Keldote Pty Ltd v Riteway Transport Pty Ltd
[2008] FMCA 1167
•22 August 2008
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| KELDOTE PTY LTD & ORS v RITEWAY TRANSPORT PTY LTD | [2008] FMCA 1167 |
| INDUSTRIAL LAW – Unfair contracts – Independent Contractors Act 2006 – unfairness and harshness to be determined as at the time when the contract was made – contract cannot become unfair or harsh as a consequence of subsequent events. INDUSTRIAL LAW – Unfair contracts – substantive and procedural issues – “unfair” – principles applicable when considering application for review under the Independent Contractors Act 2006. INDUSTRIAL LAW – Unfair contracts – provision in contract unfair – proper balance of advantage and disadvantage absent – contract varied – relief under the Independent Contractors Act 2006 – relief in the Court’s accrued jurisdiction. COURTS AND JUDGES – Independent Contractors Act 2006 – contracts on foot at commencement of proceedings – Court had jurisdiction to review the contracts even if no longer on foot at time of hearing. |
| Workplace Relations Act 1996 Industrial Arbitration Act 1940 (NSW) |
| Harding v EIG Ansvar Ltd (2000) 95 IR 349 Re Transport Workers Union of Australia (1993) 50 IR 171 Sydney Water Corporation Ltd v Industrial Relations Commission of NSW (2004) 61 NSWLR 661 Incitec Ltd v Industrial Court of NSW (1992) 29 NSWLR 83 Raisanen v Special Broadcasting Services Corporation [2001] FCA 1525 Jordan v Aerial Taxi Cabs Co-operative Society Ltd (2001) 108 IR 263 Byrne v Australian Airlines Ltd (1995) 185 CLR 410 A & M Thompson Pty Ltd v Total Australia Ltd [1980] 2 NSWLR 1 Kofler v Boral Gas (NSW) Pty Ltd [1996] NSWIRComm 216 Johnson v Buttress (1936) 56 CLR 113 Crescendo Management Pty Ltd v Westpac Banking Corporation (1988) 19 NSWLR 40 Davies v General Transport Development Pty Ltd [1967] AR (NSW) 371 Baker v National Distribution Services Ltd (1993) 50 IR 254 Michel v Ogilvy & Mather Pty Ltd (1996) 71 IR 417 Finch v Herald & Weekly Times Limited (1996) 65 IR 239 Aerial Taxi Cabs Co-operative Society Ltd v Lee (2000) 178 ALR 73 West v AGC (Advances) Ltd (1986) 5 NSWLR 610 Minister for Youth & Community Services v Health & Research Employees’ Association of Australia, NSW Branch (1987) 10 NSWLR 543 Walker v Industrial Court of New South Wales (1994) 53 IR 121 Lavings v Barclay Mowlem Construction (NSW) Ltd (1994) 99 IR 247 Rothmans Distribution Services Ltd v Full Court of the Industrial Court of New South Wales (1994) 53 IR 157 Stevenson v Barham (1977) 136 CLR 190 Port Macquarie Golf Club Ltd v Stead (1996) 64 IR 53 Buchmueller v Allied Express Transport Pty Ltd (1999) 88 IR 465 Westpac Banking Corporation v Cockerill (1998) 152 ALR 267 Parras Holdings Pty Ltd v Commonwealth Bank of Australia [1999] FCA 391 |
| 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: | 7 & 9 May 2008 |
| Date of Last Submission: | 9 May 2008 |
| Delivered at: | Sydney |
| Delivered on: | 22 August 2008 |
REPRESENTATION
| Counsel for the Applicant: | Mr I. Latham |
| Solicitors for the Applicant: | Turner Freeman |
| Counsel for the Respondents: | Mr A. Moses |
| Solicitors for the Respondents: | Blake Dawson |
ORDERS
In respect of each applicant’s contract with Riteway, 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 word “vehicle” where second appearing the following words:
having specifications reasonably equivalent to the vehicle to be replaced.
The matters stand over for consideration of the applicants’ claims for damages and injunctions.
| 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
Introduction
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”.
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 contracts in this case were on foot at the commencement of the proceedings. The parties have agreed that the Court has jurisdiction to hear and determine applications in respect of contracts which have been terminated. In this regard, although in Harding v EIG Ansvar Ltd (2000) 95 IR 349 Spender J appears to have doubted the Federal Court’s power under the then s.127A of the Workplace Relations Act 1996 to make orders varying a contract which had come to an end, he was prepared to proceed on the basis that the court could, given the respondent’s concession to this effect. In Re Transport Workers Union of Australia (1993) 50 IR 171 at 195, Munro J concluded in relation to the same provision, then in the Industrial Relations Act 1988, that if a contract was in existence at the time of the commencement of the proceedings then the Australian Industrial Relations Commission (“AIRC”) could consider it. In New South Wales the position is that the termination of a contract will not prevent a court from reviewing it under s.106 of the Industrial Relations Act 1996 (NSW): Sydney Water Corporation Ltd v Industrial Relations Commission of NSW (2004) 61 NSWLR 661 at 669 [28] and 671 [40]; Incitec Ltd v Industrial Court of NSW (1992) 29 NSWLR 83 at 87.
I conclude that the Court has jurisdiction to review the contracts even if, at the time of hearing, they were no longer on foot.
The claims
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.
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.
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”) because:
a)the relative strengths of the bargaining positions of the parties to the contracts and any persons acting on behalf of the parties were unequal;
b)the contracts did not include a clause providing for adequate mediation or arbitration of issues in dispute by an agreed independent mediator and/or arbitrator;
c)the contracts provided total remuneration that was, or was likely to be, less than that of an employee performing similar work;
d)the terms of the contracts provided that Riteway could compel the purchase by the applicants of new equipment without adequate consideration;
e)the terms of the contracts provided that the payment of goodwill upon the sale of the right to work under the contract was capped at $20,000;
f)the mechanism by which the amounts payable under the contracts were formulated was entirely determined by Riteway and was kept secret by Riteway; and
g)the contracts were never reduced to writing.
In their written outline of submissions the applicants also submitted that the contracts were unfair because they contained no term requiring that negotiations over the purchase of new equipment and the price of a run be conducted in good faith.
In their amended applications, the applicants seek orders that:
a)the contracts be reduced to writing;
b)the contractual term limiting to $20,000 the value of each of the applicants’ goodwill (in its relationship with Riteway) be declared void;
c)each contract be varied by the inclusion of the following term:
(a)in the event that the contract is terminated in such a way as to so as to substantially reduce or negate the value of the goodwill in the applicant’s business, the respondent shall pay to the applicant either:
(i) Where the respondent takes possession and ownership of the applicant’s prime mover and trailer, an amount equal to the applicant’s income received from the respondent in the preceding year, or
(ii) Where the respondent does not take possession or ownership of the applicant’s prime mover and trailer, an amount equal to the applicants [sic] income received from the respondent in the preceding year less an amount determined to be the market value of the primer mover and trailer at the time of termination.
d)the terms of the contracts allowing Riteway to compel the applicants to purchase new equipment be varied to require Riteway to pay to the applicants the net cost of such new equipment;
e)the contracts be varied to provide for binding mediation and arbitration of disputes;
f)the contracts be varied to require Riteway to pay the applicants sufficient amounts to permit them to make adequate provision for the payment of ordinary wages, allowances, overtime, paid sick leave, rostered days off, public holidays, annual leave and superannuation to those persons providing labour to the applicants;
g)Riteway be restrained from breaching the above orders; and
h)Riteway pay damages for breach of contract and, in the Keldote matter, damages under the Trade Practices Act 1974.
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
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.
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.
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
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.
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.
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.
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).
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).
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.
Discussions and negotiations between the parties
L & D Lowe Transport Pty Limited
Principal, Leonard Lowe
In his affidavit sworn 22 February 2008 Mr Lowe referred to a 1998 meeting held with Riteway management as a result of which he prepared a memorandum to his fellow linehaul contractors indicating that:
a)the linehaul group had agreed to a goodwill cap of $20,000;
b)Riteway indicated that it wished an agreement with the linehaul drivers to be signed by 20 March 1998; and
c)he had agreed on behalf of linehaul drivers that their vehicles should be replaced every six to eight years.
Ultimately, no written agreement was ever signed.
