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Federal Court of Australia |
COURT
IN THE FEDERAL COURT OF AUSTRALIACATCHWORDS
Trade Practices - Whether concrete supply company entitled to terminate cartage contracts with its lorry owners drivers (LODs) on reasonable notice - whether concrete supply company obliged to buy trucks and pay goodwill to LODs if it terminates their contracts - estoppel - s. 52 Trade Practices Act - misleading and deceptive conduct - whether conduct of LODs of equalization of earnings and restriction on fleet size and cartage services is prohibited by ss. 45(2) or 45D(1) of Trade Practices Act - unfair harsh or unconscionable conduct - s. 88F Industrial Arbitration Act 1940 (NSW) - s. 45(2) and s. 45D(1) Trade Practices Act.Trade Practices Act 1974: ss. 45(2), 45D(1) and 52.
Industrial Arbitration Act 1940 (NSW): s. 88F.
HEARING
SYDNEY, 15, 16, 18, 19, 22, 23, 24, 26, 29, 30 June; 1, 2, 6 July 1992 Counsel for the Applicants : J L Trew QC
I D Faulkner
P J RenehanSolicitors for the Applicants : Slater and Elias
Counsel for the Respondent : D A Cowdroy QC
M R GracieSolicitors for the Respondent : Allen Allen and Hemsley
ORDER
The Court orders that:1. The matter be stood over to a date to be fixed to enableNote: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
submissions to be made with respect to relief on the cross-claim
and costs.
DECISION
Introduction2. The applicants assert that Pioneer has conducted its business and its dealings with them and with the former owners of their trucks on the basis that each lorry owner/driver ("LOD") has an asset in the nature of goodwill attached to his transferable right to cart ready mixed concrete for Pioneer; that the LODs were free to sell their trucks "in work" (i.e. at a premium in the nature of goodwill provided that the purchaser be approved by Pioneer, such approval not to be unreasonably withheld); that the sales of trucks with goodwill were upon the basis that the purchaser would enjoy the same rights as the vendor, and that Pioneer would not determine its contractual arrangements with any LOD and would not fail to provide cartage works to him for ready mixed concrete without first paying to the LOD the value of his truck together with premium obtainable if the truck was sold on the open market to a willing purchaser.
3. The applicants allege that Pioneer is estopped by reason of the matters to which reference has just been made, together with certain other matters, from denying that the applicants have entitlements in the nature of goodwill (that is, the right to sell the truck in work); that at all relevant times the applicants believed and expected that Pioneer would conduct its business relations with them in accordance with their beliefs, expectations and assumptions arising from the conduct of Pioneer mentioned above; and that at all relevant times the beliefs, expectations and assumptions of the applicants were well known to Pioneer; that with knowledge of the applicants' beliefs, expectations and assumptions Pioneer stood by and permitted the applicants to spend money on, amongst other things, the purchase of new trucks and to use them exclusively for use of Pioneer; and that in the circumstances it is inequitable for Pioneer to enforce any rights contrary to those beliefs, expectations and assumptions.
4. The applicants rely on substantially the same facts to support a case that the conduct of Pioneer constitutes misleading and deceptive conduct under s. 52 of the Trade Practices Act 1974 ("the Trade Practices Act") and unfair, harsh and unconscionable conduct contrary to the provisions of s. 88F of the Industrial Arbitration Act 1940 (NSW) ("the Industrial Arbitration Act"). The parties agree that this Court has jurisdiction to hear the claim under s. 88F. I have some doubt about that point, but it is not necessary for me to determine it.
5. The applicants seek declarations, injunctions and damages with interest.
6. Pioneer denies all these allegations and brings a cross-claim against all 145 LODs alleging that they have engaged in conduct which contravenes s. 45(2) and s. 45D(1) of the Trade Practices Act. Pioneer alleges that the LODs have made a contract or arrangement or arrived at an understanding with each other to impose restrictions upon the number of trucks to be made available to Pioneer by them for the purpose of carrying its concrete and to prohibit Pioneer from engaging third parties or using its own employees to drive its trucks for the purpose of carting ready mixed concrete. These are referred to as the allegations of "restrictions on fleet".
7. Pioneer also alleges that the LODs have made a contract or arrangement or arrived at an understanding pursuant to which the number of trucks available to Pioneer for the cartage of ready mixed concrete is, or may be, restricted from time to time, in that the LODs have made arrangements so that those drivers with the highest earnings will be rostered off from time to time to equalise their earnings with other LODs. These are called "the equalization of earnings allegations".
8. Pioneer also alleges that the LODs, in concert with each other and with other persons, have hindered or prevented the supply of cartage services for ready mixed concrete by third persons to Pioneer ("the restriction on cartage services allegations"). Pioneer asserts that this conduct of the LODs has the purpose of, or would have or be likely to have the effect of, substantially lessening competition in the relevant markets contrary to s. 45(2) of the Trade Practices Act. Pioneer also asserts that the conduct of the LODs hinders or prevents the supply of cartage services and/or concrete by Pioneer to its customers and that this conduct would be likely to have the effect of causing substantial loss or damage to Pioneer's business, or resulting in a substantial lessening of competition in the relevant markets (the cartage market or the concrete market) in which Pioneer supplies cartage services and/or concrete. Also, Pioneer alleges that the conduct is engaged in for the purpose of, and would have or be likely to have the effect of, causing a substantial lessening of competition in the relevant market, and for these reasons contravenes s. 45D(1) of the Act. That allegation against the LODs is put in the alternative and pursuant to s. 45D.
9. The LODs deny all these allegations in the cross-claim.
10. The proceeding commenced with the first applicant, Graeme Vincent Gallagher, as the only applicant. Later, at the request of Mr Gallagher, I granted leave to add a further twelve of the LODs as co-applicants pursuant to O.6 r.2. The applicants have, it seems, been selected by the LODs on a basis which suggests that between them they represent the interests of many of the 145 LODs; so that once the questions of liability have been determined as between the thirteen applicants and Pioneer, for all practical purposes these questions should be determined in relation to the remaining LODs.
11. The evidence in the case, both oral and documentary, was substantial, the latter in particular. All thirteen applicants signed statements which were tendered in evidence and which they verified in the witness box. They were all cross-examined. Pioneer called various witnesses in support of its case who had signed earlier statements. Most of them were cross-examined. Three expert witnesses were called by the applicants and one by Pioneer; they too were cross-examined.
12. There are differences between witnesses on various matters. I do not
think that any witness was untruthful; but where there
is conflict between the
evidence of the applicants or their witnesses and the evidence of the
witnesses of the respondent I prefer
the evidence of the witnesses of the
respondent. It was more objectively stated and was more in accord with the
probabilities and
contemporaneous documents. I propose to make my findings of
fact which will reflect my findings of credibility and reliability.
Facts
13. The respondent is a member of the National Ready Mixed Concrete
Contractors Association (NSW) Limited ("the NRMCA"), formerly
known as the
Concrete Manufacturers Association ("the CMA"). The executive committee of
the association of the LODs of the respondent
is known as the Pioneer Ready
Mixed Concrete Carriers Executive Committee ("the LODs Executive Committee").
14. The respondent has been supplying ready mixed concrete to the Sydney market since the mid 1950s when it began production at its concrete plant at St Peters. By 1961 the respondent had expanded its business to about seven plants and a total of 50 concrete carriers who delivered its ready mixed concrete. In 1966/67 the respondent embarked on increasing its fleet by purchasing additional vehicles and employing drivers culminating in a fleet size of 75 contract carriers and approximately 40 employees who drove vehicles. It is a major participant in the Sydney ready mixed concrete market. Its present market share is approximately 20%.
15. The respondent's ready mixed concrete operations involve the following
activities:-
. marketing its product, maintaining relations with its customers,16. The respondent currently produces ready mixed concrete from 16 operational plants in the Sydney Metropolitan Area.
developing its product and preparing tenders for major projects;
. determining the price of its product and competing for contracts
to supply ready mixed concrete;
. ensuring the supply of raw materials, weigh batching the raw
materials and loading them plus water into the mixers which are
mounted on trucks: drivers are responsible for the mixing of ready
mixed concrete once the raw materials have been placed in the
mixer mounted on the truck;
. all aspects of quality control to the point at which the raw
materials are placed in the mixer: the LODs are responsible for
the quality of the ready mixed concrete from the point of loading
to the point of delivery. The respondent remains responsible to
the customer for the ultimate quality of the hardened product.
Delivery of ready mixed concrete is the responsibility of the
LODs;
. the preparation of dockets for each load of concrete, the dockets
are then processed at the State Administration Office of the
respondent. The accounting department of the respondent generates
invoices for the customers and pro forma invoices for the LODs
which act in substance as payment advices;
. the credit department of the respondent attends to the collection
of all moneys due for concrete supplied. The LODs are paid
irrespective of whether or not the customer pays the respondent,
unless the LODs fail to follow the delivery procedure for the
concrete correctly.
17. The respondent's 16 operational plants are serviced by 148 trucks each of which carries a concrete mixer. Of the 148 trucks 145 are owned and driven by LODs, their companies or firms and the remaining 3 are owned by the respondent and are driven by its employees.
18. The respondent generally employs three people to operate its production
facilities at the batching plants, namely:-
(a) the plant manager who is responsible for arranging and supervising19. In some of the smaller plants the functions of batcher and allocator are performed by one person. In most plants the batcher, or in large plants a yardman, will towards the end of the day ensure that the yard is clean, tidy and ready for the next day's work.
sales of concrete in his area, production of concrete at his plant
and reporting to head office;
(b) the allocator, whose function is to take orders from customers and
organize the dispatch of those orders to the customers which
includes arranging the cartage from the plant to the customer's
site by the LODs; and
(c) the batcher, whose function is to operate the computer-operated or
manual controls which run the machinery that produces the
concrete.
20. Plants are operated by the respondent on each week day and generally for
half a day on Saturday. Plants will also open on Saturday
afternoon, Sundays
and public holidays on application. If concrete is delivered on Saturday
afternoon the LOD is entitled under
the relevant contract determination (to
which I shall refer later) to a surcharge of $10.13 per cubic metre with a
minimum of 3 cubic
metres per load. If concrete is delivered on Sunday the
LOD is entitled to a surcharge of $12.15 per cubic metre with a minimum
of 3
cubic metres per load.
Lorry Owner Drivers
21. The respondent employs LODs as do all the major concrete companies in the
Sydney Metropolitan region. The table below states
the approximate number of
trucks operated by each of these companies and indicates which of those trucks
are owned and operated by
the company and which are owned and operated by
LODs.
"SYDNEY TRUCK NUMBERS AS AT 10 APRIL 199222. The respondent's 145 LODs and its three employed drivers are responsible for the following aspects of the production and delivery of ready mixed concrete:-
OWNERSHIP
LOD COMPANY
Atlas 0 3
Boral 154 8
Brookvale MMix 0 4
Concrite 0 35
Hiquality 17 57
Hymix 33 24
Jacksons 0 6
Metromix 43 50
P and F Formations 0 4
Pacific 0 8
Pioneer 145 3
Readymix 128 48
Smithfield 0 4
Transit 0 21
Tristar 0 21
United 0 10
Western Suburbs 0 7
TOTALS FOR SYDNEY 520 313"
. the positioning of the truck and mixer for receipt of constituent23. The thirteen applicants are all LODs. The second applicant Mr Lewis has been engaged by the respondent since 1961. The last of the applicants to be appointed is the thirteenth applicant, Mr Shuker, who commenced as an LOD with the respondent in 1990.
materials;
. mixing the dry constituent materials and additives with water in
their concrete mixer trucks to yield ready-mixed concrete;
. inspecting the ready-mixed concrete prior to departure from the
batching plant to ensure the slump;
. delivering ready-mixed concrete within the specified time and
maintaining the concrete quality during the delivery process; and
. delivering the ready-mixed concrete in accordance with the end
user's instructions and completing delivery documentation.
24. The terms of the engagement of the respondent's LODs are to be gleaned, as might be expected, from a variety of sources including written applications by LODs for appointment and letters of appointment signed by officers of the respondent. Other terms arise by implication from the circumstances of the relationship between the respondent and LODs which their rights and obligations have been negotiated and adjusted from time to time. In particular, the Determination of the Industrial Commission of New South Wales of 20 November 1981 known as the Transport Industry Concrete Haulage Determination 1981 ("the Contract Determination"), and the variations thereon, was negotiated and consented to by each party.
25. In the case of most of the applicants, an application in writing seeking to become an LOD and a letter of appointment by the respondent as an LOD are relevant to the proceedings.
26. The circumstances of the respondent's business into which the applicants were absorbed are relevant in determining the contractual relations between them. I shall return to this matter later when dealing with the particular practices which are impugned in this proceeding.
27. In each case, the formal documents of application and appointment followed discussions between the incoming and outgoing LOD, representatives of the respondent and others, including sometimes the relevant delegate of the Transport Workers' Union ("the TWU"). The LODs are not employees of the respondent: they are small businessmen using trucks owned by them, their companies or their partnerships for the purpose of performing the concrete cartage work for the respondent. Nevertheless, they were all members of the TWU. Delegates of the union were involved in many of the activities of the LODs and their relationship with the respondent.
28. The LODs have pursued during their respective lifetimes a variety of occupations and many of them are only part-time LODs. For example, the applicant, Mr Gallagher, is an engineer by profession. He established an engineering business in South-East Asia which he sold to a German company in 1978 for $US1.2m prior to purchasing the truck with which he first commenced working for the respondent. Some of the LODs still have the truck which they initially purchased when becoming LODs. Others have resold their initial truck and purchased a truck or trucks since then, either new or secondhand.
29. It is unnecessary for me to set out in the case of each applicant the relevant provisions of the applications for appointment and letters of appointment (where applicable), but I will, as a sample, state the relevant provisions of the documents of appointment of a number of the applicants. This is not intended to be exhaustive.
30. The letter of the respondent appointing Mr Gallagher an LOD is dated 25 June 1979, and grants the respondent the first option to purchase Mr Gallagher's truck for a mutually agreed sum, being the net trade valuation of the truck, and not including a goodwill content. If the respondent decides not to exercise the option to purchase, then Mr Gallagher may dispose of his truck as he wishes, but it is a matter solely between himself and his prospective purchaser to make their own arrangements. If Mr Gallagher does sell his vehicle, then the respondent is under no obligation to contract with the purchaser to allow him or her to deliver the products of the respondent.
31. Mr O'Connell, the eleventh applicant, appears to have received two letters from the respondent confirming his appointment following a discussion with an officer of the respondent on 13 May 1989. It appears that Mr O'Connell may have applied in writing to become an LOD on 12 May 1989 (or perhaps 8 May 1989 but this is not clear from the evidence). The notice of appointment is undated, but was probably about May 1989. There is a second notice of appointment also undated. This informality in the documentation of appointment is not untypical.
32. Mr Sullivan, the seventh applicant, became an LOD with Borham/Lightning. Borham Pty Limited and Lightning Pty Limited are wholly owned subsidiaries of the respondent (they were taken over by the respondent). The Borham/Lightning fleet is part of the Sydney Metropolitan Concrete Division. The relevant letter of appointment from Lightning is 30 September 1985 which so far as is relevant simply accepts the offer of Mr Sullivan to deliver concrete as defined in the Contract Determination.
33. Mr Bradley, the twelfth applicant, applied in writing to become an LOD on
13 August 1990, though no copy of his letter is in
evidence. There was a
discussion between him and an officer of the respondent in August 1990. The
respondent handed a letter to
Mr Bradley which for the first time said:
"We are giving you this letter because we haveThe letter is undated but appears to have been handed to Mr Bradley in draft form and unsigned at the time of his interview with the representative of the respondent in about August 1990. He said in evidence that he realized there could be a problem about recovering goodwill if he sold his vehicle, but despite this, he went ahead.
intentions of changing our system of carting
concrete. I can't guarantee your goodwill will be the
same as what you paid for it if we change our system."
34. The last applicant, Mr Shuker, applied in writing dated 1 October 1990 and the respondent wrote to him on 29 October 1990 (apparently a second notice of appointment, the first one being provisional). The letter simply confirmed his appointment subject to the Contract Determination.
35. The position thus varies as between the applicants with respect to the existence of applications and letters of appointment and the substance of any conversations, but in the end little turns on this. This is because of the events that occurred between the parties over the years of their relationships, and because of the terms of the Contract Determination.
36. To the knowledge of the CMA, now known as the NRMCA, the practice whereby LODs sold their trucks "in work" (which included a sum of money as a premium or goodwill) commenced in about 1960. I shall refer later in some detail to the practice of the sale by LODs of their trucks with a goodwill component in the sale price.
