McDonald's Australia Holdings Limited and Anor v Industrial Relations Commission of New South Wales and 2 ors - [2005] NSWCA 286

NEW SOUTH WALES COURT OF APPEAL

CITATION: McDonald's Australia Holdings Ltd & Anor v Industrial Relations Commission of NSW & 2 Ors [2005] NSWCA 286

FILE NUMBER(S):
41068/04

HEARING DATE(S): 4 July 2005

JUDGMENT DATE: 25/08/2005

PARTIES:
McDonald's Australia Holdings Limited (First Claimant)
McDonald's Australia Limited (Second Claimant)
Industrial Relations Commission of New South Wales (First Opponent)
McLaughlin's Family Restaurants Pty Limited (Second Opponent)
Max William McLaughlin (Third Opponent)

JUDGMENT OF: Spigelman CJ Mason P Handley JA

LOWER COURT JURISDICTION: Industrial Relations Commission

LOWER COURT FILE NUMBER(S): 2798/2004

LOWER COURT JUDICIAL OFFICER:

COUNSEL:
B Walker SC, B Shields (Claimants)
G Hatcher SC, R Moore (Second and Third Opponents)

SOLICITORS:
Deacons Lawyers (Claimants)
Crown Solicitors (First Opponents)
Maguire & McInerney (Second and Third Opponents)

CATCHWORDS:
INDUSTRIAL LAW - Industrial Relations Commission - Jurisdiction - Unfair
Contract - Franchise Agreement - Comprising Lease and Licensing Agreements - Whether agreement "whereby person performs work in any industry" - Whether Commission has jurisdiction - Industrial Relations Act 1996, s106
INDUSTRIAL LAW - Industrial Relations Commission - Jurisdiction - Unfair
Contract - Franchise Agreement - Comprising Lease and Licensing Agreements - Where relief sought would fundamentally alter the parties' rights and liabilities - Whether relief sought had close relationship with performance of work - Whether Commission has jurisdiction to grant relief - Industrial Relations Act 1996, s106

LEGISLATION CITED:
Acts Interpretation Act 1901 (Cth): s15AA
Industrial Arbitration Act 1940: s88F(2)
Industrial Relations Act 1996: ss 105, 106
Interpretation Act 1987: s33

DECISION:
1 The First Opponent is prohibited from taking any further steps to exercise, or purporting to exercise, its power under s106 of the Industrial Relations Act 1996 (NSW) with respect to the Licence Agreements described in the Summons filed on 12 May 2004 in Industrial Relations Commission Proceeding No. 2798 of 2000
2 The First Opponent is prohibited from taking any further steps to exercise, or purporting to exercise, its power under s106 of the Industrial Relations Act 1996 (NSW) with respect to the Lease Agreement described in the Summons filed on 12 May 2004 in Industrial Relations Commission Proceeding No. 2798 of 2004
3 The Second and Third Opponents should pay the Claimants' costs.

JUDGMENT:

- 27 -

IN THE SUPREME COURT
OF NEW SOUTH WALES
COURT OF APPEAL

CA 41068/04
SPIGELMAN CJ
MASON P
HANDLEY JA
Thursday 25 August 2005

McDONALD’S AUSTRALIA HOLDINGS LTD & ANOR v INDUSTRIAL RELATIONS COMMISSION OF NSW & 2 ORS

The Claimants (“McDonald’s”) seek orders prohibiting the Industrial Relations Commission (“the Commission”) from dealing with a summons for relief under s106 of the Industrial Relations Act 1996 (“the Act”) on the basis that the claims are beyond the Commission’s jurisdiction. The Second and Third Opponents (“the Opponents”), McLaughlin’s Family Restaurants Pty Ltd (“MFR”) and Max William McLaughlin (“McLaughlin”), are the Applicants in the proceedings before the Commission. McLaughlin is the sole director and shareholder of MFR.
McDonald’s authorises MFR to operate four McDonald’s Restaurants in New South Wales, pursuant to certain Licence Agreements and Lease Agreements (“the Agreements”) to which McLaughlin is a party and under which he assumes obligations. In particular, McLaughlin is required to devote his full time attention to, and exercise best efforts in, the operation of the restaurants.
In the Commission the Opponents seek orders varying the Agreements on the basis that they are unfair contracts. The Claimants seek relief in this Court on the basis that the Commission has no jurisdiction to vary the Agreements or, alternately, has no jurisdiction to make the variations sought.
HELD
Scope of Section 106(1) of the Act
(Per Handley JA, Mason P agreeing)
1Characterisation of a contract to determine whether it is within the jurisdiction of the Commission under s106 will raise questions of fact and degree in franchise cases. There is no difficulty in the present case where the working proprietor employs some 350 staff. The real transaction here is not one in which Mr McLaughlin performs work in an industry. The Agreements do not fall within the scope of s106(1). [90], [102].

Caltex Oil (Australia) Pty Ltd v Feenan [1980] 1 NSWLR 724; [1981] 1 NSWLR 169; Majik Markets Pty Ltd v Brakes & Service Centre Drummoyne Pty Ltd (1992) 28 NSWLR 443; Production Spray Painting and Panel Beating Pty Ltd v Newnham (1991) 27 NSWLR 644; Brown v Rezitis (1970) 127 CLR 157 considered.

Ready Mixed Concrete (Victoria) Pty Ltd v FCT (1969) 118 CLR 177 referred to.

(Per Spigelman CJ, dissenting)
2It is not open for the Court to conclude that the Agreements for each restaurant call for the performance of work in only an indirect or inconsequential way. The Agreements fall within the scope of s106(1). [65].

Stevenson v Barham (1977) 136 CLR 190; Majik Markets Pty Ltd v Brakes & Service Centre Drummoyne Pty Ltd (1992) 28 NSWLR 443; Caltex Oil (Australia) Pty Ltd v Feenan [1980] 1 NSWLR 724; [1981] 1 NSWLR 169 followed.

CIC Insurance Ltd v Bankstown Football Club Ltd (1997) 187 CLR 384; Project Blue Sky Inc v Australian Broadcasting Authority (1998) 194 CLR 355; Network Ten Pty Ltd v TCN Channel Nine Pty Ltd (2004) 78 ALJR 585 applied.

Mitchforce Pty Ltd v Industrial Relations Commission of NSW (2003) 57 NSWLR 212; Solution 6 Holdings Ltd v Industrial Relations Commission of NSW (2004) 60 NSWLR 558; Old UGC Inc v Industrial Relations Commission of NSW (2004) 60 NSWLR 620; Mayne Nickless Ltd v Industrial Relations Commission of NSW (2004) 141 IR 1; Sydney Water Corporation Ltd v Industrial Relations Commission of NSW (2004) 61 NSWLR 661; MMAL Rentals Pty Ltd v Bruning (2004) 139 IR 377; Brown v Rezitis (1970) 127 CLR 157; Production Spray Painting & Panel Beating Pty Ltd v Newham (1991) 27 NSWLR 644; Ex parte VG Haulage Services Pty Ltd; Re Industrial Commission of NSW [1972] 2 NSWLR 81 referred to.

Jurisdiction of Commission to Grant Relief Sought
(Per Curiam)
3The relief sought must have a close relationship with the performance of work. It is not sufficient to say that any aspect of the relationship between the parties can be modified so long as the modification can be seen to have some consequence on the profitability of the business and, therefore, upon the remuneration of McLaughlin or other employees. Nothing more direct was suggested to exist. The Commission has no jurisdiction to grant the relief sought. [84], [89], [92].

Solution 6 Holdings Ltd v Industrial Relations Commission of NSW (2004) 60 applied.

Mayne Nickless Ltd v Industrial Relations Commission of NSW (2004) 141 IR 1 distinguished.

Orders
1The First Opponent is prohibited from taking any further steps to exercise, or purporting to exercise, its power under s106 of the Industrial Relations Act 1996 (NSW) with respect to the Licence Agreements described in the Summons filed on 12 May 2004 in Industrial Relations Commission Proceeding No. 2798 of 2004.

2The First Opponent is prohibited from taking any further steps to exercise, or purporting to exercise, its power under s106 of the Industrial Relations Act 1996 (NSW) with respect to the Lease Agreement described in the Summons filed on 12 May 2004 in Industrial Relations Commission Proceeding No. 2798 of 2004.

