty Ltd.
5.The Primary Judge erred in finding that it was not unreasonable for the purposes of s 570(2) of the [FWA] for Ekera to fail to accept two offers of compromise that were ‘more generous’ than the decision of the court, including by making findings of fact or inference without any evidentiary basis.
These are referred to below as the ‘cross-appeal grounds’.
Factual background
The following facts were either agreed or uncontroversial.
Ekera purchases and operates dentistry practices. It also provides administrative and accounting services to those practices. These practices are normally staffed by support staff employed by Ekera, and dentists who are independent contractors.
Creative Smiles owned a cosmetic dentistry practice located in High Street, Armadale.[7] Prior to 2016, the practice was controlled and owned by Dr Goodman, the sole director and shareholder of Creative Smiles. On 30 June 2016, Ekera entered into an acquisition agreement with Creative Smiles and Dr Goodman, pursuant to which it agreed to purchase the dentistry practice (the ‘Acquisition Agreement’).
[7]The dentistry practice is referred to variously in these reasons as the ‘practice’ and the ‘Dental Centre’.
Broadly speaking, the Acquisition Agreement provided that Ekera was to pay Creative Smiles $3.5 million on settlement; and two further tranches of $770,895 to be paid over the next two years (2017 and 2018) provided the practice met an EBITDA[8] target of $926,000 by 30 June in each of those years. The parties referred to these two years, ending 30 June 2018, as the ‘Earn Out Period’ and the two further tranches of payment together as the ‘Earn Out’.
[8]EBITDA is an acronym for earnings before interest, taxes, depreciation, and amortisation.
Further, pursuant to a services agreement also dated 30 June 2016, Dr Goodman agreed with Ekera that he would act as the Practice Principal of the practice during the Earn Out Period, and that he would work in the practice as a dentist from time to time (the ‘Services Agreement’). Also under the Services Agreement, Dr Goodman and Ekera agreed that Ekera would provide ‘Support Services’ (that is, specified administrative services) to Dr Goodman.
The Acquisition Agreement and the Services Agreement were each contingent on the other being executed. Both agreements had a termination date of 30 April 2018.
The first EBITDA target of $926,000 was met by the due date (30 June 2017), but a problem arose with respect to the second EBITDA target in 2018. Ekera calculated the 2018 EBITDA as being below the $926,000 target. As a consequence, Ekera did not pay Creative Smiles the second payment of $770,895, but a lesser amount of $532,992. In calculating the 2018 EBITDA, Ekera deducted various items, including an expense in the amount of $132,908.84. This was an amount that Creative Smiles had recorded as money that had been received in fees paid by patients at the practice, but which had not been banked. It was referred to by the parties as the ‘Missing Monies’.
On 20 February 2018, Ekera ‘releas[ed]’ Dr Goodman ‘from his obligations under the Services Agreement and required him to stay away from the practice’. Ekera said that it would manage the practice itself for the remainder of the Earn Out Period. Ekera later blocked Dr Goodman’s access to the practice’s bank accounts, email and computer systems, and changed the locks at the premises. By letter dated 23 February 2018, Dr Goodman denied any wrongdoing.
On 22 October 2019, Creative Smiles and Dr Goodman commenced separate proceedings against Ekera in the County Court.
Creative Smiles sought damages for alleged breaches of the Acquisition Agreement and the Services Agreement, and for what was subsequently pleaded as misleading and deceptive conduct under s 18 of the Australian Consumer Law.[9] The alleged breaches of the Acquisition Agreement included Ekera’s failure to pay the final tranche of the Earn Out in full.
[9]See Competition and Consumer Act 2010 (Cth), Schedule 2.
Dr Goodman sought declarations that Ekera, as his employer, had contravened various provisions of the FWA by failing to pay him wages and other entitlements, and to make superannuation contributions on his behalf. Dr Goodman also sought an order under s 545(1) of the FWA requiring Ekera to pay a pecuniary penalty in relation to each of the alleged contraventions.
The two proceedings were formally consolidated in February 2020, with the pleadings in one proceeding to stand as pleadings in the other proceeding. On 3 June 2021, Dr Goodman was joined as a second plaintiff in the proceeding instituted by Creative Smiles, and Creative Smiles was granted leave to file and serve a Further Amended Statement of Claim incorporating the pleadings and parties in both proceedings. The Further Amended Statement of Claim bore the proceeding number CI-19-04997.
There was a lengthy trial, and the trial judge delivered the First Reasons on 16 December 2022. Ten of the 14 issues that the trial judge had identified for determination were determined in Ekera’s favour. Relevantly, of the remaining issues, the judge found that Dr Goodman was an employee of Ekera when working as the Practice Principal, and that Ekera had contravened the FWA by failing to pay him wages and other entitlements, and to make superannuation contributions on his behalf. The judge also found that in calculating the 2018 EBITDA for the purpose of determining the second tranche of the Earn Out, Ekera should not have treated the Missing Monies as an expense. This was because the Missing Monies had not arisen in the ordinary course of business and therefore should have been excluded from the EBITDA calculation pursuant to clause 4.5(b)(ii)(A)(II) of the Acquisition Agreement. Ekera was therefore liable to pay damages.
On 27 and 28 February 2023, the trial judge conducted a hearing to determine what orders that should be made in light of his findings that Ekera had contravened the FWA. In the Penalty Reasons, delivered on 12 May 2023, the trial judge refused to make an order that Ekera pay a pecuniary penalty under the FWA.
In the Costs Reasons, delivered on 28 June 2023, the trial judge determined to make no order as to costs.
On 17 July 2023, his Honour made the following declarations and orders:
THE COURT DECLARES THAT:
1.The first defendant [Ekera] breached section 45 of the Fair Work Act2009 (Cth) by contravening the Health Professionals and Support Services Award 2020 (‘the Modern Award’) in failing to:
a.pay wages to the second plaintiff [Dr Goodman] in the amount of $44,175.86 for the period from July 2016 to February 2018 at the prescribed rate pursuant to clause 14.3 of the Modern Award;
b.make superannuation contributions on behalf of the second plaintiff [Dr Goodman] as prescribed by clause 22.2 of the Modern Award in the amount of $4,907.84.
2.The first defendant [Ekera] breached section 44 of the Fair Work Act2009 (Cth) in:
a.failing to pay public holiday pay in the amount of $3,454.43 as required by section 116 of the Fair Work Act2009 (Cth) and the Modern Award; and
b.failing to pay the second plaintiff [Dr Goodman] annual leave and loading in the amount of $4,031.17 pursuant to section 90(2) of the Fair Work Act2009 (Cth) and clause 31.2 of the Modern Award.
THE COURT ORDERS THAT:
1.The first defendant [Ekera] pay the first plaintiff [Creative Smiles] the sum of $136,687.84 within 30 days.
2.The first defendant [Ekera] pay the first plaintiff [Creative Smiles] interest on the sum of $136,687.84 from the date of issuing the writ to the date of this judgment at the rate prescribed under the Penalty Interest Rates Act 1983 (Vic), such interest totalling $51,080.06.
3.The first defendant [Ekera] pay to the second plaintiff [Dr Goodman] the sum of $44,175.86 together with interest to the date of this judgment of $27,582.68.
4.The first defendant [Ekera] pay to the second plaintiff [Dr Goodman] the sum of $3,454.43 together with interest to the date of this judgment of $2,156.89.
5.The first defendant [Ekera] pay to the second plaintiff [Dr Goodman] the sum of $4,031.17 together with interest to the date of this judgment of $2,517.00.
6.The first defendant [Ekera] pay to the superannuation fund nominated by the second plaintiff [Dr Goodman] the sum of $4,907.84 together with interest to the date of this judgment of $2,784.34.
7.The plaintiffs’ [Creative Smiles’ and Dr Goodman’s] claims against the second defendant [Anthony Coulepis] be dismissed.
In total, Creative Smiles and Dr Goodman obtained a monetary outcome of approximately $269,430, not including costs.
Issues in the proposed appeal and cross-appeal
As already indicated,[10] there are three issues in Ekera’s proposed appeal. They are whether the trial judge erred in law in determining that:
(a)Dr Goodman was an employee of Ekera;
(b)Ekera was liable to make superannuation payments in respect of Dr Goodman pursuant to s 12(3) of the Superannuation Guarantee (Administration) Act 1992 (Cth) (‘Superannuation Guarantee Act’); and
(c)clause 4.5(b)(ii)(A)(II) of the Acquisition Agreement should be construed so as to apply to the Missing Monies.
[10]See [3] above.
On their proposed cross-appeal, Creative Smiles and Dr Goodman contest issues of penalty and costs.
Appeal Ground 1: Was Dr Goodman an employee of Ekera?
This is a critical issue in the proposed appeal. It is therefore convenient to turn first to the employment issue.
Trial judge’s findings regarding the employment issue
Referring in the First Reasons to Construction, Forestry, Maritime, Mining and Energy Union v Personnel Contracting Pty Ltd[11] and ZG Operations Australia Pty Ltd v Jamsek,[12] the trial judge considered that the High Court had ‘rejected the use of the multifactor test or the multifactorial assessment which Australian courts had employed for some years in connection with certain employment disputes’.[13] His Honour concluded that:
The gist of the decisions was that where, in a work context, the parties have comprehensively committed the terms of their relationship to a written agreement, the validity of which is not disputed, the characterisation of the relationship as one of employment or consultancy depends upon the meaning or effect of the contract. … For that reason, there is no need to examine the history of the parties’ dealings through the course of their relationship.[14]
[11](2022) 275 CLR 165; [2022] HCA 1 (‘CFMMEU v Personnel Contracting’).
[12](2022) 275 CLR 254; [2022] HCA 2 (‘Jamsek’).
[13]First Reasons, [493].
[14]Ibid [494].
The trial judge considered that ‘the better view in this case is that, if the choice is between Goodman being an independent contractor or an employee when working at the practice in his managerial role and not as a dentist, Goodman is an employee’.[15] The trial judge relied on the following matters in reaching this conclusion.
[15]Ibid [513].
First, his Honour considered that ‘Ekera exaggerated its position and mischaracterised the evidence about the relationship between it and Goodman’.[16] In particular, his Honour relied on clauses of the Services Agreement that: enabled Ekera to direct Dr Goodman in relation to certain matters; required Dr Goodman to spend a minimum numbers of hours in the practice each week; restricted Dr Goodman’s ability to take leave; required Dr Goodman to abide by Ekera’s Code of Conduct; and obliged Dr Goodman to protect the goodwill of the practice, to reject Ekera’s contention that it had ‘no control or authority’ over Dr Goodman.[17]
[16]Ibid [514].
[17]Ibid [514]. The trial judge referred to clauses 3.3, 4.1(b), 4.2, 4.4(e) and 4.2(a) of the Services Agreement.
The trial judge also noted that:
·Goodman was not permitted to assign the Services Agreement or any rights thereunder without the prior written consent of Ekera. To that extent, the agreement was personal to Goodman;
·as the practice principal, Goodman was subject to various restraints about his future business activity. He was not to engage in any business which was the same as, or similar to, the practice. He was not to solicit, canvass, approach or induce customers of the practice to seek services elsewhere. Nor could he solicit, canvass, approach or induce Ekera staff or contractors to leave their employment or engagement with Ekera. These restrictions on Goodman were designed to protect the goodwill of the business which Ekera bought from Creative Smiles.[18]
Further, his Honour noted that ‘various senior staff within Ekera … gave Goodman directions about how he should perform aspects of his non-clinical work in managing the practice’.[19]
[18]Ibid [514].
