Holburn & Anor v Shig Pty Ltd & Ors [2007] NSWIRComm 104 | Case summary

Holburn & Anor v Shig Pty Ltd & Ors [2007] NSWIRComm 104 | Case summary | Zoe

[21]

1 This matter concerns an application brought by way of notice of motion by the respondents to a summons for relief under s 106 of the Industrial Relations Act 1996 ("the Act") for orders that this Court has no jurisdiction over the respondents in respect of the subject matter of the proceedings. The respondents rely on s 109 of the Constitution. 2 Andrew Robert John Holburn and his wife Jodie-Lea Holburn entered into, and operated in partnership, the Central Coast North Regional Master Franchise in the James' Homes Service franchise chain pursuant to the Regional Master Franchise Agreement dated 7 August 2004. The State Master Franchisee (or sub franchisor) was Shig Pty Ltd ("the first respondent") whose principals were Tim Burns and Sheryl Burns ("the second and third respondents"). Shig acquired rights from Rushlyn Pty Ltd ("the fourth respondent" or "master franchisor") to sell franchises in New South Wales. Robert Mark James ("the fifth respondent") was a director of the fourth respondent. The sixth respondent, Opuswich Pty Ltd, appears to have been a company in which the fourth respondent held a beneficial interest and which was responsible for trademarks and other registered interests of James Home Services. 3 The applicants claimed the regional master franchise was not a viable business and sought relief under s 106 of the Act. The applicants asserted the contracts they had entered into with the respondents (that is, the regional master franchise agreement, a Deed of Covenant dated 7 August 2004 and a Trade Mark User Agreement) were unfair. The summons for relief claimed that: The Contracts and Arrangements between the Applicants and the Respondents in which the Applicants performed work in an industry were and are unfair, harsh and unconscionable and contrary to the public interest in that: a. They were induced by overly optimistic representations by the Respondents that have failed to be borne out by the actual experience under the operation of the said Contracts and/or Arrangements; b. They had been induced by the Respondents' failure to explain in the pre-contract negotiations the consequences of the Applicants being unable to achieve the agreed sales targets under the Contracts and/or Arrangements; c. They contain what Sheldon J. described in Williams v Calmex Products Pty Ltd [1971] AR 264 as a "monstrous" term in regard to the right of the First Respondent to terminate the Contracts and/or Arrangements and another unconscionable provision that enables the arbitrary reduction in the area of the region by the First Respondent; d. They contain no reasonable provision for the compensation of the Applicants, including repayment to the Applicants of their purchase price if the business failed in circumstances where the Applicants had applied themselves diligently in furtherance of the business; e. They failed to provide any reasonable provision for the remuneration to the Applicants for the work they performed in pursuance of the Contracts and/or Arrangements; f. They effectively established a sales force and administration office for the Respondents but paid for by the Applicants; g. They invested the Respondents with significant discretionary powers that may have been, and had been, used to the substantial disadvantage of the Applicants; h. The Applicants were at all material times in a position of unequal and inferior bargaining power in respect of their dealings with the Respondents. 4 The applicants sought reimbursement of the purchase price of $187,000, plus compensation in lieu of notional wages for approximately 2 1/3 years, plus interest and costs. The terms of the orders sought were as follows: 1. An order declaring void in whole or in part or varying in whole or in part either from its commencement or from some other time: a. The Regional Master Franchise Agreement dated 7 August 2004 relating to the Central Coast North Region between the Applicants and the First Respondent; b. The related non-competition Deed of Covenant executed by the Applicants and the First Respondent on 7 August 2004; c. The related Trade Mark User Agreement between the Fourth and Sixth Respondents and the Applicants (being Annexure "H" to the original Regional Master Franchise Agreement referred to above). collectively referred to as "the Contracts" whereby the Applicants performed work in the franchise industry. 2. An order declaring void in whole or in part or varying in whole or in part either from their commencement or from some other time the arrangements relating to the pre-contract negotiations between the parties, the acquisition of and operation by the Applicants of the James' Home Services Regional Master Franchise in the Central Coast North region using the James' System, the related Trade Marks and manuals established and/or developed and/or marketed and/or sold by the Respondents (collectively referred to hereinafter as "the Arrangements") whereby the Applicants performed work in the franchise industry. 3. An order that the Contracts and Arrangements between the Applicants and the Respondents whereby the Applicants performed work in an industry were unfair, harsh or unconscionable, or were against the public interest. 4. Further, or in the alternative, an order varying the Contracts or Arrangements from the commencement by deleting Part 14 -Default and Termination of the Regional Master Franchise Agreement and by inserting the following provision: "14. The Regional Master Franchisee may elect for whatever reason to terminate the agreement within three years of its commencement. Upon such termination the State Master Franchisee (being the First Respondent) will within 14 days of the date of the termination: (a) repay the Regional Master Franchisee the Initial Franchise Fee (plus GST) of $187,000; and (b) pay a sum for the personal services rendered in pursuance of the Regional Master Franchise Agreement at the rate of $100,000 per annum for the work performed by the First Applicant and at the rate of $50,000 per annum for the work performed by the Second Applicant in pursuance of the Regional Master Franchise Agreement (less, if applicable, any net revenue paid pursuant to the agreement to the Applicants that exceeds the costs incurred by the Applicants in furtherance of the business)." 5. Further, or in the alternative, an order that the Respondents jointly and severally be liable to pay the Applicants such amount of money in connection with the Contracts and/or Arrangements as voided or varied as may appear to be just in the circumstances. 6. An order that the Respondents jointly and severally be liable to pay to the Applicants interest on such amount of money as is ordered to be paid to the Applicants in connection with the Contracts or Arrangements as voided or varied at such rates and for such time as this honourable Court considers appropriate. 7. An order that the Respondents be jointly and severally liable to pay the Applicants' costs of these proceedings.

