Keldote Pty Ltd v Riteway Transport Pty Ltd
[2010] FMCA 394
•16 June 2010
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| KELDOTE PTY LTD & ORS v RITEWAY TRANSPORT PTY LTD | [2010] FMCA 394 |
| INDUSTRIAL LAW – Independent Contractors Act 2006 – jurisdiction to review services contract which is no longer on foot when application is filed – power to vary services contract which is no longer on foot when application is filed. INDUSTRIAL LAW – Breach of contract – contract varied with retrospective effect by Court’s order pursuant to Independent Contractors Act 2006 – alleged breach occurred after retroactive date of variation but before order for variation pronounced – whether there could be a breach of contract in such circumstances. INDUSTRIAL LAW – Breach of a contract varied under Independent Contractors Act 2006 – nature of relief available. INDUSTRIAL LAW – Contract for services – repudiatory breach – distinction between termination of services and termination of contract. INDUSTRIAL LAW – Contract terminable on reasonable notice – purported acceptance of non-existent repudiation cannot amount to notice to terminate contract within a reasonable time. CONTRACT – Contract for services – contract of indefinite duration – implication of term implying right to terminate on reasonable notice – identification of reasonable period of notice – relevant considerations –contractual relationship similar to an employment relationship – criteria related to concepts of severance and redundancy not relevant considerations. DAMAGES – Contract for services – breach of contract – damages for failure to give reasonable notice of termination. DAMAGES – Breach of contract – damages in the reasonable contemplation of the parties at the time of making the contract as the probable result of the breach. JURISDICTION – “matter” – express jurisdiction under Independent Contractors Act 2006 – accrued jurisdiction – claim under Independent Contractors Act 2006 and related claim for damages comprised the same matter – associated jurisdiction – claim for damages consequent upon contractual |
| variation pursuant to Independent Contractors Act 2006 a federal matter associated with claim under the Independent Contractors Act 2006. PRACTICE AND PROCEDURE – Amendment of claim to include cause of action accruing after commencement of proceedings – date amendment effective. |
| The Constitution, ss.75, 76, 77 Federal Magistrates Court Rules 2001, r.7.01 |
| Keldote Pty Ltd v Riteway Transport Pty Ltd (2008) 176 IR 316 Wigan v Edwards (1973) 1 ALR 497 Skipworth v Western Australia (No.2) (2008) 218 FLR 16 |
| Applicant: | KELDOTE PTY LTD |
| Respondent: | RITEWAY TRANSPORT PTY LTD T/AS RITEWAY EXPRESS |
| File Number: | SYG 2353 of 2007 |
| Applicant: | L & D LOWE TRANSPORT PTY LTD |
| Respondent: | RITEWAY TRANSPORT PTY LTD T/AS RITEWAY EXPRESS |
| File Number: | SYG 2354 of 2007 |
Applicant: | TAMBO WATERS PTY LTD |
| Respondent: | RITEWAY TRANSPORT PTY LTD T/AS RITEWAY EXPRESS |
| File Number: | SYG 2431 of 2007 |
Judgment of: | Cameron FM |
| Hearing dates: | 14, 15 September 2009, 13 November 2009 |
| Date of Last Submission: | 18 December 2009 |
| Delivered at: | Sydney |
| Delivered on: | 16 June 2010 |
REPRESENTATION
| Counsel for the Applicants: | Mr J. Phillips SC with Mr I. Latham |
| Solicitors for the Applicants: | Turner Freeman |
| Counsel for the Respondent: | Mr A. Moses SC |
| Solicitors for the Respondent: | Blake Dawson |
ORDERS
In proceeding SYG 2353 of 2007
Judgment for the applicant for $39,072.12.
In proceeding SYG 2354 of 2007
Judgment for the applicant for $36,788.68.
In proceeding SYG 2431 of 2007
Judgment for the applicant for $48,205.87.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT SYDNEY |
SYG 2353 of 2007
| KELDOTE PTY LTD |
Applicant
And
| RITEWAY TRANSPORT PTY LTD T/AS RITEWAY EXPRESS |
Respondent
SYG 2354 of 2007
| L & D LOWE TRANSPORT PTY LTD |
Applicant
And
| RITEWAY TRANSPORT PTY LTD T/AS RITEWAY EXPRESS |
Respondent
SYG 2431 of 2007
| TAMBO WATERS PTY LTD |
Applicant
And
| RITEWAY TRANSPORT PTY LTD T/AS RITEWAY EXPRESS |
Respondent
REASONS FOR JUDGMENT
(As Corrected)
Introduction................................................................................................................ [1]
The claims.................................................................................................................. [5]
The evidence
..... The applicants
Paul Mansweto............................................................................................... [7]
........... Lenny Lowe................................................................................................. [15]
Lindsay Stewart........................................................................................... [26]
Chris Katehos.............................................................................................. [35]
..... The respondent
Peter Mann................................................................................................... [41]
Threshold issues
..... Retroactive cause of action.............................................................................. [51]
........... Parties’ submissions................................................................................... [52]
........... Consideration.............................................................................................. [57]
..... Jurisdiction........................................................................................................ [77]
........... Parties’ submissions
Applicants.............................................................................................. [78]
Riteway................................................................................................... [80]
........... “Matter”........................................................................................................ [87]
........... Express jurisdiction ................................................................................... [92]
........... Accrued jurisdiction................................................................................... [96]
........... Associated jurisdiction ............................................................................ [106]
........... Consideration – accrued jurisdiciton...................................................... [126]
........... Consideration – associated jurisdiction ................................................ [133]
Breach of contract
..... Allegations ...................................................................................................... [137]
..... Riteway’s threshold arguments on the relief sought.................................... [140]
The terms of the leave to amend.............................................................. [141]
The terms of the Court’s finding of unfairness...................................... [143]
The Court’s order varying the contracts.................................................. [144]... Conclusion on Riteway’s threshold issues..................................................................................................... [148]
Alleged breach by requiring vehicle upgrade................................................ [150]
Contracts’ dispute resolution procedures..................................................... [163]
Termination of the contracts.......................................................................... [165]
Were the contracts terminated following the giving of reasonable
notice, thus disentitling the applicants to damages?.................................... [176]
Damages................................................................................................................. [184]
Loss of earnings
Applicants’ submissions........................................................................... [187]
Riteway’s submissions.............................................................................. [192]
Consideration ........................................................................................... [194]
Obtaining alternative work................................................................. [200]
Ending relationship in orderly way.................................................... [212]
Reasonable notice .................................................................................... [221]
Quantification – loss of earnings............................................................ [222]
Goodwill.......................................................................................................... [236]
Conclusion............................................................................................................. [251]
Introduction
Each of the applicants in these proceedings had a contract with the respondent (“Riteway”) to provide it with trucking services. In these proceedings the applicants seek relief in connection with those contracts.
This judgment concerns the third and final stage of the proceedings. In the first stage, in 2007, the applicants unsuccessfully sought against Riteway an interim order under s.16(3) of the Independent Contractors Act 2006 (“ICA”) to prevent Riteway’s imminent termination of their services pending a decision on whether their contracts with it were unfair or harsh. In the second stage, in 2008 and 2009, the applicants sought relief on the basis that their contracts with Riteway were unfair or harsh. In the reasons for judgment of 22 August 2008 (“principal judgment”) it was found that the contracts were unfair because they entitled Riteway to impose unilaterally, and without making financial compensation to the applicants, a significant change to the equipment required to service the contracts: Keldote Pty Ltd v Riteway Transport Pty Ltd (2008) 176 IR 316 at 338 [104] and 339 [107]. On 5 May 2009 the Court ordered that:
In respect of each applicant’s contract with Riteway Transport Pty Ltd, the fourth paragraph of clause 5 of the Riteway-TWU agreement be varied as from the time when the contract was made by inserting after the sentence ending with the words “8 years” the following words:
Where the requirement to update a vehicle results in, or is likely to result in, an increase in the Contract Driver’s operating expenses, that requirement will be subject to, and unenforceable in the absence of, agreement between the Company and the Contract Driver on a trip rate to be applicable to the use of the new vehicle. (Keldote Pty Ltd v Riteway Transport Pty Ltd (2009) 185 IR 155 at 163 [39])
The matters were then adjourned for consideration of the applicants’ claims for damages and injunctions. That is this stage of the proceedings. The claims for injunctions were not pressed.
In the principal judgment relevant facts were summarised as follows:
Introduction
[1]The applicants provided linehaul trucking services to the respondent (“Riteway”) and, prior to the cessation of that relationship on 23 August 2007, had done so for a number of years. In early 2007 Riteway advised the applicants that in place of the vehicles they were then using, it required each of them to provide a 12 pallet roll-back tautliner lead trailer and a 22 pallet drop deck mezzanine tautliner rear combination B/double trailer. Riteway indicated that should the applicants not comply with its wishes then “the last journey that [they] would be required to undertake for Riteway would depart on Thursday, 23 August 2007”.
[2]Negotiations to implement Riteway’s requirements were unsuccessful and agreement to change vehicle configurations was not reached. These proceedings were commenced in July and August 2007. On 22 August 2007 I refused applications brought by each of the applicants for interim relief to, in effect, permit them to continue to provide services to Riteway pending the outcome of these proceedings. …
…
The claims
[5]Each of the applicants had contracted with Riteway some years ago to provide linehaul trucking services. Mr Lowe, the principal of L & D Lowe Transport Pty Ltd, started driving for Riteway in 1988. His company was incorporated on 29 May 2003. Mr Stewart, the principal of Tambo Waters Pty Ltd, started driving for Riteway in 1992. Tambo Waters Pty Ltd was incorporated on 19 April 1994. Mr Mansweto, the principal of Keldote Pty Ltd, started driving for Riteway in 2002. Keldote Pty Ltd was incorporated on 16 November 1993.
[6]The parties’ contracting relationships were based on the terms of an agreement between Riteway and the Transport Workers Union dated 1 April 1998 (“Riteway-TWU agreement”). The applicants identified their contract terms as being those contained in the Riteway-TWU agreement together with other, unwritten terms such as ones dealing with the availability of the applicants for regular work, the payments they were to receive for each run, the fuel subsidy they were paid, the accommodation they were provided and their starting and finishing times. The applicants submitted that, to the extent that there were other terms of the contracts which were implied, it was not necessary for the Court to determine them in order to undertake its task.
[7]In their amended applications, the applicants allege that their contracts with Riteway were unfair or harsh within the meaning of s.12 of the Independent Contractors Act 2006 (“ICA”) …
…
[9]In their amended applications, the applicants seek orders that: [here were set out various orders proposed as remedies for the unfairness and harshness alleged].
[10]At the outset of the hearing it was ordered that the evidence adduced in any one of the matters would be evidence in the others.
Background
[11]In Riteway’s terminology, the applicants were collectively referred to as the “priority loading drivers”. This status gave them certain privileges and advantages not extended to other contractors to Riteway. The priority loading drivers appeared to have been the core of the Riteway linehaul operation between that company’s Sydney and Melbourne depots.
