Harding v EIG Ansvar Ltd [2000] FCA 46

FEDERAL COURT OF AUSTRALIA

Harding v EIG Ansvar Ltd [2000] FCA 46

WORKPLACE RELATIONS – review of contract of employment – whether contract harsh or unfair – whether sufficient period of notice of termination of contract – where contract for services, made between insurance company and insurance agent. Workplace Relations Act 1996 s 127A, s 127B

Finch v Herald & Weekly Times Limited (1996) 65 IR 239 referred to Minister for Youth & Community Services v Health & Research Employees Association of Australia, NSW Branch (1987) 22 IR 59 distinguished PETER ALLAN HARDING v EIG ANSVAR LIMITED QG 135 of 1998 SPENDER J 20 JANUARY 2000 BRISBANE

IN THE FEDERAL COURT OF AUSTRALIA

QUEENSLAND DISTRICT REGISTRY QG 135 OF 1998

BETWEEN: PETER ALLAN HARDING

Applicant

AND: EIG ANSVAR LIMITED

Respondent

JUDGE: SPENDER J DATE OF ORDER: 20 JANUARY 2000

WHERE MADE: BRISBANE

THE COURT ORDERS THAT: The contract for services, made between the applicant and respondent, and dated 26 October 1998, be varied so that, upon termination of the contract, the insurer pay to the agent the sum of $5,000. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA

