Guy Forsyth as trustee for Endure Trust Trading as Alignity Consulting v Finite Group APAC Pty Ltd ACN 085 406 300 Trading as Finite Recruitment (Appeal)
[2022] ACAT 42
•25 May 2022
ACT CIVIL & ADMINISTRATIVE TRIBUNAL
GUY FORSYTH AS TRUSTEE FOR ENDURE TRUST TRADING AS ALIGNITY CONSULTING v FINITE GROUP APAC PTY LTD ACN 085 406 300 TRADING AS FINITE RECRUITMENT (Appeal) [2022] ACAT 42
AA 21/2021 (XD 589/2020)
Catchwords: APPEAL – contract for services – interpretation of special condition – right to terminate on the basis that services no longer required – termination for convenience – privity of contract principles – obligation of good faith – whether evidence of lack of good faith – whether unfair term – whether small business contract – whether significant imbalance – whether term reasonably necessary – whether term would cause detriment – whether term transparent – whether even if a breach there was proof of damages
Legislation cited: ACT Civil and Administrative Tribunal Act 2008 ss 7, 18, 79, 82
Australian Consumer Law (ACT) ss 23, 24, 25, 27
Competition and Consumer Act 2010 (Cth) s 139G
Fair Trading (Australian Consumer Law) Act 1992
Cases cited:Australian Competition and Consumer Commission v CLA Trading Pty Ltd [2016] FCA 377
Codelfa Construction Pty Ltd v State Rail Authority of NSW [1982] HCA 24
Commonwealth v Amann Aviation Pty Ltd [1991] HCA 54
Fair Work Ombudsman v Ramsey Food Processing Pty Ltd [2011] FCA 1176
Guy Forsyth as Trustee for Endure Trust Trading as Alignity Consulting ABN 51 100 486 105 v Canberra Consulting Pty Ltd ACN 139 224 436 [2019] ACAT 73
Guy Forsyth Trustee Endure Trust Trading as Alignity Consulting ABN 51 100 486 105 v Canberra Consulting Pty Ltd ACN 139 224 436 [2020] ACAT 29
Giusida Pty Limited v Commissioner for ACT Revenue [2016] ACTSC 275
House v King [1936] HCA 40
Schuler A.G. v. Wickman Machine Tool Sales Ltd. [1973] UKHL 2Mobile Innovations Ltd v Vodaphone Pacific Ltd [2003] NSWSC 683
Trident General Insurance Co. Ltd v McNiece Bros Pty Ltd [1998] HCA 44
List of
Texts/Papers cited: Anthony Mason, ‘Contract, good faith and equitable standards in fair dealings’ (2000) 116 Law Quarterly Review 69
J W Carter, Carter’s Guide to Australian Contract Law (LexisNexis Butterworths, 3rd ed, 2016)
Concise Australian Legal Dictionary (LexisNexis Australia, 4th edition, 2011)
Tribunal:Acting Presidential Member R Orr QC
Date of Orders: 25 May 2022
Date of Reasons for Decision: 25 May 2022
AUSTRALIAN CAPITAL TERRITORY )
CIVIL & ADMINISTRATIVE TRIBUNAL ) AA 21/2021
BETWEEN:
GUY FORSYTH AS TRUSTEE FOR ENDURE TRUST TRADING AS ALIGNITY CONSULTING
Appellant
AND:
FINITE GROUP APAC PTY LTD ACN 085 406 300 TRADING AS FINITE RECRUITMENT
Respondent
APPEAL TRIBUNAL: Acting Presidential Member R Orr QC
DATE:25 May 2022
ORDER
The Tribunal orders that:
The appeal be dismissed.
………………………………..
Acting Presidential Member R Orr QC
REASONS FOR DECISION
These proceedings concern a contract between Guy Forsyth (Dr Forsyth or consultant) as trustee for Endure Trust trading as Alignity Consulting (Alignity, applicant, appellant or contractor) and Finite Group APAC Pty Ltd ACN 085 406 300 trading as Finite Recruitment (Finite, respondent or company) for the provision of services by Dr Forsyth of Alignity to IBM Australia Pty Ltd (IBM or client) (Finite/Alignity contract)). There was also a contract between IBM and Finite (IBM/Finite contract). Finite purported to give notice to terminate the agreement with Alignity when IBM indicated it no longer needed the services and gave notice to terminate its contract with Finite. In a Civil Dispute Application dated 15 May 2020 (Application) Alignity challenged the termination by Finite of its contract with Alignity.
By a decision dated 17 March 2021 the original Tribunal constituted by Senior Member Ferguson rejected the Application (Original Tribunal decision), and provided oral reasons.[1]
[1] Transcript of proceedings 17 March 2021
This is an appeal from the Original Tribunal decision by Alignity.
Summary of this decision
The contract between Finite and Alignity included a special condition 1, which in part stated “the Client will provide 10 business days’ advance notice, and the Company will provide that notice to the [Contractor], to terminate for convenience during the Contract Period.” The Original Tribunal held that this allowed Finite to terminate its contract with Alignity where IBM terminated its contract with Finite. The appellant argued in summary that this clause allowed IBM to terminate the contract between Finite and Alignity, and the special condition was not operative because it breached privity of contract principles.
I agree that special condition 1 is not easy to understand. But I think that the Original Tribunal was correct and that the special condition meant that if IBM gave notice to terminate its contract with Finite, then Finite could in turn give notice to terminate its contract with Alignity, which is what Finite did. There is no basis for thinking such a clause breaches ‘privity of contract principles’ and is inoperative on this basis. The relevant contract was between Finite and Alignity, and Finite as a party to that contract terminated it. It is true that it did so because of IBM’s termination of its contract with Finite, but this did not make, or require, IBM to be a party to the Finite/Alignity contract. It was simply an event which gave Finite a right to terminate its contract with Alignity.
Alignity also argued that Finite was required to act in good faith in relation to the termination. The Original Tribunal queried whether Finite was required to act in good faith. Even if there was such an obligation, I do not think that the termination was in breach of any obligation to act in good faith.
Alignity also argued that special condition 1 was unfair under the terms of sections 23 and 24 of the Australian Consumer Law (ACT)[2] and therefore void, and could not be relied upon by Finite to terminate its contract with Alignity. I think that the contract between Finite and Alignity was a small business contract and a standard form contract, that special condition 1 was not reasonably necessary (section 24(1)(b)), would cause detriment to Alignity (section 24(1)(c)) and was not particularly transparent (section 24(2)). However, I do not think the term would cause a significant imbalance in the parties’ rights and obligations (section 24(1)(a)), and was not therefore void as an unfair term.
[2] The Fair Trading (Australian Consumer Law) Act 1992 applies the Australian Consumer Law set out in the Competition and Consumer Act 2010 (Cth), schedule 2 (including any regulation under that Act, section 139G) as if it were an ACT Law called the Australian Consumer Law (ACT)
However, I note that even if special condition 1 did not operate to allow termination by Finite, or the contract was not properly terminated, or special condition 1 was unfair and void, there was no basis or evidence for finding that Alignity was entitled to any further payment or damages from Finite.
The claim and Original Tribunal hearing
By the Application Alignity made a claim for $25,000 against Finite. Finite responded to the Application by a Response – Civil Dispute dated 24 September 2020 (Response) which denied the claim.
There were a number of Applications for interim orders before the substantive hearing, but these were dismissed on 16 December 2020 and 9 February 2021.
The proceedings were heard on 12 February 2021 (Original Tribunal hearing).