37. Although the form of letters of appointment varied from time to time a
fairly standard clause in the respondent's letters, reads
substantially as
follows:
"Truck owners are in no way restricted in38. On some occasions, although this form of letter was handed by representatives of the respondent to an incoming LOD, the LOD did not sign it. A meeting took place in about July 1985 being a monthly meeting with the LOD delegates. It was attended by the applicants Messrs. Gallagher, Atkins and Lewis and by Mr Spedding, then the Divisional Manager, Sydney Metropolitan Concrete of the respondent. Mr Spedding presented the respondent's proposal for a standard "letter of appointment" and said to the persons present that he was concerned about there being no "binding contract" between the LODs and the respondent. He said that the local rules had not formally been made part of the terms of contract, that the letters of appointment were often not signed by incoming drivers and that the respondent wished to regularize the situation by introducing a letter of appointment to be signed by incoming drivers prior to commencing employment. One of the LODs' delegates (Mr Gallagher or Mr Atkins) responded by saying in effect that they were not signing anything and that they had been advised by the TWU not to sign anything. Mr Spedding replied that until the matter was resolved the respondent could not approve any new incoming drivers. Discussions ensued thereafter in which the TWU rejected proposals of the respondent and noted that "if any driver is stopped from selling because of these letters, the rest of the drivers will not load". Further discussions took place about the proposed letters of appointment. Statements were made by the LOD delegates to the effect that they did not want anything to appear in the letters of appointment which "may jeopardize the goodwill arrangements between our owner drivers". Mr Spedding replied:
disposing of their vehicles, and any business
transactions entered into by such owners are
accordingly solely matters for the parties of such
transactions to make their own arrangements."
"The local rules are merely making it clear that39. In September 1985 Mr Spedding learnt from discussions with the LOD delegate (Mr Atkins) and a TWU official (Mr Ron Mitchell) that the LODs proposed to take industrial action if the respondent continued with its refusal to accept new owner-drivers until the issue of letters of appointment was resolved. To avert industrial action, Mr Spedding agreed with Mr Mitchell in words to the following effect:
the company has nothing to do with the goodwill.
They don't stop you selling the truck with goodwill."
"The letters of appointment will be signed byMr Spedding then devised a new induction procedure to ensure that incoming LODs were informed of the local rules and other matters prior to commencing work with the respondent. This new procedure was prepared by him in writing and handed to the area managers of the respondent. It appears that the local rules were thereafter explained to incoming LODs by officers of the respondent.
the incoming LODs but these letters will only
make reference to the contract determination.
The local rules will, however, take effect as an
agreement between the LODs as a whole and Pioneer."
40. During Mr Spedding's term as the respondent's divisional manager he considered various proposals for variation of the respondent's fleet size. The proposals included a negotiated payment for goodwill to any LODs whose services were terminated; but they were rejected by the LODs. Mr Spedding believed that if the respondent did not make such payments of goodwill, it would face a strike by all its LODs in the Sydney Metropolitan Concrete Division. Accordingly the proposals for variation of respondent's fleet size during the period of Mr Spedding's acting as divisional manager were not implemented.
41. The Contract Determination is part of all the contracts between the respondent and the applicants and almost certainly to the contracts between the respondent and the other LODs who are not applicants: see Gregory v. Philip Morris Limited (1988) 80 ALR 455 at 460-461 and 478-479. The Contract Determination was made by consent following industrial disputation between the respondent and its LODs. The determination has been varied from time to time and the latest published variation is that of 30 November 1990. The determination of 1981 was the result of negotiations between the respondent and the TWU.
42. The Contract Determination contains many provisions. I shall mention the
critical ones. Clause 26 relates to "fleet size" and
reads as follows:
"26.1 A contractor (i.e. the respondent) shall43. Clause 25 entitled "Dispute Procedure" makes provision for what is to happen when there is a disagreement between the LODs and the "contractor", namely, for negotiation between the parties, and, if the matter is not resolved, then in due course notification is made to the Industrial Commission under the terms of the Industrial Arbitration Act 1940 (NSW). Clause 25.2 provides:
have the discretion to vary the number of
vehicles required throughout his operations. In
the event of a dispute arising in respect of
this matter, the parties to this determination
agree to follow the procedures of clause 25,
Dispute Procedure."
"25.2 Disciplinary Action - a contractor may44. Provision was made at one stage in the course of the Contract Determination's history for either party to terminate the arrangement for carriage upon notice, but that did not find its way into the Contract Determination as amended.
cancel a contract of carriage in the event of
dishonesty, theft, serious misconduct or where a
carrier uses a contractor's mixer for
transporting materials other than the
contractor's products without prior approval
from the contractor."
45. The Contract Determination also makes provision for what are described as
"local rules". Clause 27 is the relevant provision
and it reads as follows:
"27.1 Local rules and conditions shall continueLocal rules are established by agreement between the LODs through the TWU delegate and various company managers on behalf of the "contractor". The local rules are recorded in minutes of meetings of the LOD delegates and various company managers of "contractors" including the respondent.
in force in so far as they do not conflict with
the provisions of this determination."
Equalization of Earnings
46. A practice known as equalization of earnings has existed amongst the LODs
at all material times. In essence, it is an arrangement
amongst the LODs
pursuant to which their trucks are organized so as to ensure that their
earnings are similar. The practice occurs
both within each plant and also as
between plants in the Sydney Metropolitan Concrete Division. The practice
within each plant of
the respondent is as follows:-
(a) A driver representing all the LODs in a particular plant maintains47. The practice of equalization of earnings as between plants of the respondent occurs as follows:-
a record of earnings received throughout the day by each LOD,
called the Earnings Log. At the end of each day, the driver ranks
each truck by its cumulative earnings. A person appointed to
represent all the LODs in a particular yard (the yard delegate)
asks the respondent's truck allocator at the particular plant to
inform him of the number of trucks the respondent requires for the
following day. The yard delegate then arranges for only that
number of trucks to be available the following day and "rosters
off" the remaining trucks, starting with the highest earner. The
respondent nevertheless requires those LODs who are rostered off
by the yard delegate to be able to be contacted until 10 am the
following day, and if contacted, to be available for work that
day.
(b) The following day if the respondent requires for work more trucks
than are available at the plant, the allocator makes enquiries of
other nearby plants of the respondent as to whether any trucks
will be available for the day or part of it. At each plant, the
yard delegate maintains a "Daily Transfer Roster" given the order
of availability of particular drivers for daily transfer.
(c) For those trucks which are rostered on, work in most plants is
allocated for the first load in the order of the lowest earner to
the highest earner and then through the day on the basis of the
first to return to plant from the previous load. In some plants
the first load is given in numerical order of truck numbers on a
cyclical roster, with the first truck out on day 1 made the last
truck out on day 2 and so forth.
(d) As the day progresses the yard delegate generally approaches the
truck allocator to ask if those trucks which are not immediately
required for work may be rostered off.
(a) Towards the end of each month the yard delegate enquires from the48. LODs are paid in accordance with the rate specified in the Contract Determination. Generally speaking they are paid:
plant manager his truck requirements for the following month,
based on the anticipated workload.
(b) At about the same time the LOD delegates determine monthly
earnings and year to date earnings at each plant. Earnings are
based on a fortnightly cheque received during the month and
earnings after receipt of that cheque are based upon daily records
kept in a "yard book" maintained by the LOD delegate at each
plant.
(c) The LOD delegates hold a monthly meeting to discuss the monthly
truck allocation. At about this time the area delegate
(representing all of the yard delegates in that area) usually
contacts the respondent's area manager to confirm truck numbers
which have been provided to him by the yard delegates in respect
of each plant in the area. Sometimes, particularly in periods of
high demand, this contact is not made before the monthly meeting
between the area delegates and the respondent's management.
(d) A monthly meeting takes place between the area managers and the
regional general manager representing the respondent, and a number
of area delegates representing all of the yard delegates. At this
meeting the respondent presents its truck requirements for each
plant on the basis of anticipated customer demand. The LODs, if
they have not already done so, present their truck transfer
requirements determined primarily on the basis of equalization of
earnings. The LODs determine which particular trucks are
transferred to individual plants to meet the monthly truck
allocations.
(e) On the basis of the cumulative earnings of every LOD and the plant
average earnings, a roster called the "Period Transfer Roster" is
drawn up by the LOD delegates. Trucks may be transferred by the
LODs from those plants which have the lowest earnings to plants of
higher earnings. Once transferred, individual trucks do not
usually stay at their new plant for more than about a week. The
transfers usually involve rotating one truck from the transferring
plant with others from that plant as frequently as once a week.
. a basic "flagfall" for a five kilometre minimum;49. The practice of equalization of earnings has been permitted by the respondent to continue primarily in order to avoid the possibility of an industrial dispute between the respondent and its LODs. It is a practice recognized by the Contract Determination and is thus part of the contract between the parties. The rostering of trucks and the equalization of earnings has at all material times been a major issue for the respondent and the LODs, as has the size of the respondent's fleet. The management of the respondent has been concerned that any attempt by it to vary the size of the fleet to suit the respondent's requirements would result in significant industrial disputation. These concerns have been particularly great in periods of high demand such as mid 1987 to 1990. Consequently, in those periods, the respondent's management has not increased the size of its fleet as a means of overcoming some of the detrimental affects which the equalization of earnings scheme has on the respondent's business. At monthly meetings between the LOD delegates and the respondent's management in, for example, 1988 and 1989 the respondent's management said words to the effect that it needed more trucks in the eastern metropolitan area and that the procedure which the respondent had to go through to obtain trucks from outside was too slow and painful. The LOD delegates responded in words to the effect that there were no more trucks available in the fleet and that the respondent would have to make do with what it had.
. a rate per cubic metre of concrete per kilometre travelled;
. in certain circumstances a waiting fee for waiting time at the
delivery site;
. various other loadings and allowances provided for by the Contract
Determination, including loading of $X paid to LODs being
transferred between plants.
50. Paragraph 6 of the Contract Determination requires the respondent to pay LODs for transfers initiated by the respondent. However, transfers due to equalization/rostering do not attract a transfer fee. Most transfers are made through equalization/rostering.
51. I shall state my findings with respect to the effect of the practice as it has relevance to a number of issues, though primarily on the cross-claim. It is convenient to deal with the effect of the practice at this stage.
52. I am satisfied that the practice of equalization of earnings both within
plants and between plants hinders the respondent's operation
in the following
respects:
(a) The practice of rostering off trucks which are not required for53. I do not accept the case of the applicants that equalization of earnings only becomes relevant after the needs of customers have been fulfilled. I accept the evidence of the witnesses of the respondent that the system of equalization of earnings means that LODs have little incentive to remain at plants to fulfil unexpected customer orders and little incentive to return to their plants quickly to receive further orders. The evidence establishes that it is well known and common in the industry that companies which operate LOD fleets are unable to service customers at short notice in the afternoon. By contrast producers who use company owned fleets have their trucks available for work throughout the day. I am satisfied that many customers who require concrete on short notice are more likely to approach companies which operate company owned fleets rather than one of the major operators using LODs.
available work often means that if an unexpected increase in
workload arises during the day, due, for example, to a large order
from a customer, insufficient trucks are likely to be available to
meet that increased workload. Drivers have on a number of
occasions been rostered off without the permission of the relevant
plant manager or allocator. It is generally impractical to obtain
trucks from other plants within the day on short notice. If the
plant manager does not have enough trucks available to fulfil
unexpected orders, customers are notified accordingly and often
their business is lost to a competitor of the respondent.
(b) Although the respondent requires those LODs who are rostered off
to be able to be contacted until 10 am to work on demand, in a
number of instances drivers who have been rostered off have not
been contactable before 10 am as required and therefore have not
been available to meet an unexpected increase in demand.
(c) In the monthly meetings or discussions between LOD delegates and
representatives of the respondent there have been conflicts
between a delegate's assessment of truck requirements at
particular plants and the respondent's assessment of truck
requirements based on customer demand. Such conflicts arise
because the respondent's requirements are assessed on the basis of
projected customer demand, whereas the LOD's requirements for
equalization of earnings are based upon an assessment of the
comparative year to date earnings of trucks between plants for the
previous month.
(d) When daily truck transfers are required, this increases
significantly the cost of fulfilling customers' orders. These
additional costs are covered by clause 6.2(b) of the Contract
Determination. As a result of the additional costs in
transferring trucks from one plant to another, the respondent
attempts to avoid so far as possible relying upon daily truck
transfers to service customer demands in a particular area.
(e) At times where demand has been generally high, there have on
occasions not been enough trucks owned by the respondent available
within the Sydney Metropolitan area to fulfil all customer orders.
An increase in fleet size would have ensured that the respondent
could expand its operations to meet demand. It is in my view
likely that the LODs would resist any attempt to increase the
fleet size and such action would be likely to lead to serious
industrial disputation. In late 1987 the manager of the
respondent's Artarmon plant, Mr Stark, had to seek further trucks
from another operator within the Sydney Metropolitan Area. He
obtained a truck from Readymix, a competitor of the respondent.
Prior to this he had approached the Eastern Area Manager who
informed him that before he could obtain the truck in these
circumstances pursuant to an arrangement with LODs the following
procedure had to be followed:-
(i) all plants in the Sydney Metropolitan Area had to be
checked by the relevant plant personnel (i.e. the
allocator or the plant manager) to ascertain if there
were any spare trucks available;
(ii) if there were insufficient trucks available from the
other plants, Mr Stark was to inform the yard
delegate;
(iii) the yard delegate would then check all the plants within the
Sydney Metropolitan Area to confirm the company's claim that
insufficient trucks were available; and
(iv) only if the yard delegate also found that no trucks
were available, would the respondent be allowed to
obtain trucks without objection by the LODs.
Mr Stark followed this procedure before obtaining the Readymix
truck. I am satisfied that there were other instances where, due
to insufficient trucks being available in the Sydney Metropolitan
Area, trucks had to be obtained from areas outside Sydney
including one instance where they were obtained from Katoomba.
(f) On a number of occasions LODs have arranged truck transfers to
enable trucks to equalize earnings. Although the respondent had
not requested the transfers, the LODs nevertheless required that
the respondent pay for the transfers under clause 6.2(b) of the
Contract Determination. One instance occurred at Blackwattle Bay
in about late 1989 as follows:
(i) at the monthly meeting of the LOD delegates for the
allocation of trucks, Mr Stark requested a number of trucks
to be allocated to Blackwattle Bay;
(ii) the LODs decided for the purposes of equalization of
earnings that more trucks would be transferred to
Blackwattle Bay than Mr Stark requested. The truck numbers
were increased accordingly, but the additional trucks did
not all work on a daily basis;
(iii) later that day, which involved unexpectedly high demand,
these additional trucks were required by the respondent for
work elsewhere than at Blackwattle Bay;
(iv) the LODs demanded that the respondent pay a transfer fee for
the additional trucks even though the LODs had moved those
trucks to Blackwattle Bay of their own volition;
(v) the transfer fee would also have been required to be paid if
the additional trucks at Blackwattle Bay were to be used at
their original base plant or at any other plant which the
respondent may have requested their use;
(vi) the payment of the transfer fee in this instance was
contrary to the general understanding between the respondent
and the LODs; such fees were normally not payable by the
respondent where the LODs request the transfer for the
purpose of equalization of earnings.
Similar problems to this one occurred recently at the
respondent's St Mary's plant and have occurred elsewhere.
(g) The existence of the equalization of earnings scheme means that
the LODs have little or no incentive either to arrive at work
early, finish jobs quickly and return to the plant for more work
or to remain at the plant on call to meet unexpected customer
orders. This is because under the scheme there will be little or
no financial reward for LODs who do so.
(h) Individual LODs are generally more efficient the longer they have
been working at a particular plant. They become familiar with the
local rules, geography of the area and requirements for large
jobs. The constant transfer of LODs between plants inhibits the
respondent's ability to benefit from these factors. The LODs have
continued to resist attempts by the management of the respondent
to vary the number of LODs who are permanently based at particular
plants to reflect the respondent's assessment of customer demand.
At a number of meetings with the LOD delegates between, for
example, August 1989 and June 1991 the respondent's request for
variation of the base number of drivers allocated to each plant
was discussed; and at the meeting in June 1991 the LODs confirmed
their rejection of the respondent's proposals to vary base
numbers. The attitude of the LOD delegates is described in
paragraph 2.1 of the minutes of the TWU and the respondent's
management meeting held on 27 June 1991:
"2.1 Redistribution of trucks - last TWU
General Meeting resulted in a vote between rank
and file with a negative response to
redistribution.
Pioneer does not accept this position as being
efficient and will take it up further at NRMCA
level."
