Wirraway (NSW) Pty Ltd and anor v Ultra Tune Australia Pty Ltd

Industrial Relations Commission (NSW)|2005-08-25|Before: Wright J, Walton J, Boland J, Haylen J

CITATION: Wirraway (NSW) Pty Ltd and anor v Ultra Tune Australia Pty Ltd [2006] NSWIRComm 300

APPLICANTS Wirraway (NSW) Pty Ltd and anor (Respondent on Notice of Motion) PARTIES: RESPONDENT Ultra Tune Australia Pty Ltd (Applicant on Notice of Motion)

CORAM: Wright J President; Walton J Vice-President; Boland J; Haylen J

Industrial Relations Act 1996 LEGISLATION CITED: Industrial Arbitration Act 1940 - s 88F Industrial Relations Amendment Act 2005

Batterham v QSR Ltd [2006] HCA 23 Brown v Rezitis (1970) 127 CLR 157 Caltex Oil (Australia) Pty Ltd v Feenan [1981] 1 NSWLR 169(PC) Fish v Solution 6 Holdings Pty Ltd [2006] HCA 22 General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125 CASES CITED: Majik Markets Pty Ltd v Brake and Service Centre Drummoyne Pty Ltd (1991) 28 NSWLR 443 McDonald's Australia Holding Ltd and anor v The Industrial Relations Commission of New South Wales and ors, [2005] NSWCA 286, delivered on 25 August 2005 Nagle (t/as W D & J A Nagle & Sons) v Tilburg (1993) 51 IR 8 Old UGC Inc v Industrial Relations Commission of New South Wales [2006] HCA 24 Production Spray Painting and Panel Beating Pty Ltd v Newnham (1991) 27 NSWLR 644 Stevenson v Barham (1977) 136 CLR 190 Swann and anor v Ultra Tune Aust Pty Ltd (1983) 5 IR 136

APPLICANTS (on Notice of Motion) Mr L Watts of counsel SOLICITOR: Albert Wong LEGAL REPRESENTATIVES:

RESPONDENT (on Notice of Motion) Mr S Meehan of counsel SOLICITORS: Clayton Utz

FULL BENCH CORAM: Wright J, President Walton J, Vice-President Boland J Haylen J

Matter No IRC 2759 of 2004 WIRRAWAY (NSW) PTY LTD & ANOR v ULTRA TUNE AUSTRALIA PTY LTD Application under s 106 of the Industrial Relations Act 1996 JUDGMENT OF THE COURT [2006] NSWIRComm 300

1 These proceedings relate to a jurisdictional challenge that relief is not available under s106 of the Industrial Relations Act 1996 ("Act") in respect of the franchise agreement between the parties. The question of jurisdiction has been referred to the Full Bench.

2 Ms Amanda Johnstone is the sole director and shareholder of Wirraway (NSW) Pty Ltd (referred to as "Wirraway" or the "Franchisee"). Through Wirraway, Ms Johnstone operates an Ultra Tune franchise in Brookvale, New South Wales. Ultra Tune Australia Pty Ltd (referred to as "Wirraway" or the "Franchisee") is the Franchisor of a car service franchise having the right to exclusive use of a system developed for the identification, design and operation of service centres for electronic tuning, servicing, repair and maintenance of motor vehicles and the retail sale of motor vehicle replacement parts within New South Wales and other States as well as the Australian Capital Territory. For 19 years the Brookvale premises has been used as an outlet for the Ultra Tune operation, most recently pursuant to the terms of a Franchise Agreement dated 5 February 2002 between Wirraway and Ultra Tune ("Franchise Agreement"). 3 In February 2002 Wirraway purchased the Brookvale Ultra Tune business from the company then operating that franchise but there was no purchase, in any sense, from Ultra Tune itself. At the time of purchase and of entering into the Franchise Agreement with Ultra Tune, the franchisee nominee was Mr Warwick Johnstone, the husband of Ms Amanda Johnstone. Mr Johnstone ceased to be a director of Wirraway towards the end of June 2003 apparently in accordance with terms of settlement with Ms Amanda Johnstone resulting from the breakdown of their marriage. Prior to Mr Johnstone ceasing to be a director of Wirrway, he performed the day-to-day operational management of the Ultra Tune outlet at Brookvale. Ms Johnstone was not a named party to the Franchise Agreement but under its terms the Franchisee, Wirraway, is required to notify Ultra Tune of a change of Wirraway's nominee. Although that had not occurred formally, it appears that Ultra Tune was aware of the arrangements between Mr and Ms Johnstone and that she had carried on the Brookvale outlet of Ultra Tune since June 2003 and had undertaken all the obligations under the Franchise Agreement that had previously been undertaken by Mr Warwick Johnstone. 4 In approximately February 2004, Ms Johnstone became aware that Ultra Tune had commenced negotiations to establish a franchise outlet in Manly, New South Wales. Ms Johnstone asked to be kept informed of those developments as she was concerned about competition, including competition from a competitor of Ultra Tune that had outlets in the lower North Shore and on the northern peninsula. In mid-April 2004, Ms Johnstone was advised that Ultra Tune had entered into an agreement to grant a franchise at Old Pittwater Road, Manly. That franchise was less than 3.5 kilometres by road from Ms Johnstone's Brookvale outlet. 5 In May 2004, Wirraway and Ms Johnstone commenced proceedings under s106 of the Industrial Relations Act 1996 against Ultra Tune seeking a number of variations to the Franchise Agreement. The most significant variation required the Franchisor to refrain from opening any other business, whether through a Franchise Agreement or otherwise, within a 10 kilometre radius of the Brookvale premises without first obtaining the permission and approval of Wirraway and Ms Johnstone. The variation sought certain penalties to be paid should Ultra Tune fail to obtain such approvals. A variation was also sought requiring 12 months' notice of termination of the Franchise Agreement. Apart from those variations, the applicants sought an order permanently restraining Ultra Tune from opening or operating an Ultra Tune outlet within a 10 kilometre radius of the Brookvale premises and a declaration that it was an implied term of the Franchise Agreement that Ultra Tune would not establish any other business within a 10 kilometre radius of the Brookvale premises that was to compete or likely to compete with Wirraway's business. General orders were sought for compensation, interest and costs. 6 In the Summons for Relief, the applicants allege: that the business of the franchise would inevitably and irrevocably suffer from the impact of the establishment of the Manly Ultra Tune outlet because the two businesses were in close geographic proximity; that Ultra Tune's customers tended to be loyal to the brand; and, that potential customers of the Manly outlet would be drawn from the applicants geographical catchment area. It was alleged that it was inevitable that Wirraway would lose a significant number of customers to the Manly outlet and would also lose the benefit of the "Fleet Care" business which had been solely enjoyed by the first applicant. 7 The applicants allege that the Franchise Agreement was a contract or arrangement whereby Ms Johnstone performed work in an industry. Wirraway employed approximately eight staff in addition to Ms Johnstone to assist in the operation of the outlet and had a turnover of approximately $825,000 in the financial year 2002-2003. The profits generated by the franchise outlet were the primary source of income for Wirraway and Ms Johnstone and were the means by which Ms Johnstone earned a living. 8 By Amended Notice of Motion, a number of issues were raised by Ultra Tune but importantly, Ultra Tune sought a finding that the Court lacked jurisdiction because the Franchise Agreement did not lead directly to the performance of work in an industry. The challenge to jurisdiction was primarily prompted by the judgment of the Court of Appeal in McDonald's Australia Holding Ltd and anor v The Industrial Relations Commission of New South Wales and ors, [2005] NCWCA 286, a decision delivered on 25 August 2005. Ultra Tune drew similarities between the McDonald's franchise arrangement and its own Franchise Agreement to support its challenge to the Court's jurisdiction. When the Notice of Motion was listed for hearing the parties were aware that there were proceedings in the High Court dealing with the scope of s 106 of the Act and it was the joint position of the parties that the preferable course would be to seek to have the jurisdictional issue removed to a Full Bench by way of Reference. In November 2005, the President directed that the Notice of Motion, insofar as it raised the jurisdiction of the Court to deal with the application, be heard by a Full Bench of the Court.