[19]Ibid [515].
Second, the trial judge found that it was ‘misleading for Ekera to claim that Goodman could earn substantial amounts of money as a contracted dentist at the practice’. His Honour observed that ‘[w]hile it was theoretically possible to do this … it was not a practical possibility with Goodman’. His Honour said that before the Services Agreement and the Acquisition Agreement were executed, all parties knew and understood that Dr Goodman ‘could perform only a small amount of “hands on” work each year due to his health’.[20]
[20]Ibid [516].
Third, the trial judge considered that Ekera had ‘paid insufficient attention to the distinction between Creative Smiles and Goodman’, noting that Dr Goodman was ‘the party contracting with Ekera under the Services Agreement’.[21]
[21]Ibid [517].
The trial judge returned to the employment issue in the Penalty Reasons, in which he noted that he had inadvertently omitted to refer to clause 13 of the Services Agreement in his discussion in the First Reasons.[22] This clause relevantly provided:
[22]Penalty Reasons, [35].
13.1 Relationship
(a)The relationship between the parties is that of principal (Practice Principal) and contractor (Ekera) with Ekera providing the Support Services to the Practice Principal in return for the Fortnightly Service Fee in accordance with clause 9.
(b)This agreement does not create a relationship of employment, trust, agency or partnership or joint venture between the parties.
His Honour emphasised, however, that clause 13 was ‘no more than one factor to take into account when examining the issue of whether Goodman was an employee of Ekera’;[23] and observed that ‘[a]s a matter of principle, the parties’ views about the nature of their relationship cannot really assist a court’, which is ‘required to characterise the relationship by reference to the rights and duties embodied in the agreement’.[24]
[23]Ibid [34].
[24]Ibid [37], citing CFMMEU v Personnel Contracting (2022) 275 CLR 165, 194–5 [64]–[66], 198 [79] (Kiefel CJ, Keane and Edelman JJ), 213–14 [126]–[127] (Gageler and Gleeson JJ), 235 [184] (Gordon J); [2022] HCA 1. The trial judge also referred to Australian Mutual Provident Society v Chaplin (1978) 18 ALR 385, 389 (Lord Fraser of Tullybelton for the Court) and Narich Pty Ltd v Commissioner of Pay-Roll Tax [1983] 2 NSWLR 597, 601, 606 (Lord Brandon of Oakbrook for the Court).
His Honour reiterated that:
Having considered the whole of the agreement I determined the better view was that Goodman was an employee when performing his usual administration and management work for Ekera. Influential terms in the Services Agreement included those addressing topics such as the obligation to work, the hours of work, the provision of holidays, delegation of work, the provision and maintenance of equipment, where the right to exercise direction and control lay, and restraints of trade.
It was apparent from the Services Agreement that:
·Goodman would not work full time as a dentist but he would continue to manage the dental practice (recital B and C).
·an employee was defined in clause 1.1 to mean a person employed by Ekera who was engaged in the provision of Support Services at the practice. Goodman was engaged in providing Support Services at the practice.
·Ekera directed Goodman to manage the roster generally and to provide non-clinical services for at least 44 weeks per annum (clause 3.3).
·Clauses 4.1 and 4.2 imposed specific obligations upon Goodman by which Ekera exercised a level of control over him. These were important provisions because Ekera could terminate the Services Agreement under clause 4.2(e) if Goodman refused or failed without reasonable excuse to conduct the practice as required. Further, clause 4.2(a) was written to protect the goodwill of the practice which Ekera now owned.
·Clause 6.3 also required Goodman to do everything reasonably required by Ekera to enable Ekera to take out and maintain keyman insurance over Goodman to protect Ekera’s goodwill in the practice and the value of its management rights.
·The restraints over Goodman in clause 18 were different from the restraints imposed on the contractor dentists working at Creative Smiles. The terms of the restraint on Goodman were broader and more extensive including as to duration and area.
·Unlike the contractor dentists, Goodman did not have the right to employ or engage another dentist to conduct or assist in conducting the practice at Creative Smiles.
·Goodman was obliged to abide by the Ekera Code of Conduct which was in the Ekera employee handbook whereas the contractor dentists were to comply only with the code of conduct in the schedule to their agreements. This was limited to three obligations and was significantly less onerous than the obligations imposed on Goodman.[25]
[25]Penalty Reasons, [35]–[36] (citation omitted).
His Honour also stated that:
There is no doubt that Ekera, having consulted Herbert Smith Freehills, changed its business model so that vendor dentists who continued to work in their practices became contractors with Ekera.[26]
[26]Ibid [38].
Ekera’s submissions regarding the employment issue
In written submissions filed before the hearing, Ekera pointed to CFMMEU v Personnel Contracting and Jamsek as containing the approach for determining whether the character of a relationship between parties is one of employment. In accordance with these authorities, Ekera submitted that where the terms of the relationship are comprehensively committed to a written contract (which is not said to be a sham or to otherwise have been varied, waived or the subject of an estoppel), the character of the relationship is to be determined solely pursuant to principles of contractual construction.
Here, Ekera said there was no suggestion that the Services Agreement was a sham, or that its terms had been varied, waived or were the subject of an estoppel. The trial judge was therefore bound to determine the question of employment solely by reference to the terms of the Services Agreement. He was wrong to have taken into account his finding that Ekera had exaggerated its position and mischaracterised the evidence about its relationship with Dr Goodman. He was also wrong to take into account any directions that Ekera’s staff had given Dr Goodman. And to the extent that he had relied on the knowledge of the parties,[27] in the absence of any allegation of ambiguity, this was relevant only for the purpose of the reasonable business person test[28] of construction in respect of particular terms.
[27]See the trial judge’s findings referred to in [29] above.
[28]Citing Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104, 116–17 [44]–[51] (French CJ, Nettle and Gordon JJ); [2015] HCA 37 (‘Mount Bruce’).
Ekera submitted that the trial judge’s reasons did not address its detailed submissions about the terms of the Services Agreement concerning Dr Goodman’s management of the practice, and the context of those terms ‘in the framework of the Acquisition and Services Agreement[s]’. Instead, the trial judge had made findings of a general nature regarding the ambit of the subject matter of the Services Agreement without reference to its terms. He had, Ekera submitted, also attributed weight to evidence of Dr Goodman’s inability to work as a dentist in determining whether he was an employee, which meant that Dr Goodman could unilaterally determine whether he was an employee by choosing how much he worked as a dentist.
Ekera submitted that the trial judge’s findings resulted in a conceptually irreconcilable tension in the parties’ relationship. The parties accepted that Dr Goodman was an independent contractor when performing dental work, but the judge’s findings meant that he was an employee when working as Practice Principal.
As to the trial judge’s finding that Ekera had paid insufficient attention to the status of Creative Smiles and Dr Goodman as separate legal entities, Ekera submitted that the judge had failed to consider its submissions explaining why the context and terms of the Services Agreement overcame this issue. The Services Agreement and the Acquisition Agreement incorporated each other by reference. Dr Goodman was a party to both agreements and the Acquisition Agreement was conditional upon Dr Goodman executing the Services Agreement. The nature of the Earn Out component of the Acquisition Agreement required Dr Goodman to continue to manage aspects of the practice to enable Creative Smiles to obtain the benefit of the Earn Out, and to the extent the Services Agreement contained terms relating to his management of the practice, that was work Dr Goodman did on behalf of Creative Smiles.
Ekera submitted that various terms in the Services Agreement should properly be seen as protecting both parties against risk. The Services Agreement allowed Dr Goodman to work to ensure Creative Smiles obtained the benefit of the Earn Out. At the same time, it protected Ekera against the risk that Dr Goodman would walk away with the upfront payment and leave Ekera unable to sustain the practice’s level of profitability, including by requiring him to protect the goodwill in the practice.
Ekera identified a number of ways in which it said the terms of the Services Agreement did not replicate the terms one might expect to find in an employment contract. These included that the terms: did not require Dr Goodman to apply for leave, but merely to give notice before taking leave; gave Dr Goodman discretion as to how he managed the practice and the extent to which he attended the practice; did not require Dr Goodman to report to anyone at Ekera’s head office; and gave Dr Goodman discretion and control over the fees charged by the dentists working at the practice.
At the hearing, senior counsel for Ekera, Mr Bourke KC, emphasised that the Court should have regard to the commercial context in which the Services Agreement was made in order to decide whether it created an employment relationship between Ekera and Dr Goodman. He submitted that the Services Agreement and the Acquisition Agreement were ‘intertwined’[29] and that the judge had erred by failing to analyse this commercial setting when determining the nature of the relationship.
[29]As senior counsel for Ekera noted, Creative Smiles and Dr Goodman had in fact pleaded as much in the trial below.
Mr Bourke KC noted that Dr Goodman had conceded below, and the judge had found, that when he was working as a dentist, he was an independent contractor. It was his status when working in his managerial role that was in dispute. In the context of a commercial arrangement, it was highly improbable that Dr Goodman would be a contractor when engaged in dental work and an employee when managing the practice. Dr Goodman would be required to ‘shift hats, which could be in the course of the day’, which would be almost impossible to regulate and manage.
The essence of the arrangement was, Mr Bourke KC submitted, that Ekera would provide support for Dr Goodman in running the practice, in circumstances where if he ran it effectively, he would maximise the payments during the Earn Out Period. The commercial purpose of the Services Agreement was to protect the goodwill of the practice, an objective with benefits for all parties. It was a commercial agreement in which each party was protecting its own interests.
Mr Bourke KC addressed various terms of the Services Agreement in some detail, commencing with the Recitals to the Services Agreement, which expressly referred to the Acquisition Agreement in Recital A, and stated in Recital D that Dr Goodman wished to engage Ekera to provide ‘Support Services’ to him.[30]
[30]See [80] below.
The provision of ‘Support Services’ was addressed in clause 3.1, which provided that Dr Goodman, as Practice Principal, engaged Ekera to provide ‘Support Services’. The definition of ‘Support Services’ in clause 1.1 covered various types of services, including ‘arranging payment of creditors incurred through the operations of the Practice’ and ‘providing day to day ongoing management, accounting and administrative services to the Dental Centre’. This, Mr Bourke KC submitted, indicated that such ‘Support Services’ were provided to Dr Goodman in connection with both his dental work and his work as Practice Principal.
Where there was no allegation that the Services Agreement was a sham and no claim for rectification, Ekera submitted that principles of contractual construction required clause 3.1 to be given the meaning a reasonable business person would have understood it to mean; that is, Dr Goodman was retaining Ekera to provide him with various services in connection with both his dental work and his work as Practice Principal. Mr Bourke KC also referred to clause 3.2, which imposed a ‘service standard’ on Ekera in the provision of the Support Services, as indicative of a subcontractor arrangement, because it put ‘Dr Goodman in the driver’s seat’. It gave ‘control’ to Dr Goodman, not Ekera.