In the Original Tribunal hearing Alignity relied on an amended statement by Guy Forsyth filed on 13 January 2021 (statement of Guy Forsyth). Dr Forsyth gave oral evidence and was cross-examined on this statement.[3] There was some discussion in the Original Tribunal hearing in relation to the contract between IBM and Finite, and reference to a page of that contract, which was apparently produced on subpoena. That page was before the Original Tribunal.[4] It is also attached to the Appellant’s submissions in these proceedings and I refer to it as such in these reasons. Alignity made oral submission in the hearing on 12 February 2021.[5]
[3] Transcript of proceedings 12 February 2021 pages 41-66
[4] Transcript of proceedings 12 February 2021 pages 21-25 and 73-74
[5] Transcript of proceedings 12 February 2021 pages 88-97
Finite relied on a statement by Graham Eather filed on 5 February 2021 (statement of Graham Eather). Mr Eather gave oral evidence and was cross-examined.[6] There was some discussion at the hearing about annexure GE1 received by the Tribunal on 12 February 2021 but it was clear from the transcript that this formed part of the evidence before the Original Tribunal.[7] Finite made oral submissions in the hearing on 12 February 2021.[8]
Background to the dispute
[6] Transcript of proceedings 12 February 2021 pages 68-86
[7] Transcript of proceedings 12 February 2021 page 77
[8] Transcript of proceedings 12 February 2021 pages 97-110; this document was called exhibit R1
The background to this dispute was in summary as follows. Alignity was sent a draft contract by Finite on 6 May 2019 to provide services to IBM from 7 May 2019 to 28 March 2020. Alignity signed and returned the contract on that day.[9]
[9] Statement of Guy Forsyth at [11]-[12]; statement of Graham Eather at [6]
The contract was what is sometimes called a ‘labour hire’ arrangement.[10] It provided that the Company was Finite, the Contractor Alignity, the Consultant Guy Forsyth and the Client IBM; no other client is referred to.[11] In clause 1.1(a) it was agreed that the Consultant will perform services requested by the Client/Company from time to time. There was a special condition 1 which stated:
Notwithstanding the provisions of clause 6 of the Conditions of Contract, the Client will provide 10 business days’ advance notice and the Company will provide that notice to the [Contractor], to terminate for convenience during the Contract Period. No notice period is required where there are issues with performance, conduct or attendance (as determined by the Client in its absolute discretion).
[10] Fair Work Ombudsman v Ramsey Food Processing Pty Ltd [2011] FCA 1176 at [61]
[11] Statement of Guy Forsyth, attachment F
Clause 6 is in Finite’s standard terms for provision of consultant’s services. Finite agrees that the last page of these terms which included clause 6 was missing at the time Alignity signed the contract and was only subsequently provided to it.[12] I note that clause 6.3 does state that:
The Company may terminate this Agreement at any time … without notice or payment of compensation to the Contractor or the Consultant, if:
…
(c) the Client no longer wants the Consultant to perform the Services;
(d) the Client no longer requires anyone from the Company to perform the Services …[13]
[12] Statement of Graham Eather at [15]
[13] Statement of Graham Eather, annexure GE5
There are other special conditions. Special condition 2 provides: “If the [Contractor] fails to complete the Contract Period (and has no right of early termination under clause 6 of the Conditions of Contract)” Finite may “withhold payment of the Fees relating to the Services provided in the 10 business days prior to termination”.[14]
[14] Statement of Guy Forsyth, attachment F
There was also a contract between IBM and Finite in relation to this work. Unfortunately the Tribunal was not provided with a full copy of this contract. Alignity provided a copy of a page that was said to be part of this contract and which provided in clause 9.1 that IBM may terminate the provision of and/or request for services at any time by the giving of 10 working days’ written notice.[15]
[15] Transcript of proceedings 12 February 2021 pages 24 and 74; Appellant’s submissions, attachment headed ‘IT Supplier Agreement’
On 7 May 2019 Alignity began providing services.
On about 26 June 2019 the client, IBM, informed Alignity that they were terminating their agreement, and on 27 June 2019 told Finite.[16] On 27 June 2019 Finite advised Alignity by email that their contract was being terminated. The email stated:
We have been informed by Peter McBride at IBM Australia that they wish to terminate the contract for your Project Management services providing 10 Working Days’ notice. I have attached a Termination Letter to this effect. Your last day will be the 11th July 2019.
[16] Statement of Guy Forsyth, annexure H; statement of Graham Eather, attachment GE1
The attached letter to the email was from Graham Eather of Finite to Guy Forsyth of Alignity and stated:
This letter is to confirm today that your contract with Finite Group APAC Pty Limited dated 6th May 2019 to provide Project Management services to IBM Australia Ltd has been terminated.[17]
[17] Statement of Graham Eather at [9]-[10] and annexures GE1 and GE2; statement of Guy Forsyth at [16] and [18] and annexure H
The evidence of Mr Eather of Finite was that IBM terminated the IBM/Finite contract and then Finite terminated the Finite/Alignity contract.[18] He sent a further email to Dr Forsyth on 27 June 2019 confirming this which stated: “As IBM Australia has provided 10 Working Days’ notice under the ‘Terminate for Convenience’ clause in our agreement, we are exercising the same, noted under Special Conditions 1.”[19]
[18] Transcript of proceedings 12 February 2021 pages 78-80
[19] Statement of Guy Forsyth, attachment J
On 5 July 2019 Peter McBride of IBM told Graham Eather of Finite that IBM no longer required Dr Forsyth’s services nor wanted him on site.[20] IBM also told Alignity that they had secured an internal employee to for the services. [21] On 5 July 2019 Finite advised Alignity that they were terminating the contract effective immediately and that they would “communicate specific reasons for the immediate termination of this contract as soon as we receive the detail from IBM Australia”.[22] Apparently no such grounds have ever been provided.
[20] Statement of Graham Eather at [11]
[21] Statement of Guy Forsyth at [21]
[22] Statement of Guy Forsyth at [22] and attachment O
It seems agreed that Alignity was paid for the 10 day notice period referred to in special condition 1. In the proceedings Alignity sought payment by Finite for the whole of the balance of the period provided for in the contract, that is up until March 2020, but only for an amount within the jurisdictional limits of the tribunal, namely $25,000.
Original Tribunal decision
The Original Tribunal gave her decision on 17 March 2021. The Original Tribunal held in relation to special condition 1:
The reference to termination for convenience in special condition 1 is a little confusing. It’s not clear who may terminate and which contract for convenience; is it the client terminating its contract with the respondents for convenience or is it the respondent terminating its contract with the contractor for convenience?
Dr Forsyth argued that special condition 1 purported to permit the respondent to terminate for convenience, or in other words, without cause. Mr Mossman argued that the respondent could only terminate for the specified reason given in that clause; that is, that its client had given it notice pursuant to the clause. I was satisfied that if the clause is read in its entirety, its natural construction is, as Mr Mossman argued, that it does not entitle the company to terminate its contract for convenience with the contractor. It can only do so on the occurrence of a specified event, that being that its client terminates its contract for convenience with the company upon giving ten days’ notice.[23]
[23] Transcript of proceedings 17 March 2021 page 4
The Original Tribunal relied on the decision of Presidential Member G McCarthy in Guy Forsyth as Trustee for Endure Trust trading as Alignity Consulting v Canberra Consulting Pty Ltd[24] (Canberra Consulting original decision) and on appeal[25] (Canberra Consulting appeal decision). The Original Tribunal stated:
Presidential [Member] McCarthy found there was no settled legal principle that a unilateral right to terminate in a contract was unfair and he also found there was no settled legal principle or doctrine that required a party to contract in good faith. He further noted that in any event, the relevant clause in Canberra Contracting’s contract did not permit it to terminate without cause. It only arose in the event of a termination of the contractor’s assignment with its client, as in this case. So where the client tells the labour hire company that it no longer requires the services of that contractor.[26]
[24] [2019] ACAT 73
[25] [2020] ACAT 29
[26] Transcript of proceedings 17 March 2021 page 5
The Original Tribunal held that the client, IBM, did not direct the respondent, Finite, to terminate the contract with Alignity, IBM simply gave Finite notice that IBM did not require Dr Forsyth’s services any longer, and it was that event which enabled Finite to terminate its contract with Alignity.