THE ARGUMENTS 9 In support of the Notice of Motion, Ultra Tune filed an affidavit annexing a copy of the Franchise Agreement. Apart from the affidavit supporting the Summons for Relief, no other evidence has been filed in the proceedings. 10 In summary, the relevant provisions of the Franchise Agreement are as follows: (a) the Franchisor granted to the Franchisee the sole and exclusive right to establish and operate a service centre for the electronic tuning, servicing, repair and maintenance of motor vehicles and retail sale of motor vehicle replacement parts using the Ultra Tune System, its Marks and Intellectual Property; (b) the Franchisee was under a duty to punctually pay to the Franchisor on or before the execution of the Franchise Agreement the franchise fee which was treated as a contribution by the Franchisee to the overhead costs and expenses of the Franchisor in providing the Initial Training and Ongoing Training, field support and assistance to the Franchisee pursuant to the Franchisor's obligations; (c) there were a number of fees to be paid by the Franchisee including the management and royalty fees, marketing and promotion fees and a provision as to how they might be varied; (d) the characteristics of the Ultra Tune System included intellectual property, brochures, marketing concept and uniform procedure and training programs and also included that provided for in clause 5.1.4 as follows: 5.1.4 training programs and a procedure for evaluating the effectiveness of managers and mechanics and the performance of the Franchise Business .

(e) the Franchisor agreed on an ongoing basis to monitor, review, improve, develop and upgrade the Ultra Tune system and had designated standard fixtures, inventory and equipment for use at the franchise premises; (f) the Franchisor was to provide training to the Franchisee, consisting of initial training and ongoing training as provided for in clauses 6.6 and 6.7 which relevantly provided: 6.6 After the Commencement Date, the Franchisor will provide to the Franchisee training. 6.6.1 Initial Training shall be provided by the Franchisor: (a) to the Franchisee, if the franchisee is one or more natural persons; or (b) to the Franchisee's Nominee, if the Franchisee is a company; and (c) by a maximum of three (3) additional persons designated by the Franchisee, and first reasonably approved by the Franchisor. However, the Franchisor may at the request of the Franchisee, provide Initial Training to such greater number of the Franchisee's personnel as the Franchisor in its absolute discretion thinks fit. However, the Franchisor shall be under no obligation to do so. 6.6.2 The Initial Training shall continue for a period of not less than one (1) week. However, the Franchisor may in its absolute discretion continue the Initial Training for a further period as the Franchisor in its absolute discretion thinks fit. … 6.7 The Franchisor will from time to time in the [sic] its absolute discretion provide the Ongoing Training so as to enable the Franchisee to operate and conduct the Franchise Business in accordance with its obligations under this Agreement and so as to enable the Franchisee to be trained in ongoing developments of the Ultra Tune System and improvements which should be provided by the Franchisor to the Franchisee on the same terms as set out in clause 6.4.4. The Franchisor may in its discretion require the Franchisee to contribute no more then [sic] half of the cost of the Ongoing Training.

