Workplace Safety Australia Pty Limited v Simple OHS Solutions Pty Limited & Anor [2015] HCATrans 264 (16 October 2015)

Last Updated: 21 October 2015

[2015] HCATrans 264

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
Sydney No S86 of 2015

B e t w e e n -

WORKPLACE SAFETY AUSTRALIA PTY LIMITED

Applicant

and

SIMPLE OHS SOLUTIONS PTY LIMITED

First Respondent

SUE LOUISE BOTTRELL

Second Respondent

Application for special leave to appeal

FRENCH CJ
GAGELER J

TRANSCRIPT OF PROCEEDINGS

AT SYDNEY ON FRIDAY, 16 OCTOBER 2015, AT 11.13 AM

Copyright in the High Court of Australia

MR T.A. ALEXIS, SC: If it please the Court, I appear with my learned friend, MR C.G. ARNOTT, for the applicant. (instructed by Von Muenster Solicitors & Attorneys)

MR M.A. ASHHURST, SC: If it please your Honours, I appear with my learned friend, MR L.D. CORBETT, for the respondents. (instructed by Cara Marasco & Company)

FRENCH CJ: Yes, Mr Alexis.

MR ALEXIS: Your Honours, the application raises two issues. The first is the proper meaning of the expression “franchise agreement” in the Franchising Code of Conduct and whether a distribution agreement between a supplier and a distributor is caught by the Code where there is no manifest or extant system or marketing plan, a key expression in the definition, and where the required system or plan is left to be worked out by the putative franchisee after the contract has actually commenced. There is a related question, and that concerns a supplier’s control of a distributor’s business under the relevant contract and whether that is enough to satisfy the definition.

FRENCH CJ: I suppose the key question with respect at least to the first matter is whether we are really dealing with a matter of construction here or just a matter of application to a particular set of circumstances, the Chief Justice having reached a conclusion based on, as it were, a constellation of circumstances.

MR ALEXIS: Yes. But your Honour, what is, with respect, important here is that we have a distribution agreement. The parties entered into that agreement in perfect innocence without any consideration being given to the application of the Code. That is irrelevant to the question of construction, of course, but if one was to consider that the distribution agreement was typical or usual in this sort of market, then the question of whether or not that satisfies the definition in the Code is of very general and wide importance to that market.

GAGELER J: So what is your construction point? What words do we read in what way?

MR ALEXIS: Our construction is that the requisite system and marketing plan must exist in a tangible way. It must be manifest. It must be extant at the time of contract. The fundamental difficulty, in our submission, with the decision of the Court of Appeal is that it contemplates that the critical system or plan can be worked out by the parties after the contract has commenced.

When your Honour considers in paragraph (c) of the definition that it is the critical system or plan under which the requisite business is to operate in association with trademarks and symbols, and when your Honours consider that it also under paragraph (d) must be in place so that the requisite business has started before the putative franchisee pays a fee, then it is plain, in our submission, as a matter of construction that the manifest or extant plan or system must exist in a tangible way before the contract commences.

GAGELER J: So it is not good enough that the contract allows for the plan to be brought into existence?

MR ALEXIS: No, that is our submission, and that is the critical question, because his Honour the Chief Justice below relied upon the business plan obligation to say that that was the means by which the requisite plan could be worked out by the franchisee after contract. But his Honour also considered some other provisions which prescribed the use of some standard forms - and I will come to the detail – and there was a reference also to a manual that was in respect of marketing and sales.

But none of those provisions actually spelt out or articulated or identified or defined what the critical system or plan was and that is why, in our submission, this is an ideal vehicle, because it really does sit on the outer limits of the definition, in our submission, and if the Court was to consider that the prospective control in the hands of the supplier is not enough to constitute the requisite system and plan then, in this case, there was no contravention of 51AD of the Act.

FRENCH CJ: There are some who might say that a narrow construction of the system or marketing plan requirement that it be, as it were, settled at the point of entry, is in tension with the protective purpose of the Franchising Code which is thus readily voided. How does your construction fit with the purpose and policy of the legislation?

MR ALEXIS: Well, the purpose and policy of the legislation is to regulate those in the franchising industry and to protect franchisees, but when one seeks to apply that - - -

FRENCH CJ: It does not regulate for the sake of regulation.

MR ALEXIS: Quite, and that is our point, with respect. One has to have a franchise business within the meaning of the definition before the regulation which is directed to the control of the participants in the franchise industry actually operates on this agreement. There is a very important line of distinction between a franchise agreement on the one hand, a distribution agreement, as is exampled in this case, or licensing agreements or agreements of that type or nature.

FRENCH CJ: The protection of franchisees is an important aspect of it, is it not?

MR ALEXIS: Yes, it is, your Honour, we accept that.

FRENCH CJ: Evidenced by the pre-disclosure requirements and so forth.