3 The Second and Third Opponents should pay the Claimants’ costs.

IN THE SUPREME COURT
OF NEW SOUTH WALES
COURT OF APPEAL

CA 41068/04
SPIGELMAN CJ
MASON P
HANDLEY JA
Thursday 25 August 2005

McDONALD’S AUSTRALIA HOLDINGS LTD & ANOR v INDUSTRIAL RELATIONS COMMISSION OF NSW & 2 ORS

Judgment

SPIGELMAN CJ: The Claimants (“McDonald’s”) seek orders prohibiting the Industrial Relations Commission (“the Commission”) from dealing with a summons for relief under s106 of the Industrial Relations Act 1996 (“the Act”) on the basis that the claims are beyond the Commission’s jurisdiction. The Second and Third Opponents (“the Opponents”), McLaughlin’s Family Restaurants Pty Ltd (“MFR”) and Max William McLaughlin (“McLaughlin”), are the Applicants in the proceedings before the Commission.
Pursuant to certain Licence Agreements and Lease Agreements, to the detail of which I will refer below, McDonald’s as licensor of a retailing system for food, authorises MFR to operate four McDonald’s Restaurants in New South Wales. McLaughlin is the sole director and shareholder of MFR and is a party to the Licences and Leases pursuant to which he assumes contractual obligations.
Under the Leases and Licences, sums of money became due by way of franchise fees and rent from MFR to McDonald’s in circumstances which do not need to be set out in detail. MFR has withheld payment of those sums, the payment of which is guaranteed by McLaughlin. MFR and McLaughlin have also alleged failure on the part of McDonald’s to perform obligations under the Leases and Licences and further allege that it has engaged in conduct which has had an adverse financial impact on MFR, e.g. by opening new restaurants and limiting MFR’s opportunity for further expansion.
The jurisdiction of the Commission under s106 to the Act to declare void and/or to vary a contract “whereby a person performs work in any industry if the Commission finds that the contract was an unfair contract” has been considered by this Court in a number of recent decisions to which I will further refer below. (See Mitchforce Pty Ltd v Industrial Relations Commission of NSW (2003) 57 NSWLR 212; Solution 6 Holdings Ltd v Industrial Relations Commission of NSW (2004) 60 NSWLR 558; Old UGC Inc v Industrial Relations Commission of NSW (2004) 60 NSWLR 620; Mayne Nickless Ltd v Industrial Relations Commission of NSW (2004) 141 IR 1; Sydney Water Corporation Ltd v Industrial Relations Commission of NSW (2004) 61 NSWLR 661; MMAL Rentals Pty Ltd v Bruning (2004) 139 IR 377.) This case concerns the application of the principles developed in that line of case law to the facts of the present case.
The applicable High Court authorities, Stevenson v Barham (1977) 136 CLR 190 and Brown v Rezitis (1970) 127 CLR 157 were decided at a time when courts were prone to apply a more narrowly literalist approach to the task of statutory interpretation than is the case today.
The failure to adopt a purposive approach is made plain by Barwick CJ when he said in Stevenson v Barham:
“Notwithstanding the wide language of s 88F, I have found difficulty in becoming convinced that it was within the contemplation of the legislature that agreements for business ventures, of which the present may be a specimen, freely entered into by parties in equal bargaining positions, should be so far placed within the discretion of the Industrial Commission as to be liable to be declared void. However, I have come to the conclusion that the language of s 88F of the Act is intractable and must be given effect according to its width and generality. The legislature has apparently left it to the good sense of the Industrial Commission not to use its extensive discretion to interfere with bargains freely made by a person who was under no constraint or inequality, or whose labour was not being oppressively exploited.”
It is now well established that context must be taken into account in the first instance and not merely after ambiguity has been identified. (See CIC Insurance Ltd v Bankstown Football Club Ltd (1997) 187 CLR 384 at 408; Project Blue Sky Inc v Australian Broadcasting Authority (1998) 194 CLR 355 at [69]; Network Ten Pty Ltd v TCN Channel Nine Pty Ltd (2004) 78 ALJR 585 at [11]). Furthermore, the purposive approach to interpretation has come to prominence, first at common law and subsequently by statute, originally in 1983, by the insertion of s15AA into the Acts Interpretation Act 1901 (Cth) and in New South Wales by s33 of the Interpretation Act 1987.
This Court remains bound by the earlier High Court decisions. Special leave has been granted with respect to a number of the recent decisions of this Court. Accordingly, this issue will be resolved in the near future.
This Court has, however, held that the industrial context of the legislation remains pertinent when applying the Stevenson v Barham test to determine when the requisite connection between the contract or arrangement and the performance of work is sufficiently “direct”. (See Mitchforce supra at [15]; Solution 6 supra at [34].) Furthermore, Stevenson v Barham and Brown v Rezitis were not concerned with the extent of power conferred on the Commission by s106(1) to “declare void or vary” any contract or arrangement.
In Brown v Rezitis the court was concerned with s88F(2) of the Industrial Arbitration Act 1940 which empowered the court to make an order for the payment of money ‘in connection with any contract, arrangement, condition or collateral arrangement declared void … or varied’. This is equivalent to s106(5) of the Act.
Barwick CJ said at 165:
“Whilst it can be said that the expression ‘in connection with’ is of wide import, it does emphasise the need for a close connexion between the order made and the contract or arrangement varied or avoided.”
His Honour went on to say:
“… [T]he limitation of the power to order the payment of money to such orders either as are or may be considered in the circumstances to be connected with the making, performance, variation or avoidance of the contract or arrangement sufficiently limits the power and leaves room for supervision of the Commission by a Court having power to issue prerogative writs so as to confine the Commission within the granted power.”
The Court held that certain orders for payment made by the Commission were beyond power. Similar considerations arise with respect to the power to vary a contract or arrangement.
This Court has held that the context of the legislative scheme confines this power to aspects of the contract or arrangement which are “closely related to the performance of work”. (See Solution 6 supra at [80] and [83]). An alternative formulation is which “relate in some reasonably direct manner to the performance of work” (Solution 6 at [87]). Specifically, the power “does not extend to a provision which has no relationship whatsoever to the performance of work” (Solution 6 at [95]).
The Proceedings in the Commission
In this Court the Opponents indicated that they proposed to amend the Summons filed in the Industrial Relations Commission. The Court will have regard to the Amended Summons.
The Amended Summons contains a detailed recitation of the facts on which the Opponents will rely, inter alia, to establish the jurisdiction of the Commission. I do not find it necessary to set out in detail the particulars of the case. It is appropriate to proceed on the basis that the factual assertions will be established. The Opponents also relied on an affidavit by Mr McLaughlin which sets out the course of dealings between McDonald’s and the Opponents and establishes the work performed, particularly by Mr McLaughlin himself, in the course of the business. Much of this evidentiary material is directed to the issue of unfairness, which is not before this Court.
The scope of the jurisdiction asserted to exist in the Commission is manifest in the relief sought in the Amended Summons which the Claimants accurately summarised as follows:
“1           In the Amended Summons the Applicants claim orders:
aDeclaring the Licences and Leases to be unfair contracts;
bDeclaring that the Licences and Leases together constitute an arrangement for the purposes of s106(1) of the Act;
cDeclaring that the arrangement is an unfair contract;
d             Varying specified parts of the Licences and Leases;
eIn the alternative to varying specified parts of the Licences and Leases, avoiding the arrangement and for the payment of compensation in the sum of twenty million dollars ($20,000,000);
fFor the payment of additional unspecified compensation; and
g             Interest and costs.
2The variations to the Licences sought by the Applicants include:
aAn exclusive territory for MFR within a 15 kilometre radius of the Restaurants;
bA reduced rate of interest on any monies owed by MFR, and guaranteed by McLaughlin, to McDonalds;
cThe right to withhold monies owed to McDonalds by way of abatement, or on other specified bases, without breaching the Licences;
dGranting MFR the right to direct monies owed to McDonalds under the Licences;
eMcDonalds to bear all costs, including legal costs, incurred enforcing the terms of the Licences;
fTo deny to McDonalds an indemnity from MFR and McLaughlin against any claims however arising;
gGranting MFR the right to renew the Licences at any time prior to expiry, at its sole option and upon payment of a further fee;
hRemoving MFR’s obligation to repair or maintain the Restaurants;
iRequiring McDonalds to equip the Restaurants at its expense;
jRendering McDonalds responsible for the content and cost of all advertising, subject to a significantly reduced contribution by MFR;
kRemoving MFR’s obligation to insure the Restaurants, and imposing that obligation on McDonalds;
lRemoving McDonalds right to terminate the Licences, or enter and take possession of the Restaurants, for material breach, or commence legal proceedings, where that breach is disputed;
mRemoving McDonalds right to recover costs incurred in curing breaches of the Licences by MFR; and
n             Variations consequential upon those set out above.
3The variations to the Leases sought by the Applicants include:
aRendering McDonalds responsible for the cost of all repairs, additions, alteration or improvements;
bRemoving McDonalds [sic] right to charge rent or additional rent based on MFR’s gross sales;
cRequiring McDonalds to insure the Restaurants, at its expense;
dA reduced rate of interest on any monies owed by MFR, and guaranteed by McLaughlin, to McDonalds;
eRequiring McDonalds to pay all capital sums and charges for all services and utilities connected to the Restaurants
fEntitling MFR to a further lease of the Restaurants consequent upon the exercise of any option by MFR under the Licences;
gRemoving McDonalds right to recover for defect or design fault;
hThe right to withhold monies owed to McDonalds by way of abatement, or on other specified bases, without breaching the Leases;
iGranting MFR the right to direct monies owed to McDonalds under the Leases;
jMcDonalds to bear all costs, including legal costs, incurred enforcing the terms of the Leases;
kRemoving McDonalds right to an indemnity from MFR against claims;
lRemoving McDonalds right to terminate the Leases for default, and to re-enter the Restaurants;
mRemoving McDonalds right to recover from MFR costs incurred under the Leases;
n             Variations consequential upon those set out above.”
It can be readily been seen that the relief sought would completely reconstitute the Licences and Leases so as to fundamentally alter the parties' rights and obligations. The issue is whether or not the Commission has jurisdiction under s106 of the Act to entertain the whole or any part of the proceedings brought before it and/or to grant the whole or any part of the relief, summarised above, in the proceedings. That issue turns primarily on the terms and conditions of the Lease and Licence Agreements.
The Lease and Licence Agreements
There are no material differences amongst the four sets of Lease and Licence Agreements with respect to the four McDonald’s Restaurants operated by MFR. I note that, in the Agreements, McDonald’s Australia Limited is identified as the Licensor and McDonald’s Property (Australia) Pty Ltd is identified as the Lessor. It is convenient to refer to the two companies collectively as “McDonald’s”. MFR is the Licensee and Lessee. In each Agreement Mr McLaughlin is identified as the Principal. The first agreement was entered into in 1978, between McDonald’s and Mr McLaughlin personally. That agreement has been superseded by a Lease and Licence in the now common form.