(g) the Franchisor was to designate minimum quantities and recommended suppliers of business cards, service order forms, brochures and display materials all of which were to be purchased by the Franchisee. In addition, the Franchisor, upon request by the Franchisee and subject to availability, was to sell to the Franchisee Ultra Tune uniforms for use in the franchise premises by the Franchisee and its employees; (h) the Franchisee was to use all reasonable endeavours to comply with the standards set by Standards Australia Quality Assurance Certification and was to warrant that it had sufficient initial capital and agreed to maintain a sufficient working capital to cover lease, deposits, pre-paid rents and a variety of other expenses; (i) operation of the Ultra Tune centre was dealt with in the following terms: 7.12 Operation of service centre 7.12.1 The Franchisee agrees to operate the service centre at the Franchisee Premises in accordance with the standards set by the Franchisor. 7.12.2 In the event that there is an inconsistency in interpretation between the Operations Manual and the Franchise Agreement the terms of the Franchise Agreement shall prevail. 7.12.3 To ensure uniformity and quality control, the Franchisee agrees to promptly and strictly observe the methods of operation as established by Franchisor and set out in the Operations Manual. 7.12.4 To ensure uniformity and quality control, the Franchisee agrees to use the specified Software set by the Franchisor.

(j) management of the Ultra Tune centre was required to be personally supervised and conducted by the Franchisee's nominees under clause 7.13, which provided : 7.13 Management of the Franchisee shall be personally supervised and conducted by: 7.13.1 The Franchisee, if the Franchisee is a natural person or persons; 7.13.2 If the Franchisee is a company or partnership, the Franchisee's nominee or such other nominee of the Franchisee as may be notified in writing by the Franchisee to the Franchisor from time to time and approved in writing by the Franchisor. The Franchisee (if the Franchisee is a natural person) or the Franchisee's nominee must participate in the Initial Training.

(k) the Franchisee was, at its own expense during the term of the agreement, to maintain the interior and exterior of the franchise premises including all equipment, signs and fixtures as well as surrounds in a good, clean, attractive and safe condition and in good repair; (l) the Franchisee was to cause all employees of the Franchisee, while working at the franchised premises, to wear uniforms of such colour, design and other specification as the Franchisor may designate from time to time; (m) the franchise business was to remain open each day not less than the maximum hours permitted under the laws for the time being in force for the State or Territory in which the premises were located or the hours of 8 am to 6 pm each workday and 8 am to 12 noon on Saturday; (n) upon expiration or termination of the Franchise Agreement for any reason the Franchisee and the guarantors were not to engage or be interested in, in any capacity whatsoever either directly or indirectly, individually or as members of any business or any related body corporate which in any way competes with the Franchisor or its franchisees or which is similar to the franchise business for a period of between three months and two years and was not to so conduct a business within a radius of between 1 kilometre and 15 kilometres of any other franchise business; (o) upon the expiration or termination of the Franchise Agreement the Franchisee was not (without the prior written consent of the Franchisor) to employ or seek to employ directly or indirectly any person employed by the Franchisor or related body corporate who was at the time or as at any time during the six months prior to the expiration or termination of the Franchise Agreement, employed by the Franchisor or related body corporate; (p) the Franchisee, at all times, was to maintain adequate and proper records and accounts in relation to the franchise business in the form specified by the Franchisor from time to time; (q) in order to determine whether the Franchisee was complying with the Franchise Agreement, the Franchisor or its agents had the right at any time during normal business hours and without prior notice, to enter upon the premises where the records were being kept and to inspect them and to make copies of any business record, book keeping and accounting record, invoices, payroll records, cheques etc or other business records and documents of the Franchisee; (r) in the second Schedule, the Franchisee's nominee to run the franchise business was identified as being Mr Warwick Johnstone. SUBMISSIONS 11 Put briefly, Ultra Tune submitted that the Franchise Agreement is essentially a commercial arrangement that provides for the granting of certain contractual and intellectual property rights through which a business can be conducted during the period of the franchise. Under the Franchise Agreement: (a) the Franchisee is a corporation; (b) the Franchise Agreement does not require any specific person to work in the business; and (c) the Franchise Agreement does not give a franchise in respect of any specific territory but rather gives a right to conduct the franchise business from identified premises. 12 In that factual context, Ultra Tune directed attention to established authority in the New South Wales Court of Appeal, namely, Production Spray Painting and Panel Beating Pty Ltd v Newnham (1991) 27 NSWLR 644 and Majik Markets Pty Ltd v Brake and Service Centre Drummoyne Pty Ltd (1991) 28 NSWLR 443. Reference was then made to the recent decisions of the High Court is Fish v Solution 6 Holdings Pty Ltd [2006] HCA 22, Batterham v QSR Ltd [2006] HCA 23 and Old UGC, Inc v Industrial Relations Commission of New South Wales [2006] HCA 24. 13 In Production Spray Painting, Mahoney JA stated that s 88F of the Industrial Arbitration Act 1940 ("1940 Act") would not apply to a transaction in which the performance of work was merely an accidental incident or consequence of it. The section looked to the purpose of the transaction itself and whether the purpose of the transaction was that relevant work be performed: it was the transaction, ie the "contract or arrangement or ... " that is to be the cause of ("whereby") the work being performed. That must be the purpose of both parties. In the present case, the fact that the Franchisee will, in the course of conducting their business, employ people, was not significant. The performance of such work was, nevertheless, an accidental although direct consequence of the substantive transaction being the granting of certain contractual and intellectual property rights whereby a business can be conducted. The purpose of the Franchise Agreement was the granting of these contractual and intellectual rights. 14 Majik Markets dealt with a franchise arrangement but it was submitted that the facts were distinguishable from the facts in the present case particularly because in Majik Markets the person who acted as "the proprietor" to the franchise had to be an identified individual and that individual was contractually obliged to "work the business" in accordance with quite specific requirements about how he or she would go about that task. 15 In Majik Markets, Mahoney JA looked to the terms of the franchise agreement and noted that it was a condition precedent to the operation of the agreement that the person or persons named in the schedule should have completed the training programme. The franchisee agreed that the person or persons named in the schedule were to devote their full-time personal attention and effort to the conduct, operation and management of the business and at all times while the premises were open for business and would maintain adequate personnel to facilitate the checking-out and handling of orders, including the dispensing of motor fuel and other needs of customers so as to avoid any unnecessary delay to and on the part of customers. Applying the approach in Production Spray Painting his Honour found the purpose of this franchise agreement was that the persons specified should, within s 88F, perform work in the activities referred to in the franchise agreement and that would be work in any industry within the meaning of the section. 16 Unlike the franchise agreement dealt with in Majik Markets, the Agreement in this case did not require or intend that the Franchisee, through a particular person such as a director, be involved in the operation of the business. Under the Franchise Agreement, it was the Franchisee who determined who would operate the business and on what conditions. A corporate franchise might well be run by a director but the Franchise Agreement did not require such a result and individual franchisees could organise how the task was to be performed in a manner they chose. It was open to a franchisee to be either a hands on operator or a passive investor. 17 The majority of the High Court in Solution 6 stated that what must be identified is the set of arrangements according to which (that is, "whereby") a person performs the relevant work. What may be declared void or varied was any part of those arrangements being the arrangements in accordance with which a person performs work. Section 106 of the present Act could not be construed so as to create a very large number of matters, being no more than the identification of one provision in a set of interlocking arrangements, touching or concerning the performance of work. That large range of matters would only be subject to an appeal to the Full Bench of the Commission, by leave, but the Orders made by the Commission would not ordinarily be susceptible to review by the Supreme Court or ultimately the High Court. Ultimately, under s106, the "contract" must meet the description "whereby a person performs work in any industry". Performance of work in an industry is the hinge about which s106 turns. 18 Applying that approach to the Franchise Agreement, the Commission had no jurisdiction to declare void or vary the contractual or other arrangements which did not involve a person performing work, as referred to in Majik Markets. The jurisdiction of the Court was limited to declaring a contract void or to vary it within bounds that left intact the jurisdiction of the Supreme Court over other kinds of contractual obligations. The present case was such a matter. 19 Although consenting to the Reference to the Full Bench, the respondents to the motion immediately drew attention to the decision of Nagle (t/as W D & J A Nagle & Sons) v Tilburg (1993) 51 IR 8 for the proposition that although Full Benches have emphasised that it is desirable to determine questions of jurisdiction at a preliminary stage, such a determination may be made only where the absence of jurisdiction is clear.

