Fitzroy Motors Pty Limited v Hyundai Automotive Distributors Australia Pty Limited

[1995] IRCA 629

INDUSTRIAL LAW - INDEPENDENT CONTRACTORS - UNFAIR CONTRACT - Application by company, not natural person - JURISDICTION to entertain claim - COSTS- Whether proceeding instituted without reasonable cause - Relevance of question whether primary claim is unarguable.

Industrial Relations Act 1988, ss.4(1A), 127A, 127B, 347 and 430.

FITZROY MOTORS PTY LIMITED v HYUNDAI AUTOMOTIVE DISTRIBUTORS AUSTRALIA PTY LIMITED

NO. NI.3719 of 1995

CORAM:    WILCOX CJ
PLACE:    SYDNEY
DATE:     1 DECEMBER 1995

IN THE INDUSTRIAL RELATIONS COURT)
OF AUSTRALIA  )        No. NI. 3719 of 1995
NEW SOUTH WALES DISTRICT REGISTRY)

BETWEEN:FITZROY MOTORS PTY LIMITED

Applicant

AND:HYUNDAI AUTOMOTIVE DISTRIBUTORS AUSTRALIA PTY LIMITED

Respondent

CORAM:    WILCOX CJ
PLACE:    SYDNEY
DATE:     1 DECEMBER 1995

MINUTES OF ORDER

THE COURT ORDERS THAT:

1. The proceeding be dismissed.

Note:Settlement and entry of orders is dealt with in Order 36 of the Industrial Relations Court Rules.

IN THE INDUSTRIAL RELATIONS COURT)
OF AUSTRALIA  )        No. NI. 3719 of 1995
NEW SOUTH WALES DISTRICT REGISTRY)

BETWEEN:FITZROY MOTORS PTY LIMITED

Applicant

AND:HYUNDAI AUTOMOTIVE DISTRIBUTORS AUSTRALIA PTY LIMITED

Respondent

CORAM:    WILCOX CJ
PLACE:    SYDNEY
DATE:     1 DECEMBER 1995   

REASONS FOR JUDGMENT

WILCOX CJ: On 21 September 1995 an Application was filed in this Court on behalf of a company, Fitzroy Motors Pty Limited ("Fitzroy"), seeking relief against Hyundai Automotive Distributors Australia Pty Limited ("Hyundai"). The Application sought a review, under s.127A of the Industrial Relations Act 1988, of a contract made between the applicant and the respondent on the grounds that the contract is unfair and, alternatively, harsh. Consequential relief was sought: an order under s.127B of the Act that the contract be set aside or varied to the extent necessary to disentitle the respondent from terminating the contract harshly, unjustly or unreasonably.

It appears from an affidavit filed with the Application that Fitzroy has for a long time been the Hyundai dealer at Coffs Harbour, on the New South Wales north coast, and that Hyundai has given notice of termination of that relationship.

The Application also sought relief under the associated jurisdiction of the Court: see s.430 of the Industrial Relations Act. Two claims were made: a claim under s.275 of the Industrial Relations Act 1991 (NSW) that the contract be declared void in whole or part or varied, on the ground that it is unfair, harsh or unconscionable or against the public interest, and a declaration that the respondent has, in trade or commerce, engaged in unconscionable conduct in contravention of s.51AA of the Trade Practices Act 1974. The Application sought damages and an injunction restraining the respondent from terminating the contract harshly, unfairly or unjustly.

The Application also included a claim for interlocutory relief:

"An order that, until further order of the court, the Respondent, itself, its servants and agents, be restrained from terminating the contract made between the Respondent and the Applicant and/or be restrained from giving effect to the purported termination dated 22 May 1995 which is said to take effect on or about 22 September 1995."

When they filed the Application, the solicitors for the applicant sought an early opportunity to move for the interlocutory order set out in the Application. Pursuant to that request, the matter was listed before me on the following day, 22 September. Mr S Rothman appeared for the applicant and Mr J Trew QC and Mr J Phillips for the respondent. Mr Rothman moved for an interlocutory order in the form set out in the Application. He said he based his application on ss.127A and 127B of the Industrial Relations Act and accepted that it would be inappropriate to grant interlocutory relief in reliance on the associated jurisdiction.