QUEENSLAND DISTRICT REGISTRY QG 135 OF 1998

BETWEEN: PETER ALLAN HARDING

Applicant

AND: EIG ANSVAR LIMITED

Respondent

JUDGE: SPENDER J

DATE: 20 JANUARY 2000

PLACE: BRISBANE

REASONS FOR JUDGMENT 1 In this application, Peter Allan Harding seeks review of a contract under s 127A of the Workplace Relations Act 1996 ("the Act"), and consequential orders under s 127B of the Act. The initial application was made on 26 October 1998 in relation to a contract for services as an insurance agent which Mr Harding entered into with Ansvar Australia Insurance Limited , subsequently renamed EIG Ansvar Limited ("Ansvar"). That contract is dated 11 February 1998. 2 Section 127A of the Act has as its heading "UNFAIR CONTRACTS WITH INDEPENDENT CONTRACTORS: COURT'S POWERS". Section 127A(2) provides: "127A(2) Application may be made to the Court to review a contract on either or both of the following grounds: (a) the contract is unfair; (b) the contract is harsh." 3 For the purposes of this section, "contract" is defined by s 127A(1) as meaning: "(a) a contract for services that: (i) is binding on an independent contractor; and (ii) relates to the performance of work by the independent contractor, other than work for the private and domestic purposes of the other party to the contract…" 4 Subsection 4 of s 127A provides: "127A(4) In reviewing the contract, the Court may have regard to: (a) the relative strength of the bargaining positions of the parties to the contract and, if applicable, any persons acting on behalf of the parties; and (b) whether any undue influence or pressure was exerted on, or any unfair tactics were used against, a party to the contract; and (d) whether the contract provides total remuneration that is, or is likely to be, less than that of an employee performing similar work; and (e) any other matter that the Court thinks relevant." 5 Subsection 5 provides: "127A(5) If the Court forms the opinion that a ground referred to in subsection (2) is established in relation to the whole or part of the contract, it must record its opinion, stating whether the opinion relates to the whole or a specified part of the contract." Subsection 6 provides: "127A(6) The Court may form the opinion that a ground referred to in subsection (2) is established in relation to the whole or part of the contract even if the ground was not canvassed in the application." 6 Finally, s 127B(1) provides: "127B(1) If the Court records an opinion under section 127A in relation to a contract, it may make one or more of the following orders in relation to the opinion: (a) an order setting aside the whole or part of the contract, as the case may be; (b) an order varying the contract. 7 Pursuant to s 127A(5), I have formed the opinion that the part of the contract, in this case, cl 15.1, that refers to a 30-day notice period, is unfair. 8 The matter was before me first for interim relief on 4 December 1998. In relation to that application for interim relief, Mr Harding had, in an affidavit, deposed that the basis for his application for interim relief was his belief that: "…the term in the contract allowing the Respondent to terminate on one month's notice is unfair and/or harsh because: (a) It enables the respondent to appropriate to itself my agency business without paying for it. (b) It prevents me from obtaining ongoing commission on renewals of policies. (c) It enables the Respondent to terminate the contract without cause. (d) I have been and continue to be a high performing Ansvar agent with many commendations from the Queensland State Manager of Ansvar." 9 On 4 December 1998, I declined the application for interim relief sought by Mr Harding. In the course of giving my reasons, I noted, at p 2: "The present application for interim relief places the court in somewhat of a quandary. That comes about because s 127A contemplates an application to review a presently subsisting contract on the grounds that it is unfair or harsh. At the moment the contract of services between Ansvar and Mr Harding is on foot, and it is competent for the court to make orders under s 127B in relation to it. The difficulty arises if, before this matter proceeds to final relief, the contract for services between Mr Harding and Ansvar comes to an end. It seems to me that the submissions on behalf of Ansvar that the application for interim relief ought be dismissed on the basis that damages will provide an adequate remedy in all the circumstances is an acknowledgment that, even if between now and when the matter comes to a final hearing the contract comes to an end, it is still competent for the court to make orders varying the contract, and to order Ansvar to pay to Mr Harding any sums which, in the court's opinion, ought to be paid pursuant to the contract so varied. It is acknowledged by Mr Stewart of counsel on behalf of Ansvar, at least implicitly in his submissions, that if the court were, on the ground advanced by Ansvar, to refuse the application for interim relief, the Court would have power to vary the contract, notwithstanding that the contract had been terminated at the time of the final hearing, and also, either pursuant to the Act or in the general jurisdiction of the Court associated with its jurisdiction under the Act, to make orders compensating Mr Harding in conformity with the contract as varied." I said at p 3 of my reasons: "The case has been conducted by Ansvar, and my decision in respect of interim relief has been substantially influenced by the stance of Ansvar that on the final hearing of the application it would be competent for the court to order to pay to Mr Harding any moneys properly due to him pursuant to the contract, as varied as the court thinks it should be." 10 Mr Harding, in an affidavit of 12 November 1998, indicated that he commenced working as an agent for Ansvar on 24 July 1996. He said: "The respondent has a practice of renewing the contract with its agents (and resetting commission rates) at the beginning of each calendar year. Pursuant to this practice, my agency was renewed in early 1997 and 1998." 11 It is the agency agreement executed on 11 February 1998 between Mr Harding and Ansvar which is the agreement that governs the relationship between Mr Harding and Ansvar and which is the subject of this application. In relation to that contract, the clauses presently relevant are cll 11.4, and 15.1 to 15.6. They are as follows: "11.4 The Agent shall not be entitled to commission fees or other amounts on any renewal or extra premium arising after the termination of this Agreement or if the insured writes to the Insurer directing that another intermediary is to act for the Insured. … 15.1 This Agreement shall continue until terminated by either of the parties giving to the other party thirty (30) day (sic) notice in writing of its intention. 