20 It was submitted that Ultra Tune's assertion that the purpose of the Franchise Agreement was the granting of certain contractual and intellectual property rights whereby the business could be conducted and that the performance of work in conducting the business was accidental, did not survive scrutiny. For instance, under the Franchise Agreement Ultra Tune granted the right to carry on a business for the benefit of both the Franchisor and the Franchisee and required the Franchisee (by its specifically named nominee who was also a proprietor of the business) to personally supervise and conduct the management of the business. Under the Deed of Guarantee and Indemnity each of the applicants was required to guarantee the timely and complete observance and performance of all Wirraway's obligations under the Franchise Agreement such that performance of work was not an accidental consequence of the Franchise Agreement. In the present matter there could be no doubt that work was performed in an industry. 21 It was accepted by the parties in Solution 6 the High Court had stated that the performance of work in an industry is the hinge about which s 106 turns and that the Court must look to find the arrangements, contractual and non-contractual, according to which a person performs that work. However, the submission for Ultra Tune began the enquiry at the wrong point by treating the Franchise Agreement as the hinge about which the operation of s106 of the Act turns, rather than the performance of work (as adopted by the High Court in Solution 6 and Old UGC, Inc). 22 In deciding the purpose of the Franchise Agreement, it was submitted that a number of the terms of that agreement were relevant: (a) the Recitals noted that the Franchisee wished to obtain the right to carry on the franchise business; (b) the "franchise business" was defined to mean "all operations of the Franchisee conducted pursuant to the Franchise"; (c) the Recitals stated that the Franchisor had agreed to grant the right to the Franchisee to establish and/or operate a franchise business using the Marks and Intellectual Property and the Ultra Tune System at the franchise premises; (d) the Franchisor had agreed to grant the right to conduct the franchise business at the franchise premises; (e) under clause 1, the Franchisor granted to the Franchisee the sole and exclusive right to establish and operate a service centre; (f) under sub-clause 4.3, in respect of each week the Franchisee will pay to the Franchisor management and royalty fees which represent a percentage of the gross sales generated by the Franchisee; (g) under sub-clause 7.12.1, the Franchisee agreed to operate a service centre at the franchise premises in accordance with the standards set by the Franchisor; (h) under sub-clause 7.12.3, the Franchisee agreed to promptly and strictly observe the methods of operation as established by the Franchisor and set out in the Operations Manual. 23 Ultra Tune's submission that the Franchise Agreement did not require any specific person to perform work in the business and did not require that the Franchisee be involved in the operation of the business was "plainly wrong". The Franchise Agreement required that management of the franchise "shall be personally supervised and conducted by" the Franchisee as a natural person, or if a company or partnership, by the Franchisee's nominee. The second Schedule specifically identified the Franchisee's nominee to run the business. The Franchisee was obliged to train and continually supervise its personnel and to conduct the franchise using its best efforts in furtherance of the mutual interests of the Franchisor and Franchisee and in accordance with the Operations Manual. The hours of business were set out in the Franchise Agreement with the Franchisee to ensure that all relevant personnel attended and completed training as required by the Franchisor. The Franchisee was to ensure that its employees applied for and maintained all necessary permits and licenses required for the operation of the franchise business. 24 Ms Johnstone's affidavit verified the allegations of fact in the Summons for Relief including the fact that she was the owner of Wirraway and was presently the Franchisor's nominee. Wirraway employed approximately eight staff in addition to Ms Johnstone to assist with the operation of the franchise and the profits generated by the franchise were the primary income for Ms Johnstone and the means by which she earned a living. The Notice of Motion was to be decided on the facts asserted in the Summons for Relief. In light of the provisions of the Franchise Agreement and the evidence in support of the application, it could not be said that this was a clear case where invocation of the jurisdiction was wholly misconceived or where, upon analysis, it lacked an arguable legal foundation. It was clearly arguable that the Franchise Agreement was a contract "whereby work is performed in an industry" by Ms Johnstone, the second applicant. 25 Contrary to Ultra Tune's submissions, the facts in Majik Markets were in substance and effect analogous to key clauses in the Franchise Agreement. Importantly, the Franchisee's nominee to run the business was specifically identified in the Second Schedule to the Franchise Agreement and Ms Johnstone, as second applicant, had deposed that she was now the nominee working in that business. It was clearly arguable that the form of Franchise Agreement and the arrangement in practice required the proprietor of the franchise to perform work in the vehicle service industry and the Franchise Agreement was one where the Franchisor had a real interest in the performance of that work because it generated management and royalty fees for the Franchisor. It was in this sense, and a real sense, that the proprietor was working for the Franchisor. 26 It was submitted for Wirraway that Ultra Tune appeared to argue that even if the Franchise Agreement led directly to work in an industry, the effect of the High Court's decision in Solution 6 was that the relief sought was beyond the Court's jurisdiction. It was pointed out that the High Court in Solution 6 was not called upon to consider the effect of the Court's jurisdiction under s106 following the Industrial Relations Amendment Act 2005 which came into force on 9 December 2005. Under the Amending Act, s106 applied to "a contract made before the commencement of the 2005 Amending Act and the proceedings pending in the Commission at that commencement that have not been finally determined by the Commission". The present Franchise Agreement was caught by the Amending Act and it followed that in determining the Motion, the Court was to have regard to s106(2A), providing: 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 a person performs work in an industry, and, (b) the performance of work is a significant purpose of the contractual arrangements made by the person. 