Mr Trew drew attention to s.4(1A) of the Act. This subsection reads: "To avoid doubt, it is declared that a reference in this Act to an independent contractor is confined to a natural person". He pointed out that ss.127A and 127B are concerned only with contracts that fall within the definition of "contract" in s.127A(1):

"'contract' means:

(a)a contract for services that:

(i)is binding on an independent contractor; and

(ii)relates to the performance of work by the independent contractor ...; and

(b)any condition or collateral arrangement relating to such a contract."

Mr Trew argued that, unless the contract involved an "independent contractor" (that is, a natural person), the Court had no jurisdiction to record an opinion under s.127A or make an order under s.127B. In the present case, there were only two parties to the contract; both companies.

The reference to s.4(1A) came as an embarrassment to Mr Rothman. Apparently he had advised concerning the institution of the proceeding. He said he had looked for a statutory definition of "independent contractor" but found none; he therefore assumed it bore its ordinary meaning, which would be wide enough to cover a company contractor.

Mr Rothman's oversight was understandable.  Section 4(1) contains numerous definitions, set out in alphabetical order.  A reader of the Act might reasonably expect that, if "independent contractor" was a defined term, it would be included in that list.  Alternatively, it might have been included in the main provisions relating to independent contractors (ss.127A - 127C), although this would have been less satisfactory as the term is used elsewhere as well.  It would not ordinarily be expected that there was a definition in another place.

In the light of the definition, Mr Rothman conceded that he could not support his application for an interlocutory order.  He asked that the matter be stood over for a few days while he considered whether it was worth pursuing the action at all.  Mr Trew agreed and the matter was adjourned to 22 September.  Mr Trew intimated that, if the proceeding was abandoned, his client would seek costs.

When the matter was called on 28 September 1995, Mr Phillips mentioned it on behalf of both parties.  He said that the applicant consented to an order that the proceeding be dismissed but opposed any order for costs.  The respondent sought costs.  I directed that each party lodge written submissions regarding costs and said I would make an order dismissing the proceeding when delivering judgment on that issue.

The Court has a general power to award costs:  see Canceri v Taylor (1994) 1 IRCR 120 at 129. But this is subject to s.347 of the Act. Section 347 reads:

"347(1)A party to a proceeding (including an appeal) in a matter arising under this Act shall not be ordered to pay costs incurred by any other party to the proceeding unless the first-mentioned party instituted the proceeding vexatiously or without reasonable cause.

(2)In subsection (1):

'costs' includes all legal and professional costs and disbursements and expenses of witnesses."

The argument put in the respondent's written submissions is that this proceeding was instituted "without reasonable cause"; therefore s.347(1) does not apply and, in dismissing the proceeding, the Court is empowered to order that the applicant pay the costs incurred by the respondent in connection with it. They acknowledge that a proceeding should not be regarded as having been instituted "without reasonable cause" simply because it proves unsuccessful and refer in that connection to what was said by Gibbs J in The Queen v Moore; ex parte Federated Miscellaneous Workers' Union of Australia (1978) 140 CLR 470 at 473. They also cite my words in Kanan v Australian Postal and Telecommunications Union (1992) 43 IR 257 at 264-265:

"It seems to me that one way of testing whether a proceeding is instituted 'without reasonable cause' is to ask whether, upon the facts apparent to the Applicant at the time of instituting the proceeding, there was no substantial prospect of success.  If success depends upon the resolution in the Applicant's favour of one or more arguable points of law, it is inappropriate to stigmatise the proceeding as being 'without reasonable cause'.  But where, on the Applicant's own version of the facts, it is clear that the proceeding must fail, it may properly be said that the proceeding lacked a reasonable cause."

I re-affirmed this statement in Foxcroft v The Ink Group Pty Limited (1994) 1 IRCR 215 at 219, saying that the application made in that case was "misconceived" and "hopeless" and so "instituted without reasonable cause".