The Licence Agreement recites the basic structure of the relationship between the parties:
“A          McDonald’s Corporation, a Delaware corporation (‘McDonald’s’) has developed and operates a restaurant system (‘the McDonald’s System’). The McDonald’s System includes proprietary rights in certain valuable trademarks, service marks and trade names, including the trade names ‘McDonald’s’ and ‘McDonald’s Hamburgers’, designs and colour schemes for restaurant buildings, signs, equipment layouts, formulae and specifications for certain food products, methods of inventory and operation control, bookkeeping and accounting, and manuals covering business practices and policies. The McDonald’s System is operated and is advertised widely within Australia and in other countries.
B            The McDonald’s System is a comprehensive restaurant system for the retailing of a limited menu of uniform and quality food products, emphasizing prompt and courteous service in a clean and wholesome atmosphere which is intended to be particularly attractive to families. The foundation and essence of the McDonald’s System is the adherence by licensees to standards and policies of McDonald’s and its related corporations providing for the uniform operation of all McDonald’s restaurants within the McDonald’s System including, but not limited to, serving designated food and beverage products; the use only of prescribed equipment and building layout and designs; and strict adherence to designated food and beverage specifications and to prescribed standards of quality, service and cleanliness in restaurant operation. Compliance by licensees with the foregoing standards and policies in conjunction with McDonald’s trademarks, service marks and trade names provides the basis for the valuable goodwill and wide acceptance of the McDonald’s System. Moreover the establishment and maintenance of a close personal relationship with Licensee in the conduct of his McDonald’s restaurant business, his accountability for performance of the obligations contained in this agreement, and his adherence to the tenets of the McDonald’s system constitute the essence of the licence provided for herein.
C            McDonald’s has licensed to Licensor the right to operate restaurants using the McDonald’s System in Australia. Licensor’s licence from McDonald’s includes the right in Licensor to sub-licence.
D            Licensee wishes to be granted the right to adopt and use the McDonald’s System in a restaurant at the location specified in item four of the schedule hereto (‘the Restaurant’) and Licensor has agreed to grant such rights to Licensee, subject to the terms covenants and conditions contained herein.
E             Where there is or are persons named in item three of the schedule hereto as Principal, Principal has requested Licensor to agree to grant the licence provided for herein to Licensee and to execute this agreement. In consideration of Licensor’s compliance with that request, Principal has agreed to guarantee to Licensor the performance of all the obligations of Licensee under this agreement upon the terms and conditions contained herein.
F             McDonald’s Properties (Australia) Pty Ltd and Licensee and Principal, have simultaneously with the conclusion of this licence agreement concluded a lease agreement (‘the Lease’) with respect to the land and buildings constituting the Restaurant.”
Under the heading of “General Conditions” the Licence Agreement provides:
“1.01 Interpretation
The provisions of this agreement shall be interpreted to give effect to the intent of the parties stated in the Recitals hereof so that the Restaurant specified in this agreement shall be operated in conformity with the McDonald’s System through strict adherence to the Licensor’s standards and policies as they exist now and as they may from time to time be modified.
1.02 Licensee’s Interest
Licensee and Principal each acknowledge their understanding of Licensor’s basic business policy that Licensor will grant licences only to those individuals who, inter alia, live in the locality of their McDonald’s restaurant, actually own the entire equity interest in the business of the restaurant and its profits, and who will work full time at the McDonald’s restaurant business. Licensee represents, warrants, and agrees that save as is expressly contemplated and permitted herein, he actually owns the complete equity in this agreement and the profits from the operation of the Restaurant and shall maintain such interest during the term of this agreement. Licensee shall promptly furnish Licensor with such evidence as Licensor may request, from time to time, for the purpose of assuring Licensor that Licensee’s interest remains as represented herein.”
The Agreement goes on to grant a licence to the Licensee to use the McDonald’s System for the Restaurant on the terms and conditions thereafter set out, including provisions for a term and the payment of licence and service fees. It is pertinent to note that the service fee is computed in accordance with a percentage of the Gross Sales, which includes all revenue from sales of the business conducted at the Restaurant. Provision is made for the payment of interest on overdue amounts. There is a list of Licensor’s obligations such as the provision of know-how, services, manuals and training.
The Agreement contains a detailed list of undertakings by the Licensee of which the following are particularly relevant:
“6.01      Compliance with Entire System
Licensee hereby acknowledges the importance to Licensor and to the operation of the Restaurant as a McDonald’s restaurant, of every component of the McDonald’s System including a designated menu of food and beverage products, uniform food specifications, preparation methods, quality and appearance, and uniform facilities and service. Licensee shall comply with the entire McDonald’s System and shall adopt and use every component thereof, in the Restaurant. Without limiting the generality of the foregoing Licensee shall:
…
(b)          operate the Restaurant in a clean, wholesome manner in compliance with Licensor’s prescribed standards of quality, service and cleanliness; comply with all business policies, practices and procedures imposed by Licensor; serve at the Restaurant only those food and beverage products now or hereafter designated by Licensor, and maintain the building, equipment, and parking area in a good, clean, wholesome condition and repair, well lighted and in compliance with designated standards as may be prescribed from time to time by the Licensor;
…
(f)           make repairs or replacements required because of damage or wear and tear and maintain the Restaurant building and parking area in good condition and in conformity with blueprints and plans;
…
(h)          except as otherwise approved by Licensor, operate the Restaurant seven days a week throughout the year and at least during the hours from 7.00 am to 11.00 pm or such other hours as may from time to time be prescribed by Licensor (except when the Restaurant is untenantable as a result of fire or other casualty) maintain sufficient supplies of food and paper products, and employ adequate personnel so as to operate the Restaurant at its maximum capacity and efficiency;
(i)           cause all employees of Licensee, while working in the Restaurant to: (i) wear uniforms of such colour, design and other specification as Licensor may designate from time to time, (ii) present a neat and clean appearance, and (iii) render competent and courteous service to Restaurant customers;
…”
Of particular significance for the issues before the Court is cl 6.05:
“6.05 Best Efforts
Licensee or, where Licensee is a company, Principal shall diligently and fully exploit his rights in this Licence by personally devoting his full time and attention to and exercising his best efforts in the operation of the Restaurant. Licensee and in addition, where Licensee is a corporation, Principal shall keep free from conflicting enterprises or any other activities which would be detrimental to or interfere with the business of the Restaurant.”
Provision is also made for reporting and accounting, including the Licensor’s right to audit accounting records relevant to the computation of amounts owing under the Agreement. The Agreement also contains a restraint of trade clause, and a restraint on Licensee and Principal from seeking to employ persons employed by McDonald’s.
There is a restraint on assignment which is pertinent, by reason of the references in it to work in the Restaurant:
“10 Assignment
Licensee’s interest in this agreement shall not, without the prior written consent of the Licensor, be assigned or otherwise transferred in whole or in part (whether voluntarily or by operation of law) directly, indirectly or contingently. If Licensor gives its written consent to an assignment or transfer, such assignment or transfer shall be made and take effect only in accordance with and subject to the provisions of this clause.
(a) Death or Permanent Incapacity of Licensee
Where Licensee is an individual, upon the death or permanent incapacity of Licensee, and where Licensee is a company, upon the death or permanent incapacity of Principal, the interest of Licensee in this agreement may be assigned either pursuant to the terms of clause 10(d) hereof or to one of Licensee’s or Principal’s (as the case may be) spouse, heir, or nearest relative by blood or marriage, and Licensor shall consent to such assignment, provided that Licensor is satisfied in its sole discretion that such person is capable of conducting the Restaurant business in accordance with the terms and conditions of this agreement and such person executes an agreement by which he personally assumes full and unconditional liability for and agrees to perform all the terms and conditions of this agreement to the same extent as the original Licensee. Such person may elect to have the Licence assigned to a company or trust and in such event the provisions of clauses 19 and 20 hereof shall apply and all Licensor’s requirements thereunder shall be complied with. Until such assignment is made and whether or not Licensor has determined that any proposed assignee cannot devote his full time and efforts to the operation of the Restaurant or lacks the capacity to operate the Restaurant in accordance with this agreement, Licensor shall be entitled, if Licensor in its sole discretion so elects, to enter upon the Restaurant premises and by its employees or agents, operate and/or manage the Restaurant on the account of Licensee or of his estate until Licensee’s interest is transferred to another party acceptable to Licensor in accordance with the terms and conditions of this agreement. However, in no event shall such operation and management of the Restaurant continue for a period in excess of twelve (12) months without the consent of Licensee or his estate. If Licensor so operates and/or manages the Restaurant, Licensor shall make a complete account to and return the net income from such operation to Licensee or to his estate, less a reasonable management fee and expenses. If the disposition of the Restaurant to a party acceptable to Licensor has not taken place within twelve (12) months from the date that Licensor has commenced the operation and/or management of the Restaurant then Licensor shall have the option to rescind this agreement upon payment to Licensee or to his estate of a reasonable amount in all the circumstances including the unexpired term of this agreement.