Relatedly, Mr Bourke KC pointed to the definition of ‘employee’ in clause 1.1 of the Services Agreement. An ‘employee’ was defined as ‘a person employed by Ekera who is engaged in the provision of the Support Services at the Dental Centre’. Mr Bourke KC contended that Dr Goodman could not fall within the definition of ‘employee’ because he was not providing ‘Support Services’ as defined; rather, Ekera was supplying such services to him.
Mr Bourke KC acknowledged that clause 3.3, by which Ekera directed Dr Goodman to manage the roster and provide ‘non-clinical Services’ for at least 44 weeks a year, was consistent with Ekera having a level of control over Dr Goodman. However, he submitted that ‘non-clinical Services’ essentially meant ‘managing the practice’, so clause 3.3 needed to be seen in the context of Ekera seeking to maintain the profitability of the practice, where it was Dr Goodman who determined how ‘to manage the business’, including the roster. Mr Bourke KC submitted that ‘there’s still a lot of power in relation to Dr Goodman, as to how he will conduct himself at the practice, and including, for example, where he’s going to be located during that period’.
Next, Mr Bourke KC referred to the acknowledgment in clause 3.4 that Dr Goodman conducted the practice ‘on his own behalf and at his own risk’ as creating a level of ‘exposure you will not expect to see placed at the feet of an employee’. Clause 3.5, by which Ekera assumed various obligations in relation to the performance of the practice, was, in Mr Bourke’s submission, another example of Ekera’s assumption of ‘extensive obligations’ that were ‘entirely contrary’ to the suggested employment relationship.
Mr Bourke KC described clause 4 of the Services Agreement, which required Dr Goodman to conduct the practice in particular ways, as a clause that was directed to ‘maintaining [the] status quo’ in a commercial setting in which Ekera wanted to ensure that the practice maintained its value. For example, Dr Goodman was required to continue to perform dental work and to manage the practice for the 8–20 hours per week stipulated in clauses 4.1(b) and (c). However, he was not required to ‘report to anyone at Ekera’s head office’. And as for his leave arrangements, clause 4.2 protected the goodwill of the Dental Centre, which was the fundamental commercial purpose of the Services Agreement. Clause 4.2(g), for example, required Dr Goodman, at the time of giving notice of his leave, to submit a plan for the management of the leave period that took all measures possible to keep the EBITDA of the practice at the same level. This was said to demonstrate that the purpose of the notice requirement was to ensure that the EBITDA could be managed and maintained while Dr Goodman was away.
In substance, so Mr Bourke KC submitted, save for perhaps clause 4.4(e), which required Dr Goodman to comply with the ‘Ekera Dental Code of Conduct’, there were no broad powers of direction that were typical of an employment situation. He contended that clause 4.4(e) was an insufficient indication of an employment relationship. He added that clause 5.1, which provided that Dr Goodman was to set the applicable fees for dental work at the practice, was inconsistent with such a relationship.[31]
[31]Other provisions inconsistent with an employment relationship were, in Ekera’s submission, clauses 5.3 (concerning collection of fees under clause 5.2), 6.2 (concerning professional indemnity insurance), 6.3 (concerning keyman insurance), and 8 (concerning employment of employees).
Mr Bourke KC drew attention to clause 9.1 of the Services Agreement, which required Dr Goodman to pay Ekera a services fee for the provision of the Support Services, calculated at 60 per cent of the fortnightly net receipts of the practice. In the event that the EBITDA exceeded the annual $926,000 target, clause 9.1(c) allowed a ‘Management Deduction’ to be made from the services fee. That is, in the event the EBITDA was exceeded, Dr Goodman would be remunerated ‘by way of a 40 per cent uplift, plus, in terms of his company [Creative Smiles], he gets the maximum instalment under the Acquisition Agreement’. Such a payment arrangement was said to be in stark contrast to the payment of wages or salary for an employee’s time. There was no provision for any payment to Dr Goodman akin to wages or salary for his work as Practice Principal. A ‘wage service bargain’ — ‘a classic touchstone of employment’ — was missing.
Referring to clause 11 of the Services Agreement, pursuant to which Dr Goodman agreed to indemnify Ekera against any liability directly arising from, amongst other things, his conduct as Practice Principal, Mr Bourke KC submitted that ‘the idea that … an employee … will indemnify their boss’ was ‘improbable’. Further, in his submission, clause 12 of the Services Agreement, which dealt with termination, provided Ekera with very limited rights to terminate Dr Goodman, which tended against an employment relationship, given that ‘in common law, one fundamental right is to terminate your employees for serious misconduct’.[32] Similarly, he submitted that the provisions for termination of the agreement by Dr Goodman did not conform to the typical employment relationship.[33]
[32]Mr Bourke KC also contrasted the common law position to clause 12.1(b), which enabled Dr Goodman to avoid termination by remedying a breach within 7 days, and clause 12.1(c), by which Dr Goodman could avoid termination for a material and serious breach of the Acquisition Agreement or Services Agreement by remedying the breach within 30 days.
[33]Pursuant to clause 12.3, Dr Goodman was entitled to terminate the Services Agreement by written notice to Ekera in specified circumstances.
As to the statement of the relationship between the parties in clause 13, which we have set out at [31] above, Mr Bourke KC conceded that such a statement was not determinative, but submitted that it could be relied on where there was ambiguity.
As to the fact that clause 18 of the Services Agreement contained certain restraints on Dr Goodman’s ability to engage in competition with the practice, which might be seen to be consistent with an employment relationship, Mr Bourke KC submitted that it was common to place the key player in a business under such restraints when acquiring a business.[34] He further submitted that Dr Goodman’s entitlement to assign the agreement with Ekera’s consent under clause 19.1 was unlike any type of employment agreement. So too was Ekera’s right to assign the agreement under clause 19.2, because an employer cannot assign an employment agreement, being a private arrangement.
[34]Mr Bourke KC submitted that this was so, even though there were differences between the restraints in the Acquisition Agreement and in the Services Agreement.
In summary, Mr Bourke KC submitted that, in construing the Services Agreement, the Court must make an objective assessment of its text, context and purpose. While there were some aspects of the Services Agreement that gave Ekera a measure of control over Dr Goodman, ‘everything else points against an employment relationship’. Further, where Ekera exercised control over Dr Goodman, that control was consistent with its commercial purpose (namely, to ensure that Dr Goodman continued to manage the business so that it remained profitable in the ensuing two years). When the commercial purpose of the Services Agreement was taken into account, it was evident that it did not create an employment arrangement.
Submissions of Creative Smiles and Dr Goodman regarding the employment issue
Creative Smiles and Dr Goodman submitted that the trial judge correctly held that, under the Services Agreement, Dr Goodman provided his services as Practice Principal to Ekera as Ekera’s employee. The trial judge had set out the correct test, identified the correct principles and correctly applied those principles. He had construed the relevant terms of the Services Agreement, rather than the label used to characterise that relationship.
An employment relationship between Ekera and Dr Goodman was, so they submitted, disclosed by the following terms of the Services Agreement:
(a)Recitals B and C, which distinguished the limited dental work to be performed by Dr Goodman from his separate, major and continuing role as the manager of the practice;
(b)clause 3.3, pursuant to which Ekera directed Dr Goodman to manage the roster and to provide non-clinical services for at least 44 weeks each year, ‘in the best interests of the practice at all times’;
(c)clauses 4.1(b) and (c), pursuant to which Dr Goodman was required to spend at least 8 hours a week in the practice (performing dental work or managing the practice) and to spend a further 12 hours a week managing the practice;
(d)clause 4.2(a), pursuant to which Dr Goodman was required to be available to manage the practice according to the dictated times, in order ‘to protect the goodwill of the Dental Centre’;
(e)clauses 4.2(b)–(e), which imposed various restrictions on Dr Goodman’s ability to take leave;
(f)clause 4.4(e), which required Dr Goodman to comply with the Ekera Dental Code of Conduct, noting that this Code of Conduct was different to the one that applied to the other dentists working at the practice; and
(g)clauses 6.3 (keyman insurance), 4.3 (service standard), 18.1 (restraints) and 19.1 (assignment), which, in addition to clause 4.2(a), evidenced that the goodwill of the practice was entirely attributed to Ekera, a ‘major index’ of an employment relationship.[35]
[35]Creative Smiles and Dr Goodman also referred to paragraph 6 of the agreements Ekera had entered into with each of the contract dentists, which indicated that the support services provided by Ekera were under the direction and control of Ekera.
Whilst acknowledging that clause 13.1 of the Services Agreement characterised the relationship between Ekera and Dr Goodman as that of principal and contractor in relation to Dr Goodman’s provision of dental work, Creative Smiles and Dr Goodman submitted that this clause did not apply to the services he provided to Ekera as ‘Practice Principal and administrative manager of the Dental clinic’. In any event, clauses of this kind had long been seen as having no determinative effect on the proper characterisation of the parties’ relationship.[36]
[36]Citing CFMMEU v Personnel Contracting (2022) 275 CLR 165, 193–5 [58], [63]–[66] (Kiefel CJ, Keane and Edelman JJ); [2022] HCA 1.
Creative Smiles and Dr Goodman submitted that the principles governing the interpretation of a contract of employment were no different from those that govern the interpretation of contracts generally.[37] The Court was required to ascertain ‘the meaning that a document would convey to a reasonable person having all the background knowledge that would be reasonably available to the contracting parties at the time of the contract’.[38] Here, that included the knowledge of all parties that Dr Goodman could only perform a small amount of ‘hands on work’ each year due to his health.
[37]Citing CFMMEU v Personnel Contracting (2022) 275 CLR 165, 193 [60] (Kiefel CJ, Keane and Edelman JJ); [2022] HCA 1.
[38]Citing Rinehart v Hancock Prospecting Pty Ltd (2019) 267 CLR 514, 534 [44] (Kiefel CJ, Gageler, Nettle and Gordon JJ); [2019] HCA 13 (‘Rinehart’); Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451, 461–2 [22] (Gleeson CJ, Gummow, Hayne, Callinan and Heydon JJ); [2004] HCA 35 (‘Pacific Carriers’).
Neither CFMMEU v Personnel Contracting nor Jamsek could justify construing the Services Agreement ‘against a hypothetical normative’ employment contract, as Ekera sought to do. Creative Smiles and Dr Goodman submitted that construed in its totality, the Services Agreement ‘contains terms that relate to two distinct relationships’: the provision of services to Dr Goodman by Ekera for his dental practice, where Ekera was described as a contractor and Dr Goodman the Principal;[39] and the provision of services by Dr Goodman to Ekera as Practice Principal, being Dr Goodman’s major role at the practice, which created an employment relationship.
[39]Citing clause 13.1.
At the hearing, Mr Rivette, counsel for Creative Smiles and Dr Goodman, did not dispute that the Services Agreement and the Acquisition Agreement were interrelated. However, he emphasised that the Acquisition Agreement concerned the sale of a major dental practice by a corporate entity, Creative Smiles, which was not a party to the Services Agreement. It would, he submitted, be an error to consider the two contracts as one.