15.2 This Agreement may be terminated upon a breach by the Agent of any of the terms of this Agreement provided that the Insurer gives the Agent written notice of its intention. 15.3 This Agreement can be terminated immediately by the Insurer giving written notice to the Agent if: (i) in the Insurer's opinion, the Agent, or any of its officers or employees has been guilty of malpractice or misconduct; (ii) a petition for winding up is presented against the Agent; (iii) the Agent makes an (sic) compromise arrangement with its creditors or commits an act of bankruptcy. 15.4 Upon termination of this Agreement the agency shall cease without prejudice to the rights of either party in connection with anything which occurred between them prior to the termination. 15.5 As soon as this Agreement is terminated the Agent shall immediately: (i) pay to the Insurer all monies received and owing to the Insurer; (ii) return (at the Agent's expense) all material supplied by the Insurer to the Agent. 15.6 As soon as practicable after the termination of this Agreement, an account for business outstanding as at the termination date shall be prepared, adjusted and settled by the parties." 12 In my reasons for declining to grant interim relief, I said: "Clause 11.4 is highly relevant to the question of whether the contract is harsh or unfair. It is competent for an agent to transfer to another agent entitlement to payment for renewals. This entitlement will not survive termination of the contract unless there has been a transfer prior to that termination by the operation of cl 11.4. In an affidavit of 24 November 1998, Mr Harding says - "… 3. The commission paid to me by Ansvar for the 12 month period from 1 July 1996 to 30 June 1997 was $2,224.81. 4. The commission paid to me by Ansvar for the 12 month period from 1 July 1997 to 30 June 1998 was $8,666.06, i e, a 290% increase on the previous year. 5. The commission paid to me by Ansvar for the 12 month period from 1 December 1997 to 30 November 1998 was $12,241.51. 6. For the period July to September 1998 inclusive the average monthly increase in commission from new business and endorsements, less cancellations, was $898. 7. The number of new Policies which I secured for the period January to October 1998 inclusive was 181. This compares with 96 new Policies secured during the same period in 1997 ie an 89% increase." 13 I have to say those figures seem inconsistent with the amounts contained in the report of Mr McNamara, which is directed to the quantification of Mr Harding's claim. 14 On the evidence before me, the value at which a portfolio may be transferred from one agent to another appears to be of the order of the current annual value of the commission being gained. 15 On 24 December, after my declining to grant interim relief, on the basis that damages would be an adequate remedy should the applicant succeed on the final hearing of his claim, an amended application was filed. That amended application sought that the agency agreement in question be varied by deleting cll 11.4 and 15 and replacing them with the following clauses: "11.4 The Agent shall not be entitled to commission fees or other amounts on any renewal or extra premium if the insured writes to the Insurer directing that another intermediary is to act for the insured, or arising after the termination of this Agreement unless the termination is made pursuant to Clause 15.2(b), in which case commissions on renewals of policies are to be paid as if the Agreement had not been terminated. 15.1 The Agent can terminate this Agreement by giving thirty (30) days notice to the Insurer in writing of Agent's intention. 15.2 The Insurer can terminate this Agreement by giving thirty (30) days notice to the Agent in writing of its intention if: (a) it is not economically viable for the Insurer to retain the Agency, or (b) if the Insurer terminates all agency agreements. 15.3 This Agreement can be terminated upon a breach by the Agent of any of the terms of this Agreement provided that the Insurer gives the Agent written notice of its intention, but if the breach can be remedied, the Insurer must first notify the Agent in writing and give thirty (30) days notice for the breach to be remedied to the Insurer's satisfaction. 15.4 This Agreement can be terminated summarily by the Insurer giving written notice to the Agent on the grounds that: (i) the Agent, or any of its officers or employees has committed serious malpractice or an act of serious misconduct. (ii) The Agent has made a compromise arrangement with its creditors or has committed an act of bankruptcy. provided that such notice may not be given unless and until the Insurer has given the Agent a proper opportunity to be heard in respect of the alleged basis for termination. 15.5 Upon termination of this Agreement the agency shall cease without prejudice to the rights of either in connection with anything which occurred between them prior to the termination. 15.5A As a result of the termination of the contract by notice taking effect on 4 December 1998, the Insurer pay to the Agent the sum of $350,000.00 being in full satisfaction of the agent's rights pursuant to Clause 11.4 of this agreement and in compensation to the agent for the breach on the part of the Insurer of Clauses 15.2, 15.3 and 15.4 of this agreement." 16 It is to be noted that the proposed variations to the contract make no provision for termination without cause on any notice at all. It seems to me plain that it should be competent for either party to terminate the agency agreement on reasonable notice, and the real question in this case is whether, in the particular circumstances of this contract at the time of its execution, the provision in cl 15.1 was harsh or unfair. 