Caterpillar of Australia Limited & Ors v Gough & Gilmour Holdings Limited & Ors [2008] NSWIRComm 3 (21 February 2008)

Last Updated: 30 May 2008

NEW SOUTH WALES INDUSTRIAL RELATIONS COMMISSION

CITATION :
Caterpillar of Australia Limited & Ors v Gough & Gilmour Holdings Limited & Ors [2008] NSWIRComm 3



FILE NUMBER(S):
IRC 227

HEARING DATE(S):
6 and 7 August 2007

DATE OF JUDGMENT:
21 February 2008

PARTIES:
FIRST APPELLANT
Caterpillar of Australia Limited

SECOND APPELLANT
Caterpillar Inc

THIRD APPELLANT
Caterpillar SARL, Singapore Branch

FOURTH APPELLANT
Caterpillar Overseas Credit Corporation SA

FIRST RESPONDENT
Gough & Gilmour Holdings Pty Ltd (ACN 008 646 259)

SECOND RESPONDENT
Harcourt David Gough

THIRD RESPONDENT
Anthony Lansley Gilmour

CORAM:
Wright J President Walton J Vice-President Staff J


CATCHWORDS: Appeal - unfair contract - interlocutory judgment - amendment to summons - new jurisdictional formulation - claims for orders under s 106(5) of the Industrial Relations Act - jurisdictional challenge - pleadings - consideration of s 106(1) of the Industrial Relations Act - consideration of s 106(2A) of the Industrial Relations Act - consideration of s 106(5) of the Industrial Relations Act - leave to appeal granted - appeal dismissed.

LEGAL REPRESENTATIVES
APPELLANTS
Mr D Grieve QC and Mr A Moses of counsel
Mallesons Stephen Jaques
RESPONDENTS
Mr M Kimber SC and Mr A Gotting of counsel
Harmers Workplace Lawyers


CASES CITED:
Azzi & Ors v Volvo Car Australia Pty Limited [2007] NSWSC 319
Barataud v Chipperfield (No 3) [2006] NSWIRComm 249
Batterham v QSR Limited [2006] HCA 23; (2006) 225 CLR 237
Brown v Rezitis [1970] HCA 56; (1970) 127 CLR 157
Caterpillar of Australia Ltd & Ors v Gough & Gilmour Holdings Pty Ltd & Ors [2006] NSWIRComm 146
Custom Credit Corporation Ltd v Goldsmith and Ors [1976] AR (NSW) 98
David Jones v Cukeric (1997) 78 IR 430
Fish v Solution 6 Holdings Limited [2006] HCA 22; (2006) 225 CLR 180
Gough & Gilmour Holdings Pty Ltd and ors v Caterpillar of Australia Ltd and anor (No 9) [2001] NSWIRComm 260
Gough & Gilmour Holdings Pty Limited v Caterpillar of Australia Limited (No 11) [2002] NSWIRComm 354
Gough & Gilmour Holdings Pty Ltd and ors v Caterpillar of Australia Ltd and anor (No 15) [2003] NSWIRComm 173
Gough & Gilmour Holdings Pty Ltd & Ors v Caterpillar of Australia Ltd and Ors [2007] NSWIRComm 3
Kennett and Anor v Mayrana Pty Ltd and Ors (No 4) [2006] NSWIRComm 357
McDonald's Australia Limited v Industrial Relations Commission [2005] NSWCA 286; (2005) 223 ALR 78
Majik Markets v Brake & Service Centre (1991) 28 NSWLR 443, 39 IR 169
Mayne Nickless Ltd v Industrial Relations Commission of NSW (2004) 141 IR 1
Old UGC Inc v Industrial Relations Commission of NSW [2006] HCA 24; (2006) 225 CLR 274
QSR Ltd v Industrial Relations Commission of NSW (2004) 141 IR 238
Rose v Meriton Apartments Pty Ltd and anor [2007] NSWIRComm 264
Solution 6 Holdings Ltd v Industrial Relations Comn (NSW) [2004] NSWCA 200; (2004) 60 NSWLR 558
Stevenson v Barham [1977] HCA 4; (1977) 136 CLR 190
Virtue v NSW Department of Education (1999) 92 IR 428
Westfield Holdings v Adams [2001] NSWIRComm 293; (2001) 114 IR 241
Westfield Ltd v Helprin (1998) 82 IR 411
Wirraway (NSW) Pty Limited v Ultra Tune Australia Pty Limited (2006) 156 IR 367
Yim & Kim v The Industrial Relations Commission of NSW & Choi [2007] NSWCA 77

LEGISLATION CITED:
Industrial Arbitration Act 1940 s 88F
Industrial Relations Act 1996 ss 105, 106
Industrial Relations Amendment Act 2005


TEXTS CITED:




JUDGMENT:

INDUSTRIAL COURT OF NEW SOUTH WALES

FULL BENCH

CORAM: WRIGHT J, President
WALTON J, Vice-President
STAFF J

Thursday 21 February 2008

Matter No IRC 227 of 2007

CATERPILLAR OF AUSTRALIA PTY LIMITED AND OTHERS v GOUGH & GILMOUR HOLDINGS PTY LIMITED AND OTHERS

Application by Caterpillar of Australia Pty Limited and others for leave to appeal and appeal against the judgment of Justice Boland given on 2 February 2007 in Matter No IRC 5227 of 2000

JUDGMENT OF THE COURT
[2008] NSWIRComm 3

1 These proceedings concern an application for leave to appeal and appeal from the interlocutory judgment of Boland J given on 2 February 2007: Gough & Gilmour Holdings Pty Ltd & Ors v Caterpillar of Australia Ltd and Ors [2007] NSWIRComm 3 ("first instance judgment"), in which his Honour determined that the Court had jurisdiction to hear an application by the first respondent, Gough & Gilmour Holdings Pty Limited; the second respondent, Harcourt David Gough; and the third respondent, Anthony Lansley Gilmour ("the respondents"), to amend the Third Amended Summons filed in the proceedings in the form of the Sixth Further Amended Summons. That Summons sought to rely on ss 106, 106(2A) and 106(5) of the Industrial Relations Act 1996.

2 The first instance judgment was not given in resolution of a threshold issue raised by the respondents but after more than one hundred days of hearings and as the seventeenth interlocutory judgment delivered by his Honour. One of those interlocutory judgments had resulted in the substantive finding that the Overall Arrangement, as determined by the Court to have existed between the appellants and the respondents, was an unfair contract within the meaning of ss 105 and 106 of the Industrial Relations Act: see Gough & Gilmour Holdings Pty Limited v Caterpillar of Australia Limited (No 11) [2002] NSWIRComm 354. In the first instance judgment, his Honour had to grapple with significant jurisdictional issues which required consideration of some recent decisions of the New South Wales Court of Appeal and High Court of Australia which passed upon the scope of this Court's jurisdiction under s 106: Fish v Solution 6 Holdings Ltd & Ors [2006] HCA 22; (2006) 225 CLR 180 ("Fish"); Batterham v QSR Ltd & Ors [2006] HCA 23; (2006) 225 CLR 237 ("Batterham"); Old UGC Inc v Industrial Relations Commission of NSW in Court Session & Ors [2006] HCA 24; (2006) 225 CLR 274 ("Old UGC"); Solution 6 Holdings v Industrial Relations Commission of NSW [2004] NSWCA 200; (2004) 60 NSWLR 558 ("Solution 6"); and McDonald’s Australia Holdings Pty Ltd & Anor v Industrial Relations Commission & 2 Ors [2005] NSWCA 286; (2005) 223 ALR 78 ("McDonald's"). Given this background, it is appropriate to commence these reasons by a short revisiting of the long and complex history of the proceedings. (Note: for ease of reference subsequent citations of first instance judgments concerning this litigation will be referred to by the abbreviation Gough & Gilmour followed (where applicable) by the number of the decision in brackets; for example, Gough & Gilmour (No 11); it should however be noted that the judgment of 2 February 2007, the subject of this appeal, was not numbered and is thus referred to as "the first instance judgment".)

3 The first appellant, Caterpillar of Australia Pty Ltd, is a subsidiary of the second appellant, Caterpillar Inc, which is a United States company. The second appellant is represented in Australia by the first appellant. The third appellant, Caterpillar SARL, Singapore Branch, is a limited liability company incorporated in Switzerland and registered as a foreign company in Singapore and is a subsidiary of the second appellant. The fourth appellant, Caterpillar Overseas Credit Corporation, is a corporation incorporated in Switzerland and is a subsidiary of the second appellant. The third and fourth appellants were joined during the course of the proceedings.

4 As earlier mentioned the first respondent is Gough and Gilmour Holdings Pty Limited. The second respondent, Harcourt David Gough, is the managing director of the first respondent. The third respondent, Anthony Lansley Gilmour, is also a director of the first respondent. Gough and Gilmour Holdings Pty Limited was a Caterpillar dealer selling and servicing Caterpillar equipment and parts in a territory encompassing New South Wales and the Australian Capital Territory.

5 On 26 October 2000, the first appellant, Caterpillar of Australia Pty Limited, served notices upon the first respondent giving 90 days' notice of the termination of dealership agreements between those two parties in accordance with those agreements. On 27 October 2000, the respondents in the current proceeding filed a summons for relief under s 106 of the Industrial Relations Act, now, subject to the result of this appeal, in its Sixth Further Amended Form.

6 In the Sixth Further Amended Summons the respondents claimed certain dealership agreements were unfair, harsh and unconscionable and against the public interest and further, or in the alternative, that the "Overall Arrangement" was unfair, harsh and unconscionable and contrary to the public interest.

7 In his Honour's interlocutory judgment given on 23 November 2000, Boland J determined that the respondents' summons for relief would be heard in two parts. The first part addressed the alleged unfairness of the Dealership Agreements and the Overall Arrangement to which we shall return in some detail, and whether these transactions should be varied in the terms sought. The second part dealt with issues of compensation but only in the event that unfairness had been found and the primary relief sought: that is, variation of the contracts to provide for their continuity, was refused.

8 In Gough & Gilmour Holdings Pty Ltd and ors v Caterpillar of Australia Ltd and anor (No 9) [2001] NSWIRComm 260, a decision given on 23 October 2001, Boland J made orders by way of interlocutory injunctive relief. The effect of those orders was to keep the Dealership Agreements on foot until further order of the Court and in the intervening period to prevent the respondents taking any steps inconsistent with or prejudicial to the ongoing operation of the Dealership. The respondents gave an undertaking as to damages.

9 In Gough & Gilmour (No 11), initial determinations as to jurisdiction and findings of unfairness were made. It was determined that the Overall Arrangement between the appellants and the respondents was within the jurisdiction of s 106 of the Industrial Relations Act. At [780] and [805] his Honour summarised his findings relevantly as follows:

780 Prior to addressing the question ... it is appropriate that I summarise the relevant findings in these proceedings:

(1). The dealership agreements between the applicants and the first respondent constituted contracts for the purpose of s 105 of the Industrial Relations Act. The dealership agreements constituted part of an overall arrangement between the applicants and the respondents as pleaded by the applicants except in relation to the first and second assurances and part of the fourth assurance, which did not constitute part of any arrangement. That part of the fourth assurance that did constitute part of the overall arrangement was the assurance that the sale process would be conducted on an amicable and reasonable basis without duress and the respondents would assist the applicants to receive a fair value for the shares.

...

805 The Court makes the following orders:

1. The Court declares that the overall arrangement as determined by the Court to have existed between the applicants and the respondents is an unfair contract within the meaning of ss 105 and 106 of the Industrial Relations Act 1996.

...

10 The "Overall Arrangement" was found by his Honour to be unfair, at [781] and [794], as follows:

781 I have found that the first respondent acted unfairly in recommending in March 1999 that the relationship with the applicants be brought to an end and that both the first and second respondents acted unfairly in relation to the sale process and their decision to cancel the dealership. However, it is another question entirely as to whether it may be said that the dealership agreements and/or overall arrangement that existed between the applicants and the respondents were unfair within the meaning of ss 105 and 106 of the Industrial Relations Act...

...

794 In the result, and having regard to the terms and operation of the overall arrangement and the conduct of all of the parties, I find that the overall arrangement referred to in par [780(1)] of this judgment between the applicants and the respondents was unfair within the meaning of ss 105 and 106 of the Industrial Relations Act.

11 This conclusion was substantially based upon a finding that the appellants' conduct was inconsistent with particular assurances and understandings now known as the Fourth Assurance and the Last Resort Policy, which were found to constitute part of the "Overall Arrangement". In Gough & Gilmour Holdings Pty Ltd and ors v Caterpillar of Australia Ltd and anor (No 15) [2003] NSWIRComm 173 at [278] his Honour found:

278 There were two substantive episodes of failure by the respondents to observe their last resort policy. The first was in March 1999 when the first respondent decided to recommend to the second respondent that the relationship with the applicants should be brought to an end and did so without taking steps to allow the applicants every reasonable opportunity to retain the dealership. The second was in September 2000 when the respondents decided to terminate the dealership agreements, again without satisfying themselves there were no options open other than cancellation and that proper grounds existed to support cancellation.

12 This was further explained in the first instance judgment at [77]:

... That is to say, the Court found in Judgment No. 11 that the respondents' conduct in relation to the sale process was completely at odds with the assurances given to the applicants that the respondents would assist the applicants in the sale process in achieving a fair price for the business and that the process would be amicable (Fourth Assurance) and that the respondents failed to adhere to their Last Resort Policy in that in March 1999 the first respondent decided to recommend to the second respondent that the relationship with the applicants should be brought to an end and did so without taking steps to allow the applicants every reasonable opportunity to retain the dealership. Further, in September 2000 the respondents decided to terminate the dealership agreements, again without satisfying themselves there were no options open other than cancellation and that proper grounds existed to support cancellation.

13 As the Court refused to grant the primary relief sought (that is, continuation of the Dealership Agreement in varied form), the respondents thereafter sought different relief in the form of alternative variations to the "Overall Arrangement".

14 In Gough & Gilmour (No 15) the respondents' claims for alternate, rather than primary, relief were addressed. As the alternative relief concerned variations to contracts and arrangements rather than compensation, the proceedings were effectively broken into three parts, being hearings into primary relief, alternate relief, and compensation. On the basis of the two findings of unfairness in Gough & Gilmour (No 11) the Court varied the "Overall Arrangement" in Gough & Gilmour (No 15) to include an "Additional Sale Period", "Final Termination Date" and an "Improvement Plan". His Honour stated at [284] to [286]

284 ... As I have already explained, there were two substantive episodes where the respondents failed to comply with their last resort policy. The first was the decision in March 1999 where the first respondent decided to recommend a change in the dealer for New South Wales and the ACT. The second was in September 2000 when the respondents decided to cancel the dealership agreement because of what they, unfairly, considered to be a failed sales process.

285 As to the first episode, it seems to me that the respondents' failure to observe the last resort policy, thereby causing unfairness, is addressed by varying the overall arrangement in the (amended) form of cl 11 of Schedule B ...

286 As to the second episode of unfairness, the applicants seek to address this in cl 2(c) and (in part) in 2(d) of Schedule B. I propose to vary the overall arrangement as follows:

In the event that Caterpillar has complied with [clause 11] but this has proved to be unsuccessful, Caterpillar will take steps to provide Messrs Gough and Gilmour with a proper opportunity to sell their shares in the dealership business and will assist Messrs Gough and Gilmour receive fair value for those shares in that business by ensuring that the sale process is conducted on a reasonable basis without duress. Such steps are to be taken prior to the issue of any notice of termination. Furthermore, Caterpillar shall not use the act or timing of the issue of a termination notice for the purpose of weakening Gough & Gilmour’s bargaining position in any sale process.

15 On 20 January 2006, the appellants filed an application for the grant of an extension of time to file an application for leave to appeal and appeal Judgments Nos 9, 11 and 15. On 18 May 2006, Kavanagh J refused the application for an extension in Caterpillar of Australia Ltd & Ors v Gough & Gilmour Holdings Pty Ltd & Ors [2006] NSWIRComm 146. On 6 June 2006, the appellants filed an application in the Industrial Court for leave to appeal and to appeal the judgment of Kavanagh J. At the directions hearing on 16 June 2006, Walton J, Vice-President, raised with the parties whether or not it would be appropriate for the jurisdictional issues that the respondents wanted to raise to be dealt with by the trial judge at first instance. This was because the appeal raised questions of jurisdiction which had not been considered by Boland J in his previous interlocutory judgments. The appeal of the decision of Kavanagh J was subsequently discontinued. The appellants then filed a notice of motion on 24 July 2006, which came before Boland J in the first instance proceedings to strike out the matter for want of jurisdiction and led to the first instance judgment the subject of the appeal.

16 In the first instance judgment his Honour refused the appellants' application in the notice of motion filed on 24 July 2006. The notice of motion had contended that the Court had no jurisdiction to further hear the respondents' claim or to grant any relief to the respondents in Stage 2 of the proceedings. The appellants had contended that the proceedings ought to be dismissed or permanently stayed.

17 His Honour also granted the respondents leave to amend the Third Amended Summons in terms of the Sixth Further Amended Summons filed with an amended notice of motion on 14 December 2006.

18 This current matter concerns the application by the appellants for leave to appeal and an appeal against the judgment of Boland J in the first instance judgment.

Leave to Appeal

19 It is appropriate to pause at this juncture to consider the question of leave to appeal.

20 The respondents accepted (correctly in our view) that leave should be granted so that the Court could consider the significant questions of jurisdiction where those questions concerned ss 106, 106(2A) and 106(5) of the Industrial Relations Act.

21 However, the respondents challenged the granting of leave in some respects as follows:

a) To the extent that the Appellants seek to challenge the rulings of the trial judge on the amendments to the Third Further Amended Summons for Relief this Court should refuse to permit such a challenge, given that it is a challenge to an interlocutory ruling on a matter of practice and procedure;

b) To the extent that the Appellants seek to challenge indirectly the findings of fact made in Judgment No 11 this Court should refuse to permit such a challenge, given that the Appellants did not seek leave to appeal against Judgment No 11 or Judgment No 15, given that the Appellants abandoned their application to re-open Judgment No 11 and Judgment No 15, given that the Appellants did not seek to challenge those factual findings before the trial judge and, given that the Appellants should be bound by the way they proceeded at trial;

c) To the extent that the Appellants seek to present arguments concerning jurisdiction on a different factual basis to that considered by the trial judge this Court should refuse to permit such a presentation, given the traditional prohibition on a party raising a point of law on appeal when the opposing party may have been able to augment its case before the trial judge to address the point of law.

22 In our view, leave to appeal should be granted. We do not consider that there is a proper basis upon which the Court could compartmentalise the consideration of leave in the manner sought by the respondents. In any event, we do not consider that the respondents have established a basis for the refusal of leave as to the particular issues they have raised.

23 First, whilst an appeal from an interlocutory judgment against an amendment in the nature of the Sixth Further Amended Summons might normally struggle to attract leave, we do not consider the appellants' challenge has confined an interlocutory challenge to a procedural determination. In our view, the issues raised in the amendment to the Sixth Further Amended Summons were linked to the jurisdictional question and should attract leave on that basis. We would note however the Court intends to dismiss the appeal in this respect because of our overall conclusion as to jurisdiction and, because, in its own right, there is a lack of merit in this aspect of the appeal. That is to say, the Court is of the view that the challenge to the amendments is unmeritorious per se.

24 Secondly, the respondents contended that the appellants' jurisdictional arguments effectively dispute the factual findings used to establish jurisdictional determinations which were the product of lengthy and comprehensive deliberations in Gough & Gilmour (No 11) and Gough & Gilmour (No 15) and that leave should, therefore, be refused. We note that jurisdictional questions should normally be dealt with as threshold matters in accordance with the principles elucidated in Virtue v New South Wales Department of Education and Training (1999) 92 IR 428 ("Virtue") (as recently adopted by the Full Bench in Rose v Meriton Apartments Pty Ltd and anor [2007] NSWIRComm 264 ("Rose")) provided there is a suitable factual foundation for the determination. It is unclear in this case whether that was the situation, although on one view of the respondents' case, an earlier resolution of the question was open. In this respect, the respondents may have been on stronger ground on the issue if their contentions were merely confined to those areas where the appellants had taken issue with the factual findings at first instance. However, we consider that some aspects of the appellants' submissions in that respect, trespassed into mixed questions of fact and law and do not represent a proper basis to refuse leave. We will approach this aspect of the appeal on the basis that, as to findings of fact per se, we should broadly apply the principles stated in Virtue. In any event, we conclude the findings of fact were reasonably open to the trial judge.

The Sixth Further Amended Summons

25 Boland J described how various amendments to previous Summonses came to form the Sixth Further Amended Summons in the first instance judgment at [31]:

(1) In Judgment No. 15 the Court granted leave, in part, to amend the Third Further Amended Summons. The amendments were incorporated into the Fourth Further Amended Summons filed on 15 April 2005. On the same day the applicants filed their proposed Fifth Further Amended Summons, which incorporated amendments to the applicants' claim for compensation. No decision was made in relation to whether leave ought be granted to amend the Summons in the form of the Fifth Summons.