[12]Some time prior to 2007, Riteway started to consider the merits of utilizing B/double trailers in place of the 45 foot trailers then being used by the priority loading drivers. Some of its other contractors were already using them. When Riteway moved its Sydney depot from Chullora to Olympic Park in April 2006, the new depot was designed to accommodate B/double trailers.
[13]Mr Kent, Riteway’s National Operations Manager, deposes that in the period from 2000-2005 he attended three Riteway linehaul meetings in which a change from operating single trailers to B/double trailers was discussed, although no time frame for the upgrade was specified.
The evidence
[14]By 2007 Riteway had determined that it would be more economical to run B/double trailers and that doing so would make it more competitive in its market. On 5 February 2007 Riteway wrote to each of the applicants in the following terms:
Riteway Transport Pty Ltd (Riteway) has reviewed its operational processes in an endeavour to maintain its competitive position within the Industry.
…
A series of discussions in regard to this change and the associated required changes to your business commenced with you in January 2005. To date, there has been no confirmation from you on your position in relation to these required changes.
You need to be advised, formally in accordance with our commercial arrangements that this change will come into effect from Monday, 13 August 2007 and from this date you are required to provide a 12 pallet roll-back tautliner lead/22 pallet drop deck mezzanine tautliner rear combination b/double. Alternatively, if you elect to cease supplying services to Riteway, please advise me as soon as possible and no later than Monday, 16 July 2007. In this case, the last journey that you would be required to undertake for Riteway would depart on Thursday, 23 August 2007.
[15]On 29 March 2007 Mr Kent of Riteway wrote to the applicants saying:
As stated in my letter of 5 February 2007, effective 13 August 2007, Riteway intends to change its nightly Linehaul operations between Sydney and Melbourne from operating three single trailer units each way to operating two b/double combinations each way.
Accordingly, you have two options:
· Option 1: should [you] wish to continue to provide services to Riteway [you are] required to provide a 12 pallet roll-back tautliner lead/22 pallet drop deck mezzanine tautliner rear combination b/double on or before Monday, 13 August 2007. In this respect, under [your] current contractual arrangements [you are] required to provide a vehicle approved by Riteway and subject to the requirements of Riteway from time to time. A new cartage contract will be issued to [you] which will include a b/double rate per round trip of $2,824 (plus GST) plus current fuel levy which is variable as notified by TNT Linehaul. I note that you have recently requested a nightly rate of $1,500. Riteway is not prepared to pay that rate. In our view, our proposed rate is more than fair, given this rate is higher than the rate charged by competitors for fixed depot to depot linehaul work on the Sydney-Melbourne return route and Riteway offers you accommodation and pays half of [your] vehicle registration costs; or
· Option 2: should [you] wish to cease providing services to Riteway, upon termination of [your] contract, [you] will be paid $20,000 in respect of goodwill, in accordance with [your] contractual arrangements subject to [you] signing a Deed of Release in similar form to the enclosed Deed of Release. Under this option [you] can continue to provide services to Riteway under current arrangements up until Thursday, 23 August 2007 and [you] can access the termination payment upon termination at any time during that period, subject to [you] signing a Deed of Release in similar form to the enclosed Deed of Release.
Please confirm in writing on or before 30 April 2007 whether [you wish] to accept option 1 or option 2.
[16]On 13 June 2007 Mr Kent wrote to Turner Freeman, the solicitors then retained by two of the three applicants, saying, amongst other things:
I also note that Riteway’s offer of a “preferred” rate (outlined in my letter of 4 June 2007) expired on 11 June 2007.
Accordingly, I confirm that:
· Mr Mansweto does not wish to provide a 12 pallet roll-back tautliner lead/22 pallet drop deck mezzanine tautliner rear combination b/double which has been required by Riteway in accordance with its contractual arrangements with Mr Mansweto.
· Mr Lowe does not wish to provide a 12 pallet roll-back tautliner lead/22 pallet pantech rear combination b/double which has been required by Riteway in accordance with its contractual arrangements with Mr Lowe.
· Accordingly, Messrs Mansweto and Lowe intend to cease providing services to Riteway effective 23 August 2007.
However, as a gesture of good faith, Riteway is prepared to extend its offer of $20,000 in respect of “goodwill” for a further seven days from the date of this letter, subject to Messrs Mansweto and/or Lowe signing a Deed of Release in similar form to the Deed of Release previously provided to Messrs Mansweto and Lowe.
[17]Also on 13 June 2007 Mr Kent wrote separately to Mr Stewart of Tambo Waters Pty Ltd, on the basis that Turner Freeman was no longer acting for that company, saying, amongst other things:
I refer to our recent discussions in relation to this matter.
I confirm your advice that you and/or Tambo are no longer represented by Turner Freeman (or other legal representatives) in this matter.
I confirm that:
· Tambo does not wish to provide a 12 pallet roll-back tautliner lead/22 pallet drop deck mezzanine tautliner rear combination b/double which has been required by Riteway in accordance with its contractual arrangements with Tambo; and
· Accordingly, Tambo wishes to cease providing the services to Riteway on 23 August 2007.
I also confirm that Tambo will be paid $20,000 in respect of goodwill, in accordance with Tambo’s contractual arrangements, subject to Tambo signing the attached Deed of Release.
Under the terms of the Deed, (assuming that the Deed has been executed by all parties), you will be paid $20,000 in respect of goodwill on the last day that you provide the services to Riteway (i.e. 23 August 2007).
[18]On 23 July 2007 Riteway wrote to each of the applicants in the following terms:
I confirm that [you wish] to cease providing services to Riteway Express effective 23 August 2007 (following the completion of the Melbourne-Sydney sector departing Wednesday evening 22 August 2007).
[19]On 30 July 2007 and 14 August 2007 Turner Freeman responded to Riteway’s letters of 23 July 2007 saying:
For clarity and so as to avoid doubt, at no time have our clients made any election or expressed any desire to cease providing services as of 23 August 2007.
Any assertion by you of this simply misrepresents previous correspondence and misrepresents our client’s position.
The claims
As already stated, the matters remaining for determination are the applicants’ claims for damages. Since the proceedings were commenced, the applicants have effected some refinements to their claims. Putting aside the matters which were not pressed in their second further amended applications the applicants allege that:
a)(i) on or about 5 February 2007 Riteway required them to operate their runs using trucks in a B/double configuration, rather than in the single trailer configuration which they had been using;
(ii)the change in configuration would result in an increase in the operating expenses of each applicant;
(iii)the parties did not reach agreement on a trip rate to be applicable to the new configuration;
(iv)Riteway’s requirement that the applicants change their vehicle configuration was made in breach of cl.5 of the Riteway-TWU agreement as amended by this Court’s order of 5 May 2009;
b)(i) in the event of a dispute between Riteway and any one of the applicants, the Riteway-TWU agreement required the parties to adopt the dispute resolution procedures set out in that agreement;
(ii)Riteway failed to implement those dispute resolution procedures; and
c)on 23 July 2007 Riteway wrongfully terminated each of their contracts effective from 23 August 2007.
The applicants allege that these breaches caused them to suffer loss and damage in respect of which they seek damages in the Court’s associated jurisdiction.
The evidence
The Applicants
Paul Mansweto
Mr Mansweto is a professional truck driver and the principal of Keldote Pty Ltd (“Keldote”). At the commencement of these proceedings Keldote’s main asset was a Kenworth prime mover and trailer. In May 2002 Mr Mansweto, presumably as agent for Keldote, purchased a vehicle and Riteway work from one Brian Moore. Part of that purchase was “goodwill” which was priced at $20,000 “as determined and specified in the Riteway Transport Pty Ltd/TWU Agreement”.
In an affidavit sworn on 11 September 2009 Mr Mansweto stated that he purchased the Kenworth prime mover following conversations with officers of Riteway in 2005. Kenworth prime movers were his preferred vehicle for a variety of reasons, including value retention, superior access to spare parts, less susceptibility to breakdowns and fewer overhauls.
In an affidavit sworn on 17 August 2009 Mr Mansweto stated that during the period when he was a contract truck driver with Riteway, Keldote’s only income was what it earned from work undertaken for Riteway. He deposed that in the days following 23 August 2007 he drove a return Sydney to Melbourne trip for Palm Trans but did not secure further work until he obtained work with Border Express commencing on 4 September 2007 using the prime mover in B/double configuration. Around September or October 2007, he sold his trailer (initially purchased for $87,500 in 2004) for $57,000.
In his affidavit sworn on 20 February 2008, Mr Mansweto deposed that in performing Keldote’s work for Border Express, he had driven all around New South Wales, as well as to Adelaide, Melbourne and Brisbane. At the hearing Mr Mansweto said that he had no written contract with Border Express and that work with that company depended on whether there was ample freight. If there was insufficient work for all drivers on a particular day, a roster determined who would miss out on getting work that day. With Riteway, he had had guaranteed work every night of the week and he did not work for any other company. He would have liked to continue to work with Riteway until retirement.
As to the negotiations with Riteway over the conversion to B/doubles, Mr Mansweto agreed that if Riteway was unwilling to pay the rate he sought he did not want to continue with the contract because there was nothing in it for him. He said that he had no choice because the rate he proposed was the one he needed in order to continue to provide the service he had been providing.
Mr Mansweto deposed that following the termination of the contract, Keldote’s income decreased substantially in comparison with what it had earned from its contract with Riteway. Although he was drawing the same wages, he had earned substantially less income following the termination of the Riteway contract. He reached this conclusion based on increased fuel and maintenance costs, the different type of work he was doing and the time he had had off work. His accountant prepared all tax returns and financial statements for Keldote and his statement that he was earning substantially less income since the termination of the contract with Riteway was made on the basis of what his accountant had told him. He also said:
… I know what is in the account now and I know what used to be in the accounts before and I’ve got a lot less money in the account now than I ever had.
Mr Mansweto did not have the details of the cartage rates paid by Riteway from 23 August 2007 to 31 December 2007 and had not spoken to his accountant about them. He was not sure whether the financial documents in respect of all the vehicles operated by his company from 1 July 2002 to date were given to Furzer Crestani Services (“Furzer Crestani”), the forensic accountants retained by the applicants for the purposes of these proceedings. However, he had authorised his accountant to supply Furzer Crestani with any information they needed.
Mr Mansweto did not know whether Keldote’s net assets had increased or decreased since the contract with Riteway was terminated. He said that his wife and his accountant looked after the books.
Lenny Lowe
Mr Lowe is the principal of L & D Lowe Transport Pty Ltd (“L & D Lowe Transport”) and he started to drive for Riteway in his own right in 1988, having already done so for a number of years as an employee of other contractors. In 1998 he attended meetings with Riteway to discuss changes to the terms of engagement of Riteway’s owner-drivers which included changes related to goodwill. Drivers such as Mr Lowe, who had already been with Riteway for a long time, did not pay any goodwill to get into the business.
In an affidavit affirmed on 18 August 2009, Mr Lowe stated that he was a contract truck driver for Riteway from 1988 until 23 August 2007 when Riteway terminated the contract. He deposed that L & D Lowe Transport’s only income during the period of that contract was what it earned from work undertaken for Riteway and that following the termination of the contract L & D Lowe Transport’s income decreased substantially.
