Opal v Franklins

Supreme Court of NSW|2001-08-27|Before: Barrett J, Mr J

Background 1 The defendant, Franklins Limited ("Franklins"), was, at all material times, an operator of supermarkets at various locations in Australia. In the course of its business, Franklins maintained a number of distribution centres. These were, in essence, warehouses into which goods were received from manufacturers and other suppliers for storage pending dispatch to supermarkets when a need for re-stocking of those supermarkets arose. The current proceedings concern, in the main, two such distribution centres, one at Ingleburn in New South Wales and the other at Somerton in Victoria. 2 The plaintiff, Opal Group Holdings (Aust) Pty Limited ("Opal"), is a "labour hire" contractor the business of which entails the supply of casual labour. A contractor of this kind employs individuals not so that they may work at the employer's own locations and in the employer's own operations but, rather, so that the employer may fulfil contracts with other parties to make available to them the services of persons suitable to perform particular work at their premises and in their operations. 3 It is common ground that, at material times, one or more contracts were in force between Opal and Franklins under which Opal provided to Franklins the services of casual workers required by Franklins for duties within its distribution centres and Franklins, in turn, made payments to Opal. It is also common ground that, at a point in April 2000, the contractual arrangements for the supply of casual labour by Opal to Franklins came to an end when, following an invitation by Franklins for tenders (to which Opal was one of several respondents), Franklins entered into a new labour hire arrangement with Forstaff Pty Limited ("Forstaff"). After Forstaff had become the successful tenderer for the supply of casual labour at relevant Franklins' distribution centres, a number of individuals who had previously been employed by Opal and whose services Opal had supplied to Franklins ceased to be employed by Opal and became employees of Forstaff which provided their services to Franklins at the locations in which they had previously been placed by Opal. Opal contends that, in these circumstances, Franklins became liable to make certain payments to Opal pursuant to the contract or contracts existing between them.

Opal's claims 4 Two issues arise for determination. The first is as to the content of the contract or contracts between Opal and Franklins and, in particular, whether a provision known as the "client certificate" had contractual effect between the parties. The second issue concerns the meaning and effect of the "client certificate" provision, assuming that it does form part of the contractual framework within which Opal and Franklins did business and, in particular, whether that provision operated to require the making of a payment by Franklins to Opal. In the course of the trial, it was agreed that, if the provision did so operate, the sum which had become payable was $1,550,496.32. 5 Opal maintains that its contractual relationship with Franklins was, from time to time, constituted or evidenced by one or more documents each known as a "Customer Service Programme" or CSP. There are in evidence several CSPs. Each CSP sets out parameters of the commercial relationship and the service to be provided and contains a section headed "Opal Terms of Trade" which, in turn, incorporates a "client certificate" provision in or to the effect of the following form: "It is hereby agreed that if Franklins, our associates or subsidiaries engage an Opal casual, whether permanently or for a limited period, and whether the offer is made during or at anytime within 6 months after the termination of this temporary engagement, we will notify OPAL immediately, as a placement fee is payable at current rates. I/We also understand and accept that OPAL will pay the Pay-Roll Tax applicable to this assignment in accordance with current practice, unless otherwise agreed between the parties." 6 As the form makes clear, "we" and "I/We" refer to Franklins. Paraphrased, therefore, the client certificate is an acknowledgment by Franklins that it will "notify Opal immediately" in certain events "as a placement fee is payable at current rates". Opal maintains that this wording, if it forms part of a relevant contract or contracts between Opal and Franklins, has become the source of an obligation on the part of Franklins to pay the "placement fee" in respect of each person who, immediately before Forstaff replaced Opal as the supplier of casual labour to Franklins, was an Opal employee whose services were supplied to Franklins and thereafter became a Forstaff employee whose services were supplied to Franklins. It is common ground that neither Franklins nor any subsidiary of Franklins engaged those persons in the way referred to in the client certificate. But Opal says that Forstaff was, at the relevant time and in the relevant sense, an "associate" of Franklins and that the part of the certificate concerned with the possibility that an "associate" of Franklins might engage relevant Opal personnel has been activated.

