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Keldote Pty Ltd & Ors v Riteway Transport Pty Ltd [2009] FMCA 319 (5 May 2009)

Last Updated: 6 May 2009

FEDERAL MAGISTRATES COURT OF AUSTRALIA

KELDOTE PTY LTD & ORS v RITEWAY TRANSPORT PTY LTD

INDUSTRIAL LAW – Unfair contracts – Independent Contractors Act 2006 – contract varied – variation having element of retrospectivity – variation should not go beyond what is necessary to remedy the unfairness identified – discretion to make no order.

COURTS & JUDGES – Independent Contractors Act 2006 – Court has jurisdiction to review contracts which are no longer on foot at the time the application for review is filed.


Keldote Pty Ltd & Ors v Riteway Transport Pty Ltd [2008] FMCA 1167
Keldote Pty Ltd & Ors v Riteway Transport Pty Ltd (No.2) [2008] FMCA 1623
Re Dingjan; Ex parte Wagner [1995] HCA 16; (1995) 183 CLR 323
Gerrard v Mayne Nickless Ltd (1996) 135 ALR 494
Eagle Boys Dial-A-Pizza Australia Pty Ltd v Clifford [2003] NSWIRComm 101; (2003) 125 IR 35

Applicant:
KELDOTE PTY LTD

Respondent:
RITEWAY TRANSPORT PTY LTD T/AS RITEWAY EXPRESS

File Number:
SYG 2353 of 2007

Applicant:
L & D LOWE TRANSPORT PTY LTD

Respondent:
RITEWAY TRANSPORT PTY LTD T/AS RITEWAY EXPRESS

File Number:
SYG 2354 of 2007

Applicant:
TAMBO WATERS PTY LTD

Respondent:
RITEWAY TRANSPORT PTY LTD T/AS RITEWAY EXPRESS

File Number:
SYG 2431 of 2007

Judgment of:
Cameron FM

Hearing date:
31 March 2009

Date of Last Submission:
22 April 2009

Delivered at:
Sydney

Delivered on:
5 May 2009

REPRESENTATION

Counsel for the Applicant:
Mr I. Latham

Solicitors for the Applicant:
Turner Freeman

Counsel for the Respondents:
Mr A. Moses SC

Solicitors for the Respondents:
Blake Dawson

ORDERS

(1) In respect of each applicant’s contract with Riteway Transport Pty Ltd, the fourth paragraph of clause 5 of the Riteway-TWU agreement be varied as from the time when the contract was made by inserting after the sentence ending with the words “8 years” the following words:
(2) The matters stand over for consideration of the applicants’ claims for damages and injunctions.
FEDERAL MAGISTRATES
COURT OF AUSTRALIA AT
SYDNEY