...

(3) On 27 October 2006 the applicants filed a notice of motion seeking amendments in the form of the Sixth Further Amended Summons. The amendments related to matters relevant to the assessment of compensation in the compensation phase of the proceedings and to the enactment of s 106(2A) of the Act (a matter I will come to in dealing with the application to amend). Annexed to the applicants' outline of submissions in support of their application for leave to amend the Third Further Amended Summons filed on 27 November 2006 was a revised Sixth Further Amended Summons.

(4) The applicants filed an amended notice of motion on 14 December 2006 seeking to amend, in relatively minor ways, the Sixth Further Amended Summons filed on 27 November 2006. The applicants move on their amended motion filed on 14 December 2006.

26 The Sixth Further Amended Summons reflects the determinations in Gough & Gilmour (No 11) and Gough & Gilmour (No 15) that the Dealership Agreements and the Overall Arrangement were within the jurisdiction of s 106 of the Industrial Relations Act. It sets out where the respondents seek to use new bases for jurisdiction under s 106(2A) through establishing jurisdiction for parts of the Overall Arrangement. It also seeks to identify matters relevant to the assessment of compensation in the compensation phase of the proceedings. Amendments which were made on the basis of the re-opening of Gough & Gilmour (No 11) in the Summons were not pressed: see paragraphs A2D and B36(o)(a) of the Sixth Further Amended Summons.

27 The order sought with respect to the Dealership Agreements in the summons was as follows:

1. An order declaring that the Sales and Service Agreement between the first applicant and the first respondent dated 1 July 1991, the Distribution Agreement for Engines, Parts and Service between the first applicant and the first respondent dated 1 July 1991 and the Product Support Agreement for Engines, Parts and Service dated 12 November 1997 between the first applicant and the first respondent (together called the “Agreements”) are unfair, harsh, unjust, unconscionable and against the public interest.

28 The order sought with respect to the Overall Arrangement in the summons was as follows:

1A. Further or in the alternative to order 1, an order declaring that the overall arrangement between the first applicant, the first respondent and the second respondent made in or about February 1989, as varied in late 1997/ early 1998 and mid 1999 (the “Overall Arrangement”) is unfair, harsh, unjust, unconscionable and contrary to the public interest.

...

and it comprises:

i) the Dealership Agreements;

(1) Sales and Service Agreement dated 1 July 1991;

(2) Distribution Agreement for Engines, Parts and Services dated 1 July 1991; and

(3) Product Support Agreement for Engines, Parts and Services dated 12 November 1997.

ii) various plans and understandings;

(i) the plan or understanding between the first respondent, and the second respondent concerning the terms of the agreements;

(ii) the plan or understanding between the first respondent and the second respondent concerning the selection and appointment of the first applicant as a Caterpillar Dealer;

(iii) the plan or understanding between the first respondent, the second respondent and the first applicant concerning the financing of the Caterpillar dealership conducted by the first applicant;

(iv) the plan or understanding between the first respondent, the second respondent and the first applicant concerning the operations of the Caterpillar dealership conducted by the first applicant;

(v) the plan or understanding between the first respondent, the second respondent and the first applicant concerning the review of the performance of the Caterpillar dealership conducted by the first applicant;

(vi) the plan or understanding between the first respondent and second respondent concerning the termination of the Caterpillar dealership conducted by the first applicant;

iii) the fourth assurance;

iv) the last resort policy.

29 In Gough & Gilmour (No 15), orders were made by Boland J to vary the Overall Arrangement to reflect the Last Resort Policy and the Fourth Assurance. The variations were in the form of the "Additional Sale Period", "Final Termination Date" and an "Improvement Plan". The jurisdictional basis for the variations was the Overall Arrangement as set out in the Sixth Further Amended Summons as follows:

2B. Further, or in the alternative to orders 2 and 2A, an order that the Overall Arrangement be varied to insert the terms set out in Schedule B hereto.

30 The respondents sought orders to amend the Sixth Further Amended Summons to establish alternate bases for jurisdiction under s 106(2A) of the Industrial Relations Act for the Fourth Assurance and the Last Resort Policy by characterising them as collateral contracts (see paragraphs A1B, A2C, B39, B40, B41, D3(a) and D4(a) of the Summons). The amendment sought to provide an alternate basis for the existing variations and the proposed money orders. The alternate orders sought were as follows:

1B. Further, or in the alternative, to Order 1 and/or 1A, an order declaring that:

(a) the collateral arrangement or related condition constituted by the last resort policy; and

(b) the collateral arrangement or related condition constituted by the Fourth Assurance,

are unfair, harsh or unconscionable or against the public interest.

...

2C. Further, or in the alternative, to Orders 2, 2A and/or 2B, an order that the collateral arrangements or related conditions referred to in claim 1B above be set aside or varied ab initio as follows:

1. If prior to 25 October 2000, Caterpillar holds a serious concern that relationship difficulties it has with Gough & Gilmour may require consideration to be given to terminating the dealership, then prior to 25 October 2000:

(a) Caterpillar will implement an improvement plan as set out in paragraph (b) below;

(b) The improvement plan will include the following components:

(A) The relationship problems in which improvement is sought will be notified, identified and described by Caterpillar;

(B) reasonable methods of bringing about improvement and evaluation of improvement will be suggested by Caterpillar, and Caterpillar and Gough & Gilmour will, within 30 days of the notification referred to in sub clause (A), each use their best endeavours to seek to reach agreement regarding the methods for bringing about improvement and evaluating improvement that are to be adopted;

(c) the improvement plan as agreed, or in the absence of agreement, as reasonably suggested by Caterpillar (“the improvement plan”), is to be pursued by Caterpillar and Gough & Gilmour over a period of six months, or for such other period as may be agreed between the parties; and

(d) prior to 25 October 2000, Caterpillar will not make a recommendation within Caterpillar for the termination of the dealership or any exercise of its right to terminate the Dealership Agreements before giving Gough & Gilmour a reasonable opportunity to complete the improvement plan.

2. In the event that Caterpillar has complied with the sub-clause (1) hereof but reasonably holds the view that the relationship issues that continue to exist warrant terminating the dealership, Caterpillar shall be entitled to give 26 weeks notice of termination to Gough & Gilmour. Should Caterpillar decide to give such notice it will, prior to giving such notice, use best endeavours to:

(a) provide Messrs Gough & Gilmour with a reasonable opportunity to sell their shares in the dealership business to Caterpillar’s preferred dealer candidate; and

(b) assist Messrs Gough & Gilmour in obtaining an offer for such shares from the preferred dealer candidate that reflects a fair value for the shares – having proper regard to the rights and other assets owned by the entity or entities in which the shares being sold are held – by using best endeavours to ensure that the sale process with the preferred dealer candidate is conducted on a reasonable basis without duress.

3. Further, Caterpillar shall not use the act or timing of the issue of a termination notice for the purpose of weakening Gough & Gilmour’s bargaining position in any sale process.

4. To avoid doubt, and notwithstanding the terms of this clause or any other terms of the overall arrangement, it is acknowledged and agreed that:

(a) Caterpillar is required to comply with its obligations under sub-clauses (1) and (2) hereof by 25 October 2000;

(b) Irrespective of whether all of the obligations referred to in sub-clauses (1) and (2) have been complied with by Caterpillar on or before 25 October 2000, Caterpillar shall be under no obligation whatsoever to comply with any of the said obligations at any time after 25 October 2000;

5. The above terms are to operate notwithstanding any provision to the contrary in the Dealership Agreements or any notice of termination already issued.

6. For purposes of this variation the parties are referred to both individually and jointly as follows:

(a) Gough & Gilmour Holdings Pty Limited, Harcourt David Gough and Anthony Lansley Gilmour – “Gough & Gilmour”; and

(b) Caterpillar of Australia Limited, Caterpillar Inc, Caterpillar SARL and Caterpillar Overseas Credit Corporation SA – “Caterpillar”.

2D. Further, or in the alternative to Orders 2-2C, an order that the Agreements be set aside or varied ab initio so as to incorporate the terms set out in 2C hereof.

31 The summary of matters of fact and law in the Summons at paragraphs 39 to 41 thereof set out the contentions as to why the Last Resort Policy and the Fourth Assurance, as collateral arrangements or related conditions, were said to be unfair:

39. The Respondents’ last resort policy and the Fourth Assurance constituted collateral arrangements or related conditions to the Agreements, being the contracts whereby the Applicants performed work in an industry, and the performance of work by them was a significant purpose of the contractual arrangements made by the Applicants with the Respondents.

40. The last resort policy operated unfairly in March 1999 (when the decision was made by the Respondents to end the relationship with the Applicants) and again in September 2000 (when the Respondents resolved to issue cancellation notices) in that on both occasions the First Respondent and the Second Respondent acted in a manner inconsistent with that policy, to the detriment of the Applicants.

41. The Fourth Assurance operated unfairly in the period June-October 2000 in that the First and Second Respondents acted in a manner inconsistent with that assurance, to the detriment of the Applicants.

32 In the Sixth Further Amended Summons, the respondents also identified matters relevant to the assessment of compensation in the compensation phase of the proceedings, (see Part D of the Sixth Summons). The respondents claimed compensatory orders for the alleged failure of the appellants at any relevant time (notably 1997 to 2000) to “comply with the obligations imposed by the Court” (see Parts D.1 and D.2 of the Summons). The respondents also claimed compensation for the “lost opportunity” to sell shares in the first respondent (see Part D.4). Compensation was also claimed in an unspecified sum for loss of net profits arising from “the management distraction and disruption caused by these proceedings and by the publicity and associated uncertainty concerning the Applicants’ future as a Caterpillar dealer” (see Part D.5). However, following the judgment delivered on 2 February 2007, the respondents notified the appellants that this aspect of the claim was no longer pressed.

33 The relevant sections of the Sixth Summons concerning compensation was as follows (at D.1, D.2, D.3, D.4, D.5 and D.6):

D. Particulars of the manner in which any amount claimed will be calculated:

In arriving at such order (or orders) as to the payment of money to the Applicants as it may appear to the Court to be just in all the circumstances, the following matters should be taken into account:

1. By its judgment in Gough & Gilmour Holdings Pty Ltd v. Caterpillar (No. 15) [2003] NSWIRC 173) (“Decision No. 15”) the Court varied the Overall Arrangement ab initio, inter alia, so as to:

a) impose obligations on the Respondents to reflect and give effect to the Court’s unfairness findings with respect to the Respondents’ last resort policy: see Decision No. 15 para 287(9) clauses 1-2 and 4;

b) impose further obligations on the Respondents to reflect and give effect to the Court’s unfairness findings with respect to the Respondents’ last resort policy and the fourth assurance: see Decision No. 15 para 287(9) clauses 1 and 3-4.

2. The Applicants now seek just compensation by way of monetary orders from the Court pursuant to s 106(5) of the Act given that (as the Court also found) the Respondents did not at any relevant time (notably 1997-2000) comply with the obligations imposed by the Court.

3. With respect to para 1(a) above, the Applicants seek compensation on the following bases:-

a) The Applicants lost the opportunity to retain the dealership as a consequence of the Respondents failure to take whatever reasonable steps were available to enable/facilitate the Applicants in keeping the dealership, and hence the Second and Third Applicants lost inter alia the opportunity to continue to work in the dealership business and to receive at their direction (as sole Directors and shareholders in the First Applicant) all the annual business profits either as salary, dividend or other drawings.

b) More specifically the Respondents failed to advise the Applicants of the serious relationship problems and the prospect of dealership termination if they were not addressed, and failed to propose and implement a relationship improvement plan with a view to avoiding a termination of the dealership.

c) Had an improvement plan been implemented in conjunction with clear warnings about dealership cancellation if the plan failed, it would have been successful such that the Respondents would not have resolved in 1999 to bring the relationship to an end and would not have issued cancellation notices in October 2000.

d) The restoration of a viable working relationship via a successful improvement plan process would have resulted, in all likelihood, in the Applicants retaining the dealership for at least another 10 years (commencing in early 2000 when the 6 month improvement plan would have concluded).

e) Without the adverse publicity and other effects that the Applicants suffered as a consequence of the Respondents moving against them in 1999/2000 and without the distraction of this protracted litigation, the Applicants would have been able to make net profits in each of those 10 years on an average of at least $12.5 million per year.

f) The Applicants claim compensation of $125 million for this lost opportunity, but accept that due allowance (by way of deduction) will need to be made for:-

i) the net profits that the Applicants did make in the period 2000 – April 2004;

ii) the prospect that the improvement plan failed completely such that a successful sale process or termination occurred thereafter;

iii) the prospect that the improvement plan succeeded but that the rehabilitated relationship thereafter failed before the effluxion of 10 years and a successful sale process or termination then occurred.

g) The Applicants also claim compensation for staff retention costs of $950,000 that they incurred in the period March to May 2000, being costs that would not have been incurred but for the Respondents’ failure to comply with the obligations referred to in paragraph 1(a) above.

4. With respect to para 1(b) above, the Applicants seek compensation on the following bases:-

a) The Applicants lost the opportunity to sell their shares in the dealership business for fair value in 2000 as a consequence of the Respondents’ failure to comply with their “last resort” and fourth assurance obligations, and hence, the Second and Third Applicants lost inter alia the opportunity to receive (as the sole Directors and shareholders in the First Applicant) substantial additional financial rewards (by way of the premium/goodwill component in any agreed business sale price) for their work efforts over the years in turning the dealership business around and building that business up.

b) More specifically, because of the Respondents’ bias and partiality towards the Stokes’ organisation, the Respondents:

i) deliberately acted in a manner totally inconsistent with their fourth assurance obligations so to as to favour the Stokes’ organisation in the sale process to the detriment of the Applicants;

ii) ignored for the second time in two years their “last resort” obligations to the Applicants in that they proceeded to issue dealership cancellation notices in October 2000 without even providing the Applicants with an opportunity to be heard about the sale process difficulties, let alone with any real assistance to get that process back on track (so that cancellation could be avoided altogether); and

iii) used the act and timing of the issuing of the dealership cancellation notice(s) for the purposes of weakening the Applicants’ bargaining position in the sale process.

c) Had the Respondents properly investigated the reasons for the impasse in the 2000 sale process and had otherwise sought to genuinely assist the Applicants to obtain fair value for their shares (as they had undertaken to do) rather than seeking to weaken their bargaining position, there was a high probability that a share sale to the Stokes’ organisation would have occurred in October/November 2000 at a price of at least $150 million.

d) The Applicants claim compensation of $150 million for this lost opportunity, but accept that due allowance (by way of deduction) will need to be made for:-

i) the prospect that no sale occurred even if the Respondents fulfilled their obligations to the Applicants;

ii) the net profits that the Applicants did make in the period 2000 – April 2004; and

iii) the value of the net tangible assets retained.

e) The Applicants also claim compensation for the costs that they incurred with respect to the failed sale process in 2000, namely:

i) Valuation and advisory fees: $600,000.

ii) Administrative, legal and mandatory (including audit/accounting and taxation) costs: $450,000.

iii) Separate legal and financial costs incurred in due diligence process: $250,000,

being costs that would not have been incurred but for the Respondents failure to comply with the obligations referred to in paragraph 1(b) above.

5. The Applicants also claim compensation for the loss of net profits for the period between 8 June 1999 and the ultimate termination date (April 2004) arising from the management distraction and disruption caused by these proceedings and by the publicity and associated uncertainty concerning the Applicants’ future as a Caterpillar dealer, being costs that would not have been incurred but for the Respondents’ failure to comply with the obligations referred to in paragraph 1(a) above.

6. The Applicants also claim interest on any sum awarded by the Court as and from such date(s) as the Court thinks fit.

The Dealership Agreements

34 The Dealership Agreements underpinned the relationship between the respondents and the first appellant. They were described in this way in Gough & Gilmour (No 11) at, [52] to [53], [60] and [63] to [64]:

52 As Mr Hall submitted, in determining whether the relevant jurisdictional fact exists it is necessary to give close attention to the impugned agreements, which in this case are:

· The Sales and Service Agreement dated 1 July 1991.

· The Distribution Agreement for Engines, Parts and Service dated 1 July 1991.

· The Product Support Agreement for Engines, Parts and Service dated 12 November 1997.

53 It is not only the written agreements that must be examined but also the alleged broader arrangements that were said to exist between the applicants and the respondents. Further, in considering the agreements and arrangements it is important not to lose sight of the overall context in which the agreements and arrangements existed. Caterpillar Inc., through its wholly owned subsidiary the first respondent, had established a dealership network in Australia to sell product and parts manufactured by Caterpillar Inc. and to service those products and parts. Without a dealership network, the respondents would need to set up their own premises at various locations around the country and employ their own staff to sell and service their products.

60 I turn to the written Agreements that underpin the relationship between the applicants and the first respondent. The Sales and Service Agreement contains a number of provisions relevant to the question of whether the contract leads directly to the performance of work in an industry ...

63 The 1991 and 1997 Product Support Agreements contain equivalent provisions to those described above with the additional requirement to appoint TEPS dealers where and when instructed by the Company.

64 The dealership agreements confirm the first respondent’s very close involvement in the applicants’ business and the first respondent’s right to exercise direction and control over important aspects of the dealership. I note that cl 27 of the Sales and Service Agreement provides that the relationship existing between the parties shall be “that of independent contractors and vendor and vendee.” But that is stated in the context of a provision that the Dealer is not to be regarded as an agent for the Company. I do not consider that I should view that bare provision as indicating the true nature of the relationship.

65 The agreements, if anything, again strengthen Mr Kimber’s contention that the relation between the first respondent and the applicants are akin to that of franchisee and franchisor. The agreements require the applicants to set up a business in a certain way; they require the principals of the dealership to use their qualifications and abilities to achieve the primary purpose of the Agreements, for example, the development and promotion of the sale of products; they directly require the applicants to employ personnel to perform work in the business – the business could not operate unless relatively large numbers of personnel were employed to perform work for the business. Whilst the dealership does not operate under the business name of Caterpillar, the dealership is synonymous with that name. The dealership, through its employees, is required to develop and execute promotion and market development programs to support the sale of Caterpillar products and to solicit orders for Caterpillar products.

35 The relevant provisions of the Sales and Service Agreements are outlined below.

36 Exhibit A to the Sales and Service Agreement specified the individual principals of the Dealer, the Dealer's service territory and the Business Locations where the Dealer maintained places of business in accordance with the agreement as follows.

Exhibit A to Sales and Service Agreement

Principals

The individual principal(s) of Dealer referred to in section 2 are as follows:

Name	Title	Ownership and/or Voting Control
Harcourt David Gough	Managing Director	90 %
Anthony Lansley Gilmour	Marketing Director	10%

Products

The products referred to in section 3 are as follows:

Machines and Replacement Engines

Attachments, parts, exchange components and special additions for the above-listed products

Service Territory

Dealer's service territory is as follows: That portion of the State of New South Wales east of 144 longitude and the Australia Capital Territory, all within the Commonwealth of Australia.

Business Locations

The points at which Dealer will maintain places of business in accordance with section 4 are as follows:

Parramatta Eden Bathurst Tweed Heads

Penrith Albury Cobar Newcastle
Wetherill Park Wagga Wagga Moree Mt Thorley

Canberra Griffiths Grafton Armidale

Wollongong Dubbo Gunnedah

37 The definitions section of the Sales and Service Agreement defined "Dealer" and "Company" as follows.

Company - Caterpillar of Australia Ltd.

Dealer - Any person, firm or corporation with whom Company or affiliate enters into or has entered into a dealership agreement similar to this agreement. Where written with an initial capital letter the word "Dealer" shall mean the dealer party to this individual dealership agreement.

38 In Clause 2(a) of the Agreement the primary purpose of the agreement was described in the following terms:

Both Dealer’s and Company’s primary purpose in entering into this agreement is to develop and promote the sale of products and to provide a high standard of parts availability and mechanical service to insure (sic) satisfaction by users of products. Within the service territory ... Dealer shall be primarily responsible for fully and adequately developing and promoting the sale to customers and prospective customers located within such territory and for the servicing of all products ... This is a personal contract entered into by Company in reliance upon the capability of Dealer to provide such sales and service to customers. Without the express written consent of Company, Dealer agrees not to appoint others to perform such sales and service responsibilities.

39 Clause 2(b) provided that the Dealer could not have any financial or management affiliation with any end user without the Company’s consent, as follows:

Company and Dealer agree that Dealer's effectiveness and ability in achieving such purpose could be adversely affected by Dealer's affiliation with another organization which is a substantial operator of products. Dealer agrees that during the life of this agreement it will avoid any such affiliation whether by way of capital investment, source of capital, common management, common ownership, or otherwise, except to the extent that Company may otherwise agree in writing.