54. The system of equalization of earnings was introduced at the respondent's plants over a period of years. It commenced probably in one of the smaller plants. The drivers at Artarmon or Brookvale were the last drivers to adopt the equalization of earnings system. After all the LODs had adopted an equalization of earnings system at their own plants, they introduced a system of equalization of earnings as between plants. Prior to the introduction of the equalization of earnings for the first load each day, trucks would go out from the plant in numerical order, each truck being identified by a number. The truck that went out first on one day would be the last to go out the next day and so on. For the next load, the trucks went out in the order in which they returned to the plant. This system of rostering meant that all trucks at the plant were available for the peak period. Trucks were generally always available because the income of drivers was solely dependant upon the volume of concrete delivered. In contrast, under the equalization of earnings system, even though a driver's income is based on the volume of concrete delivered, an LOD will be rostered off and not be available for work when his income exceeds that of the other LODs. I am satisfied that equalization of earnings reduces the availability of trucks.
55. The practice has the result that at certain times trucks which should be available at a particular plant are rostered off. As a result, that plant may be unable to fulfil all of its customer orders either promptly or at all.
56. The equalization and roster scheme allows each vehicle, including the three trucks owned by the respondent, 30 work days absence each year. After 30 days the loss of earnings for each truck is regarded as being outside the scheme and not to be "made up". The 30 day allowance does have some benefits because it permits a degree of regular and planned maintenance of trucks and concrete agitators. Also clause 18.2 of the Contract Determination provides for a maximum period of five days for painting of trucks in company colours, by the respondent's painting contractors. It seems that painting takes longer than five days per truck and the whole time for painting is made up through equalization/rostering. Rostering off creates some competition between drivers because a driver who is well organized and who provides good truck maintenance will have the least "down time" and will be in the top bracket of earnings and therefore more likely to be rostered off in appropriate circumstances.
57. The applicants assert that absence of equalization and rostering may
cause the following:
. destruction of stability in the ready mixed concrete cartage58. I am not persuaded that any of these consequences is likely to occur if the scheme is abandoned except the reduction or destruction of goodwill.
system provided by the respondent;
. hostile competition between drivers;
. unplanned maintenance on trucks;
. transfers to and from plants without regard to LODs personal
circumstances or earnings, causing ill-feeling amongst drivers;
. reduction in value of, if not destruction of, the asset possessed
by LODs in the nature of goodwill;
. an increase in costs for replacement drivers who will be required
for longer hours in circumstances where the LOD has no additional
income, and where the work for employed drivers cannot be planned
with any certainty, unlike the system within rostering;
. longer working hours for LODs for no additional income, and with
no additional service to the respondent or its customers;
59. I shall state my findings now on this matter and the following three matters (preceding my findings on goodwill) for reasons of convenience, though their relevant is primarily as to the cross-claim.
60. The ready mixed concrete market is a cyclical market which goes through clearly defined periods of rise and fall. In order properly to compete in the market, it is necessary for ready mixed concrete producers to have the capacity to increase and decrease the size of their operations so that the respondent's ability to supply reflects market demand. In boom times it is necessary to increase the capacity of the respondent's operations. If there is a sufficiently large increase in demand in the area which the respondent needs to service, then ideally the respondent would open additional concrete plants. Additional concrete plants would however require an increase in fleet size. An increase in volume within a given area would require a greater number of trucks to deliver the additional concrete. When the demand for concrete falls it is desirable to reduce the number of plants and size of the fleet to reduce overheads and better utilize capital equipment.
61. In 1956 the respondent had one plant (at St Peters) and a fleet of six trucks operating from there. At that time, there were five LODs and one company truck. There was no equalization of earnings system in place, nor any limit on the size of the fleet. The trucks went out in the order that they came into the plant. This sometimes meant the trucks would arrive at the plant long before production was due to start. The respondent expanded in the Sydney Metropolitan Area by engaging more trucks and establishing new plants in outer suburbs. In the late 1970s or early 1980s the size of the concrete market stabilized and the LODs sought to freeze the number of trucks servicing it. They threatened industrial action at one stage if the respondent put on an additional truck. Restraints in the size of the respondent's fleet caused problems for the respondent in boom times and in market downturns. In boom times there were not enough trucks to satisfy all customer requirements which led to an inability to maintain existing share, let alone capture a further share of the expanding market. In depressed times the LODs negotiated an increase in rates as they experienced a downturn in utilization and therefore income.
62. I am satisfied that the respondent wished to increase its fleet size from time to time, but did not do so because of the fear of industrial action from the LODs. On many occasions the respondent's representatives have expressed a desire at meetings attended by the LOD delegates of the respondent to reduce its number of LODs and replace them with company owned trucks, but this has met with resistance by the LODs. It is plain in my mind that with the current LOD system and rate structure the respondent's capacity to become more efficient and therefore competitive in the future has been reduced: this has a harmful effect on the respondent's level of profitability. Proposals by representatives of the respondent to replace LODs with company trucks have been discussed on a number of occasions within the respondent's senior management, but have not been implemented because of the belief held by them that such a proposal would result in industrial action by the LODs.
64. During the period October 1985 to April 1987, the volume of demand f3r
the respondent's product in the Sydney Metropolitan Area
market was
continually increasing. As a result of the increases in market demand, the
respondent needed to increase its volume of
production to maintain its market
share. This could be done by any of the following methods:
(a) increasing truck utilization (that is, the cubic metres of64. In 1986, for example, market demand was at a peak and the respondent wished to increase its number of trucks in the Sydney fleet by bringing in trucks from the Borham/Lightning fleets to do work in the Sydney Metropolitan Concrete Division. The matter was discussed at meetings between LOD delegates and management of the respondent. The LODs would not agree to the respondent's suggestions except on certain terms and conditions which, in the opinion of the respondent, left significant constraints upon it in its flexibility to vary truck numbers in accordance with customer demand.
concrete per month carried by each truck);
(b) transferring other trucks of the respondent into the Sydney
Metropolitan Area from outside that area including trucks, for
example, in the Borham/Lightning fleet;
(c) bringing in company owned trucks driven by company employees on a
temporary or permanent basis; or
(d) permanently increasing the number of LODs.
65. I am satisfied that the LODs in Sydney have acted to prevent the
respondent from altering the size of its fleet by refusing to
allow the
respondent any increase at all in the number of company owned trucks and
employee drivers and refusing to allow the respondent
to introduce additional
numbers of LODs into the Sydney operations. The LODs have prevented the
respondent from altering the size
of its fleet by threatening industrial
action in the event of any changed fleet size.
(i) Restrictions on truck transfers due to equalization of earnings
66. Demand for deliveries of ready mixed concrete varies from time to time
between the 16 plants of the respondent located throughout
the Sydney
Metropolitan Area. In order to meet customer demands efficiently it is
sometimes necessary for the respondent to redeploy
its trucks from one plant
to another. The problems of equalization of earnings, restriction on
increases in fleet size and restrictions
on trucks transfers due to
equalization of earnings are of course all intertwined.
(ii) Efforts to introduce further trucks
67. Efforts have been made by the respondent to introduce further trucks into
its Sydney Metropolitan fleet. When the respondent
has not had sufficient
trucks to meet customer requirements in the Sydney Metropolitan area, it has
attempted to bring from nearby
country areas, its own trucks which were not
being fully utilized. The LODs resisted this. As a result the respondent was
required
to hire trucks from time to time from competitors (Boral, Hymix or
Readymix) in the Sydney Metropolitan Area so that it could meet
its
commitments with customers. These trucks were hired at a rate which left no
margin for profit by the respondent. On one occasion
in 1988, about the time
of the 1988 Grand Prix in Adelaide, there was a discussion at one of the
monthly meetings with the LOD delegates
at which Mr Essing, then the
Divisional Manager Metropolitan Concrete of Pioneer spoke to Mr Gallagher who
said that some of the
drivers were going to the Adelaide Grand Prix and Mr
Essing said "We will not have enough trucks to service customer demand. We
would like to bring in trucks from the country." Mr Gallagher replied "Those
trucks are not part of our equalization scheme. You
can't just bring them in
like that". A lengthy discussion followed but Mr Gallagher continued to
resist Mr Essing's requests. This
is one of a number of examples established
in evidence of unsuccessful efforts by the respondent to introduce further
trucks to its
Sydney Metropolitan fleet. I am satisfied that the respondent
has suffered a loss of market share to smaller independent concrete
companies
with company owned trucks due in part to the refusal of the LODs to allow
further trucks to be introduced by the respondent
to meet its customer
requirements in the Sydney Metropolitan Area.
(iii) Inability to reduce transport costs
68. Between 1985 and 1988 the cost of delivering ready mixed concrete
represented between 20% and 25% of the delivered cost per cubic
metre. The
cost per cubic metre of concrete cartage in New South Wales has consistently
been higher than elsewhere in Australia by
approximately $4 per cubic metre.
A rise of $3 to $4 per cubic metre occurred in New South Wales in about 1988
representing an increase
of approximately 20%.
(iv) Goodwill payments, 69. The following table sets out the goodwill which the applicants allege (and the respondent does not deny) was paid by them in order to become an LOD with the respondent. TABLE OMITTED.
70. One of the expert witnesses called by the respondent was Dr Chris Hall
who produced the table, which is accurate. I agree with
the evidence of Dr
Hall that the table demonstrates the following:
. The amount of goodwill paid is a significant proportion of the71. The LODs' Executive Committee interviews each new driver to ascertain his suitability for work in the industry, ascertains the price paid by the driver for the truck and any element of premium and goodwill and discusses the terms of engagement with him. In fact when purchases have been made of trucks, the purchaser has tended to stand in the same shoes as the vendor with respect to the respondent and the business goes on as between drivers and the respondent on the same basis as it did before. The new driver is included in all rosters, the only discernible change really being the identity of the driver. The practice of selling goodwill commenced in about 1960 to the knowledge of the members of the CMA (now the NRMCA), including the respondent.
purchase price ranging from a minimum of 60% to a maximum of 94%.
I agree also that the money was paid for goodwill representing
essentially the money paid to gain access to a particular yard of
the respondent.
. The value of the goodwill has risen steeply over the years as is
illustrated by the graph below (Dr Hall's graph).
. I am satisfied that when the respondent converted from employee
drivers to LODs in the mid 1970s no goodwill was paid on those
trucks but that it had peaked to $160,000 in 1990. I accept Dr
Hall's evidence that on a nominal investment of $1 in goodwill in
1974 this represents a cumulative rate of return of 111% per
annum. Even for the owners such as Mr Gallagher who paid $20,500
for goodwill in 1979 the investment represents a cumulative rate
of return of 20.5%. Goodwill increased more than seven times in
the ten years from 1979 to 1989 during which period there were no
additions to the fleet apart from the additions of the
Lightning/Borham fleet in 1985 when a downturn in the rate of
growth of the value of the goodwill is seen on the graph.
Goodwill also decreased in 1990, partly because of a decline in
the concrete market and partly because the respondent initiated
reviews of the future of concrete carters and those actions were
known in the market for goodwill.
. Quite wide variations in goodwill are to be expected. In 1989
purchasers paid goodwill of approximately $150,000 (the figures
ranging from $134,000 to $160,000) with an average of $149,666.
In 1990 the market price for goodwill fell to an average of
$135,000.
72. It is plain that at all material times the respondent was generally aware of the practice whereby LODs leaving the industry sold their trucks at a premium for goodwill, that is, a premium above the trade valuation of the truck. In my opinion, although the respondent was well aware of this practice, it did not become involved in the transactions by which the trucks were sold and in later years made it perfectly plain to prospective LODs that no goodwill could be assured. Plainly officers of the respondent were present during discussions from time to time with the LOD delegates when the issue of goodwill was discussed; but, in my opinion, nothing that was said could be reasonably construed, in the light of the evidence as a whole, as indicating that the respondent committed itself to making any payments to LODs by way of goodwill even if it did, buy trucks from LODs, which it didn't. Indeed in 1988 there was an informal discussion between Mr Gallagher and Mr Essing, a senior officer of the respondent, when Mr Gallagher said that the LODs would like the respondent to buy some of the trucks, to which Mr Essing replied that the respondent would not pay the goodwill as it was and is company policy not to pay it.
73. I am satisfied that the abolition of goodwill payments would have enabled the respondent to achieve greater competitiveness in the Sydney Metropolitan market by achieving a reduction in cartage rates to a level which would make the respondent's cartage comparable to or more competitive with companies who operated their own fleets and by giving the respondent the flexibility to increase or decrease the fleet size depending on the size of the market.
74. During the time Mr White was area manager of Western Sydney of the respondent, October/November 1985 to April 1987, he had discussions with incoming LODs who intended to purchase trucks from LODs wishing to sell. It was his practice to inform them that LODs had to abide by the Contract Determination; that the respondent was aware of equalization of earnings as a practice, but did not support it; and that the respondent could not guarantee the LODs earnings and had nothing to do with goodwill on the truck and could not guarantee it.
75. During the period from about February 1981 to November 1981 Mr Abrahms,
senior officer of the respondent, was involved in negotiations
with
representatives of the TWU and the LOD delegates with a view to establishing a
Contract Determination which was intended to
set out the rights and
obligations between the LODs and the concrete manufacturers on a uniform basis
for the whole industry. Prior
to 20 November 1981 the terms of engagement
between concrete manufacturers and concrete carters were governed by
industrial agreements
between particular manufacturers and their drivers and
therefore differed among the various concrete manufacturers. These agreements
were typically registered under the Industrial Arbitration Act. The major
issue during the negotiations of the terms of the Contract
Determination in
1981, was the extent to which the LODs should be given the right to sell their
trucks "in work" with "goodwill",
goodwill being the component in the price
over and above the market value of the truck. There was much debate on this
question.
Prior to and at the time of finalizing the Contract Determination
in November 1981, the respondent required its incoming LODs to
sign a standard
letter of appointment in a form which acknowledged that:
"If for any reason whatsoever a truck ownerThe letter was sent to an LOD if the truck which was purchased by the LOD was originally owned by Pioneer. Approximately 30 such trucks existed in the fleet of the respondent. A different standard form of letter was provided to incoming LODs where a driver purchased a truck which had never been owned by the respondent. The letter acknowledged the entitlement of LODs to be free to dispose of their vehicles on the open market but acknowledged that such transactions were "solely matters for the parties". During the negotiations for the Contract Determination in 1981, the TWU officials and the LOD delegates requested the insertion of a clause in the Contract Determination dealing with the sale of trucks "in work". This was resisted by the NRMCA representatives including the respondent. As a compromise it was agreed that the LODs would be permitted to sell their trucks "in work", whilst the companies would be permitted to vary their fleet size as required by their operations. It was on this basis that clause 26 became part of the contract determination.
wishes to dispose of a truck used for the
delivery of concrete for the Company it shall be
offered to the Company who shall have first
option to purchase the said truck for a mutually
agreed sum, such sum being the net trade
valuation of the truck and having no goodwill content."
76. I am satisfied that the right to vary fleet size which was eventually incorporated into clause 26 was not to be qualified or restricted by any obligation to pay goodwill or any premium on termination of the services of an LOD. Such obligation was never discussed or referred to between the TWU and the NRMCA before or after the finalization of the Contract Determination.
77. On 20 November 1981 the Contract Determination was approved by the Industrial Commission. A number of documents accompanied the making of the determination and none of them referred to any provision whereby the respondent was to pay any amount for goodwill on a truck if it wished to vary its fleet size pursuant to clause 26 of the Contract Determination. Nor can any implication to that effect be made.
78. Following the finalization of the Contract Determination in November
1981, the LOD delegates were dissatisfied with the existing
arrangements
relating to the sale of trucks in work. In particular the LODs of the
respondent objected to the provision in the letters
of appointment which
applied to the LODs who wished to sell a truck originally owned by the
respondent whereby they were required
first to offer the truck for sale to the
respondent at trade valuation and with no goodwill content. In meetings with
the LOD delegates
in March 1982 the LODs demanded that the respondent remove
this requirement and agree that if the respondent wished to purchase the
truck
from an LOD wishing to sell, then it would purchase at market prices including
a premium for goodwill. The respondent refused
to agree to these demands. In
the result the LODs of the respondent proposed to go on strike unless the
respondent agreed to depart
from the status quo relating to the sale of trucks
in work. Further stoppages by the LODs of the respondent were threatened
later
in March 1982. I am satisfied that the respondent decided that in order
to avoid costly industrial stoppages it would accede to
the demands of the
TWU. In the result, a letter was sent by the respondent to the TWU dated 29
March 1982 and a letter in similar
terms was sent by Borham and Lightning.