In an affidavit sworn on 11 September 2009, Mr Lowe further stated that Kenworth prime movers were his preferred vehicle for a variety of reasons including less fuel consumption, greater reliability than Volvos, value retention, superior access to spare parts, less susceptibility to breakdowns, fewer overhauls and, overall, the costs over the vehicle’s life were less than that of Volvos. He purchased a Kenworth 2904 in 2001. He thought Kenworth was the best truck on the market and the most reliable. This conclusion was reached on the basis of his experience of driving different trucks for over thirty years.
At the hearing, Mr Lowe said that he had intended to continue working with Riteway until his retirement. Prior to August 2007 he was aware of the changes contemplated at Riteway. He tried to negotiate a rate but Riteway “weren’t going to budge” on their offer. Riteway had only offered him one rate. If they offered him more than one rate, he would have been prepared to compromise. He would have liked to have continued to try to reach agreement to stay with Riteway.
He never said that he did not want to work for Riteway if management did not agree to the rate of $1,500 he had proposed. He was told that he either had to accept the rate offered by management or cease work completely. They ceased providing him with work. He had initially put forward a rate of $1,550 but lowered it to $1,500 to demonstrate that he wanted to stay working for Riteway. He did not get the opportunity to negotiate after he offered the figure of $1,500. He was hoping that negotiations would work out but Riteway just did not want to speak with the applicants. He said that he did not believe that he would still be operating his business had he stayed with Riteway as he would not have been able to afford to run his equipment at the rate that was offered.
At the hearing Mr Lowe said L & D Lowe Transport had lost money following the termination of the contract because Riteway guaranteed work Monday to Friday running between Melbourne and Sydney. He said that in his then-current position he could be made to stay overnight or longer in Melbourne, Brisbane and Perth due to lack of freight. During such stays he earned nothing.
After he left Riteway Mr Lowe was unemployed for about two or three weeks following which he obtained one shift with IPEC travelling from Melbourne to Sydney. He was offered ongoing work with IPEC on that route but was unable to find work for the return trip at a rate which covered his costs. He then looked for other work which he obtained with Australian Touring Services in mid-September 2007. In his affidavit affirmed on 18 August 2009, Mr Lowe deposed that his work with Australian Touring Services took him all over the country to music and sports events where he would have to wait for the engagement to finish before he drove the equipment to the next destination. This contract contained few guarantees and there were extended periods when there was no work. He did not have a written contract with Australian Touring Services. The work was not regular and on occasions he would have to wait a few days before he could bring his equipment back to Sydney.
That work eventually stopped in March 2009 following which Mr Lowe did casual work from Sydney to Melbourne for Hendersons Freightlines and for IPEC out of Melbourne. In the few months prior to the hearing he had only been doing two return trips per week. With Riteway, he had been doing five trips a fortnight. The rates that applied to his freelance work were $1,400 plus fuel surcharge for a Melbourne to Sydney trip, but from Sydney to Melbourne the rate could vary between $850 and $1,000. The prime mover and single trailer that he had purchased to meet his contractual obligations to Riteway were still owned and operated by him.
His wife and accountant looked after the company books. He was aware that accounting records were forwarded to Furzer Crestani for them to examine in order to prepare their report.
Mr Lowe said that he did not instruct his accountants to provide information to Furzer Crestani but his wife had told him that she had spoken to them. He was unfamiliar with the operation of the trust associated with L & D Lowe Transport, including whether all his children were amongst its beneficiaries. He could not remember Furzer Crestani asking him about the trust’s operation. As to the company’s results, he could not say whether its expenses were less than its income in 2008 and 2009. He said his accountant was the best person to give evidence of these things. However, his impression was that he was working harder and earning less.
During re-examination, Mr Lowe said that Mr Kent’s attitude during negotiations was that “we’re not paying a cent more. Take it or leave it”.
Lindsay Stewart
Mr Stewart is a truck driver and the principal of Tambo Waters Pty Ltd (“Tambo Waters”), although his wife is equal shareholder in the company. He did the driving and she looked after the company’s financial affairs. Mr Stewart drove for Riteway as an owner-driver, operating through Tambo Waters. Mr Stewart stated that he was a contract truck driver for Riteway from 1991 until 23 August 2007 when the Riteway contract was terminated. During the life of the contract with Riteway, Tambo Waters’s only income was what it earned from the work undertaken for Riteway.
During his time with Riteway, Mr Stewart purchased two replacement trucks and both times he bought a Kenworth. Kenworth prime movers were his preferred vehicle for a variety of reasons, including: greater reliability than Volvos, value retention, superior access to spare parts, less susceptibility to breakdowns and less maintenance. In his view, Volvos are inadequate for long distance haulage especially for heavy B/double trailers.
When Riteway indicated in 2007 that it wished its drivers to convert to a B/double configuration, he indicated to Riteway that he would be happy to do so if the rate was increased sufficiently.
Mr Stewart deposed that after being advised of the business plans which Riteway wanted to implement, he sought to negotiate a new trip rate with Mr Kent and Mr Mann. He said he arrived at a rate of $1,500 during the course of negotiations with Riteway as a result of discussions with a number of truck owners in the industry, including Mr Mansweto and Mr Lowe. He thought that the rate for the work would be negotiable although $1,500 was his last position and he could not go lower as he did not think it was viable. At a meeting with Mr Kent, the latter said that the figure which Riteway proposed was the company’s position and that it was not going to pay any more.
Mr Stewart thought that the $1,500 rate was negotiable but Mr Kent had a very blunt attitude, telling them to “[get] on with it, because I don’t need to be here”. Mr Kent also stated that the final rate would be $1,400 and it was obvious that no negotiation was going to take place.
Mr Stewart had thought that he was going to remain with Riteway “forever”.
Following the termination of the contract, Tambo Waters’s income decreased substantially in comparison with its earnings from the Riteway contract.
After the relationship with Riteway came to an end, Mr Stewart was out of work for a number of weeks but then found some short term work with IPEC over six to eight weeks driving between Melbourne, Wagga Wagga and Albury. He worked four or five nights a week and was paid $1,080 per night. In November 2007, after being out of work for about a week he commenced work with for Palm Trans, first as a contract driver using their equipment and later as an employed driver. In October 2008 he sold his trailer.
Mr Stewart’s wife was effectively responsible for liaising with their accountant in connection with the company’s tax returns and the like. Mr Stewart said that he had not personally performed an analysis of the company’s profit and losses. He said that all the financial records and taxation reports he had were sent to Furzer Crestani.
Chris Katehos
Mr Katehos of Furzer Crestani was the expert accountant retained by the applicants for the purposes of these proceedings. He prepared a report for each applicant in which he discussed each of their financial positions and how, in his opinion, they were affected by the termination of their contracts with Riteway.
In relation to Keldote, Mr Katehos’s report stated that in the period from 23 August 2007 to 19 September 2009 that company had suffered a net loss of income of $56,192. Projecting forward, Mr Katehos’s opinion was that in the periods 20 September 2009 to 31 December 2009, 31 December 2010 and 31 December 2011, Keldote would suffer further loss of income of, respectively, $5,233, $23,462, and $41,264.
In relation to L & D Lowe Transport, Mr Katehos’s report stated that in the period from 23 August 2007 to 19 September 2009, that company had suffered a net loss of income amounting to $13,981. Further, Mr Katehos’s opinion was that in the periods 20 September 2009 to 31 December 2009, 31 December 2010, and 31 December 2011, L & D Lowe Transport would suffer further loss of income of, respectively, $40,838, $92,464 and $183,260.
In relation to Tambo Waters, Mr Katehos’s report approached the question of past and future loss of income based on two alternative scenarios. The first proceeded on the basis that Mr Stewart’s earnings as an employee of Palm Trans, net of expenses, should be excluded from the estimated income of Tambo Waters while the second proceeded on the basis that those earnings were to be included. Accordingly, Mr Katehos’s report stated that in the period from 23 August 2007 to 19 September 2009 Tambo Waters had suffered a net loss of income of either $122,269 or $60,128, respectively. On the first scenario, for subsequent periods, Mr Katehos’s opinion was that in the periods 20 September 2009 to 31 December 2009, 31 December 2010, and 31 December 2011, Tambo Waters would suffer further loss of income of, respectively, $13,298, $59,526 and $104,576. On the second scenario those figures became $1,977, $8,851 and $15,548.
Mr Katehos said that in preparing his reports he assessed the available information provided by each applicant and, where certain information was not available, he made assumptions or adopted assumptions based on instructions. Where assumptions were made, he had regard to the available information and “tended to be conservative”.
Mr Katehos said during cross-examination that he had sought from each applicant a number of documents which ultimately were not provided to him. He said that if he had been provided with all the information he had sought, his conclusions might have been different. He said he had to do his best with what he had.
The Respondent
Peter Mann
Mr Mann was the General Manager of Riteway in 2007, having assumed that role in 2003. He deposed that from about 2005, Riteway had raised with the applicants the prospect of changing to B/double compatible equipment in order to reduce operating costs. This business plan needed to be in place before September 2007. As referred to earlier in these reasons, Mr Kent had written a letter dated 5 February 2007 to each applicant advising that as of 13 August 2007, they were required to implement these changes.
On 29 March 2007 Mr Kent wrote to the applicants offering two options – either a trip rate of $2,824 (plus GST) plus fuel levy for changing to B/double compatible equipment; or cessation of the provision of services to Riteway as of 23 August 2007. These letters were handed to Messrs Mansweto and Lowe on 2 April 2007 and to Mr Stewart on 3 April 2007 when Messrs Mann and Kent had meetings with them.
Mr Mann deposed that his understanding of the effect of Riteway’s letters was that if the applicants did not change their vehicles, Riteway would consider the applicants as bringing their contracts to an end with effect from 23 August 2007.
He also deposed that the applicants’ proposed trip rate of $1,500 per night was not acceptable to Riteway as it reflected what Riteway believed to be excessive capital and financing costs arising out of the sort of trucks chosen by the applicants. Each applicant chose to use Kenworth prime movers whereas, in his view, alternatives such as Volvos would have been acceptable and much less costly to buy than Kenworths.
Mr Mann always disagreed with the equipment the applicants provided, stating that what they used was up to $100,000 dearer than what was needed to do the Sydney-Melbourne run. The difficulty Riteway had during negotiations was getting the applicants to agree to the right type of equipment. If the applicants continued using Kenworth prime movers, then the “capital to price was going [to] be so much higher than if we could get them to agree to use European-type trucks”. During negotiations, he offered the applicants rental equipment and a second-hand trailer for a period of time and he also offered to waive the issue of the age of the trailers for a period of twelve months to see if it was economic for them.
Mr Mann conceded that the applicants were in a far better position than he to make an assessment regarding the reliability of Kenworth trucks in comparison with Volvo trucks and regarding the resale value of Kenworth trucks compared with that of Volvo trucks.
Mr Mann said that at no stage did Riteway terminate the contracts with the three applicants. In effect, they had resigned. He said that the contracts were terminated when Riteway could not get agreement with the applicants and “whether they were sacked or whether they resigned wasn’t something” he put his “mind to back then”. Riteway gave the applicants many opportunities and tried to encourage them to stay but it could not get them to stay on with the type of equipment it needed.