40 Clause 2(c) of the Agreement provided that the first appellant relied upon the qualifications and abilities of the second and third respondents. It outlined that the second and third respondents would have active management of the Dealer and that no substantive management changes could be made without the approval of the first appellant. The provision was as follows:

Company relies upon the qualifications and abilities of the particular individuals named as principals in Exhibit A to achieve such primary purpose. Dealer agrees that such individuals will continue in the active management of Dealer, or will continue to own a substantial financial interest in Dealer. No substantial change shall be made in the management positions, ownership or voting control of such principals without prior approval of Company.

41 We pause here to make the following preliminary observations: cl 2(c) of the Agreement when read with cl 2(a) and cl 2(b) makes plain that the Agreement both contemplated and required the second and third respondents to work: the work being the active management of the "Dealer". This requirement must of course be read in light of terms of the earlier clauses which, inter alia, specify that both parties' "primary purpose" in entering the Agreement "is to develop and promote the sale of products..." This in turn required the Dealer to be primarily responsible for the full and adequate development and promotion of the sale to customers and prospective customers within the relevant territory. It was also specified that the contract was a personal contract entered into in reliance upon the Dealer's capability to provide relevant sales and service to customers.

42 The proscription in cl 2(b) against the Dealer having any financial or management affiliation in a similar field specifically proscribed common management or common ownership, and thus precluded the second and third respondents from working as managers in other organisations in the industry. The Agreement thus not only required the relevant respondents to work but also prevented them from undertaking certain other work.

43 Returning to the Agreement, cl 4 specified that the Dealer would maintain a suitable place or places of business:

Dealer will maintain a suitable place or places of business at the points shown in Exhibit A to provide adequate sources of products and mechanical service for the benefit of users of past, present and future products of the types specified in Exhibit A in the service territory described in Exhibit A. In the event that additional places of business or changes in the location of any Dealer's places or business may become needed to properly service users in said territory, Dealer agrees to establish and maintain such additional places of business or change the location of existing places of business. The location of any additional places of business and the relocation of abandonment of any existing places of business may only be made with the consent of Company given in writing and signed as required by section 38 for a supplement or amendment of this agreement. All places of business will be maintained by Dealer in a neat and attractive manner with adequate quantities of products specified in Exhibit A – all to the satisfaction of Company.

44 Clause 5 required that the Dealer employ an adequate number of qualified salesmen. The Dealer would demonstrate and exhibit products. It was also required that the Dealer employ an adequate number of parts and service personnel to serve the needs of the territory:

Dealer will employ an adequate number of qualified salesmen to solicit orders for products specified in Exhibit A throughout Dealer's service territory; will demonstrate and exhibit such products throughout such territory; and will employ an adequate number of parts and service sales personnel at all times to serve the needs of the territory - all to the satisfaction of the Company. In determining the adequacy of Dealer's sales efforts, it is agreed that primary consideration shall be to (a) Dealer's sale efforts, it is agreed that primary consideration shall be given to (b) Dealer's sales achievement in his service territory and as compared with the sales achieved by other dealers of Company selling the same products and (c) Dealer's actions with respect to improvements in his operations, organisation or facilities necessary to carry out the primary purpose of this agreement.

45 Clause 6(a) specified that the Dealer would render prompt, competent, diagnostic and mechanical services to all users in the Dealer's service territory:

(a) Dealer will at all times render prompt, competent, diagnostic and mechanical service to all users in Dealer’s service territory of past, present and future products of the types specified in Exhibit A, regardless of when, where or by whom sold.

46 By Clause 6(b) the Dealer was to render or provide for delivery or inspection service:

(b) Dealer will be responsible for and, without charge to the user except as permitted by section 11, will render or provide for delivery service or inspection service (whichever applies) and warranty service on products of the types specified in Exhibit A, in all the following cases whether or not the products involved are within the Dealer's service territory ...

47 Under Clause 6(c) the Dealer was required to employ an adequate number of personnel, maintain supplies and parts and provide field and shop service facilities to perform required services, as follows:

(c) Dealer will employ an adequate number of experienced and competent service men, maintain adequate supplies of replacement parts and provide adequate field and shop service facilities to perform all required services to the satisfaction of the Company. In determining the adequacy of Dealer's service efforts, it is agreed that primary consideration shall be given to (i) customer satisfaction and (ii) Dealer's actions with respect to improvements in his parts and service operations necessary to carry out the primary purpose of this agreement.

48 Under Clause 8(a) the Company was to promote products at its own expense to support sales and would participate with the Dealer in promotions:

(a) For the benefit of both Dealer and itself, Company will promote its products at its own expense and in its own name to such an extent and in such manner as in its judgment will best tend to support sales thereof, and, when specifically agreed upon in writing, will participate with Dealer in the expense of promoting such products and Dealer’s services in Dealer’s name in Dealer’s territory.

49 Clause 8(b) specified that the Dealer would develop and execute promotion and market development programs:

(b) Dealer, to the satisfaction of Company, will develop and execute promotion and market development programs to support sales of products specified in Exhibit A; keep currently corrected record of the names and addresses of and mail advertising literature frequently to, owners and prospective purchasers and people who may influence purchases of such products in Dealer's service territory; keep records of such mailings; and furnish such records or portions thereof to Company on request.

50 By Clauses 10 and 11 it was specified that the Dealer was required to promptly provide warranty for all products in the territory, to the applicable warranty as set out and/or designated by the company.

51 Clause 10 is in the following terms:

(a) Products sold by Company will be warranted by Company in the manner and to the extent provided in Exhibit C hereto, subject to the provisions of section 11. Prior to completing the sale of a product, Dealer will deliver to each of its customers a copy of the then applicable warranty appearing in Exhibit C and will secure the customer's written acknowledgment (in form satisfactory to Company) of receipt thereof. Dealer will retain such acknowledgment for such periods of time as Company may from time to time request.

(b) For purposes of this agreement warranties of affiliates shall be deemed to be identical to those of Company except in cases where Company advises Dealer in writing to the contrary.

52 Clause 11 is relevantly in the following terms:

(a) Because both Dealer and Company desire user satisfaction, Dealer to the extent provided in section 6, will promptly provide delivery or inspection service (whichever applies) to any of the products described in Exhibit A and will promptly provide warranty service to any such products which dealer deems to be the subject of an allowable claim under the applicable Company's or affiliates warranty described in section 10. After completing such service, Dealer may make claim against Company if its warranty is applicable, and otherwise, through the Company, against such affiliate. If Company or such affiliate determines that the claim is allowable, in whole or in part, under its applicable warrant, settlement will be made, to the extent the claim is allowed, on the following basis ...

53 By Clauses 24, 25 and 26 the Dealer was required to provide detailed regular reports to the Company of all inventories, sales, names and addresses of customers and, annually, full detailed financial reporting in the Company designated format as follows:

Clause 24 Dealer will maintain inventory and sales records of all products specified in Exhibit A, and records of demonstrating and soliciting performed in accordance with section 5; will record the models, serial numbers, and dates and places of delivery of all machines and replacement engines sold by the Dealer to all classes of purchasers, and of all machines and replacement engines on which delivery or inspection service is rendered by Dealer, together with the names and addresses of purchasers thereof and such other information as Company may request: and will report all such data to Company as Company may request. All such records and reports shall be in form satisfactory to Company.

Clause 25 Dealer will deliver to Company, at such times as of such dates as may be specified by Company, reports as to machines and replacement engines on hand: and, upon thirty (30) days' notice, will deliver a complete itemized inventory of attachments, parts and exchange components on hand as of such reasonable date as Company specifies in such notice. All such reports and inventories shall be in form satisfactory to Company.

Clause 26 Within thirty (30) days after the end of each fiscal year of Dealer, and at any other time upon Company's request. Dealer will deliver to Company such information as Company may reasonably request respecting the ownership, financial condition and operations of Dealer, together with any subsidiary and related companies. All such information shall be supplied in form satisfactory to Company. In addition, unless Company shall otherwise agree in writing, within (90) days after the close of Dealer's fiscal year Dealer will deliver to Company audited financial statements consisting of a balance sheet as of the close of such fiscal year and a statement of the results of operations for such fiscal year. Such financial may in the form normally provided by the firm of independent public or chartered accountants preparing such statements for Dealer and shall include the certificate of such firm.

54 Under Clause 27 of the Sales and Service Agreement the relationship existing between the "Dealer" and "Company", as defined, was characterised as that of independent contractors and vendor and vendee. We note that in Gough & Gilmour (No 11) Boland J stated that that bare provision (set out below) did not indicate the true nature of the relationship:

Clause 27 It is the intention of the parties that the relationship existing between them shall be that of independent contractors and vendor and vendee; that nothing herein contained or done pursuant hereto shall constitute Dealer the agent of Company for any purpose whatever: and that all acts and things done and to be done by Dealer pursuant to the provisions thereof or done by Dealer in anticipation of this agreement, unless expressly or otherwise provided herein, shall be at Dealer's own cost and expense.

55 The Distribution Agreements for Engines, Parts and Service and the Product Support Agreement for Engines, Parts and Service are in similar terms (see clauses 2(a), 4, 5(a) to 5(d), 6(a) to 6(h), 8(b), 11(b), 24 and 25 of the Distribution Agreement and clauses 2(a), 4, 5(a) to 5(c), 8(a), 9(b)(ii) and 10(a) of the Product Support Agreement. The 1991 and 1997 Product Support Agreements contain equivalent provisions to those described above with the additional requirement to appoint TEPS dealers where and when instructed by the Company.

The Fourth Assurance and Last Resort Policy and findings of unfairness

56 The Fourth Assurance and the Last Resort Policy were found to be part of the Overall Arrangement by Boland J in Gough & Gilmour (No 11). The failure of the appellants to follow the Fourth Assurance and the Last Resort Policy was also the basis for the findings of unfairness in Gough & Gilmour (No 11).

57 The Fourth Assurance was described variously in Gough & Gilmour (No 11) at [500], [734], [780](1), [781] and [792], as follows:

500 As to the other elements of the alleged fourth assurance, putting aside the characterisation of “assurance”, the respondents did not dispute that:

(a) the respondents wanted to see an amicable transition occur in relation to the New South Wales dealership;

(b) the respondents indicated to the applicants that it would like to see the applicants obtain fair value and would seek to assist in providing an opportunity for that to be achieved.

...

734 ... in circumstances where the Respondents had taken a decision to change dealers, and had given the Applicants assurances that they would help them in the sale process in achieving a fair price for the dealership the Respondents by their last resort policy were under an obligation not to terminate the dealership unless and until they provided the necessary help in achieving that fair price.

...

780(1) The part of the fourth assurance that did constitute part of the overall arrangement was the assurance that the sale process would be conducted on an amicable basis without duress and the respondents would assist the applicants to receive a fair value for the shares.

...

781 ... both the First and Second Respondent acted unfairly in relation to the sale process and their decision to cancel the dealership.

...

792 The Respondents’ conduct in the sale process was also inconsistent with their assurances to the Applicants that they would help them in the process of achieving a fair price for the dealership. While some assistance was provided, at crucial stages in the negotiations that assistance was not forthcoming and the Respondents’ decision to cancel was made without reasonable consultation with the Applicants. In my opinion, the Respondents’ conduct in the sale process and in taking the decision to cancel was biased in favour of the Stokes organisation and to a significant degree the Applicants were "left out in the cold".

In Gough & Gilmour (No 15) at [211] his Honour said as to that Assurance:

211 The respondents contended that the Court did not find in its primary judgment that the respondents had failed to comply with the fourth assurance and, therefore, there is no proper foundation for any variation in the terms of cl 6(a). Clearly, the Court did find that the respondents assured the second and third applicants that if they agreed to sell their shares in the first applicant, that process would be conducted on an amicable and reasonable basis without duress and would provide an opportunity for the second and third applicants to receive a fair value for the shares; and that the first respondent would assist the applicants to achieve such an outcome.

58 The Last Resort Policy was described by Boland J in Gough & Gilmour (No 11) as follows at [780](27), [788]:

780(27) Given the respondents' evidence that cancellation is a measure of last resort - that is, all other reasonable alternatives are explored before a decision to cancel is taken - and that such a policy is treated seriously by Caterpillar, it was incumbent upon the respondents to satisfy themselves that there were no other options open other than cancellation and that proper grounds existed to support cancellation.

...

788 There was no basis for the applicants believing that they were secure in the dealership in perpetuity in the face of their sustained disregard for a cooperative working relationship with the first respondent. In my opinion, if the respondents had adhered to their stated policy of taking all reasonable steps to avoid cancellation of the dealership, there would have been no issue of unfairness and no question of relief being available to the applicants upon termination of the dealership.

Variations to the Overall Arrangement

59 Variations to the Overall Arrangement were made as a result of the unfairness found in the Fourth Assurance and the Last Resort Policy in Boland J's judgment in Gough & Gilmour (No 15). Those variations, as we earlier noted, consisted of the "Additional Sale Period", "Final Termination Date", and to specifically address the unfairness, the "Improvement Plan". We extract the following relevant parts of his Honour's judgment at [253], [257], [259], [284] to [286]:

253 Notwithstanding the foregoing observations, the question of whether, and if so to what extent, the applicants should be afforded any relief in relation to the respondents' unfairness in failing to properly consider an improvement plan to allow the applicants the opportunity to rehabilitate themselves and in acting unfairly and inconsistently with their “last resort” policy, is another of the more difficult issues to decide in these proceedings. Prima facie, the applicants are entitled to some relief because plainly the respondents' conduct was unfair.

...

257 I have dealt with the issue of so called "notional variations" earlier in this judgment. I can see no barrier to the Court in these proceedings varying the overall arrangement between the applicants and the respondents from an appropriate point in time to provide for an improvement plan notwithstanding that I also propose to make other orders enabling the respondents to proceed to terminate the dealership agreements. In other words, despite the fact that I have found that the relationship between the parties has broken down irretrievably, and has no future it is not beyond the Court's power to vary the overall arrangement to provide for an improvement plan in order to remedy unfairness.

...

259 The improvement plan, on the other hand, is a manifestation of the respondents' cancellation-as-a-last-resort policy. That is, the plan would have been implemented in a last ditch effort to avoid cancellation and if it did not prove successful it would have been open to the respondents to terminate the dealership agreement. Thus, the applicants would have understood that if they cooperated in the improvement plan they could conceivably save their dealership but if they did not, they would lose it. This is a completely different set of circumstances to that pertaining to a procedure to resolve ad hoc disputes.

...

284 I do not propose to vary the overall arrangement in the terms sought by the applicants in cll 1 and 2 of Schedule B. As I have already explained, there were two substantive episodes where the respondents failed to comply with their last resort policy. The first was the decision in March 1999 where the first respondent decided to recommend a change in the dealer for New South Wales and the ACT. The second was in September 2000 when the respondents decided to cancel the dealership agreement because of what they, unfairly, considered to be a failed sales process.

285 As to the first episode, it seems to me that the respondents' failure to observe the last resort policy, thereby causing unfairness, is addressed by varying the overall arrangement in the (amended) form of cl 11 of Schedule B.

286 As to the second episode of unfairness, the applicants seek to address this in cl 2(c) and (in part) in 2(d) of Schedule B. I propose to vary the overall arrangement as follows:

In the event that Caterpillar has complied with [clause 11] but this has proved to be unsuccessful, Caterpillar will take steps to provide Messrs Gough and Gilmour with a proper opportunity to sell their shares in the dealership business and will assist Messrs Gough and Gilmour receive fair value for those shares in that business by ensuring that the sale process is conducted on a reasonable basis without duress. Such steps are to be taken prior to the issue of any notice of termination. Furthermore, Caterpillar shall not use the act or timing of the issue of a termination notice for the purpose of weakening Gough & Gilmour’s bargaining position in any sale process.

60 The Overall Arrangement was varied ab initio to address the unfairness in relation to the appellants' failure to follow the Last Resort Policy by making it part of the Overall Agreement in written form as the Improvement Plan. In Gough & Gilmour (No 15) his Honour determined at [287](9) to insert provisions numbered clauses 1 to 4, as follows:

287(9) The overall arrangement as determined by the Court in Gough & Gilmour Holdings Pty Limited v Caterpillar of Australia Limited (No 11) [2002] NSWIRComm 354 to have existed between the applicants and the respondents is further varied ab initio as follows:

1. For the purposes of this variation the parties are referred to both individually and jointly as follows:

(a) Gough & Gilmour Holdings Pty Limited, Harcourt David Gough and Anthony Lansley Gilmour – “Gough & Gilmour”; and

(b) Caterpillar of Australia Limited, Caterpillar Inc, Caterpillar SARL and Caterpillar Overseas Credit Corporation SA – “Caterpillar”.

2. If Caterpillar holds a serious concern that relationship difficulties it has with Gough & Gilmour may require consideration be given to terminating the dealership, then:

(a) Caterpillar will implement an improvement plan as set out in (b) below;

(b) the improvement plan is to include the following components:

(i) the relationship problems in which improvement is sought are to be clearly identified and described;

(ii) methods of bringing about improvement and evaluation of improvement are to be agreed between the parties;

(c) the improvement plan is to be pursued over a period of six months, or for such other period as may be agreed between the parties; and

(d) Gough & Gilmour will be given the opportunity to complete the plan before a recommendation is made within Caterpillar for the termination of the dealership or any exercise of its right to terminate the dealership agreements.

3. In the event that Caterpillar has complied with clause 2 hereof but this has proved to be unsuccessful, Caterpillar will take steps to provide Messrs Gough and Gilmour with a proper opportunity to sell their shares in the dealership business and will assist Messrs Gough and Gilmour receive fair value for those shares in that business by ensuring that the sale process is conducted on a reasonable basis without duress. Such steps are to be taken prior to the issue of any notice of termination. Furthermore, Caterpillar shall not use the act or timing of the issue of a termination notice for the purpose of weakening Gough & Gilmour’s bargaining position in any sale process.

4. To avoid doubt, Caterpillar will comply with its obligations under clauses 2 and 3 hereof by 25 October 2000.

Monetary Orders - Sixth Further Amended Summons

61 Monetary orders were sought in the Sixth Further Amended Summons on the basis that the appellants failed to follow the Fourth Assurance and Last Resort Policy and the Improvement Plan. Apart from adjustments to the specific monetary amounts claimed, the relevant particulars were set out above, at para [33] of these reasons.

Findings at first instance regarding Jurisdiction

Jurisdiction s 106(1)

62 In the first instance judgment the trial judge determined that the Dealership Agreements and Overall Arrangement fell within the jurisdiction of s 106 of the Industrial Relations Act. His Honour also (at [45]) summarised the findings and determinations made in relation to jurisdiction in Gough & Gilmour (No 11) as follows:

45 It may be seen that the Court found that:

(1) The Dealership Agreements were agreements creating an "unusually close relationship" as distinct from "arms length, one-off commercial transactions" ([57], [58]);

(2) The dealer principals were required to use their qualifications and personal abilities to achieve the primary purpose of the Dealership Agreements (i.e., develop and promote the sale of products and to provide a high standard of parts availability and mechanical service) and to continue in the active management of the dealership ([60]-[61]);

(3) The agreements led directly to the performance of work in an industry (indeed, it could be said the agreements led directly to the performance of work by a person or persons for another) ([66]);

(4) The true nature of the relationship was one based on interdependence and it was not an arm's length commercial arrangement ([787]);

(5) Hallmarks of the relationship between the applicants and the respondents were the requirements of respect, cooperation, trust and confidence. These hallmarks strongly suggest a relationship closer to a personal or relational contract as opposed to an arm's length commercial contract ([796](4));

(6) The arrangement between the applicants and the first respondent was relevantly indistinguishable from that which was the subject of proceedings in Majik Markets v Brake & Service Centre (1991) 28 NSWLR 443, 39 IR 169 ([70]). (emphasis in original)

63 His Honour then made the following assessment after further considering the judgment in Gough & Gilmour (No 11), at [46] to [47]:

46 A good deal of the respondents' submissions in respect of their first category of challenge were arguments that were put at the time of the original challenge to jurisdiction during the first stage of the proceedings. For example: that the Dealership Agreements or Overall Arrangement were commercial contracts; that neither the Agreements nor the Overall Arrangement were contracts or arrangements that led directly to the performance of work; and, that some element of subordination by the person said to be performing the work to the other party to the contract or arrangement is required to satisfy the concept of work in an industry.

47 Given the factual position and the state of the law at the time, I am unable, on the arguments then put and now repeated, to come to any view other than that expressed in Judgment No. 11, namely, that the Dealership Agreements led directly to the performance of work and that the Overall Arrangement, including the Dealership Agreements, were not arm's length commercial contracts. Moreover, given the finding that the arrangement between the applicants and the first respondent was relevantly indistinguishable from that which was the subject of proceedings in Majik Markets, in my opinion, subject to a consideration of the new arguments put by the respondents in these proceedings, the findings as to jurisdiction in Judgment No. 11 stand on firm ground.