The Original Tribunal addressed the argument by Alignity that the notice provided was rendered ineffective because before it had run its course the client conveyed it no longer wanted Alignity on site, and said:
… even if I were to accept that the respondent’s client’s refusal to allow Dr Forsyth back on the premises to work out the notice period somehow negated the notice already given by the respondent to the applicant, which I don’t accept that argument, but even if I did, Dr Forsyth would still not be entitled to be compensated because he was paid for the entire notice period and so suffered no compensable loss.[27]
[27] Transcript of proceedings 17 March 2021 page 6
Alignity also argued that special condition 1 was unfair under the Australian Consumer Law (ACT). Section 23 of the Australian Consumer Law (ACT) provides that a term of a consumer contract or small business contract is void if the term is unfair and the contract is a standard form contract. Section 24 then provides:
24 Meaning of unfair
(1)A term of a consumer contract or small business contract is unfair if:
(a)it would cause a significant imbalance in the parties’ rights and obligations arising under the contract [imbalance requirement]; and
(b)it is not reasonably necessary in order to protect the legitimate interests of the party who would be advantaged by the term [not reasonably necessary requirement]; and
(c)it would cause detriment (whether financial or otherwise) to a party if it were to be applied or relied on [detriment requirement].
The Original Tribunal stated that she did not need to determine whether the contract was a standard form contract. The Original Tribunal found that in relation to the first criteria in section 24(1)(a) (the imbalance requirement) that special condition 1 was not unfair because it did not give the respondent a unilateral right to terminate. The right was dependent on a specified event, namely the client giving notice of its wish to terminate the assignment. This termination impacted on both Finite and Alignity, though the Original Tribunal accepted it probably had a more severe impact on Dr Forsyth.[28]
[28] Transcript of proceedings 17 March 2021 page 6
As to the second criteria in section 24(1)(b) (the not reasonably necessary requirement), the Original Tribunal found that the clause was reasonably necessary to protect the legitimate rights of the respondent for similar reasons as in the Canberra Consulting original decision.[29]
[29] Transcript of proceedings 17 March 2021 page 6
Because all the paragraphs of section 24(1) need to be met, the Original Tribunal held that special condition 1 therefore was not unfair, and that she did not need to determine whether it was a standard form contract.[30] The Application was therefore dismissed.
Appeal
[30] Transcript of proceedings 17 March 2021 page 6
Alignity now appeals the decision of the Original Tribunal. There are two grounds of appeal set out in the Application for Appeal. In summary, first that the Original Tribunal did not read special condition 1 properly, and second did not apply section 24 of the Australian Consumer Law (ACT) properly.[31] The appellant has provided revised written submissions filed on 7 May 2021, with a number of attachments (Appellant’s appeal submissions), and also provided a bundle of cases (Appellant’s cases). The respondent provided submissions filed on 1 June 2021 (Respondent’s appeal submissions). The appellant also provided a reply filed on 4 June 2021 (Appellant’s appeal reply submissions). The appeal was considered on the papers.
[31] Application for appeal at [4]
The appeal was dealt with as a review under section 82(b) of the ACT Civil and Administrative Tribunal Act 2008 (ACAT Act). On that basis, the appellant, Alignity, needs to establish an error of fact or law in the Original Tribunal’s decision in order to succeed.[32]
[32] ACAT Act section 79(3)
The respondent argued that there needed to be a manifest error.[33] The appellant seemed to agree. [34] I do not think this is correct, as discussed by Justice Refshauge in Giusida Pty Limited v Commissioner of ACT Revenue.[35] There needs only to be a material error of law or fact. The respondent also argued that discretionary decisions were involved in this matter and that cases such as House v King[36] were therefore relevant. Again I do not think this is correct. The issues involved in this case are matters of fact and law; there are no discretionary decisions involved and therefore the decision in House v King is not directly relevant.
What does special condition 1 mean?
[33] Respondent’s appeal submissions at [2]
[34] Appellant’s appeal reply submissions at [1]
[35] [2016] ACTSC 274 at [32]-[38]
[36] [1936] HCA 40
The first ground of appeal is that: “In relation to the interpretation of Special condition 1 the Member has erred at law in the failure to correctly apply the construction of the condition in accordance with precedent on the interpretation of a contract term”.[37] The relevance of this arises because of Alignity’s argument that: “… Special Condition 1 was giving the Client the right to terminate the contract for convenience, which it acted upon, and was relied upon by Finite. Given that the Client is not a party to the contract between Finite and Alignity then the termination is inapplicable as the Doctrine of Privity of contract applies, the termination is therefore invalid. Damages for invalid termination follow”.[38]
[37] Application for appeal at [4(a)]
[38] Appellant’s appeal submissions at [42]
The Original Tribunal stated that the special condition 1 “is a little confusing”. I agree.
In my view the Original Tribunal interpreted it as meaning that:
(a)[if] the Client [IBM] provides 10 business days advance notice [to Finite] [of termination for convenience of their contract], and
(b)the Company [Finite] provides that notice [that is, 10 business days] to the Contractor [Alignity], then
(c)[Finite Group can] terminate [its contract] with [Alignity] during the contract period.
That is in summary the Original Tribunal found that if IBM gives 10 days’ notice of its termination for convenience of its contract with Finite, then Finite can give 10 days’ notice of its termination of its contract with Alignity.
I am not sure how different this interpretation is from that of the appellant; their main argument is as to the effect of this interpretation. Before looking at the appellant’s arguments on appeal, I make a few comments about the general principles of interpreting contracts and this clause.
Contract interpretation principles
Construction of a contract is an objective process which has regard to the ordinary meaning of the terms used. The contract is considered as a whole, and difficulties resolved by giving a ‘commercial construction’, to obtain a reasonable result. Regard can be had to the context of the contract, including the general commercial background and genesis of the contract. Subsequent conduct cannot be used to interpret the contract.[39]
[39] J W Carter, Carter’s Guide to Australian Contract Law (LexisNexis Butterworths, 3rd ed, 2016) at [10-05], [10-07], [10-23]-[10-25], [10-31]
In relation to special condition 1, this begins with “Notwithstanding the provisions of clause 6 …” which refers expressly to clause 6 which is set out in part in paragraph [16] above. The version of contract which Alignity signed did not have a clause 6. It seems that Alignity were only provided with that later. It is argued that therefore clause 6 is not part of the Finite/Alignity contract. I do not need to decide this, but I note it seems it was not provided to Alignity by inadvertence, that its existence was made clear in the terms which were provided to Alignity, and that Alignity could have asked for it at any stage, including before the contract was signed, but did not do so. At any rate in my view clause 6 is at least part of the context of the contract and can be used to interpret it. As noted clause 6 provides that Finite may terminate this agreement at any time without notice or payment of compensation to Alignity or Dr Forsyth if: “…(c) the Client no longer wants the Consultant to perform the services;” or “(d) the Client no longer requires anyone from the Company to perform the Services …”. The terms of clause 6, and the introductory words to special condition 1, suggest the special condition is doing a similar thing to clause 6.3, that is providing for Finite to terminate its agreement with Alignity in light of the views of IBM. The interpretation of special condition 1 set out above at paragraphs [38]-[39] does just that. Further, this interpretation of special condition 1 is more beneficial to Alignity than clause 6.3, which provides for termination without notice or compensation, and this suggests a reason for the term ‘notwithstanding’ at the commencement of special condition 1.
Further in my view the interpretation at paragraphs [38]-[39] provides a ‘commercial construction’ to obtain a reasonable result within the context of the arrangements entered into. It recognises that under the Finite/Alignity contract, Alignity is providing Dr Forsyth to IBM under the IBM/Finite contract. If IBM no longer wants those services then a commercial construction to obtain a reasonable result would suggest that Finite can adjust, indeed terminate, its relationship with Alignity.