In 2000 Adam Turnbull, then Riteway’s National Operations Manager, said to Mr Lowe that were there to be a downturn in work, the priority loading drivers would get preference over the B/double trailers supplied by Bunker Freight Services. However, a couple of years later Mr Kent said to Mr Lowe when reminded of this conversation:
Bad luck, times change.
Since 2001 there were no increases in the freight rates paid to the applicants other than a 9% surcharge to compensate for increased fuel costs.
In his affidavit sworn 14 April 2008, Mr Kent deposes to having said to Mr Lowe on 23 February 2006 that “[g]oing forward, your current unit is going to need to be a B/double”. Mr Kent says that in mid-December 2006, he said to Mr Lowe that early the following year Riteway would be looking at moving to B/doubles to which Mr Lowe is said to have said:
That’s okay as long as the rate’s alright. You work out the cost per foot, times that by the additional footage and compare that to our current rate. That’s how you work out the extra percentage to pay us.
Mr Lowe’s evidence was that in 2007 he was driving a 2001 model Kenworth prime mover which he had bought in 2001 which pulled a pantechnicon 45 feet in length.
Mr Kent disagreed that Mr Lowe’s proposal would be an appropriate basis upon which to calculate additional payments because, he says, operating a B/double trailer would not increase a driver’s overheads and cost of labour by the same percentage as the percentage increase in footage. Subsequently, Riteway performed a calculation of what it considered to be an appropriate amount to pay for the run between Sydney and Melbourne were the applicants to convert to B/double trailers noting that, amongst other things, additional fuel would be consumed and each of the applicants would need to purchase a lead trailer which would incur additional registration costs.
The applicants calculated that the principal extra costs associated with using B/double trailers were the cost of the trailer itself, the extra wear and tear on the prime mover’s engine, tyres and brakes, extra fuel costs arising out of the heavier load which would be pulled and shortened engine warranties because of additional fuel consumption. Mr Lowe calculated that it would cost him an extra $350 per night to purchase an extra trailer and run the route in a B/double configuration.
In a meeting on 17 March 2007 Riteway told the applicants that if they converted to the B/double configuration they would be paid $1,412 per trip between Sydney and Melbourne. At that time they were being paid $1,194 for driving the route with the configuration they then had.
The applicants conferred and each put a counter-offer to Riteway of $1,500 per trip which was rejected.
Annexed to the affidavit of Mr Kent sworn 14 April 2008 was a letter sent to him by Mr Lowe dated 25 March 2007 to which was attached a breakdown of his costings associated with purchasing the equipment required by Riteway and the cost of maintaining it. According to Mr Lowe’s calculations this amounted to an extra $328.64 per night.
Mr Lowe conceded that these costings were based on discussions with other owners as well as on his own researches.
In its letter of 29 March 2007 Riteway reiterated the offer it had put in the meeting of 17 March 2007.
Keldote Pty Limited
Principal, Paul Mansweto
Mr Mansweto’s company commenced working with Riteway in 2002 when he acquired the business from another driver. Although the document executed by him when buying the existing run referred to the TWU agreement, he deposed to never having seen it prior to the commencement of these proceedings. He also said that in addition to the terms and conditions contained in that agreement there were terms which dealt with:
a)the rate paid;
b)the provision of a fuel surcharge (which took account of fluctuating fuel prices and was applied to the regular contract payments);
c)working hours;
d)responsibilities to supervise loading of the vehicle;
e)leave procedures;
f)insurance policies; and
g)public holidays.
In September 2005 Mr Mansweto had a conversation with Martin Green, then the National Linehaul Manager of TNT, Riteway’s parent company. Following that conversation Mr Mansweto replaced his six year old Kenworth prime mover with a new one which could be configured to pull a B/double combination.
Mr Mansweto deposed that after the 17 March 2007 meeting referred to above at [27] he and Messrs Lowe and Stewart and one other driver discussed the rates under consideration and decided to offer to accept $1,500 per trip. Mr Mansweto then wrote to Riteway on 19 March 2007 enclosing a breakdown of his calculations of the additional expenses he believed would be associated with upgrading to a B/double combination and offered the $1,500 rate. He says that Riteway advised him that they were not willing to make any further offer and insisted that the rate of $1,412 per trip they had offered was the only one they were willing to pay, it representing an additional $218 per trip.
Mr Mansweto went to a colleague who assisted him in the calculation process and also spoke to a finance broker in relation to financing costs of an additional trailer and obtained a quotation for a new trailer.
His recollection was that the $1,500 figure was not put to Riteway at the 17 March 2007 meeting although Mr Stewart of Tambo Waters Pty Ltd said that it was. Mr Mansweto conceded that he may have said to Riteway that he might be able to do the run for $1,500. Whatever the case, the upshot of the meeting with Riteway management was that the linehaul drivers were to go away and consider their position on price in light of what Riteway was offering. Mr Mansweto said that after the meeting that day with Riteway management, the applicants’ principals went for a coffee and decided to redo their costings.
Mr Mansweto conceded that he had understood that if an agreement on price could not be reached the contract would come to an end. He also conceded that Riteway could require a replacement of trucks every five years, noting that he had already purchased a new vehicle approximately eighteen months beforehand in order to do B/double work.
Mr Mansweto also conceded that he received a letter from Riteway offering him $1,412 for each trip together with additional benefits, or $20,000 for the goodwill and an end to their relationship (see [15] above). Following receipt of that letter he went to see Turner Freeman who sought additional time from Riteway during which period Mr Mansweto looked into purchasing a second-hand trailer. He decided, after research, that a second-hand trailer was not a viable option. He concluded that he could not acquire a new trailer and provide the service to Riteway that it required at the price which was being put. He started to look around for other work although he had not secured a job before he left Riteway.
By August 2007 Mr Mansweto had not purchased a vehicle in conformity with Riteway’s request and although he wanted to keep working for Riteway he wanted to do so on the existing terms and conditions. He said he was not going to purchase a B/double trailer and work at the rates proposed. He said that the calculations were performed all on his own and although all the applicants did discuss the rates which would be put, they had calculated them individually.
Mr Mansweto deposed that, having given consideration to the Riteway offer, he came to the opinion that he would suffer an annual net loss in personal income of between $20,000 and $30,000. He was of the view that the Riteway offer effectively “reduced our wages” by more than $100 per night while the offer he put was “simply intended to keep my wages at about the same level” as they had been. However, he conceded in cross-examination that when calculating his counter-offer to Riteway he did not analyse how accepting the offer would have affected his company’s bottom line and whether it would have led to a reduction in profitability.
He agreed that the $20,000 figure for goodwill came from the Riteway-TWU agreement and that it was common knowledge within the company. He conceded that the $20,000 goodwill figure was included in his company’s financial statements.
Tambo Waters Pty Ltd
Principal, Lindsay Stewart
Mr Stewart said that when he first started working with Riteway in the early 1990’s a man from Riteway named Dave Gronow told him that buying a Riteway run from a retiring driver, as he was doing
... entitles you to sell your job at a later time.
Mr Stewart also deposed to having received Mr Lowe’s memorandum of 27 February 1998, following the latter’s meeting with Riteway management on behalf of the linehaul drivers
… which indicated that the $15,000.00 upfront payment was to be increased across the company to $20,000.00, but there would be no further increase in the future.
Mr Stewart deposed that since about 2000, there was no increase in the rate paid to the linehaul drivers other than the introduction of a fuel surcharge in about 2005.
In 2001 Mr Stewart purchased a Kenworth truck with a 45 foot trailer. He said that prior to 2006 there was talk that Riteway would follow other companies and go to B/double trailers but someone in the company said that Riteway was not ready to do it yet because of freight volumes and other issues.
After having received the Riteway letter of 5 February 2007 he discussed the matter with the other drivers. A meeting with Riteway took place on 17 March 2007 where Mr Mansweto said that the drivers could do the new run for $1,500 per night. Mr Stewart found the figure acceptable although he believed it meant that his business would be slightly less profitable than previously. Mr Kent of Riteway rejected the $1,500 proposal and said that Riteway would pay an additional $218 per night and nothing more.
Following the meeting, Mr Stewart received the 29 March 2007 letter setting out the two options proposed by Riteway.