27 It was submitted that if the majority of the High Court in Solution 6 or indeed the decision of the Court of Appeal in Solution 6 meant that relief under s106 of the Act was only available in relation to the specific provisions in the Franchise Agreement whereby work is performed, then, nevertheless, s106(2A) empowered the Court to declare void or vary any "related condition" or "collateral arrangement" to those provisions even though they did not relate to the performance of work, so long as performance of work was a significant purpose of contractual arrangements made by the person. 28 Having regard to the approach in Nagle v Tilburg, it was submitted that the Court should not strike out the Summons for Relief where: (a) it was arguable that s106(2A) of the Act permits the Court to declare wholly or partly void or to vary terms of the Franchise Agreement that do not relate to the performance of work; (b) questions arise about whether the performance of work is a "significant purpose of the contractual arrangements" made by the parties as contemplated by s106(2A); (c) determination of those questions will require findings of fact upon the evidence presented at trial; (d) the proceedings have not reached the stage where the substantive evidence has been filed; (e) no submissions have been made by Ultra Tune in relation to the operation of s106(2A) notwithstanding the onus it bore to demonstrate that no order could be made within jurisdiction. CONCLUSION 29 In electing to bring this challenge to jurisdiction at an early stage of the proceedings and before the evidence in the substantive application had been filed, Ultra Tune is taken to have accepted the high level of satisfaction required to be achieved by the Court in order for the strike out application to succeed. That high level of satisfaction and the principles to be applied have been set out in many well known cases including General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125, Majik Markets and in Nagle v Tilburg. The evidence before this Court is constituted by the Summons for Relief and the supporting affidavit required by the Rules of Court and the Franchise Agreement that is the subject of the Application under s106 of the Act. There is no Agreed Statement of Facts, although it is to be noted that in both Majik Markets and Nagle v Tilburg the existence of such a document did not alter the Court's view in each case that the challenge was premature and that it was proper to wait until there could be a consideration of all the evidence relied on by the parties. 30 When the jurisdictional issue was referred to the Full Bench there was a hint of a suggestion that the Court of Appeal's judgment in McDonald's, either directly or indirectly, resulted in the usual franchise agreement being incapable of characterisation as a contract whereby work is performed in an industry. That general attack was rejected in Majik Markets on the evidence then available. There is nothing in that judgment nor in the recent High Court judgments that would support such a general contention: the recent cases continue a line of authority that requires the identification of a contract or arrangement whereby work is performed in an industry, although it is clear that the more recent cases would wish to read that provision more narrowly than had been the case since the decisions of the High Court in Stevenson v Barham (1977) 136 CLR 190 and Brown v Rezitis (1970) 127 CLR 157. 31 Indeed, in McDonald's there was no suggestion by the Court that Majik Markets was not correctly decided while it was noted by Handley JA (with whom Mason P agreed) that franchise agreements with a working proprietor or proprietors had been held to be within the jurisdiction of the Commission under the predecessors of s106 in Caltex Oil (Australia) Pty Ltd v Feenan [1981] 1 NSWLR 169(PC) and in Majik Markets. His Honour went on to note that he had no difficulty in characterising the franchise agreements in Feenan and Majik Markets as contracts within the section although they contemplated the employment of additional staff by the franchisees: the Court could also find, without difficulty, that the terms of the contract had a recognisable and direct impact on the working conditions and remuneration of the proprietors. His Honour appeared to be influenced by the fact that the earlier franchise cases dealt with by the superior courts did not involve contracts with a working proprietor who employed a workforce of the magnitude involved in McDonald's, being in excess of 350 employees of which 20 - 25 were full-time employees. 32 In concluding his judgment in McDonald's, Handley JA stated: [102] Characterisation of a contract to determine whether it is within the jurisdiction of the Commission under s106 will raise questions of fact and degree in franchise cases near the borderline and the decision may not be an easy one. However, there is no difficulty in the present case where the working proprietor's company employs some 350 staff. The distinction is one of substance, not form, and the Commission, in the words of Barwick CJ in Brown v Rezitis at 164, can uncover the real transaction between parties. The real transaction here does not have to be uncovered, and it is not a contract whereby Mr McLaughlin works in an industry. 33 In McDonald's, the franchisee company and its proprietor operated four McDonald's restaurants under license and lease agreements and the proprietor was required to devote his full-time attention to and exercise his best efforts in the operation of the restaurants. The Chief Justice could not distinguish the McDonald's arrangements from the franchise arrangements held to be within jurisdiction in Feenan and Majik Markets. While Handley JA (with whom Mason P agreed) readily accepted the correctness of Feenan and Majik Markets, it was thought that to merely approach the McDonald's' arrangements on the basis that a single working proprietor under a franchise agreement had been held to be within jurisdiction was too literal a construction and application of s106. The defining difference appeared to be the fact that the earlier cases did not involve contracts with a working proprietor holding a number of franchises and employing a workforce of the magnitude involved in McDonald's, namely, 350 mainly casual employees with some 20 - 25 being full-time employees. It is unknown whether the evidence descended into any detail as to the regularity of work available to casuals or whether there were a very large number of casuals performing a very small number of hours of work (as often favoured by students and persons seeking remuneration additional to their substantive employment). 