The letter reads as follows, omitting formal parts:
"Further to our discussions today we wish toFollowing the letter of 29 March 1982 the standard letter of appointment of LODs of the respondent no longer applied.
confirm that we have agreed that this Company's
policy regarding the Sale of Trucks is as
follows:
'Any Contract Carrier having a contract of
carriage with the Company and with whom the
Company has, by letter of Agreement, the first
option to purchase the truck when offered for
sale, must give the Company the first option to
buy the truck at the owner's nominated price,
such p;rice being a realistic figure (including
premium) which can be reasonably achieved in the
open market at that time.
Contract Carriers with whom the Company holds no
such options are free to sell their trucks with
premiums and with no restrictions.'"
79. I am satisfied that it was never agreed between the parties that the rights of LODs to sell their trucks "in work" at a premium would affect the right of the respondent to vary its fleet size pursuant to clause 26 of the contract determination. I am also satisfied that it was never agreed that the respondent would only be able to vary its fleet size with a payment of goodwill to any LOD who was affected by such variation in fleet size. However, I am satisfied that it was believed by all parties as a result of the industrial action threatened by the LODs in March 1982 that they would go on strike if the respondent were to vary its fleet size pursuant to clause 26 without payment for any loss of goodwill. I am also satisfied that during the period from 1982 to 1984 it is plain that the policy of the respondent was not to recognize goodwill in the sense of being bound to pay it, other than as stipulated in the letter of 29 March 1982. They regarded the price paid by the new LODs for their trucks to be the fair market price for the trucks themselves. The LODs did not approve or accept that policy.
80. It is plain that any changes in fleet size of the respondent would give the respondent the flexibility to vary its numbers of trucks but also adversely affected the goodwill of each truck rendered redundant. If the respondent could increase truck numbers in periods of high demand this would prevent the current LODs from obtaining the exclusive benefit of increased earnings from increased market volume which in turn probably would be reflected in reduction in the goodwill component in the future sale of the truck. It is plain that because of the goodwill component, LODs resisted any increase or decrease in the fleet size irrespective of variation in the level of demand in the market. Also the existence of goodwill placed upward pressure on the rates which the respondent had to pay to the LODs and thus made it difficult for the respondent to control costs in order to be competitive with independents who were using company owned trucks.
82. Thus the history, especially the more recent history, of relations between the respondent and its LODs shows that although the respondent was well aware of the practice of incoming LODs paying a substantial component of the purchase price to an outgoing LOD for goodwill, it never bound itself to make any payment of that kind to any LOD except where it exercised an existing option to purchase which it held and that appears to apply only in cases where the respondent itself owned the trucks in question at some earlier stage. The letter of 29 March 1982, following as it did a period of close negotiation between the parties to the Contract Determination, shows that the most that the respondent was prepared to offer by way of itself paying goodwill was to pay it in those limited circumstances mentioned above.
82. By recognizing the right of LODs otherwise to sell their trucks with premiums and with no restrictions, all the respondent was doing was to recognize that if goodwill was to pass between an outgoing and incoming LOD then it was entirely a matter between the parties to that transaction and was nothing to do with the respondent, the respondent would not impede the payment of a figure for goodwill.
83. The applicants contend that there is an implied term in the contracts between the respondent and its LODs that if the respondent decides to purchase a truck from an LOD it must pay the market price including a premium for goodwill; or that if it decides to exercise any right of termination of the contract which it may have, it must as a term of that termination buy the truck from the LOD, paying the market price for the truck and a premium for goodwill. The applicants base this alleged implication upon various reports and memoranda.
84. I accept the submission of counsel for the applicants that it was a term of the contract between the respondent and the LODs that it would not conduct itself without good cause in a manner likely to destroy or seriously damage the goodwill of each LOD in his right to sell his truck in work. Each LOD appointed by the respondent is entitled to sell his truck in work after the passage of five years. This right has been recognized by the respondent at all material times since at least 1982. Plainly the sale of a truck in work by an LOD to an incoming LOD has taken place with a goodwill premium. From at least 1982 (probably from 1972) all sales of trucks by LODs have been, to the knowledge of the respondent, on the basis of the sale of a truck in work. As mentioned earlier the respondent has a first option from some LODs to purchase their trucks, initially without goodwill, but later with goodwill. This applies to LODs who purchased a truck originally owned by the respondent. Of the 13 applicants only Mr Gallagher falls into this category. In March 1982 the respondent informed the TWU that where it had an option to purchase, that option was subject to it agreeing to pay the retiring LODs "a realistic figure (including premium) which can be reasonably achieved in the open market at that time". In relation to other LODs who are not required to give that option they were "free to sell their trucks with premiums and with no restrictions". All applicants other than Messrs Gallagher, Lewis and Stewart became LODs after March 1982.
85. There is no provision for the payment of goodwill by the respondent to an LOD upon termination of his contract with the respondent to be found in any of the documents which constitute the appointment of the LOD by the respondent including applications or letters of acceptance. The Contract Determination and local rules make no reference to the payment of goodwill by the respondent in any circumstances. Apart from the limited class of case where the respondent has an option to purchase a truck from an LOD that was previously owned by the respondent, no applicant has ever received a letter from the respondent acknowledging any entitlement to goodwill. There is no evidence that any letter to this effect has ever been received by any of the 145 LODs. Of course the respondent knows of the payments of goodwill as between incoming and outgoing LODs; but this is a different matter. By agreeing in 1982, following its perception of potential industrial action, to pay goodwill to LODs where the respondent exercised an option to purchase a vehicle (a limited class of case) and by agreeing that all LODs could sell their trucks "in work" (that is with goodwill) the respondent did not bind itself to purchase any such trucks or if it varied its fleet size or terminated the services of all or any LODs to pay goodwill. I cannot discern from the evidence any facts from which it can be concluded that an implied term of the contract between the respondent and each LOD is that goodwill must be paid by the respondent if it purchases a truck from an LOD save in the limited class of case to which I referred earlier where the purchase is pursuant to an option to purchase.
86. It is not clear to me on what particular basis the applicants assert that there should be any such term implied. If it is intended that the term be implied so as to give the contract business efficacy then I reject the implication. Plainly there is not necessity that such a term be implied to give each contract between the respondent and an LOD business efficacy. If it is argued that it should be implied as a matter of reasonableness between the parties (a questionable proposition), then I discern no basis upon which the implication could be made. Rather the evidence points the other way. The question of payment of goodwill has arisen between the parties in various contexts over the years.
87. Prior to the contract determination in November 1981, the respondent's
letters of acceptance contained one or more of the following
provisions.
1. That in the event of sale of their vehicles, the LODs' business88. Mr Gallagher acknowledged in evidence that at least since 1981 the respondent has made it clear to incoming LODs that any matter of goodwill was a matter entirely between themselves and the persons from whom they were purchasing the truck.
arrangements were "solely a matter for the parties to such
transaction to make their own arrangements" (see for example Mr
Gallagher's letter of acceptance of 25 June 1979).
2. That the respondent was not obliged to contract with any
prospective purchaser (whether or not the respondent had an option
of first purchase). (See Mr Stewart's letter of acceptance of 28
February 1968).
3. Where the respondent had an option, such purchase was for a net
trade valuation "and having no goodwill content" (see Mr
Gallagher's letter of acceptance of 25 June 1979).
89. Nowhere do I discern from this material the implication on which the applicants rely.
90. Goodwill has been created in consequence of the course of conduct pursued
by the LODs. It has not been created by the respondent
and the respondent has
not been involved in any sale of or trade in, goodwill. It is true that the
respondent has had knowledge of
the existence of goodwill and has been aware
from time to time of the amounts paid for goodwill. However, this cannot
render the
respondent liable to make payments for goodwill on any basis in
law.
(vi) Letters of 10 October 1991 (IAS8) and 31 March 1992 (IAS9)
92. At meetings between representatives of the respondent and LODs' delegates
the respondent from time to time raised the question
of its improvement to
fleet productivity by adopting various measures including redeployment of its
trucks from one plant to another
on an hourly or daily basis. At one such
meeting in August or September 1991, Mr Gallagher suggested to Mr Stainton
that if he put
the proposed changes into writing they would be discussed. In
the result a letter was written by the respondent to the LOD delegates
of 10
October 1991 of importance in this case. It is necessary to set out its terms
in full.
"10 October 199192. No reply to this letter was forthcoming, but this proceeding was commenced soon thereafter by the then sole applicant, Mr Gallagher. The letter was sent by the respondent to the Executive Committee of the LODs and plainly had a profound effect on them. In the initial stages of this case there was a real issue as to whether the letter constituted a purported determination by the respondent of its contractual arrangements with the LODs. The applicants asserted that by issuing the letter to all 145 LODs the respondent had destroyed all right and opportunity for the applicants to sell their trucks with goodwill; and that by issuing the letter without payment of compensation or affording the applicants an opportunity to sell their trucks with premium, the result had been that the applicants incurred loss and damage.
The Delegates
Pioneer Concrete Lorry Owner Driver Group
c/- Chairman - Les Lewis
ARTARMON CONCRETE PLANT
Dear Sirs,
RE: PIONEER CONCRETE FLEET
It is evidence to us that as the ready mixed
concrete industry has changed so much in the
last three years, that we need to change the
basics of how Pioneer operates and focus on the
need to be a company able to provide very
flexible and efficient service to customers.
With this in mind, our company has been seeking
to hold discussions with our fleet of concrete
lorry owner drivers concerning changes we wish
to make to the way we run the transport part of
our business. These discussions have not taken
place for a number of reasons, one of which is a
request by the drivers that we provide details
of the changes our company wishes to make.
I have held a series of talks with our company
management and I am now able to inform you of
the changes that Pioneer is seeking to bring
about in respect of the transport element of its
concrete business as follows:-
1. FLEET SIZE
The size and make-up of our fleet is no longer
suitable to the needs of our business. If
Pioneer is to survive and prosper as a concrete
manufacturer and ready mixed concrete supplier
then our fleet must be smaller and more flexible
than it is now. We must be able to achieve cost
efficient changes to our business and this
includes a much lower cost transport element of
the business.
I therefore give formal notice that pursuant to
the provisions of Clause 26 Fleet Size of the
Contract Determination we wish to reduce the
size of our lorry owner driver fleet from 146 to
zero. This reduction may be achieved in a
staged fashion and we would be prepared to
discuss a process along these lines:
Date Nos of trucks to leave
31st November, 1991 Approx. 30
23rd December, 1991 " 40
30th March, 1992 " 50
30th June, 1992 " 26
Total trucks to leave 146
We are prepared to negotiate the terms upon
which lorry owner drivers leave our fleet but we
see the necessity to reduce as absolutely
fundamental to our business.
Our company therefore intends to introduce
company owned trucks to the fleet and these will
be driven by drivers employed by our company.
Obviously there will be opportunities for some
lorry owner drivers who leave our fleet to take
up a position as a company employed driver.
2. VEHICLE TYPE
There is now available technology which will
enable three axle trucks to carry loads of up to
5.75m3 in compliance with the law. In
particular the availability of hydraulic drives
for the mixer will enable problems in respect of
load size to be overcome.
I therefore give formal notice that within 12
months from the date of this letter, we will
require all lorry owner drivers who remain with
us to have vehicles capable of carrying 5m3 in
compliance with the law and capable of having
fitted a rear power take-off unit. All trucks
over seven years old will therefore have to be
replaced with new trucks of a suitable type. We
will provide details to individual drivers of
the type of trucks which are suitable and
arrangements will be made to introduce them on a
progressive basis. However, I do emphasize that
all remaining lorry owner drivers must have this
process completed within 12 months from the date
of this letter.
I would appreciate your earliest advice as to
when discussions may be held in respect of these
changes our company wishes to implement. As I
have indicated above, we are prepared to
negotiate about some aspects of the proposed
changes. But you and your fellow drivers should
understand that our company is committed to
making these changes for the reason that we see
them as essential to the survival of our
business.
Yours faithfully,
PIONEER CONCRETE (NSW) PTY LIMITED
(Signed)
IAN STAINTON
REGIONAL GENERAL MANAGER NSW"
93. On 31 March 1992, before the case came on for final hearing, another
letter was written by the respondent to Mr Gallagher as
Executive Delegate of
the LODs in the following terms:
"Mr Graham Gallagher94. The parties have reached substantially common ground in their understanding of these two letters, namely; that the letter of 10 October 1991 did not operate in law as a purported determination of the contractual arrangements between the respondent and the LODs; that its legal effect is simply as a notice by the respondent that it wishes to reduce the size of its fleet pursuant to clause 26 of the Contract Determination; and, that the respondent is prepared to negotiate the terms upon which any LOD may leave the fleet, including the opportunities for LODs to be employed by the respondent as company drivers. The two letters therefore give rise to a key issue in the case, namely, whether clause 26 of the Contract Determination entitles the respondent, by purporting to vary the size of its fleet, to do so by reducing the size of the fleet to nil (or almost nil); and whether the effect of any such purported variation would be permissible if it results in a determination of the contractual arrangements between the LODs and the respondent.
The Executive Delegate
Pioneer Concrete Lorry
Owner-Driver Group
Dear Sirs
PIONEER CONCRETE FLEET
1. It has become obvious that our letter of
10 October 1991 relating to the future of
Pioneers Fleet has created a basic
misunderstanding.
2. As I indicated to Les Lewis at the time of
despatching our letter of 10 October 1991,
it was simply intended to open
negotiations for the reduction of the
fleet size, in accordance with the
procedure set out in clause 25 of the
Contract Determination.
3. Unfortunately you treated the letter as a
termination and in fact no termination was
intended and proceeded directly to the
Federal Court without any reference to the
Clause 25 procedure.
4. To clarify Pioneer's intention, Pioneer
withdraws its letter of 10 October 1991
and gives formal notice that it wishes to
reduce the size of the owner-driver fleet
as provided by Clause 26 of the Contract
Determination.
5. In view of the evidence contained in
paragraph 18 and 37 of your Affidavit of
10 March 1992, namely:-
'I refute the allegation that any attempt
to increase the fleet size would be likely
to lead to serious industrial
disputation,'
and
'Whilst there has not been any additions
or deletions to the fleet in the last ten
years, this has not been due to any threat
of industrial disputation,'
we would like to commence discussions
forthwith to achieve this objective.
6. As indicated in our letter of 10 October
1991 we are prepared to negotiate the
terms upon which lorry owner-drivers leave
the fleet, including the opportunities for
some lorry owner-drivers to be employed as
company drivers.
Yours faithfully
PIONEER CONCRETE (NSW) PTY LIMITED
(Signed)
Ian Stainton"
95. It appears that the respondent's wish to change wholly or in part from
the present system of LODs is due to its perception of
the desire to increase
shareholders' funds, increase the earnings per share for shareholders and
increase the return on capital to
shareholders. Also, it is based on the need
to improve flexibility in its cartage operations; to reduce the number of
plants within
the Sydney Metropolitan Area (with the remaining plants being
the large capacity plants); to introduce centrally controlled despatch;
to
remove the existing equalization of earnings system; and to replace older
vehicles with a truck on three axles with a higher capacity
of 6 cubic metres
(where appropriate legislation permits).
Relief sought by applicants
97. As mentioned earlier the applicants assert causes of action based on
contract, estoppel, s. 52 of the Trade Practices Act and s. 88F of the
Industrial Arbitration Act. They seek declaration, injunctions and damages.
At the core of the applicants' case
is the critical issue whether the
respondent is bound to pay to an LOD an element of goodwill if it decides to
purchase his truck
in service. Another critical issue is whether the
respondent is entitled to terminate its contract with an LOD unilaterally;
and,
if so, on what terms. In particular, there is a question whether, if the
respondent exercises this right of termination (assuming
it has it), it is
bound to buy the LOD's truck and pay the LOD its current market value together
with goodwill or premium. Whichever
cause of action is asserted by the
applicants, these are the fundamental questions that must be determined and
that are at the heart
of the case.
(i) Contract
98. It was not seriously argued on behalf of the applicants that there was in
existence at the date of the commencement of the proceeding
one contract
between the respondent on the one hand and all LODs on the other hand. This
could not possibly be correct. The true
analysis of the facts is that there
is a separate contract between each applicant and the respondent. Each
contract commences with
the relevant documents surrounding the appointment of
each LOD (applications by the LOD and notices of appointment). Most of the
relevant conversations at the time each LOD was appointed by the respondent
are between the applicant and the outgoing LOD or the
LODs' delegates.
Certainly some conversations occurred between applicants and officers of the
respondent, but they have little significance
contractually, except to the
extent that the substance of the conversations is incorporated in the
documents of appointment. In any
case, little turns on the conversations
between officers of the respondent and any of the applicants at the time of
the formation
of the relevant contract.
99. The Contract Determination is imported into each contract. There is no dispute about that proposition. Also the relevant local rules are part of the terms of the various contracts.