Mr Stewart said that his response to the Riteway offer was based on the best figures he could get, his offer being a ball-park figure of what it would cost him to move to the required configuration. When working out his figures, Mr Stewart spoke to a friend in Albury and asked his advice on the proper costing. He calculated that an extra $300 should be paid for each run based on figures he obtained from friends and after having discussed the matter with his accountant.
Mr Stewart said that he did not deal with the company’s figures; it was his wife who did the books and he inferred that his wife had spoken to their accountant.
Mr Stewart emphasised that the linehaul drivers’ figures were a little different from each other although they were all of the view that $1,500 was the lowest figure at which they could do the run and provide Riteway with the service it wanted. When calculating his counter-offer Mr Stewart did not take into account his company’s profit and loss although he knows his wife and his accountant did.
In his correspondence with Riteway, Mr Stewart was helped by colleagues but generally left the matter to his accountant. However, he conceded that his letter to Mr Kent dated 2 April 2007 seeking an additional rate of $306 after the introduction of the B/doubles was identical to Mr Lowe’s letter to Mr Kent dated 25 March 2007. Both letters attached identical schedules setting out the figures those men proffered as a breakdown of their additional expenses upon an introduction of B/double trailers.
Initially Mr Stewart intended to accept the $20,000 offer by Riteway but, following discussions with his wife, reconsidered.
Mr Stewart agreed that he knew that Riteway could, every five years, require an alteration to the vehicle he drove, and, by March 2007, his vehicle was nearly seven years old. He also knew that rates could be negotiated with Riteway and if there was no agreement, the parties could part ways. He said that he had started looking for other work before 23 August 2007.
He paid $15,000 for goodwill and had no problem with the rate of pay he received from Tambo Waters.
Ultimately, Mr Stewart’s position was that he and the other linehaul drivers were put in a position where they were offered a rate which was unfair because they could not do the work at that rate.
Riteway
Peter Mann, Riteway’s General Manager, recalled the Riteway-TWU agreement negotiated in 1998 as, at that time, he was New South Wales State Manager for Riteway and involved in the negotiations. He deposed that TWU delegates represented Riteway’s drivers including the linehaul contractors and an agreement was reached on behalf of those operators. Mr Mann deposed in his affidavits sworn 21 August 2007 that he understood from his discussions with Messrs Lowe, Mansweto and Stewart, who referred to the terms of the Riteway-TWU agreement, that they were familiar with its terms. Mr Mann deposed in his affidavit sworn 14 April 2008 in the L & D Lowe Transport proceedings to not recalling the priority loading drivers seeking an increase to their rate for providing services to Riteway with single trailers, other than increases to the fuel surcharge, in the period July 2003 to March 2007.
In cross-examination Mr Mann said that Riteway increased the rates to address the extra expenses associated with the B/double proposal. The rate which was put to the linehaul drivers was based on the rate charged by Bunker Freight Services together with a premium for these drivers and taking into account the other benefits they were enjoying. Even so, Mr Mann conceded that Riteway did not give the linehaul contractors any assistance in the calculation of the additional expenses they would be incurring, notwithstanding that it had considerable resources and had employed them itself to arrive at its proposed figures.
In relation to the B/double proposal, Mr Mann said that each of the linehaul contractors was encouraged to make their own decision in relation to the proposal. However, there was no doubt that Riteway wanted to change equipment.
Mr Mann denied the proposition that there was a strategy at Riteway to avoid, in relation to the linehaul contractors, any obligations which might fall to Riteway because of a contract determination which was to be made in the New South Wales Industrial Relations Commission later in 2007.
Mr Kent deposed that he had considered that the figures proposed by the linehaul contractors were unreasonably high because they variously overestimated trailer payments, trailer insurance and fuel costs. Notwithstanding that the figure proposed by Riteway was not the amount sought by the applicants, he deposed that it was, nevertheless, higher than the rates paid by Riteway to other contractors.
In his evidence Mr Kent said that once a driver bought a run he had a right to work and Riteway would give him work, noting that Mr Lowe had started in 1988, Mr Stewart in 1992 and Mr Mansweto in 2002. Mr Kent expressed the view that the commercial relationship between the parties was governed by the 1998 Riteway-TWU agreement together with unwritten terms such as the rates to be paid and the requirement to turn up to work. Mr Kent said that Riteway wanted to maintain its relationship with the linehaul contractors and pay them a rate acceptable to them and profitable to it. However, Riteway needed the contractors to upgrade to do the job it required them to do.
Mr Kent said that he did not believe that Riteway had terminated the relationship with the linehaul contractors but that they had said that they would cease to provide services to Riteway. He observed that Riteway had given the drivers six months’ notice in writing of its intention to change the manner of service provision and he was of the view that if they did not comply with the request they would no longer be within the terms of the agreement because they would not be meeting their obligations under the contract.
He said that the rate which was offered to the drivers was based on their base rate together with the extra cost of pulling the new trailer; it was not extrapolated from the price for which Bunker Freight Services would do the work. Riteway had all the relevant details and arrived at a trip price which it put to the drivers and in respect of which it asked them to submit their price.
The $1,412 trip rate was Riteway’s maximum figure in respect of which it wished the drivers to negotiate although an additional $10-$20 per run might have been conceded. Whatever the case, Mr Kent said that Riteway would not pay $3,000 for a return trip which was already being done for $2,730 by another contractor. Even so, Mr Kent was taken in cross-examination to memoranda prepared by him which indicated that the offer Riteway put to the applicants was less than the amount which Riteway had calculated the run would actually cost the applicants were they to use the B/double trailer combination Riteway required.
Mr Kent’s evidence was that the cost to Riteway of terminating the drivers was not something which had been discussed. However, he was taken to Exhibit 14 which was evidence that consideration had been given to terminating the drivers and that doing so might have had an adverse impact on Riteway if such a termination was subject to the contract determination about to be made by the New South Wales Industrial Relations Commission.
Legislation
Section 12
Section 12 of the ICA provides:
12 Court may review services contract
(1) An application may be made to the Court to review a services contract on either or both of the following grounds:
(a) the contract is unfair;
(b) the contract is harsh.
(2) …
(3) In reviewing a services contract, the Court must only have regard to:
(a) the terms of the contract when it was made; and
(b) to the extent that this Part allows the Court to consider other matters—other matters as existing at the time when the contract was made.
(4) For the purposes of this Part, services contract includes a contract to vary a services contract.
“Services contract” is defined in s.5 relevantly in the following terms:
5 Services contract
General meaning
(1) A services contract is a contract for services:
(a) to which an independent contractor is a party; and
(b) that relates to the performance of work by the independent contractor; and
(c) that has the requisite constitutional connection specified in subsection (2).
The requisite constitutional connection
(2) A contract for services has the requisite constitutional connection if:
(a) at least one party to the contract is:
(i) a constitutional corporation; or
(ii) the Commonwealth or a Commonwealth authority; or
(iii) a body corporate incorporated in a Territory in Australia; …
The applicants made general submissions about the relevance of possible contract variations to the question of when each of the contracts should be considered to have been made. Although reference was made to Raisanen v Special Broadcasting Services Corporation [2001] FCA 1525, Harding v EIG Ansvar Ltd at 357 [37] and Jordan v Aerial Taxi Cabs Co-operative Society Ltd (2001) 108 IR 263 at 273-274 [36], the requirement on the Court to limit its considerations to the terms of a contract at the time it was made, and the circumstances surrounding its formation as they existed when it was made, is now explicit in s.12(3) of the ICA.
Further and notwithstanding those submissions, in response to a question from the Court the applicants disclaimed any reliance on any possible post-inception variations of the contracts as fixing, for the purposes of s.12, the date when any of the contracts were made. The applicants put their cases on the basis that the relevant date for each contract was the date when each of them first entered into their contract with Riteway based on the Riteway-TWU agreement. In respect of Tambo Waters Pty Ltd that was in 1998 and in respect of Keldote Pty Ltd that was in May 2002. Although 1998 was identified as the relevant date for L & D Lowe Transport Pty Ltd, that company was not incorporated until 29 May 2003, so the commencement of its contract with Riteway could not have been earlier than that date. For the purposes of these proceedings I shall assume that L & D Lowe Transport’s contract commenced on the first working day after its incorporation, namely 30 May 2003.