The offer to pay each applicant $20,000 in respect of goodwill was not an attempt to give them compensation for the termination of the contracts if the second option in the letter dated 29 March 2007 had taken place. Rather, it was a contractual right which they had and there was an agreement with the union to make the payment.
In an email dated 23 August 2007 Mr Kent advised individuals at Riteway who had authority to engage ad-hoc contractors that the applicants were to cease providing services to Riteway on the completion of “this mornings [sic] tours”. Those individuals were asked to ensure that the applicants were “not engaged for any further Riteway linehaul activity”. Riteway was not prepared to engage the applicants any further and had determined that its relationship with them was finished.
Mr Mann deposed that had the applicants’ contracts included the varied clause, he would have directed Mr Kent to send the letters of 29 March 2007 but with a change to the second option, stating that if agreement could not be reached on an applicable trip rate, the applicants’ contracts would be terminated with effect from 23 August 2007. He would have also provided letters in advance of his meeting with each applicant to ensure that Riteway’s position was clearly understood by each of them and to eliminate any risk of B/double trucks not being in place by September.
Threshold issues
Retroactive cause of action
On 5 May 2009 the applicants’ contracts with Riteway were varied to include the words set out earlier in these reasons at [2]. The applicants allege that Riteway breached each of their contracts as varied and that those breaches should sound in damages. A preliminary issue to be addressed is whether the applicants can sue at all on the causes of action which they allege, regardless of any issues concerning the Court’s jurisdiction, on which submissions were also made.
Parties’ submissions
Riteway submitted that a party to a common law contract cannot be held to have acted in breach of a term to which it did not agree, of which it had no knowledge and which it did not breach at any time during the course of the contract. Riteway stressed that when the contracts were varied they were no longer on foot and that when they were on foot they had not been varied. Riteway submitted that the contracts could not have been breached in 2009 because they did not exist and they were not breached in 2007, when they did exist, because the variation had not been made. Riteway argued that the applicants’ claims did not amount to orthodox allegations of breach of contract but were allegations of retrospective breach of retrospectively varied contracts. In essence it was submitted that there was no such cause of action.
Riteway submitted that what the applicants were, in effect, seeking was the enforcement of an order of the Court varying the contracts between the parties. It submitted that the Court had no jurisdiction to enforce orders varying contracts found to be unfair by, for instance, making a consequential monetary order.
Riteway also pointed to the fact that the breach of contract claims only came about after the contracts had been varied in the second stage of these proceedings. Riteway submitted that the damages sought by the applicants could not be awarded in any court in any circumstances because, at the time the proceedings were brought, the parties’ contracts did not exist in their varied form.
The applicants’ submissions in reply pressed their claims on the basis that damages for breach of contract are available even if the alleged breach occurs by reason of a retrospective variation of the contract which renders what was otherwise relevantly unobjectionable conduct into conduct in breach of a contract. The applicants submitted that the rights of parties at common law may be altered retrospectively.
On the issue of whether a cause of action could be created by the variation of the contracts, the applicants submitted that the power to fix damages in relation to a claim where a contract was “retrospectively varied” was recognised in Harding v EIG Ansvar Ltd (2000) 95 IR 349 at 360-361 [59] and Buchmueller v Allied Express Transport Pty Ltd (1999) 88 IR 465 at 477-488 [45]-[46]. Those cases involved the variation of services contracts pursuant to the former ss.127A and 127B of the Industrial Relations Act 1988 and the Workplace Relations Act 1996. Those sections were predecessors of ss.12, 15 and 16 of the ICA.
Consideration
On the issue of whether a cause of action could arise out of the variation of the contracts, Riteway correctly observed that the applicants had not framed their claims for relief so as to seek orders such as those made in Harding’s case and Buchmueller’s case. However, that is not the point. What is significant, in light of Riteway’s submission that the contracts in these proceedings could not be varied after they had been terminated, is that in both Harding’s case and Buchmueller’s case the Federal Court varied contracts which, at the time of the orders, were no longer on foot. In each case, the contract between the parties had been terminated by one or other party prior to the commencement of proceedings.
As to the variations which were made to those contracts, in Harding’s case the insurance agency agreement between the parties permitted either one to terminate it without cause on thirty days’ notice. Spender J found that this period was unfairly short and that the applicant agent had suffered loss because the insurer had terminated the agency agreement in accordance with its terms. Spender J assessed the applicant’s loss caused by the unfairly short notice period to be $5,000. Accordingly, the court ordered that cl.15 of the parties’ contract
be varied so that, upon termination of the contract, the insurer pay to the agent the sum of $5,000. (at 361 [60])
In Buchmueller’s case, the applicant’s remuneration as an independent contractor was found to be less than that to which he would have been entitled had he been an employee and that, in the circumstances, this constituted unfairness. Dowsett J considered alternative methods of addressing the unfairness manifested by the contract, including by inserting into the contract a term requiring parity with award conditions. His Honour rejected that particular option on the basis that there would remain considerable room for further dispute and because there was no point in such a variation given that the parties’ relationship was long over. Dowsett J concluded that:
Although it may be somewhat artificial, the needs of the parties will be met by making an order which crystallises their mutual obligations. This will be achieved by inserting into the contract … a clause terminating all obligations pursuant to the contracts upon the payment by the respondent to the applicant of a sum which represents the amount of the applicant’s disadvantage. (at 477 [45])
The term which was inserted provided:
Upon termination hereof, the principal contractor will pay to the contract carrier the sum of $13,080, and upon such payment all rights and liabilities of the parties hereto arising pursuant to this contract or pursuant to another contract made this day between the same parties will be released and discharged. (at 478 [46])
Significantly for the current proceedings, the order in Buchmueller’s case involved a variation quantifying underpayments essentially from the inception of the contract until the date of the order together with an amount notionally representing pre-judgment interest.
It is incorrect to characterise the orders in Harding’s case and Buchmueller’s case as fixing damages in relation to a claim where a contract was “retrospectively varied”. Although the variations quantified the amounts which, if paid, would correct the unfairness which the court identified, they did not amount to awards of damages or orders requiring that the identified amounts be paid. All the variations did was to provide grounds for actions for breach of contract if the liquidated sums were not paid by each respondent at the specified time. In each of those cases, the specified time was a date prior to the commencement of proceedings. Although in practice it could be expected that the amounts would be paid once the court’s orders were pronounced, had the unsuccessful respondents in those cases failed to pay the amounts specified in the contractual variations, the successful applicants could have sued on the contracts in their varied forms.
Two differences between the Harding and Buchmueller cases and the current proceedings may conceal how those earlier cases provide guidance for the determination of these proceedings. The first relevant difference is that breach of the Harding and Buchmueller contracts, by failure to perform them in their retrospectively varied forms, entitled those applicants to liquidated damages whereas, in these proceedings, such entitlement as the applicants may have is to unliquidated damages. That is not a difference of substance. The second relevant difference is that absent voluntary payment by the unsuccessful respondents, Messrs Harding and Buchmueller would have had to bring separate proceedings for damages whereas, here, that step is taken in the proceedings in which the orders varying the contracts were made. That is not a difference of substance either.
Neither Harding’s case nor Buchmueller’s case expressly considered whether or not a breach of a contract varied by the court after its termination was actionable. Given the orders that were made in those cases, it appears to have been accepted that there was no problem of this nature. However, the High Court’s decision in Re Dingjan; Ex parte Wagner (1995) 183 CLR 323 does deal with the question of whether there can be a cause of action based on a contract varied after its termination. In that case the High Court considered ss.127A and 127B of the former Industrial Relations Act 1988. Those sections conferred power on the Australian Industrial Relations Commission (“AIRC”) and, significantly for these proceedings, contained provisions relevantly identical to ss.12(1) and (2), 15 and 16 of the ICA. Sections 127A and 127B also contained provisions relevant to the AIRC’s role which do not appear in the ICA and which are not relevant to present considerations. In Dingjan’s case, the majority rejected the argument that ss.127A and 127B were confined to contracts which were current when the particular power of review or variation came to be exercised. Gaudron J said:
That construction would allow the Commission to review a contract that is current when the review takes place, but not to vary the contract if it comes to an end or, as is more likely, if it is brought to an end before an order is made under s 127B. It cannot be supposed that Parliament intended that consequence, particularly in the context of contracts relating to the performance of work by an independent contractor where, in the nature of things, the power to terminate without notice or on short notice may well be the very matter which makes the contract unfair, harsh or against the public interest. (references omitted) (at 363, Mason CJ, Deane and Toohey JJ agreeing)
In Gerrard v Mayne Nickless Ltd (1996) 135 ALR 494, the Full Court of the Industrial Relations Court discussed ss.127A and 127B in light of the decision in Dingjan’s case. The Full Court considered whether those provisions applied to contracts which had terminated prior to the commencement of the proceedings, that question having been left open in Dingjan’s case. The Full Court concluded that the Commission was not deprived of power to make orders under s.127B by the circumstance that the contracts in question had been terminated before the initiating applications were filed. The court addressed the general principle of statutory construction that legislation should be construed in such a way as to avoid it having retrospective operation, observing that the principle is subject to the indication of a contrary intention. It concluded that ss.127A and 127B exhibited such a contrary intention, saying:
It would be strange if the legislation permitted the Commission to intervene only if the independent contractor had been well-informed and efficient enough to file an application before the other party could terminate the contract. The legislation being protective in character, it is unlikely that parliament intended it to operate in such a way as to disadvantage those less able to look after themselves. (at 506)
Their Honours also drew on the second reading speech to conclude that the provisions were intended to be construed in the same way as the then s.88F of the Industrial Arbitration Act 1940 (NSW), to the extent that the then NSW Industrial Commission could grant relief in respect of terminated contracts, even ones which had been terminated before the filing of an application.
The fact that the circumstances considered in Dingjan’s case and Gerrard v Mayne Nickless occurred at a time when the powers provided by ss.127A and 127B were conferred on the AIRC, rather than on a court, might suggest that those sections were considered only in the context of the AIRC’s arbitral powers and that those decisions have no relevance to the exercise of the same powers by courts. Certainly it was found in Dingjan’s case that, in the circumstances, the relevant powers conferred on the AIRC were non-judicial in character and Riteway’s submissions draw attention to the possibility that the reasoning in Dingjan’s case and Gerrard v Mayne Nickless concerning the retrospective operation of ss.127A and 127B should be confined to the exercise of non-judicial power. Although Riteway did not argue that ss.12, 15 and 16 of the ICA purported to confer non-judicial power on the Court, it did submit that the variations of the contracts effected by the Court in these proceedings had an arbitral quality and that decisions of the NSW Industrial Relations Commission under s.106 of the Industrial Relations Act 1996 (NSW) (the successor to s.88F of the Industrial Arbitration Act 1940) should be treated with caution, in part because the NSW commission is a quasi-judicial body not subject to the constitutional separation of power limitations which apply to this Court.