For the purposes of this sub-clause 19(a) Licensee or Principal shall be considered to be permanently incapacitated where a qualified medical practitioner certifies that Licensee or Principal is incapacitated to such an extent that he or she is no longer capable of effectively managing the Restaurant and that such incapacity is reasonably expected to be permanent.” [Emphasis added]
Clause 13 relevantly provides:
“13 MATERIAL BREACH
Any of the following events shall constitute a material breach of this agreement and, without prejudice to any of its other rights or remedies at law or in equity, Licensor at its election may thereupon forthwith terminate this agreement by notice in writing to Licensee:
(a)Licensee failing to maintain and operate the Restaurant in a good, clean, wholesome manner and in compliance with the standards prescribed by the McDonald’s System;
…
(e)Licensee causing, suffering or permitting (voluntarily or involuntarily) his right of possession as lessee or sub-lessee of the Restaurant to be terminated prematurely for any cause whatever;
…
(j)Licensee selling food or beverage products other than those recommended by Licensor or which fail to conform to McDonald’s System specifications for those products or which are not prepared in accordance with the methods prescribed by Licensor, or failing to sell products designated by Licensor;
…
(n)Licensee or Principal being in breach of any term of the Lease or any other agreement with Licensor or with any corporation which is related to Licensor or Licensor [sic] or Principal being in breach of any other agreement, which breach, in the opinion of the Licensor, prejudicially affects the ability of the Licensee to operate the Restaurant in accordance with the provisions of this agreement;
…
(r)Licensee or Principal being convicted of a criminal offence punishable by penal servitude;
(s)Licensee or Principal becoming of unsound mind or insane;
(t)Licensee or Principal suffering any distress or execution to be levied on his personal or real property or ceasing to pay his lawful debts as and when they become due and payable;
(u)Licensee or Principal being in breach of any of the provisions of clauses 6.05, 19, 20 or 22 of this agreement.”
Clause 19 specifically refers to the situation of a corporate licensee:
“19         CORPORATE LICENSEE
Where the Licensee is a company the following additional provisions shall apply:
(a)Licensee and Principal hereby acknowledge that it is Licensor’s practice to only grant licences to conduct McDonald’s System restaurants to individuals and that only at Principal’s request has Licensor granted this licence to Licensee and then only because of Principal’s promises, warranties and representations herein contained which promises, warranties and representations are an essential part hereof and have been relied upon by Licensor.
(b)Licensee and Principal hereby jointly and severally covenant that during the term of this agreement:
(i)           the Memorandum and Articles of Association of Licensee shall not be amended without the prior written consent of Licensor except for amendments to increase the authorised capital or to effect a change of name; and
(ii)          the name of the Licensee shall not include any of the names, trade marks, or service marks (or colourable imitations thereof) the subject of this agreement.
(c)The Memorandum and Articles of Association of Licensee shall provide that the person named in item three of the schedule hereto as Principal, or where more than one person is so named, the person first named, shall be and remain the Governing Director of Licensee.
‘Governing Director’ means a person who is a director and shareholder of Licensee and is referred to as the ‘Governing Director’ in the Articles of Association of Licensee and who has complete and entrenched control in every annual and extraordinary general or any other meeting of the shareholders from time to time of Licensee and in any meeting or meetings from time to time of the Board of Directors of Licensee and the Articles of Association of Licensee shall provide that no meeting or meetings of shareholders or directors of Licensee shall be validly convened and able to decide or act upon Licensee’s affairs unless the Governing Director is present.
For the purposes of this sub-paragraph, the word ‘control’ shall be and mean the right in that Governing Director, whether by vote, poll, show of hands or otherwise, to decide, postpone, adjourn, amend, rescind, veto or otherwise deal with any resolution, motion or other action put to any such meeting or meetings of shareholders or directors.
(d)There shall be a breach of this agreement if at any time during the term hereof circumstances occur from which it might reasonably be inferred that the Governing Director of Licensee has (whether directly or indirectly, or as a result of, or by means of, or in breach of, trusts, agreements, arrangements, undertakings or practices, whether they are enforceable or not) suffered any loss of or diminution in control of Licensee.
(e)The person or persons named as Principal in item three of the schedule hereto and Licensee hereby warrant that except as has been disclosed to Licensor prior to the execution hereof, the person or persons so named are the beneficial holder or holders of all the issued shares in Licensee and that Licensee and Principal shall ensure that without the prior written consent of Licensor, the present beneficial holder or holders of such shares will not permit or suffer the said beneficial interests or any part or interest therein to be alienated from them in any way whatsoever or to become the subject of any mortgage or charge or other security interest whatsoever. Principal and Licensee warrant that Licensee shall not without the prior written consent of Licensor, issue any further shares to any person other than Principal an the provisions of this sub-paragraph shall apply to any such shares so issued.”
Other sub-clauses of cl 19 do not need to be set out.
The Guarantee provision is in the following terms:
“22.01 Joint and Several Guarantee
Principal and if more than one person shall constitute Principal, each and every one of them hereby jointly and severally unconditionally guarantees Licensee’s due and punctual performance of all the terms and conditions of this agreement and of any other agreement between Licensee and Licensor whether or not any other person is a party to such agreement and each and every person as aforesaid hereby agrees to become personally liable for the performance of all the terms and conditions of this agreement and any other agreement as aforesaid. Principal and if more than one person shall constitute Principal, each and every one of them, shall jointly and severally indemnify Licensor against all losses, damages, costs and expenses which it may incur by reason of the failure or failures of Licensee in his performance of this agreement and of any other agreement as aforesaid immediately upon Licensor’s demand.”
Clause 24 interrelates the Agreement with the Lease Agreement:
“24.01 It is an essential term of this agreement that the Licensee herein agrees not to breach any covenant term or condition contained in the Lease. It is further agreed that notwithstanding the provisions of part 2 hereof, this agreement shall have force and effect only during the currency of the Lease and upon the expiration or termination of the Lease for any reason whatsoever the licence provided for herein shall immediately terminate.”
(See also cl 13(a) above.)
The Lease Agreement contains the following recitals:
“A          Lessor is the registered proprietor of the land specified in item four of schedule A (‘the Land’) or if so indicated in item four of schedule A is registered or is entitled to be registered as proprietor of a leasehold estate in the Land or part thereof together with such buildings and improvements thereof (the Land and such buildings and improvements thereon being hereinafter referred to as ‘the Premises’).
B            Lessee is the owner or hirer of the facilities and equipment installed in or on the Premises including air-conditioning plant, fittings, fixtures and signs listed in schedule B (‘the Business Facilities’ which together with the Premises are hereinafter referred to as ‘the Restaurant’).
C            Lessee wishes to lease and occupy the Premises to operate a McDonald’s System restaurant on the Land using the Business Facilities.
D            Lessor has agreed to lease the Premises to Lessee and to allow Lessee to operate the Premises (using the Business Facilities) as a McDonald’s System restaurant.
E             Where there is or are persons named in schedule A as Principal, Principal has requested Lessor to agree to lease the Premises to Lessee and to execute this agreement. In consideration of Lessor’s compliance with that request, Principal has agreed to guarantee to Lessor the performance of all the obligations of Lessee under this agreement upon the terms and conditions set out herein.
F             McDonald’s Australia Ltd. (‘System’) and the Lessee have simultaneously with the conclusion of this lease agreement concluded a licence agreement (‘the Licence’) to permit the Lessee to operate a McDonald’s System restaurant.”