[25]

10 Part 9 of Ch 2 of the Industrial Relations Act relevantly provides: 105 Definitions In this Part: contract means any contract or arrangement, or any related condition or collateral arrangement, but does not include an industrial instrument. unfair contract means a contract: (a) that is unfair, harsh or unconscionable, or (b) that is against the public interest, or (c) that provides a total remuneration that is less than a person performing the work would receive as an employee performing the work, or (d) that is designed to, or does, avoid the provisions of an industrial instrument. 106 Power of Commission to declare contracts void or varied (1) The Commission may make an order declaring wholly or partly void, or varying, any contract whereby a person performs work in any industry if the Commission finds that the contract is an unfair contract. (2) The Commission may find that it was an unfair contract at the time it was entered into or that it subsequently became an unfair contract because of any conduct of the parties, any variation of the contract or any other reason. (2A) A contract that is a related condition or collateral arrangement may be declared void or varied even though it does not relate to the performance by a person of work in an industry, so long as: (a) the contract to which it is related or collateral is a contract whereby the person performs work in an industry, and (b) the performance of work is a significant purpose of the contractual arrangements made by the person. (3) A contract may be declared wholly or partly void, or varied, either from the commencement of the contract or from some other time. (4) In considering whether a contract is unfair because it is against the public interest, the matters to which the Commission is to have regard must include the effect that the contract, or a series of such contracts, has had, or may have, on any system of apprenticeship and other methods of providing a sufficient and trained labour force. (5) In making an order under this section, the Commission may make such order as to the payment of money in connection with any contract declared wholly or partly void, or varied, as the Commission considers just in the circumstances of the case. (6) In making an order under this section, the Commission must take into account whether or not the applicant (or person on behalf of whom the application is made) took any action to mitigate loss.

[30]

… 51ACAA Concurrent operation of State and Territory laws It is the Parliament's intention that a law of a State or Territory should be able to operate concurrently with this Part unless the law is directly inconsistent with this Part. 12 Part IVB of the TPA relevantly provides: Part IVB - Industry codes 51ACA Definitions (1) In this Part: applicable industry code , in relation to a corporation that is a participant in an industry, means: (a) the prescribed provisions of any mandatory industry code relating to the industry; and (b) the prescribed provisions of any voluntary industry code that binds the corporation. consumer , in relation to an industry, means a person to whom goods or services are or may be supplied by participants in the industry. industry code means a code regulating the conduct of participants in an industry towards other participants in the industry or towards consumers in the industry. mandatory industry code means an industry code that is declared by regulations under section 51AE to be mandatory. voluntary industry code means an industry code that is declared by regulations under section 51AE to be voluntary. (2) For the purposes of this Part, a voluntary industry code binds a person who has agreed, as prescribed, to be bound by the code and who has not subsequently ceased, as prescribed, to be bound by it. (3) To avoid doubt, it is declared that: (a) franchising is an industry for the purposes of this Part; and (b) franchisors and franchisees are participants in the industry of franchising, whether or not they are also participants in another industry. 51AD Contravention of industry codes A corporation must not, in trade or commerce, contravene an applicable industry code. 51AE Regulations relating to industry codes The regulations may: (a) prescribe an industry code, or specified provisions of an industry code, for the purposes of this Part; and (b) declare the industry code to be a mandatory industry code or a voluntary industry code; and (c) for a voluntary industry code, specify the method by which a corporation agrees to be bound by the code and the method by which it ceases to be so bound (by reference to provisions of the code or otherwise). 51AEA Concurrent operation of State and Territory laws It is the Parliament's intention that a law of a State or Territory should be able to operate concurrently with this Part unless the law is directly inconsistent with this Part. 13 Part IVB of the TPA was inserted in 1998 by the Trade Practices Amendment (Fair Trading) Act 1998 (Cth). It was assented to on 22 April 1998. The Trade Practices (Industry Codes - Franchising) Regulations 1998 commenced on 1 July 1998. 14 Sections 51ACAA and 51AEA were inserted into the TPA by the Trade Practices Amendment Act (No. 1) 2001 (Cth) assented to on 28 June 2001. The Amending Act commenced "on the 28th day after the day on which it receives the Royal Assent". Section 5 of the Amending Act also provided: 5 Application of items 3 and 4 The amendments made by items 3 and 4 [ss 51ACAA and 51AEA] apply in relation to a law of a State or Territory made before, on or after the commencement of those items. 15 The Explanatory Memorandum for the Trade Practices Amendment Bill (No 1) 2000 stated in relation to Schedule 1, items 3, 4 and 5: Items 3 and 4 - Concurrent Operation of State and Territory Laws - Sections 51ACAA and 51AEA 8. Item 3 inserts a new section 51ACAA, which allows the laws of the States and Territories to operate alongside the unconscionable conduct provisions of the Trade Practices Act 1974 (the TPA). 9. Item 3 is being inserted to overcome a possible constitutional inconsistency that would prevent the States and Territories from 'drawing down' the unconscionable conduct provisions of the TPA to their legislation. The absence of an express savings provision might lead to an assumption that the Commonwealth intended to "cover the field". A State law could therefore be inconsistent with the Commonwealth and thus invalid, pursuant to section 109 of the Constitution. 10. Item 4 inserts a new subsection 51AEA, which also allows the laws of the States and Territories with respect to Industry Codes to operate alongside the provisions of the TPA. Item 5 - Application 11. Item 5 makes it clear that that the sections 51ACA and 51AEA apply in relation to laws of the States or Territories that are made before, on or after the commencement of the sections, thereby ensuring the validity of existing as well as future State and Territory laws.