However, the relevant findings in Dingjan’s case and Gerrard v Mayne Nickless resulted from an analysis of the powers conferred by ss.127A and 127B which was not dependent on whether those powers were judicial or non-judicial in character. Indeed, it was observed in Dingjan’s case that although a power to bring a new set of rights and obligations into existence is generally non-judicial, it may take its character from the tribunal involved. It was stated:
Thus, a power to create new rights and obligations, if it is conferred on a court and “is to be exercised according to legal principle or by reference to an objective standard or test prescribed by the legislature and not by reference to [unspecified] policy considerations”, will be characterised as judicial power involving the determination of rights and obligations for which the law provides. At least that is so if the subject matter and prescribed procedures are consistent with the nature and functions of a court. (references omitted) (at 360, per Gaudron J, Mason CJ, Deane and Toohey JJ agreeing)
After the powers under ss.127A and 127B were removed from the AIRC and conferred on the Industrial Relations Court in 1994, that court was called upon to consider whether the powers were still non-judicial in nature. In Finch v Herald Weekly Times Ltd (1996) 65 IR 239, North J observed that the statutory amendments which transferred the power to the Industrial Relations Court did not alter the nature of the power to review contracts, it remaining a power to create new rights and obligations by varying contracts. His Honour observed that the matters to be taken into consideration when determining whether a contract was unfair or harsh had been altered, most particularly by the removal of a ground based on public interest considerations. North J said that this made a critical difference to the nature of the power conferred by the sections, that the major factor which had caused the sections to be characterised in Dingjan’s case as conferring non-judicial power had been removed and that, in the circumstances, the powers which ss.127A and 127B conferred on the Industrial Relations Court were judicial. His Honour observed:
On its face there is a curiosity about the proposition that a power might be judicial or non-judicial depending on the character of the body in which the power is vested. The validity of the proposition depends on the often unstated accompanying proposition that the rules and practices governing the body in which the power is vested can significantly change the way a given power will be exercised. (at 250)
In Keldote Pty Ltd & Ors v Riteway Transport Pty Ltd (2009) 185 IR 155 at 161-162 [33], by reference to Dingjan’s case and Gerrard v Mayne Nickless, I concluded that as the Court’s power to review is not limited to contracts which are still on foot when an order under the statute is made or which are still on foot when application is made to the Court, retrospective variation of a contract is permitted by the ICA. Notwithstanding Riteway’s arguments, I now also conclude that such a variation is effective to create an enforceable right to sue for damages if the contract has not, at a point after the retroactive date of the variation, been performed in accordance with its terms as varied. The argument that Riteway could not, in reality, have complied with the contracts because, at the relevant time, they did not exist in their varied form distracts attention from the matters in issue in this final stage of the proceedings: whether, in all the circumstances, Riteway’s conduct amounted to a breach of the contracts and, if so, whether damages should be awarded. Although retrospective operation of a contractual variation ordered by the Court would appear to offend the general presumption against retrospectivity, the reason given by the Industrial Relations Court in Gerrard v Mayne Nickless for concluding that ss.127A and 127B disclosed a contrary intention applies equally to ss.12, 15 and 16 of the ICA: it would be pointless to empower the Court to vary contracts but make it impossible to enforce the rights created by such variations. Both Dingjan’s case and Gerrard v Mayne Nickless imply that a variation can be made effective at a point prior to the (past) conduct which the variation is designed to address. How long before that conduct the variation is to take effect is a matter for judgment in each case. In this case, it was considered that the variations should be effective from the beginning of each contract.
As to Riteway’s submission that all that the applicants are seeking to do is to enforce the orders made by the Court pursuant to s.16(1) of the ICA, it must be presumed that the enforcement referred to by Riteway is not the same as that referred to in s.16(5) of the ICA. Rather, this submission appears to owe much to the powers of the NSW Industrial Relations Commission under that State’s Industrial Relations Act. However, the powers of that commission under s.106 of that Act are broader than those possessed by this Court in these proceedings. In particular, the ICA does not contain a provision like s.106(5) of the Industrial Relations Act 1996 (NSW):
(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.
This stage of these proceedings comprehends no enforcement of that sort; it is simply the working out of the applicants’ contractual rights consequent upon the variations made to their contracts with Riteway.
Also arising out of Riteway’s submissions is the question whether the damages claims can be brought in these proceedings because the causes of action did not exist when the initiating applications were filed. In considering this issue regard must first be had to the allegations and claims now made by the applicants. These have been summarised above at [5]. Most relevantly for current considerations, the applicants plead and rely on the variation made to each applicant’s contract by the orders of 5 May 2009 and allege that Riteway breached that term. They also allege wrongful termination of the contracts. These allegations and claims were made in each applicant’s second further amended application filed on 6 July 2009 in tardy compliance with consent orders made in each proceeding on 19 June 2009. At that time, and in each proceeding, it was ordered by consent that
The applicant amend its application by 26 June 2009 to set out any breach of contract alleged, the remedy sought and the basis of the Court’s jurisdiction to grant such relief.
An amendment takes effect, not from the date when it is made, but from the date of the original document which it amends: Wigan v Edwards (1973) 1 ALR 497; Sneade v Wotherton Barytes & Lead Mining Co Ltd [1904] 1 KB 295; Baldry v Jackson [1976] 2 NSWLR 415; Proctor v Jetway Aviation Pty Ltd [1984] 1 NSWLR 166; Harris v Western Australian Exim Corporation (1994) 56 FCR 1. It is for this reason that, without statutory authority or the consent of the defendant, a plaintiff cannot amend the claim by adding a cause of action which has accrued since the commencement of the proceeding: Eshelby v Federated European Bank Ltd [1932] 1 KB 254; Wigan v Edwards.
In this Court, statutory authority for the amendment of an application to include a cause of action arising after the proceedings have commenced is found in r.7.01(2) of the Federal Magistrates Court Rules 2001. Order 13 r.2(7)(b) of the Federal Court Rules 1979 is in similar terms. It is important to note that this Court does not have a rule similar to O.13 r.3A of the Federal Court Rules which provides that such an amendment takes effect from the date of the amendment or the filing of the amended document. This fact has the consequence that amendments pursuant to r.7.01(2) are taken to have been included in the initiating application.
While it may seem anomalous for amendments to have effect before the date when they are made
The law simply ignores any logical difficulties created by the doctrines of relation back or retroactivity it uses in various fields … (Proctor v Jetway Aviation at 183, per Priestley JA, Glass JA agreeing).
This comment is particularly apposite to these proceedings, dealing as they do with contractual variations having effect from the commencement of each contract.
Although in the absence of consent or statutory authority to add a cause of action accruing since the commencement of the proceedings an amendment must be regarded as asserting a cause of action existing when the initiating application was filed: Wigan v Edwards per Mason J at 515; r.7.01(2) demonstrates just such a contrary intention by the fact that it permits amendments which raise causes of action not in existence at the commencement of the proceedings. It must be concluded that although the causes of action now alleged in these proceedings were not in existence when the proceedings were commenced, no barrier to the applicants’ reliance on them exists on this account. Moreover, having consented to unspecified amendments to the applications, Riteway cannot now object to them on the basis that the causes of action alleged accrued some time after the proceedings were commenced.
For these reasons, no barrier to the applicants’ cases is presented by the fact that the causes of action now alleged did not exist when the proceedings were commenced.
Jurisdiction
The next preliminary issue to be addressed is whether the Court has jurisdiction to determine the applicants’ claims for damages. It was common ground between the parties that the Parliament has not expressly invested the Court with jurisdiction to deal with such claims. Consideration therefore turns to whether the claims fall within the Court’s associated or accrued jurisdictions.
Parties’ submissions
Applicants
The second further amended applications claim damages for breach of contract in the associated jurisdiction of the Court. It was submitted that it is a matter of construction and practical judgment whether one federal matter is associated with another federal matter and whether the Court’s associated jurisdiction, given by s.18 of the Federal Magistrates Act 1999 (“FM Act”), is thereby enlivened.
The applicants’ submissions also impliedly relied on the Court’s accrued jurisdiction on the basis that, in each proceeding, the ICA claim and the damages claim were part of the one “matter”, as that word is understood in the context of ss.75, 76 and 77 of the Constitution. It was submitted that the Court has jurisdiction to resolve completely and finally all the controversies which practical judgment identified as being comprised in a particular matter. It was also submitted that it would be a curious result if the Court, although expressly empowered to vary a contract to remove harshness or unfairness which it has identified, were not able to provide consequential monetary compensation.
Riteway
Riteway submitted that the breaches of contract alleged by the applicants could not be “matters” attracting the Court’s associated jurisdiction. Referring to Skipworth v Western Australia (No.2) (2008) 218 FLR 16 at 27-28 [37] and Young v The Neil Jenman Group Pty Ltd [2009] FMCA 947 at [6], Riteway submitted that the Court’s associated jurisdiction cannot be relied upon to grant relief in respect of claims which would not be within the common law jurisdiction of State superior courts of record. It submitted that the Court’s associated jurisdiction extended only to causes of action recognised at law and said that the applicants’ claims did not satisfy this criterion.
Riteway observed that the ICA gives the Court no jurisdiction to make orders for the payment of money in connection with a contract varied under its terms. This was significant in the context of Riteway’s submission that, regardless of the claimed basis of the Court’s jurisdiction, there could be no cause of action at common law where what was alleged was not the breach of a “contract made under the common law” but the breach of a term of a “contract made by order of the Court”.
Riteway submitted that the only basis upon which the Court could deal with the applicants’ claims was in the exercise of its associated jurisdiction but the causes of action asserted by the applicants did not arise out of a federal statute in a way which would attract that jurisdiction. In this connection it was submitted that any rights created by an order of the Court were to be distinguished from, for instance, a damages claim based on a legislatively implied contractual term such as the undertakings as to quality and fitness which s.71 of the Trade Practices Act 1974 implies into certain contracts for the supply of goods.
It was also submitted that the allegations of breach of contract did not fall within the Court’s accrued jurisdiction as the claims are not truly common law claims because the contractual provision which is alleged to have been breached was not “made under the common law but, rather … by order of the Court” exercising its powers under the ICA.
Riteway also queried whether the claims for damages were part of the controversy between the parties. It was submitted that the central task for the Court was to identify the controversy and whether or not the breach of contract claim formed part of the controversy. Riteway submitted that the controversy which the applicants had brought to the Court was whether the contracts were unfair, saying that the breach of contract allegation had nothing to do with that original claim as it only arose after the variation of the contract.
Riteway also sought to draw an analogy between this Court’s limited jurisdiction and the limited jurisdiction of the Land and Environment Court of New South Wales which was considered in National Parks & Wildlife Service v Stables Perisher Pty Ltd (1990) 20 NSWLR 573. There, the Land and Environment Court asserted a form of accrued jurisdiction to deal with claims for damages for negligent acts related to certain development and building consents in respect of which it had express jurisdiction. The NSW Court of Appeal held that the Land and Environment Court has no such accrued jurisdiction, Gleeson CJ observing that:
… the basis on which the High Court has recognised the “pendent” or “accrued” jurisdiction of the Federal Court is … based largely on constitutional considerations, which are completely irrelevant to the Land and Environment Court. (at 579-580)
His Honour also said:
Although it is not directly relevant to the process of reasoning just described, it should also be noted that under s.32 of its Act the Federal Court also has jurisdiction in respect of matters not otherwise within its jurisdiction that are associated with matters in which the jurisdiction of the court is involved. There is no corresponding provision in the Land and Environment Court Act. (at 580)
Riteway submitted that the current situation was analogous to that in the National Parks & Wildlife Service v Stables Perisher Pty Ltd case in that neither the ICA nor the FM Act conferred jurisdiction on the Court to deal with the claims for damages made by the applicants.