SYG 2353 of 2007

KELDOTE PTY LTD

Applicant


And


RITEWAY TRANSPORT PTY LTD T/AS RITEWAY EXPRESS

Respondent


SYG 2354 of 2007

L & D LOWE TRANSPORT PTY LTD

Applicant


And


RITEWAY TRANSPORT PTY LTD T/AS RITEWAY EXPRESS

Respondent


SYG 2431 of 2007

TAMBO WATERS PTY LTD

Applicant


And


RITEWAY TRANSPORT PTY LTD T/AS RITEWAY EXPRESS

Respondent

REASONS FOR JUDGMENT

Introduction

  1. In these proceedings for relief pursuant to the Independent Contractors Act 2006 (“ICA”) the applicants alleged that the contract which each of them held with the respondent (“Riteway”) was unfair. At this point it should be noted that each of the applicants’ contracts contained written terms derived from an agreement between Riteway and the Transport Workers’ Union dated 1 April 1998 (“Riteway-TWU agreement”).
  2. In the reasons for judgment of 22 August 2008 in an earlier stage of these proceedings (“principal judgment”), relevant facts were summarised as follows:
  3. Relevantly for current purposes, in their amended applications each of the applicants sought the following order:
  4. In the principal judgment I found that the contracts between Riteway and the applicants were unfair because they entitled Riteway to impose unilaterally, and without making financial compensation to the applicants, a significant change to the equipment required to service the contracts: at [104] and [107].
  5. When considering how the contracts might be varied in order to alleviate that unfairness, I said:
  6. Based upon that reasoning the Court made the following orders:
  7. After the publications of my reasons on 22 August 2008 and the making of the orders quoted above at [6], Riteway filed an application in a case for the first order to be set aside on the basis that it had been neither sought by the applicants nor foreshadowed by the Court. Argument on that application took place on 25 November 2008. Having considered the matters put by Riteway and the applicants
    I concluded that in making that order the Court had indeed denied Riteway procedural fairness. By further order made on 16 December 2008 it was set aside: Keldote Pty Ltd & Ors v Riteway Transport Pty Ltd (No.2) [2008] FMCA 1623.
  8. The matter is now before the Court on the question of what orders, if any, the Court should make consequent upon its finding that the contracts between the applicants and Riteway were unfair.

Submissions

  1. The applicants submit that the identified unfairness would be corrected if, in each of their contracts with Riteway, the fourth paragraph of clause 5 be varied as from the time when each contract was made by inserting the following term:

In the alternative, the applicants seek an order in terms of order 1 made on 22 August 2008 which was set aside on 16 December 2008. Leave to amend the application accordingly was granted.

Order proposed by applicants

  1. The applicants submit that their proposed order ameliorates the identified unfairness while making the least change to the contract. This was on the basis that, as it had been found at [107] of the principal judgment that each

the simplest way to ameliorate unfairness was to require a commensurate adjustment of the amount the applicants were paid for each trip between Sydney and Melbourne (“trip rate”).

  1. The applicants submitted that $265.11 was the appropriate figure by which to increase the trip rate. This sum was said to be based on a combination of figures found in the evidence given by Mr Kent of Riteway as to the increased cost to the drivers of a one-way trip, combined with amounts derived from other evidence concerning repair and maintenance costs and concerning return on investment, at the lowest estimates for those items.
  2. The applicants conceded that the order they now seek is of the same type as proposed order 4 of the amended application but amended with the aid of the evidence given at the trial to reflect the “net cost of the new vehicle” amortised over its life.
  3. Riteway opposed the applicants’ proposed order, submitting that it:
    1. called into question the Court’s evidentiary findings as to the amounts which the applicants said they would accept to upgrade to B/double trailers;
    2. was inconsistent with the principal judgment;
    1. was contrary to the ICA in that no attempt had been made to explain how it was unfair that a term in the form of the proposed order had not been included in the contracts when they were made;
    1. was an attempt to seek a notional or fictional variation and had nothing to do with the alleged unfairness of which the applicants had complained; and
    2. fell foul of estoppel by record principles in that the claim made in proposed order 4 of the amended application had been rejected by the Court.
  4. Riteway further submitted that the variation proposed by the applicants bore no relevance to the unfairness found and, in any event, was unsupported by evidence. In this regard, Riteway observed that none of the applicants had said that they would upgrade their vehicles to B/doubles in exchange for an additional $265.11 per trip. It was submitted that the evidence indicated that the applicants would not have accepted less than $1,500 per trip. At that time they were being paid $1,194 for driving the route with the configuration they then had (see principal judgment at [27]).