General observations on the client certificate 7 It is reasonably apparent that the client certificate was not drafted by a lawyer and that its terms are the work of commercial people. It must therefore be approached and construed as a commercial document. The fact remains, however, that the commercial person who wrote the document has, by referring to "associates" and "subsidiaries", resorted to terminology which he or she apparently considers to have some definite or readily ascertainable meaning. This is particularly so in the case of the word "subsidiaries" and a brief consideration of possible intentions behind the use of that word may assist the central inquiry, to be embarked upon in due course, as to the meaning of the word "associates". 8 It may be accepted, I think, that the term "subsidiary", when used today by commercial people in relation to corporations generally indicates a situation in which the corporation described as "subsidiary" is subject to the control of another corporation of which it is a "subsidiary". This is borne out by the Oxford English Dictionary's description of a "subsidiary company" as one "controlled by a holding company". That was not always the concept. In the Life Assurance Companies Act 1872 (Imp), for example, the term "subsidiary company" referred to something quite different, being a company which became the transferee of an insurance company's business or its successor in business. But accepting that a concept of control by another company is today the distinguishing feature of a "subsidiary", we may wonder what ordinary and intelligent commercial persons would think about the nature of that control. Such persons would probably say that they would know "control" when they saw it. Someone who approached the matter in a deeper way might think along lines suggested by the analyses in cases such as Mendes v Commissioner of Probate Duties (1967) 122 CLR 152 and Federal Commissioner of Taxation v Commonwealth Aluminium Corporation Ltd (1980) 143 CLR 646 or come to conclusions similar to those stated by Adolf A. Berle and Gardiner C. Mears in the revised edition (1968) of their work "The Modern Corporation and Private Property": "Five major types can be distinguished, though no sharp dividing line separates type from type. These include (1) control through almost complete ownership, (2) majority control, (3) control through a legal device without majority ownership, (4) minority control, and (5) management control. Of these, the first three are forms of control resting on a legal base and revolve about the right to vote a majority of the voting stock. The last two, minority and management control are extra legal, resting on a factual rather than a legal base." 9 It is unlikely that anyone but a lawyer would jump to a conclusion that the meaning of "subsidiary" was somehow to be derived by application of or analogy with some statutory definition. And even then, such a reader would be faced with the task of deciding among several statutory definitions, including those in the Corporations Act 2001 (Cth), the Transport Administration Act 1998 (NSW) and the Petroleum Resource Rent Tax Assessment Act 1987 (Cth), to mention just a few examples of statutes which employ the same label for a concept differently defined and expressed in each case. Had a lawyer drafted the provision, the likelihood is that the references to "subsidiaries" and "associates" would have been expanded to import the meanings given by a particular statute.

Did the client certificate provision have contractual force ? 10 The question whether the client certificate formed part of the contract or contracts between Opal and Franklins must be addressed in the light of the ways in which the CSPs were introduced into the parties' relationship. 11 In late 1996, Opal's chief executive, Mr Browne, began discussions with Franklins about what he termed a "strategic partnership" which was, I think, another name for a medium to long term labour supply arrangement. Mr Browne deposed that, on 2 December 1996, representatives of Opal (including himself and Ms Jackson, who also gave evidence) met with representatives of Franklins at the latter's Ingleburn site. The Franklins representatives were led by Mr Tolmie who was at that stage the New South Wales Distribution Manager. The meeting discussed the proposed contract and was followed by Opal's submitting to Franklins a document entitled "Strategic Partnership Proposal" which was in evidence. This included, in the "Opal Terms of Trade" section, the client certificate provision. 12 Subsequent discussions occurred in April 1997. On 8 April, Mr Browne wrote to Mr Tolmie to confirm certain points as having arisen from their conversation of the previous day. Among these was that discussions were to continue "in regards to the re-engineering of the Franklins/Opal Partnership", with nominated persons being identified to progress the matter on each side. Meetings occurred on various subsequent occasions, including a meeting on 4 August 1997 at which Mr Browne, Ms Jackson and Mr Tolmie were present and CSPs for Ingleburn and Somerton were discussed. These contained the Terms of Trade. Certain operational matters were the subject of comment and request by Mr Tolmie. During the early part of 1998, Mr Browne and Mr Tolmie brought matters to a point which caused Mr Tolmie (who by then had been promoted to be National Operations Manager (Logistics) of Franklins) to write to all State Distribution Managers confirming: "… that an 'agreement in principle' has been reached between myself and Warwick Browne of Opal Consulting Group, regarding the provision of casual labour and other personnel support, for a period of 12 months. This will commence on 1st April 1998 and finish on 31st March 1999, unless extended by Franklins Ltd."

