Industrial Relations Commission of New South Wales in Court Session CITATION : Hammond v Manildra Flour Mills Pty Ltd [2003] NSWIRComm 64 APPLICANT Ronald Hammond PARTIES : RESPONDENT Manildra Flour Mills Pty Ltd FILE NUMBER: IRC 6288 of 2000 CORAM: Marks J CATCHWORDS : Unfair contract - Held engagement as a project manager not a fixed term contract - Held respondent acted unfairly in terminating engagement - Reasonable notice assessed as five months - Consequential relief granted. LEGISLATION CITED : Industrial Relations Act of New South Wales s 105 106 CASES CITED : Baker v National Distribution Services Ltd (1993) 50 IR 254 King v State Bank of NSW [2002] NSWIRComm 353 HEARING DATES: 03/04/2003 DATE OF JUDGMENT: 03/31/2003 APPLICANT Mr S J Burchett of Counsel SOLICITORS R L Whyburn & Associates LEGAL REPRESENTATIVES: RESPONDENT Mr A R Moses of Counsel SOLICITORS Phillips Fox JUDGMENT: - 11 - INDUSTRIAL RELATIONS COMMISSION OF NEW SOUTH WALES IN COURT SESSION CORAM: MARKS J Monday 31 March 2003 Matter No IRC 6288 of 2000 RONALD HAMMOND v MANILDRA FLOUR MILLS PTY LTD Application under s 106 of the Industrial Relations Act 1996 JUDGMENT 1 In these proceedings the applicant Ronald Hammond seeks certain relief against the respondent Manildra Flour Mills Pty Ltd under s 106 of the Industrial Relations Act 1996 ("the Act"). 2 Relevantly, ss 105 and 106 of the Act are in the following terms: 105 Definitions In this Part: contract means any contract or arrangement, or any related condition or collateral arrangement, but does not include an industrial instrument. unfair contract means a contract: (a) that is unfair, harsh or unconscionable, or (b) that is against the public interest, or (c) that provides a total remuneration that is less than a person performing the work would receive as an employee performing the work, or (d) that is designed to, or does, avoid the provisions of an industrial instrument. 106 Power of the Commission to declare contracts void or varied (1) The Commission may make an order declaring wholly or partly void, or varying, any contract whereby a person performs work in any industry if the Commission finds that the contract is an unfair contract. (2) The Commission may find that it was an unfair contract at the time it was entered into or that it subsequently became an unfair contract because of any conduct of the parties, any variation of the contract or any other reason. (3) A contract may be declared wholly or partly void, or varied, either from the commencement of the contract or from some other time. (4) In considering whether a contract is unfair because it is against the public interest, the matters to which the Commission is to have regard must include the effect that the contract, or a series of such contracts, has had, or may have, on any system of apprenticeship and other methods of providing a sufficient and trained labour force. (5) In making an order under this section, the Commission may make such order as to the payment of money in connection with any contract declared wholly or partly void, or varied, as the Commission considers just in the circumstances of the case. 3 The summons seeks a declaration that a contract between the applicant and the respondent be found to be unfair and that it be either varied or declared void and that as a consequence compensatory relief be granted. 4 The contract which is impugned in the proceedings is one whereby the applicant was engaged as a project manager in connection with certain construction work carried out by the respondent at its premises at Manildra. The evidence in the proceedings consisted of two affidavits sworn by the applicant, oral evidence given by the applicant predominantly by way of cross examination and other documentary material, to which reference will be made later in these reasons for judgment. The respondent elected not to adduce any evidence in the proceedings. To some extent this has created a difficulty with respect to the second of the applicant's affidavits which consists essentially of evidence given in reply to certain affidavits filed in the proceedings by the respondent by way of defence of the proceedings. Those affidavits have not been tendered into evidence which, to some extent, impacts upon a complete understanding of the matters referred to in that affidavit in reply. Obviously, when the affidavit in reply was formulated the applicant had no way of knowing that the respondent would tender no evidence in the proceedings. 5 The applicant has had over 43 years experience in the construction industry and had for 20 years worked as project manager. After resigning a position with Lithgow Valley Engineering the applicant was approached by Mr Saran a civil engineer in Orange and introduced to the respondent in connection with the project management of a construction being undertaken by the respondent. After a number of meetings the applicant accepted appointment as Project Manager for a construction project which consisted of the construction of a warehouse, a "Mill C building" and new wheat storage silos. The contract period was said to be "approximately 12 month (sic) (depending on work load and progress)." The document also contained the following: "We will keep to option of terminating our agreement if problems occur, we consider one week notice will be adequate." As a result of further negotiations, agreement was reached for the applicant to use his own vehicle. He was to be paid $450 per day "regardless of the working hours" but with a minimum working time of 9 hours per day. He was also expected to work some weekends. 6 A letter from the respondent dated 16 December 1999, being the same date as the document to which I have earlier referred said that the applicant was to be "employed on a contractual basis." For taxation purposes the respondent treated the applicant as coming under the Prescribed Payments Section (PPS) a system which was abolished and replaced by the PAYG taxation system operative from 1 July 2000. I observe that the use of the PPS approach was indicative that the parties regarded the arrangement as one of principal and independent contractor. Certainly that was the applicant's understanding of his relationship with the respondent. 