[32]

17 The Franchising Code was enacted by regulation in the form of the Trade Practices (Industry Code - Franchising) Regulations 1998. It is a mandatory code. The stated purpose of the Franchising Code, (cl 2(1)), is to regulate the conduct of participants in franchising towards other participants in franchising. It does this by prescribing the following (relevantly and in summary): (a) Disclosure (Pt 2): (i) places both pre-agreement and ongoing disclosure requirements on franchisors (cll 6, 10); (b) Conditions of Franchise Agreement (Pt 3): (i) regulates circumstances and manner in which franchisor can terminate a franchise agreement after a breach by a franchisee (cl 21); (ii) regulates circumstances and manner in which franchisor can terminate a franchise agreement without a breach by a franchisee (cl 22); (iii) provides for "special circumstances" where cl 21 and cl 22 do not have to be complied with (cl 23); (c) Resolving disputes (Pt 4): (i) provides for optional, not mandatory, mediation in the case of disputes and on the application of either party (cl 29); (ii) regulates circumstances and manner in which mediation may be terminated (cl 30A); (iii) provides that the dispute resolution procedures do not affect the right of a party to take legal proceedings under the franchise agreement (cl 31); and (d) Provides the details of what is to be included in the disclosure document to be provided to a franchisee or prospective franchisee (Annexure 1). 18 In 2001 the Regulations were amended by the Trade Practices (Industry Codes - Franchising) Amendment Regulations 2001 (No. 1). In the Explanatory Statement accompanying the Amendment it was stated: The purpose of the proposed Regulations is to improve the effectiveness of the Code by streamlining its operation. The Code regulates the conduct of participants in the franchising industry towards other participants in franchising. The Code provides for the mandatory disclosure of 23 categories of information to existing and prospective franchisees. The Code also provides for the mediation of disputes and a cooling off period. Franchisees have access to the remedies and sanctions available under the Act." ... These amendments are part of the Government's response to a review of the Code... The amendments: · remove the existing requirement on a franchisee to provide a disclosure document where that franchisee is selling a franchise business to another franchisee; · introduce a new shorter form of the disclosure document where a franchised business has an expected annual turnover of not less than $50,000; and, · make a number of technical and minor changes.

[34]

We have quoted earlier the terms of s 109 of the Constitution. In Felman v Law Institute of Victoria (1997) 142 FLR 362 at p 381, the Court of Appeal (Vic) reviewed the concept of "inconsistency" for the purposes of s 109 in light of the developed High Court authorities and observed that it arose broadly in three situations: "(i) where simultaneous obedience to the law of the Commonwealth and to the law of the State is impossible; (ii) where the law of the State takes away or varies a right, privilege, duty, power or immunity conferred by a law of the Commonwealth (or, conversely, a law of the Commonwealth takes away or varies a right, privilege, duty, power or immunity conferred by law of the State); or (iii) where the law of a State invades a field which the law of the Commonwealth was intended to cover exhaustively". To a similar effect, a Full Bench of this Court had occasion to consider the question in Metrocall Inc v Electronic Tracking Systems Pty Ltd (2000) 101 IR 66 at pp 76-77 in pars [39]-[41] and said: [39] The High Court has generally formulated three broad approaches to determine the existence of inconsistency. Inconsistency is present where it is impossible to obey both laws, for example where one law requires X and the other forbids X (see for example, R v Brisbane Licensing Court; Ex Parte Daniell (1920) 28 CLR 23) or where one law purports to confer a legal right, privilege or entitlement which the other law purports to take away or diminish: see, for example, Colvin v Bradley Brothers Pty Ltd (1943) 68 CLR 151. Inconsistency may also arise where the Commonwealth law evinces a legislative intention to "cover the field" or that its law shall be all the law there is on that topic, even where there is not a direct contradiction between the two enactments, the State law will be inoperative to the extent that it seeks to operate within that field. The intention to "cover the field" may be express or implied: see, for example, Viskauskas v Niland (1983) 153 CLR 280. [40] In Telstra Corporation Ltd v Worthing, the High Court considered whether the operation of the Commonwealth Safety, Rehabilitation and Compensation Act 1988 (Cth) was inconsistent with the operation of the Workers Compensation Act 1987 (NSW). The Court affirmed the principle in Viskauskas v Niland that inconsistency may exist under s109 although it is possible to obey both the State and Commonwealth law, and that a "direct collision" (in the words of Barwick CJ) would exist where the State law would impose a greater obligation than that provided for in the federal law (referring to Blackley v Devondale Cream (Vic) Pty Ltd (1968) 117 CLR 253 at 258-259). The Court stated (at 76): "Thus, in Australian Mutual Provident Society v Goulden (1986) 179 CLR 388 at 398, in a joint judgment, the Court determined the issue before it by stating that the provision of the State law in question 'would qualify, impair and, in a significant respect, negate the essential legislative scheme of the Life Insurance Act 1995 (Cth)'. A different result obtains if the Commonwealth law operates within the setting of other laws so that it is supplementary to or cumulative upon the State law in question ... " [41] The Court also affirmed the principles laid down by Dixon J in Victoria v The Commonwealth (1937) 58 CLR 618 that where a State law would "alter, impair or detract from the operation" of a Commonwealth law, then to that extent it is invalid, and, secondly, that if it appears from the nature of the federal enactment that it is intended to be a "complete statement of the law governing a particular matter or a set of rights and duties, then for a State law to regulate or apply to the same matter or relation is regarded as a detraction from the full operation of the Commonwealth law and so is inconsistent." We affirm the position there stated as representing our understanding of the proper approach to apply.