Mr Rivette submitted that there were two separate aspects to the Services Agreement. First, Ekera wanted to ensure that the dentist who worked in the practice they were buying remained working in the practice as a dentist. There was therefore a component of the Services Agreement that dealt with the dentist ‘as a dentist’. In that capacity, the dentist was a contractor, and Ekera supplied them with support services, which included the provision of a room to conduct dental surgery. The second aspect of the Services Agreement reflected that Ekera also ‘need[ed] that dentist … to actually do the management of the practice … in accordance with the way it’s been done before’. It was therefore necessary for certain areas created by the Services Agreement to fall under the control of Ekera. This indicated that Dr Goodman was an employee when conducting his management role.
Mr Rivette submitted that Ekera had acknowledged in the consolidated summary prepared for this Court that the Services Agreement dealt with two distinct areas. He referred to the following statement from the consolidated summary:
The Service [s] Agreement dated 30 June 2016 provided for Dr Goodman to act as practice principal of the dentistry practice during the two year earn out period, pursuant to the Acquisition Agreement, and for Dr Goodman to work as a dentist. Pursuant to a Services Agreement, Dr Goodman and Ekera agreed that Ekera would provide administrative services to Dr Goodman in relation to any work he performed at the practice as a dentist.
Mr Rivette submitted that ‘a lot’ of the clauses on which Ekera relied related to Dr Goodman’s dental work, which was limited because of his physical capabilities. These clauses were relevant to Dr Goodman’s status as a contractor when performing that type of work, not his status as an employee when performing managerial work as Practice Principal.
Mr Rivette distinguished the Ekera Code of Conduct that applied to Dr Goodman when performing his management role from the Code of Conduct that applied to Ekera’s contractor dentists and, he submitted, Dr Goodman when conducting dental work. He submitted that the fact that Dr Goodman was bound by a different Code of Conduct indicated that he was ‘an employee for the management services that he conducted for Ekera’. In the First Reasons, the trial judge described the Code of Conduct that applied to Dr Goodman as follows:
The Ekera code of conduct said that all employees had an obligation and duty of care to:
·perform duties in a responsible and professional manner, with due regard for the company’s policies and other legal requirements and obligations;
·comply with prevailing community standards of equity, justice, fairness and compassion in dealing with others within and beyond the company;
·act appropriately when a conflict arises between self-interest and the duty to the company.
Employees were expected to treat everyone with courtesy, respect, kindness and consideration and to refrain from acting in any way which could unfairly harm the reputation and career prospects of other employees. Employees were also expected to perform their duties diligently and with integrity and to foster team work and collegiality among all employees.[40]
[40]First Reasons, [310].
Unsurprisingly, Mr Rivette relied almost entirely on the First Reasons. He submitted that the trial judge had correctly applied the principles from CFMMEU v Personnel Contracting and Jamsek. He noted that both the trial judge and Ekera had accepted that there was ‘no ambiguity’ in the Services Agreement, which meant there was no need to go to the ‘reasonable business person’ test. That said, Mr Rivette’s basic submission was that the Services Agreement was not a ‘commercial contract’; rather, ‘it’s a contract insofar as it relates to the personal services between an employer and [Dr Goodman]’, and the Acquisition Agreement ‘is something different between two corporate entities’. He submitted that the Court was obliged to examine the operative terms of the Services Agreement that governed ‘the relationship between Dr Goodman and Ekera as Practice Principal, not the dentist terms’. In this context, he referred to and relied on paragraphs 513 to 514 of the First Reasons.[41] Furthermore, Mr Rivette relied on the trial judge’s discussion in the First Reasons of the relevant clauses of the Services Agreement which, in his submission, led to the conclusion that Dr Goodman was properly characterised as an employee as regards his Practice Principal obligations.
[41]See [26]–[28] above. Mr Rivette relied on Mount Bruce (2015) 256 CLR 104, 116 [46]–[48] (French CJ, Nettle and Gordon JJ); [2015] HCA 37, to explicate the general principles of construction of a contract.
Mr Rivette did not dispute that Dr Goodman was working to ensure the EBITDA was reached, but submitted that the benefit of those endeavours flowed to Creative Smiles, a separate legal entity.[42] He submitted that this arrangement was designed to provide an incentive for a dentist to stay in the Dental Centre for the two years after its acquisition by Ekera. He also relied on clauses 18.2(a)–(d) of the Services Agreement as denying Dr Goodman the capacity to assign his rights under the Services Agreement, adding that ‘as Practice Principal … he was subject to various restraints about future business activities. He was not to engage in any business which was the same as, or similar to, the practice’.
[42]Mr Rivette acknowledged that Dr Goodman was the director and sole shareholder of Creative Smiles.
Finally, Mr Rivette noted that the trial judge was careful to distinguish between those contractual terms that related to Dr Goodman’s work as a dentist and those that related to his work as Practice Principal.[43] He submitted that multiple clauses of the Services Agreement gave Ekera control over Dr Goodman’s work as Practice Principal. He drew a comparison with CFMMEU v Personnel Contracting, where a single clause that required a construction worker to ‘co-operate in all respects’ with a labour hire company and a builder in the supply of labour was found to be a sufficient indicator that the construction worker was an employee of the labour hire company. He submitted that if the ‘control’ clause in that case were compared to the control clauses in the Services Agreement, then, ‘the control that Ekera had over Dr Goodman [exceeded] that threshold’.
Consideration: Was Dr Goodman an employee of Ekera?
[43]Referring to First Reasons, [22].
In this case, whether Dr Goodman is properly characterised as an employee of Ekera is important because of ss 13 and 14 of the FWA. Dr Goodman’s claim in relation to unpaid wages, superannuation and other entitlements depended upon him being ‘employed, or usually employed’ by a ‘national system employer’ within the meaning of ss 13 and 14 of the FWA. For the purposes of those provisions, s 11 of the FWA provides ‘employee and employer have their ordinary meanings’. These are their common law meanings.[44]
[44]The trial judge made no error in this regard: First Reasons, [493]–[494]. Ekera’s leave application turned on whether his Honour correctly applied the law in concluding that Dr Goodman was its employee.
The High Court addressed the approach to be taken to the question of whether the relationship between two parties is an employment relationship in CFMMEU v Personnel Contracting and Jamsek. The majority in CFMMEU v Personnel Contracting held that, where the rights and duties of the parties are set down in a written contract, those rights and duties determine the character of the relationship.[45] Thus, in determining whether a contract creates an employment relationship, the task is to construe the contract made at the time the parties entered into it, according to the established principles of contractual interpretation.[46] The High Court adhered to this analysis in Jamsek.[47]
[45]This is providing that the validity of the contract is not challenged as a sham, and its terms had not been varied, waived or subject to estoppel. See CFMMEU v Personnel Contracting (2022) 275 CLR 165, 186–7 [43]–[44], 188 [47], 193 [59] (Kiefel CJ, Keane and Edelman JJ), 238–9 [172], 235 [184] (Gordon J, Steward J agreeing at 243 [203]); [2022] HCA 1; Jamsek (2022) 275 CLR 254, 261 [8] (Kiefel CJ, Keane and Edelman JJ), 289–90 [109] (Gordon and Steward JJ); [2022] HCA 2. See also JMC Pty Ltd v Federal Commissioner of Taxation (2022) 114 ATR 795, 800 [17]–[19] (Wigney J); [2022] FCA 750; JMC Pty Ltd v Federal Commissioner of Taxation (2023) 297 FCR 600, 602–7 [8]–[22] (Bromwich, Thawley and Hespe JJ); [2023] FCAFC 76.
[46]CFMMEU v Personnel Contracting (2022) 275 CLR 165, 229–30 [173]–[174] (Gordon J); [2022] HCA 1. See also at 193 [60] (Kiefel CJ, Keane and Edelman JJ), 212–13 [124] (Gageler and Gleeson JJ).
[47]Jamsek (2022) 275 CLR 254, 261 [8] (Kiefel CJ, Keane and Edelman JJ), 284–5 [90] (Gageler and Gleeson JJ), 285–6 [95], 287–90 [100]–[110] (Gordon and Steward JJ).
It was also accepted in CFMMEU v Personnel Contracting and Jamsek that, in the process of construction, a court may take into account the objective circumstances surrounding the contract that are known to the parties at the time of contracting, and which assist in identifying the purpose or object of the contract.[48] Further, in CFMMEU v Personnel Contracting, the Court largely agreed that, in conformity with earlier authorities,[49] in seeking to determine whether there is a relationship of employer and employee, a court can consider the ‘totality of the relationship between the parties’.[50] Kiefel CJ, Keane and Edelman JJ affirmed, however, that:
[F]or a matter to bear upon the ultimate characterisation of a relationship, it must be concerned with the rights and duties established by the parties’ contract, and not simply an aspect of how the parties’ relationship has come to play out in practice but bearing no necessary connection to the contractual obligations of the parties.[51]
Their Honours added that ‘a wide-ranging review of the entire history of the parties’ dealings’ was inappropriate.[52]
[48]CFMMEU v Personnel Contracting (2022) 275 CLR 165, 229–30 [174]–[175] (Gordon J); [2022] HCA 1; Jamsek (2022) 275 CLR 254, 276 [61] (Kiefel CJ, Keane and Edelman JJ); [2022] HCA 2, referring to Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337, 352 (Mason J); [1982] HCA 24.
[49]See, eg, Stevens v Brodribb Sawmilling Co Pty Ltd (1986) 160 CLR 16, 29 (Mason J); [1986] HCA 1 (‘Brodribb’); Hollis v Vabu Pty Ltd (2001) 207 CLR 21, 33 [24] (Gleeson CJ, Gaudron, Gummow, Kirby and Hayne JJ); [2001] HCA 44.
[50]CFMMEU v Personnel Contracting (2022) 275 CLR 165, 193–4 [61] (Kiefel CJ, Keane and Edelman JJ), 212 [121] (Gageler and Gleeson JJ), 228 [172] (Gordon J); [2022] HCA 1. See also Jamsek (2022) 275 CLR 254, 286 [95] (Gordon and Steward JJ); [2022] HCA 2.
[51]CFMMEU v Personnel Contracting (2022) 275 CLR 165, 194 [61]; [2022] HCA 1. See also at 187 [44] (Kiefel CJ, Keane and Edelman JJ), 228–9 [172]–[173], 235–8 [185]–[189] (Gordon J). Cf at 219 [141], 221 [150], 222 [152], 224–5[158] (Gageler and Gleeson JJ).
[52]CFMMEU v Personnel Contracting (2022) 275 CLR 165, 193 [59] (Kiefel CJ, Keane and Edelman JJ); [2022] HCA 1. See also at 229–33 [173]–[178] (Gordon J); Jamsek (2022) 275 CLR 254, 289–90 [109] (Gordon and Steward JJ); [2022] HCA 2.
Unsurprisingly, provisions dealing with the typical incidents of an employment contract in a way consistent with an employment relationship may be indicative of such a relationship. Such provisions include those concerning remuneration, the obligation to work, the hours of work, leave, the delegation of work, and direction and control.[53]
[53]CFMMEU v Personnel Contracting (2022) 275 CLR 165, 208–9 [113] (Gageler and Gleeson JJ), 230 [174] (Gordon J), citing Brodribb (1986) 160 CLR 16, 24 (Mason J); [1986] HCA 1.