The order made by the Court on 22 August 2008

  1. The applicants submitted in the alternative that the order made on 22 August 2008 addressed the unfairness identified in the principal judgment. However, it was conceded that that order might go further than was necessary in that it potentially prevented Riteway from being able to compel an upgrade even were it to provide for payment of fair compensation.
  2. Riteway adopted the applicants’ submission that the order made on
    22 August 2008 went further than was necessary, saying that it put the respondent at a disadvantage when it came to termination of contracts. It was submitted, by reference to an outline of submissions filed on
    23 October 2008 in an earlier stage of the proceedings, that the Court’s finding on 22 August 2008 did not empower it to stop Riteway giving reasonable notice of the contract coming to an end in the event that the applicants did not wish to upgrade their vehicles, or the parties were unable to agree on rates.
  3. Moreover, it was submitted that the words

which were interpolated into cl.5 of the Riteway-TWU agreement by order 1 made on 22 August 2008, were not sufficiently certain for the parties to know what their respective rights were. It was submitted that such words would lead to disputes and, if agreement were not reached as to what was reasonably equivalent or what increased trip rate should apply to the new vehicles, Riteway would bear an unfair burden of having to terminate the contracts of drivers who would not upgrade their vehicles.

No order

  1. Riteway also submitted that it was open to the Court to make no order consequent upon its finding of unfairness. Riteway argued that it had not sought to impose a change to B/double trailers unilaterally or without compensation. It pointed out that it had entered into negotiations about compensation and gave the applicants six months’ notice of its intention to change the configuration of the vehicles servicing the Sydney-Melbourne route. Riteway submitted that six months was a reasonable period in which to reach an agreement on compensation and on whether the applicants “wished to replace their vehicles in accordance with their contracts or not”. It was argued that Riteway’s conduct was such that the unfairness identified in the contract was, in effect, illusory, because the parties were already operating on the footing that Riteway could not require a change in vehicles without providing compensation or a reasonable period within which to negotiate it.

Further submissions

  1. After judgment was reserved on 31 March 2009, Riteway’s solicitors wrote to the Court advising that a matter of potential legal significance had come to their attention which they felt obliged to raise with the Court. This issue, which had been raised by neither party at any earlier stage of the proceedings, was the construction of s.16(4) of the ICA and whether the Court could make an order which had retrospective effect. Subsection 16(4) provides:
  2. The parties were given leave to file further written submissions limited to that issue.
  3. The applicants submitted that the issue had previously been dealt with in Re Dingjan; Ex parte Wagner [1995] HCA 16; (1995) 183 CLR 323 and in Gerrard v Mayne Nickless Ltd (1996) 135 ALR 494, the latter being a decision of the Full Court of the Industrial Relations Court. The applicants submitted that those authorities showed that not only could the Court vary contracts which had been terminated prior to the commencement of proceedings and contracts which were terminated after proceedings commenced, but that an order in respect of such contracts would inevitably but validly have a retrospective aspect.
  4. Riteway submitted that the Court’s power under the ICA to make an order varying a contract did not extend to making an order purporting to come into effect before the date on which the order was made. It submitted that the variation sought by the applicants required an order having a retrospective operation but that this would contravene s.16(4). Riteway further submitted that Re Dingjan; Ex parte Wagner and Gerrard v Mayne Nickless ultimately only supported the proposition that the Court has power to vary a contract that is no longer on foot, which did not address the question of the date on which an “order takes effect”. Riteway submitted that the ICA only empowered the Court to make an order which had effect from the date of the order and that while the Court might vary a contract that has already been terminated, such a variation could only take effect prospectively.