“Matter”
Federal jurisdiction is co-extensive with the matters specified in ss.75 and 76 of the Constitution: Re Governor, Goulburn Correctional Centre; Ex parte Eastman (1999) 200 CLR 322 per Gaudron J at 338 [29]. See also Northern Territory of Australia v GPAO (1999) 196 CLR 553 at 575 [35] per Gleeson CJ and Gummow J. This Court will not have jurisdiction over a controversy unless a matter within ss.75 or 76 of the Constitution is raised in the proceedings: In re Judiciary & Navigation Acts (1921) 29 CLR 257. Those sections provide:
75 Original jurisdiction of High Court
In all matters:
(i) arising under any treaty;
(ii) affecting consuls or other representatives of other countries;
(iii) in which the Commonwealth, or a person suing or being sued on behalf of the Commonwealth, is a party;
(iv) between States, or between residents of different States, or between a State and a resident of another State;
(v) in which a writ of Mandamus or prohibition or an injunction is sought against an officer of the Commonwealth;
the High Court shall have original jurisdiction.
76 Additional original jurisdiction
The Parliament may make laws conferring original jurisdiction on the High Court in any matter:
(i) arising under this Constitution, or involving its interpretation;
(ii) arising under any laws made by the Parliament;
(iii) of Admiralty and maritime jurisdiction;
(iv) relating to the same subject-matter claimed under the laws of different States.
In In re Judiciary & Navigation Acts it was held that a “matter” is not a legal proceeding but rather the subject matter for determination in a legal proceeding. In Croome v Tasmania (1997) 191 CLR 119 at 124-125 it was stated that a “matter” is not the proceeding commenced between the parties but the subject of the controversy which the court is called upon and empowered to quell in that proceeding.
There may be a federal matter without there having been federal legislation on the point. For instance, federal jurisdiction is attracted where litigation is between residents of different states within the meaning of s.75(iv) of the Constitution: Australian Securities & Investments Commission v Edensor Nominees Pty Ltd (2001) 204 CLR 559 at 586 [53]. However, the “diversity” jurisdiction, to borrow the American expression, does not apply in the case of corporations, such as the parties in these proceedings, because the words “residents” and “resident” in s.75(iv) refer only to natural persons and not to artificial persons or corporations: Australasian Temperance & General Mutual Life Assurance Society Ltd v Howe (1922) 31 CLR 290; Crouch v Commissioner for Railways (Queensland) (1985) 159 CLR 22.
Federal jurisdiction will also be attracted if the Commonwealth or a person suing or being sued on behalf of the Commonwealth is a party. An example of a party’s identity attracting federal jurisdiction is seen in ASIC v Edensor Nominees. There the Federal Court had jurisdiction because ASIC, a Commonwealth entity which answered the description of “the Commonwealth” in s.75(iii) of the Constitution, was the moving party and because it sought an injunction (vide s.39B(1A)(a) of the Judiciary Act 1903). Consequently:
The “matter” was a justiciable controversy identifiable independently of the proceeding brought for its determination. The focus of attention is that indicated by the joint judgment of five members of this Court in Crouch v Commissioner for Railways (Q), namely “upon the substance of the dispute” and “the substantial subject matter of the controversy”. (references omitted) (ASIC v Edensor Nominees at 586 [54], per Gleeson CJ, Gaudron and Gummow JJ).
Even if the Commonwealth is joined as a third party in common law proceedings in a state court, federal jurisdiction will be attracted to the whole of the proceeding because the principal claim and the third party claim are comprised in the same matter: Austral Pacific Group Ltd (In liq.) v Airservices Australia (2000) 203 CLR 136.
Federal jurisdiction will also be attracted by the defence raised to an applicant’s claim for relief if that defence is based on a federal statute: Felton v Mulligan (1971) 124 CLR 367.
Most relevantly for these proceedings, a controversy will be a “matter” if it arises “under any laws made by the Parliament” within s.76(ii) of the Constitution. A matter arises under a federal law if the right or duty in question owes its existence to federal law or depends on federal law for its enforcement: R v Commonwealth Court of Conciliation & Arbitration; Ex parte Barrett (1945) 70 CLR 141 per Latham CJ at 154; Moorgate Tobacco Company Ltd v Philip Morris Ltd (1980) 145 CLR 457 at 476; LNC Industries Ltd v BMW (Australia) Ltd (1983) 151 CLR 575 at 581. In particular, a claim based on a breach of contract will meet that criterion if the cause of action arises out of federal law:
When it is said that a matter will arise under a law of the Parliament only if the right or duty in question in the matter owes its existence to a law of the Parliament that does not mean that the question depends on the form of the relief sought and on whether that relief depends on federal law. A claim for damages for breach or for specific performance of a contract, or a claim for relief for breach of trust, is a claim for relief of a kind which is available under State law, but if the contract or trust is in respect of a right or property which is the creation of federal law, the claim arises under federal law. The subject matter of the contract or trust in such a case exists as a result of the federal law. (LNC Industries Ltd v BMW (Australia) Ltd at 581, per Gibbs CJ, Mason, Wilson, Brennan, Deane and Dawson JJ)
Express jurisdiction
Turning to what express jurisdiction the Court has in these proceedings, s.77 of the Constitution states:
77 Power to define jurisdiction
With respect to any of the matters mentioned in the last two sections the Parliament may make laws:
(i) defining the jurisdiction of any federal court other than the High Court;
(ii) defining the extent to which the jurisdiction of any federal court shall be exclusive of that which belongs to or is invested in the courts of the States;
(iii) investing any court of a State with federal jurisdiction.
Section 10 of the FM Act provides, amongst other things, that this Court has such original jurisdiction as is expressly vested in it by laws made by the Parliament.
Section 12 of the ICA provides that the Court may review a services contract, as each of the applicants’ contracts with Riteway was, on the grounds that it is unfair, harsh or unfair and harsh. Section 12 is therefore a law pursuant to s.77(i) of the Constitution which relevantly defines the jurisdiction of this federal court with respect to “matters” mentioned in s.76(ii) of the Constitution: Stack v Coast Securities (No 9) Pty Limited (1983) 154 CLR 261 at 288.
It is clear that the ICA expressly invested the Court with jurisdiction to adjudicate the disputes between these parties concerning whether the contracts were unfair or harsh. The question now becomes whether the Court has jurisdiction over the claims for damages and, if so, on what basis. If the Court does have jurisdiction, it
… has powers expressly or impliedly conferred by the legislation governing the court and “such powers as are incidental and necessary to the exercise of the jurisdiction or the powers so conferred” ... (Harris v Caladine (1991) 172 CLR 84 at 136, per Toohey J).
In this connection, s.15 of the FM Act provides:
15 Making of orders and issue of writs
The Federal Magistrates Court has power, in relation to matters in which it has jurisdiction, to:
(a) make orders of such kinds, including interlocutory orders, as the Federal Magistrates Court thinks appropriate; and
(b) issue, or direct the issue of, writs of such kinds as the Federal Magistrates Court thinks appropriate.
Accrued jurisdiction
Just as a court, including a State court, does not begin to exercise federal jurisdiction until a matter within ss.75 or 76 of the Constitution is raised in a proceeding, so the federal jurisdiction that is then exercised by the court is co-extensive with the content of that matter: Stack v Coast Securities at 290.
As a matter is not the proceeding but the controversy, the ambit of a matter arising under a federal law may extend beyond the claims which arise under that federal law or which are to be determined by reference to that federal law alone: Philip Morris Incorporated v Adam P Brown Male Fashions Pty Ltd (1981) 148 CLR 457; Fencott v Muller (1983) 152 CLR 570 at 606. Once federal jurisdiction is attracted, it persists to enable the court to resolve the whole matter. Barwick CJ said in Philip Morris v Brown:
It is settled doctrine in Australia that when a court which can exercise federal jurisdiction has its jurisdiction attracted in relation to a matter, that jurisdiction extends to the resolution of the whole matter. This accrued federal jurisdiction is not limited to matters incidental to that aspect of the matter which has in the first place attracted federal jurisdiction. It extends, in my opinion, to the resolution of the whole matter between the parties. This accrued jurisdiction carries with it the authority to make such remedial orders as are necessary or convenient for or in consequence of that resolution. For this purpose, the court exercising federal jurisdiction may enforce rights which derive from a non-federal source. (at 475)
In Phillip Morris v Brown, Mason J analysed the High Court’s decision in Moorgate Tobacco Co Ltd v Philip Morris Ltd concerning the meaning of “matter” in ss.75, 76 and 77 of the Constitution, saying:
It decided that the entire jurisdiction exercised by the Supreme Court was federal jurisdiction, notwithstanding that some of the causes of action or claims for relief pleaded in the statement of claim were not grounded in federal law and that the remedies sought travelled beyond registration of the trade mark “Golden Lights” which was the real bone of contention between the parties. It was this circumstance and the presence of the “proprietorship” issue under the Trade Marks Act that made the exercise of jurisdiction federal and wholly federal, the causes of action or claims for relief based on non-federal law being non-severable. They could not be severed from the federal question because they were incidental, if not essential, to its determination and because the plaintiff's various claims for relief necessarily arose out of common transactions and facts. (at 511-512)
Similarly, the applicants’ principals’ expectation of long term work and a relatively high income together with the sacrifice of rights incidental to employment in order to become employees of contractors to Riteway have not been shown to have had, even potentially, any possible impact on the applicants’ ability to enter into alternative arrangements. These asserted criteria appear to be drawn from that part of employment law concerned with severance and redundancy, not reasonable notice of termination. Redundancy and severance concepts have no relevance to current considerations.
Further, while the level of education attained by an applicant’s principal may, in certain circumstances, be relevant to determining a reasonable period of notice, it has not been demonstrated why that would be so on this occasion. In particular, no submissions were made which identified the relevance of this criterion, particularly when the applicants and their principals did not suggest that they wanted, or intended, or that the market required them, to seek work in any field other than the one in which they had been operating successfully prior to 23 August 2007.
The applicants submitted that amongst the factors to be considered in determining what amounted to reasonable notice were the regularity of the work which the applicants had enjoyed with Riteway and the prospect of securing replacement work of an equivalent frequency. While this might be argued to be a feature which identified whether any new arrangements were similar to the ones which were being replaced, similarity turns on the nature of the old and new arrangements or businesses, not on the volume of work which each involved. It has to be anticipated that some period of re-establishment will be experienced upon termination of a contract on reasonable notice and that re-establishment of the business is an inherent risk in any services contract which is terminable on that basis. As McHugh JA said:
It is, of course, unnecessary that the recipient of a notice should do as well in his first years of new business as he did in his old business. The termination of his business, whenever it occurs, is very likely to have adverse trading consequences for a substantial period. However, that is the risk which a distributor, who enters into an agreement terminable at any time, invariably runs. (Crawford Fitting Co at 453)
As a consequence, in determining a reasonable period of notice, little if any weight should be given to the inevitable business dislocation associated with the replacement of one contracting arrangement with another or others.