The letter also said: "A 'Customer Service Program' is to be drafted in each state and agreed between the local Opal Manager and the relevant Franklins State Distribution Manager. Opal will provide the initial draft for this. The finalisation of this document is to occur before 1st April 1998." 13 Thereafter, further CSPs were prepared by Opal and submitted to Franklins. All contained the Opal Terms of Trade which, in turn, included the client certificate provision. Mr Browne confirmed in cross-examination that the terms of CSPs were discussed at such meetings. The cross-examination continued: "Q. Were there any negotiations between you and persons at Franklins about the terms of the client certificate? A. Our Terms of Trade we discussed in considerable length with Mr Tolmie. Q. Was there any dispute over what was set out in the client certificate? A. No, except our Terms of Trade. Q. There was a dispute, wasn't there? A. No. Q. At one time? A. Not with Mr Tolmie and myself. Q. So who was the dispute between? A. At one time there was correspondence from Victoria." 14 The reference to "correspondence from Victoria" is a reference to a letter dated 1 April 1999 to Ms Jackson of Opal from Mr Herbert, Franklins' Logistics Manager - Southern Region. That letter began: "You are aware of recent local concerns relating to provision of contract labour at the Somerton and Footscray sites. These essentially are about management of the pool, site management representation and contracted cost rates. Additionally the Somerton DC Customer Service Programme document contains one area that needs adjustment before meeting our needs."

The "one area" was the subject of a later paragraph: "In the CSP document under OPAL Terms of Trade (page 29) there is reference to contractor transfer payments that I require to be removed. We do not accept liability for these types of costs given the initial induction and training costs associated with these contractors in the first place." 15 Ms Jackson responded to Mr Herbert by letter dated 7 April 1999 confirming that the matter concerning the client certificate "is a matter for discussion between John Tolmie and Warwick Browne". They were the senior officers of the respective companies. Ms Jackson said in evidence that she had written the letter of 7 April 1999 after discussion with Mr Browne. He in turn said in evidence that he phoned Mr Tolmie and took the matter up with him: "Q. What was the nature of that discussion? A. To the best of my recollection, he said 'hello'. I said, 'Hello John, Warwick here'. He said 'Hello Warwick'. I said, words to the effect, 'There appears to be an issue with Jon Herbert in regards to the client certificate. He doesn't want a CSP in the Terms of Trade'. I said, 'I have asked for Kristine Jackson to respond to him and we are not removing it'. Q. What was his response to that? A. He said, fine, he would take it up with him."

(I accept, by the way, that while Mr Browne is recorded as having said, "He doesn't want a CSP in the Terms of Trade", he actually said or meant to say, "He doesn't want the client certificate in the Terms of Trade".) 16 Mr Tomlie did not give evidence. Witnesses who knew him said that he is no longer employed by Franklins. 17 Ms Jackson gave evidence that a CSP existed in relation to each relevant Franklins site at all material times. I say "existed" in the sense of having been furnished by Opal to Franklins and, in the case of the CSP the subject of Mr Herbert's letter of 1 April 1999, having been the subject of correspondence and discussions. Ms Jackson also confirmed that each CSP contained the Terms of Trade incorporating the client certificate provision. She said that CSPs were in a state of continual revision and updating in relation to commercial matters such as key performance indicators. As she explained: "The CSP was a document that was designed to move with the relationship, from an operational level. As operational KPIs changed or improved, the CSP was designed to go with them."

