Xv CATCHWORDS TRADE PRACTICES - Trade Practices Act 1974: s. 52 - misleading and deceptive conduct - tenders for local government contract for disposal of nightsoil and effluent - contract subject to Industrial Award - representation as to calculation of tender price, Trade Practices Act 1974: s. 52. Industrial Arbitration Act 1940 (N.S.W.): s. 63. MERGEN HOLDINGS PTY. LIMITED v. GOSFORD CITY COUNCIL and OTTO AUSTRALIA PTY. LIMITED G455 of 1987 LOCKHART J. 14 OCTOBER 1987 mae a - bo4 ro: ~ 4 JAN 1968 SYDNEY FEDERAL Court 0: austaaua oP PRING Day AF NN REGIS or = oy IN THE FEDERAL COURT OF AUSTRALIA ) ) SOUTH WAL. DISTRICT ISTRY ) No. G455 of 1987 ) ) GENERAL DIVISION BETWEEN: MERGEN HOLDINGS PTY. LIMITED Applicant AND: GOSFORD CITY COUNCIL First Respondent AND: OTTO AUSTRALIA PTY. LIMITED Second Respondent JUDGE MAKING ORDER: LOCKHART J. DATE OF ORDER: 14 OCTOBER 1987 WHERE ORDER MADE: SYDNEY MINUTE OF ORDER THE COURT ORDERS THAT: 1. The application be dismissed. 2. The applicant pay the costs of the first and second respondents including reserved costs. Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA ) ) NEW SOUTH WALES DISTRICT REGISTRY ) No. G455 of 1987 ) GENERAL DIVISION ) BETWEEN: MERGEN HOLDINGS PTY. LIMITED Applicant AND: GOSFORD CITY COUNCIL First Respondent AND: OTTO AUSTRALIA PTY. LIMITED Second Respondent 14 October 1987 » REASONS FOR JUDGMENT LOCKHART J. Mergen Holdings Pty. Limited ("Mergen") sues Gosford City Council ("the Council") and Otto Australia Pty. Limited ("Otto") for alleged contravention by the Council of sub-s. 52(1) of the Trade Practices Act 1974 ("the Trade Practices Act") with respect to conduct of the Council arising out of the calling and acceptance of tenders for the collection, removal and disposal of nightsoil and for the collection, removal and disposal of septic tank effluent, sullage, waste water and septic tank and septic closet contents ("effluent"), in each case from the Gosford District. The matter is urgent because the Council has accepted the tender of Otto which is now gearing up to commence work under the 2. proposed contract with the Council to commence on 27 December 1987. The application was filed by Mergen in this Court on 18 September 1987 and was heard on a final basis by me on Thursday and Friday of last week. The case turns essentially on questions of fact. Mergen holds the current contract for the removal and disposal of effluent within the Gosford City Council area. This is the second contract of its kind which Mergen has held from the Council, the first operating for five years from 1977 to 1982 and the current contract, (also a five year contract) which expires on 26 December 1987. The current contract provides for the removal and pumping out of all septic tanks and sullage pits for domestic and commercial premises within the Gosford City Council area. Since 1977, during the course of the two contracts, Mergen has acquired land in West Gosford which it uses as a trucking depot for the 22 motor vehicles that it uses to carry out the contracts. Mergen employs 30 permanent staff and 11 casual employees to carry out the duties under the current contract. Otto holds the current contract from the Council for the collection of garbage in the Gosford City Council area. The contract was awarded in 1983 and expires in about 1990. Otto is the current contractor for the removal of effluent and waste for the Campbelltown City Council. On 23 June 1987 the Council resolved to call for tenders for the removal and disposal of night soil and effluent for a term of five years commencing 27 December 1987 i.e. upon the expiration of Mergen's current contract. On 30 June the Council advertised the tenders and issued specifications. There are two sets of specifications: one for the removal and disposal of night soil and the other for the removal and disposal of effluent each expressed to be for a period of five years commencing 27 December 1987. The specification for the removal of night soil (an expression defined as including faeces and urine, but not including the contents of septic tanks, effluent collection wells, septic closets or chemical closets} provides for the determination of the contract price to be on a price per pan basis. The price tendered is to be subject to increase or decrease based on changes in the transportation component of the Consumer Price Index Sydney, but no other increase in prices will be allowed to the tenderer during the currency of the contract (clause 5). The specification with respect to removal of effluent is not on a price per pan basis and requires the tender to be for a price for the general services to be rendered by the contractor. Clause 5 of that tender otherwise is in substantially the same terms as clause 5 of the specification with respect to night soil. Clause 32 of the specification for the removal of night soil and clause 