Whether a relationship is one of employment may turn on the extent to which the putative employer has the right to control how, where and when the putative employee performs work.[54] Another factor may be the extent to which the putative employee acts in a business of their own, as opposed to that of the putative employer.[55]
[54]CFMMEU v Personnel Contracting (2022) 275 CLR 165, 197 [73]–[74] (Kiefel CJ, Keane and Edelman JJ); 208 [113] (Gageler and Gleeson JJ); [2022] HCA 1. See also Brodribb (1986) 160 CLR 16, 24 (Mason J), 35–7 (Wilson and Dawson JJ); [1986] HCA 1.
[55]CFMMEU v Personnel Contracting (2022) 275 CLR 165, 184–5 [36]–[39] (Kiefel CJ, Keane and Edelman JJ); 208–9 [113] (Gageler and Gleeson JJ); [2022] HCA 1. Cf at 233–4 [180]–[183] (Gordon J).
There will sometimes be considerations that tend in opposite directions. Although each consideration contributes to the assessment of the relationship, the eventual decision involves a practical, if perhaps impressionistic, appraisal of the most appropriate characterisation of the contractual rights and duties agreed by the parties, having regard to the objective circumstances known to the parties at the time the contract was made and the objective purpose of their contractual arrangement.
Finally, in conformity with principle, Kiefel CJ, Keane and Edelman JJ affirmed in CFMMEU v Personnel Contracting that the parties’ description of their relationship was ‘generally speaking … irrelevant’. It would be ‘rare’, in their Honours’ view, that ‘descriptive language chosen by the parties can shed light on the objective understanding of the operative provisions of their contract’.[56] As Gordon J explained, ‘labels’ used by the parties to a contract to describe their relationship are not ‘determinative’; the parties ‘cannot deem the relationship between themselves to be something it is not’.[57]
Commercial context and purpose of the contractual arrangements
[56](2022) 275 CLR 165, 193–5 [58]–[66] (Kiefel CJ, Keane and Edelman JJ); [2022] HCA 1. See also at 214 [127] (Gageler and Gleeson JJ); 235 [184] (Gordon J).
[57]CFMMEU v Personnel Contracting (2022) 275 CLR 165, 235 [184]; [2022] HCA 1. See also at 193 [58], 194–5 [63]–[66], 201 [86] (Kiefel CJ, Keane and Edelman JJ).
In this case, the commercial context of the contractual arrangements is significant. That context is part of the objective circumstances known to the parties at the time of contracting, and may therefore properly be considered in identifying the purpose or object of the contracts.[58] Placed within its commercial context alongside the Acquisition Agreement, the commercial purpose of the Services Agreement is evident. As will be seen, this purpose does not align with the existence of an employment relationship between Ekera and Dr Goodman.
[58]See [73] above. See also Rinehart (2019) 267 CLR 514, 534 [44] (Kiefel CJ, Gageler, Nettle and Gordon JJ); [2019] HCA 13; Pacific Carriers (2004) 218 CLR 451, 461–2 [22] (Gleeson CJ, Gummow, Hayne, Callinan and Heydon JJ); [2004] HCA 35.
The Acquisition Agreement and the Services Agreement were interconnected parts of the parties’ commercial arrangement to effect the sale of Creative Smiles’ dental practice to Ekera. The sale of the practice was conditional on Dr Goodman entering into the Services Agreement. A copy of the Services Agreement was annexed to the Acquisition Agreement. The agreements were executed contemporaneously; and the Services Agreement defined ‘Completion’ to have the same meaning as in the Acquisition Agreement, namely the completion of the sale and purchase of the ‘Assets’[59] by Ekera contemplated in the Acquisition Agreement. Like Ekera, Dr Goodman, as Practice Principal, was not only a party to the Services Agreement, but also a party to the Acquisition Agreement. In substance, the Acquisition Agreement and the Services Agreement incorporated each other by reference and were dependent on one another.
[59]‘Assets’ was defined in the Acquisition Agreement to mean specified assets owned by Creative Smiles and used in the practice: clause 1.1 (definition of ‘Assets’).
The direct commercial connection between the Acquisition Agreement and the Services Agreement was evident in the Recitals to the Services Agreement, which are as follows:
A.By an agreement of even date and subject to the terms of the Acquisition Agreement:
(1)the Vendor [Creative Smiles] has agreed to sell to Ekera the assets of the dental centre known as the Creative Smiles Dental Clinic (Dental Centre); and
(2)the Practice Principal [Dr Goodman] has agreed to grant to Ekera the right to be engaged as the exclusive provider of Support Services to the Practice Principal for the term of this agreement (Practice Management Rights),
B.The Practice Principal does not work full time as a dentist in the Dental Centre but performs dental services from time to time on specific cases
C.The Practice Principal manages the dental practice (Practice) and it is the intention of the parties that he continue to manage the Practice on the terms and conditions herein
D.The Practice Principal wishes to engage Ekera to provide, and Ekera has agreed to supply, the Support Services on the terms and conditions appearing herein.
Before addressing the terms of the Services Agreement, it is convenient to refer to certain key provisions of the Acquisition Agreement, because they are relevant to the nature of the parties’ relationship.
Broadly speaking, under clause 4.1 of the Acquisition Agreement, Ekera agreed to pay $5,139,300 for the Creative Smiles dental practice. Relevantly, for present purposes, the Acquisition Agreement did not provide that the whole of the purchase price was to be paid on the one date; rather, provision was made for the price to be paid over time.
Clause 4.3 of the Acquisition Agreement addressed the circumstances in which Ekera was to pay particular components of the purchase price. Under this provision, in addition to the amount it was to pay on settlement, Ekera agreed to pay $770,895 by 31 August in each of 2017 and 2018, provided the dental practice achieved an EBITDA target of $926,000 by 30 June in each of those years.[60] This was the ‘Earn Out Period’ we referred to at [8] above.
[60]Acquisition Agreement, clause 4.3(d).
Again broadly speaking, the Services Agreement ran during the Earn Out Period.[61] Considered objectively, it was plainly designed to protect the parties from certain commercial risks in the period subsequent to sale. Dr Goodman was not only retained to manage the practice, as Practice Principal, under the Services Agreement, but he was also obliged to run the practice as he had done previously, including ‘in accordance with management principles applied prior to the acquisition of the Practice by Ekera’.[62] From Ekera’s perspective, in retaining Dr Goodman in this way, Ekera protected itself from the risk that it would be unable to maintain the profitability of the practice after its acquisition. From Dr Goodman’s perspective, in continuing to manage the practice for the Earn Out Period, Dr Goodman could seek to ensure that his company, Creative Smiles, reached its EBITDA targets under clause 4.3(d) of the Acquisition Agreement. This was essential for payment of the remainder of the purchase price. Indeed, a failure to meet these targets led to a dollar for dollar reduction in Ekera’s payment for each year.[63] If, however, the EBITDA exceeded the $926,000 yearly target, then Dr Goodman had the benefit of a significant ‘management’ deduction from the amount he was required to pay Ekera for the Support Services.[64]
[61]Services Agreement, clause 2.1, with clause 2.2 allowing for an extension.
[62]Ibid clause 4.1.
[63]Acquisition Agreement, clause 4.3(e)(i).
[64]Services Agreement, clauses 1.1 (definition of ‘Management Deduction’) and 9.1(c). See [53] above.
It may be inferred from the commercial arrangement established pursuant to the Acquisition Agreement and the Services Agreement that, under the Services Agreement, Ekera and Dr Goodman were each working in their own commercial self-interest, to maximise the benefit of the acquisition and sale of the practice. From Dr Goodman’s perspective, his work at the practice as Practice Principal was designed to protect the interests of his company (and therefore him) by: seeking to ensure that the full purchase price for the practice was paid; enhancing its commercial position if possible; and seeking to ensure that it did not suffer any detriment because of poor financial performance.
The commercial objects of Ekera and Dr Goodman were not indicative of an employment relationship, a matter also evident in the Recitals to the Services Agreement. The Recitals acknowledged that Dr Goodman had ‘engaged’ Ekera to provide ‘Support Services’ to him as Practice Principal, and that Ekera had ‘agreed’ to supply these services.[65]
[65]Recital D: see [80] above.
In conformity with CFMMEU v Personnel Contracting, it is necessary, however, to turn to the rights and duties established by the specific provisions of the contract under which Dr Goodman was retained as Practice Principal.
At the outset, we note that clause 13.1 of the Services Agreement records the agreement between the parties that the Services Agreement did not create a relationship of employment between them. We have set the terms of that clause out above, but it bears repeating:
Relationship
(a)The relationship between the parties is that of principal (Practice Principal) and contractor (Ekera) with Ekera providing the Support Services[66] to the Practice Principal in return for the Fortnightly Service Fee in accordance with clause 9.
(b)This agreement does not create a relationship of employment, trust, agency or partnership or joint venture between the parties.
[66]‘Support Services’ were defined in clause 1.1 to include: (a) ‘a licence to use the treatment rooms at the Dental Centre for the conduct of the Practice Principal’s Practice, including the cleaning and maintenance of those rooms’; (c) ‘providing day to day ongoing management, accounting and administrative services to the Dental Centre’; (d) banking the Practice Principal’s professional fees; and (e) ‘arranging payment of creditors incurred through the operations of the Practice’.
By clause 13.2, the parties agreed:
Practice Principal’s Independence
Ekera must at all times respect the independence of the Practice Principal and will not interfere with or seek to influence the Practice Principal’s professional judgment in relation to the provision of the Clinical Services.
Further, clause 1.1 of the Services Agreement defined ‘Employee’ to mean ‘a person employed by Ekera who is engaged in the provision of Support Services at the Dental Centre’.[67] As Ekera submitted, Dr Goodman did not fall within the definition of ‘Employee’ because in his role as Practice Principal, he was not ‘engaged in the provision of the Support Services at the Dental Centre’.
[67]Clause 1.1 (definition of ‘Employee’). The term ‘Employee’ is not used widely in the Services Agreement, but is referred to in the definition of ‘Support Services’ in clause 1.1.
As we have noted above, it is rare that the ‘descriptive language chosen by the parties can shed light on the objective understanding of the operative provisions of their contract’.[68] Ultimately, we have not found the definition of ‘Employee’ in clause 1.1, or the statement of the relationship between the parties in clause 13.1, to be of assistance in our assessment of the proper characterisation of the relationship between Ekera and Dr Goodman in his role as Practice Principal. Nor have we found clause 13.2 to be of assistance, given that the independence of Dr Goodman to which it refers is concerned with Dr Goodman’s dental role, rather than his role as Practice Principal.
[68]CFMMEU v Personnel Contracting (2022) 275 CLR 165, 195 [66] (Kiefel CJ, Keane and Edelman JJ); [2022] HCA 1. See also at 214 [127] (Gageler and Gleeson JJ); 235 [184] (Gordon J).
We have instead focused on the provisions of the Services Agreement on which the parties relied that established the rights and duties of Ekera and Dr Goodman. We consider that such provisions can be divided into three categories: provisions establishing rights and duties that may tend against an employment relationship; provisions establishing rights and duties that may tend to support an employment relationship; and provisions establishing rights and duties that tend in both directions.