64 In light of the contentions of the appellants that developments in the law regarding the ambit of s 106 effectively meant that the contracts and arrangements in the current matter were outside jurisdiction, the trial judge framed the question to be resolved as follows:

49 The question then, is whether the state of the law has changed to such an extent since Judgments No. 11 and 15 that the jurisdiction which existed in December 2002 now no longer exists so that the Court is deprived of the power to grant any relief for the unfairness found to have occurred in Stage 1 of the proceedings.

65 His Honour then determined in the judgment at first instance that:

(a) the decision in McDonald's was not a sufficient basis on which to conclude that s 106 did not apply to working proprietors:

57 As far as I am able to ascertain from the cases, the requirement to consider the industrial context has not meant that a line has been drawn between employees or persons in the position of employees on the one hand and working proprietors on the other such that working proprietors are excluded from the unfair contract provisions of the Act.

(b) the performance of work was a purpose of the Overall Arrangement:

59 But even if one does ask whether work was a purpose of the Overall Arrangement, the answer is in the affirmative. There was no suggestion that work must be "the" purpose but only "a" purpose. In that respect, the second and third applicants, as dealer principals under the Dealership Agreements, were, inter alia, required to actively participate in the management of the business of the first applicant (see, for example, clause 2(c) of the Sales and Service Agreement; clause 2(c) of the Product Support Agreement; clause 2(c) of the Distribution Agreement). Moreover, as the applicants submitted, the second respondent’s decision to terminate the agreements was based on its dissatisfaction with the work relationship between the first respondent and the second applicant in particular (because he was, amongst other things, too independent and not prepared to perform as a dealer in a manner that was to the first respondent’s “satisfaction”).

(c) in the decision in Wirraway (NSW) Pty Limited v Ultra Tune Australia Pty Limited (2006) 156 IR 367 ("Wirraway") it was held that the decision in McDonald's fell into a unique or special category and was limited to its own peculiar facts and on that basis it should not be followed:

61 Implicit in the Full Bench decision in Wirraway is a cautionary note about following McDonald's because it was "strongly" suggested that decision "falls into a unique or special category and is a case that is limited to its own peculiar facts." The respondents contended, nonetheless, that the circumstances in McDonald's were relevantly indistinguishable from those in the present case. If that were so, despite what I regard as some difficulties with the majority judgment in McDonald's I would, nevertheless, be bound to follow it. However, I do not regard the facts in this case as being on all fours with McDonald's.

(d) the Overall Arrangement was akin to an employment relationship between the first appellant and the second and third respondents given the closeness of the relationship:

62 The Overall Arrangement as found by the Court was, in my opinion, on reflection, akin to an employment relationship between the first respondent and the second and third applicants given the closeness of the relationship.

(e) the decision in Wirraway supported the determinations in Gough & Gilmour (No 11) as to jurisdiction under s 106 of the Industrial Relations Act:

63 Wirraway also serves to support the correctness of the decision in Judgment No. 11 that jurisdiction existed. In Wirraway, the Full Bench dismissed a motion by Ultra Tune Australia Pty Ltd in which Ultra Tune sought a finding that the Court lacked jurisdiction because a Franchise Agreement with the applicant, Wirraway (NSW) Pty Ltd, did not lead directly to the performance of work in an industry ...

(f) the decision in Mayne Nickless v Industrial Relations Commission of NSW (2004) 141 IR 1 ("Mayne Nickless") also supported the proposition that jurisdiction existed under s 106. Mayne Nickless presented an analogous situation which supported the finding that the second and third respondents were "typical workers" with a "hands on role" and an integral part of their business:

65 Further support for the correctness of Judgment No. 11 may be found in Mayne Nickless v Industrial Relations Commission of NSW (2004) 141 IR 1. The Court of Appeal held it has not been established that there was no contract whereby a person performed work in an industry and that the directness test required by Stevenson v Barham was open to be satisfied as the Deed in that case directly recognised, contemplated and provided for the work that was to be done by the fourth opponent in the provision of pathology services.

Jurisdiction s 106(2A)

66 The trial judge considered the provisions of s 106(2A) of the Industrial Relations Act. The respondents had relied on those amendments and sought to establish alternate bases for jurisdiction for components of the Overall Arrangement, namely the Fourth Assurance and the Last Resort Policy.

67 His Honour considered that the purpose of the amendments was to counter the appellants' contentions that the case law had developed in such a way that it might be found that those components did not meet the jurisdictional requirements of s 106(1). He noted that the effect of the amendments would be to ensure that the components would still fall within jurisdiction by virtue of being collateral contracts under s 106(2A).

68 The trial judge determined that the Fourth Assurance and the Last Resort Policy could be considered collateral contracts for the purposes of s 106(2A) because they met the requirements of that provision outlined in ss 106(2A)(a) and (b). They were related to a contract where work was performed in an industry (the Dealership Agreements) and the performance of work was a significant purpose of the contractual arrangements. His Honour concluded:

78 The Overall Arrangement was varied in Judgment No. 15 to provide relief for the unfairness found in relation to the Fourth Assurance and the Last Resort Policy. Even if it were the case that the variations to the Overall Arrangement bore no relationship to the performance of work (and that is not conceded), it is arguable that the Fourth Assurance and the Last Resort Policy may be characterised as related conditions or collateral arrangements for the purposes of s 106(2A); they were, together with the Dealership Agreements, part of an overall, interrelated, arrangement. Further, as the earlier discussion in this judgment reveals, the performance of work was a significant purpose of the contractual arrangements, that is, the Overall Arrangement as found to exist by the Court.

69 The appellants had argued that the decisions in McDonald's and Solution 6 supported the proposition that the power to declare void or vary a contract or arrangement extended only to those parts of the contract or arrangement that were closely related to the performance of work in an industry.

70 His Honour resolved that above proposition in the negative and in so doing noted two important points. One was that the proposition in Solution 6 had been overcome by the introduction of s 106(2A) and the second point was where Solution 6 had applied it had only applied to s 106(1). See, [73], [75] as follows:

73 In Solution 6, and in McDonald's, the Chief Justice was, in my opinion, directing his attention to the power to vary or declare void in s 106(1) of the Act, not the provisions of 106(5), when he held that relief should relate in some reasonably direct manner to the performance of work. Assuming that be right, it raises for consideration s 106(2A) of the Act.

...

75 In my opinion Solution 6, Fish and Old UGC, in so far as they are relevant to this issue, are no longer applicable as a consequence of the introduction of s 106(2A). That is to say, s 106(2A) overcomes the proposition in Solution 6 as affirmed in Fish and Old UGC, namely that, related conditions and collateral arrangements must be, in themselves, contracts whereby a person performs work in any industry.

Jurisdiction s 106(5)

71 Boland J determined that there was jurisdiction to make the monetary orders claimed by the respondents for the payment of compensation under s 106(5) of the Industrial Relations Act.

72 As the Dealership Agreements (and the Overall Arrangement) were found to be within jurisdiction under s 106(1), his Honour found that there was residual jurisdiction which could allow for monetary orders to be made under s 106(5) in addition to the variations orders already made in earlier judgments. At [80] to [81] his Honour held:

80 I agree with the submission put by the applicants that once the Court has made a relevant finding of “unfair contract” and varied that contract pursuant to section 106(1), the Court undoubtedly has the power to make orders “in connection with” that varied contract in the sum the Court considers “just in the circumstances of the case”. The meaning of the expression “in connection with” was determined by the High Court in Brown v Rezitis (at 165) and that decision was not doubted (let alone overturned) in the recent High Court decisions in Fish, Batterham or Old UGC (see also Mayne Nickless at [72]).

81 I think, with respect, what Handley JA stated in Hoffman v Industrial Commission (NSW) (1990) 33 IR 139 at 142-143 about the predecessor provision to s 106(5) still holds good:

In my opinion Brown v Rezitis decides that the jurisdictional requirement in s 88F(2) is that the monetary order must "in connection with" a contract or arrangement etc avoided or varied by the Commission. No other jurisdictional limitation was expressed in the subsection and, in my judgment, no other such limitation is to be read in by a process of construction.

Mr Campbell also contended that s 88F(2) was subject to a further limitation, that it was only exercisable so as to achieve restitution for the benefit of an applicant who had succeeded in obtaining an order or award in subs (1).

In this respect he referred to, and relied upon the remarks of Barwick CJ in Brown v Rezitis at 164. However, in my opinion those remarks by the Chief Justice while indicating a substantial purpose underlying subs (2) were not intended by his Honour, and were not expressed by his Honour, to be an exhaustive statement of the effect of that subsection.

I therefore consider that the further limitation, which Mr Campbell has urged upon us, which would involve limiting the powers of the Industrial Commission under subs (2) so as to leave the present orders beyond jurisdiction should not be accepted either (my emphasis).

73 In relation to the Fourth Assurance and the Last Resort Policy, which might be regarded as collateral arrangements or related conditions under s 106(2A), the trial judge considered that there was no impediment to the making of monetary orders under s 106(5) in connection with the variation of these arrangements or conditions. At [82] to [83] his Honour stated:

82 Having varied the Overall Arrangement to provide relief for the unfairness, it is open to the Court to consider the amount of compensation that should be paid to the applicants in connection with the arrangement as so varied and there is no requirement that the compensatory orders sought must bear a direct relationship with the performance of work under the Overall Arrangement. (Even if there was a requirement for such a relationship, the Last Resort Policy was designed to protect the applicants in their ability to continue to operate the dealership and to continue to earn remuneration from the business. It is at least arguable, on the evidence that is already in, that the non-compliance with the Last Resort Policy affected the second and third applicants' ability to work in the dealership and also affected their remuneration. Similarly, with the Fourth Assurance; arguably the failure by the respondents to assist the applicants in the sale process had an effect on their ability to perform work in the dealership and also affected their remuneration).

83 I should add that I agree with the submissions by the applicants that:

[I]f part of a relevant contractual arrangement (namely a “related condition” or “collateral arrangement”) not related to the performance of work can be varied under s 106(2A), it also must follow that the Court could either, additionally or in the alternative, make a monetary order under s 106(5) of the Act that was not directly or closely related to the performance of work.

74 To support this proposition, the trial judge relied on Kennett and Anor v Mayrana Pty Ltd and Ors (No 4) [2006] NSWIRComm 357 ("Kennett"), where Schmidt J had said at [117]:

117 In any event, as I have said, I am satisfied that there is no ambiguity and that nothing in the language of the section, as amended by the insertion of s 106(2A), would permit a proper reading of its terms to confine s 106(5), by excluding the making of money orders in respect of 'any contract declared wholly or partly void, or varied', pursuant to the express provision made for such orders in s 106(2A).

What kind of monetary orders?

75 The trial judge noted that the respondents sought in their Sixth Further Amended Summons compensation for a range of matters, including loss of opportunity by reason of the first respondent's alleged non-compliance with the Last Resort Policy and the Fourth Assurance; damages in respect of alleged losses flowing from post-Gough & Gilmour (No 15) events (which have not been particularised in part B of the Sixth Further Amended Summons); and an amount for compensation for losses arising out of the management distraction and disruption caused by these proceedings.

76 The trial judge addressed the appellants' contention that s 106(5) only authorised an order for the payment of money in the nature of restitution. It had been submitted that none of the above matters were restitutionary in nature and that s 106(5) did not speak in terms of damages or compensation, let alone damages in the nature of expectation loss.

77 The trial judge cited Westfield Holdings v Adams [2001] NSWIRComm 293; (2001) 114 IR 241 ("Westfield Holdings") at [102] where the Full Bench had specifically addressed the basis upon which monetary relief might be granted under s 106(5):

102 We do not think that Brown v Rezitis mandates an approach to the assessment of compensation under s 106(5) on the basis that restitution in the sense referred to, is to be the fundamental guiding principle. Restitution so understood may be appropriate in particular cases, but the fundamental guiding principle is that which is stated in the statute itself, namely, what is just in the circumstances of the case.

78 The trial judge also noted (at [88]) that the decision in Westfield Ltd v Helprin (1998) 82 IR 411 ("Westfield") had seen compensation awarded under s 106(5) for lost opportunity:

88 It is not unusual in the cases to find compensation having been awarded under s 106(5) for the loss of opportunity. In Westfield Ltd v Helprin (1998) 82 IR 411, for example, the Full Bench agreed with Marks J’s conclusion at first instance that Mr Helprin’s contract was unfair in that it did not require a counselling and warning process, including an opportunity for Mr Helprin to improve his performance, prior to the exercise of the right of termination. Both Marks J and the Full Bench considered it appropriate to vary the contract to incorporate a requirement that the respondent provide the applicant with a period in which to improve his performance. Thus, the variation to remedy the unfairness in Mr Helprin's case enabled the Court to make a consequential order awarding monetary compensation to reflect the respondent’s failure to provide the opportunity to the applicant to improve his performance.

79 David Jones Ltd v Cukeric (1997) 78 IR 430 ("David Jones")was cited by the trial judge as a decision where, notwithstanding that Mr Cukeric's employment had been terminated, the Full Bench varied the contract ab initio to provide that the employment was not to be terminated as a result of any restructuring without fair consideration first being given to Mr Cukeric's future position in any new structure. His Honour referred to what the Full Bench had concluded at page 462, namely:

[I]t would be just in the circumstances to make a monetary order in favour of Mr Cukeric in connection with the arrangement as varied by us. The Company is to pay to Mr Cukeric an amount of money (additional to that already paid) to reflect entitlements in respect of a further period of six months' notice of termination.

80 The trial judge considered whether a monetary order could follow the failure of the respondents to follow the Improvement Plan. The Plan had been a notional variation to the Overall Arrangement in Gough & Gilmour (No 15). The trial judge did not consider it an appropriate time to conclude whether a monetary order could follow the failure to follow the Improvement Plan.

81 The appellants also contended that a claim in regard to lost goodwill could not give rise to a monetary order and the trial judge determined it could, consistent with the same reasoning as for lost opportunity.

82 In summary, the trial judge determined in the first instance judgment that he was unable to find any jurisdictional basis for dismissing or permanently staying the proceedings. Below is a summary of his Honour's determinations as to jurisdiction in that judgment:

(a) The Dealership Agreements and or Overall Arrangement were contracts within the jurisdiction of s 106 of the Industrial Relations Act, despite developments in the case law surrounding s 106;

(b) In the alternative, the contractual components of the Overall Arrangement, being the Fourth Assurance and the Last Resort Policy, were within the jurisdiction of s 106(2A) and collateral arrangements or related conditions to the Dealership Agreements, which were contracts within the jurisdiction of s 106 of the Industrial Relations Act;

(c) There was residual jurisdiction to make money orders under s 106(5) after variations had been made to contracts or arrangements that were within the jurisdiction of s 106(1) and s 106(2A);

(d) The amendments made by the respondents in the Sixth Further Amended Summons concerning the assessment of compensation were consistent with s 106(5);

(e) That the respondents were able to amend the Third Amended Summons in the form of the Sixth Further Amended Summons.

ISSUES

83 There are two primary aspects of the appeal. First, the appellants' challenged the leave granted by Boland J to amend the application to pursue what we have identified as the Sixth Further Amended Summons. Second, the appellants challenged the rejection at first instance of their strike out application which had been pursued on jurisdictional grounds.

84 As to the first aspect, the submissions advanced by the appellants were essentially formal in nature. They conceded that the true challenge in that respect was the significance of the amendments to the jurisdictional challenge. This much was reflected in our decision to dismiss the appeal in this respect.

85 As to the second aspect, it must be noted that the application at first instance was a true strike out motion in that it sought the dismissal of the proceedings in total for want of any jurisdiction. The challenge to the proposed orders sought under s 106(5) was a sub-set of that challenge. The appeal was constructed along similar lines. It follows that, consistent with principles enunciated in judgments such as Virtue (approved by the Full Bench of the Court in Rose), if there is established any basis for jurisdiction in the Court the application to strike out must fail and so must the appeal. We have approached the appeal on that basis.

86 Only one further observation is required at this point. The compensation orders sought by the respondents and our conclusion as to them must be necessarily preliminary in nature as the Court at first instance was not bound to make the orders sought by them in the amended application.

87 It follows then, the issues to be resolved in the appeal fall into two groups. Those issues are as follows:

(i) Whether the Dealership Agreements or the "Overall Arrangement" to which the appellants and the respondents were parties fall within the jurisdiction of the Court under s 106 of the Industrial Relations Act. This issue raises the following sub-issues:

(a) whether the Dealership Agreements fall within the jurisdiction of the Court under s 106 of the Industrial Relations Act;

(b) If it is determined that the Dealership Agreements fall within jurisdiction, whether the Fourth Assurance and the Last Resort Policy can be characterised as collateral contracts which fall within the jurisdiction of s 106(2A) of the Industrial Relations Act;

(c) to the extent that it is necessary to resolve the issue, whether the Overall Arrangement falls within the jurisdiction of the Court under s 106 of the Industrial Relations Act.

(ii) Whether the Court has jurisdiction or power to make the orders claimed by the respondents for the payment of compensation under s 106(5) of the Industrial Relations Act. The Court notes, that a determination made in the negative could not be conclusive of the question of jurisdiction in this respect as the orders for compensation sought by the respondents could not constrain the orders that may be made by the Court under that section. There are a number of sub-issues relevant to this question:

(a) whether monetary orders may be made pursuant to the contracts which fall within the jurisdiction of s 106(1) of the Industrial Relations Act;

(b) whether monetary orders may be made pursuant to the contracts which fall within the jurisdiction of s 106(2A) of the Industrial Relations Act;

(c) whether there is residual jurisdiction to make the orders sought;

(d) whether the Court has the power to make monetary orders in the form sought by the respondent.

88 However, as we will later develop, we consider that, to resolve the jurisdictional issues raised in this matter, it is only necessary to address the question of whether the Dealership Agreements, Last Resort Policy and Fourth Assurance fall under the Court's jurisdiction under s 106 of the Industrial Relations Act and not the broader question as to whether there was an "Overall Arrangement" which might be considered under the Court's jurisdiction under that section. The related question as to whether the Court has jurisdiction to make the monetary orders set out in the Sixth Further Amended Summons may then be considered in that light.

89 Given the relevant principles, the contentions of the parties as to jurisdiction, and the limiting of our consideration of the jurisdictional issue to the Dealership Agreements, the Fourth Assurance and the Last Resort Policy the issues in the first instance may be refined to, firstly:

i) Whether the Dealership Agreements are contracts whereby a person performs work in an industry, for the purposes of s 106(1); and

ii) If the Fourth Assurance and the Last Resort Policy are not contracts whereby a person performs work in an industry a consideration we shall later discuss is whether those arrangements are nonetheless within jurisdiction in consequence of the provisions of s 106(2A) of the Industrial Relations Act; and

Secondly, if it is determined that those contracts and arrangements are within jurisdiction it remains to be determined whether the money orders sought by the respondents in the Sixth Further Amended Summons fall within the Court's jurisdiction under s 106(5).

90 We shall now address those issues.

LEGISLATION

91 Section 105 of the Industrial Relations Act is in the following terms:

105 Definitions

In this Part:

"contract" means any contract or arrangement, or any related condition or collateral arrangement, but does not include an industrial instrument.

"unfair contract" means a contract:

(a) that is unfair, harsh or unconscionable, or

(b) that is against the public interest, or

(c) that provides a total remuneration that is less than a person performing the work would receive as an employee performing the work, or

(d) that is designed to, or does, avoid the provisions of an industrial instrument.

92 Section 106 provides:

106 Power of Commission to declare contracts void or varied

(1) The Commission may make an order declaring wholly or partly void, or varying, any contract whereby a person performs work in any industry if the Commission finds that the contract is an unfair contract.

(2) The Commission may find that it was an unfair contract at the time it was entered into or that it subsequently became an unfair contract because of any conduct of the parties, any variation of the contract or any other reason.

(2A) A contract that is a related condition or collateral arrangement may be declared void or varied even though it does not relate to the performance by a person of work in an industry, so long as:

(a) the contract to which it is related or collateral is a contract whereby the person performs work in an industry, and

(b) the performance of work is a significant purpose of the contractual arrangements made by the person.

(3) A contract may be declared wholly or partly void, or varied, either from the commencement of the contract or from some other time.

(4) In considering whether a contract is unfair because it is against the public interest, the matters to which the Commission is to have regard must include the effect that the contract, or a series of such contracts, has had, or may have, on any system of apprenticeship and other methods of providing a sufficient and trained labour force.

(5) In making an order under this section, the Commission may make such order as to the payment of money in connection with any contract declared wholly or partly void, or varied, as the Commission considers just in the circumstances of the case.

(6) In making an order under this section, the Commission must take into account whether or not the applicant (or person on behalf of whom the application is made) took any action to mitigate loss.

93 At the time of Gough & Gilmour (No 11) in 2002, s 106 was in the following form:

106. Power of the Commission to declare contracts void or varied

(1) The Commission may make an order declaring wholly or partly void, or varying, any contract whereby a person performs work in any industry if the Commission finds that the contract is an unfair contract.