Consideration

  1. As already stated, the Riteway-TWU agreement was found to be unfair because it entitled Riteway to impose unilaterally and without making financial compensation to the applicants a significant change to the equipment used to do the work required by the contracts. Having made such a finding the Court is empowered to make an order under s.16(1) of the ICA setting aside or varying the contracts.
  2. The principal relief now sought by the applicants proposes that the unfairness identified by the principal judgment be addressed by amending the contracts to increase the trip rate by a specified amount. This approach confronts a significant difficulty. This difficulty is that the evidence before the Court concerning the additional cost to the applicants of running B/double trailers in place of the equipment they were using is not sufficiently clear or detailed to draw any particular conclusion as to the proper quantification to be made of that expense. Nor, given the way the case was presented and argued in the hearing preceding the principal judgment, could the Court confidently base any calculation on a combination of Mr Kent’s evidence and the other evidence to which the applicants have referred. Consequently, to the extent that the order proposed by the applicants provides for a specified increase in the trip rate, the Court is unable to conclude that the figure they have identified accurately quantifies the additional expense which would have been incurred by the applicants had they complied with Riteway’s requirement to upgrade their vehicles.
  3. In essence, the applicants’ current proposal fails adequately to address the shortcomings of the order sought in para.4 of the amended application. That original proposal failed to provide for a mechanism by which the parties to the contract could quantify the additional costs which Riteway’s requirement was to impose upon the applicants while this new proposal provides for a figure purporting to quantify that amount but which is not adequately supported by the evidence.
  4. The applicants’ alternative proposal is that the order originally made by the Court on 22 August 2008 be made again. However, I accept Riteway’s submissions that that order presented difficulties in that its requirement that a new vehicle was to have “specifications reasonably equivalent to the vehicle to be replaced” lacked certainty and specificity. I also accept Riteway’s submission that such a formulation would be likely to produce disputes.
  5. However, Riteway’s proposal that no order need be made cannot be accepted. The submissions advanced by Riteway in support of the proposal that the Court make no order turned on its conduct in 2007. In effect Riteway submits that, as the contract worked out in 2007, any unfairness it demonstrated was negated by the way Riteway sought to effect the change to B/double trailers. However, these proceedings are not concerned, at least at this stage, with Riteway’s conduct in 2007. They are concerned with whether the contract was unfair or harsh at the time when it was made. Riteway’s conduct in 2007 can have no bearing on this.
  6. Even so, Riteway’s conduct in 2007 might suggest that in the exercise of its discretion the Court should not make an order pursuant to s.16(1) because no practical unfairness was suffered by the applicants. In this regard, it should be kept in mind that Riteway’s insistence on its right to impose a change in vehicles without an agreement with the applicants on an increase in the trip rate which adequately addressed the increased expenses which were the necessary concomitant of such a change, led to a lack of agreement regarding the change and to Riteway’s insistence that the applicants had repudiated their contracts. Having concluded that the contracts were unfair because of the unilateral power they afforded Riteway, and given that it was the exercise of that power which led to the termination of the applicants’ business relationships with Riteway, I decline to exercise my discretion to refuse to make an order addressing the unfairness I have identified.
  7. Consequently, I do not accept the submission that the Court should make no orders in these matters.
  8. Consideration must now turn to what order would remedy the unfairness which has been identified. Section 16(1) of the ICA provides:

Section 16(2) provides:

(2) An order may only be made for the purpose of placing the parties to the services contract as nearly as practicable on such a footing that the ground on which the opinion is based no longer applies.
  1. Section 12(3) of the ICA restricts the Court, when reviewing a services contract, to having regard to the terms of the contract “when it was made” or to other matters which existed “at the time when the contract was made”. That is to say, unfairness or harshness must be assessed at the time the contract was made, not at any later point. It was in the context of these statutory limitations that the Court found that the applicants’ contracts with Riteway were unfair.
  2. These considerations suggest that any setting aside or variation of the contracts which the Court considers necessary would be best made effective from the date the contracts were made. Different circumstances may dictate different outcomes but in this case there seems no reason not to make any variations of the contracts effective from time when each of them was made.
  3. In this regard and notwithstanding Riteway’s submission to the contrary, I conclude that there is no impediment to the Court making an order in these proceedings which has a retrospective quality. It was accepted by majority in Re Dingjan; Ex parte Wagner that the provisions in the former Industrial Relations Act 1988 relevantly equivalent to parts of ss.12, 15 and 16 of the ICA (ss.127A and 127B) were not limited in their operation to contracts which were still on foot. Indeed, in Gerrard v Mayne Nickless the Full Court of the Industrial Relations Court held at 507 that orders under s.127B could be made notwithstanding that the contract then under consideration had terminated before the application for review had been filed. Further, addressing the issue of retrospectivity, the Full Court said in that case:

Significantly for the conclusion that the Court can make an order which has a retrospective quality, s.127B(4) of the Industrial Relations Act 1988 was in terms practically identical to those currently found in s.16(4) of the ICA.