Provisions of the Services Agreement tending against employment relationship
The Services Agreement contained a number of provisions that do not bespeak an employment relationship between Ekera and Dr Goodman.
(a)Remuneration
There was provision in the Services Agreement for financial reward for Dr Goodman if the practice were to exceed the EBITDA targets,[69] and for payments to Dr Goodman in respect of any dental work he performed (although the parties accepted he was an independent contractor in performing this work). There was no provision, however, for payment to Dr Goodman in the nature of salary or wages for his work as the Practice Principal. This fundamental feature of an employment relationship was absent.
(b)Work at own risk
[69]Services Agreement, clauses 9.1(a), (c).
Pursuant to clause 3.4, Dr Goodman, as Practice Principal, acknowledged that he conducted the dental practice ‘on his own behalf and at his own risk’. This does not betoken an employment relationship. Rather, it was indicative of Dr Goodman working in his own interest.
(c)Supply of services by Ekera to Dr Goodman
The supply of services by an employee to an employer is a characteristic of an employment relationship.
Clause 3.1 specifically provided, however, that it was Ekera that was to supply its services to Dr Goodman, not the other way around. Under this clause, Dr Goodman as Practice Principal ‘exclusively engaged’ Ekera to ‘provide the Practice Principal with Support Services at the Dental Centre’ when rostered on the Roster, and ‘at such other locations and times as are agreed between the parties … and to meet all expenses relating to the provision of the Support Services, including in respect of the Employees’. The term ‘Support Services’ was defined to include both matters referable to dental work and to the management of the dental practice.[70]
[70]See n 66 above.
Furthermore, in clause 3.2, Ekera agreed to meet certain service standards in the provision of the Support Services to Dr Goodman and to consult with Dr Goodman to seek to ensure his satisfaction with the materials to be used in the practice.[71]
[71]Under clause 3.2, Ekera agreed ‘to provide the Support Services in a diligent, proper and businesslike manner and in the provision of the Stock must consult with the Practice Principal to ensure his satisfaction at all times with the level of consumables and choice of materials’.
In return for Ekera’s provision of the Support Services, Dr Goodman agreed to pay to Ekera ‘all monies collected by the Practice save for those fees to which the Practice Principal becomes entitled’.[72]
[72]Services Agreement, clause 9.1(a). Dr Goodman agreed to pay Ekera a fortnightly Services Fee, calculated in accordance with clause 9.1(b). After collecting Dr Goodman’s professional fees and banking them in a holding account (clause 1.1 (definition of ‘Support Services’)), at each relevant time, Ekera would then remit to Dr Goodman his professional fees less the Services Fee for, and any Laboratory Fees paid by Ekera on behalf of Dr Goodman in, the relevant period: clauses 9.2–9.3.
Again, provisions of this kind are not indicative of an employment relationship.[73]
(d)Dr Goodman’s agreement to indemnify Ekera
[73]Further, while Dr Goodman was in receipt of the Support Services, it seems he did not provide them, and therefore did not fall within the definition of ‘employee’ in clause 1.1. of the Services Agreement.
Under clause 11.1, Dr Goodman agreed to indemnify Ekera against any liability arising from his conduct of the practice, as well as ‘any other acts or omissions (including negligent acts or omissions) of the Practice Principal whether of a dental service nature or otherwise’. This is not indicative of an employment relationship.
(e)Ekera’s limited right to terminate the contract
Under clause 12, Ekera’s right to terminate the Services Agreement was more limited than the common law right to terminate employment.[74]
Provisions of the Services Agreement tending to support an employment relationship
[74]Ekera could terminate the Services Agreement under this clause by written notice to Dr Goodman if: he ceased to be registered as a dentist or had unacceptable conditions imposed on his registration; he committed an act of serious misconduct that he did not remedy within 7 days; or he breached a material and serious provision of the Services Agreement or the Acquisition Agreement and did not remedy that breach within 30 days: clause 12.1. Ekera could also terminate if Dr Goodman died or suffered a total and permanent disability: clause 12.2.
On the other hand, various provisions of the Services Agreement conferred on Ekera a power of direction or control over aspects of how, where or when Dr Goodman was to perform his duties as Practice Principal, which may be indicative of an employment relationship.
(a) Management of the Roster and provision of non-clinical services
Under clause 3.3, Ekera directed Dr Goodman ‘to manage the Roster generally and to provide non-clinical Services for at least 44 weeks’ of the year ‘in the best interests of the practice at all times’. Plainly enough, this gave Ekera a measure of control over Dr Goodman, both in respect of his work hours and the requirement that he manage the Roster.
(b) Practice obligations
Dr Goodman assumed various obligations in his role as Practice Principal by virtue of clause 4.4. Clause 4.4(c) required Dr Goodman to ensure that he used his best efforts to ensure that the practice met the annual EBITDA target, clause 4.4(e) required Dr Goodman to comply with, inter alia, the ‘Ekera Dental Code of Conduct’, and clause 4.4(f) required Dr Goodman to ensure that he acted ‘in a manner consistent with the best interests of the Practice and the Dental Centre’.
While the imposition of obligations that affect the way a person performs their work may be indicative of an employment relationship, we consider that the particular obligations imposed by clause 4.4 are more consistent with a relationship driven by the commercial objective of protecting the parties from risk in the period subsequent to the sale of the practice.
To the extent that clause 4.4(e) imposed on Dr Goodman an obligation to ensure that he acted in compliance with the ‘Ekera Dental Code of Conduct’, it is unclear whether this was the code of conduct to which the trial judge referred,[75] which was contained in ‘the Ekera employee handbook’ and applied expressly to employees but not to contracted dentists, or to the code of conduct that applied to dentists who worked in Ekera’s dental practices as independent contractors.[76]
[75]First Reasons, [514].
[76]The ‘Ekera Dental Code of Conduct’, referred to in the Services Agreement, was not before this Court. The Court however was taken to a ‘Code of Conduct’ that was scheduled to a services agreement with another dentist.
Creative Smiles and Dr Goodman suggested that the consolidation of the two proceedings ‘appeared to be for efficiency only’. It contended that ‘there is no reason in principle why there could not be a proceeding within a proceeding’.[133] The commercial claims should not lose their distinct character and should remain as a distinct (commercial) proceeding following consolidation. They were separate and distinct claims, made by separate legal persons, arising out of separate facts and distinct agreements: one for the sale of a significant asset, the other for the provision of personal services. And the Creative Smiles proceeding was not a proceeding ‘in relation to a matter arising under the [FWA]’.
[133]Quoting Parnell (2021) 284 FCR 546, 569 [104] (Logan, Katzmann and Snaden JJ); [2021] FCAFC 67.
While Creative Smiles acknowledged that a plain reading of s 570 of the FWA would suggest that none of these things mattered, the context and purpose of the provision were important to its proper construction. The object of the FWA was ‘to provide a balanced framework for cooperative and productive workplace relations’.[134] In the Fair Work (Commonwealth Powers) Act 2009 (Cth), which referred the power to regulate workplace relations in the State of Victoria to the Commonwealth for the purpose of s 51(xxxvii) of the Constitution, the referred subject matters said nothing of commercial disputes between corporate entities. Section 570 was a remedial provision that was focused on access to justice,[135] in an Act designed to regulate workplace relations. There was therefore no policy reason for imposing a protective purpose upon commercial disputes between commercial entities who have submitted the jurisdiction of their contract to the courts of Victoria.
[134]Citing FWA, s 3.
[135]Citing BDR21 v Australian Broadcasting Corporation [No 2] [2021] FCA 1347, [26(f)] (Halley J).
At the hearing, Mr Rivette, counsel for Creative Smiles and Dr Goodman, relied on the decision of Tucker v Victoria, in which this Court distilled certain points from the case law on s 570(1).[136] Those points included that the provision will ‘be engaged if a right or duty sought to be enforced owes its existence to the FWA’ and that ‘[w]hat is required is a relevant relationship between the proceeding and a matter arising under the FWA, having regard to the scope of the FWA’.[137]
[136][2021] VSCA 120 (‘Tucker’).
[137]Tucker [2021] VSCA 120, [406(b)], [406(d)] (Kyrou, McLeish and Sifris JJA).
The fifth cross-appeal ground was based on Ekera’s refusal of the Second and Third Offers, which were ‘more generous’ than the trial judge’s decision.[138] Creative Smiles and Dr Goodman submitted that even if s 570(1) did apply, in determining that the exception in s 570(2)(b) did not apply, the trial judge had acted on the wrong principle and erred in the exercise of his discretion. He had proceeded on the basis of irrelevant considerations or mistaken facts, in that he referred to Ekera’s state of mind and forensic decision-making, despite no evidence being tendered about those matters. The evidence before the trial judge was confined to the offers and to Ekera’s lack of acknowledgement of, or response to, those offers. On a ‘proper analysis’ of that evidence, and in light of the ultimate outcome of the proceeding, the trial judge should have found that it was unreasonable for Ekera not to accept the offers, particularly where the offers were ‘more generous’ than what Creative Smiles and Dr Goodman ultimately achieved. There was, Creative Smiles and Dr Goodman submitted, no reason why the ordinary rule as to costs should not apply.
[138]See [158] above. In oral submissions, Mr Rivette explained that it had been conceded at trial that the First Offer was not an offer of compromise in the appropriate form: see Costs Reasons, [33].
At the hearing, Mr Rivette submitted that the trial judge specifically fell into error:
(a)by concluding that ‘[Ekera] believed on objectively reasonable grounds that they had a strong case’,[139] because, as Mr Rivette submitted, ‘every person who refuses an offer of compromise believes that’; and
(b)by concluding that the experts ‘each supported the outcome for which Ekera had always contended and upon which it had acted’,[140] when the true position was that the experts did not agree as to whether, if the purpose of determining the EBITDA was to determine how much Ekera was obliged to pay Creative Smiles under the Earn Out provision, the EBITDA should be calculated in such a way that the Missing Monies would be brought into account to reduce the earnings.[141]
[139]Costs Reasons, [48].
[140]Ibid [54].
[141]See [138] above.
Creative Smiles and Dr Goodman submitted that in the event the fourth or fifth cross-appeal grounds succeeded, this Court could exercise the discretion to order costs, relying on the materials before it.
Ekera’s submissions
In relation to the fourth cross-appeal ground, Ekera submitted that it was common ground that where there are only two parties involved, and some claims are made under FWA and others under common law, s 570 applies on the principles set out in Sautner. The trial judge had dealt with the situation where a third party is also involved (here Creative Smiles), by citing the case of Parnell.[142] In that case, the Full Federal Court had to consider the meaning of the words ‘proceedings … in relation to a matter arising under this Act’ in s 570. As here, there were separate related legal entities involved (Parnell US and Parnell AU) with different claims and cross-claims, some of which related to the FWA and some of which did not. As here, the claims were heard together for convenience. The Court held that s 570 applied because there was a common substratum of facts and therefore ‘a connection or relationship between the two proceedings sufficient to satisfy the terms of s 570(1)’.[143]
[142]Cost Reasons, [46], citing Parnell (2021) 284 FCR 546; [2021] FCAFC 67.