99. I accept the correctness of the submission of counsel for the applicants that the terms of the contracts are also to be inferred from the continuous dealings between the parties in which they negotiated and adjusted their rights and obligations to each other. In particular the industrial agreements and the 1981 and 1990 determinations (the Contract Determination) were negotiated and consented to by each party against a background of practices that has continued for many years. Each LOD appointed since 1974 took his place in the fleet alongside the other LODs doing the same work on substantially the same terms and conditions, except that in some cases the respondent had an option with some LODs (those whose trucks had been previously owned by the respondent) to purchase the truck in service at its fair market value, initially without an element of goodwill. In 1982, however, in settlement of the perceived industrial dispute previously mentioned, the respondent agreed that it would pay an element of goodwill to those drivers if it exercised its option to purchase their trucks. This agreement, the terms of which are set out in the letter of 29 March 1982 from the respondent to the TWU and others and mentioned earlier, must be taken thereafter as governing the contractual relations between the respondent and the LODs with whom the respondent had an option to purchase the truck when offered for sale.
100. I accept also the submission on behalf of the applicants that each LOD appointed by the respondent is entitled to sell his truck in work after the passage of five years from his appointment.
101. During 1973 and 1974 the respondent sold its then remaining fleet of company trucks to former employees and thereafter retained them to do its carting as contractors (LODs) and conferred upon them the right to sell their truck "in work" an expression to be found many times in the evidence which means that the LOD could introduce a new contractor to the respondent in substitution for himself and sell his truck in substitution for himself for a sum of money that represented the market value of the truck and a further sum in excess of the value of the truck in the nature of a premium. The replacement or substitute driver had such rights as were previously enjoyed by the drivers from whom they purchased the trucks "in work". These terms are however subject to an important qualification, namely, that the respondent reserved the right to say that it would not accept any particular purchaser of a truck from an existing LOD. In some cases this was made clear by the letters of appointment, but in my view, upon the whole of the evidence, the appropriate conclusion is that the respondent was not in fact obliged to accept any particular transferee of the truck as an LOD, although I accept the correctness of the submission on behalf of the applicants that the respondent was not entitled to withhold consent unreasonably. This seems to me to be the only fair and proper inference to draw from all the evidence and certainly the evidence discloses no case where the respondent declined to accept a transferee as one of its substitute LODs.
102. I accept also the correctness of the submission of counsel for the applicants that whilst an LOD is retained by the respondent and working under the Contract Determination, the respondent will not conduct itself without good cause in a manner likely to destroy or seriously damage the LOD's right to sell his truck in work. My acceptance of this proposition however is subject to an important qualification, namely, that for reasons which I will mention soon, in my opinion the respondent is entitled to terminate any of its contracts with LODs upon the giving of reasonable notice; and is not obliged as a condition of any such termination or otherwise to purchase trucks from LODs, or, if it does purchase them, it is not obliged to pay any element of goodwill unless, of course, the parties agree otherwise.
103. I turn to the question of the right of the respondent to terminate the contracts between itself and its LODs. As mentioned earlier, following receipt of the respondent's letter of 10 October 1991, the applicants commenced this proceeding. They claimed injunctions to restrain the respondent from terminating the contracts between itself and the LODs. In the light of the subsequent letter from the respondent of 31 March 1992, claiming that it did not intend that the earlier letter constituted a termination of contract, this issue is no longer pressed/relevant. It seems plain that the applicants did in fact construe the letter of 10 October 1991 as an act of the respondent, or a threat by it, to determine its contracts with the LODs. The applicants took the stance that this was repudiatory conduct by the respondent which they declined to accept and preferred to hold the respondent to its contractual obligations. It is now common ground between the parties that the respondent did not intend to terminate the contracts with the LODs by its letter of 10 October 1991 and that it is to be treated as simply an indication by the respondent of its desire to reduce its fleet size to nil and to allow it to negotiate with all or any of the LODs in respect of their future relationship, if any, with the respondent.
104. I accept the submission of counsel for the applicants that on its face each notice of appointment recognizes the right of an LOD to terminate its arrangements with the respondent by selling its truck in work; but I reject the submission that there is no unilateral right on the part of the respondent to terminate its contracts with its LODs. Counsel for the applicants submitted that the respondent has taken the stance that its contracts with its LODs are "perpetual" contracts in the sense that the respondent is required to continue the retainer of the applicants until they decide to retire and that this obligation is subject to clause 26 of the Contract Determination which entitles the respondent to vary the size of its fleet. The applicants contend that this may give the respondent an entitlement to terminate a contract with an applicant but subject to such conditions that may be imposed by the Industrial Commission.
105. I reject this submission. It is true that the Contract Determination governs the relationship between the respondent and the LODs. It is an industry wide agreement governing the relationship between the respondent (and other concrete manufacturing companies) and their carriers. It is an agreement registered under the Industrial Arbitration Act entered into between the NRMCA and the TWU. There is no suggestion by any party that there was unequal bargaining.
106. In about July 1981 during the course of negotiations between the TWU and the CMA, draft determinations were exchanged (they had been exchanged earlier also) and the CMA draft contained a lengthy determination section. The TWU and the CMA agreed to remove any provision from the contract determination which provided for "30 days notice when being terminated for no reason". However the evidence (including a note from the Chairman of the Executive Committee of the TWU to all LODs dated July 1981) evidences a recognition by the TWU that the concrete companies "must have the right to hire and fire" LODs and are not limited in exercising that right to circumstances where the LOD has been guilty of misconduct (see CTB23). However, whether this note of July 1981 is a recognition by the TWU of the CMA position or simply a statement of an assertion by the CMA on behalf of its members and referred to in the note, does not ultimately matter. The evidence does not reveal any undertaking or obligation by the respondent or any other concrete producer to continue contractual relations with any LOD indefinitely; nor did the respondent ever guarantee continuity of work to an LOD.
107. In my opinion each LOD is entitled to terminate his contract with the respondent. It is a right enjoyed by each of the parties to the contract. The specific provision in the Contract Determination (clause 25.2) entitling a contractor to cancel a contract of carriage in the event of dishonesty, theft, serious misconduct or where a carrier uses a concrete mixer for transporting materials other than the contractor's products without prior approval, does not support a finding that, in the absence of agreement between the parties or the approval of the Industrial Commission, the respondent cannot otherwise determine its contractual relationship with an LOD. There must be imported into each contract a term entitling either the respondent or an LOD to terminate a contract of engagement provided reasonable notice is given by one to the other. What is reasonable must depend upon the facts and circumstances of each case. The terms must be implied as it is necessary to give the contracts business efficacy: BP Refinery (Westernport) Pty Ltd v. Hastings Shire Council (1977) 52 ALJR 20 at 26; Codelfa Construction Pty Ltd v. State Rail Authority of NSW [1982] HCA 24; (1982) 149 CLR 337 at 347.
108. The Contract Determination cannot be read as prohibiting the respondent from changing its cartage policy and system so that it is forever locked into its arrangement with the LODs. If the respondent does not have a unilateral right of termination subject to reasonable notice, it means that it is forever bound to accept the terms of the LODs (who would bargain with the weight of the TWU behind them) before it can determine its own business policies on a matter so critical as its carrier system. A palliative is offered by the applicants who say that in the event of a dispute the matter will be determined by the Industrial Commission. However, the present point under consideration is a matter of contract law. I discern nothing in the evidence which leads me to conclude that the respondent does not have a unilateral right of determination of each contract with an LOD on the giving of reasonable notice to the particular LOD concerned.
109. Clause 26 of the Contract Determination entitles the respondent to exercise its discretion to vary the number of vehicles required throughout its operation. The applicants argued that the respondent could not use clause 26 to vary the number of vehicles required in such a way that amounted to other than a variation. They argued that to reduce the respondent's fleet size to nil would determine, not vary, the contracts.
110. The power of the respondent to vary its fleet size recognized by clause 26 of the Contract Determination must, of course, be exercised in good faith. A purported exercise of the power by the respondent other than in good faith is not an exercise of the power at all. The respondent has foreshadowed in its letter of 10 October 1991 that it wishes to reduce the size of its LOD fleet to zero. The respondent states in that letter that it adopts this attitude because (a) the size and make up of its fleet is no longer suitable to the needs of its business, (b) if the respondent is to survive and prosper as a concrete manufacturer and ready mixed concrete supplier its fleet must be smaller and more flexible than it is at present, and (c) it must be able to achieve cost efficient changes to its business, including a much lower "cost transport element" of the business. Provided the foreshadowed exercise of the power of the respondent to reduce its fleet size to zero is an exercise of the power in good faith, in my opinion it is a valid exercise of the power recognized by clause 26 of the Contract Determination. I have discerned nothing in the evidence which suggests that the respondent, in seeking to reduce its LOD fleet to nil, has acted or is acting otherwise than in good faith according to its perception of its future business needs.
111. Whether the respondent proceeds along the path of reducing its fleet
size as the letter of 10 October 1991 foreshadowed, or
adopts the course of
termination of services upon reasonable notice to LODs, is a matter for the
respondent (the two are independent
courses of action); but it is to be hoped
that whichever course is adopted by it, it will act in accordance with
accepted standards
of business morality involving fairness to LODs. What
constitutes degrees of fairness is not a matter upon which I propose to
embark.
(ii) Estoppel
112. The applicants argued that the respondent is estopped from denying that
there is a contract or that there are contracts between
it and the LODs
conferring the following rights and obligations:-
. Since the date upon which the relevant applicant contracted with113. The respondent is therefore alleged to be estopped and to be prevented from asserting the contrary, because the applicants have placed themselves in a position of material disadvantage if departure from the assumption is permitted. Reliance is placed by the applicants upon Thompson v. Palmer [1933] HCA 61; (1933) 49 CLR 507 at 547; Grundt v. Great Boulder Gold Mines Limited [1937] HCA 58; (1937) 59 CLR 641 at 674-7; Lorimer v. State Bank of New South Wales, unreported, New South Wales Court of Appeal, 5 July 1991 at 16-30. As to estoppel by convention, the applicants rely upon Goghlan v. S H Lock (Aust) Limited (1985) 4 NSWLR 158 and on appeal (1987) 70 ALR 1; Eslea Holdings Limited v. Butts (1986) 6 NSWLR 175 at 185-9, 197-8; Corumo Holdings Pty Limited v. C Itoh Limited (1991) 24 NSWLR 370 at 387, 392, 404-5. As to estoppel by representation and promissory estoppel the applicants rely on Legione v. Hately [1983] HCA 11; (1983) 152 CLR 406 at 419-435; Waltons Store (Interstate) Limited v. Maher [1988] HCA 7; (1988) 164 CLR 387 at 397-406, 413-415, 443, 458-9; Commonwealth v. Verwayen (1990) 170 CLR 394 at 409, 413, 443-6, 452-3, 499-500.
the respondent to deliver concrete for the respondent:-
(a) the applicants have assumed and understood that they had the
following rights and obligations under their contract or
respective contracts with the respondent:-
(A) right to sell "in work";
(B) equalization rostering and transfer;
(C) exclusive right to delivery;
(D) protection of goodwill; and,
(E) obligation to accept substitute LODs;
(b) the respondent made representations upon which the
applicants founded their assumption and understanding;
(c) the respondent, knowing of the applicants' assumption and
understanding, refrained from correcting the applicants when
it was its duty to do so; or
(d) those assumptions and understandings have formed the
conventional basis upon which the LODs and the respondent
have conducted their dealings.
114. Counsel for the applicants correctly observed that most of the applicants were not cross-examined on this issue, and that, although some were cross-examined, it was essentially with reference to the source of their assumptions and understanding. Each applicant in his statement referred to assumptions and understanding which he made or had. I allowed this evidence to be given over the objection of counsel for the respondent. It is then asserted by the applicants that the respondent knew of the assumptions and understanding of the applicants and refrained from correcting them when it was its duty to do so. The applicants then assert that they suffered loss or disadvantage and will continue to do so if the respondent is entitled to depart from its fostering of the assumptions made by the applicants.
115. At least since 1981 the respondent has made it clear to incoming LODs that any matter of goodwill is a matter entirely between themselves and their vendors. This fact is not seriously, if at all, in dispute.
116. In my opinion the evidence does not permit the conclusion to be made that any LOD was entitled to assume that the respondent would be obliged to pay an element of goodwill to an LOD as the price for terminating his services. Much of the factual material upon which the applicants rely on this branch of their case has already been referred to by me when considering the contracts between the parties, so I need not repeat what I said there. The LODs were well aware when they purchased trucks and were accepted as LODs by the respondent that there was no guarantee that the goodwill component would be repaid by the respondent. Certainly they assumed and were entitled to assume that the respondent would not act during the currency of their engagements so as to damage or impair the value of any goodwill that attached to their trucks; but it is a quite different question to say that they were entitled to assume that the respondent would itself be required to pay an element of goodwill to an outgoing LOD whose services were terminated or no longer found to be necessary. I shall refer briefly to a few pieces of evidence given at the trial.
117. The minutes of the meeting of the Executive Committee of the TWU of 4
June 1984 record:
"Further talks have taken place with senior118. This extract, along with other evidence put before me, indicates that the knowledge and state of mind of LODs was not that of mistaken assumptions in relation to determination or goodwill based on conduct or representations or promises of the respondent or its officers. Rather it suggests knowledge of the pitfalls involved in paying an element of goodwill for the purchase of a truck, and reliance upon the strength of other LODs in combination and the industrial weight which they may exercise through and with the assistance of the TWU.
executives of the major concrete companies, where
great concern is being shown at the over-trucked
state of the industry. It has become
quite clear that the major companies will not
allow the present situation, whereby they
continue to lose work to employee fleets while
themselves still maintaining an over-trucked,
under-utilized fleet of LODs, to continue. One
way or another the companies will move to remedy
the situation.
Unfortunately this is a fact of life that must
be faced. We are now in a situation similar to
the one which Melbourne faced in 1981 when these
same companies changed their mode of transport
from LODs to an employee fleet. In the last
year in Sydney we have also seen subbies in
other sections of the transport industry (steel,
bricks, general cartage etc.) made redundant and
replaced with employees or a fleet owner
contractor.
Your committee has clearly told the
manufacturers that straight out sackings will
not be acceptable but a packaged deal whereby
some LODs volunteer to leave the industry, after
being recompensed for their loss of goodwill,
will be considered. Much negotiating is ahead
for us in this regard and LODs can rest assured
that your committee will not be stampeded into
any hasty agreement with the companies. ... In
fact no agreement will be entered into before
being put to a general meeting of all drivers.
It is not our intention at this stage to call a
general meeting as there are no other details
that could be put to the meeting, other than
what appears on this paper. Unfortunately until
this situation becomes clear it will
automatically restrict the sale of trucks for
all of us as an incoming buyer must be fully
equated with the state of the industry and,
although some have chosen recently to take the
risk, they must be informed of the dangers
involved." (CTB 89)
119. There was no relevant mistaken assumption by the LODs or for that matter
by the respondent. The LODs chose to disregard (at
least in more recent
years) the warnings of the respondent by continuing to pay increasing amounts
for goodwill based upon their
expectation that the engagement of LODs would
continue indefinitely, an expectation that was created independently and not
based
upon or fostered by conduct of the respondent. The evidence does not
establish any standing or acquiescence by the respondent giving
rise to any
mistaken belief, expectation or assumption by the applicants or any of the
LODs. Nor does the evidence support a finding
that there was unconscionable
conduct on the part of the respondent of the kind that is required to found an
estoppel: see Waltons
Stores v. Meagher at 423. See also Lokumal and Sons
(London) Limited v. Lotte Shipping Co Pty Limited (1985) 2 Ll Rep 28 at 34-5.
(iii) Trade Practices Act 1974 - s. 52
120. The applicants assert that the respondent has contravened s. 52 by
making representations to LODs with respect to the right of LODs to sell their
trucks in work, rostering, transfer and equalization
of earnings, exclusive
right to delivery, obligations to accept substitute LODs and with respect to
goodwill. The applicants claim
that the respondent conducted its business upon
the basis that LODs could introduce a replacement LOD into its fleet in
substitution
for themselves upon payment of large sums of money in excess of
the market value of the truck. Further, they claim that the respondent
represented to its LODs that they would be able to sell their trucks in work
or that it would take no steps to prevent them from
so doing. It is also
alleged by the applicants that the respondent represented to each of the
applicants and its other LODs that
each of them was to provide cartage
services to the respondent at its plant locations in accordance with its
planned production,
by each LOD participating in a truck transfer and roster
system that is organized so as to equalize earnings of the LODs. Another
representation that is alleged to have been made by the respondent to LODs is
that it would provide to them the whole of its production
of ready mixed
concrete from its Sydney metropolitan plant subject to agreed exceptions. It
is also alleged that the respondent represented
to LODs that at no time, at
least while an LOD was retained by the respondent, would the respondent
conduct itself without good cause
in a manner likely to destroy or seriously
damage the LOD's goodwill in his right to sell his truck in work. It was also
said that
the respondent represented to each of the applicants and to other
LODs that it would not unreasonably withhold approval of a purchaser
from one
of the LODs, and that it would accept that purchaser as an LOD in its fleet on
the same terms and conditions as the outgoing
LOD. These were said to be
continuing representations and that the respondent, having made the
representation, is deemed not to
have reasonable grounds for making the
representations unless it adduces evidence to the contrary (s. 51A of the
Trade Practices Act); and it is then said that the respondent has led no
evidence that it had reasonable grounds for making those representations.