MR ALEXIS: Quite. Perhaps I could go to the definition to identify three key points. It is helpfully set out in the judgment of the Court of Appeal at 66 of the application book and your Honours can see that the system or marketing plan referred to in paragraph (b) of the definition sits at the heart of the definition. In our submission, that must be concerned with the franchisor’s system or plan. The system or plan that encapsulates the franchised business, it is to identify what in fact the franchise is all about. It defines what it is.

The next point is, your Honours will notice that in paragraphs (c) and (d), each relate back to that critical system or marketing plan referred to in paragraph (b), and your Honours see that paragraph (c) commences with the words:

under which the operation of the business will be substantially or materially associated –

et cetera, and in paragraph (d) again:

under which, before starting business –

and that is important –

or continuing the business, the franchisee –

becomes obliged to pay a fee. So our fundamental proposition therefore is that the system or marketing plan must exist in that tangible way at the time of contract so that the requisite business operates under that system or plan, otherwise paragraph (b) of the definition is not satisfied. In our written argument, we provided your Honours with a reference to what Justice Bennett said in the Capital Networks Case. It is set out at book page 120:

there must also be a superimposition of that ‘system or marketing plan’ on the carrying on of the business.”

That, in our submission, helpfully encapsulates our point. The Chief Justice below - - -

GAGELER J: Was her Honour concerned with the temporal point that you are now making?

MR ALEXIS: No, I do not think her Honour strictly was.

GAGELER J: Superimposition of course says nothing about the timing.

MR ALEXIS: No, but the timing was not an issue in the case before her Honour. What was, was the extent to which the provisions of the agreement in that case effectively controlled the operation of the putative franchise business, hence her Honour’s reference to the requirement of a superimposition of the plan on the operation of the business.

Now, his Honour the Chief Justice addressed the question of whether the system or plan needs to be manifest at the time of contract, at application book 80 and 81 at paragraph 92 and following, if your Honours would go to that. His Honour in 92 referred to the Full Court of the Federal Court’s decision in Rafferty to the effect that:

“it is not necessary for the details . . . be set out . . . It is enough that the agreement creates rights and obligations that would enable the franchisor substantially to determine . . . that the business be conducted under a system or marketing plan.”

In our submission, what that indicates is that the system or plan needs to exist with sufficient clarity and prescription so that the business can be conducted under it. The details do not need to be expressed. The Chief Justice agreed with that, saying at application book 81, line 15 that:

the system or marketing plan does not have to be spelt out –

But then in paragraph 93 after referring to the Code at line 20 contemplating:

that the business will be carried out under a system or marketing plan -

his Honour goes on to say –

It is at least necessary that the agreement provides for that to occur, even if the terms of the plan are not settled or prescribed in the agreement.

Now, we point to that as his Honour falling into error because firstly it is not consistent with what the Full Court said in Rafferty. The system or marketing plan cannot be prescribed or worked out after the contract has commenced. If, however, it is said that Rafferty supports the proposition that the requisite system or marketing plan can be worked out after contract and, according to his Honour, by the putative franchisee with the approval of the grantor, then, in our respectful submission, the correctness of Rafferty ought to be considered by this Court on the appeal.

FRENCH CJ: Does your construction mean that the system or marketing plan is fixed from the time of the entry into the contract – to the entry of the agreement and that any – I am talking about non-trivial variation of the system or marketing plan as a new franchise agreement?

MR ALEXIS: Yes, it has to exist.

FRENCH CJ: With new disclosure requirements and so forth?

MR ALEXIS: I am sorry, I may not have - - -

FRENCH CJ: Well, attracting, as it were, the formal requirements. So if you have a system or marketing plan on day one and then there is a variation to that system or marketing plan in month six, does that mean that there is a new franchise agreement in existence?

MR ALEXIS: If the change is such so as to give rise to a new agreement, then the obligations under the Code would be engaged if it is a franchise agreement. The difficulty with the Court of Appeal’s approach is highlighted, in our submission - - -

FRENCH CJ: I am sorry, the point I was trying to make to you was that on your construction the variation of systems or marketing plans post-entry into the agreement is rather constrained.

MR ALEXIS: Yes, and presumably in that circumstance, the putative franchisee would say, “Well, you can’t so radically change the franchise because that’s not what I signed up to”. The difficulty that I was wishing to highlight to your Honours is exposed by the finding of the Chief Justice at application book 81, paragraph 94 and following, that relied upon the obligation of the distributor after the contract commenced to prepare a business plan, and it is our submission that it is rather self-evident that the requirement for a system or marketing plan under which the business is to operate cannot be satisfied by a business plan worked up by the putative franchisee during the conduct of the business. Of course, the distributor’s business plan is not one being determined or suggested by the putative franchisor and it cannot be one under which the operation of the business is associated with marks or symbols.

GAGELER J: You left out the word “controlled”.

MR ALEXIS: Yes, in what sense, your Honour?

GAGELER J: In the sense of paragraph 4(1)(b).