Appellant’s arguments as to construction of the contract
The appellant argues first that IBM had no right to terminate for convenience, and refers to Appendix E,[40] which appears to be a reference to the document entitled IT Contracting Supplier Agreement between IBM Australia Limited and Finite Group APAC Pty Ltd referred to at paragraph [12] above. The portion includes a provision which states:
9 Termination of Services
9.1IBMA may terminate the provision of and/or request for Services pursuant to a Work Specification and Confirmation at any time by the giving of 10 working days’ written notice to the Supplier.
[40] Appellant’s appeal submissions at [24]
This is what is generally referred to as a ‘termination for convenience’ clause. In its terms it allows IBM to terminate for any reason, and without the need for any breach by Finite, or any failure in performance by Dr Forsyth or Alignity, or by anyone else. It is true that the clause requires 10 working days’ notice, but this does not prevent it being a termination for convenience clause. It merely provides for notice, or in the absence of notice payment of compensation in an amount for 10 days’ work. If this is what Alignity is referring to when it says that IBM had no right to terminate for convenience the IBM/Finite contract, its submissions are incorrect. If this is not what Alignity is referring to, then it has not provided any factual basis for its submission that IBM had no right to terminate for convenience its agreement with Finite, and I cannot accept that submission without any evidence to support it.
It may be that the appellant is merely saying that IBM did not have a right to terminate the contract between Finite and Alignity. The phrase used in the submissions is “no specific termination for convenience clause over the sub-contractor” which seems to mean Alignity. This is correct, and accepted, at least impliedly, by Finite and the Original Tribunal. It is also accepted by this Appeal Tribunal. But I do not see how the IBM/Finite contract could itself give Finite a right to terminate the Finite/Alignity contract. This needs to be provided in the Finite/Alignity contract, which is what Finite argued and the Original Tribunal accepted special condition 1 was doing.
It is then said by the appellant that the position of who can terminate for convenience is unclear.[41] Certainly the meaning of special condition 1 is unclear. The finding of the Original Tribunal is that IBM could terminate its contract with Finite for convenience. This seems to be correct. The interpretation of special condition 1 was not what is generally known as a termination for convenience clause; under it Finite could terminate its contract with Alignity only on the basis of a specific action by IBM.
[41] Appellant’s appeal submissions at [24], [26]
The appellant relied on the decision of the High Court in Codelfa Construction Pty Ltd v State Rail Authority of NSW[42] (Codelfa) which it was said held that “it is not for the court [or tribunal] to ascertain the intentions of the parties, but to look at the actual wording of the contract”. In my view this is what the Original Tribunal did. The appellant in this appeal submissions states several times that the Tribunal should look at the legal advice of counsel for Finite, the evidence of the client and the evidence of the company, and their actions;[43] but this is what Codelfa is saying that a court or tribunal should not do. I cannot see any place where the Original Tribunal relied on the subjective views or intentions of the parties rather than the terms of the contract. I am not sure therefore what the relevance of Codelfa is.
[42] [1982] HCA 24. The appellant suggested they are quoting from Codelfa in the Appellant’s appeal submissions at [28]. This does not seem to be correct. The quote seems rather to be from Dr Forsyth himself in his oral submissions to the Original Tribunal hearing on 12 February 2021 at page 89, providing what is said to be a summary of the case. I do acknowledge that there are some related statements in Codelfa, for example Justice Mason at [12] stated: “It has frequently been acknowledged that there is more to the construction of the words of written instruments than merely assigning to them their plain and ordinary meaning … This has led to a recognition that evidence of surrounding circumstances is admissible in aid of the construction of a contract. So Lord Wilberforce in L. Schuler A.G. v. Wickman Machine Tool Sales Ltd. [1973] UKHL 2; (1974) AC 235, at page 261 was able to state the broad thrust of the rule in this way: “The general rule is that extrinsic evidence is not admissible for the construction of a written contract; the parties’ intentions must be ascertained, on legal principles of construction, from the words they have used. It is one and the same principle which excludes evidence of statements, or actions, during negotiations, at the time of the contract, or subsequent to the contract, any of which to the lay mind might at first sight seem to be proper to receive.” His Lordship noted that evidence of surrounding circumstances is an exception to the rule, but he had no occasion to discuss its scope for there it was not, as it is here, a critical question. (at p348)”.
[43] See for example Appellant’s appeal submissions at [41]
The appellant then states:
The normal meaning of the actual wording of the contract … is that the Client provides the “10 business days advance notice”, the Company (Finite) merely acts as a pass through mechanism of that notice to the Contractor to allow the Client to terminate for convenience … It is the Client that is terminating for convenience under this construction. If the condition was giving the Company an unfettered right to terminate for convenience… [it would have used other words].[44]
Subject to the use of the words ‘pass through mechanism’, these submissions seem to be agreeing with the decision of the Original Tribunal, which was that if the client terminated for convenience the IBM/Finite contract Finite could terminate its contract with Alignity on the basis of that act.
[44] Appellant’s appeal submissions at [29]
The appellant goes on and states in what seems to be the conclusion on this issue:
… Special Condition 1 was giving the Client the right to terminate the contract for convenience, which it acted upon, and was relied upon by Finite. Given that the Client is not a party to the contract between Finite and Alignity then the termination is inapplicable as the Doctrine of Privity of contract applies. The termination is therefore invalid” [45]
This is similar to the position taken in the Application that:
Special Condition 1 … Gives the Client a right to terminate the contract between the the [sic] Company and the Contractor and so is in breach of the Doctrine of Privity of Contract.[46]
[45] Appellant’s appeal submissions at [42]
[46] Application, grounds, paragraph [6(a)]
It is necessary to say something about privity of contract. This is the tenet of contract law that only parties to a contract are bound by it and entitled to enforce it; the rule prevents contractual burdens being imposed on persons who are not party to the contract.[47] The contract between Finite and Alignity only binds Finite and Alignity, and only they can enforce it, and the contract cannot impose obligations on others. But it is clear in my view that the Finite/Alignity contract does not seek to bind IBM nor impose burdens on it.
[47] J W Carter, n 39 above, at [13-01]; Trident General Insurance Co. Ltd v McNiece Bros Pty Ltd [1998] HCA 44, 165 CLR 107; Concise Australian Law Legal Dictionary (LexisNexis Australia, 4th edition, 2011)
The appellant argues that special condition 1 itself gave IBM the right to terminate Alignity’s contract with Finite. For the reasons given above I do not think that that is correct. There is no basis for reading special condition 1 as giving that right to IBM. The evidence before the Tribunal is that IBM had a right to terminate its contact with Finite for convenience in clause 9 of the IBM/Finite contract.
Rather what special condition 1 is doing is providing that if IBM exercises its right to terminate its contract with Finite, in turn Finite can terminate its contract with Alignity. This is a right which special condition 1 gives to Finite under its contract with Alignity.
It is true that it is a right which arises from the actions of a person who is not a party to the contract, that is IBM. But this happens often in contracts and is not inconsistent with privity of contract. For example a clause could have said if Australia declares war, Finite may terminate the contract with Alignity. This does not need Australia to be a party to the contract for Finite to exercise its rights when the event occurs. Further a clause could have said that in a dispute an arbitrator can determine whether Finite can terminate the contract with Alignity; this does not need the arbitrator to be a party to the contract for Finite to terminate the contract in a way the arbitrator allows. Many other examples can be given where the actions of a third party give a party to a contract rights under that contract, such as actions by agents, attorneys, mortgagees, other lenders, related entities, directors, managers etc.