(2) The Commission may find that it was an unfair contract at the time it was entered into or that it subsequently became an unfair contract because of any conduct of the parties, any variation of the contract or any other reason.

(3) A contract may be declared wholly or partly void, or varied, either from the commencement of the contract or from some other time.

(4) In considering whether a contract is unfair because it is against the public interest, the matters to which the Commission is to have regard must include the effect that the contract, or a series of such contracts, has had, or may have, on any system of apprenticeship and other methods of providing a sufficient and trained labour force.

(5) In making an order under this section, the Commission may make such order as to the payment of money in connection with any contract declared wholly or partly void, or varied, as the Commission considers just in the circumstances of the case.

(6) In making an order under this section, the Commission must take into account whether or not the applicant (or person on behalf of whom the application is made) took any action to mitigate loss.

94 Subsection 106(2A), commenced operation on 9 December 2005 (see Industrial Relations Amendment Act 2005). The provision sought to redress the narrow construction of s 106 given in Solution 6. That construction had restricted the jurisdictional scope of s 106(1) so as to only encompass those contracts and arrangements whereby a person performed work in an industry.

95 The intention of the legislature would appear to be to widen the scope of the Court's unfair contracts jurisdiction so that arrangements which could not of themselves be characterised as contracts whereby work is performed in an industry would nonetheless fall within the jurisdiction of the Court, where the arrangement was collateral to a contract which otherwise attracted the provisions of s 106(1).

96 There are only cursory statements concerning the Industrial Relations Amendment Act 2005 in the decisions in Fish (at [45]), Batterham and Old UGC (at [31]).

97 The Court of Appeal in Yim & Kim v The Industrial Relations Commission of NSW & Choi [2007] NSWCA 77 ("Yim") explained why s 106(2A) was introduced. Spigelman CJ said at [70] to [72]:

70 The new s106(2A) was directed to this Court’s reasoning that the context of the legislative scheme confined the power under s106(1) to aspects of a contract or arrangement which are “closely relate[d] to the performance of work” (Solution 6 supra at [80] and [83]) or which relate in some reasonably direct manner to the performance of work (at [87]). The reformulation of the test in Solution 6 in the High Court differs from this formulation.

71 Clearly s106(2A) is a new element which must be included in the context to which the High Court had regard when interpreting the reference to the performance of work as “the hinge” of the jurisdiction.

72 This matter has not been fully argued. The case can be determined without considering the Claimants’ alternative argument. Anything this Court would say would be obiter. The matter was not raised before the Industrial Court and this Court should not, as a matter of comity, consider the alternative basis on which the Claimants rely.

98 The issue to which s 106(2A) was directed was discussed in the second reading speech introducing the provisions as follows:

In Solution 6, the Court of Appeal held that the Commission may only declare void or vary a collateral arrangement or related condition that itself leads directly to the performance of work. This interpretation of the section significantly narrows the scope of the Commission's unfair contracts jurisdiction. It is problematic because an arrangement that leads directly to the performance of work may consist of a formal work contract as well as related agreements, which, in themselves, may not lead to the performance of work. If this interpretation were continued, and a person's total package were not reviewable, then the Commission's unfair contracts jurisdiction would be narrowed to a significant extent for employees and independent contractors. It would then be open to unscrupulous employers to ensure that the contract for work was minimalist and carefully quarantined from other aspects of the relationship that are set out in different documents, or entered into at different times.

The bill amends section 106 to clarify that if the commission finds that there is a contract or arrangement whereby a person performs work in an industry, then it can vary or declare void any related condition or collateral arrangement found to be unfair, even though that related condition or collateral arrangement does not in itself relate to a person’s performance of work. For example, the commission will be able to vary a superannuation arrangement, share option agreement or franchise agreement that is related or collateral to a contract whereby a person performs work in an industry. The amendment requires however that the performance of work is a significant purpose of the overall contractual arrangements between the parties. By adopting the requirement that there be a significant connection between the arrangements and the performance of work, the bill ensures that the Court of Appeal will be able to continue to set the parameters of what are industrial matters, as opposed to those which are essentially commercial in nature.

99 The effect of s 106(2A) was significant because, in permitting collateral contracts which did not relate to the performance of work in an industry to fall within the Court's jurisdiction, it overcame the limitations of s 106(1) in which the power to declare void or vary a contract or arrangement was held to be limited only to those parts of the contract or arrangement that were closely related to the performance of work in an industry, see Solution 6 at [95], McDonald's at [66], [81] to [84].

100 We propose to briefly discuss the construction of s 106(2A). The first condition is that the instrument must be a contract. There is no basis, in our view, to treat the meaning of "contract" in s 106(2A) as different to the same expression in s 106(1) given the use of the expression in both contexts is to specify the jurisdiction of the Court and further given the definition in s 105 is to apply to "this part"; that is the part of the statute which incorporates s 106. The expression "contract" must attract the wide meaning given in s 105, that is, wider than the common law meaning and including arrangements or collateral arrangements. The term "arrangement" was discussed in this way in the predecessor section to s 105, s 88F of the Industrial Arbitration Act 1940 in Custom Credit Corporation Ltd v Goldsmith and Ors [1976] AR (NSW) 98 where the Full Bench said at 131:

We are of the opinion that in one of its meaning "arrangement" embraces transactions which do not give rise to contracts or obligations, that is to say obligations enforceable at law ...

101 The second element is that the contract must be a "related condition" or "collateral arrangement". It is the latter condition that is relevant in this case. We consider that the plain meaning of a "collateral arrangement" to be a contract (as defined in s 105) which is related, auxiliary or subsidiary to a primary contract.

102 To be a collateral arrangement which falls within s 106(2A) a contract must fulfil the elements of s 106(2A)(a) and (b). The requirements of s 106(2A)(a) will be met where an arrangement is shown to be collateral in accordance with the plain meaning above. The other requirement is, that the arrangement having been found to be collateral, is collateral to a contract where work is performed in an industry. This means that the primary contract to which the arrangement is collateral will be a contract within the meaning s 106(1).

103 The other element of s 106(2A) (the provision in s 106(2A)(b)) was explained (correctly in our view) in Barataud v Chipperfield (No 3) [2006] NSWIRComm 249 at [36]:

36 Section 106(2A) empowers the Commission to declare void or vary any "related condition" or "collateral arrangement" to a contract whereby a person performs work in an industry, even if the related condition or collateral arrangement does not relate to the performance of work, so long as the performance of work is a significant purpose of the contractual arrangements made by the person. In our view, this latter condition requires a factual assessment of the contractual arrangements, viewed as a whole, to determine whether the performance of work could be described as a significant purpose.

104 It follows that s 106(2A)(b) requires an assessment of all the contractual arrangements made by the person. Those contractual arrangements will comprise all of the collateral arrangements submitted to be within the jurisdiction of s 106 and the contract whereby a person performs work in an industry. To meet the requirements of s 106(2A)(b) those contractual arrangements, when viewed together as a whole, must lead the Court to make a determination that the performance of work was their significant purpose. It is a determination made on the facts.

105 A contract which meets those required elements of s 106(2A) will be a contract for the purposes of s 106 of the Industrial Relations Act.

Whether the Dealership Agreements, the Fourth Assurance and Last Resort Policy fall within the jurisdiction of the Court under s 106 of the Industrial Relations Act

Submissions of the Parties

The appellants' submissions

106 The appellants submitted in relation to jurisdiction under s 106 the following:

(a) The proper application of the recent decisions of the High Court and the New South Wales Court of Appeal in McDonald's dictated the conclusion that the Dealership Agreements to which the appellants and the respondents were parties did not fall within the jurisdiction of the Court. In addition, the Overall Arrangements did not fall within the jurisdiction of the Court;

(b) The trial judge failed to properly apply the binding judgment of the Court of Appeal in McDonald's;

(c) The judgment of the Full Court in Wirraway, which the trial judge applied, was not correctly decided;

(d) As the Dealership Agreements could not be established as contracts where work was performed in an industry for the purposes of s 106 of the Industrial Relations Act, collateral arrangements in the form of the Fourth Assurance and Last Resort policy could not find jurisdiction under s 106(2A);

(e) In the event that the Dealership Agreements were within jurisdiction under s 106 of the Industrial Relations Act, the Fourth Assurance and Last Resort policy as collateral arrangements would not be within jurisdiction under s 106(2A) because the performance of work was not the significant purpose of the contractual arrangements made.

107 The primary contention of the appellants in the proceedings before the primary judge was that the recent judgments of the High Court and the Court of Appeal made it clear that there was no jurisdiction for the Court to take any further steps in the proceedings.

108 The appellants reiterated that the primary purpose of the Dealership Agreements between the first appellant and the first respondent was the development and promotion of the sale of products and to provide a high standard of parts availability and mechanical service, in accordance with clause 2(a) of the Sales and Service Agreement.

109 The characterisation by the trial judge of the Dealership Agreements or the Overall Arrangement variously as a contract that led directly to the performance of work in an industry for the purposes of s 106, as a contract that was akin to a franchise agreement, and the overall arrangement as akin to an employment relationship between the first appellant and the second and third respondents was to "understate their nature to the point of misdescription".

110 The nature of the Dealership Agreements or the Overall Arrangement did not correspond with the characterisation given by the trial judge.

111 The appellants had distilled from the recent Court of Appeal and High Court cases the following principles:

(a) The contract itself must lead directly to a person working in an industry: see Solution 6; Fish and Batterham;

(b) Characterisation of a contract to determine whether it is within jurisdiction of the Court under s 106 will raise questions of fact and degree in cases. The distinction is one of substance, not form. A relevant factor will be to examine whether the company of the alleged “working proprietor” engages a work force of significant magnitude. The critical question is whether the real transaction needs to be uncovered and whether it is a contract whereby a person works in an industry: see McDonald’s at [95] and [102];

(c) It is not sufficient that a contract involves the provision of goods and services with a consequential performance of work in an industry. The impugned contract must directly, under or pursuant to its terms provide for the performance of work in an industry: see Solution 6;

(d) The minimum conditions for the conclusion of directness to be drawn may be that the impugned agreement or arrangement itself must directly envisage the employment of a person or persons in industry and have a recognizable impact upon the conditions of that employment: see Solution 6 at 576;

(e) Whether a contract leads directly to the performance of work has been posed in terms of whether the relevant contract requires a person to perform work and whether the performance of work is a purpose of the contract: see Solution 6 at 576[59];

(f) If there is an Overall Arrangement, it must still lead directly to the performance of work but need not be performance of work pursuant to a legal obligation, provided work was in fact performed: see QSR Ltd v Industrial Relations Commission of NSW (2004) 141 IR 238 ("QSR") at [46] to [47];

(g) Some element of subordination by the person said to be performing the work to the other party to the contract or arrangement is required to satisfy the concept of work in an industry: see QSR;

(h) There must be a nexus between the relevant jurisdictional fact establishing jurisdiction (i.e., whether there is a contract whereby a person performs work in an industry) and the relief claimed by the applicants. The power to declare void or vary a contract or arrangement extends only to those parts of the contract or arrangement that are closely related to the performance of work in an industry: see Solution 6 at [95] and McDonald’s at [66], [81] and [82].

112 For reasons which were advanced before the trial judge, the appellants maintained that the Dealership Agreements between the first respondent and the first appellant were not contracts whereby the respondents performed work in an industry for the following reasons:

(a) The Dealership Agreements do not require or provide for the licensing or operation of premises for the conduct of a business thereon on behalf of or for the benefit of the Appellants;

(b) The primary purpose of the Dealership Agreements is the development and promotion of the sale of products and to provide a high standard of parts availability and mechanical service, in accordance with Clause 2(a) of the Sales and Service Agreement;

(c) The Dealership Agreements do not provide for the franchising or licensing of a business;

(d) The relationship between the First Appellant and the First Respondent is that of “... independent contractors and vendor and vendee” (clause 27);

(e) The Sales and Service Agreement (Clause 2(c)) contains a provision that the principals “will continue in the active management of a dealer or will continue to own a substantial financial interest in dealer”. This is neither a condition precedent to the operation of the agreement nor does it impose a contractual obligation upon the dealers to perform work in the business of the First Appellant. Importantly, the Second and Third Respondents are the working proprietors in their own business. Clause 2(c) provides an option for the principals to either manage or to maintain a financial interest;

(f) There are no contractual obligations on the Respondents to work for the First Appellant in the First Appellant’s business. The dealership “business” is operated by the corporate entity, (the First Respondent). The sale by Caterpillar pursuant to the Sales and Service Agreement on a wholesale basis of Caterpillar manufactured products to the dealers for the purpose of retail sale by them to third parties does not involve obligations upon them to work for Caterpillar in its (Caterpillar’s) business. There is no contractual obligation on them to work for Caterpillar. The fact that, in a general sense, Caterpillar products in due course reach consumers via dealers neither creates nor converts the terms and conditions of the Sales and Service Agreement into a legal relationship by which one works for the other. Although the businesses of Caterpillar and a dealer are interfaced (as is the case in many commercial relationships) by the Sales and Service Agreement, they are separate in terms of assets, goodwill, capital and employment;

(g) In relation to contractual obligations to provide mechanical services to third parties, such obligations and the performance of them are neither in a direct nor in a legal sense for the financial benefit of Caterpillar. Firstly, the services are not provided to Caterpillar but are rendered by Gough & Gilmour to third parties. They are not services constituting the performance of work or services for Caterpillar in the sense that the Court of Appeal was at pains to emphasise. They are services rendered by Gough & Gilmour pursuant to supplier/service relationships established by service agreements entered into by them with their customers. The remuneration payable for such services, of course, goes to the dealer and not to Caterpillar;

(h) No monthly periodic licence fees or other remuneration has been paid or is payable by the dealer to Caterpillar. There is no division of profits for the performance of service work between Caterpillar and the dealer;

(i) The impugned Dealer Agreements obliged the First Respondent to essentially employ such adequately trained and experienced sales and service personnel as may be necessary to ensure that the dealer provided to its customers the highest standard of service and to properly perform all of its duties, obligations and responsibilities pursuant to the Dealer Agreements. However, there was no requirement for the First Respondent to employ the Second or Third Respondents in any capacity or at all. Nor did it require them to do any work;

(j) Thus, the Dealer Agreements did not contemplate the actual performance of work by the Second and Third Respondents in any sense or, alternatively, at best, it did so in a remote or consequential sense;

(k) The work in the business of the First Applicant was performed by some 700 persons who were its employees: see for example Judgment No. 11 at [1];

(l) By any measure, the First Respondent’s commercial operations were substantial and could not be described as a “cover for a one man or even perhaps a two man enterprise whereby the persons concerned may be said under the arrangement to be required directly to work in an industry.”: see D and G Motors Pty Limited v Capitol Motors Ltd [1973] AR (NSW) 806 at 807 per Watson J;

(m) Further, the employment of over 700 employees by the First Respondent (in comparison to the 350 staff employed by the Proprietor in the McDonald’s case) does not make it difficult to characterise this case as being outside the jurisdiction of the Court. The real transaction here does not have to be uncovered, it is clearly not a contract whereby the Respondents performed work in an industry. This case is indistinguishable from the decision in McDonald’s.

113 It followed that if the Dealership Agreements were not contracts within the jurisdiction of s 106, there was no basis on which the Overall Arrangement could be within jurisdiction, as it included the Dealership Agreements.

114 The appellants contended that the majority reasoning in McDonald’s amounted essentially to the proposition that, where a working proprietor employs a significant number of staff, that fact is of itself sufficient to distinguish the case from Majik Markets Pty Limited v Brake & Service Centre (1991) 28 NSWLR 443; 39 IR 169 ("Majik Markets") and to thereby remove the contract from the ambit of s 106. Although, it was acknowledged by the majority in McDonald’s that this may involve difficult questions of fact and degree, the employment of 350 staff was held to fall clearly on the non-jurisdictional side of the line. In McDonald’s the Court of Appeal considered whether franchise agreements (comprising certain Licence and Lease agreements) entered into by the parties, collectively constituted a contract whereby work was performed in an industry. The Court found by majority that they were not. Handley JA (with whom Mason P agreed) took a different view to Spigelman CJ in relation to whether the contracts were ones whereby “Mr. McLaughlin” performed work in an industry. They found that they were not. Handley JA considered that the earlier franchise cases involved agreements with a “working proprietor” but not a working proprietor who employed “a workforce of this magnitude” (see [95]). His Honour observed (at [102]) that:

Characterisation of a contract to determine whether it is within the jurisdiction of the Commission under s 106 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 the parties. The real transaction here does not have to be uncovered, and it is not a contract whereby Mr. McLaughlin works in an industry.

115 On this basis the appellants distinguished the decisions of Mayne Nickless and Majik Markets from the current matter. These arguments were premised on the similarities between the current matter and the decision in McDonald's.

116 Two further cases, Azzi & Ors v Volvo Car Australia Pty Limited [2007] NSWSC 319 ("Azzi") and Yim, which were decided after the first instance judgment, were relied on to support the propositions extracted from McDonald's.

117 The appellants submitted that to the extent that the trial judge purported to rely on the Full Court’s decision in Wirraway rather than properly apply the McDonald’s decision of the Court of Appeal, the trial judge fell into error. It was submitted that the decision in Wirraway was erroneous. It appeared to conclude that the decision of the majority in McDonald’s was inconsistent with the reasoning of the Court of Appeal in Majik Markets or was restricted to its own special facts with no general binding principles as to the reach of s 106: Wirraway at [34] to [35].

118 It was contended that it was in the interests of comity that the Full Bench should overrule its decision in Wirraway to avoid an unnecessary conflict between the reasoning of the Full Bench of the Industrial Court and the Court of Appeal.

119 It followed that neither the Dealership Agreements nor the Overall Arrangement were contracts which fell within the jurisdiction of s 106 of the Industrial Relations Act.

120 The appellants maintained that if it could be established that neither the Dealership Agreements nor the Overall Arrangement fell within the jurisdiction of s 106, it would follow that s 106(2A) could not be used to establish jurisdiction for collateral contracts. On this basis, it was contended that s 106(2A) of the Act did not provide the Court with any additional jurisdiction in relation to the Fourth Assurance and Last Resort Policy. There would be no basis for establishing collateral arrangements because there was no identifiable contract where a person performed work in an industry and the performance of work was not a significant purpose of the contractual arrangements.

121 The appellants submitted that the trial judge had ignored the observations made by Schmidt J in Kennett at [95] that whether or not the performance of work was a significant purpose of the particular arrangements is a question of fact to be determined in each case. In this case, the performance of work was not a significant purpose of the contractual arrangements.

122 It followed that jurisdiction in relation to the Dealership Agreements and the Last Resort Policy at the threshold of s 106 of the Industrial Relations Act could not be established.

The respondents' submissions

123 The respondents' contentions regarding jurisdiction under s 106 reflected the findings of the trial judge. It was submitted that there were no errors in the appealed decision and that the trial judge was correct to find that the Dealership Agreements and Overall Arrangements were within the jurisdiction of s 106 of the Industrial Relations Act.

124 The Dealership Agreements (the Sales and Service Agreement, the Distribution Agreement for Engines, Parts and Service and the Product Support Agreement for Engines, Parts and Service) were the contracts whereby the relevant work was performed.

125 That the Dealership Agreements had the performance of work as their primary purpose and the requirement that the respondents work for another, were not considered to be determinative considerations as to whether the agreements were within jurisdiction under s 106.

126 The respondents set about establishing the appropriate test to ascertain whether the Dealership Agreements were within the jurisdiction of s 106, a test in view of the appellants' motion, which incorporated the recent decisions of the High Court, after the Judgments Nos (11) and (15) in Fish, Batterham and Old UGC. The test was set out as follows:

(a) First, to ascertain the relevant work that is to be (or was) performed by the relevant person or persons;

(b) Secondly, to ascertain whether the relevant work is to be (or was) performed in an industry; and

(c) Thirdly, to ascertain the transaction (the “contract” or “arrangement”) whereby (or “according to which”, “in consequence of which” or “in fulfilment of which”) that work was performed by that person or those persons.

127 The respondents addressed the Sales and Service Agreement, particularly provisions cl 2(a), 2(c), 4, 5, 6(a), 6(b), 6(c) and 8(b) and contended that the “development” and “promotion” of sales was the relevant work, the “active management of Dealer” by the second and third respondents was the relevant work, the “demonstration” and “exhibition” of products was the relevant work, the “service of the needs of the territory” was the relevant work, the “rendering” of “prompt, competent, diagnostic and mechanical services” was the relevant work, the “rendering” or “provision” of “delivery or inspection service” and “warranty service” was the relevant work, the “development” and “execution” of market development programs was the relevant work and the Sales and Service Agreement in accordance with the provisions above was the transaction according to which, in consequence of which, or in fulfilment of which all that work was performed.

128 Whilst the result took into account developments in the case law subsequent to Boland J's Judgments Nos (11) and (15), the result was effectively no different to the approach that had been applied in the test created in Stevenson v Barham [1977] HCA 4; (1977) 136 CLR 190, which was used to establish jurisdiction in Gough & Gilmour (No 11). That test had asked whether the performance of work was required by the Agreement and had led to the same determination that jurisdiction existed in relation to the Dealership Agreements.