The Terms of Trade, however, remained constant. The only time they were queried was on the occasion involving Mr Herbert the upshot of which has already been noted. They were republished to Franklins in the same form every time a new or revised CSP was forwarded by Opal. They were also on other Opal documents. And Franklins continued to take and pay for labour supplied by Opal. 18 I have no difficulty in accepting that the client certificate provision formed part of each contract for the supply of labour by Opal to Franklins in the sense of being a contractual term. While it may not be possible to pinpoint specific offer and acceptance in relation to each CSP, the parties' course of conduct leaves no doubt that the document was accepted by both as regulating their relationship. Mr Tolmie was a senior manager of Franklins by the time of the events concerning Mr Herbert's questioning of the inclusion of the client certificate. I am satisfied that he, on behalf of Franklins, accepted the Terms of Trade in general and the client certificate in particular as being contractual terms of ongoing application as between Opal and Franklins. The Terms of Trade section, being concerned very largely with financial matters and entitlements, was clearly intended to spell out legal rights and obligations. 19 Principles discussed by Heydon JA in Brambles Holdings Ltd v Bathurst City Council [2001] NSWCA 61 as to ways in which contracts may be formed seem to me to justify the conclusion I have reached. The conclusion is also supported by the following passage in the judgment of Giles JA in Industrial Rollformers Pty Ltd v Ingersoll-Rand (Australia) Ltd [2001] NSWCA 111: "There is no doubt that a contract may be found in a course of conduct. In Empirnall Holdings Pty Ltd v Machon Paull Partners Pty Ltd (1988) 14 NSWLR 523 one party declined to sign a formal contract proposed by the other party, but it was held that it had by its conduct agreed to be bound by its terms. McHugh JA, with whom Samuels JA agreed, said (at 535) that the question is one of fact, and that - '… where an offeree with a reasonable opportunity to reject the offer of goods or services takes the benefit of them under circumstances which indicate that they were to be paid for in accordance with the offer, it is open to the tribunal of fact to hold that the offer was accepted according to its terms … The ultimate issue is whether a reasonable bystander would regard the conduct of the offeree, including his silence, as signalling to the offeror that his offer has been accepted.' It may be artificial to analyse the conduct of the parties in the traditional terms of offer and acceptance, and sometimes analysis in those terms is not possible; see the detailed discussion by Heydon JA in Brambles Holdings Ltd v Bathurst City Council [2001] NSWCA 61 at [71]-[80]. In Integrated Computer Services Pty Ltd v Digital Equipment Corp (Aust) Pty Ltd (1988) 5 BPR 97326 at 11,117 McHugh JA, with whom Hope and Mahoney JJA concurred, said that the question in a contract by conduct case is whether the conduct of the parties, viewed in the light of the surrounding circumstances, shows a tacit understanding or agreement, but emphasised that the conduct of the parties must be capable of proving all the essential elements of an express contract. It is necessary, if one party is to be held to have bound itself in contract by its conduct, to be able to identify within the conduct of both parties the terms of the contract, and to be objectively satisfied that both parties agreed to be bound by those terms."