That is I do not agree with what the appellant seems to be saying that special condition 1 gave IBM the right to terminate the contract between Finite and Alignity. Rather I think the Original Tribunal was correct in finding that special condition 1 provides, admittedly somewhat clumsily, that if IBM gives 10 days’ notice of its termination for convenience of the IBM/Finite contract, then Finite can give 10 days’ notice of its termination of the Finite/Alignity contract. This is what the letter set out in paragraph [21]-[22] above from Finite did.
In summary, in my view the interpretation of the Finite/Alignity contract in paragraphs [38]-[39] above is correct, and this allowed Finite to terminate the Finite/Alignity contract in this case. This ground of appeal is not made out.
Was the termination under special condition 1 in good faith?
The appellant also argues in its submissions that even if Finite could terminate the contract, it did not do so validly. This issue was not raised in the appellant’s Application for appeal,[48] but as it has been raised in submissions, I will deal with it.
[48] Application for appeal at [4]
As noted above at paragraph [26], the Original Tribunal seems to have found that there was no settled legal principle that a unilateral right to terminate in a contract was unfair, nor that required a party to contract in good faith.
The appellant argues that “…there is a requirement under the law to act in good faith when exercising a right to terminate for convenience”[49] [emphasis in original].
[49] Appellant’s appeal submissions at [49]
First, as the Original Tribunal found, the termination by Finite was not under a termination for convenience clause. Finite terminated the contract with Alignity because IBM terminated its contract with Finite. This was not done under a clause to terminate for any reason. This is application of a clause which allows for termination in a specific circumstance.
Second, the appellant seems to take a very broad view of what any principle of good faith requires. Generally, even if there is an obligation of good faith it means “honesty and respect for the transaction as a matter of substance rather than mere form … [for example] in order to encourage the performance of contracts, a party cannot avoid contractual responsibilities on the basis of a minor breach by the other party;” generally the rules and principles of contract law give effect to these ideals.[50] The appellant quotes some similar definitions of good faith, which also refer to behaving honestly, enabling the contract, co-operating to achieve contractual objectives, honest standards, reasonable conduct.[51] But in its specific submissions the appellant refers to conduct well short of dishonesty, not co-operating to achieve the contractual objectives and unreasonableness. A problem for the appellant is that any good faith requirement involves good faith in performance of the terms of the contract agreed by the parties, and in this case those terms include special condition 1.
[50] J W Carter, n 39, at [1-20]
[51] Appellant’s appeal submissions at [57]; Mobile Innovations Ltd v Vodaphone Pacific Ltd [2003] NSWSC 683; Anthony Mason, ‘Contract, good faith and equitable standards in fair dealings’ (2000) 116 Law Quarterly Review 69
Even if there was a requirement for Finite to act in good faith when exercising a right to terminate, there was no evidence of bad faith here. The appellant sets out a number of alleged acts of bad faith in paragraph [55] of the Appellant’s appeal submissions. Even accepting these acts, they do not provide a basis for finding of bad faith in relation to Finite’s termination of the contract. None of these relate to the act of termination on 27 June 2019. They all relate to subsequent conversations. Whatever the merit of those conversations, which I agree were certainly confused, they do not show bad faith in relation to the termination.
The email of 3 July 2019 sets out clause 6.3 of the contract. Whether or not clause 6 is part of the contract, it cannot be bad faith to refer to it. But the email goes on to note special condition 1 in some detail and stated, correctly: “Special Condition 1 gives you the added protection of 10 days’ notice …”. There may be some misreading of the contract, but nothing in this correspondence shows bad faith in relation to the termination.[52]
[52] Statement of Guy Forsyth, annexure L
The email of 5 July 2019 is also a little confused. But it does clearly confirm termination. It does say that Finite will terminate its contract with Alignity immediately, following on from its notice to do so on 27 June 2019 and indicates that there is no requirement for Dr Forsyth to be on site. It does state that Finite will communicate specific reasons “as soon as we receive the detail from IBM Australia”. There is no evidence that detail was ever provided.[53] This document also provides no basis for suggesting there was bad faith in relation to the termination on 27 May 2019.
[53] Statement of Guy Forsyth, annexure O
The appellant also suggests that “Finite took no action and made no inquiries of IBM”[54] and should have done so and perhaps mediated issues. These are suggestions closer to the termination event, though there is a lack of evidence about them. At any rate, even at its highest I do not think any obligation of good faith noted above requires this.
[54] Appellant’s appeal submissions at [59]
The evidence is, as set out in the correspondence, that Finite terminated the contract with Alignity because IBM no longer wanted Dr Forsyth, and had terminated its contract with Finite. Rather than an exercise of bad faith and capriciousness, the termination by Finite was a rational and reasonable response to events. None of the cases cited by Alignity suggest otherwise.
As to whether the termination by IBM of the IBM/Finite contract was in bad faith, I am not sure that that is relevant to these proceedings. IBM is, as the appellant notes repeatedly, not a party to the Finite/Alignity contract. Further Alignity does not bring these proceedings against IBM, and IBM is not otherwise a party to the proceedings. In these circumstances it is difficult for the tribunal to decide if IBM acted in bad faith. At any rate, although I do not in any way determine this, I note that the termination by IBM of the IBM/Finite contract and reasons given by IBM for this do seem to have been honestly expressed and reasonable in light of the specific clause 9 in the IBM/Finite contract.
Insofar as it is relevant, I do find that the Finite/Alignity contract was not terminated in bad faith.
Was special condition 1 an unfair term?
The second ground of appeal is that in relation to the breach of the unfair contract provisions of the Australian Consumer Law (ACT), the Original Tribunal failed to correctly apply the legislation, acted ultra vires with respect to the judgment, and has not accorded Alignity natural justice or a fair hearing through the failure to properly consider the Australian Consumer Law (ACT) and precedent.[55]
[55] Application for appeal at [4(b)]
Section 23 of the Australian Consumer Law (ACT) provides that a term of a consumer contract or small business contract is void if the term is unfair and the contract is a standard form contract. Section 24 then provides when a term of a contract is unfair, and is set out above at paragraph [29]. In summary the three requirements in section 24(1) are that the term:
(a)would cause a significant imbalance in the parties’ rights and obligations (imbalance requirement); and
(b)it is not reasonably necessary in order to protect the legitimate interests of Finite (not reasonably necessary requirement); and
(c)it would cause detriment to Alignity (detriment requirement).
Section 24 goes on to provide:
(2) In determining whether a term of a contract is unfair under subsection (1), a court may take into account such matters as it thinks relevant, but must take into account the following:
(a)the extent to which the term is transparent [transparency requirement];
(b)the contract as a whole.
(3) A term is transparent if the term is:
(a)expressed in reasonably plain language; and
(b)legible; and
(c)presented clearly; and
(d)readily available to any party affected by the term.
(4) For the purposes of subsection (1)(b), a term of a consumer contract is presumed not to be reasonably necessary in order to protect the legitimate interests of the party who would be advantaged by the term, unless that party proves otherwise.
Under section 24(2) therefore in considering the imbalance, not reasonably necessary and detriment requirements the court, in this case tribunal, must take into account the extent the term is transparent and the contract as a whole. Section 24(4) importantly deals with the proof of the not necessary requirement, a provision on which Alignity put specific emphasis.
The appellant argues that these specific requirements were not properly and fully considered by the Original Tribunal. I note two preliminary points in this regard. First, in order to be an unfair term, there needs to be a small business contract and all of the imbalance, not reasonably necessary and detriment requirements need to be met. Failure to show one of these means there is no unfair term. The Original Tribunal found that some were not met, and it was therefore not necessary to consider the others. Second, the tribunal is required to ensure procedures are as simple, quick, inexpensive and informal as is consistent with achieving justice.[56] Short oral reasons for a decision are often therefore appropriate. As this decision shows, detailed written reasons often take much longer.
[56] ACAT Act section 7
The appellant raises issues in relation to the requirements, and I note these.
Was this a small business contract?