129 The respondents concluded that against that background it was plain that the Dealership Agreements were still contracts whereby a person performed work in an industry and that the Court possessed, and continued to possess, jurisdiction to hear and determine the application under s 106 of the Act.

130 It was contended that it could be established that the Overall Arrangement (comprising the Dealership Agreements, various plans and understandings, the Fourth Assurance and the Last Resort Policy) was an arrangement whereby the relevant work was performed in an industry for the purposes of the Act and was also within jurisdiction.

131 The respondents contended that the trial judge was correct to determine that the Dealership Agreements and the Overall Arrangement were not relevantly distinguishable from the transactions the subject of the decision in Majik Markets.

132 The respondents' view was consistent with the view that the decision in Wirraway was correctly decided and did not need be revisited because of McDonald’s. The trial judge had committed no error in applying it. The trial judge was bound by the decision of the Full Bench in Wirraway and by its approach to the decision in McDonald’s, with the consequence that the legal test for determining jurisdiction under s 106 had not changed on account of McDonald’s.

133 The decisions of Azzi and Yim did not have any relevance to the appeal.

134 The respondents' contention that the Fourth Assurance and the Last Resort Policy could be classed as collateral arrangements for the purposes of s 106(2A) of the Industrial Relations Act was an alternate jurisdictional view to the one which had considered that those contractual components were already part of an Overall Arrangement, which was within jurisdiction of s 106.

135 The proposed amendments relying on s 106(2A) in the Sixth Further Amended Summons sought to establish alternate bases of jurisdiction for the Fourth Assurance and the Last Resort Policy as collateral arrangements or related conditions to the Dealership Agreements so that the decisions and variations from the prior proceedings could be further confirmed and also sought to establish a jurisdictional bridge to enable the making of monetary orders. Furthermore, given that the Court had determined that the Dealership Agreements themselves were unfair vis-a-vis termination and decided to correct any unfairness by varying the Overall Arrangement, inter alia, so as to override the unfair operation of clause 29 of the Dealership Agreements, these proposed amendments would simply advance alternative characterisations and other remedial options on the evidentiary case already heard and determined.

136 It was contended that the Court should not deny the respondents the opportunity to further amend the Third Summons based on established facts. It was apparent that the amendments were necessary because of the challenges posed to the jurisdiction and power of the Court to make the decisions and orders that it already made. The s 106(2A) amendments arose out of an abundance of caution on the part of the respondents. The intention of availing the jurisdiction from s 106(2A) was to insulate the existing variations to the agreements and to protect the respondents against the appellants' assertions that the recent High Court and Court of Appeal authorities had undermined the correctness of the judgments in Gough & Gilmour (No 11) and (No 15) and the jurisdictional basis of s 106(1) under which those decisions were made.

137 The respondents submitted that the trial judge was correct to determine that the plans and understandings which constituted the Fourth Assurance and the Last Resort Policy could be considered arrangements collateral to the Dealership Agreements. The trial judge was correct to determine that the Dealership Agreements were Agreements where work was performed in an industry and the performance of work was a significant purpose of the overall contractual arrangements between the parties (see ss 106(2A)(a) and (b) of the Act) or “arguably so”. It followed that those collateral arrangements were consistent with the requirements of ss 106(2A)(a) and (b) and that the variations in the Sixth Further Amended Summons could be made.

Consideration: First Issue

138 A great deal of attention in Gough & Gilmour (No 11) and the first instance judgment was focused on establishing and affirming that the "Overall Arrangement" was within the jurisdiction of s 106(1). In light of the conclusion that we ultimately reach in this judgment that (1) the Dealership Agreements fall within the jurisdiction of the Court pursuant to s 106(1); (2) the Fourth Assurance and Last Resort Policy fall within the Court's jurisdiction under s 106(2A); and (3) Boland J's reliance on the Fourth Assurance and Last Resort Policy, to making his findings of unfairness was correct, it is unnecessary for us to consider that broader question. In this respect, we have adopted the alternate jurisdictional formulation submitted by the respondents where they contended that the Fourth Assurance and Last Resort Policy are collateral arrangements to the Dealership Agreements within the meaning of s 106(2A) of the Industrial Relations Act thereby enabling those arrangements to be within jurisdiction without themselves being contracts whereby a person performs work in an industry. It also follows that we agree with that part of Boland J's findings at first instance in which he considered that the Dealership Agreements were within jurisdiction of the Court pursuant to s 106(1) of the Industrial Relations Act and that the Fourth Assurance and the Last Resort Policy were arrangements that fell within the Court's jurisdiction under s 106(2A).

139 In the light of this approach, and as earlier noted, the issues we have resolved are:

i) whether the Dealership Agreements are contracts whereby work is performed in an industry and contracts within the jurisdiction of s 106(1) and s 106(2A)(a); and

ii) whether the Fourth Assurance and Last Resort Policy are collateral contracts to the Dealership Agreements and are within the jurisdiction of s 106(2A).

Dealership Agreements

Principles in Fish, Batterham and Old UGC

140 The current test for determining whether a contract is one whereby a person performs work in an industry for the purposes of s 106(1), is to be found in the decisions in Fish, Batterham and Old UGC.

141 In his judgment in Yim, Spigelman CJ, with whom Mason P and Handley JA agreed, concluded that all prior authority on the interpretation of s 106(1) had been superseded by those decisions. We respectfully agree with that conclusion although we note that the decision in Yim was confined to an interpretation of s 106(1) and did not consider s 106(2A)).

142 The decisions in Fish, Batterham and Old UGC were delivered concurrently by the High Court and may therefore be taken as a composite expression of the view of the majority of the High Court in those judgments as to the law concerning s 106(1) and we shall approach the judgment in that light. Those judgments mention the Industrial Relations Amendment Act but do not consider the provisions in any detail.

143 In Fish, the majority of the Court (Gleeson CJ, Gummow, Hayne, Callinan and Crennan JJ) expressed the following views as to proper approach to the interpretation of the critical words in s 106(1) in order to determine the Court's jurisdiction. Their Honours' discussion as to whether a contract is one whereby a person performs work in an industry may be found at [18] to [20] and [41] in these terms:

18 The Act is concerned with matters industrial. The power given to the Commission by s106(1) to declare wholly or partly void or to vary certain contracts should be understood as hinged about the reference to performance of work in any industry. The first inquiry required by s106(1) is whether a person "performs work in any industry". What may be declared wholly or partly void or varied is any "contract" whereby a person performs that work.

19 Because ‘contract’ is given the extended definition that has been noted earlier, it must be understood as extending to any arrangement or related condition or collateral arrangement of the requisite kind, namely, a contract or arrangement whereby a person performs work in any industry. But what must be identified is the set of arrangements (leaving aside, for the moment, whether those arrangements are or may be contractual or otherwise) according to which (that is, ‘whereby’) a person performs the relevant work. What may be declared void or varied is any part of those arrangements: the arrangements in accordance with which a person performs work.

20 It is to invite error to begin by identifying what contracts or arrangements are related one to another. It invites error because it suggests that it is appropriate then to ask whether any of that interlocking set of arrangements made provision for the performance of work in an industry, and to treat any and every aspect of the interlocking arrangements that have been identified as amenable to the powers given to the Commission under s106. And that is the way in which much of the argument advanced on behalf of those parties who were applicants in the Commission proceeded.

...

41 The second consideration was mentioned earlier in these reasons and is not unrelated to the first. Performance of work in an industry is the hinge about which s 106 turns. It is the arrangements (contractual and non-contractual) whereby a person performs work in an industry that the Commission may avoid or vary. That is, it is the arrangements (contractual and non-contractual) according to which a person performs the work (or in consequence of which or in fulfilment of which a person performs that work) which may be avoided or varied. And although the notion of "avoiding" an arrangement that is not enforceable may be awkward, determining that some new arrangement will obtain for the future (thus "varying" the arrangement) presents no such awkward juxtaposition of ideas. Further, to focus attention upon the arrangements whereby a person performs work in an industry, no matter whether the arrangement is found in the contract the parties have made or only in some related condition or collateral arrangement, sufficiently meets the need, identified by Barwick CJ in Brown v Rezitis, to recognise that these provisions of the Act have, as one important purpose, dealing with subterfuges which take workers outside the operation of industrial instruments intended to protect workers in an industry. At the same time, to read s 106 as hinged about performance of work in any industry and empowering the Commission to deal only with such of the arrangements between parties as can be described as a contract whereby a person performs work in any industry confines the jurisdiction of the Commission to declare a contract void or to vary it within bounds that leave intact the jurisdiction of the Supreme Court over other kinds of contractual obligations.

144 The proper approach for interpreting the section is also set out in the majority judgment of Gleeson CJ, Gummow, Hayne, Callinan and Crennan JJ in Batterham at [13]:

13 The relevant provisions of the Act, and their history, are set out in the reasons given in Fish v Solution 6 Holdings Ltd. Those matters need not be repeated here. As explained in Fish v Solution 6 Holdings Ltd, to decide whether the Commission had jurisdiction to make the orders which the appellants seek, it is necessary first to identify whether Mr Batterham performs (or in this case, did perform) work in any industry. (It was not argued that anything turns on the fact that Mr Batterham was no longer performing the relevant work when he applied to the Commission.) Having identified the work that Mr Batterham performed, the next inquiry is what was the contract or arrangement (and any related condition or collateral arrangement) according to which (or in fulfilment of which, or in consequence of which) that work was performed? It is only that contract or arrangement which the Commission may declare void or vary.

145 We also refer to the majority judgment of Gummow, Hayne, Callinan and Crennan JJ in Old UGC at [25], where their Honours said:

As noted earlier, the answer which the Court of Appeal made to that question depended upon the conclusion that the C & R Agreement formed a part of "a single contract of employment constituted by reading together the Employment Agreement and the [C & R] Agreement". But to answer the question in that way was to begin the investigation of whether s 106 could be engaged by first identifying what contractual stipulations or other arrangements were to be regarded as related one to the other. For the reasons given in Fish v Solution 6 Holdings Ltd, that begins the inquiry at the wrong point. And while it may be accepted that the C & R Agreement varied the terms governing the relationship between Mr McRann and the Old UGC parties in connection with his employment in an industry in New South Wales it by no means follows that all the resulting stipulations and arrangements fall within the expression a "contract whereby a person performs work in any industry".

146 Having regard to the aforementioned principles in Fish, Batterham and Old UGC it is necessary in order to determine the jurisdiction of the Court as to whether the Dealership Agreements are contracts whereby a person performs work in an industry to consider sequentially the following questions.

i) whether the second and third respondents performed work in an industry; and

ii) if there was a contract or arrangement whereby that work was performed.

Further Issues of Principle: McDonald's

147 The fundamental point which the appellants contend emerges from the High Court decisions above is that a purposive rather than an overly literal construction is to be given to s 106 consistent with the industrial context and purpose of the Act. The “reformulation” of the jurisdictional test recognises that there is a limit to the scope of the jurisdiction of the Industrial Court to review contracts under s 106 and that it is not appropriate for the Industrial Court to purport to exercise its jurisdiction to review contracts which can more accurately be described as commercial contracts rather than contracts whereby work is performed.

148 The appellants submitted that the number of employees is a relevant factor to have regard to when considering whether a contract can properly be said to be a contract whereby work is performed as required by s 106. The appellants also submitted that this is a relevant factor to distinguish the present case from the decision in Majik Markets.

149 Although there is a line to be drawn between contracts which are within the jurisdiction and those that are not, the appellants maintained that the commercial nature of a contract and the number of employees involved in the relevant business connected with a contract are relevant to the question of jurisdiction. A working proprietor or franchise type arrangement may therefore not be within jurisdiction. The appellants contended that the Dealership Agreements and the “Overall Arrangement” were on all fours with the agreement considered in McDonald’s which had been determined to be beyond jurisdiction.

150 The principles the appellants adduced from that decision were that working proprietor contracts of the type seen in McDonald's, that is, one with many staff and operating locations, were appropriately seen as commercial contracts because the proprietor was not a party to a contract whereby a person performs work in an industry. The relevant passages of the reasoning of Handley JA relied upon are set out below (at [95], [97], [98] and [102]):

95 It seems to me, with respect, that this view involves an over literal construction and application of the section. The earlier franchise cases in the superior courts did not involve contracts with a working proprietor who employed a workforce of this magnitude.

...

97 A building or engineering contract for a major project will create a lot of employment but such a contract does not lead directly to the performance of work in an industry and does not have a recognisable and direct impact on the conditions of employment of those working on the job: compare Spigelman CJ at [34].

98 In my judgment the result in such a case would not be different if, in the contract, the proprietor required the contractor to employ identified persons on the project as site manager, architect, or engineer. One could not characterise the contract as a whole as one whereby the named persons performed work in an industry. It could only properly be characterised as a construction contract. To adopt the language of Sir Frank Kitto in Ready Mixed Concrete (Vic) Pty Ltd v FCT [1969] HCA 12; (1969) 118 CLR 177 at 184 its characterisation would be “understated to the point of misdescription” if it was described as one whereby those individuals worked in an industry.

...

102 Characterisation of a contract to determine whether it is within the jurisdiction of the Commission under s 106 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 CLR 164; ALR 320–1), can uncover the real transaction between the parties. The real transaction here does not have to be uncovered, and it is not a contract whereby Mr McLaughlin works in an industry.

151 The respondents submitted that as the test found by the High Court in Fish was the determinative test for jurisdiction under s 106(1). On that basis the reasoning in McDonald's could be restricted to its own particular facts and was distinguishable from the type of relationship in these proceedings. It was also submitted that the trial judge was correct to follow the decision in Wirraway because it was decided after McDonald's and the decisions in Fish, Batterham and Old UGC.

152 The decision in Wirraway was a decision of a specially convened Full Bench of the Industrial Court of four members constituted after the handing down of the judgments in Fish, Batterham and Old UGC, after the introduction of s 106(2A) and after the amendments to s 179. That decision applied the approach to determining jurisdiction set out in Fish, Batterham and Old UGC. At [42] the Full Bench held:

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.

153 The Full Bench in Wirraway (at [35]) considered that the decision in McDonald's fell into a unique or special category and was a case limited to its own peculiar facts:

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.

154 Wirraway elaborated (at, for example, [45]) the established parameters of s 106 in light of relevant case law (Majik Markets) and described the provision as not limited to subterfuge of awards but as a provision which covered franchise and working proprietor arrangements:

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.

155 Wirraway discussed the decision in Majik Markets as follows, at [46]:

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 s 106 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.

156 We find it unnecessary in this case to decide the correctness of McDonald's in light of Fish, Batterham and Old UGC or for that matter to finally express an opinion about that judgment or the judgment of the Full Bench in Wirraway in that respect. For reasons we shall later give, we consider the judgment in McDonald's may be distinguished from the present case and that the Dealership Agreements meet the requirements of s 106(1) as considered in Fish, Batterham and Old UGC.

Work Performed

157 Having regard to the test expounded in Fish the first question that needs to be considered is whether the second and third respondents performed work in an industry.

158 The respondents submitted that the work the Dealerships performed was the selling, promoting and marketing of Caterpillar products into the market and providing warranty parts and general service to those products. They contended that the evidence showed that the second and third respondents played a managerial role in the Dealership. The respondents contended that there had been no doubt in the first instance proceedings that the second and third respondents were "all over the business", and that they ran it all the time as owners and operators who were elaborately involved. Their involvement in the performance of work as critical members of the Dealership was elaborate and comprehensive.

159 The respondents noted that the proceedings so far had advanced on the basis that the performance of work was "a given". Senior counsel for the respondents essentially maintained that the second and third respondents worked on a full-time basis managing the Dealership across New South Wales. In this sense, they were managers of work and participators in work, the work being the sale and service of Caterpillar products.

160 It was the contention of senior counsel for the appellants that the second and third respondents did not perform work, in addition to the later argument that work was not required of them by the Dealership Agreements. It was submitted that they had not performed the work required to give effect to the Dealership Agreements. They had not sold and serviced mining equipment. The appellants contended that they did not spend their working days as salesmen or as mechanics which was the work that had to be done to give effect to the primary purpose of this agreement. In so far as the contract involved the selling or product, this was done by well qualified salesmen and the servicing of products was undertaken by well qualified mechanics. There was never any suggestion, it was submitted, that neither the second or third respondents fitted into either of those categories neither the second nor the third respondent ever professed himself to be a salesman, let alone a qualified salesman or mechanic.

161 Senior counsel for the appellants also contended that there was no obligation on the second and third respondents to be anything other than investors. Elements of the appeal broached the major arguments in McDonald's (detached managers, not actually performing work in an industry as required by contract) and fundamental to this were the depictions of the second and third respondents not as hands-on directors but as Principals for the dealer above and detached from a large workforce. In this sense the work performed by the second and third respondents was extraneous and not required when compared to actual selling and servicing of their workforce. The appellants contended that the work performed in an industry was that performed by the employees of the corporate respondent.

162 Boland J made findings of performance of work in his description of the second respondent in Gough & Gilmour (No 11), as follows [119] to [124]:

119 If there is a central character in these proceedings it has to be Harcourt David Gough. It is essentially through his drive, intelligence and business acumen that the first applicant is the multi-million dollar business it is today. It is also the case that Mr Gough is the main reason why the respondents have sought to cancel the Gough & Gilmour dealership. The quintessential reason for seeking to cancel the dealership was not the dealership’s performance, investment or profitability but rather Mr Gough’s attitude and personality. Both Mr Ramseyer and Mr Nitto made it very clear in their evidence that the termination of the dealership was not based on poor performance or lack of investment and nor could it have been. I will need to return to this issue, but as Mr Ramseyer agreed in his evidence, the termination of the dealership “was all about Mr Gough’s personality”.

120 Mr Gough was variously described as “control-oriented”, “combative”, “very confrontational”, “a very difficult individual to deal with”, “authoritarian approach to management”, “authoritative, direct and challenging”, “win at any cost mentality”, “very aggressive”, “a person who hates to lose”, “hard headed”, “a person who doesn’t much like criticism”. On the other hand, Mr Gough was described as a “likeable, personable man”, “engaging”, “superb with customers”.

121 The respondents made a strong attack on Mr Gough’s credibility as a witness, describing him as “a most unsatisfactory and unreliable witness”. There were indeed, a number of unsatisfactory aspects of Mr Gough’s evidence and I will deal with those as they arise in this judgment. It must be said, however, that a number of the respondents’ witnesses were also unsatisfactory when it comes to their credit.

122 Mr Gough was born and grew up in New Zealand where his family had been involved in a Caterpillar dealership since 1932 (Gough, Gough & Hamer). He graduated from Canterbury University in Christchurch, New Zealand in 1969 with a Bachelor of Engineering in civil and structural engineering. He then travelled to the United Kingdom where he worked for two years as an engineer. Mr Gough became Managing Director of Gough, Gough & Hamer in 1979. However, following a family dispute, he resigned that position and in 1986 left New Zealand.

123 It was asserted by Mr Nitto in some correspondence to the second respondent’s head office in Peoria, Illinois that the reason why Mr Gough was forced to leave New Zealand was because his operational skills were judged a touch too sharp. There was no foundation whatsoever for such an accusation, merely rumour and innuendo. I will deal with this in more detail later in this judgment.

124 The evidence, however, leads one to the inevitable conclusion that Mr Gough’s confrontational disposition, his treatment of Caterpillar employees such as the successive district managers, and his dealings with Caterpillar of Australia over a number of years severely strained the dealer-principal relationship and the trust and confidence underpinning it. Nevertheless, the question remains as to whether, in all the circumstances and despite Mr Gough’s conduct, the respondents’ treatment of the applicants in ultimately terminating the dealership was unfair, harsh or unconscionable within the meaning of ss 105 and 106 of the Act.

163 Boland J also made findings vis-a-vis the performance of work as per the third respondent at [125] to [129]:

125 Anthony Lansley Gilmour, the third applicant, owns 10 per cent of the issued share capital in the first applicant. Mr Gilmour has an extensive background in Caterpillar dealerships, having worked in one or another all of his professional life. Mr Gilmour is a qualified civil engineer, having graduated from the University of NSW with a Bachelor of Engineering in 1972.

126 Mr Gilmour’s current position within the first applicant is marketing director. He is responsible for devising and implementing strategies to develop the first applicant’s market share and margin for all its products, namely, new and used machines, parts and service. Also, as a director of the first applicant he is involved in all facets of the business, such as finance and industrial relations.

127 Mr Gilmour worked for Waugh & Josephson for 12 years prior to taking a position in 1984 as products support manager with Gough, Gough & Hamer in New Zealand where he met Mr Gough. In 1986 Mr Gilmour was promoted to the position of general manager, marketing. In 1988 Mr Gilmour joined with Mr Gough in bidding for the Waugh & Josephson dealership.