MR ALEXIS: Yes, the distributor’s business plan would not be one “determined, controlled or suggested” by the putative franchisor and that leads into the next point that I wish to make, which is this. There are two problems with the finding of the court below to the extent that it relies on the business plan obligation. The first is that the distribution agreement did not oblige the supplier to approve the business plan or require the distributor to comply with the business plan.

The conduct of the business under such a critical plan, in our submission, would surely not be left to implication. The other problem is that the finding produces a somewhat anomalous result. The putative franchisee’s business is not being conducted under a system or marketing plan while the system or plan is being worked out.

GAGELER J: What - - -

MR ALEXIS: Now, I should draw your Honour’s attention - I am sorry, your Honour.

GAGELER J: What do you say about the Chief Justice’s reasoning at paragraphs 106 to 107, which seem to be the critical application of the notion of control to this contract?

MR ALEXIS: Yes, but one does not get to the question of control until one has a system or marketing plan within the meaning of that expression and, in our submission, when his Honour - if I could come back to what his Honour said from paragraph 97 on application book 82, to the extent that his Honour relies upon other provisions of the distribution agreement and, as your Honours will see, in 97 at line 15 there is a reference to clause 5.1(n), and in the following paragraphs, 8.3 and 17.3. There his Honour says that they tend to suggest that the business was to be carried out under the system or marketing plan. Then ultimately in 101 at the foot of page 82 of the book, his Honour says that:

it may be that each of the matters to which I have referred, taken individually, would not lead to the conclusion that the business was to operate under a system or marketing plan –

but –

the cumulative effect is that the parties intended –

et cetera, and then the conclusion is ultimately based on the business plan obligation and those other clauses. Now, coming to your Honour Justice Gageler’s question, control per se cannot be enough because the control must operate in relation to the definition of the system or marketing plan. In our respectful submission, his Honour’s reliance upon those clauses in the distribution agreement appears to conflate the need for an actual system or marketing plan with the separate element of control.

What we wish to observe about the particular clauses that his Honour relied upon – and I will not take time going to the particular clauses – but they in short provide for the processing and administration of sales, the use of some standard forms and documents, and the provision of a manual. It can be seen from those provisions that a system or marketing plan is not identified or referred to or defined or prescribed in any of those provisions. There is no requirement for the distributor to comply with a manifest or extant plan to conduct its business.

FRENCH CJ: But is it your position that under the arrangements no system or marketing plan would ever come into existence? I am just looking at the characterisation of the facts in paragraph 23 of the respondent’s submissions at page 129. They say:

It is clear that the system or marketing plan was, under the Agreement, to be worked by WSA, supplied to Simple in the Manual, and complied with by Simple.

MR ALEXIS: Yes. Well, in our submission, that just cannot be right, with respect. There cannot be a franchise agreement where the fundamental system or marketing plan is something that can be worked out via a manual.

FRENCH CJ: The point of difference is the characterisation of the provision of a manual and the directions requirement and so forth as a system or marketing plan for the purposes of clause 4.

MR ALEXIS: Yes. Your Honour could test it this way. One could not have a franchise and then change the whole character and get-up and nature of the franchise via a manual application provision in the relevant contract which purports to change the whole nature and character of the business; just could not do it, with respect.

GAGELER J: Do you accept what the Chief Justice said at paragraph 107 about the operation of the contract?

MR ALEXIS: No, with respect.

GAGELER J: So that mischaracterises the effect of those clauses?

MR ALEXIS: Yes. Yes, it does, because each of those clauses upon their proper construction actually leaves the conduct of the business to the distributor. It certainly reserves some control of the supply in relation to the particular subject of the particular clause, but when one looks at those provisions there is nothing, for example, about how subscriptions are to be marketed or sold or to who. There is nothing about the marketing or promotion and how that is to be done. That is entirely left to the distributor, as one would expect.

There is nothing about how the distributor is to operate its business. There is nothing about how the distributor is to operate its shopfront, whether by a website presence or otherwise. I am just picking a few examples. But that, in our submission, is the fundamental difficulty of relying upon some provisions which clearly enough provide some control to the putative franchisor in relation to some aspects of the business. But that of itself, in our submission, could not constitute a system or marketing plan to satisfy the definition so as to engage the application of the Code.

FRENCH CJ: I think your time is up, Mr Alexis.

MR ALEXIS: Thank you, your Honour. Your Honour, can I very briefly deal with the estoppel point?

FRENCH CJ: I think we have your written submissions on that.

MR ALEXIS: If your Honour pleases.

FRENCH CJ: We will not need to trouble you, Mr Ashhurst.

This application raises a question about construction of an application of a provision of the Franchising Code of Conduct and in particular whether a distribution agreement between the parties constituted a franchise agreement for the purposes of the Code. A secondary question of estoppel by representation is raised by the applicant.

The decision of the Court of Appeal of New South Wales turns upon the facts of the case. It does not give rise, in our opinion, to any question of principle which would warrant the grant of special leave. Special leave will be refused with costs.

AT 11.36 AM THE MATTER WAS CONCLUDED