The Agreement makes standard provisions for the grant of a lease, payment of rent and the range of obligations imposed upon a Lessor and Lessee of a customary character.
Attention was drawn to cl 1.03 which states:
“1.03 Use of Premises
Lessee shall use and occupy the Premises only for a McDonald’s System restaurant for the sale in conformity with the terms of the Licence of hamburgers, cheeseburgers, chicken, fillets of fish, apple pies, shakes, soft drinks, orange juice, coffee and French fried potatoes and such other items as may from time to time be permitted by Lessor.”
Attention was also drawn to the provision for rent which includes adjustment with respect to gross sales:
“2.01      Restaurant
(a)          Lessee shall in relation to the Premises pay to the Lessor rent determined as being the aggregate of:
(i)           the base rent, if any, specified in part (i) of item six of schedule A (‘the base rent’); and
(ii)          a percentage of monthly Gross Sales in excess of the amount of monthly Gross Sales specified in part (ii) of item six of schedule A (‘the percentage rent’).
The base rent shall be payable monthly in advance on or before the first business day of every calendar month and the percentage rent shall be payable monthly in respect of the immediately preceding month’s Gross Sales on or before the fifteenth (15th) day of each calendar month.
‘Gross Sales’ shall have the same meaning as that ascribed to it in the Licence.”
Furthermore, the interrelationship between the Lease and Licence is indicated in cl 7.03 which contains terms of the lease said to be “Essential” and includes “(a)(vii) not to breach any covenant, term or condition contained in the Licence as required by clause 1.02(b)”.
Clause 1.02 (b) provides:
“(b) It is an essential term of this agreement that the Lessee herein agrees not to breach any covenant, term or condition contained in the Licence. It is further agreed that notwithstanding the provisions of paragraph (a) of this sub-clause, this agreement shall have force and effect only during the currency of the Licence and upon the expiration or termination of the Licence for any reason the lease provided for herein shall immediately terminate and the provisions of clause 7.02 hereof relating to re-entry and repossession shall apply.”
Submissions
McDonald’s contends that the agreements between the parties constitute a licence between two independent commercial entities concerning the right to use the McDonald’s System in the operation of a separate business based on that System, together with a related lease for the occupation of commercial premises. It submits that the purpose of each Licence is to grant the right to use the McDonald’s System in the operation of a business. The purpose of each Lease is to grant a right to occupy premises from which the Lessor can operate the respective businesses.
McDonald’s accepts that it could be said that some aspects of the Licence Agreement contemplate the performance of work. However, it does so only indirectly or in a manner that is accurately described as remote or consequential. Accordingly the Agreement is incapable of satisfying the relevant test of leading “directly” to the performance of work in an industry. (Stevenson v Barham supra at 200, 201, 202; Mitchforce supra at [5]-[22]; Solution 6 supra at [26]-[35]; Production Spray Painting & Panel Beating Pty Ltd v Newham (1991) 27 NSWLR 644 at 657.) McDonald’s relies on the observation in Mitchforce at [49] that an agreement or arrangement which merely contemplates the performance of work will not satisfy the statutory requirement that the agreement or arrangement must lead “directly” to the performance of work in an industry. McDonald’s submits that on no view can the Leases be said to even contemplate the performance of work in an industry.
With respect to both the Licences and the Leases McDonald’s submits that neither has a recognisable impact on the conditions of work, adopting the formulation of Jacobs JA in Ex parte VG Haulage Services Pty Ltd; Re Industrial Commission of NSW [1972] 2 NSWLR 81 at 88, referred to in Mitchforce as being consistent with, albeit not repeated in, the judgment in which his Honour joined in Stevenson v Barham. (See Mitchforce at [12]-[14] and [58].) However, as I indicated in Solution 6 supra at [30] I did not intend anything I said in Mitchforce to qualify the Stevenson v Barham test or to suggest that the “recognisable impact” formulation was an alternative test. (See Mitchforce [15], Solution 6 [34], [57]-[58] and Old UGC supra at [49].)
Furthermore McDonald’s submits that the Lease Agreements, even though interrelated with the Licence Agreements, are not collateral arrangements within the definition of contract in s105 of the Act because they do not lead directly to work in an industry. (See Solution 6 at [163]-[166] and [100], albeit left open at [67]-[78].)
In the alternative, McDonald’s contends that even if the licences and leases do lead directly to work in an industry, the relief actually sought is beyond the jurisdiction of the Industrial Relations Commission because it has no relationship to the performance of work or does not closely relate to the performance of work. (See Solution 6 at [93]-[95].)
The Opponents contend that, consequent upon his becoming a party to the Licence and the Lease, McLaughlin was subject to an express obligation to perform work directly. They further contend that MFR and McLaughlin worked not only for themselves but also for McDonald’s.
The Opponents further contend that the purpose of the overall transaction, incorporating the Licences and the Leases, was for McLaughlin to operate the restaurants through MFR and thereby to earn money from his efforts. They emphasise that McLaughlin is required to devote his services full-time to the businesses and that he is required to guarantee the performance of MFR to McDonald’s. The arrangement with respect to each restaurant was that it would be “operated”, to use the language of the Licence, and that McLaughlin was personally obliged to commit himself full-time to the operation of the restaurant under cl 6.05 set out above.
The Opponents contend that the arrangements in this case are not relevantly distinguishable from the earlier franchise arrangements found to be within the jurisdiction of the Commission in Caltex Oil (Australia) Pty Ltd v Feenan [1980] 1 NSWLR 724; [1981] 1 NSWLR 169 and Majik Markets Pty Ltd v Brakes & Service Centre Drummoyne Pty Ltd (1992) 28 NSWLR 443. They note that the franchise agreements in the present case are multi-dimensional. (Contrast Mitchforce at [48].)
With respect to relief, the Opponents submit that the changes sought will affect the level of remuneration earned by McLaughlin through the performance of the contract. Every element of relief links back to the remuneration of MFR and, therefore, McLaughlin. They submit that that is enough to establish not only a connection, but a close connection, with work performed. The Opponents submit that the position is analogous to that identified in Mayne Nickless supra. They also rely on the observation in MMAL Rentals supra at [143] that it is inappropriate to take a narrow approach to the package of benefits, conditions, rights and obligations which relate to performance of work.
The Opponents submit, without riposte, that McDonald’s will not enter into a lease with any person, unless there were first a Licence Agreement. Accordingly, they submit, the composite transaction formed by the Lease and the Licence leads directly to performance of work, even if the particular provisions that lead to the performance of work are found only in the Licence Agreement. Alternatively, underlying each pair of Licences and Leases is an arrangement within s106(1) and s105 of the Act.
The Opponents do not simply rely on each of the licences and each of the leases considered separately. Nor do they rely only on a composite transaction or arrangement for each restaurant, comprising a Licence and a Lease. They also rely on an overall arrangement including, as I understand the position, all of the Agreements for all the restaurants, together with the previous Agreement, before MFR became a party and which has now been replaced for one of the restaurants.
The Opponents’ case that there is in existence a contract or arrangement whereby work is performed in an industry is put, in the alternative, at different levels of generality. The most specific level is each individual Licence or Lease Agreement. The next level up is, by reason of the clear interrelationship between each Lease with each Licence, the combination of the two with respect to each of the four relevant restaurants, as either a composite transaction or underlying arrangement. The highest level of generality is the overall arrangement covering all four restaurants, including the contract with respect to one of the restaurants which was earliest in time but which has now been superseded by the current Lease and Licence Agreement.
Setting aside any consideration that progression up the hierarchy makes it more difficult to satisfy the Stevenson v Barham test of “directness” with respect to any particular obligation contained in the contracts themselves (see Solution 6 at [65]), the most favourable case from the Opponent’s perspective is to consider the overall arrangement at the highest level of generality. In my opinion, there is no pleading or evidence to support an overall arrangement, other than an arrangement underlying the Licence and Lease to each restaurant or a “composite transaction” consisting of both agreements (Solution 6 at [173]). Nevertheless, it is appropriate to consider the most favourable case of the party asserting the existence of jurisdiction. I do not propose to deal with the McDonald’s submissions directed to the Lease considered as a separate document.
The Test of Directness
