[Full judgment available here]
Background to the case
In 2005, ABB Warehousing (NSW) Pty Ltd purchased an existing warehouse. They contracted the management of the warehouse to an existing employee of the warehouse who established a management company, Fabsert Pty Ltd. The director of Fabsert managed the warehouse and in 2007 was joined by another director. Faberst also employed labourers to unload and load containers. In August 2007, ABB terminated the contract with Fabsert. The only written terms of the contract were in an e-mail from ABB to Fabsert and did not include an agreement on termination of the contract. The parties argued over whether additional terms had been implied in the contract through discussions. The Court had to make an assessment about what really existed in the contract, based on claim and counter-claim by the parties.
The Decision
Fabsert took ABB to the Federal Magistrates Court seeking compensation under the unfair contract provisions of the Independent Contractors Act. The Court ruled that
- Fabsert was an independent contractor/s within the meaning of the Independent Contractors Act and could take an unfair contracts action. That is, as an owner-operator of a small corporation, the director was defined as an independent contractor under the Act.
- Given the facts, the contract had an implied requirement for notice of termination. Fabsert was award $36,000 on the grounds that ABB had not given Fabsert a reasonable period of termination. Several other claims made by Fabsert asserting unfairness were rejected by the Court.
Several claims were rejected by the court. These included that
- ABB was required to pay an additional $20,000 to Fabsert. There were discussions during the contract about ABB possibly paying Fabsert, but the judgment declared this was largely at the discretion of ABB.
- ABB was in a more powerful bargaining position than Fabsert at the time of the contract being entered. The Court rejected this claim. Even though ABB was Fabsert’s only client, the judgment declared that ABB was equally reliant on Fabsert supplying the services because Fabsert’s director was the key employee at the warehouse when the warehouse was purchased.
Some contract lessons from this case
1. Make sure you write down the terms of your contract. This does not have to be a lengthy legal document, but can be as simple as notes of conversations that both parties sign.
- If agreement on a termination clause had been written, the issues between the parties could likely have been settled without going to court.
- Without written evidence of the alleged agreement to pay $20,000, the court was forced to deal with conflicting evidence.
2. Bargaining power works both ways: Just because one party is a larger business than the other doesn’t mean that there is inequality of bargaining power. The judgment looked at the circumstances of the contract and found that the smaller party could exercise power over the larger party. The judge declared that “On balance, I find that the bargaining positions of the parties were equal.”
A lesson from the Independent Contractors Act
A company can be an independent contractor: The court found that an independent contractor working through a company structure could take an unfair contracts action. But work must be “wholly or mainly performed by a director of the body corporate or a member of his or her family.” [ICA note: This is consistent with the definitions under the Independent Contractors Act]