The applicants submitted that when considering how to apply s.12 regard should be had to Byrne v Australian Airlines Ltd (1995) 185 CLR 410 where McHugh and Gummow JJ said in the context of the termination of employment:
It may be that the termination is harsh but not unjust or unreasonable, unjust but not harsh or unreasonable, or unreasonable but not harsh or unjust. In many cases the concepts will overlap. Thus, the one termination of employment may be unjust because the employee was not guilty of the misconduct on which the employer acted, may be unreasonable because it was decided upon inferences which could not reasonably have been drawn from the material before the employer, and may be harsh in its consequences for the personal and economic situation of the employee or because it is disproportionate to the gravity of the misconduct in respect of which the employer acted. (at 465 [128])
In considering the meanings of “unfair” and “harsh”, the applicants referred to the decision of Munro J in Re Transport Workers Union of Australia where his Honour said in the AIRC:
It is both well established and widely recognised that industrial tribunals have avoided rigidity in defining terms such as “unfair” and “harsh”. Those words are not terms of art. They should be understood by a commonsense approach, as words in common usage with no special or technical meaning. (at 214)
Even so, the applicants limited their criticisms of the contracts to their fairness. No submission of substance was made that the contracts were harsh.
Reference was made to A & M Thompson Pty Ltd v Total Australia Ltd [1980] 2 NSWLR 1 where Perrignon and Dey JJ of the New South Wales Industrial Commission said when considering the then s.88F of the Industrial Arbitration Act 1940 (NSW), a precursor of s.12:
It has been said that fairness is determined by the commonsense approach of a juryman, and that it is a moral and not a legal issue. … Whether this be so or not, it does seem that, in distinguishing between what is fair and what is not fair, the judge must apply standards which appear to him to provide a proper balance or division of advantage and disadvantage between the parties who have made the contract or arrangement. (at 13 [69])
In Kofler v Boral Gas (NSW) Pty Ltd [1996] NSWIRComm 216, Hill J said in the penultimate paragraph of his judgment in the New South Wales Industrial Commission when considering the then s.275 of the Industrial Relations Act 1991 (NSW):
A contract is unfair within the meaning of the statute if it imposes or permits the imposition on a party of some burden, disability or disadvantage or fails to accord to a party a benefit or advantage, which, in all of the relevant circumstances and having regard to ordinary standards of reasonableness and fair dealing, is unfair.
Section 15
The powers of the Court in conducting a s.12 review are set out in s.15 of the ICA:
15 Powers of Court
(1) In reviewing a services contract in relation to which an application has been made under subsection 12(1), the Court may have regard to:
(a) the relative strengths of the bargaining positions of the parties to the contract and, if applicable, any persons acting on behalf of the parties; and
(b) whether any undue influence or pressure was exerted on, or any unfair tactics were used against, a party to the contract; and
(c) whether the contract provides total remuneration that is, or is likely to be, less than that of an employee performing similar work; and
(d) any other matter that the Court thinks is relevant.
(3) If the Court forms the opinion that a ground referred to in subsection 12(1) is established in relation to the whole or a part of the services contract, the Court must record its opinion, stating whether the opinion relates to the whole or a specified part of the contract.
(4) The Court may form the opinion that a ground referred to in subsection 12(1) is established in relation to the whole or a part of the services contract even if the ground was not canvassed in the application.
The applicants did not make any submissions specifically addressed to the meaning of s.15(1)(a). However, in the context of s.12 they did refer to A & M Thompson Pty Ltd v Total Australia Ltd where Perrignon and Dey JJ had said, relevantly for s.15, that when considering whether a contract is unfair, the Court
… would always have to bear in mind the conduct of the parties, their capability to appreciate the bargain which they had made and their comparative bargaining positions when entering into the contract or arrangement.
Again, in our opinion, a case involving the issue of unfairness of a contract cannot be disposed of simply by concluding that the complaining party was fully aware of the nature of the transaction before entering into it, and later came to regret the bargain. It is insufficient to claim, as Total has done here, that the Thompsons “had their eyes open” when they entered into the subject licence agreement in 1977. Section 88F envisages a much more searching examination of the circumstances than that. Otherwise, its purpose would not be achieved.
… One looks to see whether there were genuine negotiations between the parties prior to the contract; whether it can be said that the contract was “moulded” by negotiation; or whether, on the other hand, it was the case of the imposition of a “standard form” upon a party, who had no choice but to “take it or leave it”. (at 13-14 [69], [70], [71])
As to s.15(1)(b), although the applicants did address submissions to the meanings to be ascribed to “undue influence” and “pressure” by reference to Johnson v Buttress (1936) 56 CLR 113 and Crescendo Management Pty Ltd v Westpac Banking Corporation (1988) 19 NSWLR 40 respectively, they made no allegation that the contracts were entered into in circumstances of undue influence or pressure.
Section 16
If, having had regard to the matters identified in s.15, the Court finds that the contract in question is unfair or harsh, it may make the orders referred to in s.16:
16 Orders that Court may make
(1)If the Court records an opinion under section 15 in relation to a services contract, the Court may make one or more of the following orders in relation to the opinion:
(a) an order setting aside the whole or a part of the contract;
(b) an order varying the contract.
(2) An order may only be made for the purpose of placing the parties to the services contract as nearly as practicable on such a footing that the ground on which the opinion is based no longer applies.
(3) If an application under this Part is pending, the Court may make an interim order if it considers it is desirable to do so to preserve the position of a party to the services contract.
(4) An order takes effect on the date of the order or a later date specified in the order.
(5) A party to the services contract may apply to the Court to enforce an order by injunction or otherwise as the Court considers appropriate.
(6) Subject to section 14, this section does not limit any other rights of a party to the services contract.
Consideration
“Unfair”
The ICA does not define the meaning of “unfair”. The Macquarie Dictionary (rev 3rd ed.) defines it as:
1. not fair; biased or partial; not just or equitable; unjust. 2. marked by deceptive dishonest practices
and the New Shorter Oxford English Dictionary relevantly defines it as:
Not equitable, unjust; not according to the rules, partial.
There is a body of authority in New South Wales dealing with the meaning of “unfair” where it has been used in the provisions which can be considered to be precursors or predecessors of ss.12 and 15 of the ICA. Principal amongst those appear to be Davies v General Transport Development Pty Ltd [1967] AR (NSW) 371, A & M Thompson Pty Ltd v Total Australia and Baker v National Distribution Services Ltd (1993) 50 IR 254. Those cases, and others which refer to them, reveal that a determination of whether a contract is unfair will not turn on an analysis of decided cases but will be a matter of individual assessment in each case. However, it is also clear that there must be a balance of advantage and disadvantage to each party to a contract, in which neither party is disproportionately advantaged or disadvantaged, and which is to be judged by ordinary standards of fairness. As Glynn J said in Michel v Ogilvy & Mather Pty Ltd (1996) 71 IR 417, to be fair, a contract, or a provision in a contract, has to be fair to both parties.
Operation of ss.12 and 15
As already observed, ss.12 and 15 have, as predecessors, current and former provisions in the industrial relations statutes of New South Wales. However, there are important differences between them, not least the fact that the state Acts have permitted the fairness of a contract to be determined not only as at the date when it was entered into but also as at later times if subsequent events have rendered the contract unfair. Under the ICA, the assessment may be made only as at the time the contract was made: s.12(3). See also Harding v EIG Ansvar Ltd; Finch v Herald & Weekly Times Limited (1996) 65 IR 239; Aerial Taxi Cabs Co-operative Society Ltd v Lee (2000) 178 ALR 73. That is to say, for the purposes of a review under the ICA a contract cannot, once made, become unfair or harsh as a consequence of subsequent events.
The Contracts Review Act 1980 (NSW) is concerned with the review of unjust contracts but is different from that state’s industrial relations statutes in that, although it permits the New South Wales courts to review a contract to determine whether it or one of its provisions is unjust, such a review must consider that question in the circumstances relating to the contract at the time it was made. In that respect it is similar to the ICA. It is also similar to the ICA in that amongst the matters to which the New South Wales courts shall have regard when conducting a review under that Act are the form and content of the contract as well as the manner or circumstances in which it was made. Under the Contracts Review Act relief is available when a contract or one of its provisions is unjust and, in determining whether the contract is unjust, the court is to have regard to matters such as material inequality in bargaining power between the parties and whether any undue influence, unfair pressure or unfair tactics was exerted on or used against the party seeking relief.