[143](2021) 284 FCR 546, 571 [118], 572 [121] (Logan, Katzmann and Snaden JJ); [2021] FCAFC 67.
Ekera submitted that this was a similar case. There was a common substratum of facts between Creative Smiles’ commercial claims and Dr Goodman’s employment claims. This was evident from the interlocking nature of the Acquisition Agreement and the Services Agreement. The proceeding commenced by Creative Smiles was therefore a proceeding ‘in relation to’ a matter arising under the FWA.
At the hearing, Mr Bourke KC submitted that once the County Court made orders for consolidation, the two proceedings became one. If any matter within that consolidated proceeding ‘touche[d] the [FWA]’, then the entire proceeding was covered by s 570. In support of this proposition, Mr Bourke KC relied on the ‘plain language’ of s 570 and the following passage from Tucker:
A proceeding in which a matter directly arising under the FWA (seeking to enforce a right or duty owing its existence to the FWA) is a component, even only as one matter amongst others not arising under the FWA, will be sufficiently related. That a proceeding encompasses multiple matters, claims, or causes of action, only some of which arise under the FWA, will not take the proceeding as a whole, or any part of it, outside the scope of the provision …[144]
[144][2021] VSCA 120, [406(e)] (Kyrou, McLeish and Sifris JJA).
Mr Bourke KC submitted that ultimately, the Court did not need to answer questions like ‘is there a connection or a relationship?’ and ‘is there a common substratum?’, because the commercial and employment claims were all pursued in ‘the one proceeding, the one pleading’. But if he was wrong about that, Mr Bourke KC submitted that the common substratum and connection was clear because Creative Smiles and Dr Goodman had expressly pleaded that the Acquisition Agreement and the Services Agreement were interconnected.
In relation to the fifth cross-appeal ground, Ekera submitted that the Court ‘should accept’ the reasons the trial judge gave as to why it had not behaved unreasonably in not accepting the three settlement offers.[145]
[145]See [159]–[160] above.
At the hearing, Mr Bourke KC submitted that Creative Smiles and Dr Goodman were required to demonstrate House v The King[146] error, and emphasised that the latitude given to a trial judge’s discretion was even higher in relation to assessments of costs.
[146](1936) 55 CLR 499, 504–5 (Dixon, Evatt and McTiernan JJ); [1936] HCA 40.
Mr Bourke KC also emphasised that Ekera ‘had a good case on an enormous amount of the issues’. Of the 14 issues that were agreed for determination, Creative Smiles and Dr Goodman won only three. The trial judge recognised how ‘counterintuitive’ it was to describe this commercial scenario as giving rise to an employment situation. Mr Bourke KC also submitted that, allowing for interest, the Third Offer effectively required Ekera to pay $150,000. Given that the total orders made, allowing for interest, were worth about $231,0000, this was not a significant compromise.
Mr Bourke KC also submitted that even if the trial judge was found to have erred on the issue of costs, this Court should nonetheless order that there be no order as to costs in respect of the proceeding below, given that Ekera ‘effectively won the vast bulk of the case’ and it was the commercial case run by Creative Smiles that took the majority of the hearing time. He further submitted that s 570 of the FWA applied to the applications in this Court, so that irrespective of the outcome of those applications, there should be no order as to costs in this Court.
Consideration
Section 570 of the FWA operates as an express limitation on the otherwise broad discretion to award costs in certain proceedings.[147] The trial judge was correct to find that s 570 governed the costs of the proceeding below. Each of Ekera, Creative Smiles and Dr Goodman was, to use the language of s 570(1), ‘a party to proceedings … in a court … in relation to a matter arising under [the FWA]’.
[147]See Sautner (2015) 229 FCR 221, 252 [140] (Tracey, Gilmour, Jagot and Beach JJ); [2015] FCAFC 20.
The proceeding to which each of Ekera, Creative Smiles and Dr Goodman was a party was the consolidated proceeding that originally comprised two separate proceedings brought against Ekera — one proceeding in which Creative Smiles made various commercial claims, and another proceeding in which Dr Goodman made various claims under the FWA. Following the consolidation of these two proceedings into a single proceeding, which came to proceed by way of a consolidated pleading and a single proceeding number, each of Ekera, Creative Smiles and Dr Goodman were parties to a single proceeding in the County Court. It matters not that the decision to consolidate the two proceedings into that single proceeding may have occurred for reasons of ‘efficiency’.
In the consolidated proceeding, Dr Goodman sought relief under the FWA in respect of alleged contraventions of the FWA by Ekera. The duties of Ekera that Dr Goodman sought to enforce owed their existence to provisions of the FWA. The controversy between Dr Goodman and Ekera about whether Ekera had breached those duties, entitling him to relief under the FWA, was a ‘matter arising under’ the FWA.
As to whether the consolidated proceeding was ‘in relation to’ that matter, the phrase ‘in relation to’ has been described as one of ‘wide and general import’.[148] It has been said that, ‘subject to any contrary indication derived from its context or drafting history, it requires no more than a relationship, whether direct or indirect, between two subject matters’.[149] In Parnell, the Full Federal Court found that neither the context nor the drafting history suggested that the relationship between the ‘proceeding’ and the ‘matter’ that is required by s 570(1) should be a narrow one.[150] The Court emphasised that s 570 was remedial and beneficial in nature, and therefore should be interpreted beneficially.[151]
[148]Parnell (2021) 284 FCR 546, 570 [110] (Logan, Katzmann and Snaden JJ); [2021] FCAFC 67, citing Fountain v Alexander (1982) 150 CLR 615, 629 (Mason J); [1986] HCA 16.
[149]O’Grady v Northern Queensland Co Ltd (1990) 169 CLR 356, 376 (McHugh J); [1982] HCA 16.
[150](2021) 284 FCR 546, 571 [113] (Logan, Katzmann and Snaden JJ); [2021] FCAFC 67.
[151](2021) 284 FCR 546, 571 [115] (Logan, Katzmann and Snaden JJ); [2021] FCAFC 67.
The consolidated proceeding was the vehicle in which Dr Goodman sought to have the controversy about whether Ekera had contravened provisions of the FWA (on the basis that he was an employee of Ekera), entitling him to relief under the FWA, resolved. It was the vehicle through which he sought orders from the County Court under the FWA. There was therefore a direct relationship between the matter arising under the FWA and the proceeding. The consolidated proceeding was a proceeding ‘in relation to’ that matter.
The attempt by Creative Smiles and Dr Goodman to characterise the claims made by Creative Smiles as a ‘proceeding within the proceeding’ in which Dr Goodman made his claims does not assist their cause. To the extent that the Full Federal Court decided in Parnell that a cross-claim made in the proceeding there under consideration was a ‘separate proceeding’,[152] that finding has no bearing on the circumstances of this case. There was no cross-claim in the consolidated proceeding. In any event, even if the commercial claims made by Creative Smiles could be treated as a separate proceeding within the proceeding in which Dr Goodman sought relief under the FWA, that separate proceeding would still be sufficiently connected to Dr Goodman’s claims under the FWA to be a proceeding ‘in relation to’ a matter arising under the FWA. A common substratum of facts underpinned each set of claims.
[152]See Parnell (2021) 284 FCR 546, 567–9 [94]–[103] (Logan, Katzmann and Snaden JJ); [2021] FCAFC 67.
For these reasons, the fourth cross-appeal ground must fail.
As to the fifth cross-appeal ground, we are not satisfied that Creative Smiles and Dr Goodman have demonstrated that the trial judge’s decision that it was not unreasonable for Ekera to reject the Second and Third Offers was infected by an error of the kind identified in House v The King.[153] We are not persuaded that the trial judge acted on any wrong principle or proceeded on the basis of irrelevant considerations or mistaken facts. To the extent that the submissions of Creative Smiles and Dr Goodman can be interpreted as suggesting that the trial judge’s decision was ‘unreasonable or plainly unjust’,[154] we reject that contention. In the circumstances of this case, where Ekera: had strong and reasonable grounds for believing that it would successfully defend the claims brought against them; had successfully defeated the majority of those claims; and was faced with settlement offers that did not reflect a substantial compromise on the part of Creative Smiles and Dr Goodman, we do not regard the trial judge’s conclusion as ‘unreasonable or plainly unjust’.
[153](1936) 55 CLR 499, 504–5 (Dixon, Evatt and McTiernan JJ); [1936] HCA 40.
[154]The final limb of the House formulation.
For these reasons, the fifth cross-appeal ground must also fail.
An order under s 6(3) of the Commonwealth Cross-vesting Act
As noted at the outset of these reasons, in preparing its reasons for judgment in this matter, the Court noted s 565 of the FWA, which provides in effect that an appeal from the County Court exercising jurisdiction under that Act lies to the Federal Court, rather than this Court. This is a departure from the usual pathway for appeals from the County Court of Victoria.[155] In this way, the FWA gives effect to the special role of the Federal Court with respect to the FWA.
[155]Supreme Court Act 1986, ss 10, 14, 14A–14D; Supreme Court (General Civil Procedure) Rules 2015, Order 64.
By the time the Court became aware of s 565, however, the Court had heard the application for leave to appeal, and the cross-application for leave to cross-appeal. It had reserved its judgment, and the preparation of its reasons for its decision was well advanced. In these circumstances, the Court sought the parties’ submissions on whether, having regard to s 565 of the FWA, the Court had power to determine the parties’ respective applications to this Court.
Ekera initially contended that the proceedings should be transferred to the Federal Court under s 5 of the Jurisdiction of Courts (Cross-vesting) Act 1987 (Vic), whereas Creative Smiles and Dr Goodman contended that the Court should exercise the power conferred by s 6(3) of the Commonwealth Cross-vesting Act to determine the applications for leave to appeal itself.
The Court subsequently sought the parties’ submissions on the meaning of ‘matter’ in the expression ‘special federal matter’ as used in s 6 of the Commonwealth Cross-vesting Act and requested they identify the ‘matter’ in this case. In its further submissions, Ekera accepted that these proceedings involve a ‘special federal matter’ and that it would be appropriate for the Court to determine the proceedings under s 6 of the Commonwealth Cross-vesting Act. After receiving those submissions, there was a brief hearing on 9 May 2025. At the conclusion of this hearing, the Court directed Ekera to serve a written notice on the Commonwealth and State Attorneys-General in conformity with s 6(4)(a) of the Commonwealth Cross-vesting Act by 12 May 2025.
It is helpful at this point to refer to the relevant provisions of the Commonwealth Cross-vesting Act. Section 6 concerns matters for determination in a pending proceeding in a Supreme Court that are ‘special federal matters’. The term ‘special federal matter’ is relevantly defined in s 3(1) of that Act as ‘a matter that is within the original jurisdiction of the Federal Court by virtue of s 39B of the Judiciary Act 1903 (Cth); being a matter in respect of which the Supreme Court of a State or Territory would not, apart from this Act, have jurisdiction’.
Section 6 of Commonwealth Cross-vesting Act relevantly provides as follows:
(1) If:
(a)a matter for determination in a proceeding that is pending in the Supreme Court of a State or Territory is a special federal matter; and
(b)the court does not make an order under subsection (3) in respect of the matter;
the court must transfer the proceeding in accordance with this section to the Federal Court …
…
(3)The Supreme Court may order that the proceeding be determined by that court if it is satisfied that there are special reasons for doing so in the particular circumstances of the proceeding other than reasons relevant to the convenience of the parties.