The contract is not a consumer contract. Alignity argues that it is a small business contract. Section 23(4) provides:
(4) A contract is a small business contract if:
(a)the contract is for a supply of goods or services, or a sale or grant of an interest in land; and
(b)at the time the contract is entered into, at least one party to the contract is a business that employs fewer than 20 persons; and
(c)either of the following applies:
(i)the upfront price payable under the contract does not exceed $300,000;
(ii)the contract has a duration of more than 12 months and the upfront price payable under the contract does not exceed $1,000,000.
The contract is for supply of services. In his statement Dr Forsyth states that he employs less than 20 persons.[57] There was no challenge to this or any contradictory evidence provided. The upfront price payable does not exceed $300,000. The contract was for the period of less than 12 months.[58] Finite seemed to accept, or at least not dispute, this.[59] Therefore on the evidence the Finite/Alignity contract was a small business contract.
Was this a standard form contract?
[57] Statement of Guy Forsyth, page 4, at [3]
[58] Statement of Guy Forsyth, page 4, at [4]-[5]. Paragraph [4] does not make sense but this is clear from the contract itself, which is attachment F to the statement.
[59] Transcript of proceedings 12 February 2021 page 107; Respondent’s appeal submissions at [55]-[68]
Section 27(1) sets out what is a standard form contract. This provides that: “If a party to a proceeding alleges that a contract is a standard form contract, it is presumed to be a standard form contract unless another party to the proceeding proves otherwise”. Alignity does so allege. I do not think that Finite has proved otherwise. Further section 27(2) sets out factors to be taken into account in deciding this. As the appellant argues, factors (a)-(e) were all present.[60] Finite had argued that special condition 1 could not be a standard form contract.[61] But calling something a special condition is not a consideration under section 27(2), and those considerations suggest it can still be part of a standard form contract. In my view the contract was a standard form contract.
Was there a significant imbalance under special condition 1?
[60] Statement of Guy Forsyth, page 4, at [2]
[61] Transcript of proceedings 12 February 2021 page 107; see also Respondent’s appeal submissions at [56]
The requirement in section 24(1)(a) is that the term, special condition 1 in this case, would cause a significant imbalance in the parties’ rights and obligations arising under the contract. The interpretation of special condition 1 is discussed above at [38]-[39]. In my view it enables Finite to terminate its contract with Alignity if IBM has acted in a particular way, that is, terminated its contract with Finite. It is true that the actions of IBM have a significant impact on Finite, and then in turn in exercising its rights under special condition 1, Finite’s actions can have a significant impact on Alignity. The Original Tribunal referred to this as discussed at paragraph [30] above.
But section 24(1)(a) is not concerned with the impacts of the behaviour of parties. It is concerned only with special condition 1, and whether this ‘would cause’ a significant imbalance. The imbalance needs to be between the parties, which must mean the parties to the Finite/Alignity contract.
Section 25(1) of the Australian Consumer Law (ACT) sets out some examples of terms that may be unfair, and includes:
(b) a term that permits, or has the effect of permitting, one party (but not another party) to terminate the contract;
Some basic propositions about this requirement in the context of a consumer contract were usefully set out by Justice Gilmour in ACCC v CLA Trading Pty Ltd:
(a) the underlying policy of unfair contract terms legislation respects true freedom of contract and seeks to prevent the abuse of standard form consumer contracts which, by definition, will not have been individually negotiated…;
(b) the requirement of a “significant imbalance” directs attention to the substantive unfairness of the contract…;
(c) it is useful to assess the impact of an impugned term on the parties’ rights and obligations by comparing the effect of the contract with the term and the effect it would have without it…;
(d) the “significant imbalance” requirement is met if a term is so weighted in favour of the supplier as to tilt the parties’ rights and obligations under the contract significantly in its favour – this may be by the granting to the supplier of a beneficial option or discretion or power, or by the imposing on the consumer of a disadvantageous burden or risk or duty…;
(e) significant in this context means “significant in magnitude”, or “sufficiently large to be important”, “being a meaning not too distant from substantial”…;
(f) the legislation proceeds on the assumption that some terms in consumer contracts, especially in standard form consumer contracts, may be inherently unfair, regardless of how comprehensively they might be drawn to the consumer’s attention…; and
(g) in considering “the contract as a whole”, not each and every term of the contract is equally relevant, or necessarily relevant at all. The main requirement is to consider terms that might reasonably be seen as tending to counterbalance the term in question…[62]
[62] [2016] FCA 377 at [54], references omitted
As to Justice Gilmour’s paragraph (a), it appears that there was in fact no individual negotiation. The evidence of Dr Forsyth was that there was significant time pressure. But Dr Forsyth did not ask for any changes,[63] and as noted did not even ask for a copy of terms referred to in the contract but not provided to him. It is therefore unclear whether the terms could have been negotiated.
[63] Transcript of proceedings 12 February 2021 page 43
As to the requirement for significant imbalance or substantive unfairness, there are several ways of looking at this. The Original Tribunal seems to have taken the view that there is no imbalance since if IBM terminates its contract with Finite, special condition 1 allows Finite in turn to terminate its contract with Alignity. Finite and Alignity end up in similar positions. On this analysis there is no significant imbalance.
The appellant argues that the special condition 1: “has the effect of permitting only the Company to terminate the contract (or indeed the correct interpretation of the condition is the Client). It does not entitle the Contractor to terminate the contract – at all”. The appellant refers to section 25(1)(b) set out above in support of the proposition that this is unfair. It is then said: “Termination for convenience is an “at will” desire to terminate or a “no cause” basis, as opposed to a right to terminate for cause (e.g. breach of condition).”[64] As noted above in my view IBM terminated for convenience, but Finite terminated on the basis of a specific act, namely the termination for convenience by IBM.
[64] Appellant’s appeal submissions at [82]-[84]
Alignity is therefore comparing the rights to terminate of Finite with Alignity’s rights to terminate. They focus on special condition 1, but in order to assess this situation it is necessary to look to the balance of the contract. Section 24(2) provides that in determining whether a term of a contract is unfair under subsection (1), a court may take into account such matters as it thinks relevant, but must take into account the contract as a whole. In this context special condition 2 is relevant.
Condition 6.4 does provide some rights to the contractor, Alignity. I note that Alignity argues that this clause is not part of the contract since it was not provided to it, but as special conditions 1 and 2 refer to clause 6 it can be used to interpret these clauses and can be taken into account under section 24(2) as a relevant matter. Clause 6.4 states:
The Contractor or the Consultant may terminate this Agreement at any time (including during the Contract Period), without notice, if the Company has breached this Agreement (including failing to pay the Fees) and the Company has failed to remedy that breach within 14 days of having received written notification from the Contractor or the Consultant.
If this clause operated, Alignity therefore had the right to terminate the contract, but only for breach.
Special condition 2, which Alignity does not dispute is part of the contract, refers back to clause 6, in particular it would seem clause 6.4. It states:
If the [Contractor] fails to complete the Contract Period (and has no right of early termination under clause 6 of the Conditions of Contract), the Company may withhold payment of the Fees relating to the Services provided in the 10 business days prior to termination. [Emphasis in original.]
This special condition is also badly drafted and unclear. But it seems to be providing that the Contractor, that is Alignity, can fail to complete the contract, and in effect terminate it, but if that is so the Company, Finite, can withhold payment for 10 days’ work. There is no need for any breach by Finite to support this right to fail to complete.
This puts Alignity in a similar position to Finite. Finite can terminate if IBM terminates, but must provide 10 days’ notice, or pay Alignity for 10 days work not performed; and Alignity can cease performing, in effect terminate, provided Finite can withhold 10 days payment.