121. In my opinion the evidence does not establish that any of these representations was made. Therefore, there was no false or misleading conduct by the respondent, by the making of representations or otherwise, and there was no representation by the respondent or encouragement by it to potential LODs leading them to believe that the respondent would retain the LOD fleet indefinitely. It has not been established that the respondent held any belief contrary to that expressed to any LOD prior to August 1990 that goodwill was a matter entirely between the LODs and prospective purchasers. From August 1990 onwards all prospective purchasers were put on clear notice that the respondent intended a future review of its fleet. The evidence of each applicant (other than Mr Lewis) is to the effect that before entering into any contract for the purchase of a truck with goodwill, he relied upon information supplied by third parties and not by the respondent. In the case of Mr Lewis there is no evidence of any payment for goodwill.
122. There is no evidence of any misrepresentation or other misleading
conduct on the part of the respondent to establish a contravention
by it of s.
52.
(iv) Industrial Arbitration Act 1940: Section 88F
123. Proceedings were commenced in the Industrial Commission of New South
Wales in 1991 prior to the repeal of the Industrial Arbitration
Act on 31
March 1992 by s. 750 of the Industrial Relations Act 1991. It is common
ground that as the proceeding was commenced in
the Industrial Commission prior
to the repeal of the relevant legislation and was transferred into this Court
pursuant to orders
made by the Supreme Court of New South Wales under s. 8 of
the Jurisdiction of Courts (Cross-Vesting) Act 1987 (NSW), no question of
absence of jurisdiction or power by this Court exists in relation to the claim
based on s. 88F.
124. The applicants allege that conduct of the respondent in relevant
respects was unfair, harsh and unconscionable because of the
following:-
(a) the contracts or arrangements entered into between the applicants125. It was submitted in the alternative that if, contrary to the applicants' primary submission, the respondent is entitled to terminate the rights of the LODs relating to their right to sell trucks in work, namely, the rostering, transfer of trucks and equalization, their exclusive right to delivery, their right to goodwill (subject to the five year rule) and their obligation to accept substitute LODs and in so doing destroy their opportunity to sell their truck in work, it would be unfair for the respondent to do so. The unfairness was said to arise from the fact that the LODs, with the knowledge and acquiescence of the respondent, paid money to participate in the respondent's business in the expectation that the respondent would not interfere with their opportunity to sell their trucks in work. The operations of the LODs as the fleet of the respondent has relieved the respondent of the necessity itself to expend capital in the establishment and maintenance of such a fleet. It was asserted that the terms of the contract or arrangement should be varied to entitle the applicant to compensation in the event that their rights mentioned above are terminated.
and the respondent were made upon the basis that the LODs would
have the right and obligation to work for the respondent on a
continuing basis;
(b) pursuant to the contracts and arrangements between the respondent
and the applicants, the applicants were required to remain
available and perform work exclusively for the respondent;
(c) the transactions involving the applicants for sale and transfer of
vehicles together with associated goodwill value were effected
with the knowledge, acquiescence and consent of the respondent;
(d) in respect of such sale and transfer transactions entered into
between the respondent and the LODs they were subject to the
scrutiny and permission of the respondent;
(e) in all the circumstances it would be harsh, unfair or
unconscionable to terminate or vary the rights of the LODs without
the payment of compensation.
126. It is accepted by the applicants that cases with respect to s. 88F have proceeded upon a case by case basis. Courts have carefully refrained from formulating a general test of unfairness: see Adamson v. NSW Rugby League Limited [1991] FCA 9; (1991) 27 FCR 535 at 551-3. I was referred to certain decisions including Stewart v. Hi Quality Concrete (1982) IR 332; Swann v. Ultratune Pty Limited (1983) 5 IR at 295 and D and G Motors (1973) AR 806 at 808. I have considered these cases.
127. When each of the applicants decided to become an LOD, he did so after making enquiries from third persons, including the outgoing LOD from whom he purchased his truck. Officers of the respondent at times conversed with applicants before they decided to become LODs, but the evidence does not permit the conclusion to be drawn that any of the applicants made their decision to purchase trucks in reliance upon conduct of the respondent. Certainly the applicants knew from their enquiries of the system adopted by the respondent and the LODs in relation to the cartage of the respondent's ready mixed concrete. Most of the applicants were people with a variety of business skills and were experienced and competent people in various walks of life. In most cases the letters of acceptance from the respondent to the LODs made it clear that the respondent did not guarantee continuity of work: nowhere is reference to be found by any statement of the respondent conferring entitlement to goodwill on any LOD. The applicants chose to become LODs with knowledge of the risks inherent in their business venture, namely, that their work from the respondent might not continue indefinitely. The evidence does not permit the conclusion to be drawn that any of the applicants was entitled to assume that the respondent was not entitled to change its system of carting concrete from LODs to another system including a company owned fleet. It is clear that each applicant entered into his contract of purchase of his truck after obtaining advice and making enquiries independent of the respondent.
128. Nor can it be said that there was any question of advantage or disadvantage between the parties to the contracts of purchase by the LODs. As the respondent was never a party to the contract pursuant to which any of the applicants paid goodwill, there is no inequality of bargaining position between the respondent and the LODs. The LODs have throughout been collectively represented by an executive committee of the LODs and they are all members of the TWU which has assumed an active role in pressing the interests of the LODs with the respondent.
129. Also the applicants knew or must be treated as having knowledge of the provisions of the Contract Determination, including clause 26 which entitles the respondent to vary its fleet size.
130. In short, the applicants when purchasing their trucks and thereafter in their business relationship with the respondent assumed business risks. There is no element of unfair conduct by the respondent in what has happened.
131. As to the particular matters relied upon by the applicants as constituting grounds of allegedly harsh, unfair and unconscionable conduct by the respondent, I have dealt with these when considering other submissions of the applicant with respect to other causes of action. In particular the question whether the respondent can terminate its contracts between itself and its LODs at any time, the payment of goodwill upon termination of the contract and the power of the respondent to vary the fleet size pursuant to clause 26 of the contract determination, have all been considered by me. The letter of 10 October 1991 has been accepted by the parties as being a letter inviting negotiations between the parties to enable the respondent to reduce its fleet size pursuant to clause 26.
132. As to the assertion that the respondent has conducted its affairs with
the applicants other than in accordance with the Contract
Determination there
is no evidence that the Contract Determination has been breached by the
respondent. The other matter relied upon
by the applicants is that the
respondent is said to have failed or refused to allow the applicants the
supply of ready mixed concrete
for construction of certain roads. This matter
relates to the submissions concerning the duplexes to which I shall now turn.
Before
doing so, however, I shall state my conclusion that no case has been
established warranting relief under s. 88F of the Industrial
Arbitration Act.
Duplex Units
133. A duplex vehicle is a cab chassis modified so that it can have either an
agitator or a tipper body attached to it quickly. The
purpose of the duplex
vehicle is to allow the respondent to supply concrete used for the
construction of road pavements. Such concrete
is produced by a central mixer
(commonly called a split drum mixer) within the plant. The mixed concrete is
loaded into a tipper
body on the duplex vehicle, carted to the construction
site and then tipped into a road paving machine which spreads, levels and
compacts the concrete. A tipper body attached to a duplex vehicle can carry a
larger load than the standard agitator when mounted
on the same type of truck.
134. In early 1984 the respondent wished to purchase a concrete road paver in order to secure a market share in concrete road construction. This involved the respondent establishing a suitable batching plant at its Pendle Hill plant. The concrete produced at this plant for road paving work was produced using a split drum concrete mixer. Some of the respondent's road paving work was also serviced using concrete produced from a pugmill located at the respondent's Wallgrove quarry plant.
135. The applicants allege that in March 1984 the contracts between the
respondent and the LODs were varied relating to the construction
and use of
certain duplex units. They say that the terms of the contract are to be
derived from a variety of documents and conversations
between representatives
of the respondent and LODs between 1983 and 1991 and that as at March 1984 the
terms of the contract or contracts
were as follows:-
(i) a number of conventional agitator trucks were to be136. The applicants assert that this contract entered into in 1984 remains binding on the parties to this day, although it has been from time to time varied in certain respects. They assert that any termination by the respondent of its contractual arrangements with the LODs can only be effected by the payment of a goodwill component, including provision for the expenditure of money by the applicants to achieve the duplex variation, to purchase new trucks, and to use the duplex units exclusively for the use of the respondent. In effect, they simply engraft onto their case requiring the respondent to pay a component for goodwill to the applicants, the additional element introduced by the variation to the contracts relating to the duplexes. They also rely upon their arguments as to estoppel to bring in, as an additional component, the facts relating to the duplexes.
converted into duplex units; the number to be converted to
be initially 4 with the LODs having the first option to
increase the number if more were required by the respondent;
(ii) the cost of converting each truck to a duplex was to be
borne by the LODs;
(iii) the cost of converting the agitator units so that they are
suitable for temporary removal and storage was to be borne by the
respondent;
(iv) all work requiring the cartage of concrete in tippers was to
be given initially to the LODs of the respondent for carting
in the duplex units;
(v) concrete was to be carried at the asphalt (hotmix) cartage
rate (which is approximately 30% less than the conventional
cartage rate under the Contract Determination);
(vi) duplex units were to be used only for the respondent's work.
137. The primary documents relating to the variation of the contracts between the LODs and the respondent relating to duplex units are minutes of various meetings of the LOD executive committee and minutes of other meetings attended by representatives of the respondent and the LODs, in particular meetings of 5 December 1983 and 19 March 1984. There was an exchange of letters as between the respondent and the TWU which contained the critical provisions: letters of 20 March 1984 from the respondent to the TWU, 22 March 1984 from the TWU to the respondent, and 22 March 1984 from the respondent to the TWU. The variations to the contracts relating to the duplexes arose in the following circumstances.
138. The Department of Main Roads of New South Wales had adopted the policy by at least 1983 that concrete roads were to be the principal roads for the State of New South Wales in the future, requiring expenditure of massive sums of money especially in view of the Bicentennial Roadworks Project involving the expenditure of some $5 billion in New South Wales by 1988, and requiring very large quantities of concrete to be laid on roads and bridges in the Sydney metropolitan area during the period from 1984 onwards. The respondent decided to participate in the laying of concrete roads and invested substantial sums of money, including for the acquisition of machinery. The concrete laying machines operated so quickly that the conventional trucks with agitators could not load the concrete into the laying machine sufficiently quickly. Instead tip trucks were required to carry the concrete.
139. There were negotiations between the respondent and the LODs in early 1984 concerning the proposed acquisition and use of duplex vehicles. Mr Whithe, who was a senior officer of the respondent from January 1984 to October 1987, attended a meeting with the LOD delegates in early 1984 prior to the use of any duplex vehicles. At that meeting the proposed use of the duplex vehicles was discussed. Mr Whithe said to the LOD delegates, one of whom was Mr Gallagher, that the respondent would use the duplex vehicles for all work involving wet batch concrete produced in the split drum; and that if roller compacted concrete from the pugmill was used on a project then the respondent would use quarry trucks to cart such products. The LOD delegates said that that was acceptable provided the LODs carted all the relevant concrete that was produced in a "split drum" concrete mixer.
140. The LODs decided to purchase duplex units with appropriate tipping bodies that could be taken off when required and replaced by agitators, thus utilizing both pieces of equipment. The LODs wished to participate in this scheme. The union delegates of the respondent's LODs devised a scheme whereby all of the then 108 drivers would put in $1,650 each to raise $178,200 to buy ten duplexes.
141. In 1984 the 108 LODs of the respondent placed an order with Permatrack Pty Limited for the design, manufacture, fitting and modification to existing vehicles and the commissioning of eight duplex tipping units for the delivery of ready mixed concrete for highway construction by paving machines at a cost of about $250,000 including a contingency sum for maintenance. The units were constructed and paid for substantially by each driver's $1,650 contribution. Subsequently, 38 LODs from the Lightning/Borham group joined the respondent increasing the number of LODs to 146. The 38 additional drivers each contributed $1,250. These activities followed meetings between the Executive of the LODs and the respondent when the respondent indicated that it wished drivers to participate in the new business venture. Duplex units were then used in work for the respondent in various projects from 1984 through to 1987.
142. The scheme was implemented to ensure that the work that would otherwise
be undertaken by the respondent's own company tippers
would not be lost by the
LODs. The respondent wished to carry out the necessary work on the first road
paving job with its own quarry
trucks because the costs in relation to the
LODs duplexes were unknown and the respondent did not wish to involve the LODs
"in heavy
capital outlay for duplexes when future work is uncertain" (CTB 81).
This was known to the TWU and the LODs. The exchange of letters
of 20 and 22
March 1984 between the respondent and the TWU included a number of terms and
conditions which it is not necessary for
me to set out as they appear
sufficiently from the documents themselves, save the following.
"At the conclusion of the Prospect job, all143. The cost of converting each truck to a duplex was to be borne by the LODs; and the cost of converting the agitator units so that they were suitable for temporary removal from storage was to be borne by the respondent. The duplex units were to be used only for the respondent's work. Another term of the contracts is that the respondent reserved its "position on work after Prospect and Betts Road if an industry agreement with NRMCA has not been reached".
cartage of concrete will revert to agitators
unless an industry agreement has been reached
with the NRMCA.
Preference will be given to Pioneer's concrete
LODs to cart in tippers to metropolitan
projects. ...
All tipper concrete that can not be carted by
Pioneer concrete LODs will be carted by Pioneer
quarry trucks, either company owned or LOD.
(ATCB 451)"
144. This reservation of the respondent's position is important because it was accepted by the TWU and by the applicants that the respondent reserved its position with respect to its relations with the LODs so far as work involving the duplex tippers was concerned after the completion of Prospect and Betts Road contracts if an industry agreement with the NRMCA had not been reached. There is no evidence of any such agreement relating to the use of duplexes having ever been formulated or concluded. It seems to me that it must follow that there has not been any obligation by the respondent after the conclusion of those two jobs to utilize the duplexes.
145. The first project in which the respondent used duplex vehicles was the Great Western Highway (Stage 1) in 1984. The first section of the road was constructed with roller compacted concrete which was carted by quarry trucks from the respondent's pugmill at its Wallgrove plant. None of the concrete was carted using the duplex vehicles. The second part of the road was constructed using wet batch concrete produced in a split drum. This was delivered by the duplex vehicles in accordance with the agreement with the LODs, mentioned earlier.
146. There was a road paving contract for Betts Road, Merrylands in 1984 and the work there was carried out using roller compacted concrete delivered by quarry trucks. It could have also been carried out using wet batch concrete, in which case the duplex vehicles would have been used to deliver the concrete to the road paver. I am satisfied that wherever roller compacted concrete has been used by the respondent in its road paving contracts in the Sydney Metropolitan area it has been carried by quarry trucks in accordance with the agreement mentioned earlier in 1984. No objection has been raised by LODs with the respondent regarding the use of quarry trucks instead of duplex vehicles for such contracts. It was never agreed by the respondent that the respondent would use a split drum for road paving contracts wherever it could do so.
147. During 1991 at regular monthly meetings between the management of the respondent and LOD delegates the LODs were informed that the respondent had quoted for the provision of concrete for the F4 Freeway project. No undertakings were given by any relevant officer of the respondent to use the Pendle Hill plant or the LOD duplex units. On 28 June 1991 the respondent won the tender for the F4 project. It was made clear by the respondent that the sub-base material to be used on the F4 project was to be supplied by the respondent's Wallgrove quarry using a pugmill and that the material would be carted in the respondent's quarry trucks. Plainly the LODs were upset by this; they asserted that they believed the product for the F4 project was ready mixed concrete. On the basis that they had delivered this type of material using duplex vehicles, they took the view they should be allowed to deliver the material from the Wallgrove quarry. The respondent rejected this on the basis that it was too expensive and that the work was going to be provided by its own trucks. The respondent then made it clear that the sub-base would be done through the respondent's pugmill at its Wallgrove plant and be carted out by the respondent's own company tippers from Wallgrove.