Unconstrained by the authority of Stevenson v Barham, I would have concluded that a contract with a person in his or her capacity as a proprietor of a business was not a contract “whereby a person performs work in any industry” within s106 of the Act. That is not to say that the Court would not pay careful attention to the substance rather than the form of any contractual arrangement.
It would not avail parties to seek to avoid s106 by evasions and subterfuges. (See Brown v Rezitis supra at 164; Solution 6 supra at [76].) Simply because a person was in form an independent contractor, and could be said to be running his or her own business, would not be determinative. However, the literalist test adopted in Stevenson v Barham, which this Court must apply, prevents the Court from concluding that the role performed by a proprietor of a business as such is not encompassed by the statutory formulation of ‘performance of work in an industry’.
The Opponents’ submissions emphasise that the franchise agreements considered in Caltex Oil v Feenan and Majik Markets were held to fall within the statutory jurisdiction. However, merely because something answers the description of a “franchise agreement” does not mean that the statutory test is satisfied. Each case must depend on its own facts and circumstances, of which the particular obligations imposed by the contract or arrangement are entitled to substantial weight. Nevertheless, the previous decisions are instructive and, in my opinion, determinative on this issue.
In Caltex Oil v Feenan the test of directness was held by the Privy Council to be satisfied by reason of the following factors set out at 173-174:
“The Feenans were required to carry on the task of supplying petroleum products to motorists throughout all lawful working hours. In doing so they were fulfilling their contractual obligations to Caltex. The total remuneration which they received (to use the expression used in s88F(1)(d)) was the difference between the prices at which they were able to sell those products and the prices which Caltex chose to sell the products to them, together with licence fee and the so-called rental of goodwill. The benefit obtained by Caltex from the Solus Contract in addition to the licence fee and rental and goodwill, was an assured and profitable outlet for their products without incurring the expense of paying wages to employees for doing what, under the Solus Contract, the Feenans had bound themselves to do instead.”
In Majik Markets there was a formal franchise agreement together with a lease of premises with respect to a convenience retail store and petrol service facility to be operated according to the property of the “Majik Market System”. Provision was made for the training of franchisee employees, for the supply of petroleum products by the franchisor and for the payment of franchise fees by the franchisee. It is pertinent to set out one of the clauses of the franchise agreement:
“The franchisee agrees that the person or persons named in Part D of the Schedule hereto (or such other person or persons as from time to time agreed by the company) shall devote his or their full time personal attention and effort to the conduct, operation and management of the Business and at all times whilst the premises are open for business, he will maintain adequate personnel to facilitate the checking-out and handling of orders, including the dispensing of motor fuel, and other needs of customers so as to avoid any unnecessary delay to and on the part of customers.”
In Majik Markets Handley JA, with whom Kirby P agreed at 447B, said at 464-465:
“The franchisees are independent contractors conducting retail businesses on land of the franchisor and selling motor fuel purchased from the franchisor. The franchisees, or in some cases, their employees, work in the businesses both in consequence of the agreements and in fulfilment of them. The form of agreement requires the franchisee to perform work in the retail industry either personally or through employees and therefore it leads directly to the performance of work in that industry. The franchisor has a real interest in the performance of that work. It results in the sale of motor fuel purchased from the franchisor and tends to maintain and improve both the value of its general goodwill, and the value of the local goodwill attached to its premises.
While the franchisees, if natural persons, are working for themselves, they are also in a very real sense working for the franchisor. If the business was not operated by some franchisee, the franchisor would either have to employ staff of its own or sell or lease the site to an independent purchaser or lessee.”
Mahoney JA came to the same conclusion at 459:
“I am conscious that the franchise agreements contemplate and intend that the franchisees will become the proprietors of businesses, that they may acquire assets, and that they will, as proprietors or otherwise, be involved with the operation of those businesses. But the work to be done in the industry in which the business is to operate was, in my opinion, to be done not merely as a means of carrying out another purposes, viz, the setting up and conduct of a business by the franchisees but was, in the relevant sense, the purpose which the agreement sought to achieve: it was, in my opinion, the purpose of Majik that that work should be done and accordingly the petroleum and other products should be sold and it was the purpose of the franchisee that they would do or cause to be done such things.”
In the present case particular reliance was placed on cl 6.05, which I have set out in full above, and which requires Mr McLaughlin to devote his “full-time and attention to and exercising his best efforts in the operation of the restaurant”. As is apparent this is closely analogous to the clause in Majik Markets which required the individual franchisees to “devote his or their full-time personal attention and effort to the conduct, operation and management of the Business”.
In each Licence Agreement considerable emphasis is given to the personal involvement, on a full-time basis, of the individuals who own the entire equity in the business. There is no room for a passive investor. See, in the Licence Agreement, recital B (last sentence), cl 1.02 on Licensee’s Interest, cl 10(a) on assignment after death or incapacity, the references to the Principal in cl 13(r), (s) and (t) on material breach and the whole of cl 19, particularly the reference to the practice to only grant licences to individuals in cl 19(a).
Mr B Walker SC, who appeared for McDonald’s, submitted that Majik Markets could be distinguished and, alternatively, that it should not be followed. In my opinion the Court should not depart from Majik Markets, particularly in circumstances where the High Court has now given special leave in cases which will reconsider the entire line of authority in this Court and, perhaps, in the High Court.
Mr Walker SC accepted that there were similarities between this case and Majik Markets but also submitted that there were relevant differences. He submitted that Majik Markets, and also Caltex Oil v Feenan, require consideration of the true nature of the relationship between the parties. In the present case that relationship was not such as to satisfy the statutory test.
Mr Walker SC emphasised the fact that in Majik Markets, as in Caltex Oil v Feenan, the franchisee was selling the franchisor’s own main product, i.e. petrol. The essential nature of the arrangement in the present case was a licence of intellectual property. McDonald’s does not in fact supply the ingredients for the foodstuffs. Rather, McDonald’s operates an approval system, under which each Licensee enters contracts with approved third party suppliers.
Mr G Hatcher SC, who appeared for the Opponents, relied particularly on cl 6.05, to which I have referred above. He also drew the Court’s attention to a number of other express obligations of a pertinent character.
For example cl 6.01(h) contains an obligation to keep the premises open, as in both Caltex Oil v Feenan and Majik Markets.
I also note that the second part of the Majik Markets provision that the franchisee “will maintain adequate personnel” is also reflected in the obligation under cl 6.01(h) of the Licence Agreement to “employ adequate personnel so as to operate the restaurant at its maximum capacity and efficiency”.
I am not able to distinguish this case from Majik Markets and Caltex Oil v Feenan. The common features are too significant. In the light of the authorities, it is not open to this Court to conclude that the Licence/Lease for each restaurant calls for the performance of work in only an indirect or consequential way. The nature of the obligations imposed on MFR and also, separately, on Mr McLaughlin, do, on the present state of the authorities, answer the Stevenson v Barham test of a contract which leads directly to the performance of work in an industry.
Scope of Relief
I have set out above in summary form the relief sought by the Opponents in the Commission. In Solution 6 supra I said that the Commission did not have jurisdiction to grant relief that did not have a close relationship with the performance or the work (at [80] and [83]). An alternative formulation was that relief should “relate in some reasonably direct manner to the performance of work” ([87]). In the event, I concluded that the relief sought in that case bore no relationship to the performance of work ([95]).
The Opponents did not submit that there was any material difference amongst the various prayers for relief. No submission was made, for example, that particular prayers for relief could survive, even if other prayers would fall. The submission made on the Opponents’ part in this respect was a global submission to the effect that all of the relief would affect the profitability of the business and would therefore determine the remuneration, most relevantly, of Mr McLaughlin as the owner of the business.