28 of the specification for the removal of effluent requires the contractor to conform to, observe and perform all conditions of any industrial award covering any portion of the work to be carried out under the contracts. On 30 July 1987 Mergen submitted its tender to the Council on a standard form of tender issued by the Council. The tender was for a 4. combined contract for the removal and disposal of night soil and effluent. Tenders closed on 30 July. Five tenders were received, one of which was withdrawn prior to public opening. Otto was one of the other tenderers. The Council estimated that the tender of Otto was substantially lower than the other tenders in that Otto would receive over the currency of the five year contract $640,635 less than Mergen would receive if it were to be the successful tenderer. On 8 September 1987 the Council resolved to accept the tender of Otto. Mergen then commenced these proceedings, alleging a contravention by the Council of s. 52 of the Trade Practices Act. Mergen's case centres on the relevant award prevailing in the waste disposal industry, namely, the Transport Industry Sanitary Garbage (State) Award ("the Award") which Mergen claims requires remuneration for persons covered by the Award to be determined on the basis of a 38 hour working weék. Mergen submitted its tender and calculated its rates on the basis of a 38 hour week. It asserts that Otto prepared and submitted its tender with rates calculated on the basis of a 40 hour week, with the result that its tender was lower than that of Mergen. Mergen asserts that the Council knew that each tender was submitted on these bases and that the Council has in the circumstances engaged in misleading or deceptive conduct in that:- The specifications required tenderers to comply with the requirements of all industrial agreements and awards relevant to employees engaged to perform the work required by the tender. As the Award required remuneration for employees to be conducted on the basis of a 38 hour week, Otto's tender did not comply with the Award and therefore did not comply 5. with the specifications. All relevant facts were known to the Council, yet it resolved to accept the tender of Otto. Mergen has been deprived of the statutory right to submit its tender in terms other than as provided in the specifications; . The Council failed to state that it did not treat the terms of an order varying the Award (an order made by Watson J. of the State Industrial Commission on 15 December 1986 providing for a 38 hour working week): "as being contemplated by the said terms of the specifications notwithstanding that the [Council] had recognised the operation of the terms of that order as relating to persons employed in the carrying out of the work referred to in its said specification by payment to [Mergen], the then contractor, in accordance therewith from the date of the commencement of the order viz. 15 December 1986:" . The Council failed to state: "that notwithstanding the terms of the said order and its recognition of the operation thereof: (i) ait did not consider the said order relevant and/or appropriate as the basis for tendering pursuant to its said specifications; and (ii) it would consider tenders based on the said Award, which provided for a 40 hour working week." As the basis of Mergen's case that the Council engaged in misleading or deceptive conduct centres on the Award, it 1s necessary to turn to the facts concerning the Award. The Award has been varied on several occasions with respect to applicable rates of pay. In about December 1986 the Transport 6. Workers Union of Australia and the Waste Disposal Contractors Association applied to the Industrial Commission of New South Wales for a variation in the hours of employment provided for in the Award. The matter came before Watson J. of the Industrial Commission on 15 December 1987. His Honour's reasons for decision noted that the application had followed lengthy negotiations and was made with respect to one of the few remaining areas for consideration and in the context of substantial changes in a special type of industry. His Honour noted also that the substantial changes had commenced some four years ago and gradually moved through the industry and that a number ef councils concerned with garbage collections were already on the basis of a 38 hour week. His Honour noted, so far as is relevant to the present case, that the implementation of the variation to the Award would be: "Negot fated on a yard by yard basis under the flexibility provided by the variation. This will be done in a way which will meet the needs of each council and contractor involved, either by way of a nineteen-day four weekly period or a nine day fortnight or other method, the intention being apart from very exceptional cases (and none of those have been instanced as likely to occur), that the crews