Rossmick No 1 Pty Ltd v Bank of Queensland Limited

REASONS FOR JUDGMENT 1 An application was filed in this Court on 2 August 2007 seeking a series of declarations concerning the jurisdiction or power of the Industrial Court of New South Wales under s 106 of the Industrial Relations Act 1996 (NSW) to make certain orders sought by the second to eleventh respondents ('the OMB parties') in the various proceedings commenced by them before the Industrial Court. Those proceedings concern agreements, in substantially identical terms, between the first applicant ('the Bank') and particular respondents for the appointment of the second, third, seventh and tenth respondents to operate an Owner Managed Branch ('OMB') of the Bank at sites described, respectively, as the Maroubra Junction OMB, the Hurstville OMB, the Bathurst OMB and the Bondi Junction OMB. 2 The Bank contended that the OMB agreements are contracts pursuant to which owner managers provide banking and financial services, in performing those services each owner manager is an independent contractor to the Bank, and each owner manager and Bank is a constitutional corporation within the meaning of s 51(xx) of the Commonwealth Constitution. Accordingly, each OMB agreement is said to be a 'services contract' for the purposes of the Independent Contractors Act 2006 (Cth) (the 'Commonwealth Act'). By s 5 of that Act, a 'services contract' is defined in these terms: 5(1) a services contract is a contract for services: (a) to which an independent contractor is a party; and (b) that relates to the performance of work by the independent contractor; and (c) that has the requisite constitutional connection specified in subsection (2). (Emphasis added) It can be seen that the operation of the Commonwealth Act depends upon the existence of a contract to which an independent contractor is a party. The OMB parties contended they are not independent contractors and that the contracts between them and the Bank are not services contracts. The applicants in the proceeding (the Bank parties) contended to the contrary. 3 On 12 March 2008 the trial judge made orders disposing of two notices of motion. This is an appeal against that judgment. The first was a motion brought by the OMB parties for an order pursuant to s 5(4) of the Jurisdiction of Courts (Cross‑Vesting) Act 1987 (Cth) ('Cross‑Vesting Act') that the proceeding be transferred to the Supreme Court of New South Wales. By the second notice of motion, the Bank parties sought an order that particular paragraphs of the defence of the second to eleventh respondents be struck out although, in submissions, the order sought was confined to paras 58 to 63, 66, 67 and 80‑95 of the defence of those respondents. 4 In his reasons for judgment the primary judge stated that both motions were heard on 11 December 2007 however the OMB parties contended that in fact they did not have the opportunity to address issues raised in the strike out application. The OMB parties required leave to appeal against the judgment. Leave was given by Spender J on 8 April 2008 restricted to challenging the orders the primary judge made in the strike out application. For reasons which we will explain shortly, there can be no appeal against the orders dismissing the cross vesting application. 5 In the appeal the Bank parties conceded that the OMB parties had not had the opportunity of addressing the primary judge on the strike out application. In those circumstances, the parties appeared to accept that it was appropriate for us to determine the strike out application. Accordingly, we heard the parties on the question of whether the contentious paragraphs of the OMB parties' defence should be struck out. Before considering the issues raised in the strike out application, we should indicate our views about whether, as the OMB parties invited us to do, we can make a cross-vesting order in the Court's appellate jurisdiction in exercise of the powers conferred by s 28 of the Federal Court of Australia Act 1976 (Cth). 6 It was common ground in this appeal that no appeal can be brought against an order dismissing an application to cross-vest proceedings to another court under the Cross-Vesting Act: see s 13 of that Act. Accordingly, the Court's appellate jurisdiction created by s 25 cannot be engaged in relation to such an order. While we do not doubt the width of the power conferred by s 28: see Woolworths Limited v BP plc [2006] FCAFC 132 at [148] to [149], the Full Court exercising appellate jurisdiction cannot, in our opinion, exercise that power to make an order supplanting or replacing an order made by a single judge under the Cross-Vesting Act. Probably the best way of characterising this limitation is to say that because of s 13, the powers conferred by s 28 cannot be engaged in relation to an order made under the Cross-Vesting Act. 7 We should also add that, as a procedural matter, leave was neither sought before nor given by Spender J, or during the hearing of this appeal, to argue grounds directly impugning the order dismissing the application to cross-vest. While the notice of appeal speaks of an appeal against "the whole of the judgment" of 12 March 2008, that must necessarily be taken to be a reference to the orders disposing of the strike out application and not the orders disposing of the cross-vesting application. The fact that leave was not sought in relation to the latter probably reflects no more than that the OMB parties recognised that the dismissal orders could not be the subject of an appeal. However as a procedural matter, apart from questions of power, the correctness or otherwise of the order disposing of the application to cross-vest is not before this Full Court and we doubt that s 28 (even if not constrained by s 13) would authorise orders in the appellate jurisdiction which do not deal with the subject matter of the appeal even if described broadly. 