128 Mr Gilmour presented as a loyal, conscientious, well-regarded and effective representative of the first applicant. There was no suggestion that his personality, attitude or performance figured significantly in the decision by the respondents to terminate the dealership. Indeed, when Caterpillar of Australia initially approached Mr Gough to sell his shares in the dealership no similar approach was made to Mr Gilmour. However, the respondents did not consider as an alternative to requiring Mr Gough to sell his interests that Mr Gilmour could take over the running of the dealership and retain his interest in it. It appears this was mainly because of their concern that Mr Gilmour would be overborne by Mr Gough's dominating personality notwithstanding that Mr Gough might have "stepped back" from the day to day management of the dealership. Ultimately, Mr Gilmour was placed in the same position as Mr Gough in so far as selling his shares was concerned.

129 I consider that Mr Gilmour was heavily influenced by Mr Gough, understandably so because Mr Gough held 90 per cent of the shares compared to Mr Gilmour’s 10 per cent, but also because of Mr Gough’s dominating personality.

164 Various findings in Gough & Gilmour (No 11) and the first instance judgment relate directly to the jurisdictional question as to whether work was performed in an industry by the second and third respondents. Although Boland J did not approach the analysis in the form of two sequential questions as this Court intends to, those decisions, nonetheless, addressed and resolved elements of those aspects of the jurisdictional question. See Gough & Gilmour (No 11) at [65], [66] and [71], as follows:

65 ... The agreements require the applicants to set up a business in a certain way; they require the principals of the dealership to use their qualifications and abilities to achieve the primary purpose of the Agreements, for example, the development and promotion of the sale of products; they directly require the applicants to employ personnel to perform work in the business – the business could not operate unless relatively large numbers of personnel were employed to perform work for the business. Whilst the dealership does not operate under the business name of Caterpillar, the dealership is synonymous with that name. The dealership, through its employees, is required to develop and execute promotion and market development programs to support the sale of Caterpillar products and to solicit orders for Caterpillar products.

66 ... Moreover, the performance of work is not merely a remote consequence of the agreements but a necessary requirement that, in the absence of the performance of such work, would render the agreements meaningless.

71 ... The applicants are natural persons and a corporate entity conducting a sales and service business on land at a location determined by Caterpillar and required by Caterpillar to be suitable for the purpose, and selling Caterpillar equipment purchased from Caterpillar. The applicants, or their employees, work in the business both in consequence of the agreements and in fulfilment of them. The form of the agreement requires the applicants to perform work in the sales and service industry either personally or through employees and therefore it leads directly to the performance of work in that industry. Caterpillar has a real interest in the performance of that work. It results in the sale of Caterpillar products purchased from Caterpillar and tends to maintain and improve the value of its general goodwill.

165 See also the first instance judgment at [59]:

[T]he second and third applicants, as dealer principals under the Dealership Agreements, were, inter alia, required to actively participate in the management of the business of the first applicant (see, for example, clause 2(c) of the Sales and Service Agreement; clause 2(c) of the Product Support Agreement; clause 2(c) of the Distribution Agreement). Moreover, as the applicants submitted, the second respondent’s decision to terminate the agreements was based on its dissatisfaction with the work relationship between the first respondent and the second applicant in particular (because he was, amongst other things, too independent and not prepared to perform as a dealer in a manner that was to the first respondent’s “satisfaction”).

166 We set out earlier at para [62] the findings of the trial judge in Gough & Gilmour (No 11) as summarised in the first instance judgment, at [45]. It is appropriate in summary form to now isolate the findings from Gough & Gilmour (No 11) and the first instance judgment which bear specifically on whether the second and third respondents performed work in an industry. They are:

a) the second and third respondents performed work in the sales and service industry either personally or through employees;

b) that the second and third respondents actively participated in the management of the business of the first respondent;

c) the nature of the breakdown of the relationship between the parties indicated that the second and third respondents had been performing work in the management of the first respondent.

167 Having carefully reviewed the evidence at first instance we conclude that these findings were reasonably open to his Honour.

168 In addition to relying on such findings, the respondents made submissions that additional findings were available as to the performance of work by the second and third respondents based on the evidence at first instance. We consider that much of those contentions were made out and we propose to summarise later those that we have accepted for the purposes of the appeal.

169 In our view, that these were arrangements where a company was involved does not obscure or detract from the plain fact that the second and third respondents performed work. The first appellant operated through its Dealers (the first respondent). True it is, the second and third respondents were Dealer Principals and Managing Directors of the Dealer, but they performed work in a managerial capacity and at a practical level. Work was therefore performed within a corporate structure.

170 The second and third respondents were not distant directors running the dealership solely through and by their employees but were actively involved in work at a number of different levels. They were not only Dealer Principals and Managers but also workers who were full-time "hands on" pivotal workers in the business on a day to day basis. Mr Gilmour, for instance, was the manager and operated as such as head of the sales team. Within the corporate arrangements it was inescapable that the second and third respondents were managers of work whose role was to perform work.

171 It is evident that the Dealership would not have functioned without the management of the second and third respondents. Because of them employees were hired, places of business were maintained and sales were made. It is acknowledged that they performed some work themselves, and employed appropriate staff to do other work. But this does not preclude the finding that work occurred in the relevant sense.

172 Several witnesses at first instance, suggested that work was performed by the second and third respondents in their relationship with the appellants. In cross-examination the second respondent revealed he had performed work by dealing with Caterpillar prime products, and other products. He worked with Caterpillar as part of a team. The third respondent also gave evidence that confirmed he had performed work in the sales and service industry under the Dealership Agreements for Caterpillar. The evidence of Mr Coonan, a former Caterpillar Vice-President, also indicated that the nature of the relationship was such that work was performed by Dealer Principals.

173 Other evidence contributed to the understanding of the work performed by the second and third respondents. The article written by Mr Donald Fittes entitled "Make Your Dealers your Partners" which was sent and commended to the second respondent on 2 April 1996 by Mr Nitto of Caterpillar of Australia with a note attached, was described by Mr Nitto as a compelling description of the partnership. The article described the nature of the Dealer relationship and essentially indicated that marketing, sales and promotions were done through the dealer, and the success of Caterpillar depended very much on the quality of work done by the Dealers.

174 Other exhibits reinforced the findings of Boland J regarding the nature of the relationship. One such exhibit was Mr Nitto's email dated 20 October 1997 to Kevin Barrett, Caterpillar's regional manager, which appeared to suggest that the way the second and third respondents were performing work was not consistent with the intentions of Caterpillar. That exhibit confirmed the first instance findings that work was required (and performed) and that there existed an expectation that it would be performed in a certain way consistent with the contractual obligations of the Dealership Agreements. The respondents used this exhibit to demonstrate how the relationship was different to a mere vendor/purchaser situation. The letter said:

I think it provides the framework for why our strategy with them has to be along the lines that they either become part of the team as partners or we look for other partners.

They keep telling us it's their business but in reality, it's Caterpillar's business, it's their geography. If they can't successfully get out business in their geography, then we need to find people who are capable long term.

175 Evidence relating to the creation of the Dealership Agreements suggested that it had been envisaged by the first appellants that the second and third respondents would perform work and that work was sought after and specialised. The skills and qualifications of the second and third respondents were considered to be essential attributes that could be put to use by the first appellants. The evidence demonstrated that performance of work was envisaged because it was factors such as qualifications, experience and willingness to spend time working in the Dealership, which were the valued attributes which led to the second and third respondents being awarded the Dealership. The evidence also revealed that it was not expected that the second and third respondents would merely invest and stand back but that they would be actively involved as dealer principals and apply the skills for which they had been awarded the Dealership.

176 The 1988 Dealership prospectus which was sent to the second and third respondents contained information consistent with the expectation that work would be performed by the second and third respondents as Dealer Principals. Significantly it suggested that work was to be performed because the relationship between the parties was to be more involved than that of a mere commercial investor relationship. The Prospectus had said:

In entering into a Dealership Agreement with Caterpillar, it is agreed that the principal signers will continue in the active management of the Dealership, and will continue to own a controlling financial interest in the Dealership

177 A facsimile dated 18 November 1988 from Matt Tong, the finance director of Caterpillar Australia Ltd, to Bob Frantz of Caterpillar Inc in America regarding the change of Dealer described the second and third respondents in the following terms. It said:

[W]e believe the management skill and marketing effectiveness of this team is superior to the other candidates.

178 An interoffice memo from T N Thorstenson to D F Coonan dated 18 November 1988, recommended that the second and third respondents take on the Dealership and described them in terms which reflected an expectation that the managerial skills exhibited were required to be used when the second and third respondents became Dealer Principals. Their experience and operational skills were considered essential by Caterpillar because they would be applied when they took on the Dealership, the memo included the following:

[E]ach are private, user oriented, experienced in our business and in the territories in question. In each we saw and talked with the people who will own and operate the dealership. Stability and tenure is spoken in terms of "forever".

179 The respective skills and accomplishments of the second and third respondents were also described in the memo which contained the following recommendation which showed that the respondents clearly envisaged those skills being prospectively applied in the Dealership situation:

We recommend the team of Harcourt Gough and Tony Gilmour as the new Dealer for the service territory now covered by Waugh & Josephson.

...

Harcourt was dealer principal at Gough, Gough and Hamer until the family had a falling out. Tony Gilmour worked for Waugh and Josephson early in his career but was recruited by Harcourt to join GG&H as Marketing manager (his current position). They complement each other. Harcourt is the financial planner, Tony is an exceptional user oriented marketer with an unequalled knowledge of the New South Wales Territory and what needs to happen for significant improvement to occur.

...

They offer private ownership, experience, extremely strong desire, strong user orientation, two full time dedicated owners, knowledge of the territory, complementary skills -- financial/people.

...

Weaknesses are funding, some history of Harcourt's past hardheadedness. He feels he has matured -- indications are he has. Any real risk is offset by Gilmour's makeup and their track record or successfully working together.

This team will build a good dealership in New South Wales and cause significant improvement from day one.

180 On the basis of the foregoing it was open for Boland J to determine that the second and third respondents performed work in an industry in the sense contemplated in Fish. We therefore conclude that work was performed by the second and third respondents consistent with the jurisdictional tests stated in Fish.

Were the Dealership Agreements contracts whereby the foregoing work was performed?

181 Given that work of the requisite kind was performed, the Court is then required to determine whether the Dealership Agreements were agreements whereby work was performed by the second and third respondents to satisfy the second jurisdictional requirement of s 106(1).

182 The introduction of this judgment provides a summary of the Dealership Agreements. The Sales and Service Agreement reflected the primary terms of the Agreements there being a high level of similarity in the three documents. There are two other agreements, the Distribution Agreement for Enquiries, Parts and Service and the Product Support Agreement for Enquiries, Parts and Service which deal with different types of equipment and have terms which are primarily reflected in the Sales and Service Agreement.

183 We note that the trial judge had characterised the relationship as close and interrelated to create a prism with which to view the Dealership Agreements. We do not propose to rule on whether it was appropriate to characterise the relationship before determining whether the contracts on which it is based fall within jurisdiction. The test in Fish only requires that for the Dealership Agreements to be within jurisdiction that they be contracts whereby work is performed in an industry. For this reason our analysis of the Dealership Agreements relies solely on the test set out in Fish, that is, we only seek to identify whether the Dealership Agreements are arrangements whereby the second and third respondents have performed work in an industry after having identified that the work was performed.

184 Given that the performance of work by the second and third respondents was established (as considered) above, the next question is whether the work that was performed in an industry was performed in accordance with the Dealership Agreements.

185 The trial judge determined that work was performed by the respondents in accordance with the Dealership Agreements. He found that they were contracts or arrangements, in consequence of which, or in fulfilment of which, work was performed. The relevant clauses of the Sales and Service Agreement relied on were:

Clause 2(a), Clause 2(c), Clause 4, Clause 5, Clause 6(a), Clause 6(b), Clause 6(c), Clause 8(a), Clause 8(b), Clause 10, Clause 11, Clause 24, 25, 26 and Clause 27.

186 We consider that the Dealership Agreements were contracts whereby the second and third respondents performed work in an industry because clause 2(c) of the Sales and Service Agreement stated that the qualifications and abilities of the Dealer Principals, named in exhibit A as the second and third respondents, were relied upon to achieve the Dealership Agreements' primary purpose of effective sales and service. The Dealership Agreements also required the Dealer Principals to actively manage the Dealer. That being so, it was open to determine that the requirements of the Dealer within the agreement to perform obligations such as make sales, employ employees, promote, maintain equipment and maintain adequate locations etc, by their terms required the second and third respondents to apply their qualifications and skills to those tasks which would achieve the primary purpose of the Dealership Agreements. They were to achieve those tasks by their active management of the Dealer. The work performed by the second and third respondents conformed with the intention of the parties to the contract so expressed.

187 The requirements set out in clause 2(c) were active requirements. On the facts found it has been shown that it was not practically open to the second and third respondents to cease managing or to transfer management of the Dealer to another party or to be mere investors. It was never open to them to cease applying their qualifications, skills and work to achieving the primary purpose of the Dealership Agreement.

188 While the Court can determine that by their bare terms the agreements require the performance of work, earlier decisions in this matter have indicated that the Dealership Agreements do not provide a complete picture of the actual work relationship between the appellants and respondents. To the extent that the Court can in determining the jurisdictional question go beyond the requirements of the bare terms of the Dealership Agreements, it is important to note that the conclusions of Boland J were that the work relationship between the first appellant and second and third respondents was close and interrelated and that the Company structure was a conduit by which the second and third respondents performed work for the first appellant. The direct requirement to manage in clause 2(c) in bare terms reflected the broader reality of the Dealership Agreements, was open on the facts. It was an inherent understanding of both parties in engaging in the Dealership Agreements that the second and third respondents would perform work as Managers of the Dealer (their own company), and apply their qualifications and abilities to the task. This was the expected state of affairs on which the agreements were based and proceeded. Failure to exercise that managerial capacity would render the work of the Dealer meaningless or ineffective. That work was required. It was not an after-thought or extraneous. That was the context in which the contracts were made and the basis for the characterisation of interdependence and closeness. It follows that the Dealership Agreements were contracts whereby the second and third respondents performed work in an industry. As an overview, that analysis is expressed below by application of the question to the provisions of the Sales and Service Agreement:

(a) The second and third respondents were involved in the development and promotion of sales. They were involved in the development and promotion of sales in their capacity as Dealer Principals of the Dealer.

That work was performed in accordance with Clause 2(a) of the Sales and Service Agreement which required that the Dealer be primarily responsible for developing and promoting the sale to customers and potential customers.

(b) The second and third respondents actively managed the Dealer as Dealer Principals. They were pivotal, "hands-on" workers who did the prescribed work in their managerial capacity.

That work was done in accordance with Clause 2(c) of the Sales and Service Agreement. Senior counsel for the appellants had contended this provision only required that the second and third respondents manage or invest, that is, management by them was not required by the Dealership Agreements. However we disagree with that contention and consider that it was established that the actual expectation of the agreement was active management and that mere investment was never a feasible alternative. The respondents required approval to change management positions and in reality the provision required the second and third respondents to exercise managerial capacity.

The true operation of the provision is best expressed in the terms of the revised Product Support Agreement for Enquiries, Parts and Service which has slightly different wording to the Sales and Service Agreement. Clause 2(c) of that Agreement states:

Company relies upon the investments, qualifications and abilities of the particular individual(s) named as principal(s) in Exhibit A to achieve such primary purpose. No substantial change shall be made in the management positions, ownership or voting control of such principals without the prior written approval of the company.

(c) The respondents because of their managerial role and as Dealer Principals of the Dealer maintained suitable places of business. That work was done in accordance with Clause 4 of the Dealership Agreements.

(d) The second and third respondents employed an adequate number of qualified salesmen to solicit orders for products, demonstrated and exhibited products, and employed an adequate number of parts and service personnel to service the needs of the territory. It appears that they employed so few staff at some stages that this was the cause of some consternation to Caterpillar.

The second and third respondents as Dealer Principals performed this work in accordance with Clause 5 of the Sales and Service Agreements.

(e) The rendering of prompt, competent, diagnostic and mechanical services was required work of the second and third respondents in their capacity of managers. It was established that the respondents managed the dealer in a 'hands-on' manner and ensured servicing took place. It has not been established whether they performed this work personally. The second and third respondents did that work in accordance with Clause 6(a).

(f) Under the active management of the second and third respondents the rendering or provision of delivery or inspection service and warranty service was done. This provision is read broadly so that the second and third respondents in their capacity as hands on managers of the first respondent did under Clause 6(b) perform the work needed to ensure the above work happened.

(g) The Dealer employed an adequate number of experienced and competent men, maintained adequate supplies of replacements and provided adequate field and shop service facilities to perform all the required services. Under the management of the second and third respondents' employees were hired and work was performed. They managed the work actively and at times performed it. At all times they performed work as managers of the Dealer, being Dealer Principals.

The second and third respondents performed this work in accordance with clause 6(c).

(h) the development and execution of market development programs was the relevant work.

As far as it can be established, the second and third respondents in their capacity as managers did develop and execute promotion and market development programs in accordance with Clause 8(b).

189 We note that the Distribution Agreement for Engines, Parts and Service and the Product Support Agreement for Engines, Parts and Service were in similar terms (see clauses 2(a), 4, 5(a) to 5(d), 6(a) to 6(h), 8(b), 11(b), 24 and 25 of the Distribution Agreement and clauses 2(a), 4, 5(a) to 5(c), 8(a), 9(b)(ii) and 10(a) of the Product Support Agreement). For the reasons expressed above, we consider these also to be contracts whereby work was performed in an industry.

The judgment in McDonald's

190 Having found that the Dealership Agreements are within the jurisdiction of s 106(1) in light of the approach set out in Fish, Batterham and Old UGC, it is now necessary to address the decision in McDonald's which was the basis for much of the appellants' contentions that the Dealership Agreements were not contracts whereby the second and third respondents performed work in an industry because they were commercial contracts.

191 In his discussion of the decision in McDonald's, senior counsel for the appellants began with the analogy of a restaurant-diner relationship and said that was not a contract where work was performed in an industry. He gave another example of where a proprietor of land engages a contractor to complete an office building, and dismissed the idea that this would create arrangements between the proprietor and the contractor, architects and sub-contractors which would fall within s 106. The appellants noted that whether the contract was one where a person worked in an industry was a matter of degree.

192 Senior counsel for the appellants contended that the decision in Fish did not involve an implied overruling of the decision in McDonald's. In the case of McDonald's he noted that the work was required of Mr McLaughlin's company, which was called McLaughlin's Family Restaurants Pty Limited, and it was work of that company and its employees which was required. The appellants noted that that work was not to be performed by Mr McLaughlin; he did not perform the tasks envisaged by the agreement. In that respect, Mr McLaughlin's function was entirely separate from the functions of the employees of his Company.

193 It was contended that the same circumstances existed with respect to the first, second and third respondents, the work required by the contract between Caterpillar and the first respondent was the work of selling Bulldozers and other heavy equipment and servicing them. The appellants argued that this work was performed by the seven hundred employees of Gough & Gilmour. Those employees were under contracts whereby work was performed in an industry. The case for the respondents, it was submitted, was not sustainable, because it relied upon the Court being able to find that two individuals, the second and third respondents, were bound to perform work in an industry, the work being of an unspecified character managing the affairs of Gough & Gilmour.

194 Thus, senior counsel for the appellants contended that the second and third respondents were in a similar situation to that of Mr McLaughlin in McDonald's: they were involved in large enterprises with many employees and could not possibly be within the jurisdiction of the Industrial Court because the contract did not require them to perform work in an industry. Especially indicative of the contract not being one where work was performed in an industry, it was submitted, was the absence of clauses which had a recognisable and direct impact on the working conditions and remuneration of the proprietors.

195 Senior counsel for the appellants argued that the decision in Wirraway represented an appropriate demarcation line for a commercial-industrial distinction. That a truly working proprietor performing tasks among the general staff in a smaller organisation was typically within s 106 while a detached proprietor in a larger organisation with many locations was not. In this sense the former proprietor was more integrated in the performance of work.

196 In McDonald's, the majority in the Court of Appeal, acknowledged that the factual variables leading to a determination of jurisdiction under s 106 of the Industrial Relations Act vary by fact and degree. In our view, despite similarities in terms of actual business size and number of employees the current matter is factually different to McDonald's and more akin to circumstances considered in Wirraway, and therefore distinguishable. This distinction occurs because, in McDonald's, the proprietor was not specifically required to work in a relevant sense and did not in fact work in the way the second and third respondents worked in this matter. Factors such as the size of the business, the quantity of employees and franchises etc can never in our view be determinative of the question of jurisdiction but contribute to the assessment of the tests laid down in Fish. On this basis, McDonald's may be seen to be consistent with Fish and the questions regarding jurisdiction discussed in that decision, namely whether work was performed in accordance with the requisite contract. This matter is rather different because the work of the proprietors is specifically required and there is no real ambiguity about that conclusion. That is sufficient, in our view, to distinguish this decision from McDonald's.