Although the applicants submitted that the Court should take into account “the economy”, nothing was adduced upon which the Court could base a conclusion regarding how the state of the economy in the financial year 2007/2008, and in particular the first half of that year, might have impacted upon the ability of the applicants to find alternative work of a nature similar to that which they had performed for Riteway. In particular, it was not suggested that the economy, or the market for the applicants’ services, deteriorated or improved in the months after 23 August 2007. Indeed, the state of the economy, as revealed by the work which the applicants were able to secure in the months following 23 August 2007, was such that they were all able to find replacement work of a nature broadly similar to the Riteway work within a few months of the termination of the Riteway arrangements. From this evidence, it cannot be concluded that the state of the economy was a particular impediment to the applicants in their search for new business.
Ending relationship in orderly way
Because of the nature of the services provided by the applicants to Riteway, it is apparent that the orderly winding up of their working relationships required little time. The applicants did not point to any matters associated with their relationships with Riteway and the winding up of those relationships which should be taken into account when determining what period of notice would have been reasonable. For instance, no evidence was adduced to suggest that the applicants had downstream business arrangements which had to be re-ordered or terminated such that the period of notice which they ought to have received should have taken these matters into account. Riteway’s position was that any action required to be undertaken to wind up the relationships could be completed in three months which it said would be a reasonable period of notice anyway.
One matter to be considered as part of the winding up of the parties’ relationships is the ability of the applicants to obtain the fruits of the extraordinary expenditure incurred by them within the scope of their contracting arrangements with Riteway. Consequently, the extraordinary expenditure represented by the applicants’ prime movers and trailers must be taken into account in determining what amounts to a period of reasonable notice in each case.
Keldote started contracting to Riteway in 2002 and in October 2005 bought a new prime mover for $245,455, having bought a new trailer in March 2004 for $87,500. According to the expert report of Furzer Crestani, at 30 June 2007 the depreciated values of Keldote’s prime mover and trailer were $168,819 and $13,950 respectively. That report also records that the accountants were instructed to assume that, as at 23 August 2007, their trade-in values were $145,000 and $40,000 respectively. Mr Mansweto deposed that the trailer was sold in September or October 2007 for $57,000.
Mr Lowe started driving for Riteway as an owner-driver in 1988, L & D Lowe Transport being incorporated in 2003. Its truck and trailer were acquired, presumably by Mr Lowe, in October 2001 for $283,538 and $71,998 respectively and subsequently transferred in some way on an unspecified date to L & D Lowe Transport. According to Furzer Crestani, at 30 June 2007 the depreciated values of L & D Lowe Transport’s prime mover (including a “truck improvement” and a relatively new engine) and trailer were $83,451 and $9,465 respectively. Furzer Crestani’s report for L & D Lowe Transport records that those accountants were instructed that, as at 23 August 2007, the prime mover had a trade-in value of $100,000 to $150,000 and the trailer had a trade-in value of $30,000.
Tambo Waters started contracting to Riteway in 1991/1992. It acquired its prime mover in 2000 or 2001 for $325,000 and the trailer in 2003 for $93,000. The Furzer Crestani report for Tambo Waters records that, as at 30 June 2007, the depreciated value of that applicant’s prime mover and trailer were $18,983 and $15,759 respectively. The report also states that the accountants were instructed to assume that, as at 23 August 2007, the prime mover had a trade-in value of $140,000 and the trailer had a trade-in value of $50,000. Mr Stewart deposed that he sold the prime mover on 31 March 2008 and that he sold the trailer in October 2008 for $65,000. The Furzer Crestani report records that the prime mover realised $140,909 net of GST.
While the applicants’ capital investment in their prime movers and trailers must be considered to be extraordinary expenditure, as at 23 August 2007 the vehicles were not new and at least part, if not all, of their cost had been covered by the applicants’ earnings since they were acquired.
Moreover, the end of the Riteway relationship did not mean that the expenditure which these vehicles represented was wasted. Keldote’s prime mover and L & D Lowe Transport’s prime mover and trailer continued to be used in those applicants’ businesses. In such circumstances, the capital investment expenditure incurred in servicing the Riteway contracts was employed in servicing subsequent clients and so does not suggest that a significant allowance should be made for cost-recoupment when determining what notice would have been reasonable in the circumstances.
Further, Keldote’s trailer and Tambo Waters’s prime mover and trailer were sold for amounts exceeding their depreciated and stated second-hand values, indicating that no loss of any magnitude was suffered in relation to them by reason that those applicants no longer drove for Riteway. In this connection, it should be noted that the Court was not taken to any evidence which might have detailed the vehicles’ financing arrangements or any residual amounts payable under such financing arrangements.
Given the nature of the parties’ relationships, it has not been demonstrated that there was the risk of a conflict of interest or that the period of notice should be reduced or minimised for this reason.
Reasonable notice
In light of all the above considerations, I have concluded that, assessed as at 23 August 2007, a reasonable period of notice of termination of the applicants’ contracts was three months.
Quantification – loss of earnings
The applicants’ initial submission was that they were entitled to “the gross amounts payable under the contracts for the period of reasonable notice”. That position was refined in the applicants’ submissions in reply where it was said that the monetary value of the period of notice ought to be determined by reference to what each applicant would have earned in that period, less such expenses as would “obviously” not be incurred by reason that the businesses were not operating. In this connection the applicants submitted that expenses such as fuel, oil, repairs and maintenance, tyres, tolls and travel costs were variable expenses which would not be incurred and they conceded that these should be allowances against the amounts for which Riteway might be liable. They also conceded their duty to mitigate their losses.
Notwithstanding the basis on which the applicants submitted damages for loss of earnings should be calculated, including their submissions as to what period amounted to reasonable notice for each of them, the expert accounting evidence which they adduced did not attempt to calculate losses by reference to the fact that the contracts were terminable upon the giving of reasonable notice. Specifically, the expert reports did not calculate claimed losses by reference to the periods of notice which were canvassed by the parties in submissions. Rather, they gave figures for the periods 23 August 2007 to 31 December 2009, 31 December 2010 and 31 December 2011. In light of the issue to which the reports were addressed and given that it has been held that the reasonable period of notice of termination for each of the applicants’ contracts with Riteway was three months, the analyses contained in the Furzer Crestani reports do not assist in the determination of the loss and damage suffered by the applicants.
The evidence demonstrates that in the three month period following 23 August 2007 the applicants were able to find alternative work and thus did mitigate their losses. However, the evidence describing that work and the earnings derived from it is far from comprehensive. With the exception of some figures recording Keldote’s monthly takings, which were inadequate for current purposes, no cogent and clear evidence was adduced which was directly relevant to the periods of notice which the applicants and Riteway submitted would have been reasonable in the circumstances. The applicants’ annual profit and loss figures are the most useful evidence for the purpose of identifying what, if any, net loss of earnings they suffered because they did not receive reasonable notice of termination. These figures are found amongst the schedules to the Furzer Crestani reports.
In this regard, I accept the applicants’ submissions concerning the way in which their claimed net loss should be calculated. The exclusion of variable expenses related to the running of the applicants’ vehicles permits a comparison of their net earnings in the periods before and after Riteway’s repudiation of their contracts. In accepting this submission, I have assumed that the applicants’ other business costs were not affected by the changes in work sources or clients and I have not taken into account any such differences in these costs as between the 2007 and 2008 years.
Schedule “D” to the Furzer Crestani report on Keldote is a summary of that applicant’s profit and loss statements for the years ended 30 June 2007 to 2009. It shows that in the year ended 30 June 2007, Keldote’s gross income from Riteway was $316,376 and that its relevant variable expenses were $118,808 for fuel and oil, $15,527 for repairs and maintenance, $2,827 for tyres and $2,419 for tolls. These expenses amount to $139,581 which, when deducted from $316,376 produce a net figure of $176,795. Reduced to an average monthly figure this becomes $14,733.
Schedule “D” to the Furzer Crestani report also shows that in the year ended 30 June 2008, Keldote’s gross income was $294,287 and that its relevant expenses were $123,383 for fuel and oil, $23,142 for repairs and maintenance, $5,009 for tyres and $3,138 for tolls. These expenses amount to $154,672 which, when deducted from $294,287 produce a net figure of $139,615. In the twelve month period to 30 June 2008, approximately 1.75 months were spent by Keldote servicing the Riteway contract. Assuming that in that 1.75 month period Keldote maintained its previous average monthly earnings, and taking those earnings into account, the monthly average of Keldote’s earnings for the remaining 10.25 months of the 2008 year, less the allowance for variable expenses, is $11,106.
Based on these average figures, I conclude that Keldote’s monthly earnings, net of the specified variable expenses, declined by approximately $3,600 once the Riteway work ceased. Doing the best I can on the limited information provided to the Court, I find that the loss occasioned to Keldote by reason of Riteway’s failure to give reasonable notice of termination of the contract was $10,800.
The annualised figures relevant to L & D Lowe Transport found in schedule “D” to the relevant Furzer Crestani report are described in that report as the L & D Lowe Family Trust’s fixed and variable costs. The relevant figures also appear in the L & D Lowe Family Trust profit and loss account for the year ended 30 June 2009. Exhibit B, which includes the financial statements and tax returns for the L & D Lowe Family Trust for the year ended 30 June 2006, shows that the L & D Lowe Family Trust operated a road transport operation and that its trustee was L & D Lowe Transport Pty Ltd. According to schedule “D” to the Furzer Crestani report concerning L & D Lowe Transport, in the year ended 30 June 2007 L & D Lowe Transport’s gross income was $311,851 and its relevant variable expenses were $106,436 for fuel and oil, $1,310 for repairs and maintenance, $5,022 for tyres and tubes, $923 for toll fees and $24,308 for travel expenses. These expenses total $137,999 which, when deducted from $311,851, produce a net amount of $173,852. Reduced to a monthly average figure this becomes $14,488.
Schedule “D” to the relevant Furzer Crestani report discloses that in the year ended 30 June 2008, L & D Lowe Transport’s gross income was $274,292 and that its relevant expenses were $123,368 for fuel and oil, $2,190 for repairs and maintenance, $600 for tyres and tubes, $1,202 for tolls and $3,599 for travel expenses. These expenses amount to $130,959 which, when deducted from $274,292 produce a net figure of $143,333.
Using the same approach as was applied to Keldote, it emerges that in that part of the 2008 financial year following the termination of the Riteway work, L & D Lowe Transport’s monthly average earnings after deducting the variable expenses were $11,510, indicating a reduction in earnings of approximately $3,000 per month. I therefore find that the loss suffered by L & D Lowe Transport by reason of Riteway’s failure to give reasonable notice of termination of their contract was $9,000.