8 We turn to consider the strike out application. The trial judge identified the scope of the enquiry raised by the principal application made by the Bank parties in the following way (at [71] - [72]): The Bank parties concede for the purposes of this proceeding that the facts and contentions pleaded in the defence by the respondents ought to be 'taken at their highest' and accepted for the purposes of determining the matters in issue in this proceeding. It seems to me that the Court will not be required to engage in a broadly‑based wide‑ranging forensic inquiry into the factual matters contended for by the OMB parties in order to dispositively resolve the question raised by this controversy. It will be necessary to determine the documents that ought to be before the Court. They will include the OMB Agreement, documents referred to in the OMB Agreement, Bank manuals, the pleadings in each of the Industrial Court proceedings (of which there are three of relevance to this proceeding) and documents which the parties might agree are relevant to the issues. It follows that this proceeding is capable of disposition of the question of whether the OMB Agency Agreements fall within s 7(1)(c) and s 5(1) of the Commonwealth Act without engaging the factual inquiry or investigation contemplated by proceedings such as the Traderight proceedings and other Federal Court proceedings which rely upon causes of action and remedial orders derived from the TPA, the FTA (NSW), the ASIC Act and common law causes of action or the factual controversy raised by the Industrial Court proceedings in which it is necessary to determine whether the unfairness ground is made out. 9 In our opinion, this states too narrowly the issues which might fall to be decided in the principal application. The question of what are the terms of the written agreement between the OMB parties and the Bank parties and their effect does not necessarily determine the legal issue of whether the OMB parties are independent contractors for the purposes of s 5 of the Commonwealth Act. While it is unnecessary for us to express a concluded view on this question, it may well be that the expression "independent contractor" in that section is intended to reflect the common law concept of what is an independent contractor as it applies in relation to natural persons, though we note that an independent contractor, as defined, is not limited to a natural person. If this is correct then the issue might be determined not only by reference to the terms of the contract between the principal and the alleged independent contractor but also by reference to the way in which the parties carry out or give effect to the contract between them: see Hollis v Vabu Pty Ltd (2001) 207 CLR 21 particularly at 40-41. As noted earlier, the OMB parties contended they are not independent contractors and the Bank parties contended they are. That being so, the OMB parties are entitled to plead and prove facts (unless admitted by the Bank parties) concerning the way in which the contractual arrangements have been carried out as part of proving that they are not independent contractors. This is so even if, ultimately, the issue falls to be decided primarily or solely by reference to the written agreements between the parties, and this now appears to be conceded now by the Bank parties. 10 Before us, the OMB parties submitted that the expression "independent contractor" in s 5(1)(a) of the Commonwealth Act implied a distinction between an independent contractor and a dependent contractor. In sum, and at the risk of oversimplification, they submitted that their defence was directed to pleading that in various ways they were dependent on the Bank. We doubt the correctness of the distinction. However the deficiencies in the pleadings which we shortly discuss justified the primary judge's decision to strike out the paragraphs. The OMB parties may wish to continue to advance their case on the basis just discussed. If this is reflected in any re-pleaded defence which is then challenged, it may be necessary for the Court to give more detailed consideration of this legal question and whether it is arguable. 11 Having made these general observations, we must now consider whether each of the presently contentious paragraphs should remain part of the pleaded defence or should be struck out. They are: 58. In fact, on their proper construction, the OMB Agreements in NSW, and the collateral agreements as to funding by the Bank of the Agents' fit out costs by way of secured loan to the Agents, were agreements pursuant to which the Bank obtained from the Agents and their financial backers capital to construct the fit out of the whole of its branch operations in NSW, which capital was obtained without risk to the Bank of loss in the event that all or some of the Branches failed to be financially viable and with the benefit to the Bank of the use of the fit out in the event that the branch failed as an OMB Agent branch. 59. In fact, on their proper construction, the OMB Agreements in NSW, and the collateral agreements as to funding by the Bank of the Agents' operating costs by way of secured loan to the Agents and contribution of funds from financial backers, were agreements pursuant to which the Bank obtained from the Agents and their financial backers capital to operate its branch operations in NSW in order to determine whether they, or some of them, could be operated to earn revenue in excess of the costs of operation at all, which capital was obtained without risk to the Bank of loss in the event that all or some of the Branches failed to be financially viable. 