The Opponents relied on the analysis and the conclusion of this Court in Mayne Nickless supra.
In that case the applicants for relief in the Commission were two doctors who were the sole directors and shareholders of a company (Portpath) which conducted a pathology services business. The company structure was held by the Court to have been adopted for accounting and taxation reasons. However, all the shareholders’ finances, both personal and work related, were managed through the corporate vehicle. (See Mayne Nickless at [6]-[7].) The proceedings in the Commission concerned the arrangement for the provision of pathology services to or on behalf of Mayne Nickless Ltd as the operator of a hospital.
The statutory framework in which this arrangement operated was of significance. It was set out by Mason P in his judgment as follows:
“[37]      The Health Insurance Act 1973 (Cth) requires the proper supervision of the rendering of pathology services, including ensuring that a properly qualified person supervises the rendering of the service and has personal responsibility for the proper rendering of the service (see s3AAA). Medicare benefits in relation to pathology services are (with a presently irrelevant exception) not payable unless the service is rendered by or on behalf of an approved pathology practitioner (s16A(2)(a). See also s23DB).
[38]        Clause 3.6(b) requires Portpath to ensure that a duly qualified pathologist is at all times available at the licensed premises or the Hospital to provide the pathology services.
[39]        Clause 3.6(g) contains Portpath’s agreement that “all its employees including the Guarantors” shall comply with all reasonable directions given by the Chief Executive Officer of the Hospital.
[40] Clause 3.13 requires at least one of the “Guarantors” to be an approved pathology practitioner under the Health Insurance Act for the entire term of the Pathology Licence (see also cl 8.1(n)-(t). Clause 8.1(q) puts Portpath in default if Dr Fulton dies or becomes permanently disabled or otherwise incapable of performing work which she is trained as a pathologist to perform.”
In this context his Honour made the following finding:
“[50] The Contracts directly envisage that the fourth opponent will continue her hands-on role as a pivotal worker in the pathology business. Without that involvement the statutory requirements under the Health Insurance Act will not be satisfied. The Deed ensures that it will be satisfied, by procuring the continuing warranties about Dr Fulton’s role as an approved pathology practitioner (cl 2.6(m) to (q)), being warranties that the two “Guarantors” back by their indemnity in cl 7. It is also procured even more directly by cl 3.13 (see par 40 above).”
In Mayne Nickless the relief sought was described by his Honour as “adding more effective and fairer fee review mechanisms and other variations … with consequential orders for payment of additional moneys …” (at [58]).
With respect to the submission that the person who would benefit from these remedies was that corporate vehicle, whereas it was not the person performing work in an industry, Mason P said:
“[60]      There is, in my view, force in these submissions and they raise matters requiring further attention in the Commission. However, I am not prepared to issue prohibition on this account. The claimant is unable to establish a probable excess of jurisdiction as regards this remedial aspect of the IRC Summons. That is because the facts established (for present purposes) are capable of generating an arguable basis for relief based on unfairness as regards the two doctors.
[61]        The Court of Appeal will not prohibit proceedings in the Commission where jurisdiction can be established by an amendment asserting that undisputed facts have a particular legal effect (see Solution 6 at [36], Old UGC at [51]).
[62]        The relief claimed in the IRC Summons may require closer attention or amendment. Alternatively, the Commission may not ultimately be satisfied that any unfairness established has a sufficiently direct impact upon the remuneration of the two doctors. But it is sufficiently clear that the IRC applicants intend to press a claim that has such a nexus. It is also clear that the facts are capable of supporting the relief claimed in the IRC Summons, or some alternative remedy having similar effect as regards two doctors.
[63]        Portpath is the corporate vehicle through which the two doctors provide their services to the claimant and through which they earn income from personal services in relation to their pathology work at Port Macquarie. The doctors are the directors and shareholders of Portpath, but the provisions in the Deed that I have highlighted are capable of showing that they have been working for the claimant as well as for themselves. (cf Production Spray Painting at 655, 657, noting that the present case is easily distinguishable from the example of a sale of a business by a working proprietor there discussed). Portpath is run by the doctors on the basis that all profits from the pathology business will pass to them at their direction either as salary, dividend or other drawings; and everything points to Mayne Nickless being aware of this.”
On this basis his Honour concluded that:
“[65] On these facts it is open to the Commission to be satisfied both as to the jurisdictional fact of the contract or arrangement being one whereby the two doctors work in an industry and the secondary remedial requirement of showing that (if unfairness is found) relief can be moulded that closely relates to their performance of work, such relief being in effect the provision of greater remuneration for their services provided through Portpath.”
Mr Hatcher SC relied on Mayne Nickless and submitted that it was not relevantly distinguishable. He submitted that Mr McLaughlin’s remuneration in the present case was based, and based only, on the profitability of MFR. Mr Walker SC submitted that Mayne Nickless was distinguishable. He emphasised that the regulatory regime required all of the underlying work to be done by the pathologists.
McDonald’s submitted that MFA was a corporate structure of significant size with a large annual turnover. That turnover may be greater or smaller depending on the efficiency and quality of the operation of the business. The case of the Opponents was simply that it would obtain more profit if it did not have to bear a range of costs and liabilities associated with the conduct of its businesses, specifically the commercial terms upon which it occupies the premises through the leases and the commercial terms with which it must comply to satisfy its obligations under the Licences. The relief sought, it was submitted, did not bear a sufficiently close relationship to the performance of work.
In my opinion, Mayne Nickless is distinguishable and not merely because of the underlying statutory obligation. In Mayne Nickless the pathologist provided services to, or more strictly on behalf of, the operator of the hospital and was paid for those services directly by that operator. In the present case neither MFA nor McLaughlin provide services to or on behalf of McDonald’s. Nor does McDonald’s pay MFA or McLaughlin for the provision of work, directly or indirectly. Indeed all of the payments are in the opposite direction. MFA pays service fees to McDonald’s for the supply of services and rent for property. In Mayne Nickless the connection between the remuneration and the performance of work was of a completely different character to anything that arises in the present case.
Plainly it cannot be said in the light of the authorities to which I have referred above, which hold that the requisite jurisdictional element is made out in the case of franchise agreements, that it is essential there be in existence something analogous to a payment by one party to a contract or arrangement in exchange for the performance of work for or on behalf of that party by the other party to the contact or arrangement. Nevertheless, on the authority of Solution 6, there must be at least some, indeed a close, connection between relief sought and the performance of work.
The Agreement before the Court contains provisions which could well be thought to satisfy this test, including cl 6.05 which imposes an obligation on Mr McLaughlin to devote his full-time attention to the operation of the restaurant, cl 6.01(h) which imposes an obligation to operate the restaurant for certain periods of time and the obligations under 6.01 to ensure that employees wear uniforms, present a neat and clean appearance and render competent and courteous service. However, it does not appear to me that any of the claims for relief sought in the Commission are of this character.
In any event, the Opponents did not suggest that any of the prayers for relief which they seek in the Commission are, on the authority of Solution 6, within the jurisdiction of the Commission on the basis that some, if not all, bear a closer relationship to the performance of work than others.