[38]

24 The respondents submitted it was the intention of the Regulations to cover the field with respect to the franchising industry. Notwithstanding the insertion of s 51AEA into Part IVB of the TPA in 2001, it was submitted the intention of the Regulations to cover the sector and provide certainty to its participants did not change. It was submitted the intention to regulate the entire franchising sector was restated in the explanatory memorandum to the 2001 amending Regulation (referred to earlier). Counsel for the respondents submitted the Regulations were a separate legislative instrument and could be imputed to have individual legislative intent. It was further submitted: · There was no mention in the second reading speech in respect of the Trade Practices Amendment Bill (No. 1) 2000 of any intention to displace the comprehensive code prescribed by the Regulations. · The Explanatory Memorandum did not disclose an intention to displace the intended operation of the Regulations, which were the subject of so much comment by the legislature when the 1998 amendments were passed. Further, the intention of the Regulations, as described when it was made, does not appear to have been expressly revoked or revised by any of the comments in the Explanatory Memorandum. · The very general comments in the Explanatory Memorandum in respect of item 4 (s 51 AEA) stand in marked contrast to the direct statement in relation to item 3 (s 51 AACA) that the purpose of item 3 is to overcome possible constitutional inconsistency which would prevent the States from 'drawing down' the unconscionable conduct provisions of the TPA to their legislation. · The Explanatory Memorandum in respect of s 51AEA directs attention to state laws with respect to Industry Codes. Part 9 of the Industrial Relations Act is not a state law with respect to Industry Codes. · The operation of s 51AEA did not commence until 28 days after 28 June 2001. Accordingly, any subordinate laws made under s 51AE prior to the commencement of s 51AEA would not have been influenced by the operation of s 51AEA. At most, it could be said that the Parliament may have intended to modify the operation of the operation of Part IVB after the amending Act. · The terms of s 51AEA do not extend to any Regulations made under Part IVB (which are laws in their own right). At the most, the operation of s 51AEA after 2001 could be used as an aid to interpret the operative sections of Part IVB (such as s 51AD), not Regulations that had already been made. · The only influence of s 51AEA, on determining the intention manifested by Regulations, would be an aid to divining the scope of a Regulation made under s 51AE by reference to the scope of the power conferred by that section. · Logically, the operation of s 51AE qua the scope of a Regulation can be relevant at the time the power under s 51AE is exercised. The Regulations were made under s 51AE in 1998, as previously noted. · The Attorney's submissions that the amendments to the Regulations in 2001 bring their interpretation within the scope of s 51AEA should not be accepted upon a precise examination of the sequence of the legislative instruments. · Section 51AEA commenced 28 days after 28 June 2001. Section 51AEA must have been operative at the date the exercise of the power under s51AD occurred in order to influence the scope of the exercise of that power. · This submission is buttressed by the artificiality of the outcome of the Attorney's analysis. There is no indication in the Explanatory Memorandum for the changes to the Regulations that the intended scope of the Regulations was being narrowed in order to give effect to items 3 and 4 of the Amending Act. It seems that it was co-incidence that the Regulations and the amending Act were assented to on the same dates. · Because it is the Regulations that comprehensively regulates the Franchise Industry, it is this Commonwealth law which most clearly attracts the operation of s 109 of the Constitution as having 'covered the field'. There is no express intention revealed in either the legislation or the Regulations that it was intended that the true scope of the field occupied by existing Codes should be altered. · Given that questions as to indirect inconsistency are to be determined entirely by reference to the intention of the paramount legislature, and that GMAC type sections are only of use as an aid to interpretation, it is submitted that s 51AEA in its very general terms, does not displace the clear and directed intention of the legislature expressed in the comprehensive regulation of the franchising industry on a national basis. 25 It may be seen from the respondents' submissions that the thrust of their constitutional challenge was that: (1) The Regulations made in 1998 were a mandatory code by virtue of s 51AE of the TPA and that it may be discerned from their terms and relevant extrinsic materials that the intention of the Regulations was to "cover the field" - to regulate the franchising industry to the exclusion of State laws, including the provisions of Pt 9 of Ch 2 of the Industrial Relations Act ; (2) The enactment of s 51AEA in 2001 did not narrow the scope of coverage of the Regulations because there was no indication of any intention of the legislature to displace the original intended operation of the Regulations and, further, that the Regulations were a separate legislative instrument and could be imputed to have individual legislative intent. 26 It was necessary for the respondents to address the judgment of the Court of Appeal in Majik Markets Pty Ltd v Brake and Service Centre Drummoyne Pty Ltd and Others (1992) 28 NSWLR 443; 39 IR 169. In that case the claimants sought to prevent the Commission in Court Session from proceeding to hear and determine, under s 88F of the Industrial Arbitration Act 1940 (a predecessor provision to s 106), a claim for relief in respect of certain petrol retail marketing franchise agreements made pursuant to the Petroleum Retail Marketing Franchise Act 1980 (Cth). The claimants contended, inter alia, that s 88F was inconsistent with the Federal Act and to that extent invalid by reason of s 109 of the Constitution. In separate judgments, all members of the Court of Appeal (Kirby P, Mahoney and Handley JJA) held there was no indirect inconsistency between s 88F and the Petroleum Retail Marketing Franchise Act. 27 The federal Act in Majik Markets contained the following provisions: 8. This Act is not intended to affect the operation of a law of a State ...