This reading was put to Dr Forsyth in cross-examination, and while he disputed it, he did not put forward any other coherent interpretation of it.[65]
[65] Transcript of proceedings 12 February 2021 pages 52-53
More generally, the purpose of the Finite/Alignity contract was to provide services to IBM under the IBM/Finite contract. The Finite/Alignity contract only provides for the provision of services by Alignity and Dr Forsyth to IBM; it provides for no other services.[66] If the IBM/Finite contract is terminated, Finite presumably obtain no further benefit from this arrangement; certainly there was no evidence of any ongoing benefit. Termination of the Finite/Alignity contract by Finite puts Alignity in a similar position; Alignity obtains no further benefit from the arrangement.
[66] Statement of Guy Forsyth, attachment E
In relation to Justice Gilmour’s paragraph (c), without special condition 1, but with special condition 2 and general condition 6.3, there would have been a greater imbalance between the parties in favour of Finite; as noted, special condition 1 in fact improves Alignity’s position in comparison with general condition 6.3. Without special condition 1, with special condition 2, but without general condition 6.3, which is the position that Alignity argues for, there would have been a significant imbalance but in favour of Alignity; that is Finite could not terminate the contract but Alignity could in effect do so under special condition 2. This suggests that special condition 1 does not of itself create a significant imbalance in favour of Finite.
In relation to Justice Gilmour’s paragraph (d), I do not think that special condition 1 provides for a contract that is so weighted in favour of the supplier as to tilt the parties’ rights and obligations under the contract significantly in its favour. It does not grant Finite a significant benefit, or impose on Alignity a disadvantageous burden or risk or duty. Under special condition 1 both Finite and Alignity end up in a similar position.
In relation to similar, though I agree not identical, circumstances Presidential McCarthy held in the Canberra Consulting original decision that the requirements for a significant imbalance in section 24(1)(a) was not met.[67] This issue was not raised and therefore not considered in the Canberra Consulting appeal decision.
[67] [2020] ACAT 29 at [79]
In these circumstances I am not convinced that there was a significant imbalance or substantive unfairness flowing from special condition 1 within the context of the whole of the Finite/Alignity contract. I agree with the conclusion of the Original Tribunal in this respect.[68]
Was special condition 1 not reasonably necessary?
[68] Transcript of proceedings 17 March 2021 page 6
The second requirement which is in section 24(1)(b) is that the term is not reasonably necessary in order to protect the legitimate interests of the party who would be advantaged by the term.
As noted, the Original Tribunal held that this requirement was not met. The Original Tribunal held that the term “was reasonably necessary to protect the interests of Finite”. In doing so the Original Tribunal relied on the Canberra Consulting original decision where it was said:
Referring to section 24(1)(b), Canberra Consulting does not itself use Dr Forsyth’s services. Its business is to connect (for a fee) an entity in need of labour (in this case, DFAT) with a person able to provide the labour. Its commercial ability to engage a person to provide labour, and to continue to provide labour, is dependent on an entity in need of that labour and continuing to want that labour from that person. A necessary component of any agreement to hire a person (and in this case Dr Forsyth) for the purpose of providing labour to a third party (and in this case DFAT) is therefore a right to end the hire if the third party no longer requires the person’s labour. In other words, Canberra Consulting have a “legitimate interest”, and I would say essential interest, in ensuring that if the assignment ends so too can Canberra Consulting’s engagement of the person. Were it otherwise, Canberra Consulting would find itself with a contractual obligation to continue the engagement of the person to provide services that it, itself, no longer needs.[69]
[69] [2019] ACAT 73 at [80]
In the appeal Alignity questions this approach drawing in particular attention to section 24(4) which states that a term of a contract is presumed not to be reasonably necessary in order to protect the legitimate interests of the party who would be advantaged by the term, unless that party proves otherwise. This places a significant onus on Finite, the party advantaged, to show that the term was reasonably necessary.
Contrary to the arguments of Alignity, in my view Finite has a legitimate interest, namely an interest in not being required to continue paying Alignity for work which was not wanted by IBM, not done by Alignity and for which IBM was not paying Finite. This is a very significant interest which Finite was entitled to protect itself against. This arises from the contractual arrangements. It is not necessary for Finite to provide further proof of this.
But as Alignity also argues, there were other clauses already in the Finite/Alignity contract which are relevant to whether special condition 1 was not reasonably necessary, and which must be considered under section 24(2). As the appellant noted, clause 2.2 states that “Fees are not due and payable to the Contractor unless the Consultant has provided Services in accordance with this Agreement …”; clause 2.3 provides that “… in the event that the Client withholds payment to the Company … the Company shall be under no obligation to pay the relevant Fees to the Contractor”; clause 2.4 provides that “the Company will not pay the Fees for any period during which the Consultant is unable to provide the Services …” ; clause 3.6 states that “The Contractor and the Consultant acknowledge the casual nature of this engagement…”; and clause 3.9 provides that “The contractor and the Consultant acknowledge that there is no guarantee of continuing work with the Company or the Client and that no expectation has been formed in this regard”. On this basis Alignity argued that it was unnecessary for special condition 1 to provide a right to terminate the contract as there is no liability on Finite to remunerate Alignity for services in the circumstances where IBM no longer wants them.
It needs to be noted that there is an issue about whether special condition 1 was reasonably necessary on the basis that general condition 6 was part of the contract, as the respondent argues, or whether it was reasonably necessary on the basis that general condition 6 was not part of the contract, as the appellant argues. Either way I think there is a good argument that in light of clauses 2 and 3 it was not necessary.
I think the appellant’s argument is correct. Even without termination under special condition 1 (or general clause 6.3), Finite would not be required to pay Alignity where Alignity had done no work for IBM, apparently for whatever reason. Certainly Finite did not discharge the onus on it in section 24(4) and show that in light of general clauses 2 and 3, special condition 1 was reasonably necessary to protect its interests. In light of section 24(4) it is for Finite to show that clauses 2 and 3 were not enough to protect it, and that special condition 1 was therefore necessary, and in my view they did not do so.
In these circumstances I think that special condition 1 was not reasonably necessary within the context of the whole of the Finite/Alignity contract. I disagree with the conclusion of the Original Tribunal in this respect.[70] As I do note below, the appellant’s argument here does have significant adverse implications for its argument that special condition 1 caused it detriment (see the next section), and its argument that if there has been a breach of the contract, Alignity has suffered loss, an issue I return to below at paragraphs [119]-[126].
Did special condition 1 cause detriment to Alignity?
[70] Transcript of proceedings 17 March 2021 page 6
The third condition is in section 24(1)(c) which states that the term would cause detriment (whether financial or otherwise) to a party if it were to be applied or relied on. It is true that termination of the contract is generally seen as a detriment of itself. In this case Alignity seem to suggest that there was also some reputational detriment by the termination, which I think is correct.
But it does need to be asked what would have happened if special condition 1 was not there. As Alignity argued other clauses, in particular clauses 2.2, 2.3, 2.4, 3.6 and 3.9 would have meant that even without special condition 1 and termination under it, Alignity would probably have received nothing more under this contract. This is because IBM no longer wanted the services, and would not have paid for the services. The financial detriment under clauses 2 and 3 would have been the same even without special condition 1. This issue also arises below in consideration of whether even if there was a breach by Finite, Alignity suffered any damages.
Further, if special condition 1 was not there, and general clause 6, in particular clause 6.3 was, Alignity would have been in a worse financial condition. But as noted, Alignity argued that general clause 6 did not apply. Further, no doubt Alignity would also have argued that if clause 6.3 operated it also caused detriment.
In these circumstances, given that detriment specifically extends beyond financial, on balance I think there was detriment.
Was special condition 1 transparent?
As noted, section 24(2) provided that in determining whether a term of a contract is unfair under subsection (1), a court may take into account such matters as it thinks relevant, but must take into account the extent to which the term is transparent. Subsection (3) then provides that a term is transparent if the term is:
(a) expressed in reasonably plain language; and
(b) legible; and
(c) presented clearly; and
(d) readily available to any party affected by the term.