The respondent's solicitors say that the same comments apply to this case. The definition of "independent contractor" is clear; the claim for relief under ss.127A and 127B was hopeless. They say that, having regard to this circumstance and the last minute nature of the application for interlocutory relief, the Court should not only order that the applicant pay their client's costs but such costs should be assessed on an indemnity basis. They quote extracts from some judgments relating to the circumstances in which indemnity costs should be ordered. In Fountain Selected Meats (Sales) Pty Limited v International Produce Merchants Pty Limited (1988) 81 ALR 397 at 401 Woodward J referred to the necessity for "some special or unusual feature in the case" and suggested this may be present:

"whenever it appears that an action has been commenced or continued in circumstances where the applicant, properly advised, should have known that he had no chance of success.  In such cases the action must be presumed to have been commenced or continued for some ulterior motive, or because of some wilful disregard of the known facts or the clearly established law."

French J approved this approach in J Corp Pty Limited v BLF (No.2) 46 IR 301 at 303, saying that indemnity costs may be ordered "whenever it appears that an action has been commenced in circumstances where the applicant properly advised should have known it had no chance of success". In Baillieu Knight Frank (NSW) Pty Limited v Ted Manny Real Estate Pty Limited (1992) 30 NSWLR 359 at 362, Powell J of the New South Wales Supreme Court took a more restricted view. He said that an indemnity costs order is justified only in abuse of process situations.

In their written submissions, the solicitors for the applicant accept the Kanan approach. But they argue that the application was not unreasonably instituted because it was arguable that the Court had jurisdiction to make the orders sought, either pursuant to s.127A or in exercise of the Court's associated jurisdiction.

The applicant's s.127A argument focuses on the fact that the dealership agreement between Fitzroy and Hyundai was guaranteed by two principals of Fitzroy, Kevin Lloyd Partridge and Robert John Partridge. Mr Kevin Partridge recently died but his son, Robert, survives and remains liable under the guarantee. By the guarantee document the guarantors:

"jointly and severally guarantee the due and punctual performance by Dealer of the respective conditions, provisions and agreements on its part contained in the Dealership Agreement ...  and subject to the terms and conditions thereof also agree with Distributor to be jointly and severally liable for and to indemnify and keep indemnified Distributor against all actions, claims, suits, demands and losses which Distributor may incur or be liable for as the result of any default, act or omission of Dealer under the terms of the Dealership Agreement ..."

On this basis it is argued that the guarantee constitutes a "contract" with the meaning of s.127A. The submission says:

"The acts necessary to be performed by virtue of the Guarantee are acts in the nature of acts performed in the control of the company being the Applicant herein.  They are acts performed and required to be performed in accordance with the Guarantee otherwise than as an employee and otherwise than as an agent.

...

All that is required for section 127A to be utilised is that there is a contract for services that is binding on an independent contractor (being a natural person), who performs work under the contract (not necessarily for the principal)."

The submission goes on to say that the contract between Fitzroy and Hyundai is caught by s.127A because the dealership agreement "is a collateral arrangement to the contract between the guarantor, Robert John Partridge and the Respondent herein". Anticipating an objection that the dealership agreement is the primary contract and the guarantee merely subordinate to it, the submission refers to something said by Mason CJ, Deane, Toohey, Gaudron and McHugh JJ in David Securities Pty Limited v Commonwealth Bank of Australia (1992) 175 CLR 353 at 364-365:

"In this case, however, the Bank argues that the notion of primacy is essential and that the mortgages given by the appellants as security for the loan were collateral to the loan rather than the other way around.  But the prefix 'co-' imports a sense of 'with' or 'in addition to', without any necessary concept of primacy or subordination.  The Shorter Oxford English Dictionary definition, '[s]ituated or running side by side, parallel', which was quoted with disapproval by counsel for the Bank in this Court, may well be inapplicable to contractual agreements when interpreted in a spatial sense, but is quite apposite if construed as meaning 'related to' or 'contributory'. ... Collateral contracts are so called not because they are subordinate or of lesser importance (although they may well be, depending on the facts of the case), but because they impinge upon and are related to another contract."

It is submitted that the contract between Fitzroy and Hyundai referred to in the Application "is a collateral arrangement or contract (i.e. related to) the contract between guarantor and Respondent which latter contract is a contract between a corporation and a natural person who is an independent contractor and required, under the terms of the contract, to perform work".  On this basis, it is said, the Court has jurisdiction to deal with the application; alternatively, it is not so clear that there is no jurisdiction as to make the institution of the proceeding unreasonable or vexatious.