The operation of the Contracts Review Act was considered in West v AGC (Advances) Ltd (1986) 5 NSWLR 610 where McHugh JA said, Hope JA agreeing:
Under s.7(1) a contract may be unjust in the circumstances existing when it was made because of the way it operates in relation to the claimant or because of the way in which it was made or both. … In other cases the contract may not be unjust per se but may be unjust because in the circumstances the claimant did not have the capacity or opportunity to make an informed or real choice as to whether he should enter into the contract. … More often, it will be a combination of the operation of the contract and the manner in which it was made that renders the contract or one of its provisions unjust in the circumstances. Thus a contract may be unjust under the Act because its terms, consequences or effects are unjust. This is substantive injustice. Or a contract may be unjust because of the unfairness of the methods used to make it. This is procedural injustice. Most unjust contracts will be the product of both procedural and substantive injustice. (at 620)
Those concepts of substantive and procedural injustice are relevant to an understanding of the operation of ss.12 and 15 of the ICA. In the context of the ICA, the substantive issue is whether the contract is unfair or harsh by its very terms; the procedural issue is whether it is unfair or harsh because of the means by or circumstances in which agreement was reached.
Substantive issues
As noted above at [79], the requirement under s.12(3) that the Court may only consider whether the contract is substantively unfair or harsh by reference to the terms of the contract at the time it was made is to be distinguished from the situation in New South Wales industrial relations statutes where a contract might also be found to be unfair because events subsequent to the parties entering into it had made it so, as considered in Minister for Youth & Community Services v Health & Research Employees’ Association of Australia, NSW Branch (1987) 10 NSWLR 543 at 560 per McHugh JA and Walker v Industrial Court of New South Wales (1994) 53 IR 121 per Kirby P at 133-134.
Notwithstanding this difference in approach, some New South Wales decisions in this area can illuminate aspects of the ICA’s operation. For instance, although in relation to the possible unfairness of a contract’s terms the Court must only have regard to the terms of the contract when it was made, later events may demonstrate that aspects of a contract were unfair or harsh from the outset: Lavings v Barclay Mowlem Construction (NSW) Ltd (1994) 99 IR 247 at 254. As was said in Rothmans Distribution Services Ltd v Full Court of the Industrial Court of New South Wales (1994) 53 IR 157:
As to the point that the Full Court, in considering fairness, looked at conduct rather than the terms of the contract, I think that what the Full Court did was to consider how the terms of the contract operated in practice at the time of termination (which necessarily means looking at the conduct of Rothmans) and to conclude that a contract which could so operate was unfair. I see no jurisdictional error in this. (per Priestley JA at 160, Kirby P and Meagher JA agreeing)
An example in the federal jurisdiction is Harding v EIG Ansvar where Spender J, after having considered at some length evidence adduced by the parties concerning the course of their business relationship, found that the applicant’s insurance agency agreement had been unfair from the outset.
Consequently, while in these proceedings much of the evidence adduced by the applicants was irrelevant to the matters which the Court had to consider, evidence which could be related to the question of whether the contract operated unfairly or harshly in 2007 because it had always been unfair and harsh, perhaps in a respect which had not previously been identified, was relevant to be considered.
The applications in these cases also made much of the absence of particular provisions from the contracts and the question of whether such omissions meant that the contracts were unfair. Such allegations suggest that the contracts became unfair in the way that events unfolded, rather than because they were unfair from the outset. It might indeed be said that the absence of these provisions meant that when Riteway required the change to B/doubles, the contracts became unfair because they did not protect the applicants against this imposition. However, even if that is so given the events of 2007, the task for the applicants in these proceedings is to demonstrate that the omission of those provisions meant that the contracts were unfair at the time the parties made them. That is to say, the applicants must demonstrate that, in order to be fair when they were made, the contracts should have included the provisions in question.
Procedural issues
Whether a contract is unfair or harsh may also be determined by addressing the procedural issue of how it came to be made and the circumstances of its negotiation. A contract cannot be unfair or harsh simply because its terms could have been more advantageous than the ones which were actually agreed on. As Hill J said in the penultimate paragraph of his reasons for judgment in Kofler v Boral Gas (NSW) Pty Ltd:
In my opinion, it is not, as a general rule, open to the Court to find that a contract is unfair simply because it could be more generous or more “fair” than it already is; it is either fair or it is not fair.
Similarly, in West v AGC (Advances) Ltd McHugh JA said:
If a defendant has not been engaged in conduct depriving the claimant of a real or informed choice to enter into a contract and the terms of the contract are reasonable as between the parties, I do not see how that contract can be considered unjust simply because it was not in the interest of the claimant to make the contract or because she had no independent advice. (at 621)
However, a contract’s terms may be unfair or harsh because agreement was reached in circumstances of disadvantage. Section 15 deals with such circumstances.
In Re Transport Workers Union of Australia at 217, Munroe J said in relation to the reference to unequal bargaining strength in the former s.127A of the Industrial Relations Act1988, that the assertion by one party of a favourable bargaining position would only cause a contract to be unfair or harsh if the substantive effects produced by the assertion of that position justified the contract being considered to be unfair or harsh. This reflects the comments of McHugh JA in West v AGC (Advances) Pty Ltd at 621:
… notions of unfairness and unreasonableness will, I think, generally be present when a contract or any of its provisions is declared unjust. This will particularly be the case where procedural injustice is relied on. If a contract or one of its relevant provisions is neither unfair nor unreasonable so far as the applicant is concerned, it is difficult to see how the existence of inequality in bargaining power or lack of independent advice, for example, can render the contract or a provision of the contract unjust.
His Honour continued:
The late Professor Peden who was largely responsible for the drafting of the [Contracts Review Act] has said that in accordance with his recommendation:
“ … the Act does not include the term “unfair” since this might have been interpreted to include situations in which, although the contract favours one party, there has been no abuse of power or unfair conduct on his part” …
This passage brings out the important point that, under this Act, a contract will not be unjust as against a party unless the contract or one of its provisions is the product of unfair conduct on his part either in the terms which he has imposed or in the means which he has employed to make the contract. In this respect it stands in marked contrast with the provisions of the Industrial Arbitration Act 1940, s.88F, which provides, inter alia, that the Industrial Commission may declare certain types of contract or arrangements void on the ground that they are “unfair”. (at 621-622)
It should be noted that s.88F of the Industrial Arbitration Act 1940 (NSW) did not specify any procedural issues which had to be considered on a review nor require consideration of any such issues whereas the Contracts Review Act does both. The ICA is different from both of those state Acts in that it identifies procedural issues which may be taken into account but does not mandate their consideration. Consequently, under the ICA a contract may be found to be unfair or harsh for substantive reasons relating to its terms and it may also or alternatively be found to be unfair for procedural reasons relating to the circumstances in which it was formed.
Relief – s.16
Section 16 of the ICA makes it clear that an order setting aside the whole or a part of the contract or an order varying the contract should be limited to an order which addresses and remedies any unfairness or harshness which the Court finds, and no more. Section 16(2) provides:
(2) An order may only be made for the purpose of placing the parties to the services contract as nearly as practicable on such a footing that the ground on which the opinion is based no longer applies.
Even so, s.16 gives the Court very wide powers. This was acknowledged in the New South Wales context by the Full Court of the New South Wales Industrial Court in Baker v National Distribution ServicesLtd referring to what Barwick CJ had said in Stevenson v Barham (1977) 136 CLR 190 at 192 in relation to the then s.88F of the Industrial Arbitration Act 1940 (NSW):
The legislature has apparently left it to the good sense of the Industrial Commission not to use its extensive discretion to interfere with bargains freely made by a person who was under no constraint or inequality, or whose labour was not being oppressively exploited.
However, the powers provided by s.16 are not as wide as those provided in the NSW context by that section’s state predecessors. Section 16 is addressed principally to the avoidance or variation of contracts in order to avoid unfairness and harshness. Although s.16(5) contemplates orders subsequent to an avoidance or variation being made to enforce those original orders, it makes no reference to damages being awarded consequent upon avoidance or variation of a contract. If relief of that nature is to be claimed, it must be claimed in the Court’s accrued jurisdiction.