60. Before and during the OMB Agreements, the Bank solely determined the practices and proposed or anticipated practices (such as valuation of security, lending ratios, interest rates, costs and charges on borrowing, application turnaround and advertising) and products which would determine whether, and to what extent, the Bank's financial products could be competitively offered to prospective consumers in the NSW financial services market place. 61. Before the making of the OMB Agreements, the Bank was solely in possession of the information as to its then practices and proposed or anticipated practices and products which was required to assess whether the Bank's financial products could be competitively offered in the NSW financial services market place. 62. By reason of the forgoing, the very existence of the proposed business of being an OMB Agent under and OMB Agreement was a matter wholly known to and determined by the Bank and was incapable of being known by a prospective OMB Agent before commencing business as such. 63. After the making of the OMB Agreements, the Bank was capable of, and did, mislead the OMB Agents as to their relative performance to other OMB Agents conducting business in NSW so as to encourage them to borrow more on secured loan or invest capital so as to spend further monies to defray costs incurred in the continued conduct of the OMB Agent business in the interests of the Bank. ... 66. By reason of the terms of the OMB Agreements, the OMB Agent was constituted an insurer of to performance of the debt portfolio of the Bank written by the agency of the Agent. 67. Pursuant to the Arrangements and the OMB Agreements, and in order to be granted the privilege of operating an OMB Agency Franchise, the OMB Agents: (a) could not negotiate the terms of the Arrangements which included the OMB Agreement; (b) could not and did not offer to the Bank independent services on a contract basis; (c) could not and did not offer to the Bank the performance of a set task or a series of tasks for a specified period of time; (d) worked intrinsically and inherently as part of the Bank's business, and not as their or its own independent business; (e) worked as representatives of the Bank and not as principals of their own business; (f) were required to pay a fee in order to operate aBranch of the Bank and use the Bank's intellectual property and business systems and know-how; (g) were required to work in the best interests of the Bank, even if that meant that they were not working in their own best interests; (h) did not have a high level of discretion and flexibility (and in fact were directed by the Bank) as to how the work of operating the OMB Agency was to be performed; (i) only provided an agency for the Bank and were restrained (and still are) from performing any like services for any other party (without the Bank's consent) whether as a contractor, agent, franchisee or employee; (j) were required to work the hours set by the Bank; and (k) were required to work from the premises leased by the Bank. (collectively referred to as the OMB Agency Requirements) 12 As to these paragraphs, his Honour said (at [92] - [100]):: Paragraphs 58 to 63, 66 and 67 fall within that part of the defence which bears the hearing, 'OMB Agents are not Independent Contractors or Parties to a Contract for Services'. The paragraphs in that section of the pleading (paras 54 - 67) reflect a series of assertions which are presumably intended to be the content of the conclusion recited in the heading. Paragraph 56 commences with the phrase 'By reason of the terms of the OMB Agreements', and then a certain conclusion follows. That format is reflected, in effect, in paras 58 and 59. Paragraph 58 commences, 'In fact, on their proper construction, the OMB Agreements in NSW, and the collateral agreements as to funding by the Bank of the Agents' fitout costs by way of secured loan to the Agents' and then a conclusion follows which is that these agreements provided the mechanism by which the Bank secured access to risk free capital from the agents and their financial backers to construct the fitout of the whole of the Bank's branch operations in New South Wales. The relevant fact is that the Bank and particular respondents entered into particular OMB agreements and collateral secured loan agreements which contained particular terms. Those agreements must be given a construction. Paragraph 58 pleads a contended construction. The agreements either bear that construction or not. The respondents remain in a position to make any submission as to the proper construction to be given to the OMB agreements or the collateral funding agreements (if relevant), they may wish to make based upon the reception into evidence of the documents containing the terms which give rise to the contended construction. As it stands, para 58 is simply a statement of the construction to be given to the particular agreements as an expression of the conclusion that by reason of that construction, the OMB agents are not independent contractors. The paragraph ought to be struck out. Paragraph 59 commences with precisely the same introduction as para 58 and goes on to conclude, as a matter of construction, that the agreements are agreements by which the Bank obtained access to the capital of the agents and their financial backers so as to operate branches in New South Wales in order to determine whether one or more such branches could be operated to earn revenue in excess of costs. This paragraph is also simply a statement of the construction to be given to the particular agreements as an expression of the conclusion that by reason of that construction, the OMB agents are not independent contractors. The paragraph ought to be struck out. Paragraphs 60 to 63 address these matters. Before and during the making of the OMB