will complete the same work over the same period without additional vehicles and without additional staff. As a general rule it is anticipated therefore there will be no increased cost to municipal and shire councils as a consequence of the changes when contracts are re-negotiated." His Honour referred to various "cost offsets", including those resulting from an expansion in the spread of hours which would allow for double shifting of vehicles, changes of commencement times, minimum payment in certain circumstances and a disputes procedure 7. clause. His Honour said he was satisfied, in the context of this somewhat unusual industry and its history and in the light of cost offsets, that the requirements of s. 63 of the Industrial Arbitration Act 1940 (NSW) were met. He noted that the parties intended to monitor the implementation in individual cases of the variation to the Award to ensure that the intentions as expressed about no increase in staff or vehicles and the completion of work were met. His Honour accordingly varied the Award to give effect to the agreement of the parties before him for the implementation of a 38 hour week. The parties before the Commission were the Transport Workers Union of Australia - New South Wales Branch, the Local Government and Shires Associations, the Waste Disposal Contractors Association and the New South Wales RoadsTransport Association. The variation to the Award was expressed to operate from the first pay period after 15 December 1986. The employees of Mergen were paid on the basis of a 40 hour working week; but, following the decision of Watson J., the Transport Workers Union required Mergen to implement forthwith a 38 hour working week. Discussions then took place between Mrs. G.H. King, the Managing Director of the applicant, and representatives of the Union. As a result of the discussions it was not possible to introduce a 38 hour working week for Mergen employees without incurring heavy expenditure and additional wages. Those increases were not the subject of the rise and fall clause between Mergen and the Council under the present contract. Discussions were then held between Mrs. King, on behalf of Mergen, and officers of the Council. On 2 April 1987 a meeting was held to consider this question. Those attending were Mr. J. Witherall (the Council's Director of Health and Building 8. Services) and Mr. J. A. Duck on behalf of the Council, representatives of the Transport Workers Union, of the Waste Disposal Contractors Association and of the Local Government and Shires Association. Mrs. King was absent having mistaken the time of the meeting. The meeting noted that, although the adoption of the 38 hour week under the contract between the Council and Mergen would not result in any additional cost to the Council or Mergen with respect to the employees of Mergen engaged in the sanitary and sludge work, this was not possible with effluent workers because of the nature of the activity. The extra costs in the order of $25,000 to $31,000 per annum, depending on the number of casual employees used, was noted as a cost that should be absorbed by the Council. The meeting recommended that the additional »costs be accepted by Council subject to Mergen's confirmation of their acceptance. On 21 April 1987 the Council agreed to reimburse Mergen for the additional labour costs associated with the 38 hour working week under the current contract and Mergen was notified of this decision by letter of 28 April 1987. This agreement was given retrospective operation to December 1986. From April 1987 onwards the Council has paid and continues to pay monthly rise and fall claims submitted by Mergen to it related solely to the increases due to the implementation of the 38 hour week. On 21 August 1987 Mrs. King attended a meeting at the offices of the Council for the purpose of answering questions which may have arisen concerning Mergen's tender. Present at the meeting on behalf of the Council were Mr. Witherall, Mr. G. Lofts and a Council clerk, also Mrs. King. The hours of work were discussed and Mrs. King made it clear that Mergen's tender was based on a 38 hour working week under the Award as varied by Watson J. in December 1986. The tender 9. of Mergen was plainly based on the understanding of Mrs. King and therefore of Mergen that the 38 hour week was a key factor in arriving at a tender price submitted by her company. She has sworn that if Mergen had been able to use a 40 hour week for its calculations there would have been a saving in the contract price over the term of the contract of about $240,000. Mergen did not submit its tender on the basis of a 40 hour week because Mrs. King understood from the specifications that the current provisions of the Award would apply and that this required the assumption of a 38 hour week. Otto is currently having discussions with the Transport Workers