Special condition 1 was legible, presented clearly, and readily available. To that extent it was transparent. However, it is difficult to understand its precise meaning, though it is clear that it has something to do with notice and termination. Access to general condition 6 would have helped with understanding it. Alignity was not provided with general condition 6, but nor did Alignity ask for condition 6, notwithstanding the clear reference to it in the contract provided. Alignity could have sought to have the term clarified before the contract was signed, though there is little basis for thinking Finite would have agreed to this.
In my view the problems with the transparency of special condition 1 are not sufficient to overcome the finding that there was no significant imbalance in relation to this term under section 24(1)(a). As noted that lack of imbalance was supported by the other requirement in section 24(2) to have regard to the contract as a whole.
Were aspects of the Original Tribunal decision ultra vires?
Alignity had as a ground of appeal that the Original Tribunal “acted ultra vires with respect to the judgment”.[71] They only provided brief submissions on this issue. It was said that the Original Tribunal only considered some of the issues relevant to the unfair contract term. As noted above, all the requirements in section 24(1) need to be met, so if one is not met it is not necessary to consider the others. The Original Tribunal did consider the not reasonably necessary requirement in section 24(1)(b) as set out in paragraph [31] above. The appellant says this was “a ground … where the Member has acted ultra vires”.[72]
[71] Application for appeal at [4(b)(iii)]
[72] Appellant’s appeal submissions at [70]
The appellant returns to this later in the submissions and states that the Original Tribunal “has acted ultra vires with respect to making a determination on the aspect of s. 24(1)(b)”. This seems to relate to the failure of the Original Tribunal to consider the presumption in section 24(4).[73]
[73] Appellant’s appeal submissions at [108]
For the reasons given above at paragraphs [97]-[104] I think that the requirement in section 24(1)(b) was met, and that the Original Tribunal was in error here, in part on the basis of section 24(4). If this is what the appellant means then I agree. But as I have noted all the requirements in section 24(1) need to be met for a term to be unfair.
Did the Original Tribunal fail to accord natural justice and a fair hearing?
Alignity also had as a ground of appeal that the Original Tribunal did not accord it natural justice or a fair hearing through the failure to properly consider the Australian Consumer Law (ACT) and precedent in that area of law. Alignity had the opportunity to be heard before the Original Tribunal and before this Appeal Tribunal. Alignity provided a very significant amount of material in both hearings. There was an oral hearing before the Original Tribunal, which went for a full day, in which Alignity was given significant opportunity to put its case. In my view there was no failure to accord natural justice or a fair hearing.
Summary of findings in relation to whether special condition 1 was an unfair term
The Original Tribunal did not need to determine whether the contract was a small business contract or a standard form contract. I find that the Finite/Alignity contract was both.
The Original Tribunal found that the imbalance requirement in section 24(1)(a) not met. I agree, though for slightly different reasons set out at paragraphs [78]-[96] above.
The Original Tribunal found that the not reasonably necessary requirement in section 24(1)(b) was not made out. I disagree, and find that this requirement was made out for the reasons set out in paragraphs [97]-[104] above. I find in this regard there was an error.
I also find that the detriment requirement was made out as discussed at paragraphs [105]-[108], and that there was some lack of transparency in regards to special condition 1 as discussed at [109]-[111].
Because all the paragraphs of section 24(1) need to be made out, and I do not think the imbalance requirement was met, I do not think that special condition 1 term was an unfair term. My conclusion is therefore the same as that of the Original Tribunal, but for different reasons. This ground of appeal is not made out.
Even if the termination was in breach, would Alignity have been entitled to damages?
If special condition 1 properly interpreted did not allow for the termination by Finite, or the termination was in bad faith and inoperative, or special condition 1 was void because it was an unfair term under section 23 of the Australian Consumer Law (ACT), it would have been necessary to consider whether Alignity was entitled to further payment by Finite, in particular payment for all the services referred to in the Finite/Alignity contract which is what Alignity claimed. Put another way, on these bases, would Alignity have been entitled to damages for the wrongful termination of the contract and the failure of Finite to pay Alignity in full under the contract?
It was agreed that Alignity had been paid for the 10 business days’ notice period. But Alignity also wanted payment for the balance of the period to March 2020 at eight hours a day at the hourly rate,[74] capped though at the jurisdictional limit of ACAT.[75] The Application for appeal seeks an order for $25,000, the limit of the tribunal’s jurisdiction.[76]
[74] See paragraph [14] above
[75] See ACAT Act section 18
[76] Application for appeal at [5(a)]
This issue does not technically arise on the findings above. But it was argued by the appellant, and the respondent, and in my view a brief discussion provides some useful context for the outcome set out above.
It is necessary to note the basic principle in relation to contractual damages. Breach of a contract generally entitles the innocent party, in this case the position claimed by Alignity, to a remedy of damages, that is a money sum in substitution for due performance of the contract. However importantly, the objective of an award of damages is to put the Alignity “in the financial position which would have been occupied had the contract been performed.” The damages must do no more than compensate for the loss suffered. The award must put Alignity in the position it would have been in if Finite had performed the contract.[77]
[77] J W Carter, n 39, at [27-5], [27-12]-[27-14]
In this case the relevant act of default by Finite would have been termination by Finite of the Finite/Alignity contract, either because special condition 1 did not allow termination, was exercised in bad faith, or was void as an unfair term, and the consequential failure by Finite to pay Alignity in full under the contract.
But it was clear that whatever the status of the Finite/Alignity contract IBM no longer wanted Alignity’s services. There is no basis therefore for requiring Finite to pay Alignity for services which IBM did not want.
Further, Alignity provided no evidence that Finite or someone else through Finite would have sought and paid for its services in place of IBM. Alignity argued that Finite was a big company which could have located another contract for it.[78] But Alignity needs to do more than just assert this; it needs to show at least some evidence of such other contracts which Alignity could have performed. There was no such evidence. There was no claim for reliance damages and no evidence to support such a claim.[79] This was raised in the Appellant’s appeal reply submissions;[80] it is difficult to see how this was fair or appropriate within the tribunal processes; and at any rate there is still no evidence to support this.
[78] Appellant’s appeal submissions at [97]
[79] Commonwealth v Amann Aviation Pty Ltd [1991] HCA 54, 174 CLR 64; J W Carter, n 39, at [27-15]-[27-16]
[80] At [20(l)]
The evidence before the Original Tribunal was rather that Dr Forsyth did not ask Finite for other work[81] and indeed Dr Forsyth himself found other work.[82]
[81] Transcript of proceedings 12 February 2021 page 57
[82] Transcript of proceedings 12 February 2021 page 60
In addition, the terms of the Finite/Alignity contract made it clear that the services under it were to be only to IBM. Without amendment, the contract made no basis for provision of services to anyone else.
Further again, there was no contractual right for Alignity to provide and be paid for any other services, whether to IBM or anyone else. As noted there were clauses which both parties agreed were part of the contract, which provided in clause 2.2 that “Fees are not due and payable to the Contractor unless the Consultant has provided Services in accordance with this Agreement …”; in clause 2.3 that “… [i]n the event that the Client withholds payment to the Company in relation to the Services (on the basis of defective work or otherwise), the Company shall be under no obligation to pay the relevant Fees to the Contractor”; in clause 2.4 that “the Company will not pay the Fees for any period during which the Consultant is unable to provide the Services …” ; and in clause 3.6 that “The Contractor and the Consultant acknowledge the casual nature of their engagement …”.
Therefore, even if successful, there was no evidence that Alignity was entitled to any further payment by Finite.
Conclusion
As none of the grounds of appeal are made out, the appeal is dismissed.
………………………………..
Acting Presidential Member R Orr QC
| Date(s) of hearing | On the papers |
| Appellant: | In person |
| Solicitors for the Respondent: | Mr C Mossman, Wotton + Kearney |
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