[40]

... 24. (1) Subject to this section, this Act does not affect any right of action or other remedy, whether civil or criminal, in proceedings instituted otherwise than by virtue of this Act. (2) Any compensation recovered or other remedy given in proceedings instituted by virtue of this Act shall be taken into account in assessing damages or compensation or giving any other remedy in proceedings instituted otherwise than by virtue of this Act and arising out of the same event or transaction. (3) Any damages or compensation recovered or other remedy given in proceedings instituted otherwise than by virtue of this Act shall be taken into account in assessing compensation or giving any other remedy in proceedings instituted by virtue of this Act and arising out of the same event or transaction. 28 It was held that s 8 of the Petroleum Retail Marketing Franchise Act was an explicit statement that the Federal Parliament did not intend to make exhaustive or exclusive provision with respect to such franchises. Thus it must be accepted that the Act was not intended to "cover the field". Kirby P held (at 454; 177) that if the general law of contract was saved by s 8, then s 88F was also saved. Mahoney JA held that Section 88F is a law "capable of operating concurrently with" the Federal Act (462; 186). Handley JA held that s 24 of the Petroleum Retail Marketing Franchise Act made it clear that a franchisee may pursue remedies under the Act or independently of it (468; 192). 29 Kirby P stated (at 453-454; 177): The question then becomes whether there is inconsistency of the "indirect" variety because the Federal Act has evidenced an intention to "cover the field" (relevantly) of the regulation of the retail marketing of petroleum by franchise agreements. Despite the several indications in the terms, structure and purpose of the Federal Act that it did intend to "cover the field", it is impossible to ignore the express statement of Parliament's intention, expressed in plain terms in the provisions of the Federal Act. I do not believe that this is the case, envisaged by Gibbs CJ in University of Wollongong v Metwally where, despite the assertion of s 8, the Federal Act does in truth fully cover the whole field of the regulation of franchise agreements in the retail marketing of petroleum in Australia. After all, such agreements are still drawn upon a number of assumptions about the operation on them of the general law of contract. If such law is not excluded but saved by s 8, it is difficult to suggest that s 88F of the State Act, as such, is not also saved. 30 In addressing the question of indirect inconsistency, Mahoney JA (at 462-463; 186) stated: There is perhaps much to be said for the view that it is inconsistent with the Federal Act for the purposes of s 109 to grant to a body the power to vary or set aside what a Federal Act has seen as an appropriate accommodation between franchisor and franchisee. But it is, in this case, not necessary to express any opinion upon that matter. In my opinion, the terms of the Federal Act indicate that it was the contemplation of that Act that the law of a State was not inconsistent with it if that law was "capable" of operating in a manner not inconsistent with it. This, I think, appears from s 8 of the Federal Act. That section provides: ... Counsel were not able to refer the Court to any case in which a provision in this form had been considered by the courts. Reference was made to, as it was suggested to be, an analogous provision, s 75(1) of the Trade Practices Act 1974 (Cth): see R v The Credit Tribunal; Ex parte General Motors Acceptance Corporation, Australia (1977) 137 CLR 545 at 562. In my opinion, s 88F falls within s 8. It is a law which is "capable of operating concurrently with" the Federal Act. Thus, the Commission may, under s 88F, consider a franchise agreement which has been drawn so as to comply with the provisions of the Federal Act. It may conclude that, because of the particular factual circumstances affecting the transaction, the "total remuneration" to be derived by the franchisee is less than the relevant employee would obtain within s 88F(1)(d). It is possible that, under s 88F, orders may be made which will not contravene the provisions of the franchise which are based upon or drawn to accord with the provisions of the Federal Act. It is, in my opinion, the intent of s 8 of the Federal Act, at least in respect of State or Territory laws which grant powers of the present kind, that inconsistency is to be judged not in the abstract but by reference to what is in fact done in the exercise of such a power. If and in so far as an inconsistency is to be found, it is to be found if and when the relevant State law, having operated, has an effect which is not a concurrent operation within s 8 of the Federal Act. 31 Handley JA expressed his views on the inconsistency question (at 468; 191-192) thus: Section 8 and s 24 make it clear that the Australian Parliament did not intend "to express by its enactment, completely, exhaustively, or exclusively, what shall be the law governing the particular conduct or matter to which its attention is directed": see Ex parte McLean (at 483) and that in general "the Federal law was intended to be supplementary to or cumulative upon State law". Section 8 is similar to s 75 of the Trade Practices Act which was considered in R v Credit Tribunal; Ex parte General Motors Acceptance Corporation, Australia (1977)137 CLR 545, see especially per Mason J (at 562-564). In Palmdale-AGCI Ltd v Workers' Compensation Commission (NSW) (1977) 140 CLR 236 at 243, after referring to similar provisions in the Insurance Act 1973 (Cth), Mason J said: "... a Commonwealth statute may provide that it is not intended to make exhaustive or exclusive provision with respect to the subject with which it deals thereby enabling State laws, not in direct conflict with a Commonwealth law, to have an operation. Considered in this light ... the Commonwealth Acts do not constitute a comprehensive and exclusive code intended to take effect independently of State law." (Emphasis supplied.) In Ansett Transport Industries (Operations) Pty Ltd v Wardley (1980) 142 CLR 237 at 259-260, Mason J analysed the situations in which direct conflict between Federal and State laws can occur. He said: "... 'Direct inconsistency' is a description which has always been applied to cases in which it is impossible to obey both laws ... It is also a description which has been applied to cases in which the Common wealth law grants a permission or a right and the State law prohibits that which is permitted or prohibits the exercise of the right. ... in a given case more than one test is capable of being applied so as to establish inconsistency. Especially is this so when it is the giving of a [sic] permission or the grant of a right by Commonwealth law that is the foundation of a claim of inconsistency. If, ... the right is absolute, then it inevitably follows that the right is intended to prevail to the exclusion of any other law. A State law which takes away the right is inconsistent because it is in conflict with the absolute right and because the Commonwealth law relevantly occupies the field. So also with a Commonwealth law that grants a permission by way of positive authority." Mr Conti QC submitted that the Federal Act made exhaustive and exclusive provision in relation to the topic of contractual review. The Act however contains no express provision to this effect. The remedies it confers by way of contractual review can be invoked only by the franchisee. The Act does not confer any "absolute right" or "positive authority" on franchisors in relation to the circumstances in which they enter into franchise agreements. Section 24 makes it clear that a franchisee may pursue remedies under the Federal Act or independently of it. Indeed a franchisee may pursue such remedies cumulatively, and is not required to elect...