However, before injunctions, damages or other relief might be ordered, the Court must first determine whether the contract is unfair or harsh and is to be avoided or varied. In some cases, it will be practicable to seek contract-based remedies such as damages at the same time as seeking the avoidance or variation of a contract alleged to be unfair or harsh. In other cases this will not be so and it will be appropriate or necessary to consider any such entitlements only after the Court has made orders avoiding or varying the contract in question, should that occur.
Generally
Arising out of the above considerations and drawing on the reasons for judgment of the Full Court of the Industrial Court of New South Wales in Port Macquarie Golf Club Ltd v Stead (1996) 64 IR 53, which concerned the then s.275 of the Industrial Relations Act 1991 (NSW), the following principles would appear to be applicable to considering applications for review under the ICA:
a)s.12 directs attention to the particular circumstances of the individual contract concerned. Whether or not a contract is unfair or harsh is a matter to be decided upon examination of the facts of each particular case;
b)unfairness or harshness may arise either from the terms of the contract itself or from the circumstances surrounding its formation. That is to say, it may be substantively unfair or harsh or procedurally unfair or harsh;
c)the test of unfairness involves the commonsense approach characteristic of the ordinary jury member by applying standards providing a proper balance or division of advantage and disadvantage between the parties who have made the contract;
d)if a contract is found to be unfair or harsh then the next question involves the exercise of a discretion, to be performed judicially, as to whether the contract should be avoided or varied;
e)if the Court decides to avoid or vary the contract under s.16 then the Court may be called upon to order relief based upon that avoidance or the terms of the contract as varied; and
f)the discretions which s.16 allows the Court are extensive and the Court should not interfere with a bargain freely made by a person who:
i)is not being exploited by the contract; or
ii)was not in a situation of disadvantage, either by reason of the parties’ relative bargaining strengths or because undue influence, pressure or unfair tactics had been brought to bear in the contract negotiations.
Review of contracts
Services Contracts
The contracts in question were contracts for the provision of services which met the criteria of s.5. Consequently, the ICA applies to the contracts and the Court may review them.
Substantive issues
Payment of adequate compensation for acquisition of new equipment
Clause 5 of the Riteway-TWU agreement provided:
5. VEHICLE SELECTION
The Contract Driver shall supply and keep fully maintained and serviceable a vehicle approved by the Company, and subject to the requirements of the Company from time to time. The Company shall approve the type and classification of vehicles proposed to be operated prior to their being bought into service, and the Company may make directions as to the condition and presentation of vehicles.
Approval shall not be withheld unreasonably and should any dispute arise regarding the suitability of any vehicle, it shall be dealt with pursuant to the provisions of Clause 16 – Settlement of Disputes, hereof.
Initially, all vehicles when supplied shall be painted white. The Company will provide identification decals which will be fitted to the vehicles at the Company’s expense and or sign writing of the Company identification at the Company’s expense.
All contract drivers shall be required to replace their vehicle with a new vehicle once the vehicle age has reached 5 years, providing however, that if the vehicle is kept well and fully maintained and its appearance is in a condition acceptable to Management then the company may extend this replacement period of 5 years at one year at a time, on not more than 3 occasion’s [sic], so that the maximum vehicle life may be 8 years. …
The applicants submitted that Riteway’s contractual ability to require them to replace their vehicles without a commensurate requirement that it compensate them for the expense of such acquisitions was unfair. They said that this unfairness was, in the instant cases, demonstrated first, by the inadequacy of the offer made to them by Riteway when it required them to move to a B/double configuration; secondly, because it was going to make significant savings as a result of the change; and thirdly, because it failed to share its calculations with the applicants.
The second and third points are without merit. The second point implies that Riteway’s profits would be increased by the change to the B/double configuration and that these profits would be retained by it to the exclusion of the applicants. First, it has not been shown what increased profits Riteway was to earn after the configuration change was made, an issue which should be distinguished from the savings made by that effecting that change. In this connection, it should be noted that the evidence demonstrated that the move to B/double trailers was motivated by competitive pressures and the need for Riteway to lower its costs and, impliedly, its prices, to meet its market. I accept that evidence. Secondly, a conclusion that Riteway proposed not “to share that benefit fairly with the applicants” is not reasonably open, principally because no evidence was adduced to identify how the savings which Riteway would make would be dealt with, other than by the payment of the increased amounts which it offered to the applicants. For instance, the possibility and size of price cuts to Riteway’s customers was not canvassed. In any case, these events occurred in 2007, well after the contracts were made.
The third point, the assertion that Riteway should have shared with the applicants the contents of its working papers, implies that the figures which the applicants submitted to Riteway as their proposed charges in the event of a change to the B/double configuration were wrong or that, with access to Riteway’s calculations, they could have negotiated a better price than Riteway was offering to them. As to the first of these propositions, the applicants did not mount a case that their calculations were wrong, nor did they quantify a different figure which might, perhaps, have satisfied Riteway’s requirements in 2007 and led to the maintenance of their relationships with Riteway. As to the second proposition, nothing in Riteway’s evidence in these proceedings would support a conclusion that Riteway would have accepted the counter-offers which the applicants made. Indeed, the fact that Riteway was willing to replace the applicants with the cheaper service provided by Bunker Freight Services is good evidence for the contrary proposition. And again, these events occurred in 2007, well after the contracts were made.
However, there is substance to the first point that the contract was unfair because, although it gave Riteway the power to require the upgrading of its contractors’ vehicles, it was not similarly obligated to compensate them for expenses associated with such an upgrade. While it may be expected that a contractor would make provision for the periodic replacement of capital assets such as heavy vehicles with up-to-date equivalents, Riteway’s power to require the applicants to upgrade to a different sort of vehicle or configuration had the potential to be abused. Riteway’s requirements “from time to time” could be manipulated to disadvantage the applicants unless they had the ability to protect themselves from, or be compensated for, any financial imposition arising out of a requirement to upgrade to a class of equipment dearer than the equipment they already had and for which they could be expected to have made provision.
Much attention in this case was directed to the question of whether, in the events which occurred, the conduct of Riteway was unfair and whether the rates which it was willing to pay were fair in light of the additional expenses which the applicants were being required to incur. This evidence can only be illustrative of the real issue which is not whether the contract was implemented unfairly by Riteway or whether it became unfair because of events subsequent to the making of the contracts but whether it was unfair in the first place because of the power over the applicants which it gave to Riteway.
In my judgment it was. The contract provided Riteway with the power to stipulate that the applicants use any sort of a vehicle, presumably subject to some restraints based on reasonableness, but it was under no equivalent obligation to compensate them for additional expenses which they might incur in complying with such a requirement. In the cases under consideration, Riteway did offer an increased contract rate but it was under no obligation to do so. The applicants’ complaint about the inflexibility of Riteway’s position on price merely serves to illustrate the reality that Riteway had effective control of the issue and could make a “take it or leave it” offer. On this occasion, it fixed a rate which was suitable to it but which the applicants say was inadequate. It may or may not have been inadequate but that is not the point, it is merely illustrative of it. Riteway’s intransigence on price, whether justified or not, shows that the contracts permitted it to act unilaterally. This was not fair as, in my judgment and having regard to the principles set out above at [96], it did not represent a proper balance of advantage and disadvantage between the parties.
Moreover, clause 5 of the Riteway-TWU agreement permitted Riteway, should it have wished, to manipulate the applicants into severing their relationship with it. It could require the acquisition of expensive vehicles reasonably required for its business, but fail to raise contract rates commensurately and thereby put the applicants in a position where they had no alternative but to find other work.
In this case, it is instructive that Mr Kent’s evidence was that it was the applicants who terminated their contracts with Riteway whereas it might be inferred, were the applicants’ evidence as to their increased costs to be accepted over Riteway’s calculations, that it was Riteway which engineered the outcome thus avoiding the need to terminate comparatively expensive contracts without cause and potentially at a significant cost. Whether such possible inferences are accurate does not need to be determined but they do point to the unfair quality of clause 5 of the Riteway-TWU agreement.
The contract was unfair because it entitled Riteway to impose unilaterally and without making financial compensation to the applicants, a significant change to the equipment required to service the contracts.
No contractual mechanism for determining the price of a run
The applicants particularised this alleged unfairness in the following terms:
The amount paid by the respondent to the applicant per leg is determined by the respondent alone. The applicant does not know how this amount is determined.