  1. During submissions on what would be an appropriate order for the Court to make, Senior Counsel for Riteway submitted for the Court’s assistance a form of order in the following terms:

With his submissions on the s.16(4) issue, Senior Counsel for Riteway amended this suggestion by replacing the words “time when the contract was made” with the words “date of the order”.

  1. Regardless of the moment when such an order might take effect, this suggestion went beyond the unfairness in the contract which was identified in the principal judgment because the second sentence of the variation proposed sought to deal with contractual termination in the event that a new trip rate could not be agreed. When addressing the applicants’ claims Riteway stressed that no variation of the contracts should not go beyond what would be necessary to remedy the unfairness identified: Eagle Boys Dial-A-Pizza Australia Pty Ltd v Clifford [2003] NSWIRComm 101; (2003) 125 IR 35. I accept that submission, reflecting as it does the limitation placed on the Court by s.16(2) of the ICA.
  2. In submissions, Riteway stressed the business importance to it of being able to stipulate what vehicles would be used in the performance of its work. It is clear that Riteway has a concern regarding its ability to design its fleet. It is also apparent that it wishes to have the ability to dispense with the services of contract drivers who are unwilling to satisfy those business requirements by saying, in effect, that any failure to satisfy those business requirements amounts to a repudiatory breach of the contract which Riteway should be able to accept. In essence, Riteway opposed any order which would have the effect of fettering its power to determine what vehicles did its work or which would have the consequence that, if an agreement on a change of vehicles could not be reached, it would have to terminate a driver’s contract to prevent him or her from driving an unacceptable vehicle.
  3. Riteway is entitled to operate its business in the lawful manner most suitable to it including by, from time to time in accordance with cl.5 of the Riteway-TWU agreement, stipulating the sort of vehicles used to perform its work. It is not unfair that contract drivers should meet such requirements. What is unfair is that drivers already performing that work at agreed rates should be required to meet such stipulations without being entitled to compensation for the additional expenses which they might thereby incur.
  4. Riteway’s focus on the need for it to have a mechanism to dispense with noncompliant contract drivers, by its counsel raising for consideration the form of order set out above at [34] or alternatively by submitting that cl.5 of the Riteway-TWU agreement should be left unamended, betrays a desire to remain in effective control of the change of vehicle issue and to have the power to make “take it or leave it” offers to its contract drivers. As found in the principal judgment, that is unfair. While it might be arguable that the contract is unfair because it does not make provision for termination on notice, that is not an issue before the Court. The only matter which the Court is currently required to address is the unfairness in the contracts which was identified in the principal judgment.
  5. Having rejected the applicants’ proposed order and having concluded that the order made on 22 August 2008 ought not be made again, it is necessary that a different order be formulated. In light of the principles set out at [96] of the principal judgment and the matters canvassed during submissions in this latter stage of the proceedings, I have concluded that the most appropriate order is one which recognises Riteway’s legitimate wish to, from time to time, change the vehicles in its fleet while requiring that any such change be consensual. Having regard to the fact that the applicants ran only the Sydney-Melbourne route and thus a single rate applied to their work, I am of the view that an order to the following effect would address the unfairness identified by the principal judgment in the way contemplated by s.16(2) of the ICA:
  6. There will be an order to that effect in each of the proceedings, together with further orders that each matter stand over for consideration of the applicants’ claims for damages and injunctions.

I certify that the preceding forty (40) paragraphs are a true copy of the reasons for judgment of Cameron FM


Associate:


Date: 5 May 2009

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