The replacement of Opal by Forstaff 20 I turn now to the actions and events said by Opal to have activated a payment obligation on the part of Franklins under the client certificate. I have already said that Forstaff was awarded a labour supply contract by Franklins as a result of an invitation for tenders and thereby came to replace Opal. Some ten days before Forstaff was due to start at the distribution centres at Ingleburn and Somerton on 17 April 2000, a meeting of Opal casuals took place at each centre. The meetings were arranged by Franklins. Present at each meeting at Franklins' invitation were one or more members of Forstaff's staff, a member of Opal's staff and, in the case of Ingleburn, a representative of the National Union of Workers. The proceedings were essentially the same at each meeting. The Franklins manager in attendance informed those present that Forstaff had been awarded the casual labour supply contract for the centre in place of Opal and would be starting on a specified date. The Forstaff representative in attendance was then introduced and told those present something about Forstaff and its activities and plans. 21 Mr Pettitt was the senior Forstaff spokesperson at the Ingleburn meeting. According to Mr Chalmers, the Franklins manager at that meeting, the statements made by Mr Pettitt to the assembled casual workers were to the following effect: " I'm David Pettitt from Forstaff and this is Steve Clancy, Assistant General Manager and Rick Senkowski our NSW Account Manager. Forstaff have been around for quite a while. Unlike Opal, we supply to other sites such as Coles/Myer at Smeaton Grange. We also have a new office complex at Smeaton Grange. If you want to formally apply to Forstaff you should go to the Smeaton Grange office. Given you all have experience in warehousing we would like to take your names and utilise that experience. We will look to implementing a fixed roster so that people know when they will be working. We have company profiles to give to anyone who wants one and we have prepared a question and answer sheet for you all to look at. " 22 A fuller version of Mr Pettitt's account is in his affidavit. He deposes that, after he had made his opening remarks, he was asked and answered questions to the following effect: "Opal employee: 'Do I still get to work at Franklins?' Me: 'Yes, nothing has altered. You still remain working for Opal until the handover date. Once the handover date is set in concrete you can choose to work for Forstaff or stay with Opal.' Opal employee: 'Is the pay the same?' Me: 'Yes, the pay is the same.' Opal employee: 'Can I transfer my superannuation?' Me: 'Yes.' Opal employee: 'Is there any other chance of work at other Forstaff sites?' Me: 'Yes. We have an existing contract for Grace Bros/Myer and various other sites in the area.' " 23 The following passage in Mr Pettitt's cross-examination explains matters further: "Q. Can you recollect whether, at that meeting at which you spoke, you said anything to the casual work force assembled to the effect that Forstaff would like to take their names or invite them to enrol or apply for positions? A. Yes. The general talk was directed to say that they were free to come and go as they pleased, but we, the supplier, was going to take over the contract in the future and they could apply for a job with Forstaff; the introduction into Forstaff would be made easier for them in as much as they would be given an interview time after the shift and we would be compassionate with their shift times, if you like, because our offices were open 24 hours a day, so - and then they would be treated primarily like everybody else." 24 The Opal representative at the Ingleburn meeting, Mr Campbell, said nothing. This was in accordance with instructions given by his superiors. 25 Evidence of proceedings at the Somerton meeting was given by Mr Still of Franklins and Mr Debono of Opal. In substance, the events were the same as those at Ingleburn, with the Opal representative again remaining silent. Forstaff's phone number was displayed in large characters on a sheet of paper prepared by a member of the Franklins staff. 26 Opal was not given notice of the meetings by Franklins until the afternoon before they were held. It was told at the same time that Forstaff had been the successful tenderer and would replace Opal. These messages were conveyed in a telephone call made by Mr Coates of Franklins to Mr Browne of Opal who was in New Zealand at the time. Forstaff, on the other hand, was aware of the meeting arrangements several days in advance. It was submitted by Mr Gray of counsel, who appeared for Opal, that Franklins should be regarded as having had a purpose of keeping Opal ignorant of the planned meetings (and of its loss of the contract to Forstaff) until it was too late for Opal to do anything by way of arranging other work for its Franklins casuals or otherwise securing its hold on them. In the result, it was submitted, Franklins actively facilitated Forstaff's bidding for the services of those casuals and this was in pursuance of a common objective of Franklins and Forstaff to see Forstaff obtain the services of those persons or, at least, as many of them as wished to apply for employment with Forstaff and met its criteria. 27 It may well be that Franklins took the steps it did knowing that Opal's opportunities to keep its casuals would thereby be reduced. I am prepared to accept that that was the case; also that Franklins actively facilitated Forstaff's establishing contact with Opal casuals at the Franklins sites, knowing that Forstaff would use the contact to seek to interest those persons in applying for positions with Forstaff. But the evidence also shows that, at least at Ingleburn, some of the casuals welcomed the opportunity to leave Opal. Mr Campbell, Opal's silent representative at the Ingleburn meeting, said that there was some resentment from the casuals towards Opal and that a cheer went up when replacement of Opal by Forstaff was announced.