The submission goes on to argue that, even if there is no jurisdiction to act under s.127A, the Court has jurisdiction under s.430 of the Act to grant the desired relief; the s.127A claim was not made colourably. Reference is made to Burgundy Royale Investments Pty Ltd v Westpac Banking Corporation (1987) 18 FCR 212 at 219 where the Full Court of the Federal Court held that the Federal Court's associated jurisdiction, under s.32 of the Federal Court of Australia Act 1976, was not lost simply because the primary claim was not maintainable. In that case the Court said that the position might have been different -

"if the claims under the [Trade Practices] Act had been 'colourable' in the sense that they were made for the improper purposes of 'fabricating' jurisdiction.  There is no room for such a suggestion here.  The applicants' case that the second and third respondents were bound by the Act cannot be said to be unarguable; and we think it was pursued bona fide".

There is a question as to the significance of the primary claim being unarguable.  In Ardino v Count Financial Group Pty Limited (1994) 1 IRCR 221 at 230, I said "Burgundy Royale indicates that, for the associated jurisdiction to arise, the federal claim must be bona fide and arguable".  Although it would have made no difference to the exercise of my discretion in that case, I now think this statement is inaccurate.  I think that the test adopted in Burgundy Royale was simply a test of genuineness; the primary claim must not be a sham claim for the purpose of fabricating a jurisdiction that would not otherwise exist.  If the claim was unarguable, this would tend to suggest that it was not being genuinely made and that the purpose of the claim was to fabricate jurisdiction.  On further reflection, I think that, in Burgundy Royale, the Full Court was merely saying that this was not the situation in that case; the applicant's Trade Practices Act claim was not unarguable and was made bona fide.  If there is only one test, it is at least theoretically possible for there to be a case where the primary claim is unarguable, but the applicant persuades the Court that the claim was not fabricated.  In such a case, the Court will not lack jurisdiction to determine the associated claim.

In the present case, the associated claims are within jurisdiction. There is no question of the applicant having fabricated jurisdiction or lacking good faith and they apparently arise out of the same substratum of fact. The primary claim was brought for the purpose of obtaining relief under ss.127A and 127B but without advertence to the existence and effect of s.4(1A).

Although it does not really matter whether the primary claim is unarguable, I do not think it is.  In the absence of the written submissions, I would have described the primary claim as unarguable.  But the submissions demonstrate that this description would be inappropriate.  There are difficulties about the argument they contain.  Chiefly, I doubt whether it is appropriate to describe the performance of obligations under a guarantee as "the performance of work" by the guarantor.  In the present case, the guarantors undertook to "guarantee the due and punctual performance" by Fitzroy of its obligations and to indemnify Hyundai against losses sustained as a result of any breach of the dealership agreement by Fitzroy.  Performance of an obligation to indemnify cannot accurately be described as a "performance of work" by the indemnifier.  Perhaps the promise to "guarantee the due and punctual performance" by Fitzroy of its obligations means more than to indemnify; but, if so, no more than to cause Fitzroy to perform its obligations.  It is difficult to describe this as "the performance of work".  However, the contrary proposition is arguable.

The conclusion that the s.127A claim is arguable is relevant to the question whether the proceeding was instituted "without reasonable cause". As I said in Kanan, "(i)f success depends upon the resolution in the applicant's favour of one or more arguable points of law, it is inappropriate to stigmatise the proceeding as being 'without reasonable cause'".

I think the appropriate conclusion in the present case is that the proceeding was not instituted without reasonable cause. Consequently, s.347 applies. No costs order may be made. I add that, if I had reached the contrary opinion, I would not have ordered costs on an indemnity basis. Having regard to the history of the matter, this is not a case where it could be presumed that the action was commenced for some ulterior motive or because of a wilful (as distinct from inadvertent) disregard of known facts or established law.

The only order of the Court will be that the proceeding be dismissed.

I certify that this and the preceding eleven (11) pages
are a true copy of the Reasons for Judgment of the
Honourable Chief Justice Wilcox.

Associate:

Dated:     1 December 1995

APPEARANCES

Counsel for the Applicant:     S Rothman

Solicitors for the Applicant:       Clayton Utz

Counsel for the Respondent:         J L Trew QC and J P Phillips

Solicitors for the Respondent:  Garden & Montgomerie

Date for hearing:                   21, 28 September 1995