Union concerning the application of the 38 hour week and other industrial conditions with respect to its employees. Those discussions have not yet resulted in an agreement. Otto employs about 100 drivers and "off siders" to perform its garbage collection contracts 1n New South Wales other than those engaged in the garbage collection contract with the Council. Most of those employees are covered by the Award. All of Otto's employees are presently paid on the basis of a 40 hour week subject to the outcome of discussions with the Transport Workers Union concerning the application of the 38 hour week. Mr. A.J. Schneider, the Managing Director of Otto, has sworn that the introduction of the 38 hour week to Otto's employees will have little or no impact on the cost to Otto of performing its garbage collection contracts and the two contracts the subject of these proceedings, for the following reasons: (a) Otto's employees are required to reach a set rate of productivity. For example, garbage collectors are required to empty a set number of bins per shift. If those tasks are 10. completed in less than eight hours then the job finishes and the employees are free to go home. Invariably Otto's garbage collectors can meet their targets within the shift time allotted. Hence, they rarely, if ever, work for the full shift time or indeed for 40 hours per week; (b) Otto's employees are paid for a full 40 hour' week irrespective of whether they work for that full period provided they meet those targets; (c) The same system will be applied to those persons employed by Otto to perform the two contracts the subject of these proceedings. They will be set targets to be met during each shift. These will be targets which can be easily met within the hours of that shift. This will mean that most of the employeés will not work for a full shift or for a full 40 hour week, again provided their targets are met, Mr. Schneider has had discussions with the Transport Workers Union and its delegates about this arrangement applying to the two contracts the subject of the proceedings. He has not been informed by the Union or its delegates that they oppose this system. Otto has received no request from the Union or its delegates to lower Otto's expected productivity rate to take into account any reduction in hours from 40 to 38 hours per week. The specifications which form the basis of the tender of both Mergen and Otto required: ll. "That the Contractor shall duly comply with, conform to, observe and perform all conditions of any industrial award covering any portion of the work to be carried out hereunder ..." The variation to the Award made by Watson J. on 15 December 1986 was to give effect to the agreement of the parties for the implementation of a 38 hour week. Although the Award was expressed to take effect from the beginning of the first pay period after 15 December 1986, its implementation was to be negotiated on a "yard by yard" basis under what Watson J. perceived to be the flexibility provided by the variation. It is plain that, following discussions with the Transport Workers Union in December 1986, Mergen was in effect required to implement a 38 hour week from mid December 1986. Hence the employees of Mergen have been remunerated on the basis of a 38 hour week since then. It is also plain that Mergen tendered on the assumption made by it that the 38 hour week would govern the remuneration of its employees under the contract to take effect on 27 December 1987 and that the Council knew this. It 1s equally plain that Otto has not yet introduced the 38 hour week to cover its employees, presumably because the discussions between Otto and the Transport Workers Union are still continuing. Otto was plainly aware of the variations to the Award Made as a result of the order of Watson J. on 15 December. Although the remuneration under the Award as varied is to be on a 38, not 40, hour per week basis, due to the flexibility provided by the terms of the variation and the fact that the implementation of the Award is obviously a matter for negotiation between a particular contractor and 12. the Transport Workers Union, Otto holds the view that the introduction of the 38 hour week to its employees will have little or no impact on the cost to it of performing its contracts the subject of these proceedings for the reasons which Mr. Schneider gave in evidence and to which I referred earlier. It seems to be common ground between the parties that the collection of garbage tins or trolleys and lavatory pans does not present problems to either Otto or Mergen on a 38 hour week basis because, as Mrs. King put it in her evidence, the employees are paid on a "job done job finished" basis. That is, once they have collected the requisite number of tins, trolleys or pans they are free to leave work and this ig usually before the expiration of 40 or 38 hours per week. The