34 It is difficult to understand how the number of franchise outlets and the number of persons employed in those outlets would affect the jurisdictional issue of whether the contracts were ones whereby work was performed in an industry. It might be expected that different contractual provisions or important factual differences would be needed to take the same type of contract outside of the jurisdiction when it would be within jurisdiction when involving a single proprietor with a small number of employees. To focus on the number of employees or employees and outlets suggests a reformulation of the test rejected in Majik Markets, namely, that properly construed the franchise arrangements were really commercial arrangements beyond the reach of the Commission's jurisdiction. In addition, the provision has never been restricted to cases where there has been a subterfuge taking workers outside award regulation. 35 Having regard to the number of outlets and the number of employees, either as a test or a relevant consideration, has additional difficulties. Firstly, the High Court in its recent decisions about s106 has cautioned against an approach that does not focus upon a search for the provision within the contract whereby a person performs work in an industry. Secondly, in applying the McDonald's approach, a question arises as to where the line is to be drawn. When does a contract involving work by a proprietor and a number of employees become so numerous in the number of franchise outlets and employees that it can no longer be regarded as a contract whereby work is performed in an industry? These difficulties strongly suggest that the decision in McDonald's falls into a unique or special category and is a case that is limited to its own peculiar facts. 36 To the extent that the size of the workforce and the number of franchise outlets may illuminate the nature of the contract and assist in identifying whether or not it is a contract whereby work is performed in an industry, in the present case the evidence before the Court on this Application shows only one outlet being operated with the employment of a modest number of people, approximately 8 in total together with the working proprietor. The evidence is that it is the income derived from the Franchise Agreement that provides the income for Ms Johnstone as the proprietor. In addition, this Franchise Agreement contains provisions that are in very similar terms to those dealt with by the Court of Appeal in Majik Markets: importantly, the Franchise Agreement requires management of the franchise to be personally supervised, conducted and operated by the Franchisee or, in the case of a corporate Franchisee as is in the present case, the Franchisee's nominee. When the Franchise Agreement was signed, the second schedule identified Mr Warwick Johnstone as the Franchisee's nominee to operate, manage and conduct the franchise: he was to "run the franchise business". The parties have since proceeded on the basis that Ms Johnstone is that nominee. 37 As Ultra Tune's argument was refined during oral submissions, it accepted the correctness of the decision in Majik Markets. It was noted that in Majik Markets the franchisee was obliged to devote their full-time attention and full-time effort to the conduct, operation and management of the franchise. This was to be compared with the Ultra Tune Franchise requirements that made no mention of full-time participation: although speaking about the management of the franchise being personally supervised and conducted, that could be done by an external company or in any number of ways and there was no obligation on the Franchisee to operate the franchise. These distinctions were said to be important, leading to a different result to that in Majik Markets. 38 That submission was impossible to maintain, however, in light of a number of the provisions of the Franchise Agreement. Clause 6.7 and clause 7.12.1 required the Franchisee to operate and conduct the franchise business and to operate the service centre at the franchised premises in accordance with the standards set by the Franchisor. Clause 7.12.3 required the Franchisee to promptly and strictly observe the methods of operation as established by the Franchisor and set out in the Operations Manual. The alleged distinction is inconsistent with the provisions of the second Schedule whereby Mr Warwick Johnstone was nominated "to run the franchise business". The submission also does not sit well with the provisions of clause 5.1.4 under which the Ultra Tune System was defined to include training programmes and a procedure for evaluating the effectiveness of managers and mechanics in the performance of the franchised business. While counsel for Ultra Tune submitted that clause 5.1.4 was instructive only, it is difficult to sustain an argument that the Franchisee was not required to implement the training and procedures referred to in clause 5.1.4 when read together with clause 7.12.3. 39 Further, it does not fit comfortably with clause 7.13, which required that, if the Franchisee was a corporation (as is the case in the present proceedings), the management of the franchise must be personally supervised and conducted by the Franchisee's nominee. Further, under clause 7.13 the nominee was required to participate in the Initial Training. 40 With some ingenuity these provisions were sought to be put in the context of either obligations of the corporate franchisee as opposed to the nominee or mere descriptions of the Ultra Tune System, or able to be ignored because of the terms of the Franchise Agreement that required headings and clause headings to be regarded as for convenience only and were not be used to expand, modify, amplify, affect or be an interpretation, construction or meaning of the Franchise Agreement. The provisions of the second Schedule referring to the Franchisee's nominee to run the franchise business did not appear to be a heading or a clause heading in any event, and was quite consistent with the obligations to manage, supervise, conduct and operate the business in clauses 7.12 and 7.13. Similarly, these provisions could not be ignored in considering whether this was a contract whereby work was performed in an industry: the substance of the arrangements had to be considered. 41 When read together, those clauses demonstrate that Ultra Tune is not merely conferring a right over its intellectual property comprising logo, colour and the like, but is providing a system of control over the conduct of the automotive business to ensure that there is a standard of conduct of that business universally across the franchises, so as to enhance the overall profitability and development of the Ultra Tune business. 42 It is abundantly clear from the decision of the High Court in Solution 6 that in applying s106 the Court is to first establish whether any work has been performed in an industry and then to identify the contract or arrangements whereby that work is performed. The High Court specifically stated that it was to invite error to begin by identifying the contracts and the way in which they are related. Contrary to the approach in Solution 6, Ultra Tune in these proceedings focused primarily on the terms of the Franchise Agreement and asserted that once the terms of that agreement were considered, it became abundantly clear that this was a commercial arrangement and the Franchisee was not required to perform any work and that the franchise outlet could be operated through another and separate management company or by a business person or professional person simply purchasing the franchise and appointing a manager to attend to the franchise obligations. 