[42]

33 It is certainly arguable that the Regulations provide a comprehensive code for regulating the conduct of participants in franchising towards other participants, and that the Regulations were an expression of the Commonwealth's intention to cover the field, leaving no room for the rights and liabilities of the parties to be varied by the operation of State laws such as s 106 of the Industrial Relations Act. The critical question to be addressed here, however, is that even if it were accepted the Regulations did, relevantly, cover the field when the Regulations were made in 1998, what effect, if any, did s 51AEA have on that situation when that section was introduced into the TPA in 2001? 34 There was no issue that the Regulations, being delegated or subordinated legislation, were validly made in 1998. We will proceed, therefore, on the basis the Regulations were validly made. 35 The making of the Regulations was authorised under s 51AE in Pt IVB of the TPA. Part IVB was assented to on 22 April 1998 and the Regulations commenced on 1 July 1998. Part IVB was amended in 2001 by, inter alia, the introduction of s 51AEA. That section commenced on the 28th day after the day on which it received the Royal Assent, that is, 28 days after 28 June 2001. 36 Assuming, as we have, that the Commonwealth intended that Pt IVB and the Regulations would cover the field in so far as regulating the relationship between franchisors and franchisees, s 51AEA could not operate to retrospectively alter that intention: The University of Wollongong v Metwally and Others (1984) 158 CLR 447. The issue still remains, however, given the agreement that is the subject of these proceedings, the unfairness alleged, and the action commenced, all post-date the enactment of s 51AEA, whether the section has the effect of preserving the unfair contract provisions of the Industrial Relations Act in light of the respondents' contention that irrespective of the insertion of s 51AEA into Part IVB of the TPA, the intention of the Regulations to cover the field in relation to the franchising sector, did not change. 37 In Metwally, Gibbs CJ observed at 456: It is said in Butler v. Attorney-General (Vict.) (1961) 106 CLR 268 that "invalid" in s 109 of the Constitution means, not void, but "inoperative", so that if a State law, which was inconsistent with a law of the Commonwealth, was not repealed by the State legislature and remained on the statute book, the expiration or repeal of the Commonwealth law would have the result that the State law would come into force; in those circumstances the State law would have remained in abeyance during the time when the inconsistency existed and, when the inconsistency no longer existed, would cease to be inoperative: see at pp.274, 278, 282-283 and 286. It follows that if a Commonwealth statute which, on its proper construction, had revealed an intention to cover exclusively and exhaustively the subject matter with which it dealt, so that in consequence a State statute dealing with the same subject matter was rendered inoperative, were subsequently amended in such a way as to manifest an intention that it was not intended to exclude the operation of the State law, the operation of the State statute would thereupon revive. 38 It is clear, in our opinion, that if the Regulations were an integral part of the TPA, that is they were provisions of the statute itself, the respondent could not succeed in contending that upon s 51AEA commencing operation it was, nevertheless, intended that the relevant provisions of the TPA would continue to cover the field to the exclusion of State laws. Whilst an expression of intention in the Act will not be definitive (GMAC at 552 per Barwick CJ), as Gibbs CJ stated in Metwally at 456: However, when there is no direct inconsistency between the two laws, the question is whether the State law is inconsistent with the Commonwealth law because the latter intends to cover the subject matter with which the State law deals, and an indication in the Commonwealth law of the intention of the Parliament in that regard would be material and in most cases decisive (see the discussion by Mason J. in Reg. v. Credit Tribunal; Ex parte General Motors Acceptance Corporation (1977) 137 CLR 545, at pp 562-564 and Palmdale-A.G.C.I. Ltd. v. Workers' Compensation Commission (N.S.W.) (1977) 140 CLR 236, at pp 243-244) (emphasis added). 39 In Majik Markets, all members of the Court of Appeal accepted that s 8 of the Petroleum Retail Marketing Franchise Act was an explicit statement that the Federal Parliament did not intend to make exhaustive or exclusive provision with respect to petrol marketing franchise agreements and, therefore, it had to be accepted that the Act was not intended to "cover the field". 40 We consider s 51AEA should be regarded in the same light as s 8 was by the Court of Appeal in Majik Markets. That is, s 51AEA is an explicit statement that the Commonwealth Parliament did not intend to make exhaustive or exclusive provision with respect to franchises and did not intend to cover the field. 41 This still leaves the respondents' contention that s 51AEA does not apply to the Regulations because they are a separate legislative instrument from the TPA and can be imputed to have individual legislative intent. We do not understand how, as a matter of statutory construction, this could be the case. The Regulations may be regarded as a law of the Commonwealth for the purpose of s 109 of the Constitution: Australian Constitutional Law, 7th edition, P Hanks, P Keyzer, J Clarke, LexisNexis Butterworths, 2004 at 514 and the cases referred to therein. The Regulations are made under Pt IVB of the TPA; more specifically under s 51AE. Section 51AEA, also to be found in Pt IVB, provides that the Parliament's intention is that a law of a State or Territory should be able to operate concurrently with Pt IVB unless the law is directly inconsistent with that Part. 42 The Regulations are not to be treated as separate from the TPA; they are to be interpreted in conjunction with the empowering provisions in the statute. The Regulations may not be repugnant to or inconsistent with the statute under which they are made and the general rule is that when delegated legislation has been made under a section of an Act and that section (or the Act itself) is repealed, the delegated legislation is also repealed unless the repealing Act includes a relevant savings clause or unless the court is satisfied there was an intention to keep the regulations afoot: see Delegated Legislation in Australia, 3rd edition, D Pearce and S Argument, LexisNexis Butterworths, 2005 at 308 and the cases referred to therein. 43 We do not accept the logic of the proposition that a provision of a statute empowering the Executive to make regulations for the purposes of the relevant part of the statute could operate concurrently with State laws, provided there is no direct inconsistency, but that the subordinate legislation - the regulations - made under the empowering provision, are to be taken as ousting the State laws. 44 Part IVB of the TPA is concerned exclusively with industry codes; it has no purpose other than to provide empowering provisions for the making and enforcement of regulations in respect of industry codes to regulate the conduct of participants in an industry towards other participants in the industry or towards consumers in the industry. It would produce an odd result if, upon the enactment of s 51AEA, Parliament's intention was to be construed as being that a law of a State or Territory should be able to operate concurrently with the skeletal statutory provisions in Pt IVB (unless the State or Territory law was directly inconsistent with that Part) but not the Regulations made under one of those provisions, such Regulations constituting the substance of what Part IVB is intended to achieve.