The position taken by the Opponents in this Court was that any aspect of the commercial arrangement between the parties, however tenuously or indirectly it may be connected to the performance of work, is open for the Commission to avoid or to vary so long as it is in any way capable of impacting upon the profitability of the operation of the restaurants, whether on the revenue side or on the expenditure side. This position is manifest in the numerous specific variations and, perhaps even more clearly, in the overall thrust of the variations which they seek, encompassing as they do such matters as imposing prohibition upon McDonald’s licensing any other restaurant within a 15 km radius of each restaurant; granting MFR an option to renew the Licences and Leases; removing McDonald’s rights of re-entry; removing McDonald’s rights to terminate the Licences and Leases for breach; removing MFR’s obligation to repair or maintain the restaurant and imposing the obligation upon McDonald’s; requiring McDonald’s to incur capital expenditure for equipment, services and utilities and various other alterations to the Licences and Leases of a similarly fundamental character which do not directly impinge on any particular aspect of remuneration, but which have implications to the profitability of the venture.
No doubt because of their commercial wish to continue in the business, the Opponents do not seek to declare the Leases and Licences void. Rather, they seek orders varying the Leases in the radical terms summarised above. It is by no means clear to me that the cumulative effect of the relief sought is capable of answering the description of orders “varying” a contract, within the meaning of s106(1). The effect of the orders would be to so radically transform the nature of the relationship between the parties as to go well beyond anything that could be described as a ‘variation’. Nevertheless, this was not the objection taken by McDonald’s in this regard.
McDonald’s relied on the proposition that the relief sought does not closely relate to the performance of work. In my opinion, this submission should be upheld, indeed, as was held to be the case in Solution 6 at [95], the relief sought in this case does not merely fail a test of having a close relationship to the performance of work, the relief sought has no relationship to the performance of work, or alternatively, to use the alternative formulation in Solution 6 at [87], the relief does not relate to the performance of work in a reasonably direct manner.
It is not sufficient to say, as the Opponents did, that any aspect of the relationship between the parties can be modified so long as the modification can be seen to have some consequence on the profitability of the business and, therefore, upon the remuneration of Mr McLaughlin or, perhaps, other employees. Something more direct, indeed in my opinion something close, is required. Nothing more direct was suggested to exist.
Conclusion
It was not suggested that, if this Court came to the above conclusion, there was any basis on which it should exercise a discretion not to intervene. In my opinion, the defect here is patent, plain or clear and the considerations identified in Solution 6 at [147]-[157] apply.
Accordingly, I am of the opinion that the Claimants’ case should be upheld and the relief sought in the Summons in this Court should be granted.
The Court should make the following orders:
1An order prohibiting the First Opponent from taking any further steps to exercise, or purporting to exercise, its power under s106 of the Industrial Relations Act 1996 (NSW) with respect to the Licence Agreements described in the Summons filed on 12 May 2004 in Industrial Relations Commission Proceeding No. 2798 of 2004.
2An order prohibiting the First Opponent from taking any further steps to exercise, or purporting to exercise, its power under s106 of the Industrial Relations Act 1996 (NSW) with respect to the Lease Agreement described in the Summons filed on 12 May 2004 in Industrial Relations Commission Proceeding No. 2798 of 2004.
3 The Second and Third Opponents should pay the Claimants’ costs.
MASON P: In this matter I have had the benefit of reading the reasons of Spigelman CJ and Handley JA.
I agree with the Chief Justice, for the reasons he gives, that the Commission has no jurisdiction to grant the relief sought by the second and third opponents.
I agree with Handley JA, for the reasons he gives, that the transactions are not contracts, agreements or arrangements whereby Mr McLaughlin performs work in an industry within the meaning of s106(1) of the Industrial Relations Act 1996.
The orders proposed by the Chief Justice should be made.
HANDLEY JA: In this matter I have had the benefit of reading the reasons for judgment of Spigelman CJ in draft. I agree that the Commission has no jurisdiction under s 106(2) to grant the relief sought by the second and third opponents and do not wish to add anything to his reasons for reaching that conclusion.
However I am unable to agree that these four transactions, comprising leases and licence agreements, collectively or separately are contracts, agreements or arrangements (contract) whereby Mr McLaughlin performs work in an industry within the meaning of s 106(1). In his affidavit of 4 April 2005 filed in this Court Mr McLaughlin said (para 98) that his company “currently employs in excess of 350 employees of which about 20 to 25 employees are full time”.
Franchise agreements with a working proprietor or proprietors were held to be within the jurisdiction of the Commission under the predecessor of s 106 in Caltex Oil (Australia) Pty Ltd v Feenan [1981] 1 NSWLR 169 (PC) and Majik Markets Pty Ltd v Brake and Service Centre Drummoyne Pty Ltd (1992) 28 NSWLR 443. The Chief Justice holds that these cases cannot be distinguished and since the subject contracts require Mr McLaughlin to work fulltime in the business they are contracts whereby he performs work in an industry.
It seems to me, with respect, that this view involves an over literal construction and application of the section. The earlier franchise cases in the superior courts did not involve contracts with a working proprietor who employed a workforce of this magnitude.
The Court decided in Production Spray Painting and Panel Beating Pty Ltd v Newnham (1991) 27 NSWLR 644 that the outright sale of a business to a working proprietor is not a contract whereby the purchaser performs work in an industry. In that case Priestley JA and myself gave examples of other contracts of sale which indirectly led to the performance of work in an industry which are not within the section including (at 656) the sale of a hotel, a grazing property or a city building.
A building or engineering contract for a major project will create a lot of employment but such a contract does not lead directly to the performance of work in an industry and does not have a recognisable and direct impact on the conditions of employment of those working on the job: compare Spigelman CJ [para 34].
In my judgment the result in such a case would not be different if, in the contract, the proprietor required the contractor to employ identified persons on the project as site manager, architect, or engineer. One could not characterise the contract as a whole as one whereby the named persons performed work in an industry. It could only properly be characterised as a construction contract. To adopt the language of Sir Frank Kitto in Ready Mixed Concrete (Victoria) Pty Ltd v FCT (1969) 118 CLR 177, 184 its characterisation would be “understated to the point of misdescription” if it was described as one whereby those individuals worked in an industry.
I have no difficulty in characterising the franchise agreements in Feenan and Majik Markets as contracts within the section although they contemplated the employment of additional staff by the franchisees. The Court could also find, without difficulty, that the terms of the contract had a recognisable and direct impact on the working conditions and remuneration of the proprietors.
No such conclusion is open on the facts of the present case. The impact of particular clauses in the leases and licenses on Mr McLaughlin’s remuneration and profits would be anything but recognisable and direct. In Brown v Rezitis (1970) 127 CLR 157 Barwick CJ said at 164:
“… one of the purposes of the section is to deal with subterfuges … which will take the worker out of the relationship of master and servant and therefore out of the operation of an industrial award designed, among other things, for the protection of workers in industry.”
Barwick CJ recognised that the section is not confined to contracts of that character but nevertheless it seems to me that its basic purpose was to provide a safety net for workers or persons in the position of workers. In my judgment the present application to the Commission attempts to turn the section on its head.
Characterisation of a contract to determine whether it is within the jurisdiction of the Commission under s 106 will raise questions of fact and degree in franchise cases near the borderline and the decision may not be an easy one. However there is no difficulty in the present case where the working proprietor’s company employs some 350 staff. The distinction is one of substance, not form, and the Commission, in the words of Barwick CJ in Brown v Rezitis at 164, can uncover the real transaction between the parties. The real transaction here does not have to be uncovered, and it is not a contract whereby Mr McLaughlin works in an industry.
The orders proposed by the Chief Justice should be made.

**********

LAST UPDATED: 25/08/2005