problems that confront Mergen on a 38 hour week basis relate to the removal of effluent because of the nature of the method of its removal dnd plainly they have resulted in additional costs to Mergen which have been absorbed by the Council under the current contract. Mergen's tender price is much higher than it would have been if Mrs. King had made her calculations on a 40 hour week basis, a price which nevertheless is still substantially above the Council's estimate of the cost to it over the five year period of the contract with Otto. The manner in which the tenderers were to arrive at their figures for the purposes of tender was a matter for them. Otto and Mergen had different views from each other on the effect of costs that would be imposed upon them by reason of a 38 hour week. How each party interprets this is a matter for it. There was no obligation on the part of the Council to inform any tenderer as to how it should 13. calculate its tender price. Nor do I discern any obligation arising from the relation of the parties in this case requiring the Council to inform Mergen that any particular award or variation thereto should underlie the calculation of the tender prices. Mrs. King arranged for the tender by Mergen on one basis and Mr. Schneider arranged for the tender by Otto on another basis, each being appropriate to the business conducted by that particular tenderer. Mergen had little, if any, alternative to tender other than on the basis of a 38 hour week because that was the inevitable result of the discussions that ensued in December last between the Transport Workers Union representatives and Mrs. King, discussions which led to increased costs and subsequent reimbursement by the Council. Naturally Mergen would tender for the new contracts on»the same basis. But Otto was at liberty to tender on some other basis if it wished to do so, as indeed it did. Both Mergen and Otto thought they were acting within the ambit of the Award as varied in December 1986 because of the flexibility which it was perceived as providing through its "yard by yard" implementation provisions. The implementation of the 38 hour week is to be done on a yard by yard basis and the evidence shows that this is exactly what is happening, although 1t seems that the implementation is somewhat later in the case of Otto than it was in the case of Mergen. Naturally the Council wishes to ensure that its contractors adhere to and observe the terms of relevant awards and this was required by the specifications. But, as it is inherent in the Award itself that the implementation of remuneration on a 38 hour week basis is a matter to be negotiated between interested parties provided the Award 1s not infringed, it is not surprising that the Council does not concern 14. itself with these details and leaves it for the tenderers to work them out as they think fit. Thats is precisely what happened here. I have some sympathy with Mrs. King and her company. Mergen tendered on the basis of a 38 hour week with the necessary consequence to it of a higher tender price. Mrs. King perceived this as an inevitable result flowing from the legal obligations imposed by the Award as varied in December last. Yet she now sees Otto not yet paying its employees on a 38 hour week basis. This will doubtless eventuate, but it seems to be taking its time to implement in circumstances not clearly explained in evidence. The source of the problem in this case is the fact that the Award as varied on 15 December 1986 appears to leave the implementation of the 38 hour week to "yard by yard" negotiations between a particular employer and the Transport Workers Union: a variable of rather indefinable content, doubtless justified in its industrial context (that 1s a matter for the Industrial Commission), but susceptible of varying application in the industry and productive of different financial consequences to bodies like Mergen and Otto in this case. It is the disparity between the tenderers in this case that underlies the litigation. These considerations do not, however, avail Mergen in this case. It has not been established that the Council engaged in misleading or deceptive conduct or conduct that is likely to mislead or deceive. It is unnecessary therefore for me to consider what the effect, if any, would be on any contract which has been or may be entered into between the Council and Otto to take effect on 27 Counsel for the Applicant: Solicitors for the Applicant: 16. Counsel for the First Respondent: Solicitors for the First Respondent: Counsel for the Second Respondent: Solicitors for the Second Respondent: Dates of Hearing: Date of Judgment: Mr. J.L. Trew Q.C. with Mr. D.A. Cowdroy Messrs. Collins & Thompson Mr. P. Garling Messrs. P.J. Donellan & Co. Mr. G. Masterman Q.C. with Mr. R. Lever Messrs. Abbott, Tout, Creer & Wilkinson 8 and 9 October 1987 14 October 1987