[43]

45 To further illustrate the point, the industry code contained in the Regulations is not legally binding of itself. Its binding effect is derived from s 51AD in Pt IVB, which provides that, "A corporation must not, in trade or commerce, contravene an applicable industry code." Upon s 51AEA being enacted, the obligation to "not... contravene an applicable industry code" was not, at least from that time, intended to oust a law of a State unless directly inconsistent with s 51AD. 46 In other words, the Commonwealth Parliament's intention from 26 July 2001, when s 51AEA commenced, may be understood to have been that the requirement in s 51AD to comply with - or not contravene - the industry code in the Regulations would operate concurrently with any State law, unless the State law was directly inconsistent with Pt IVB of the TPA. On the respondents' argument, the effect of s 51AEA on s 51AD is rendered nugatory because the Regulations would oust any State law that intrudes into the field of regulation of franchising relationships. Moreover, if State laws may operate concurrently with a provision (s 51AD) that proscribes contravention of applicable industry codes it must be taken that the legislature envisaged the State laws would have some work to do. However, they could not have any application if it were to be accepted that the Regulations ousted the State laws. In our opinion, these considerations give rise to an unacceptable inconsistency between Pt IVB and the Regulations made under that Part. Consequently, we do not consider this was the Parliament's intention. 47 Similarly, a State law that provides for the making of industry codes could operate concurrently with s 51AE, provided there was no direct inconsistency, but on the case put by the respondents, any industry code legislated for at the State level regulating franchising relationships would have no effect because they would be ousted by the Regulations. 48 Further indications, although not conclusive in themselves, that the Regulations were not intended to cover the field are first, that cl 31(1) of the Regulations, which is to be found in Pt 4 - Resolving Disputes, provides that Pt 4 does not affect the right of a party to a franchise agreement to take legal proceedings under the franchise agreement. The franchise agreement in this case provides as follows: 22.12 (Governing law) This agreement shall be governed and construed in accordance with the laws of New South Wales, Australia and the parties hereby agree to submit to the non-exclusive jurisdiction of the courts in New South Wales, Australia. 22.13 (Other remedies) No right or remedy conferred by this agreement on the State Master Franchise is exclusive of any right or remedy provided or permitted by law or in equity. 49 Secondly, we note what Kirby P observed in Majik Markets at 453-454; 177 (our emphasis): Despite the several indications in the terms, structure and purpose of the Federal Act that it did intend to "cover the field", it is impossible to ignore the express statement of Parliament's intention, expressed in plain terms in the provisions of the Federal Act. I do not believe that this is the case, envisaged by Gibbs CJ in University of Wollongong v Metwally where, despite the assertion of s 8, the Federal Act does in truth fully cover the whole field of the regulation of franchise agreements in the retail marketing of petroleum in Australia. After all, such agreements are still drawn upon a number of assumptions about the operation on them of the general law of contract. If such law is not excluded but saved by s 8, it is difficult to suggest that s 88F of the State Act, as such, is not also saved. 50 Further, the franchise agreement that is the subject of these proceedings was formed based on a number of assumptions, including the operation on it of the general law of contract (see cl 31 of the Regulations), and if such law is not excluded by virtue of s 51AEA, then it is difficult to suggest that s 106 is excluded. 51 Thirdly, cl 4 of Annexure 1 and cl 3 of Annexure 2 to the Regulations require that there be disclosure to the franchisee or prospective franchisee of any proceedings against the franchisor under, inter alia, "section 106 of the Industrial Relations Act 1996 of New South Wales". Whilst it is arguable that the reference to proceedings under s 106 might refer to proceedings instituted prior to the Regulations coming into force in 1998 or proceedings pending at that time, it is noteworthy that the Annexures also refer to s 276 of the Industrial Relations Act 1999 (Qld), which did not commence until 1 July 1999. Section 276 of the Queensland Act gives the Commission in that State certain powers in relation to unfair contracts. 52 We find there is no indirect inconsistency between the Trade Practices Act 1974 (Cth) and the Trade Practices (Industry Codes - Franchising) Regulations 1998 on the one hand and Pt 9 of Ch 2 of the Industrial Relations Act 1996 on the other.