17 By the statement of claim filed on 24 December 1998, it was alleged that the agency agreement was unfair or harsh by reference to the following matters: "6. The unfairness and harshness of the contract is constituted inter alia by the following matters; (a) The contract allows for termination of an individual agency without cause on 30 days notice (cl 15.1); (b) The contract allows for termination for breach by the agent without allowing the Agent the opportunity to remedy the breach (cl 15.2); (c) The contract may be terminated for malpractice or misconduct in the insurer's opinion without the agent having a right to be heard and irrespective of the seriousness of the conduct (cl 15.3); (d) The agent is not entitled to any commission for business introduced by him or her after termination of the contract (cl 11.4); (e) The agency business contracted by an agent acquires a capital value, which upon termination of the agency agreement, is forfeited to the full and immediate advantage to the Respondent; (f) The business generated by the Applicant is of high order and was growing rapidly and the contract makes no provision for compensation to the Applicant; (g) The contract makes no provision for compensating the inevitable impact on the Applicant's professional reputation in the insurance industry and his future job prospects; (h) The contract was negotiated in a situation of an inequality of bargaining power." 18 I had, in declining interim relief, said: "I indicate briefly that in my opinion there is a serious question as to whether the contract between Mr Harding and Ansvar is unfair or harsh. In particular, it is arguable, and there is a serious question to be tried as to whether a period of 30 days' notice without cause is, in the circumstances of the insurance agency contract, unfair or harsh. That question seems to me to be plainly a serious question to be tried when one has particular regard to the circumstance that unless there is something in place in respect of entitlement to renewal premiums, on the termination of the contract the agent loses any such entitlement." 19 In the defence filed 22 January 1999, the conditions for the application of the relevant sections were admitted, in particular that the applicant is an independent contractor and the respondent is a constitutional corporation, in that it is a trading corporation formed within the limits of the Commonwealth, and was a party to the relevant agreement. 20 Ansvar's defence denied that the agency agreement was unfair or harsh. In particular, paragraph 3 of the defence pleaded that the respondent - "... does not admit that the agency business obtained by the applicant pursuant to the agency agreement acquired a capital value, which upon termination of the agency agreement became forfeited to the full and immediate advantage of the respondent." 21 Paragraph 5 of the defence pleaded: "Further or alternatively if the agency agreement is harsh or unfair, the respondent - … (b) says that all that would be required to place the agency agreement on such a footing would be to extend the duration of notice that must be given before the agency agreement may be terminated pursuant to clause 15.1 to three months." 22 The agency agreement initially was terminated as a result of a letter dated 19 October 1998 by Mr Seymour, the State Manager (Queensland) of Ansvar, to Mr Harding. That letter said: "Dear Peter Re: Ansvar Agency Agreement For some time we have been having discussions in relation to your Agency with various letters from you being quite critical of Ansvar. During our discussions at this mornings (sic) meeting between yourself, Sean Tunny and myself it became clear that it would be in the best interests of all concerned if your Agency Agreement with Ansvar was terminated. As discussed at our meeting we have been concerned for some time about your attitude to the company which is at odds with the Ansvar culture. You have been very forthright with your criticism of the company without trying to understand what Ansvar is setting out to achieve. Your marketing approach is in a different direction to where we wish to position Ansvar and this is demonstrated by your advertisement in the Christian Resources Trust. In relation to your advertising we believe that you have contravened Section 10 (1) of the Insurance (Agents and Brokers) Act 1984 and in addition you are not complying with Section 3.1 of the General Insurance Code of Practice. We are not aware that you are a registered Insurance Broker or that you have any other Agencies with other Insurance Companies. If you have relationships with Brokers or with other Insurance Companies would you please advise them that you no longer hold an Agency with Ansvar Australia Insurance Ltd. Would you please note that under clause 15.1 of the Agency Agreement between yourself and Ansvar Australia Insurance Ltd we provide you with 30 days notice of Termination of the Agreement from Tuesday 20 October 1998. On termination Mr Sean Tunny will visit you to pick up all documentation belonging to Ansvar." 23 Notwithstanding the complaints that are mentioned in the letter, it is plain that the respondent was relying on the provision in cl 15.1 of the agency agreement, and was not seeking to terminate the agency agreement on any other basis, in particular for misconduct. It is agreed between the parties that in fact the agency agreement came to an end pursuant to notice on 4 December 1998. 24 It is the unfortunate fact that the final hearing of this application was conducted by both sides as if the application was a claim for unfair dismissal. Much of the material canvassed in the course of the evidence on the final hearing was quite irrelevant to the question of whether the contractual arrangements were unfair or harsh, which are, after all, the only issues that fall to be determined on this application. 25 I ought to refer particularly to two matters. The first is the affidavit of Michael Francis McNamara, filed 24 December 1998. Mr McNamara is a registered tax agent and a practising accountant, and is the author of a report concerning the claimed economic loss suffered by Mr Harding as a result of his termination by Ansvar. In that report, Mr McNamara made the assumptions referred to there, namely, Peter Harding was employed by Australia Post on an annual salary of $45,000, and in July 1996, he accepted a voluntary redundancy, and it was his intention to attain the same level of income through alternative sources. It is said, under the heading "Facts", that Mr Harding secured an agency with Ansvar in July 1996. It is then said, under the heading "Level of income is as follows": Year Amount Extrapolated 96/97 2,225 (7 months) 3,814 97/98 8,663 8,663 98/99 5,616 (5 months) 13,479