43 On this approach, the terms of the Franchise Agreement were paramount and it mattered not what the facts were in any particular franchise outlet such as the one owned by Ms Johnstone. It followed that if Ms Johnstone was qualified to perform services on motor vehicles using the Ultra Tune System, she could actually perform the hands-on work of servicing the vehicles as well as undertaking the other Franchisee obligations of running the outlet and managing it and yet this would not be a contract whereby work was performed in an industry and would therefore fall outside the reach of s106. It was not explained how this curious result was consistent with the language of s106. 44 It was noted during the course of argument that Ultra Tune frequently spoke of the "purpose" of the contract and how it could not be said that work was the "purpose" of the contract as well as looking for the way in which the Franchise Agreement affected the performance of work in an industry. There was also reference to what was not "required" by the contract, namely, there was no requirement to perform full-time work, no requirement to give full-time effort and no requirement to operate the business although there was an obligation to personally supervise the management and conduct of the business. Ultra Tune's approach picked up a number of terms used in a variety of cases where the operation of s106 has been considered and effectively turned them into a test of jurisdiction. The error of such an approach was identified more than a quarter of a century ago by the Privy Council in Feenan: Lord Diplock in dealing with the various views of the divided High Court in Stevenson v Barham said (at p 123B [1981] 1 NSWLR 169): To speak of 'construing' the words in which judges have chosen to express the reasons for their judgments involves, in their Lordships' view, a misuse of language that is all too common and reflects a mistaken approach to the use of judicial precedents. The only words that require to be 'construed' are those of the Statute itself. The language used by judges to express the reasons why the statutory words do or do not apply to the particular circumstances of the case under consideration, is chosen with those particular circumstances in mind and is not intended as a paraphrase of the statutory words that is necessarily appropriate to all other circumstances . 45 While s106 requires a contract whereby a person performs work in an industry, there is no requirement that such work be full-time, substantially full-time or that it be "hands-on" work as opposed to managerial or supervisory work. The propositions propounded by Ultra Tune make the error of not distinguishing franchise arrangements such as in Feenan and Majik Markets but in attempting to make the particulars of those franchise arrangements the test for jurisdiction. The unfortunate spate of litigation about this previously well settled provision has led to artificial and arcane points being taken about jurisdiction in a Court where s106 applications form a significant aspect of the workload. The jurisdiction is a creative statutory provision to meet the varying ways in which work can be performed outside of award regulation. Reform in workplace legislation over at least the last 20 years has dramatically altered the operation of awards and the arrangements under which people perform work. The important place that s106 occupies in the jurisdiction exercised by the Court should not be reduced by the willingness of litigants to take speculative or unmeritorious points based largely upon particular words used in judgments in the superior courts thus delaying final determination of the application and incurring further costs. Embracing the essence of the judgments of superior courts calls for no such approach but focuses attention upon the words of the statute, the identification of the work being performed and the identification of the contract whereby that work is performed. The rush to avoid the reach of this remedial legislation should not be aided by the adoption of jurisdictional tests of Hohfeldian complexity. 46 Having regard to the other provisions of the Franchise Agreement identified by counsel for Wirraway, the picture formed is one of a contract entered into by the parties for their mutual financial benefit and it is one whereby the parties clearly intended that as a direct consequence of the contract Wirraway, through its nominee, would operate, manage, conduct and control the outlet and would employ sufficient persons to supply the service. There is a recognisable and direct impact of the terms of the Franchise Agreement upon the working remuneration of the Franchisee's nominee. As the evidence presently stands, it is not possible to characterise the contract as simply one whereby intellectual property is conveyed between the Franchisor and the Franchisee such that it is the only or primary purpose of the contract. On the evidence available, that is not an accurate characterisation of the substance of the Franchise Agreement, nor is it analogous to a construction contract as referred to in McDonald's. The similarity of the terms with those scrutinised in Majik Markets supports a finding that the application under s106 is within jurisdiction and that Ultra Tune's Notice of Motion challenging the Court's jurisdiction to deal with the application must therefore fail. 47 It is instructive, in this context, to return to the approach of Handley JA in Majik Markets, at 464-465: The franchisees are independent contractors conducting retail businesses on land of the franchisor and selling motor fuel purchased from the franchisor. The franchisees, or in some cases, their employees, work in the businesses both in consequence of the arrangements and in fulfilment of them. The form of agreement requires the franchisee to perform work in the retail industry either personally or through employees and therefore it leads directly to the performance of work in that industry. The franchisor has a real interest in the performance of that work. It results in the sale of motor fuel purchased from the franchisor and tends to maintain and improve both the value of its general goodwill, and the value of the local goodwill attached to its premises. While the franchisees, if natural persons, are working for themselves, they are also in a very real sense working for the franchisor. If the business was not operated by some franchisee, the franchisor would either have to employ staff of its own or sell or lease the site to an independent purchaser or lessee.