197 As we have found, the second and third respondents were clearly engaged in the performance of work in accordance with the Dealership Agreements. It has been demonstrated that the managerial skills and qualifications of the second and third respondents were essential to the enterprise and it was expected that they would be elaborately involved in work. We do not consider that the appellants can maintain that the respondents' skills or work were not required, because the second and third respondents themselves worked in an industry and were required to work in an industry as managers of the Dealer.

198 This conclusion is consistent with the approach of the Full Bench in Wirraway with which we agree. We refer in particular to paragraphs [36] and [46] of that judgment where it was held:

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.

...

46 ... 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.

199 We propose to briefly address the respondents' submission that McDonald's must be confined to its own facts or treated as overruled in light of the judgment of the High Court in Fish. As earlier mentioned it appears to us that the question only arises if McDonald's is to be treated as authority for the proposition that factors such as the number of employees or outlets per se involved in an arrangement must be determinative of jurisdiction if they reach a requisite size (whatever that may be).

200 If we were required to consider the matter in that way we consider the correct approach is that stated by the Full Bench in Wirraway (at [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 s 106 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.

201 The judgement in Fish provides a relatively prescriptive approach to establishing jurisdiction under s 106 and of course the decision in McDonald's was not considered in Fish.

202 As we have noted the appellants contend that the decision in McDonald's effectively places working proprietors with sufficient workforces out of jurisdiction because the agreements under which they operate their businesses reach a point where the arrangement becomes a commercial arrangement rather than one whereby a person works in an industry. The desire to construct such a dichotomy between the industrial worker and the commercial manager or "boss" is understandable. However, there is no basis for the distinction under the Industrial Relations Act in situations where the commercial operator is also a worker (applying that notion broadly - for example, where a proprietor is specifically required to manage a company in accordance with a contract) under a contract whereby work is performed in an industry.

203 The provisions of the Industrial Relations Act dictate that a contract whereby work is performed in an industry is within the ambit of s 106. The decision in Fish stresses that jurisdictional fact. It follows that a determination that a contract is outside jurisdiction, to be consistent with the current state of the law, can only be made on the basis that contract was not one whereby a person performed work in an industry.

204 The basis for the determination cannot be that the arrangement was a commercial arrangement characterised for the most part because the company had a great number of employees. To accept Handley JA’s decision on that basis, essentially on the proviso that the existence of a commercial-industrial dichotomy puts an arrangement beyond jurisdiction is not warranted because the decision in Fish has determined that where the jurisdictional facts are established that the relevant contract will be within the jurisdiction of s 106.

205 It is plain that s 106 is intended to be construed broadly. There is no basis to create a commercial and industrial dichotomy using as blunt an instrument as workforce numbers or the like, in order to characterise agreements as inside or outside jurisdiction. If there is to be such a conceptual dichotomy it must be based on a basis consistent with the stated provision itself, namely whether the contract is one whereby work is performed in an industry.

206 However, as we have stated, the better view is that the decisions of Fish and McDonald’s may be reconciled on the basis that the commercial-industrial dichotomy is held to arise only on the application of the test in Fish. Those factors in McDonald’s such as size of business, staff levels etc, are relevant to and will inform the making of a determination of jurisdiction, but they are not in themselves determinative. Whether the necessary jurisdictional facts exist, as set out in Fish, are the only determinative factors ultimately involved in establishing jurisdiction. In this matter by the application of the approach in Fish, it has been established that the second and third respondents performed work in an industry in a managerial capacity and in other ways and that work was required by the Dealership Agreements.

207 The Dealership Agreements are within the jurisdiction of s 106(1) of the Industrial Relations Act, and to the extent that the judgment under appeal is challenged in that respect, the appeal should be dismissed.

Whether the Fourth Assurance and the Last Resort Policy fall within the jurisdiction of the Court under s 106 of the Industrial Relations Act

208 In our consideration of this issue, we shall proceed upon the premise that the Fourth Assurance and the Last Resort Policy do not of themselves constitute contracts whereby a person performs work in an industry in accordance with s 106. Further, we have not based our decision on the premise that the Fourth Assurance and the Last Resort Policy constitute components of an Overall Arrangement which may have otherwise brought them under s 106(1) (although there is plainly a proper basis upon which Boland J made findings in that respect).

209 Our analysis is, therefore, confined to the question of whether the Fourth Assurance and the Last Resort Policy are caught by the provisions of s 106(2A) of the Industrial Relations Act.

210 As previously observed we have reached an affirmative view in that respect and now develop our reasons.

211 The trial judge said in this respect in the first instance judgment, (at [78]):

[I]t is arguable that the Fourth Assurance and the Last Resort Policy may be characterised as related conditions or collateral arrangements for the purposes of s 106(2A); they were, together with the Dealership Agreements, part of an overall, interrelated, arrangement. Further, as the earlier discussion in this judgment reveals, the performance of work was a significant purpose of the contractual arrangements, that is, the Overall Arrangement as found to exist by the Court.

212 It is clear that the Fourth Assurance and the Last Resort Policy are contracts within the meaning of s 105 of the Industrial Relations Act as they are arrangements between the first appellant and the second and third respondents. As earlier observed, because the expression "contract" in s 106(2A) falls within s 106, the expression has the meaning given to it in s 105. As previously observed, s 105 does not limit the expression "contract" in s 106 to its common law meaning and it includes arrangements. The Fourth Assurance is an assurance by the first appellant to the second and third respondents that they would be assisted in attaining a fair price for their shares in the dealership. The Last Resort Policy is an assurance by the first appellant to the second and third respondents that the Dealership Agreements would be cancelled as a last resort. They are, therefore, relevantly arrangements falling with the definition of contract in s 105 of the Industrial Relations Act.

213 Given that the Dealership Agreements are contracts whereby a person performs work in an industry, it needs to be shown in order to satisfy the remaining requirement of s 106(2A)(a) that the Fourth Assurance and Last Resort Policy are related conditions or collateral arrangements to the Dealership Agreements.

214 We consider that this requirement has been met. The Fourth Assurance and the Last Resort Policy are collateral arrangements because they are plainly auxiliary and related agreements to the Dealership Agreements. The three agreements were between the same parties and they concerned aspects of the same overall work arrangement. This is consistent with the finding that they were contractual components operating alongside the Dealership Agreements in the "Overall Arrangement" in Gough & Gilmour (No 11). The Fourth Assurance and Last Resort Policy were supplementary arrangements to the Dealership Agreements because they concerned how the Dealership Agreements would be cancelled, and how the second and third respondents' shares in the Dealership would be sold. It is clear that the three contracts made up a series of interconnecting agreements, all of which for a proper and complete appraisal should be considered by the Court in light of s 106 as comprising a total package of work agreements. On this basis, considering the intent of s 106(2A) was to place arrangements of this kind within the Court's jurisdiction, the Fourth Assurance and the Last Resort Policy fulfil the requirement of s 106(2A)(a) and are collateral contracts related to a contract whereby work is performed in an industry.

215 In satisfaction of the second requirement, we consider the contractual arrangements made by the second and third respondents have the performance of work as their significant purpose. The Court agrees with the determination of the trial judge at [59] that the performance of work was a significant purpose of the "Overall Arrangement" made by the second and third respondents, of which the Dealership Agreements, Fourth Assurance and Last Resort Policy were components. On that basis, such a conclusion is also open when a comprehensive view is taken of the total package of contracts and arrangements made by the second and third respondents and if the Dealership Agreements are considered to be the dominant contracts they clearly had the performance of work as their overriding purpose. In addition, we consider it arguable that the performance of work was a significant purpose of both collateral arrangements because the Fourth Assurance sought to provide fair value in compensation for the performance of work by the second and third respondents, and the Last Resort Policy had as its purpose the intention of giving the respondents' security in the performance of work.

216 We conclude that the trial judge was correct in determining that the Fourth Assurance and the Last Resort Policy may be characterised as collateral contracts which fell within s 106(2A) of the Industrial Relations Act, and to that extent the appellants' challenge to the findings of the trial judge the appeal must fail.

Conclusion as to jurisdiction s 106(1) and s 106(2A)

217 Upon the principles for resolving strike out motions the appellants' appeal must fail because they have not demonstrated that the Dealership Agreement, the Fourth Assurance and the Last Resort Policy were outside jurisdiction. Their challenge to the judgment of Boland J in that respect must fail. On the basis of the determination above it is not possible at this interlocutory stage of the proceedings to find any jurisdictional basis for dismissing or permanently staying the proceedings. This aspect of the appeal is dismissed.

Whether the Court has jurisdiction or power to make the orders claimed by the Respondents for the payment of compensation under s 106(5) of the Industrial Relations Act

Submissions of the Parties

The Appellants' contentions

218 The appellants contended that the Court did not have jurisdiction or power to make the orders claimed by the respondents in Stage 2 of the proceedings, for monetary orders under s 106(5) of the Industrial Relations Act. They argued essentially that:

(a) A proper application of the recent decisions of the High Court and the Court of Appeal in McDonald's necessitated the conclusion that the Court had no jurisdiction to grant any relief to the respondents in Stage 2 of the proceedings, as the contracts or arrangement did not meet the requirements of s 106. There was a reiteration of the arguments by the appellants that the contracts or arrangements were not within jurisdiction of s 106 either by s 106(1) or s 106(2A).

(b) The monetary orders sought pursuant to contracts or arrangements established to be within jurisdiction under ss 106(1) and 106(2A) were required to bear the necessary close relationship with the performance of work in an industry and the monetary orders sought in the Sixth Further Amended Summons did not. The monetary relief sought by the respondents in Part D of the Sixth Further Amended Summons could not on any view be characterised as closely related to the performance of work in any industry for reasons which included:

Parts D1 and D2 claim compensatory orders for the alleged failure of the Appellants to comply with retrospective obligations imposed by the Court;

Part D3 is a claim for compensation for the lost opportunity of retaining the dealership which has no close relationship to the performance of any work pursuant to the Dealership Agreements; and

Part D4 is a claim for compensation for the lost opportunity to sell shares in the First Respondent. It is contended that the Second and Third Respondents lost, inter alia, the opportunity to receive substantial financial rewards by way of the premium/goodwill component in any agreed business sale price.

(c) Monetary Orders under s 106(5) of the Industrial Relations Act only provided for payments in the nature of restitution. Section 106(5) of the Act did not speak in terms of damages or compensation, let alone damages in the nature of expectation loss. Section 106(5) only authorised an order for the payment of money in the nature of restitution within the scope considered by the High Court in Brown v Rezitis [1970] HCA 56; (1970) 127 CLR 157 ("Brown") at 165, 170 per Barwick CJ. The claims for damages set out in Part D3 and D4 in the Sixth Further Amended Summons fell well beyond the limitations set out in Brown.

The Respondents' contentions

219 The respondents submitted that there was power to grant relief by way of money orders. The submissions of the respondents, for the most part, reflected the determinations of the trial judge. It was their contention that the effect of s 106(5) was that any monetary order could be made which was just in the circumstances in the case which followed any variation made, regardless of whether it was pursuant to s 106(1) or s 106(2A).

220 There was no requirement that a monetary order under s 106(5) needed to relate directly to the performance of work in an industry. The decision in Solution 6 that a variation must concern only work performed in an industry only affected s 106(1), not s 106(5): see first instance judgment at [73].

221 It followed that money orders pertaining to collateral agreements where jurisdiction was established under s 106(2A) (such as the Fourth Assurance and Last Resort Policy) were not required to be directly or closely related to the performance of work: see first instance judgment at [83].

222 The respondents contended that money orders under s 106(5) went beyond payments of restitution. In doing so, they relied on the decision in Westfield Holdings to argue that monetary orders could include payments such as compensation and those set out in the Sixth Further Amended Summons.

Consideration

223 It is appropriate at the outset of our consideration of this issue to place the challenge brought to the compensation order sought under s 106(5) in context. The first part of the challenges brought under the appeal do not raise issues concerning s 106(5). The appellants challenged Boland J's finding of jurisdiction under s 106(1) with respect to the "Overall Arrangement", the Dealership Agreements and the Last Resort Policy and Fourth Assurance respectively.

224 Further Boland J's findings of unfairness under s 106(2), were not challenged substantively by the appellant nor were they relevant to the above jurisdictional question. Boland J's variations under s 106(3) similarly were not the subject of substantive challenge in these proceedings.

225 Thus the appellants' challenge in these proceedings is in relation to the orders claimed by the respondents under s 106(5) in the Sixth Further Amended Summons and needs to be assessed in that light. There are essentially two issues raised by the appellants in relation to the money orders:

i) whether s 106(5) extends to making money orders with respect to contracts found to be unfair and which fall within the Commission's jurisdiction as a result of s 106(2A);

ii) whether money orders must be confined to restitutionary orders.

226 Boland J was correct to find against the appellants on the first issue and in doing so to apply the decision of Schmidt J in Kennett. That decision correctly outlines the Court's powers in relation to monetary orders made under s 106(5) where they concern variations made to arrangements which attract s 106(2A) and elucidates the legislative intentions of Parliament in this way:

113 Here, neither inconvenience nor improbability of result, suggests that the literal meaning of s 106(5) was not what the Parliament intended, particularly having in mind the amendment made with the introduction of s 106(2A).

114 The word 'contract' wherever used in s 106, is used in its defined sense, as provided in s 105 - that is 'any contract or arrangement, or any related condition or collateral arrangement, but does not include an industrial instrument... '. In its express terms, s 106(5) is concerned with money orders to be made by the Court 'in connection' with such contracts, which the Court has 'declared wholly or partly void, or varied'. The scheme of s 106 permits such money orders to be made in relation to both contracts under which work is performed (s 106(1)) and those which 'are a related condition or collateral arrangement' (s 106(2A)), so long as, in the latter case, the requirements of s 106(2A) are met and the Court has ordered their variation, or has declared them void.

115 In discerning legislative purpose in this case, it may not be overlooked that s 106(2A) was enacted to overcome the Court of Appeal's decision in Solution 6, which had the result of narrowing the broad construction of the section which had earlier viewed the Court as having jurisdiction to make both orders of avoidance and variation as to related conditions and collateral arrangements, as well as to make money orders in connection with such orders. That the High Court later agreed with the Court of Appeal's narrow approach to the construction of the section, does not take away from the Parliament's earlier decision to amend the section to overcome the approach which the Court of Appeal had adopted. I am satisfied that it did so in a particular and unambiguous way, which must now be given effect.

116 To adopt the narrow construction urged for the respondents would also be directly contrary to the ordinary canons of statutory construction, which require that in the case of ambiguity, beneficial legislation such as s 106 be construed 'so as to give the fullest relief which the fair meaning of its language will allow.' (See Bull v Attorney General (NSW) [1913] HCA 60; (1913) 17 CLR 370 at 384 and the discussion in Statutory Interpretation in Australia, 6th Ed, Pearce and Geddes at [9.2]).

117 In any event, as I have said, I am satisfied that there is no ambiguity and that nothing in the language of the section, as amended by the insertion of s 106(2A), would permit a proper reading of its terms to confine s 106(5), by excluding the making of money orders in respect of 'any contract declared wholly or partly void, or varied', pursuant to the express provision made for such orders in s 106(2A).

227 Section 106(5) therefore allows the respondents to claim the monetary orders as set out in D3, D4 and D5 of the Sixth Further Amended Summons because they concern monetary orders in relation to varied collateral contracts, being the Fourth Assurance and Last Resort Policy. We note that there is no requirement that the monetary orders relate to the performance of work in an industry.

228 It also follows that the monetary orders sought in D2 with respect to the appellants' failure to follow the improvement plan are within jurisdiction. That aspect of the monetary claims is permissible because the improvement plan is a variation of the Last Resort Policy and Fourth Assurance and monetary orders can be made in connection with any variation.

229 The second issue relates to the possible form the monetary orders may take. The primary contention of the appellants in this respect was that monetary orders needed to be restitutionary in nature. We reject this aspect of the appellants' challenge.

230 The trial judge was correct to find that the nature of monetary orders that may be made under s 106(5) are not so limited. In the first instance judgment the trial judge had (correctly in our view) relied on the decision in Westfield Holdings, where the Full Bench specifically addressed the basis upon which monetary relief might be granted under s 106(5) and in doing so had regard to Brown. After addressing at some length the decision of Barwick CJ the Full Bench stated at [98] to [102]:

98 So, the formulation by Barwick CJ as to the nature of the power to make money orders under s 88F(2) of the 1940 Act may be said to be, strictly speaking, obiter. However, the main point we wish to make about Brown v Rezitis is that in arriving at his formulation, the Chief Justice did so against the background of the facts of the case. He was required to focus on the question of restitution because of the order of Richards J that the appellants repay the $2,000 paid by the respondents for the contract, thus restoring "the aggrieved party to a situation which existed before the making of the contractual arrangement". Understandably then, the concept of restitution figured prominently in the Chief Justice's judgment. Given the other orders by Richards J requiring the appellants to pay the respondents for work done and expenses incurred, Barwick CJ was also required to address the question of making remedial provision for what had taken place or been done under the contract.

99 In these circumstances, given the particular facts of the case with which Barwick CJ was dealing, it could not be said that the formulation by the Chief Justice regarding the nature of the power to make money orders under s 106 is to be taken as the exclusive, or even the primary, test to be applied universally to all of the diverse circumstances that arise under s 106. Restitution has been said to be concerned with restoring or giving back something to its proper owner or making reparation for loss or injury previously inflicted. As the Full Industrial Court (Fisher CJ, Bauer and Hill JJ) observed in State of New South Wales v Health and Research Employees Association of New South Wales (unreported, 31 March 1993) (at 82): "... 'restitution' seems to involve a reversion to a position as if the contract had never been entered into."

100 In Harris v Dealing Information Systems Pty Ltd (unreported, Schmidt J, 11 December 1997) in considering the effect of Brown v Rezitis, her Honour rejected a submission that "all monetary orders under s 106(5) are to be understood as restitutionary, rather than compensatory in nature". Having regard to our analysis of Brown v Rezitis, we respectfully agree with her Honour.

101 Restitution may be an appropriate approach where a franchisee has paid money for a franchise and the contract has been found to be unfair. But restitution, as a basis for compensation, is rarely relevant to contracts of employment found to have operated unfairly.

102 We do not think that Brown v Rezitis mandates an approach to the assessment of compensation under s 106(5) on the basis that restitution in the sense referred to, is to be the fundamental guiding principle. Restitution so understood may be appropriate in particular cases, but the fundamental guiding principle is that which is stated in the statute itself, namely, what is just in the circumstances of the case.

231 It can be seen that the decisions in Westfield Holdings and David Jones are authorities which support the proposition that the scope for monetary orders under s 106(5) is not limited to restitutionary orders. Those decisions indicate that other types of monetary orders have been awarded by the court and are examples of where monetary orders have been in the form of compensation for lost opportunity. The trial judge sets out a consideration of this aspect of those decisions in the first instance judgment, as follows:

88 It is not unusual in the cases to find compensation having been awarded under s 106(5) for the loss of opportunity. In Westfield Ltd v Helprin (1998) 82 IR 411, for example, the Full Bench agreed with Marks J’s conclusion at first instance that Mr Helprin’s contract was unfair in that it did not require a counselling and warning process, including an opportunity for Mr Helprin to improve his performance, prior to the exercise of the right of termination. Both Marks J and the Full Bench considered it appropriate to vary the contract to incorporate a requirement that the respondent provide the applicant with a period in which to improve his performance. Thus, the variation to remedy the unfairness in Mr Helprin's case enabled the Court to make a consequential order awarding monetary compensation to reflect the respondent’s failure to provide the opportunity to the applicant to improve his performance. Another example is David Jones Ltd v Cukeric (1997) 78 IR 430 where, notwithstanding Mr Cukeric's employment had been terminated, the Full Bench varied the contract ab initio to provide that the employment was not to be terminated as a result of any restructuring without fair consideration first being given to Mr Cukeric's future position in any new structure. The Full Bench also concluded at 462 that:

[I]t would be just in the circumstances to make a monetary order in favour of Mr Cukeric in connection with the arrangement as varied by us. The Company is to pay to Mr Cukeric an amount of money (additional to that already paid) to reflect entitlements in respect of a further period of 6 months' notice of termination.

We see no error in his Honour's approach in that respect. On the basis of Westfield Holdings and David Jones it is open for the Court to determine that the respondents' claims for monetary orders in nature of compensation in D2, D3, D4 and D5 are not inconsistent with s 106(5).

232 It follows that it has been established that there is jurisdiction to make the orders claimed under s 106(5) because those orders do not need to be related to the performance of work. In addition the Court has the power to make monetary orders in the form the Court considers just in the circumstances of the case. The appeal in this respect must also fail. So too must the appeal overall.

Orders

233 The Full Bench makes the following orders:

(1) Leave to appeal is granted.

(2) The appeal is dismissed.

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LAST UPDATED:
21 February 2008