The "associate" question 28 It is against this factual background that I must consider the question posed by the client certificate provision, that is, whether an "associate" of Franklins engaged those Opal casuals who became employed by Forstaff at the Franklins sites at which they had previously been employed by Opal. In other words, is Forstaff properly to be regarded as an "associate" of Franklins within the meaning of the client certificate provision? 29 The purpose of the client certificate provision is not difficult to discern. It is the kind of purpose to which Murphy J referred in Brambles Holdings Ltd v Federal Commissioner of Taxation (1977) 138 CLR 467 when discussing a statutory export incentive scheme: "The intention of the Act (to increase Australian exports) could easily have been defeated by arrangements which switched the export business from an established exporter to one not previously engaged in export (for example, to a subsidiary or associated company)." 30 The references in the client certificate provision to "subsidiaries" and "associates" should thus be regarded as an anti-avoidance measure. The primary intention was to cause the fee to become payable if employees of Opal were engaged by Franklins. Because that intention could easily be defeated in the way Murphy J described, it was made clear that employment by a subsidiary or associate, instead of by Franklins itself, would attract the same consequences. The purpose of the clause, as I view it, was to prevent Franklins appropriating to itself, directly or through some contrivance, the benefit of Opal's profit by "cutting out the middle man", as it was put by Mr Clarke of counsel who appeared for Franklins. The meaning of "associates", used in conjunction with "subsidiaries", should be determined by reference to that purpose. 31 For reasons already mentioned in the brief discussion of the meaning of "subsidiaries", it would be inappropriate - even dangerous - to pay very much attention at all to cases in which the term "associate" as used in statutory definitions has been considered. This is because Parliamentary drafters have, over the years, used the "associate" label to denote different concepts in different contexts. In the Foreign Acquisitions and Takeovers Act 1974 (Cth), for example, there is a mix of tests of "associate" status under s. 6, with some being based on structural and relationship factors (such as family membership, employment and the holding of offices within companies) and others depending on what might be termed influence factors (for example, a corporation is an "associate" of a person if its directors are accustomed or under an obligation to act in accordance with the directions, instructions or wishes of the person). The "associated entity" concept in ss.5B and 5C of the Bankruptcy Act 1966 (Cth) tends more towards the structural or relationship approach. The Corporations Act 2001 (Cth) employs a combination of both structural tests and tests based on actions and activities, including some which may be ad hoc. The various forms of Corporations Act associateship are described by Justice Austin in his paper "The Definition of 'Associate' in the Corporations Law", University of Melbourne Centre for Corporate Law and Securities Regulation Research Papers, September 2000, as falling into three broad categories: "automatic associateship", "associateship under a relevant agreement" and "associateship on the facts". 32 The label "associated companies" is typically given, in ordinary parlance, to companies having some common human element. Thus, in Coburg Investment Co Pty Ltd v Federal Commissioner of Taxation (1960) 104 CLR 650, Windeyer J spoke of the taxpayer company as "one of several associated companies controlled by Edward Samuel Taylor". In Bridge Shipping Pty Ltd v Grand Shipping SA (1991) 173 CLR 231, companies which had the same directors and the same secretary were described by McHugh J as "associated companies". In Australian Food Corporation Pty Ltd v Australian Meat Industry Employees Union [2001] FCA 513, there was reference to two companies being associated "by virtue of their having common directors and shareholders", while in Walker v Wimborne (1976) 137 CLR 1, a company whose obligations were carried out by employees of another company was referred to by Mason J as an "associated company" of the latter. None of this provides any definition of "associated", but it does indicate the kinds of factual circumstances which have caused the "associated" label to be applied as between companies in a general and undefined sense. The theme, it seems to me, is one of lack of arm's length relationship engendered by an established connection whereby the influence of one party is at work upon the will of the other (or the influence of a third party is at work upon the wills of both) or one party prefers the other's interests in its dealings. 33 The same ideas underlie the notion of "associate" which I consider to be the same as "associated company" but without the requirement that the party concerned be a company. Thus, a director of a company would readily be regarded as an "associate" of the company because of the connection constituted by the office held and the nature of that office as one in which the director subordinate his or her own interests to those of the company. Likewise in a case where a bare trustee or nominee holds property for a company, the holding of the position coupled with the duties it entails would warrant a conclusion that the trustee or nominee was an "associate" of the company in the particular context or in relation to the particular subject matter. So too in a case where one company is, say, 40% owned by another: the influence of the latter's will within the former will generally be clear in some form. Some established and ongoing connection producing, to some degree, a susceptibility to influence or a subordination of independent interests or a coalition of interests seems to me to be inherent in the notion of "associate" in its ordinary sense. 34 This notion is borne out by observations of Owen J in Bank of Western Australia Ltd v Ocean Trawlers Pty Ltd (1995) 13 WAR 407 as to the meaning of "associates" for the purposes of a court order prohibiting the sale of certain shares to the defendants or any "related party or associate". Although the term "associate" was defined by reference to Corporations Law provisions, Owen J made certain comments apposite to its general meaning unaffected by any statutory definition: "The manifest purpose of the variation to the Mareva injunction was to permit the first defendant to sell the shares but to ensure that they were sold at fair market value and that the proceeds of sale were utilised only in reduction of the first defendant's financial commitments. A sale to an 'associate' would cover a sale to a person not necessarily 'related' but none the less reserving to the first defendant or Mr Lombardo some direct or indirect continuing interest in or control over the shares sold. Counsel for the first defendant mentioned voting rights, dividends or other ultimate disposal of the shares as examples of a continuing interest or control that would constitute such a reservation. The existence of such an agreement, arrangement or understanding might reasonably be thought to result in a lower sale price. A sale in those circumstances would therefore be a sale to an 'associate' and would be contrary to the varied order. In general terms I accept the submission of counsel for the first defendant. I think that the contest compels a purposive approach to the meaning of the word 'associate'. The key is the search for a buyer who would be truly independent." 