The applicants submitted:
The contracts contained no term that disclosed the mechanism for determining the price of the run or how any change to that price was calculated. The Applicants clearly lacked the expertise to determine their own accurate costings. As the evidence of Mr Mann showed, the company did not share any of its research with the applicants. Mr Mann did not respond to the applicants when they estimated increases in their particular costs. He did not tell them that they were correct. He did not tell them that they were wrong. The mechanism by which the price was determined was secret. It stayed secret. That secrecy was grossly unfair in the circumstances.
No submissions were made directed to why, when the contracts were made, fairness required such a term to be included. Indeed, the allegation does not address the fact that the rate for a run was fixed at the commencement of the contracts and could only be varied by agreement. The contracts’ terms would not permit Riteway to change a run price unilaterally, which is the essence of the allegation.
Consequently, I do not conclude that the contracts were unfair for want of a contractual mechanism for determining the price of a run.
Unfairness as to writing
The applicants submitted that it was unfair that each of the contracts did not contain a term requiring it to be wholly in writing. The applicants submitted that the failure of the contracts to be wholly written compounded the unfairness represented by the “secrecy of the mechanism of determining price”. As noted above, terms not set out in the Riteway-TWU agreement dealt with matters such as the availability of the applicants for regular work, the payments they were to receive, the fuel subsidy they were paid, the accommodation they were provided and their starting and finishing times. The applicants also referred to unidentified implied terms apparently of no relevance to these proceedings.
The fact that a contract may have oral or implied terms or both does not render it unfair. Any possible unfairness of the sort implied by the applicants’ allegation would need to arise out of the terms’ oral or implied character.
It appears that what the applicants say is that the reduction of the contracts to ones which are wholly in writing would, in some way, have alleviated the unfairness which the contracts allegedly manifest. In this connection, the applicants have not identified any oral or implied term of the contracts which operated unfairly because it was not reduced to writing; the contractual terms which the applicants allege were unfair are said to be unfair because of their terms, not because they are not in writing. Indeed, some are in writing. Their other allegations relate to terms which would not be contained in the contracts unless the Court varied them to include them.
In those circumstances, no unfairness is disclosed because at the time they were made the contracts were not wholly in writing or because they did not contain a term requiring this.
Limitation on goodwill
The applicants submitted that the contracts were unfair because they each contained a term which prevented them from being assigned for any more than $20,000 regardless of their market value. This submission implies that the goodwill associated with the applicants’ contracts with Riteway was, in fact, worth more than $20,000 in each case. No evidence was adduced to support a conclusion that this was the situation at any point during the time when the parties worked together. An allegation of unfairness based on the valuation of an asset cannot be made out in a factual vacuum. It is the valuation which must be demonstrated to be unfair, not the fact that the parties have agreed that there should be a value ascribed to a particular asset. The evidence adduced by the applicants does not support a conclusion that the $20,000 agreed amount was unfair either at the time the contracts were made or at any later point.
Lack of a mediation or arbitration procedure
The applicants submitted that it was unfair that the contracts contained only a settlement of disputes clause, rather than a provision which could bring about a change to the agreements or create a new provision, entitlement or obligation. It was also submitted that the disputes clause which the contracts did contain could only be accessed by union members.
There is nothing inherently unfair in parties being held to their agreements or in agreements not being able to be varied except by agreement of the contracting parties, rather than by third parties. If it eventuates that a contract governed by the ICA is, in some respects, unfair or harsh then the ICA provides an avenue to obtain relief. The fact that the contract does not do this itself does not mean that it is unfair.
Nor has it been demonstrated that the settlement of disputes clause required the applicants or their principals to be TWU members. This is an inference available to be drawn from the provision’s terms but it is not necessarily the case and, as no evidence has been led on the point, I do not draw that inference. On a more practical level, no evidence was adduced by the applicants to the effect that they or their principals had ever had any principled objection to joining the TWU were such membership, in fact, to have been a pre-condition to relying on the settlement of disputes clause.
For these reasons I do not conclude that the contracts were unfair at the time they were made because they lacked a mediation or arbitration clause of the sort advocated by the applicants.
No contractual requirements that negotiations be conducted in good faith
No allegation to this effect was made in the amended applications nor were any submissions addressed to it, notwithstanding that it was included in the summary of the unfairness which it was said the contracts manifested which was set out in the applicants’ written submissions. In another context, it was submitted that, under the contract, prices could be changed unilaterally but the contract contains no provision to this effect. Any attempt to do this would have amounted to a breach of the contract and would not, without more, have meant that the contracts were unfair: Sydney Water Corporation Ltd v Industrial Relations Commission of NSW.
Undercutting wages of employees (s.15(1)(c))
In submissions the applicants conceded that there was scant evidence to support the allegation of unfairness based on the possibility that the contracts provided total remuneration less than or likely to be less than that of an employee performing similar work. Indeed, no evidence at all was adduced which would permit the Court to conclude what an employee performing similar work would have been paid at the time the parties made the contracts. Although the Court was taken to the current version of the Transport Workers (Long Distance Drivers) Award 2000, the question of what the relevant award provided at the time each applicant made its contract with Riteway was not canvassed.
Also not explored was how s.15(1)(c) operates when, as here, the contractor is a body corporate not a natural person. It appeared to be assumed by the parties that the remuneration referred to in the paragraph was that amount available to be drawn by the principal of each applicant after the expenses of running the vehicles and servicing the company structure were taken into account.
That may be the correct approach. Section 15(1)(c), like its predecessors, was partly designed to prevent the undercutting of wages. As Madgwick J said in Jordan v Aerial Taxi Cabs Co-operative Society Ltd in relation to s.127A of the Workplace Relations Act 1996, the predecessor of ss.12 and 15:
A concurrent purpose (among other, concurrent purposes), is the protection of employees against having their wage and conditions, as fixed by the various processes – awards and different kinds of recognised agreements made available by the WRA, undermined by oppressively cheap competition from “quasi-employee”, independent contractors. The latter purpose is readily inferred from the terms of s.127A(4)(d) and from the terms, objects and purposes of the Act generally. (at 274 [37])
See also Minister for Youth & Community Services v Health & Research Employees’ Association of Australia, NSW Branch at 547.
However, little attention was given to the issue and the evidence adduced by the parties focussed on the incomes drawn by the applicants’ principals in recent years, which is not the point in time which must be considered. If the applicants had demonstrated as at the time the contracts were made that, after accounting for necessary non-labour expenses, the applicants would not have earned enough to pay the individual doing the contracted work similarly to an employee then a real issue under s.15(1)(c) might have arisen (cf. Buchmueller v Allied Express Transport Pty Ltd (1999) 88 IR 465). However, no evidence was adduced which addressed the situation under the contracts at the time each of them was made and, as recorded above at [122], there was no evidence showing what an employee would have earned at the relevant times.
Consequently, it cannot be concluded that the contracts were unfair or harsh for the reasons mentioned in s.15(1)(c).
Procedural issues
Section 15(1)(a) – Relative bargaining strength of the parties
In each of their amended applications, the applicants particularised in the following terms what must be taken to be an allegation that the parties were of unequal bargaining strength:
(i)The respondent was in a position of such bargaining strength that it was able to impose a manifestly unfair contract upon the applicant without the applicant being able to genuinely negotiate changes to it.
(ii)The respondent is in a position of such bargaining strength that it is able to vary the contract or act in accordance with the contract in a way that the applicant is able only to accept or reject the terms proposed by the respondent, but not able to genuinely negotiate changes to them.
(iii)The respondent is in a position of such bargaining strength that it is able to vary the contract or act in accordance with the contract in a way that the applicant is unable to prevent the contract being renegotiated, or acted upon, on terms overwhelmingly favourable to the respondent.
Although the Court’s consideration of the relative strengths of the bargaining positions of the parties under s.15(1)(a) is limited by s.12(3)(b) to the existence of such matters as at the time when each of the contracts was made, the applicants’ submissions were principally directed to the negotiations which occurred in 2007.