The Ultra Tune franchise operates in a very similar manner to the franchise considered in Majik Markets. 48 In the present case however, Ultra Tune contended that its franchise agreement can be taken up by corporations or by an individual and that the franchise outlet can be operated in any way chosen by the franchisee. This proposition is not abundantly clear from the terms of the Franchise Agreement. In any event, the Court is not being called upon to make a general declaration about the operation of all Ultra Tune's Franchise Agreements but is required to consider the terms of the Franchise Arrangement with Wirraway and Ms Johnstone where the duties and obligations to perform work are clearly set out. Further, the terms of clause 7.13.2 are clear in requiring the management of the outlet to be "personally supervised and conducted" by Ms Johnstone as the Franchisee's nominee. In this regard, counsel for Ultra Tune advanced the argument that the nominee was, in effect, a contact person and that while they were responsible for the management, the Franchise Agreement was not one whereby a person performs work in an industry because the agreement did not require that the nominee operate the outlet. That is, the obligation in clause 7.12.1 to operate the service centre at the Franchise Premises was on the Franchisee and not the nominee. In this regard, Ultra Tune drew an analogy to the position of a director, in that a director has a responsibility for ensuring the running or management of the company, but the director is not necessarily a person who is involved in the day-to-day operation of the company. 49 The difficulty with this argument in the present proceedings is that it is not possible to determine whether the requirement to personally supervise and conduct the business effectively required the nominee to operate the business given the nature of the Franchise business and hence perform work in an industry without an appreciation of the factual context in which the Franchise Agreement operated. The combination of clauses would suggest that the requirement to personally supervise effectively required the nominee to operate the business but factual evidence may be required to finally resolve that question. We have already referred to the minimal evidence presently before the Court. As such, it is premature to decide the jurisdiction of the Court: see Nagle v Tilburg. 50 Attention was also directed to the decision of Watson J in Swann and anor v Ultra Tune Aust Pty Ltd (1983) 5 IR 136. The Court was informed that the respondent in this case is not the same company but a later form of it. Those proceedings were brought under 88F of the 1940 Act and the respondent company challenged whether the franchise agreement led directly to the performance of work in an industry. It was pointed out that a number of the provisions were similar in their effect to the Franchise Agreement taken up by Wirraway and Ms Johnstone. In dismissing the challenge to jurisdiction, Watson J said that there was little to distinguish the present contract from a number of other types of franchise agreements that had been considered from time to time by the Commission where the arrangement involved the establishment of an outlet or centre for the provision of goods or services with employment necessarily and directly involved in order to fulfil the primary purpose of the franchise. His Honour was of the view that the agreement being considered in that case directly envisaged the employment of persons in an industry: small establishments were involved which, in order to further the very purpose of the franchise, necessarily required the employment of mechanics or technicians together with a manager who was not necessarily the franchisee although it was contemplated that the franchisee may fill such a position. Quite apart from whether the proprietor, acting as a consultant, was performing work in an industry (which his Honour found in any event), there were two technicians or mechanics also employed at each centre to meet the primary purpose of the contracts and to perform the work entailed and their work was a significant feature and a direct consequence of the contract. The similarity of those franchise provisions with the present Franchise Agreement being considered by the Court strongly tends against the submissions for Ultra Tune. 51 Wirraway also submitted that there was a suggestion in Ultra Tune's submissions that the Court would need to consider each arrangement or collateral contract, in accordance with the approach of the High Court in Solution 6, to ascertain whether each such arrangement or collateral contract was unfair. The scope and nature of such a challenge is not clear on the Notice of Motion nor on the submissions in support of Ultra Tune's motion, as in this case there is only one Franchise Agreement and not a number of related arrangements. However, it is to be observed that the High Court was not called upon to consider the effect of the amendment brought about by s106(2A) and on its face the 2005 Amendment appears to re-state the broader approach adopted prior to the Court of Appeal decision in Solution 6. In light of the arguments put by the parties it is unnecessary to consider the operation of s 106(2A) to determine this jurisdictional challenge as the provisions of the Franchise Agreement are sufficient to resolve the issue at this stage in the absence of further evidence. 52 While it is difficult to envisage the jurisdictional challenge becoming any stronger with the receipt of further evidence, the preferable course is to adopt the approach in Nagle v Tilburg and to regard this challenge as being brought prematurely given that the factual evidence was confined to affidavit evidence producing the Franchise Agreement and affidavit evidence relating to the matters of fact in the summons. The Notice of Motion filed by Ultra Tune is therefore dismissed and Ultra Tune is to pay the costs of the applicants in the substantive proceedings in relation to the Motion. The matter will be allocated for trial or, subject to any joint application by the parties, for further conciliation.

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