35 According to this approach, an "associate" is someone who is not "truly independent". The relevant independence is, to my mind, independence of will and interest rather than independence of action. I accept that characteristic as relevant in the present case. 36 It is also pertinent to refer to observations of the New Zealand Court of Appeal in Securities Commission v Kiwi Co-operative Dairies Ltd [1995] 3 NZLR 26. That case concerned an exception to a statutory provision forbidding the offering of securities to the public except through a registered prospectus. The exception applied to an offer to any "relatives or close business associates of the issuer". The Court held that "close business associates" (an undefined term) should be construed by reference to both the protective purpose of the statute and its use in conjunction with the term "relatives" (defined to mean various family members). The Court regarded the words "close" and "business" as straightforward. In relation to "associate", it resorted to dictionary definitions and continued: "Although an issuer and a holder of its securities have a relationship through business, the use of the terms 'close' and 'associate' requires more than this: there must be a degree of intimacy or 'business friendship' in the relationship, though not necessarily a friendship away from business. It must be sufficient to overcome any inequality which might otherwise be present in the relationship." 37 The last sentence is significant. It emphasises that a person will be a "close associate" of a company, for the purpose relevant there, only if there is a connection or relationship which alters the balance which would prevail as between parties in a context lacking the connection or relationship but otherwise identical. In that case, the balance was related to capacity to make an informed investment decision and the inequality of capacity (or imbalance) which exists as between company insiders and company outsiders. In the present case, I suggest, the balance is related to pursuit by each party of its own interests for its own ends uninfluenced by the other; and that it is an upsetting of that balance which is the indicator of "associate" status. 38 In Payne v Adelaide Steamship Co Ltd (1976) 14 ACLR 252, Murray J of the Supreme Court of Victoria considered a situation where two directors of a company contracted to sell their shares to a buyer on the basis that the buyer would make a takeover bid for the remaining shares and that the sellers, as directors, would do all that was proper to impress upon shareholders that the buyer's bid was in their interests. His Honour was not prepared to think that the promise of the sellers to give this positive message to shareholders in relation to the buyer's bid caused those sellers to become "associates" of the buyer within the meaning of s.180A(7)(b) of the Companies Act 1961 (Vic) which employed an "associate" test in these words: "if he is associated, whether formally or informally, with that other person in relation to the proposed acquisition by that other person of shares in that company otherwise than solely as a holder of shares in that company." 39 Although no reasoning was stated, it may well be that the "so far as proper" qualification to which their promise was subject caused the promisors' independence to remain essentially intact so that they were not subjected in a relevant way to the influence of the buyer. 40 The requirement (if I may put it so high) that there be some ongoing link entailing influence of one over the other or, at all events, some subordinating of independent interests is reinforced in the present case by the fact that the "associates" reference stands as an adjunct to the "subsidiaries" reference in a provision intended to prevent avoidance of the primary purpose directed at engagement by Franklins so that it extends also to engagement by others. It is inconceivable that that extension could catch everyone who has a contractual relationship with Franklins. It would not catch the lessor of its office premises or accountants who provide it with accounting advice or carriers who transport goods for it, where all those services are supplied on ordinary arm's length commercial terms. No one would describe any of these as an "associate" of Franklins. Why, then, should Forstaff be described as such an "associate"? 41 Employment of Opal casuals by Forstaff had no economic consequences for Franklins comparable with those which would have flowed had Franklins employed those persons itself or if they had been employed by a subsidiary of Franklins. In entering into employment contracts with the persons who were previously employed by Opal, Forstaff was not seeking to enhance Franklins' interests. Nor was it subordinating its own interests to those of Franklins or acting under the influence of Franklins. Forstaff was engaging in a sensible commercial activity with an eye solely to what suited it and what would further its own separate commercial interests. 42 It makes no difference, in my assessment, that Franklins facilitated the establishment of contact between Forstaff management personnel and the Opal workforce at the Franklins sites. I am satisfied that Franklins did not thereby seek to obtain for itself the economic benefits flowing from employing persons currently employed by Opal. Forstaff had already assumed a contractual commitment to supply labour to Franklins. Mr Pettitt said in evidence that Forstaff would have supplied the labour necessary for the assignment whether or not the Opal operatives had joined it - if necessary, by "throwing people at it" and redeploying persons placed in warehouses of other Forstaff customers. Forstaff did not know if any of the Opal personnel would join its workforce. Whether anyone did so was, of course, entirely a matter for the individual. 43 I do not accept that a common intention or shared objective is enough to make one party an "associate" of the other in the sense relevant to the interpretation of the client certificate. There must be, as I have said, some relationship of influence or subordinating of separate interests - a "paler version", as it were, of the parent-subsidiary relationship based on control as such. 44 Having eschewed as inappropriate and even dangerous reliance on statutory definitions of "associate", I shall nevertheless refer, by way of check, to the one external definition which might be considered to be of some relevance. I refer to the definition in the Australian Accounting Standards. If commercial people were to refer consciously or unconsciously to any established norm when choosing to use the term "associate" in a context such as the present, it is likely that they would resort to accounting standards since accounting concepts permeate so much of commerce. 45 Australian Accounting Standard AASB 1016 is entitled "Accounting for Investments in Associates". It prescribes the circumstances in which investors must use the equity method of accounting for investments in associates. The term "associate" is defined as follows: " associate means an investee, not being: (a) a subsidiary of the investor; or (b) a partnership of the investor; or (c) an investment acquired and held exclusively with a view to its disposal in the near future (see paragraphs 9.1.1 and 9.1.2) over which the investor has significant influence ." 46 The expression "significant influence" is in turn defined: " significant influence means the capacity of an entity to affect substantially (but not control) either, or both, of the financial and operating policies of another entity (see paragraphs 9.1.3 to 9.1.8)." 47 Analogy with the concepts in this accounting standard supports the view of the general meaning of "associate" I have already outlined.