Agreements, the Bank solely determined the practices, proposed practices and financial products to be offered in the financial services market (para 60). Before the making of the OMB Agreements, the Bank was solely in possession of information as to its then practices, proposed practices and proposed financial products (para 61). By reason of these matters, 'the very existence of the proposed business of being an OMB Agent under an OMB Agreement was a matter wholly known to and determined by the Bank and was incapable of being known by a prospective OMB Agent before commencing business' (para 62). After the making of the OMB Agreements, the Bank misled OMB Agents as to their relative performance so as to encourage them to borrow further secured funds or invest additional capital (para 63). To the extent that these paragraphs deal with conduct of the Bank prior to making the agreement (such as its capacity to select and determine appropriate banking practices and financial products), the facts pleaded are not relevant to the construction of the agreement. To the extent that these paragraphs deal with the conduct of the Bank after the striking of the OMB Agreements, the facts pleaded are presumably intended to be a statement of the powers or rights conferred upon the Bank under the agreements. Paragraph 63 addresses aspects of misleading conduct. It seems to me that these paragraphs ought to be struck out on the footing that the pre‑agreement position is not relevant to the construction of the agreement and the post‑agreement period falls to be determined by the agreement itself. Paragraph 63 is not relevant to any aspect of the claims made by the applicant. Paragraph 66 contends that, 'By reason of the terms of the OMB Agreements, the OMB Agent was constituted an insurer of the performance of the debt portfolio of the Bank written by the agency of the Agent'. This paragraph is a statement of the meaning to be attributed to the construction of the agreement and ought to be struck out. Paragraph 67 asserts that pursuant to the 'Arrangements' and the 'OMB Agreements' and in order to be 'granted the privilege of operating an OMB Agency Franchise' each OMB Agent was constrained in particular ways; worked inherently as part of the Bank's business and not as an independent business operator; was required to pay a fee; was required to work in the best interests of the Bank; did not have a high level of discretion; was constrained from providing like services to any other party; worked hours set by the Bank; and was required to work from the leased premises. All of these matters are described as the 'OMB Agency Requirements'. These matters are said to be relevant to and are pleaded as an expression of the conclusion, recited as a heading, that each OMB Agent is not an independent contractor. These matters are said to derive from the pleaded 'Arrangements' and the 'OMB Agreements'. To the extent that they derive from the OMB Agreements, the contentions are simply a statement of the construction to be given to the rights, entitlements, obligations and duties of the parties by reason of the OMB Agreements. Those Agreements speak for themselves. To the extent that these matters derive from the broader arrangements, no relief is sought by the applicant in respect of those matters. 13 We agree with the thrust of these observations. 14 The matters of fact pleaded in paras 60, 61 and 62 might be pleaded so as to allege facts could support the OMB parties' contention that they were not independent contractors. However, we do not see how the conduct of the Bank referred to in paragraphs 60 and 61 "[b]efore" the pleaded agreements were made could be relevant to the question of what was the nature of the relationship arising from the contractual arrangements between the Bank parties and the OMB parties. It may conceivably be that the conduct of the Bank at the time those arrangements were entered into or negotiated could be relevant to the characterisation of the relationship. However, as presently pleaded, the two paragraphs do not limit the temporal scope of the facts alleged. They should. 15 The meaning of paragraph 62 is elusive. It is not clear what is meant by "the very existence of the proposed business of being an OMB Agent under an OMB Agreement [being] a matter wholly known to and determined by the Bank...." (our emphasis). Clearly, a disparity of knowledge is alleged but knowledge of what? The expression "the foregoing" is too general to assist. Paragraph 62 should be repleaded. 16 Paragraph 63 raises different considerations. Whether the Bank was capable of misleading the OMB parties seems to us to be irrelevant to the question of whether the OMB parties were independent contractors. Whether it did mislead is clearly irrelevant. 17 We understand that the OMB parties accepted that they would need to replead para 66 and 67. The OMB parties did not seek to defend, in this appeal, paras 85 to 94 of the defence which were struck out by the primary judge in his orders of 12 March 2008. 18 During the hearing of the appeal, the Bank parties did not oppose the granting of leave to the OMB parties to re-plead the defence generally. It appears to us appropriate to set aside orders 3 and 4 of the orders made on 12 March 2008, to make an order in the same terms as order 3 ourselves to give leave to the OMB parties to re-plead the defence generally, and to order that each party pay its own costs of the strike out application at first instance. As to the costs of the appeal, both parties have had a measure of success. In those circumstances, we consider that the parties should bear their own costs of the appeal. I certify that the preceding eighteen (18) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justices Moore, Lindgren and Stone.