(4)Before making an order under subsection (3), the court must be satisfied that:
(a)a written notice specifying the nature of the special federal matter has been given to the Attorney-General of the Commonwealth and the Attorney-General of the State or Territory where the proceeding is pending; and
(b)a reasonable time has elapsed since the giving of the notice for the Attorneys-General to consider whether submissions to the court should be made in relation to the proceeding.
…
(6)In considering whether there are special reasons for the purposes of subsection (3), the court must:
(a)have regard to the general rule that special federal matters should be heard by the Federal Court …; and
(b)take into account any submission made in relation to the proceeding by an Attorney-General mentioned in subsection (4).
…
(9)Where, through inadvertence, the Supreme Court of a State or Territory determines a proceeding of the kind mentioned in subsection (1) without:
(a)the court making an order under subsection (3) that the proceeding be determined by that court; or
(b)a notice mentioned in subsection (4) being given;
nothing in this section invalidates the decision of that court.
…
In order to engage s 6(3), there must be a ‘special federal matter’ for determination in a proceeding. The parties addressed the meaning of this expression in their submissions. They ultimately submitted that the word ‘matter’ in the expression ‘special federal matter’ has the same, or much the same, meaning as the word ‘matter’ in s 39B(1A)(c) of the Judiciary Act 1903 (Cth) and in ss 75 and 76 of the Constitution. We accept this submission.
As the High Court said in Palmer v Ayres,[156] a ‘matter’ signifies a justiciable controversy or the subject matter for determination in a proceeding. Further, as the Court there stated, a ‘matter’ is not ‘co-extensive with a legal proceeding’ but ‘[i]t is identifiable independently of proceedings brought for its determination and encompasses all claims made within the scope of the controversy’.[157]
[156](2017) 259 CLR 478, 490 [26] (Kiefel, Keane, Nettle and Gordon JJ); [2017] HCA 5 (‘Palmer’).
[157]Palmer (2017) 259 CLR 478, 490–1 [26] (Kiefel, Keane, Nettle and Gordon JJ); [2017] HCA 5. See also Re Wakim; Ex parte McNally (1999) 198 CLR 511, 585–6 [139]–[142] (Gummow and Hayne JJ); [1999] HCA 27; Fencott v Muller (1983) 152 CLR 570, 608 (Mason, Murphy, Brennan and Deane JJ); [1983] HCA 12; Krongold Constructions (Aust) Pty Ltd v Thurin (2023) 414 ALR 1, 12–13 [38], 17 [64] (Beach, McLeish, Niall JJA); [2023] VSCA 191; Truthful Endeavour Pty Ltd v Condon (2015) 233 FCR 174, 189, [55], 190 [57], 192 [60] (Allsop CJ, Katzmann and Gleeson JJ); [2015] FCAFC 70.
A ‘proceeding’ in this context includes a proceeding at first instance and on appeal.[158]
[158]See, eg, NEC Information Systems Australia Pty Ltd v Lockhart (1992) 36 FCR 258, 269–70 (Black CJ, Lockhart and Gummow JJ), noting that the Commonwealth Cross-vesting Act has since been amended, but the reasoning of the Court is nonetheless relevant.
The parties submitted that the proceedings in this Court involve a matter ‘arising under’ the FWA, being a matter within the original jurisdiction of the Federal Court within the meaning of s 39B(1A)(c) of the Judiciary Act. Ekera submitted that the matter (or matters) for determination included matters arising under Commonwealth laws, including the matter ‘arising under the [FWA]’. Creative Smiles and Dr Goodman submitted that:
The relevant matter or justiciable controversy in this particular case is whether the Respondent/Cross-Applicant, John Goodman was an employee of the Applicant/Cross-Respondent at the relevant times and if so, any legal rights that flow from such a finding.
It suffices to observe that the relevant controversy before the Court is whether Ekera breached the FWA by failing to pay Dr Goodman wages, public holiday pay, annual leave and loading, and by failing to make superannuation contributions on his behalf. Such a controversy gives rise to a matter that is within the original jurisdiction of the Federal Court by virtue of s 39B(1A)(c) of the Judiciary Act (Cth); and therefore is a ‘special federal matter’ as defined in s 3(1) of the Commonwealth Cross-vesting Act.
Section 6(3) of the Commonwealth Cross-vesting Act is therefore engaged. After careful consideration, the Court has concluded that it should make an order under that provision.
Such an order was made in Huynh v Attorney-General (NSW).[159] In that case, s 9(1) of the Administrative Decisions (Judicial Review) Act 1977 (Cth) operated to deprive the Supreme Court of New South Wales of the jurisdiction it would otherwise have had under s 39(2) of the Judiciary Act, ‘with the consequence that, in the language of s 3(1) of the [Commonwealth] Cross-vesting Act, the matter is one “in respect of which th[e] Court would not, apart from the [Commonwealth] Cross-vesting Act, have jurisdiction”’.[160] The matter was thus a ‘special federal matter’. As Bell CJ observed, s 4 of the Commonwealth Cross-vesting Act ‘had the effect of reinvesting the Supreme Court … with (cross-vested) jurisdiction’, subject to the ‘special federal matter’ regime in s 6.[161] His Honour considered what was intended by the expression ‘special reasons’ in s 6(3), holding that ‘special reasons’ were ‘not synonymous with “exceptional circumstances”’, and fell to be considered ‘in the particular circumstances of the proceeding’.[162]
[159] (2023) 112 NSWLR 149; [2023] NSWCA 190 (‘Huynh’).
[160]Huynh (2023) 112 NSWLR 149, 158–9 [33]–[34] (Bell CJ, Kirk JA agreeing at 161 [55], Simpson AJA agreeing at 161 [56]); [2023] NSWCA 190.
[161]Huynh (2023) 112 NSWLR 149, 158 [35]–[36] (Bell CJ, Kirk JA agreeing at 161 [55], Simpson AJA agreeing at 161 [56]) (emphasis in original); [2023] NSWCA 190.
[162]Huynh (2023) 112 NSWLR 149, 159 [41] (Bell CJ, Kirk JA agreeing at 161 [55], Simpson AJA agreeing at 161 [56]) (emphasis in original); [2023] NSWCA 190. See also at 159–60 [42], citing Henry v Hancock [2016] NSWSC 71, [60] (Brereton J). Case management issues, including efficiency, have been held to constitute special reasons in the circumstances of the case: see, eg, Overlook Management BV v Foxtel Management Pty Ltd [2001] NSWSC 682, [6] (Hunter J).
In this case, as we have seen, s 565 of the FWA operates to deprive this Court of jurisdiction to hear the parties’ respective applications for leave to appeal and cross-appeal, with the consequence that, but for the Commonwealth Cross-vesting Act, the Court would not have jurisdiction.
The Court acknowledges the general rule that special federal matters should be heard by the Federal Court.[163] It has had regard to that rule in considering whether there are special reasons in the particular circumstances of these proceedings for it to make an order under s 6(3) that it determine the proceedings. In the particular circumstances of these proceedings, it is satisfied, however, that there are in fact special reasons for making an order that this Court determine the proceedings. Briefly, these special reasons are for the avoidance of significant additional public expense and the further engagement of court resources; and to promote the associated public interest.
[163]Commonwealth Cross-vesting Act, s 6(6)(a).
Significant court time has already been spent at significant public expense in the listing and hearing of the proceedings, and in the preparation to date of the Court’s reasons. The proceedings already have a lengthy history. Ekera filed its application for leave to appeal in this Court on 11 August 2023. Creative Smiles and Dr Goodman filed their application for leave to cross-appeal in this Court on 12 September 2023. Written cases were filed in July 2024. There was a hearing on 29 August 2024, which ran for the entirety of that day. Further time and effort has now been expended, at additional public expense, addressing the issue of the Court’s jurisdiction.
Moreover, the Court is able to deliver its judgment and its reasons now. If this Court does not determine the proceeding, there will inevitably be more delay. There will also be a further commitment of court resources, including judicial resources, at significant additional public expense. Delay in the resolution of disputes and the waste of court and judicial resources is not in the public interest.[164]
[164]Aon Risk Services Australia Ltd v Australian National University (2009) 239 CLR 175, 218 [113] (Gummow, Hayne, Crennan, Kiefel and Bell JJ); [2009] HCA 27.
Further, apart from these not insignificant considerations, there is also the fact that, apart from the special federal matter, the proceedings also involve contentions about whether a judge of the County Court properly construed the terms of a private contract, which would ordinarily be determined in this Court.
The Court notes that s 6(3) of the Commonwealth Cross-vesting Act indicates that the convenience of the parties is irrelevant in determining whether an order should be made under that provision. The convenience of the parties has not formed any part of the Court’s assessment of whether an order should be made under s 6(3) and is not relevant to the Court’s reasons for determining to make such an order.
Further, in conformity with s 6(4)(b) of the Commonwealth Cross-vesting Act, the Court has considered whether a reasonable time has elapsed since notice was given to the Attorneys-General pursuant s 6(4)(a) and its direction of 9 May 2025. The Court is satisfied that a reasonable time has elapsed since that notice was given for the Attorneys-General to consider whether submissions should be made to the Court in relation to this proceeding. In an affidavit of service sworn on 13 June 2025, Mr James Greentree, solicitor, deposed to the service of the reasons of the trial judge delivered on 16 December 2022, 12 May 2023 and 28 June 2023; the application and cross-application for leave to appeal filed in this Court, the parties’ written cases and consolidated summary; and the transcript of the hearing on 29 August 2024. Mr Greentree also deposed to receiving an email on 4 June 2025 with a letter from the Director of the Federal Courts Branch of the Commonwealth Attorney-General’s Department advising that the Commonwealth Attorney-General would not be making a submission in this matter. Mr Greentree further deposed to receiving an email on 12 June 2025 from the Victorian Government Solicitor’s Office advising that the Attorney-General for Victoria did not propose to make submissions in the matter.
Accordingly, the Court is satisfied that there are special reasons in the particular circumstances of the proceedings for making an order pursuant to s 6(3) of the Commonwealth Cross-vesting Act that the two applications for leave to appeal be determined by this Court.
Conclusion
Contrary to the trial judge, we have found that there was no employment relationship between Dr Goodman and Ekera. We would therefore grant Ekera leave to appeal and allow the appeal on ground 1. We have also found that the trial judge was correct to find that the terms of the Acquisition Agreement entitled Ekera to treat the Missing Monies as an expense that did not arise ‘in the ordinary course of business’ of the practice when calculating the 2018 EBITDA for the purpose of determining the second tranche of the Earn Out.
In relation to the cross-application for leave to appeal brought by Creative Smiles and Dr Goodman, we have found that the trial judge did not err in relation to costs. Given that we have found that Dr Goodman was not an employee of Ekera, it is unnecessary to consider the trial judge’s decision not to impose a pecuniary penalty under the FWA. We would therefore refuse the cross-application for leave to appeal by Creative Smiles and Dr Goodman.
We will invite the parties to address the issue of costs of the two applications.
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