To the extent that the applicants directed attention to events preceding their original entry into their contracts, their cases are factually distinguishable from the A & M Thompson case, to which reference was made. In that case the contractor had developed its service station business as licensee of the principal over a period of years and at the end of a contract period it was presented by the principal with a proposal that it accept the principal’s terms for a new contract or walk away from its established business. In this case, Keldote had had no relationship with Riteway prior to its entry into its contract in 2002. It is apparent from Mr Mansweto’s affidavit sworn 20 February 2008 that Keldote was under no pressure or urgency to work with Riteway. His affidavit makes it clear that he or Keldote had worked with other principals or employers prior to 2002 and Mr Mansweto’s decision to become an owner-driver (through Keldote) with Riteway was a business decision freely made by him. Mr Mansweto’s affidavit does not demonstrate any conduct by Riteway or any other circumstances which would engage the operation of s.15(1)(a) (cf. Buchmueller v Allied Express Transport Pty Ltd at 473 [32]).
No submissions were directed to the contractual significance of the 2003 date when L & D Lowe Transport Pty Ltd was incorporated and, on the evidence, there is no basis to conclude that any issue of inequality of bargaining strength arises in that context. Indeed I infer that the change in service provider from Mr Lowe to his company was probably treated as no more than an administrative or accounting issue and of no contractual significance. On that basis, 1998 is a more significant date for L & D Lowe Transport.
Although Mr Lowe and Tambo Waters Pty Ltd had both been providing services to Riteway prior to 1998, the principal terms of their contracts were those contained in the Riteway-TWU agreement. When the involvement of the Transport Workers Union is taken into account, it cannot be concluded that relative strength of the bargaining positions of Mr Lowe and Tambo Waters Pty Ltd were such that the contract was unfair or harsh because of an imbalance in bargaining strength. Nothing of this sort is demonstrated in the affidavits of Messrs Lowe and Stewart. Significantly, neither suggests any dissatisfaction on their parts with the contracts prior to the failure to negotiate successfully a transition to B/double trailers.
Section 15(1)(b) – Undue influence, pressure and unfair tactics
Undue influence and pressure
The applicants submitted that there was “situational undue influence” which resulted in a reduction of freedom to withdraw from the contracts. These submissions were addressed to events in 2007 rather than to those at the time when the contracts were made, which is the point in time which the Court must consider. No evidence of undue influence at that earlier time has been adduced.
No allegation was made that the contracts were entered into in circumstances of undue influence or pressure and it is not necessary to consider the meanings of those words in the context of the ICA other than to observe that the juxtapositioning of “undue influence” and “pressure” suggests that the latter should be understood in the same sense as economic duress. As Kiefel J said in Westpac Banking Corporation v Cockerill (1998) 152 ALR 267:
… duress, like undue influence, focuses upon the effect of pressure, upon the quality of the consent or assent of the pressured party, rather than the quality of the conduct of the party against which relief is sought … (at 289)
It is hard to conceive of a commercial negotiation which involved no pressure nor any reason why pressure which was not so great as to be illegitimate, as considered by McHugh JA in the Crescendo Management Case, and explained in Parras Holdings Pty Ltd v Commonwealth Bank of Australia [1999] FCA 391 at [66]–[68], should justify relief under the ICA.
Unfair tactics
In their written submissions the applicants said:
There is however no doubt that unfair tactics were employed by the Respondent. The Respondent never codified the rights and responsibilities of the parties to the contract. The Respondent never disclosed the basis for the price determination. The Respondent essentially refused to negotiate. The Respondent deliberately withheld relevant information about industrial instruments from the Applicants. That instrument provided the Applicants with the equivalent of redundancy pay upon the termination of their contract. The Respondent made it a condition of receiving the $20,000 for goodwill that they sign a deed of release. The effect of signing such a deed may have been that the right to the benefits of the industrial instrument was lost.
Again, the applicants’ submissions deal with events in 2007 rather than those at the commencement of the three contracts. Because of s.12(3), the matters to which the applicants refer are not ones which the Court may consider in these proceedings.
Conclusion
Unfairness
For the reasons set about in [102] – [107] above and pursuant to s.15(3) of the ICA I conclude that clause 5 of the Riteway-TWU agreement was unfair.
Relief under ICA
I have concluded that the contracts were unfair because they permitted Riteway to require the applicants to renew their vehicles with replacements which were materially different from the vehicles which had previously been acceptable, and did not require Riteway to make a commensurate increase in payments to the applicants such that the necessary additional expenses would be offset by such increased payments. Having reached that conclusion, and having regard to the principles set out above at [96], it is appropriate that I exercise the power which the ICA confers on the Court to address that unfairness and that I make an order which places the parties on a footing such that the unfairness I have identified no longer obtains. With this in mind, I conclude that clause 5 of the Riteway-TWU agreement should be varied in each of the applicants’ contracts so that Riteway’s power to require the applicants to replace their vehicles is limited to a power to require replacement of like with like.
The applicants suggested or sought various alternative orders which would involve complex and impractical terms providing for the calculation of the cost of any change required under the contracts. In my view, the better approach would be a variation of the contract preventing Riteway from unilaterally imposing a material change in vehicle specifications.
Consequently, in respect of each applicant’s contract with Riteway the fourth paragraph of clause 5 of the Riteway-TWU agreement will be varied as from the time when the contract was made by inserting after the word “vehicle” where second appearing the following words:
having specifications reasonably equivalent to the vehicle to be replaced.
Relief in the Court’s accrued jurisdiction and under the Trade Practices Act
The applicants have sought damages from Riteway for breaches of their contracts. Damages under the Trade Practices Act have also been sought by Keldote Pty Ltd but that issue was not explored at the hearing. Also not explored at the hearing were the applicants’ applications for orders restraining Riteway from breaching any orders varying the contracts.
The claims for contractual damages alleged breach of various terms which the applicants had sought be included in the contracts by way of variation. None of the variations sought has been granted and a different variation is to be made. As a result, the claims for contractual damages cannot be disposed of at this point of the proceedings.
Even by reference to the contractual variations which they sought, the applicants’ cases, so far as they related to their claims for damages, were very undeveloped. Indeed, it was submitted that s.16(5) assumed that if unfairness or harshness were found and orders for avoidance or variation of the contracts made then, as a third step in the process, such orders could be the subject of later enforcement by way of orders for damages. However, the making of an order for damages consequent upon a breach of a contract, even one which is varied, involves the final quelling of a dispute, not the enforcement of an order, which is the issue with which s.16(5) is concerned.
Section 16(5) says that a
party to the services contract may apply to the Court to enforce an order by injunction or otherwise as the Court considers appropriate.
While an injunction restraining certain conduct could be ordered at the same time as the Court avoided or varied a contract, the process to which s.16(5) refers is the enforcement of s.16(1) orders which have already been made on a previous occasion. The sub-section assumes that such previous orders have not been observed. It also implies the making of an application which is additional and subsequent to the application which led to the making of the s.16(1) orders. An application claiming damages of the sort relevantly contemplated by the applicants is not one which seeks to enforce an order varying the contract but is one which is based on an allegation that the contract, as varied by the Court, has been breached. For these reasons, s.16(5) is not a provision under which damages for breach of contract may be ordered.
As damages for breach of contract are not available under s.16(5) as a third step in the ICA process, that sub-section did not justify the applicants’ failure, to this point, to articulate and prosecute their claims for damages. Nevertheless, it is the case that the nature of any entitlement the applicants might have to damages would only be known after judgment on the question of unfairness and harshness. The applicants made no formal application that a decision on the question of unfairness or harshness of the contracts be made separately from a decision on the question of damages, although their submissions in respect of s.16(5) implied a similar process. Riteway, not unreasonably, objected to the possibility that the applicants might informally split their cases by first seeking orders under s.16(1) only to seek damages in the Court’s accrued jurisdiction in a subsequent stage of the proceedings. Understandable though that complaint is, in the circumstances of this case it was not practicable for the applicants to have formulated damages cases which addressed every reasonably possible outcome of their various ICA claims. Whether it is appropriate in ICA proceedings that there be a separate and preliminary determination of the issue of contractual unfairness and harshness will be a matter to be determined on a case by case basis. In these cases, that would have been an appropriate order.
As such an order would have been appropriate in these cases, and given that it is only with the publication of these reasons that the applicants will know in what way their contracts are to be varied, it is also appropriate that the matters stand over to a later date for consideration of the applicants’ claims for damages and injunctions.
Conclusion
The Riteway-TWU agreement will be amended in each case as indicated and the matters stood over for consideration of the applicants’ claims for damages and injunctions.
I certify that the preceding one hundred and forty-seven (147) paragraphs are a true copy of the reasons for judgment of Cameron FM
Associate:
Date: 22 August 2008
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