Conclusion 48 My conclusion is that Forstaff was not, in the relevant sense and for the purposes of the client certificate provision, an "associate" of Franklins and that, although that provision formed part of each relevant contract between Opal and Franklins, an event triggering a payment obligation on Franklins' part did not happen when Forstaff engaged persons who had previously been employed by Opal and whose services had been supplied by Opal to Franklins. 49 Opal is entitled to a declaration to the effect in paragraph 3 of its Amended Summons, that is, that the client certificate provision forms part of the terms of trade applicable to the relationship between Opal and Franklins for the supply of the services of casual workers by Opal to Franklins from time to time as required and requested by Franklins. In all other respects, however, Opal's claims must be dismissed. Opal must pay Franklins' costs. **********

Last Modified: 08/28/2001 DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.

(Cth), the Transport Administration Act 1998(NSW)

Foreign Acquisitions and Takeovers Act 1974(Cth)

Companies Act 1961(Vic)

CITATION : Opal v Franklins [2001] NSWSC 718 CURRENT JURISDICTION: Equity Division Commercial List FILE NUMBER(S) : SC 50145/00 HEARING DATE(S) : 07/08/01, 08/08/01, 09/08/01, 10/08/01 JUDGMENT DATE : 27 August 2001

COUNSEL : Mr V.R. Gray - Plaintiff Mr J.R. Clarke - Defendant SOLICITORS : Bamford Hogg - Plaintiff Clayton Utz - Defendant CATCHWORDS : CONTRACTS - general contractual principles - formation of contract partly by documents and partly by conduct - INTERPRETATION - general rules of construction of instruments - provision concerning act of corporate party, its "associates or subsidiaries" - meaning of undefined terms "associates" and "subsidiaries" in particular context Mendes v Commissioner of Probate Duties (1967) 122 CLR 152 Federal Commissioner of Taxation v Commonwealth Aluminium Corporation Ltd (1980) 143 CLR 646 Brambles Holdings Ltd v Bathurst City Council [2001] NSWCA 61 Industrial Rollformers Pty Ltd v Ingersoll-Rand (Australia) Ltd [2001] NSWCA 111 Brambles Holdings Ltd v Federal Commissioner of Taxation (1977) 138 CLR 467 CASES CITED : Coburg Investment Co Pty Ltd v Federal Commissioner of Taxation (1960) 104 CLR 650 Bridge Shipping Pty Ltd v Grand Shipping SA (1991) 173 CLR 231 Australian Food Corporation Pty Ltd v Australian Meat Industry Employees Union [2001] FCA 513 Walker v Wimborne (1976) 137 CLR 1 Bank of Western Australia Ltd v Ocean Trawlers Pty Ltd (1995) 13 WAR 407 Securities Commission v Kiwi Co-operative Dairies Ltd [1995] 3 NZLR 26 Payne v Adelaide Steamship Co Ltd (1976) 14 ACLR 252 DECISION : Declaration in terms of paragraph 3 of Amended Summons. Otherwise plaintiff's claims dismissed with costs.

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