No remedy for past unfairness: e-Alert October 2011

In an important decision, the Federal Court has held that the Independent Contractors Act 2006 (Cth) (Act) does not permit a Court to make an order varying an unfair contract with effect from a date prior to the making of the order: Informax International Pty Ltd v Clarius Group Limited (No 2) [2011] FCA 934.

Background

The Act permits the Federal Court or Federal Magistrates Court to review a 'services contract'  to determine whether the contract is unfair or harsh.  A 'services contract' is, generally speaking, a contract to which an independent contractor is a party and which relates to work performed by the independent contractor.  The Act provides that:

• in reviewing a services contract, the Court must only have regard to the terms of the contract when it was made; and
• an order of the Court takes effect on the date the order is made, or on a later date specified in the order.

In May and June 2008, Informax (the corporate vehicle through which an IT project manager provided her services) and Candle Australia Limited (a labour hire company) entered into contracts under which the project manager provided IT services to Woolworths.

After the contracts between Informax and Candle had expired, Informax engaged directly with Woolworths for the provision of IT services.  However, Woolworths' contract with Candle, and Informax's contracts with Candle, each contained a restraint clause which sought to prevent Informax or the project manager from working for Woolworths for a period of time after the contracts expired.  Candle, on discovering that Informax had engaged directly with Woolworths, persuaded Woolworths (by reference to the contractual restraints) to cease its engagement with Informax.

In proceedings between Informax and Clarius Group Limited (formerly Candle) early in 2011, Justice Perram of the Federal Court held that:

• the restraints in the contracts between Informax and Candle, and in the contract between Woolworths and Candle, were invalid at the time Candle sought to rely on them; and
• the contracts were unfair within the meaning of the Act because they permitted Candle to seek to bring Informax's engagement by Woolworths to an end in circumstances where it had no legal right to do so.   

On 29 March 2011, His Honour ordered terms be inserted into the contracts between Informax and Candle to remedy the unfairness.  The terms directed Candle not to enforce any provision (including any restraint provision) in any contract between it and Woolworths, the purpose or likely effect of which would be to impede Informax from being engaged by Woolworths during the period 17 September 2008 to 1 October 2008. 

Proceedings

Informax subsequently alleged that Candle's actions between 17 September 2008 to 1 October 2008 breached the terms of the contracts inserted by the Court on 29 March 2011.  Candle argued, relying on section 16(4) of the Act, that as at the period 17 September 2008 to 1 October 2008, the contracts did not contain any such terms and so Candle could not have breached those terms. 

Justice Perram noted that his reasons for judgment in the earlier proceedings were 'implicitly based on an assumption that the orders would be retrospective in operation'.  However, His Honour concluded that the Act is directed at prospective amendment of unfair or harsh contracts and that unfairness or harshness is to be judged by reference to the circumstances existing at the time the contract is formed.  The Act cannot be used to obtain a remedy for a retrospective breach of a contract subsequently varied under the Act.

Justice Perram held that the point of the Act is to permit prospective amendments to contracts which are harsh or unfair, 'thereby reforming the bargain between the parties into the future'.

Informax's application was dismissed with costs.

Lessons

• A person cannot obtain a remedy under the Act in respect of a contract which operated unfairly in the past.
• The Act is only of potential assistance if the contract in question is on foot, where it can be used to fix unfairness or harshness in the future.

For further information or to discuss any aspects of the decision above, please contact Karl Blake, Adriana Orifici or a member of our Employment, Safety & People team.

Karl Blake| Partner
Direct 61 3 9240 0843
karl.blake@maddocks.com.au

Adriana Orifici| Senior Associate
Direct 61 3 9288 0619
adriana.orifici@maddocks.com.au

Bruce Heddle | Partner
Direct 61 2 8223 4129
bruce.heddle@maddocks.com.au

Darren Gardner | Partner
Direct 61 2 8223 4103
darren.gardner@maddocks.com.au