[48]

58 There will be what Barwick CJ described as a "direct collision" where the State law, if allowed to operate, would impose an obligation greater than that for which the federal law has provided: Blackley at 258-259. In Australian Mutual Provident Society v Goulden and others (1986) 160 CLR 330 at 339 the High Court considered there would be a direct inconsistency where the provision of the State law "would qualify, impair and, in a significant respect, negate the essential legislative scheme of the Commonwealth [statute]". 59 As we have stated, counsel for the respondents sought to show how the orders sought by the applicants in their summons for relief collided directly with the Regulations. It does not seem to us, however, in the context of a consideration of direct inconsistency, that these proceedings are distinguishable from Majik Markets. In that case, as in this, the summons for relief was before the Court and at 455; 178-179 Mahoney JA referred, in terms, to the orders sought. At 461-462; 185-186, Mahoney JA stated: Therefore, essentially the claim made by Majik in this case is that the possibility of such an order being made creates an inconsistency under s 109 with the Federal Act. At the present stage of the Commission's proceedings, Majik cannot, of course, claim that an order made by it does in fact create a relevant conflict or inconsistency with the operation of the Federal Act: its claim is and must be that it is possible an order will be made which will create such an inconsistency with the Federal Act and that that possibility gives rise at this stage to an inconsistency which prevents s 88F operating to grant jurisdiction in the present matters to the Commission. ... Thus, the Commission may, under s 88F, consider a franchise agreement which has been drawn so as to comply with the provisions of the Federal Act. It may conclude that, because of the particular factual circumstances affecting the transaction, the "total remuneration" to be derived by the franchisee is less than the relevant employee would obtain within s 88F(1)(d). It is possible that, under s 88F, orders may be made which will not contravene the provisions of the franchise which are based upon or drawn to accord with the provisions of the Federal Act. 60 Handley JA stated at 465; 189: The Commission has not heard and determined the applications and no substantive orders have been made. Accordingly the claimant, by seeking to restrain the Commission from proceeding with the hearing has undertaken a heavy onus... The possibility that the Commission might make particular orders which exceeded its jurisdiction is no sufficient reason for prohibiting it from dealing with the applications: see Re Manufacturing Grocers' Employees Federation of Australia; Ex parte Australian Chamber of Manufactures (1986) 160 CLR 341 at 355. The claimant therefore must establish that no order can be made which would be within jurisdiction. In other words it must establish that no order can be made that would not be inconsistent with the Federal Act.

[49]

At 469; 192 his Honour stated: In my opinion therefore the claimant has not established that the effect of the Federal Act is that no order can be made by the Commission in these cases that would be within its jurisdiction. This leaves open the possibility that orders may be made which conflict with the Federal Act and are therefore beyond jurisdiction. However as I have already held the mere possibility that this could occur does not entitle the claimant to relief in these proceedings. 61 At 449-450; 173-174 Kirby P stated: At this stage, no order has been made under the State Act. Accordingly, it is only to the terms of the two statutes themselves that this Court has addressed its attention. We have not been concerned to anticipate whether particular orders, made by the Commission pursuant to the State Act might, in their terms and operation, amount to a State law purportedly taking away a right or privilege conferred by or under the Federal Act. That issue remains for the future. 62 It may be seen, therefore, that the conclusions by each of the justices in Majik Markets, to the effect that it was premature to determine whether there was any direct conflict between any orders that might be made and the Federal Act, were reached in the knowledge of the nature of the relief being sought. The same situation prevails in these proceedings. 63 Counsel for the respondents, Mr Prince, nevertheless contended that not only did each of the orders sought by the applicants in their summons for relief directly conflict with the TPA and the Regulations, but also that no orders could conceivably be made that did not so conflict. The respondents' submission on direct inconsistency was essentially that the Regulations were exhaustive and the franchise agreement mirrored the Regulations. It was submitted any order made under s 106 varying or avoiding the franchise agreement would inevitably conflict with the requirements of the Regulations. 64 It may be observed, however, that in Majik Markets, although it was not pleaded in the summons for relief, Mahoney JA stated at 462; 186 that it would be open to the Commission in Court Session to conclude that, because of the particular factual circumstances affecting the transaction, the "total remuneration" to be derived by the franchisee was less than the relevant employee would obtain under s 88F(1)(d) and it was, therefore, possible that, under s 88F, orders might be made which would not contravene the provisions of the franchise which were based upon or drawn to accord with the provisions of the Federal Act. 65 Similarly, it may be open to the Court in these proceedings to conclude that because of the particular factual circumstances affecting the transaction, pursuant to s 105(c) of the Act the contract between the applicants and the respondents was unfair in that it provided a total remuneration that was less than a person performing the work would receive as an employee performing the work. Section 105(c) is not limited in its application to employees: All-Fect Distributors Limited & Ors v Stewart [2007] NSWIRComm 24. 66 We do not consider that it is either productive or appropriate to speculate any further on the form and content of any orders that might be made except to make two general observations. First, the remedies provided for by s 106 are discretionary; they are also of wide scope. Further, in determining appropriate relief, the Court is not limited to the relief sought and, in any event, at this stage of the proceedings the opportunity remains open for the applicants to seek leave to amend the pleadings: Mount Thorley at [91]-[92], [98]. 67 The second general observation we make, supplementary to what we stated regarding the operation of s 105(c), is that we do not consider the Regulations are of such wide scope that they exclude completely the possibility of orders being made under s 106 of the Act that do not conflict with the Regulations. For instance, it does not appear to us that there is any provision in the Regulations that would conflict with appropriately framed orders varying the franchise agreement to allow the Regional Master Franchisee to terminate the agreement in circumstances where the State Master Franchisee had made misrepresentations provided, of course, such orders were grounded in findings of unfairness. Indeed, the Regulations do not appear to make any provision for termination of a franchise agreement by the franchisee other than during the cooling off period when the franchisee may terminate the agreement without cost: see cl 13. We have not identified any term of the Regulations that would conflict with orders varying or avoiding the franchise agreement in circumstances where the franchisee's territory was unfairly changed and where the provisions of s 106(2) may apply. Section 106(2) provides: The Commission may find that it was an unfair contract at the time it was entered into or that it subsequently became an unfair contract because of any conduct of the parties, any variation of the contract or any other reason.

Holburn & Anor v Shig Pty Ltd & Ors

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