For Tambo Waters, its summary of profit and loss statements appearing in schedule “D” to the relevant Furzer Crestani report discloses that in the year ended 30 June 2007 its gross income was $309,570. From this should be deducted $134,280 for fuel and oil, $29,439 for repairs and maintenance and $2,196 for travel expenses, producing an annualised net amount of $143,655 which, when reduced to a monthly average figure amounts to $11,971.
Schedule “D” to the relevant Furzer Crestani report also discloses that in the year ended 30 June 2008 the gross income for Tambo Waters was $128,795 and that its relevant expenses were $46,746 for fuel and oil, $13,344 for repairs and maintenance and $301 for travel expenses producing a total of $60,391 which, when deducted from $128,795 produces a net figure of $68,404.
In his affidavit sworn 18 August 2009 Mr Stewart deposed that, following the termination of the Riteway relationship, he obtained some short term work with IPEC and then worked with Palm Trans as a contract driver until April 2009 when he accepted employment with Palm Trans. The PAYG payment summary attached to his tax return for the year ended 30 June 2008 discloses that that employment commenced on 23 April 2008, eight months after Riteway repudiated the contracts.
Based on these average figures, and assuming that in the first 1.75 months of the 2008 financial year Tambo Waters maintained its previous average monthly net earnings of $11,971, I conclude that in the eight month period after 23 August 2007 the monthly earnings for Tambo Waters, net of the specified variable expenses, declined by approximately $6,000 when compared with the preceding period. I find that the loss suffered by Tambo Waters by reason of Riteway’s failure to give reasonable notice of termination was $18,000.
Goodwill
Clause 11 of the Riteway-TWU agreement provided:
11. SALE OF VEHICLE WITH WORK
During the period of this agreement, only owner drivers as specified in Annex A herein are permitted to offer their vehicle for sale with work to a person approved by the company on the following terms and conditions;
a.The company will have the first right of refusal to purchase the vehicle in accordance with this clause.
b.The price shall be as specified in Annex A here to.
c.The new driver will spend two full working weeks with the retiring driver before settlement of any monies.
d.The new driver signs an acknowledgement that he/she is on trial for 13 weeks, and if not found to be suitable will be required to dispose of the vehicle on the same terms and conditions as purchased.
e.The new driver and the retiring driver acknowledge that the monies paid in respect of transfer are as per this agreement and in the event that any additional money is paid above this agreement, then the new driver will be terminated and the company entitled to recover such additional monies from the retired driver by way of liquidated damages for breach of this agreement.
Annex A to the agreement provided for a mechanism for the valuation of vehicles and for a “premium” of $20,000. It is that “premium” which has been described as “goodwill” in these proceedings and it was accepted by the parties to be an amount which an incoming driver would pay an outgoing driver, in addition to the cost of the vehicle(s), to take over the latter’s run. There was also evidence that if a contractor simply left, Riteway would pay out the goodwill. The figure was set at $20,000 in 1998 when the Riteway-TWU agreement was negotiated. Mr Mann’s evidence was that the figure operated as a cap and was fixed at that amount in order to avoid the situation seen in some other industries where similar goodwill payments had risen to very large sums.
The applicants submitted that the value of the goodwill they had in their contracts with Riteway had been lost because Riteway’s breach of contract denied them the chance to sell their business and recoup the $20,000. They invited the Court to assess damages based on loss of the opportunity to sell the goodwill. The applicants also submitted that Riteway was liable to them in damages for failing to pay them out the value of their goodwill. They further submitted that Riteway’s termination of their contracts destroyed the value of the goodwill in their businesses.
The applications claimed damages without particularising what loss and damage was allegedly suffered. On the afternoon of the final day of the hearing, the applicants sought leave to amend their applications to make explicit the claims for damages for loss of the goodwill. Although that application was refused, it had only been made out of abundant caution as the applicants submitted that, in the circumstances of the case, it was unnecessary. I accept that submission. The Furzer Crestani reports clearly particularised losses which the applicants claimed to have suffered by being unable to realise the goodwill which they had in their runs. It might also be noted that it was not considered necessary to apply to amend the applications to make explicit the earnings losses said to have been suffered by the applicants and Riteway made no complaint in this connection. Those claims were also detailed in the Furzer Crestani reports.
As Gummow ACJ observed in Tabet v Gett (2010) 265 ALR 227:
Chaplin v Hicks is authority for the proposition that if a plaintiff, by the breach of contract by the defendant, has been deprived of something which has a monetary value, there is to be an assessment of damages notwithstanding difficulty in calculation or impossibility of making an assessment with certainty. (references omitted) (at 239-240 [49])
However, before such an assessment need be performed, it is necessary for the applicants to prove on the balance of probabilities not only that a breach has occurred but also that they have suffered some loss or damage as a result.
Riteway submitted there was no evidence to support the applicants’ claims to have suffered the losses alleged. Although the applicants submitted that, given the evidence of Mr Mann, it was a near certainty that they would have sold their businesses, there was no evidence, whether from the applicants’ principals or from any other witness, that anybody was or might have been interested in purchasing the applicants’ vehicles and paying $20,000 for the runs in circumstances where it would have been apparent that, for the Sydney-Melbourne run, Riteway had no interest in contracting with drivers who only used single trailers. Further, and as an alternative scenario, no evidence was led concerning the existence of potential purchasers who were willing to use B-double trailers and accept the rate which Riteway was offering.
On a closely related point, no evidence was adduced which demonstrated that the runs were worth or would have realised $20,000, or indeed any lesser amount, on the open market. In this regard, although ostensibly fixed, I accept that the $20,000 figure was no more than a cap on the price which a vendor driver could charge a purchasing driver for the goodwill in the business and infer that Riteway would have had no objection were a run to be sold for less than that amount. In the circumstances, I find that the applicants have failed to prove that their runs were worth or could have been sold on the open market for $20,000 or a lesser amount.
Riteway also submitted that there was an air of unreality about the claim for goodwill because it could be inferred that it, Riteway, would not have countenance or approved of any sales of the runs in the absence of complying vehicles. In this connection it is important to observe that cl.11 of the parties’ contracts only permitted vehicles with work to be sold to persons approved by Riteway. The difficulty with this submission is that no evidence was adduced from Mr Mann as to what Riteway’s attitude would have been had the applicants sought to sell their vehicles and runs. Mr Mann was never asked whether any such approval would have been given to a person who proposed to use the applicants’ vehicles, although his response might be predicted. Nor was he asked whether approval would have been given to a purchaser with a B-double trailer. However, rather than draw an inference about what Riteway may or may not have done, I find instead that the applicants have failed to prove that, in the circumstances, they might have been able to obtain Riteway’s agreement to a sale of the runs in accordance with cl.11 of their contracts.
Nevertheless, as the applicants’ submissions indicated, a sale on the open market was not the only way in which they could have realised the goodwill in their runs. Mr Mann’s evidence was that drivers working with Riteway were entitled to be paid out the goodwill in their runs and that he paid such amounts four, five or six times a year as drivers left the business. He said:
It’s a contractual right they’ve got and there’s agreement with the union. (Transcript 15 September 2009, p.142)
Mr Mann conceded in cross-examination that if the applicants asked for the $20,000 they would be entitled to it:
A:... I don’t think we’d be able to not pay them sir. If they came and asked for it they’d be entitled to it. It’s in the contract.
Q:So if the three of them now said, “You can give us $20,000 each for leaving” would you give it to them?
A:Absolutely, sir.
Q:So it’s just merely there for the asking, if they ask for it?
A:Yes, sir. (Transcript 15 September 2009, pp.142-143)
It emerges from Mr Mann’s evidence that the practice of making such payments pre-dated these contracts and was the reason for the contractually imposed cap of $20,000:
Q: Why is that $20,000 called goodwill?
A:The chaps that have been driving for us, some of the chaps have been driving for us for a long time and there was a practice in the industry of people having a contract to perform work and creating value out of it and selling that on to other people. The company’s problem was we were always having to fund that goodwill when it increased. So back in the late 90s – 97, 98 – might have been around the time of this version of the contract, we had an agreement with them and we just capped the goodwill at $20,000 … (Transcript 15 September 2009, p.141)
The applicants submitted that Riteway’s failure to pay each of them $20,000 for the goodwill in their runs was “manifestly part of the damages of the loss of expectation”. However, they did not point to any particular term of their contracts, whether express or implied, which obliged Riteway to pay out the goodwill and it is not apparent that the contracts did oblige it to make those payments. Nevertheless, whether or not the contracts gave the applicants the right to require Riteway to purchase the goodwill in their runs, clearly this was its long-standing practice and an advantage which was an incident of providing services to Riteway.
A party is not liable for not doing what it has not promised to do. For instance, in Lavarack v Woods of Colchester Ltd [1967] 1 QB 278, it was held that damages for wrongful dismissal could not confer on an employee extra benefits which the contract did not oblige the employer to confer even though the employee might reasonably have expected them to be conferred in due course. However, this rule is subject to the rule in Hadley v Baxendale (1854) 9 Ex. 341 where it was relevantly held that a plaintiff is entitled to recover such damages as may reasonably be supposed to have been in the contemplation of both parties at the time they made the contract as the probable result of the breach of it: Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64 at 91-92, per Mason CJ and Dawson J. As was emphasised in Commonwealth v Amann Aviation, the general rule at common law is
… that where a party sustains a loss by reason of a breach of contract, he is, so far as money can do it, to be placed in the same situation, with respect to damages, as if the contract had been performed. (Robinson v Harman (1848) 1 Ex. 850 at 855, per Parke B)
As already observed, it was and continued to be Riteway’s long-standing practice to purchase from departing drivers the goodwill in their runs. In particular, according to Mr Mann, Riteway considered itself bound to pay out the applicants’ goodwill if they ceased providing services to Riteway, both because it understood the payment to be a contractual obligation and because there was “agreement with the union”. I infer that the practice of making these payments was one which, when entering into the contracts, the parties expected would continue as an incident of their contractual relationships. Consequently, receipt by the applicants of payment for the goodwill in their runs, were they to cease providing services to Riteway, was a distinct commercial benefit inevitably contemplated by the parties as enuring to the advantage of the applicants if they performed their contracts. This has the corollary that the parties necessarily contemplated the loss of a goodwill pay-out as the probable result of a repudiation of the contract by Riteway: Commonwealth v Amann Aviation at 92, per Mason CJ and Dawson.
A consequence of Riteway’s repudiation of the contract has been its failure to pay to each applicant the agreed figure representing the goodwill they had in their runs. In such circumstances, I find that the relevant loss suffered by each of the applicants was $20,000.
Given this finding it is not necessary to consider the applicants’ claims that Riteway’s “termination” of their contracts destroyed the value of the goodwill in their businesses.
Conclusion
For the above reasons I find that Riteway should pay damages to the applicants in the following sums together with interest from 23 August 2007:
a)Keldote: $30,800 plus interest of $8,272.12;
b)L & D Lowe Transport: $29,000 plus interest of $7,788.68; and
c)Tambo Waters: $38,000 plus interest of $10,205.87.
I certify that the preceding two-hundred and fifty-one (251) paragraphs are a true copy of the reasons for judgment of Cameron FM
Associate:
Date: 16 June 2010
CORRECTIONS
Paragraph 75 line 2 – delete “that motion” insert “the proceedings”.
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