148. In mid September 1991 a series of incidents occurred involving LODs which disrupted the respondent's supply of concrete to its customers including the parking by LODs of their trucks in positions which blocked access to the ground storage bins at a number of concrete plants of the respondent. This prevented the respondent's quarry drivers from delivering aggregate to the plants in the evenings (which was normal practice) and also prevented the respondent's quarry drivers from earning overtime. This caused additional expense to the respondent as it needed to hire additional sub-contract drivers and trucks to deliver aggregate in the mornings. LODs blockaded concrete loading points to prohibit the respondent from using company trucks or hiring trucks to fulfil its commitments to customers. This matter was the subject of further discussions between the LODs and the respondent. I am satisfied that the respondent did not agree that duplex units would necessarily be used wherever and whenever the respondent had a road paving or similar contract for which the duplex units were suitable.
149. In conclusion on this aspect of the case, in my view the introduction of
the duplex units into the contractual arrangements
between the respondent and
the LODs in 1984 introduces no new element into their legal relations so far
as this case is concerned.
Conclusion on the applicants' case
150. In my opinion the applicants have failed to establish their case. Hence
the application must be dismissed.
Cross-claim: the Trade Practices Act 1974 151. I referred earlier in general terms to the allegations made by the respondent that all the cross-respondents (that is all 145 LODs) have, through the restrictions on fleet size, the equalization of earnings and the restrictions on cartage services, engaged in conduct which contravened s. 45(2) and s. 45D(1) of the Trade Practices Act. The claim is put by the respondent on various alternative bases. Three expert witnesses gave evidence, two on behalf of the respondent (being the cross-claimant) and one on behalf of the 145 LODs (being the cross-respondents). The two expert witnesses for the respondent were Dr Chris Hall and Dr Neville Norman. The expert witness called by the LODs was Miss Rhonda Smith. The evidence of the three experts was relevant in particular on the issues of the definition and delineation of the markets for the purposes of ss. 45 and 45D, the identification of the relevant competition within the markets and the effect of the practices of the LODs impugned by the respondent in the relevant markets.
152. The evidence generally in the case, including the evidence of all three experts, leads to the conclusion that there exists two relevant and related product or services markets, namely, the market for ready mixed concrete and the market for concrete cartage.
153. There is also agreement amongst the experts that the relevant geographic
market broadly speaking is the Sydney metropolitan
area. There is no hard and
fast boundary around the Sydney region. For example a truck can in principle
be moved fairly readily
from one location such as the lower Blue Mountains or
Gosford to another such as Homebush. Although there is no precise geographic
market definition, it does not matter because broadly speaking the Sydney
region or the region centred on Sydney is a convenient
working definition of a
market for the purposes of this case.
The market for ready mixed concrete
154. The market for ready mixed concrete consists of majors and independents.
The majors, of whom the respondent is one, have a market
share of about 70% or
75% which varies to some degree from year to year. The share of each of the
majors also varies from year to
year; indeed, the share of the respondent has
declined from 24.8% in 1985/6 to 20.2% in 1990/1, an 18.5% loss of its market
share.
The three majors in the Sydney market are Boral, Readymix and the
respondent and each has a market share of somewhere between about
20% and 30%.
155. There are about 11 minor companies, of which Hymix is the largest.
156. An important question is the relationship between the cartage market and the concrete market. The two markets are distinct in that there is no ready substitutability between concrete and cartage either with respect to demand or supply, but they are closely connected. Cartage is a critical input in the production process of ready mixed concrete. Without reliable and economic cartage it is not possible to offer competition in the concrete market. Conversely the demand for cartage is a derived demand: without a demand for concrete there will be no demand for cartage.
157. The concrete market (as distinct from the concrete cartage market) is characterized by relatively low barriers to entry in the Sydney region. It is relatively easy for an independent to set up and compete and it is also relatively easy to withdraw from the market. It is plain that the concrete market is highly competitive. Also the concrete market is characterized by a high level of oligopolistic independence. If one major competitor commences, for example, to cut prices, the other majors follow. Price cutting is usually based on day to day prices at specific yards. Although the majors publish list prices which are commonly known and circulated, the actual price charged may differ quite significantly from the list price.
158. Because of the high levels of interdependence in the market, competitors
who can successfully introduce better services or who
can sustain lower prices
will inevitably force other competitors to respond and to match the new
competitive behaviour. The demand
for ready mixed concrete is sensitive to
both reliability of delivery and the actual price to the customer (as distinct
from the
list price).
The concrete cartage market
159. The Sydney concrete cartage market is characterized by three principal
elements. The first is truck ownership. Trucks are
owned either by LODs,
whose services are retained by the ready mixed concrete companies such as the
respondent, or they are owned
by the companies themselves and driven by
employed drivers. In each case the agitator is usually owned by the concrete
company.
There are about 500 LODs in the Sydney region: 145 of them are
engaged by the respondent. The Contract Determination provides for
penalties
for Saturday afternoon work ($10.13 per cubic metre with a minimum of 3 cubic
metres per load) and Sundays ($12.15 per
cubic metre with a minimum of 3 cubic
metres per load). All LODs are covered by the Contract Determination and are
represented industrially
by the TWU. The total number of LODs in the market
has remained static since about 1972. The respondent has acquired other
companies
(for example Lightning) in the course of this period, but has not
added trucks to or removed trucks from the market fleet of LODs
notwithstanding considerable fluctuations in demand for ready mixed concrete
over this period. Employee drivers are mostly used
by independent companies.
160. Another important element in the market structure is the fact that all LODs are covered by the Industrial Arbitration Act which allows associations of contract drivers to be covered by registered agreements and contract determinations. These associations and agreements are an important element in market structure. Also, there is a connection between the associations of contract drivers and the TWU which gives the LODs more market power than they would otherwise have.
161. The third element in the market structure is that the market is
characterized by a number of geographic segments within the
Sydney
metropolitan region. This arises because of the placement of batching sites
in the metropolitan area of Sydney and the constraint
imposed in distance
between the batching site and the concrete pouring site by the fact that the
concrete must be delivered and laid
before it sets.
Competition
162. Dr Norman stated the criteria essential for competition within a
market, namely, the ability of the market to:-
"(i) enable products to be delivered163. There is strong competition in the concrete market within the Sydney metropolitan region and the price at which concrete is sold is adjusted continuously according to the market's demands. The price is often heavily discounted from both the average and the list prices. Cartage costs comprise about 15% of the cost to a customer of a load of concrete. The cartage costs of LODs are fixed by the Contract Determination which provides for fixed minimum charges for the delivery of ready mixed concrete.
consistently to consumers or users
efficiently in the range and
qualities desired;
(ii) avoid inefficient practices,
excessive costs, delays and product-
related faults;
(iii) pressure suppliers to adopt best-practice
methods of production and distribution;
and
(iv) reward efficient operators and
penalize less efficient operators
(including by failure and exist from
the market)."
164. The Sydney metropolitan ready mixed concrete market is currently in a state of decline reflecting the decline in the building industry, and as demand for concrete has fallen, so has the price of concrete. For example, in the nine months period between June 1991 and March 1992, the price of the respondent's concrete has fallen by 13% per cubic metre.
165. The majors, including the respondent, are to an extent able to adopt measures to reduce their respective costs of production of ready mixed concrete. But so long as they continue to use LODs, I am satisfied that they are unable to make any significant reductions in their cartage costs or utilize their resources more efficiently. I accept the evidence of Mr Stainton, the Regional General Manager of the respondent, that if the respondent was able to utilize a company owned fleet of trucks, the average cost of cartage of concrete would fall from approximately $22 per cubic metre to approximately $17 per cubic metre.
166. Independent manufacturers of ready mixed concrete are able to take advantage of fluctuations in the market more readily than the majors because of their ability to provide cartage services more readily, both on week days and on weekends. If the respondent continues to utilize only the contract services provided by the LODs (I leave aside the three company employed drivers), it will suffer a severe disadvantage in its ability to compete in the Sydney market.
167. The cost of cartage of ready mixed concrete is greater in Sydney than in any other capital city of Australia. I can discern no cause for this phenomenon other than the costs which are imposed by the Contract Determination which necessarily presupposes the existence of the LOD system.
168. The costs applicable to the cartage of ready mixed concrete by LODs are
also greater than the costs borne by the independents
with employee driven
fleets. I am satisfied from the evidence including the evidence of an officer
of an independent company that
its costs of cartage over the past five years
have been less than those of the respondent.
Flexibility and rivalry in the concrete cartage market
169. There is a considerable lack of flexibility and rivalry in the concrete
cartage market due to a number of causes. First, the
Contract Determination
introduces inflexibility into competition amongst carters because it sets
minimum rates and conditions and
adjusts rates by formula. Second, there are
what the experts have described as institutional factors imposed on the
cartage market
by government regulatory authorities. For example, the Roads
and Traffic Authority axle load limitations limit flexibility to compete
by
placing a limit on loads carried. Third and most significantly for present
purposes is the inflexibility that arises from practices
adopted by the LODs.
There is widespread use in the Sydney market of the following practices all of
which are attributed to the LODs
and the system which they represent:
. entry is restricted by the LODs to yards and to companies, hence170. All of these practices have the necessary consequence of limiting rivalry and flexibility within the market; and the association between the LODs and the TWU necessarily facilitates the LODs' ability to maintain the practices primarily through threat of industrial action.
truck numbers are restricted;
. new entrants to a yard must be approved by the LODs;
. exit from a yard or company is restricted by the LODs;
. temporary transfers between yards are subject to approval by the
LODs;
. multiple truck ownership is prohibited by the LODs and the TWU;
. rotation or sharing of work is done to equalize incomes (that is
equalization of earnings) by means of systems operated by the
LODs;
. all carters at a yard or company receive the same rates.
171. The combined effect of the practices adopted by the LODs, in particular the restrictions on truck numbers, on multiple truck ownership and on truck relocation, together with the Contract Determination is that individual carters of concrete do not have the means to offer rivalry even if they are more efficient or even if they wish to seek additional work. The effect of the practice of equalization of earnings is that the carters do not have the incentive to offer rivalry even if they are able to do so. Equalization of earnings together with the Contract Determination reduces the risks usually associated with being a small business person and thus reduces some of the incentive actively to engage in rivalrous competition. The guaranteed equality of earnings to the LODs ensures that there is little incentive to seek more efficient and better methods of cartage and then to pass those benefits on to consumers. The effect of the Contract Determination is that all carters accept the same rates, the rates are increased in line with cost by means of a formula and individual carters are insulated from the effects of competition.
172. In my opinion the combined effect of the practices of the LODs and the Contract Determination is to limit competition in the concrete cartage market.
173. Thus the level of competition in the concrete cartage market is diminished by the practices of equalization of earnings and restrictions on truck numbers. It is almost impossible, if not impossible, for a person seeking entry to the major segment of the market to do so unless a truck is available for sale with attendant goodwill. Thus new entrants cannot add rivalrous pressure to the market. The equalization practices together with the practices which restrict truck numbers, including the prohibition on multiple ownership of trucks by one carter, make it impossible for an LOD to seek additional work even if he wishes to do so.
174. I accept the correctness of the submission of counsel for the respondent that the size of the goodwill payments is a useful and reliable indication of the extent of the barriers to entry to that part of the cartage market which services the majors, that is about 70% of the total market for cartage.
175. I adopt the following statement by the Trade Practices Tribunal in Re
Lamont (1990) ATPR 51,512 (a case relating to the ready mixed concrete
industry and LODs in the ACT/Queanbeyan cartage market), at 51,527:
"However, in the market for concrete cartageThe effect of the arrangements and practices on competition in the ready mixed concrete market
goodwill payments purchase nothing more than the
right to enter the market. Such payments
increase the already significant barriers to
entry in this market. Furthermore, increase in
goodwill payments are likely to put pressure on
the rates charged by lorry-owner drivers both
because drivers who have paid a significant
amount of goodwill will have financing costs and
because drivers will wish to protect the value
of their investment by ensuring that rates
remain high."
. Concrete companies are restricted in their ability to offer lower177. As to goodwill, the value of goodwill in the concrete cartage market is in my opinion almost entirely attributable to both the relative security and stability of income associated with the equalization practices and to a lesser extent associated with the Contract Determination. It is also attributable to the restraint on competition imposed by arrangements which bar entry to potential competitors and which effectively stop any erosion of opportunities for work.
prices. For example the restrictions of the LODs make it
difficult or uneconomic for majors such as the respondent to
compete for weekend work (because of the differences between week
day and weekend work rates embodied in the Contract
Determination). Consequently there is less competitive pressure
to reduce the price to weekend customers because there are fewer
active rivals in the market.
. Concrete companies are restricted in their ability to offer more
flexible services.
. All the major concrete companies tend to have the same cartage
costs and those costs tend to increase at the same time and at the
same rate.
. Concrete companies are unable or at least severely hampered in
their capacity to reduce their costs by better resource
allocation.
. It is difficult for concrete companies to introduce more efficient
new technology.
. Company incentives to drivers to increase productivity are
restricted.
178. Because of their ability to engage employees, the independents are
Restriction on truck fleet
able to utilize truck fleets according to the needs of the market. The
majors, including the respondent, are unable to do so because
of the
restrictions imposed upon them by the LODs relating to any increase or
decrease in the fleet size.
179. Also the action of rostering off is an integral part of the equalization
scheme as practiced by the LODs and demonstrates the
difficulties faced by the
respondent in the marketplace. The transfer system is unwieldy and costly.
The practices of the LODs are
unique to the Sydney market. They do not exist
in any other capital city in Australia.
Substantial lessening of competition
180. Barriers to entry are the most important structural indication of a
detriment to competition in a market for goods or services:
see Queensland
Wire Industries Pty Ltd v. Broken Hill Co Pty Ltd [1989] HCA 6; (1989) 167 CLR 177; Re
Queensland Co-Operative Milling Association Limited v. Defiance Holdings
Limited (1976) ATPR 40-012 and subsequent decisions of the Trade Practices
Tribunal and the courts. The Contract Determination fixes or adjusts rates in
ways
that limit the ability of the freer market to use the price mechanism as
a restraining device and to operate as a signal for changes
in market
conditions. The equalization system based on equity among the LODs conceals
important differences and attributes between
individual operators. It
substantially removes the incentive for market participants to experiment with
different pricing and product
initiatives. Practices which limit the ability
of participants in the market to change the number, form and ownership of the
trucks
operating in the market add rigidity, which makes the activities of
concrete production and distribution less capable of responding
to unforeseen
variations in demand commonly found within the Sydney markets. The practices
penalize efficient operators and subsidize
inefficient operators. I accept
the evidence of Dr Norman who gave as an example of the point, the following:
"Carter A is motivated and would like to seek a181. These practices in my opinion impair the economic performance of this market sector by limiting the market benefits that would arise from more rivalrous activities among the existing participants and by depriving the market of potentially different and more efficient operators. They are acts of protection which are contradictory to the dictates of market competition. There is a lessening of competition in the concrete cartage market caused by an artificial limit being imposed on the number of trucks that may be used which is in turn caused by the conduct of the LODs in both the equalization arrangements and the arrangements which limit the number of trucks. There is also a lessening of competition in the ready mixed concrete market caused by the inability of the majors including the respondent to obtain cartage services and to supply ready mixed concrete to their customers to meet the requirements of customer demand. The practices of restricting truck numbers and rostering off trucks as an integral part of the equalization system each results in the lessening of competition in the relevant markets. The practices adopted by the LODs are motivated by a desire both to maintain the value of goodwill and to equalize and raise returns to LODs.
higher income by pursuing work actively, being
willing to work long hours and generally
engaging in rivalrous conduct characteristic of
independent small businesses, while carter B is
not so motivated. The effect of the
equalisations scheme is that as soon as carter
A's income is noticeably above carter B's,
additional work is denied to carter A. In the
course of time carter A will lose the incentive
to engage in rivalry and any market pressure on
carter B to operate competitively will be removed."
182. The effects of these practices create:-
. a quasi monopoly position and the expectation by the LODs of its183. Cartage constitutes about 15% of the cost to a customer of a load of concrete, although there is a wide range of variation depending on circumstances. I agree with Dr Hall that this suggests that if cartage rates can be cut by 10% the price of concrete can be dropped by about 1.5% (that is one-tenth of 15%). The evidence suggests that the actual cut that may be possible in cartage rates may be much larger than 10%. Sydney rates for concrete cartage per cubic metre for the respondent are the highest in Australia and some 28.4% higher than in the lowest cost capital, Brisbane. If rates in Sydney are compared with rates in other capital cities, the difference is as follows:
perpetuation;
. the basis for goodwill payments of the size observed in the
industry;
. poorer performance;
. higher prices for cartage and ultimately for the price of ready
mixed concrete;
. market inflexibility and lessening of competition in the markets
for concrete cartage and ready mixed concrete.
City Cost of Cartage in dollar184. The restrictions on flexibility and rivalry in the cartage market are largely due to the practices adopted by the LODs. Other factors such as institutional and functional limitations and the Contract Determination also reduce flexibility and rivalry; but there is little that competitors in the concrete market can do about them and their effect is relatively minor by comparison with the LODs' restrictions. The practices adopted by the LODs have the effect of limiting the potential for rivalry in the concrete market by making it difficult for companies to offer lower prices or improved services or to introduce new technology. The extent of the limitation is that it restricts opportunities for concrete companies such as the respondent to cut prices. Whether the concrete companies would do this if the restrictions were abolished or whether they would just add to profits depends ultimately on the competitive nature of the concrete market and on the particular attitudes of the companies concerned.
terms per Cubic Metre of concrete
Sydney 22.20
Brisbane 15.90
Melbourne 19.90
Adelaide 16.00
Perth 20.70
185. Having found that this is a clear case where the conduct of the LODs lessens competition in both markets it falls to me to determine whether the lessening of competition is substantial or likely to be substantial.
186. This question has been examined in a number of the decisions of the
courts and the Trade Practices Tribunal. The concept of
"substantial" is a
relative one.
"It need not, it is plain, be necessarily187. In Radio 2UE Sydney Pty Limited v. Stereo FM Pty Limited [1982] FCA 206; (1982) 62 FLR 437 I said at 444:
capable of quantitative assessment; but it
should be sufficiently definable - have
sufficient substance - as to permit some factual
judgment of its relative importance. The term
'relative' is used deliberately. One thing can
be large only in relation to another." Re: QCMA
(1976) 25 FLR 169.
"In the context of section 45, the word188. See alsxo ASX Operations Pty Ltd (1991) 27 FCR 460; Dowling v Dalgety Australia Limited [1992] FCA 35; (1992) 106 ALR 75 and Eastern Express Pty Limited v General Newspapers Pty Limitd (1992) 106 ALR 297.
'substantial' is used in a relative sense. The
very notion of competition imports relativity.
One needs to know something of the business
carried on in the relative market and the nature
and extent of the market before one can say that
any particular lessening of competition is substantial."
189. In my opinion the anticompetitive effects of the restrictions imposed by the LODs is a significant factor in deciding competitive success in the concrete market. This is evidenced by the size of the goodwill payments. The effects of the practices are likely to cause a substantial lessening of competition in the markets for both concrete cartage and ready mixed concrete. As to the cartage market, the practices are plainly designed to have, and do in fact have, the effect of restricting competition and they prevent and hinder competition in the cartage market (s. 4G of the Trade Practices Act). It cannot be doubted that the erection or maintenance of barriers to entry can lead to a substantial lessening of competition: see Outboard Marine Australia Pty Ltd v. Hecar Investments No 6 Pty Ltd [1982] FCA 265; (1987) 66 FLR 120. Restrictions on the independent operation of a business is a significant structural element in a market; and arrangements which curtail the independent operation of a business clearly lessens competition. These considerations all apply in the present case and lead in my view to a substantial lessening of competition. As to the concrete market, the practices have the effect of restricting competition in that market for the reasons already mentioned. The concrete market is inherently competitive with relatively low barriers to entry and significant interdependence between competitors. Demand in the concrete market is significantly elastic and cross elastic with respect to actual price to the customer and with respect to reliability and quality of service. Market share is an important indicator of competitive success and as a source of competitive success within a relatively large competitive range. A company which can acquire additional market share in this industry, other things being equal, has the potential to lower unit costs and thus become more competitively advantaged relative to its rivals. There are no significant economies of scale relative to the total market size so that this competitive advantage arising from acquisition of market share is unlikely to lead to any market dominance in the long term, but does offer opportunities for extensive rivalry as a means of making the best use of resources over the short to medium term.
190. The flexibility required to pursue such rivalrous strategies is impeded by the restrictions and arrangements interposed by the LODs. This reduces the relative ability of individual competitors to engage in rivalry and to put competitive pressure on rivals. In my opinion if the restrictions were limited, the flexibility would be increased substantially. The nature of the concrete market is such that rivalrous pressure of this kind would be irresistible; the interdependence in the market is such that rivals would have little choice but to respond. This would be likely to increase competition in the market as a whole.
191. I turn then to the specific issues that arise under the Trade Practices
Act.
Section 45(2)
Section 45(2) provides so far as relevant:-
"(2) A corporation shall not make an192. Section 4D defines the term "exclusionary provision" for the purposes of s. 45 as being in essence a collective boycott, by referring to any provision in an agreement between competitors which has the purpose of either restricting the supply of goods or services by all or any of those competitors to particular persons or classes of persons or restricting the acquisition of goods or services by all or any of those competitors from particular persons or classes of persons.
arrangement or arrive at an understanding
if -
(i) a proposed arrangement or
understanding contains an
exclusionary provision; or
(ii) a provision of the proposed
contract, arrangement or
understanding has the purpose,
or would have or be likely to
have the effect, of
substantially lessening
competition; or
(b) give effect to a provision of a contract,
arrangement or understanding, ... if that
provision -
(i) is an exclusionary provision; or
(ii) has the purpose, or has or is likely
to have the effect, of substantially
lessening competition."
193. The respondent contends that the arrangement or understanding of limiting truck numbers and equalization of earnings (being an understanding that they will not compete with each other for more than an equal share of the available business) is an exclusionary provision because its purpose is to restrict the number of trucks by excluding third parties and employees of the respondent from supplying cartage services or concrete (s. 45(2)(a)(i)). By raising and equalizing earnings through restricting or limiting the number of trucks, the purpose of the LODs or the likely effect of the arrangement or understanding is substantially to lessen competition (s. 45(2)(a)(ii)). The relevant arrangement or understanding is given effect to, thus contravening s. 45(2)(b). The respondent's case based on these provisions of the Trade Practice Act is confined to such of the cross respondents as are corporations.
194. Fifty-one of the cross-respondents are corporations owned or controlled by or in which LODs are substantially interested. Each of those corporations supplies contract cartage services to the respondent. If the corporate cross-respondents have contravened s. 45(2) then it is alleged that the remaining cross-respondents have been knowingly concerned in such conduct for the purposes of s. 75B of the Trade Practices Act and the contrary was not suggested.
195. The relevant conduct of the LODs (I shall continue to refer to LODs, but for the purpose of the present question I include also the relevant corporations) consists of the actions of maintaining static truck numbers by refusing to permit the increase or decrease of trucks except on the terms of the LODs and the action of rostering off trucks at such times as the LODs wish which is part of the equalization scheme as enforced by the LODs.
196. The purpose and the effect of this conduct is to inhibit or restrict other persons from entering the concrete cartage market as an LOD; and it has the purpose or effect of substantially lessening competition in the concrete cartage market and the ready mixed concrete market, the two of which overlap for the reasons mentioned earlier.
197. The conduct has the effect of preventing or restricting the supply of both cartage services and of ready mixed concrete. The limitation on cartage services, the inability of the majors to obtain cartage services readily when demand requires it and the inability to obtain more efficient resource use of their cartage facilities and plant, added to the factors which I mentioned earlier when discussing the substantial lessening of competition, all lead to the conclusion that the effect of the relevant conduct is substantial in its lessening of competition. By way of contrast, other majors, that is other than the respondent, have the benefit of a greater mix of employee drivers with LODs, whilst independent companies have all their trucks operated by employee drivers. These companies which are competitors of the respondent in the Sydney metropolitan concrete cartage market and concrete market are not subject to the same restrictions or limitations of delivery and supply as is the respondent.
198. The relevant arrangement or understanding constitutes an exclusionary provision within the meaning of s. 4D. The LODs would otherwise be in competition with each other and the purpose of the arrangement is to restrict or limit the supply of concrete cartage services to the respondent and its customers. It has also prevented, restricted or limited the supply of ready mixed concrete to the customers of the respondent. The LODs by virtue of that conduct have made an arrangement or arrived at an understanding which contains an exclusionary provision which has the purpose or effect of substantially lessening competition contrary to the provisions of s. 45(2)(a). LODs have also given effect to such provision contrary to s. 45(2)(b).
199. As to the exclusion of third parties from supplying cartage services, it is true that the Contract Determination entitles the respondent to vary its fleet size, but in practice the activities of the LODs ensures that the control of entrance to the market is dominated by them. The exclusionary provision does have the purpose described in s. 4D(1)(b) because it relates to a restriction of the supply of services by LODs.
200. The respondent's case of contravention of s. 45(2) is stronger it seems to me in so far as it is based upon (a) an arrangement or understanding which has a provision that has the purpose or has or is likely to have the effect of substantially lessening competition in the concrete cartage market or concrete market or (b) the giving effect to such provision. Although the tests posed by the definition of exclusionary provision are satisfied in this case, there is a real question whether, at least as to the alleged exclusionary provision restricting the numbers of trucks, the relevant purpose is not a purpose within the meaning of s. 4D because it does not relate to any restriction of the supply of services by any party to the alleged arrangement or understanding, namely, any LOD. I do not accept the correctness of that contention but I see force in it.
201. In my opinion it has been established that the LODs have contravened s.
45(2)(a)(i) and (ii) and s. 45(2)(b)(i) and (ii).
Section 45D of the Trade Practices Act
202. Section 45D so far as relevant in this case provides as follows:
"45D(1) Subject to this section, a person203. The respondent puts its case based on s. 45D as follows:-
shall not, in concert with a second person,
engage in conduct that hinders or prevents the
supply of goods or services by a third person to
a fourth person (not being an employer of the
first-mentioned person), or the acquisition of
goods or services by a third person from a
fourth person (not being an employer of the
first-mentioned person), or the acquisition of
goods or services by a third person from a
fourth person (not being an employer of the
first-mentioned person), where
(a) the third person is, and the fourth person
is not, a corporation and -
(i) the conduct would have or be likely
to have the effect of causing
(A) substantial loss or damage to
the business of the third
person or of a body corporate
that is related to that
person; or
(B) a substantial lessening of
competition in any market in
which the third person or a
body corporate is related to
that person supplies or
acquires goods or services: and
(ii) the conduct is engaged in for the
purpose, and would have or be likely
to have the effect, of causing -
(A) substantial loss or damage to
the business of the third
person or of a body corporate
that is related to that
person; or
(B) a substantial lessening of
competition in any market in
which the fourth person
acquires goods or services.
(b) The fourth person is a corporation and the
conduct is engaged in for the purpose, and
would have or be likely to have the
effect, of causing -
(i) substantial loss or damage to the
business of the fourth person or of
a body corporate that is related to
that person; or
(ii) a substantial lessening of
competition in any market in which
the fourth person or a body
corporate that is related to that
person supplies or acquires goods or
services."
(a) LODs have in concert with each other engaged in conduct that204. A second way in which the case is put is that LODs are acting in concert with each other by engaging in conduct that hinders or prevents the supply of goods or services of cartage or concrete by the respondent to its customers where the customers are corporations; and the conduct is engaged in for the purpose and would be likely to have the effect of causing a substantial lessening of competition in either the cartage market or the concrete market in which the customers acquire goods or services, namely, cartage services and/or concrete (s. 45D(1)(b)).
hinders or prevents the supply of cartage services and/or concrete
by the respondent to its customers where (i) the respondent is and
the customers are not corporations and (ii) the conduct of
restricting the number of trucks and the practice of equalization
would be likely to have the effect of causing (a) substantial loss
or damage to the business of the respondent or (b) a substantial
lessening of competition in either or both of the cartage market
or concrete market in which the respondent supplies or requires
goods and/or services, namely, cartage services and/or concrete;
and,
(b) the conduct is engaged in for the purpose and would have or be
likely to have the effect of causing a substantial lessening of
competition in either the cartage market or the concrete market in
which the customers acquire goods and/or services, that is cartage
services and/or concrete (s. 45D(i)(a)).
205. A third way in which the case is put by the respondent is that LODs have acted in concert with each other by engaging in conduct that hinders or prevents the supply of cartage services by third party carriers or employees of the respondent to the respondent where the respondent is a corporation; and the conduct is engaged in for the purpose and would have or be likely to have the effect of causing a substantial lessening of competition in the market in which the respondent supplies or acquires services, namely, cartage services (s. 45D(1)(b)).
206. The final way in which the case is put is that LODs have acted in concert with each other by engaging in conduct that hinders or prevents the acquisition of ready mixed concrete by customers from the respondent where the respondent is a corporation and the conduct is engaged in for the purpose and would have or be likely to have the effect of causing a substantial lessening of competition in the market for cartage services and/or concrete market in which the respondent supplies or acquires goods or services (s. 45D(1)(b)).
207. The LODs by their conduct of restricting the supply of trucks to the
respondent and by the rostering off of trucks as part of
the equalization
system have in my view engaged in conduct which has hindered or prevented the
respondent from acquiring cartage
services, and is continuing to do so. The
same conduct has had the effect and is continuing to have the effect of
restricting supply
of cartage and of concrete services by the respondent to
its customers. This conduct has been engaged in and is being engaged in
for
the purpose of or is likely to have the effect of causing substantial
lessening of competition in the concrete cartage market
and the ready mixed
concrete market. In my view the conduct offends s. 45D(1)(a)(i)(B) and s.
45D(1)(b)(ii). In other words the respondent has established its case on its
cross-claim except in so far as it alleges that the relevant conduct
has had
the effect or is likely to have the effect of causing substantial loss or
damage to the business of the respondent (s. 45D(1)(a)(i)(A) and s.
45D(1)(a)(ii)(A) and s. 45D(1)(b)(i)). This lastmentioned aspect of the case
was not seriously pressed in final addresses by counsel for the respondent.
Summary of Conclusions
208. This case has involved a very large amount of evidence, documentary and
oral. Numerous questions of law have arisen and have
been the subject of
extensive submissions by counsel for the parties, especially written
submissions. I have mentioned the principal
submissions made by counsel. By
not referring to every other submission it does not follow that I have not
considered them. I have
carefully considered every submission. It is simply
that the sheer number of the submissions in the light of the volume of the
material
before the Court has made it for all practical purposes impossible to
cover each of them in terms in these reasons for judgment.
But my answers to
the principal submissions carry with them inevitably the ancillary
submissions.
. Each LOD is entitled to terminate his contract with the209. I do not propose to make orders today. I shall stand the matter over to a date to be fixed in the near future to enable submissions to be made with respect to appropriate relief on the cross-claim and as to costs. I direct the respondent to bring in short minutes to give effect to these reasons for judgment, both with respect to the applicants' claim and the cross-claim. The short minutes should be discussed between counsel before the matter is next listed so that all matters except those truly in dispute may be agreed in advance by the parties.
respondent. The respondent is also entitled to terminate its contract
with each LOD. In each case reasonable notice of termination must be
given if the right is exercised.
. The Transport Industry Concrete Haulage Determination 1981 (as
amended), being a determination of the New South Wales Industrial
Commission as it then was, does not prohibit the respondent from
changing its cartage policy and system. The respondent is not
permanently locked into its arrangements with LODs.
. Clause 26 of the Contract Determination entitles the respondent to
vary its fleet size.
. This power must be exercised in good faith. The power of fleet
variation may be exercised by the respondent by reducing the size of its
LOD fleet to zero if it wishes provided it does so in good faith. I see
nothing in the evidence which suggests that the respondent in seeking to
reduce its LOD fleet to nil has acted or is acting otherwise than in
good faith according to its perception of its future business needs.
. There is no term express or implied in the contracts between the
respondents and each LOD that goodwill must be paid by the respondent if
it purchases a truck from an LOD save in the limited class of case where
it exercises an option to purchase a truck from an LOD and the truck was
originally the property of the respondent. Nor is there any term,
express or implied, requiring the respondent as the price for
terminating any contract between itself and an LOD to purchase the truck
of the LOD or to pay to him an element attributable to goodwill.
. The case for the applicants based on breach of contract,
misleading conduct pursuant to s. 52 of the Trade Practices Act 1974,
estoppel and s. 88F of the Industrial Arbitration Act 1940 (NSW) fails.
. The practices and arrangements of and between the LODs of limiting
truck numbers and equalizing earnings are anticompetitive and
substantially lessen competition in the relevant markets of concrete
cartage services and the ready mixed concrete market itself. It has
been established by the respondents that the LODs have contravened s.
45(2)(a)(i) and (ii) and s. 45(2)(b)(i) and (ii) of the Trade Practices
Act and s.45D(1)(a)(i)(B) and s. 45D(1)(b)(ii) of the Trade Practices
Act.
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