7 In order to undertake the engagement, the applicant relocated from his then current address in Lithgow to the Manildra area. 8 The applicant commenced work in about December 1999. He was informed that the respondent's safety officer Mr Bruce Reynolds would have involvement in safety matters affecting the site. The applicant was unsure of Mr Reynolds' experience as a safety officer working in connection with a construction site and arranged for certain documentary assistance to be given to him. 9 Concurrently with the construction work for which the applicant was responsible the respondent was undertaking other work which relevantly involved the demolition of a feed mill. That work was under the control of and being supervised by senior personnel of the respondent company. However whilst they were away for a short period in Malaysia on company business, arrangements were made for the applicant to "keep an eye" on that demolition project. Certain assurances were given to the applicant by these persons to the effect that the job was "under control, the contractors know what they're doing and they just need you to check on how they are going from time to time." In fact, there were certain difficulties encountered by the applicant with respect to this project when it was discovered that certain electricity and sprinkler installations had not been disconnected and there was some concern with respect to the disposal of the demolished materials. 10 On 1 February 2000, after the return from overseas of the senior personnel the applicant was advised that another person had been put in charge of the construction work for which he had originally been retained. He was told that there had been breaches of safety standards on the site by contractors and that the contractors involved in the demolition of the feed mill had used a crane to lift equipment over a railway line, and had been seen working without safety vests. The applicant apparently accepted the changed supervisory and control structure on the site and continued to perform his duties as Project Manager on 2 and 3 February 2000. On 4 February 2000 he was called to a meeting with senior company personnel and was told that his contract was being terminated because of a breach of safety that was not acceptable to the respondent. The details given concerned the lift of a load by use of a crane over the railway line which had allegedly occurred on Australia Day. The applicant said that he had not been on site that day. The applicant was given a letter confirming that his contract had been terminated and which asked him to leave the site immediately. The reason for his termination was "Work-practice has been unsatisfactory and as a result we are no longer in a position the (sic) use your service to our project." He was paid an additional week's pay on termination. 11 In evidence the applicant said that he was not aware of any safety breach, that there were no circumstances which would have alerted him to any safety breach and, in any event, the railway line was situated on an embankment approximately six metres high which was in excess of 300 metres away from the site office. 12 The evidence of the applicant was to the effect that at no time was he directly involved in the carrying out of any work by the contractors who had been retained in connection with the demolition of the feed mill. He was never aware that the contractors had been involved in using a crane to move equipment over the railway line. By inference either some or all of the material which had been demolished could only have been seen by walking over the railway embankment and after being told of the location of the equipment. There seems to be some suggestion in the evidence that the allegations made against the applicant by the respondent related to work carried out on 31 January 2000. The applicant said that by that day the contractors involved in the feed mill demolition had completed that work and had disassembled and moved the crane by road to the other side of the railway line. Presumably, this evidence was intended to infer that the breach of safety practices had not occurred at the time alleged by the respondent. 13 Overall, the evidentiary material presented on behalf of the applicant was somewhat unsatisfactory. I had some difficulty during the course of the proceedings in understanding the applicant's evidence because no attempt was made initially to elicit evidence from the applicant concerning the features of the construction site, the distances involved and the general topography. 14 Notwithstanding these difficulties I conclude that, on the basis of evidence, the applicant had not been intimately involved in the organisation of the work associated with the demolition of the feed mill, that overall, there were problems with the carrying out of that work, that the applicant was at no time aware nor ought reasonably to have been aware of any safety breach in association with that work. I conclude therefore that the conduct of the respondent in terminating the applicant's engagement purportedly because of these safety breaches was in all the circumstances unfair. This conduct rendered the contract itself unfair for the purposes of s 106 of the Act, and I find accordingly. 15 It is then necessary to consider what consequential relief ought to be granted. The applicant submitted that this was, in effect, a fixed term contract, and therefore the applicant was entitled to be compensated for a period of the balance of 12 months or the life of the project. No evidence was given as to whether the project was ultimately completed and when. Accordingly, the applicant was forced to contend that this was a contract for a fixed term, or in the nature of such a contract. If the applicant did not succeed in such an argument, it would then be necessary to consider whether in the absence of any express term dealing with termination some term could be implied. 16 As I have previously pointed out there was a provision in the letter of engagement giving the respondent the right to terminate on one week's notice "if problems occur". There was no evidence as to what was intended by the use of the expression "if problems occur" but presumably it is wide enough to accommodate not only problems associated with the applicant's performance but also problems associated with the project as a whole. 17 I am of the opinion that the contract of engagement cannot be construed as a 12 month fixed term contract because firstly it was always intended that that would be an approximate period and secondly it is more likely that the parties anticipated engagement for the life of the construction project. However, the contract contemplated termination on one week's notice if circumstances arose which necessitated the termination of the contract either with or without cause; that is inclusive of but not exclusively confined to matters associated with the conduct or performance of the applicant. 18 This raises the question whether, in the circumstances, one week's notice may be seen to be fair or put in terms of s 106, unfair. 19 The relevant principles which apply to the proper approach to the application of s 106 are well established. A convenient starting point is contained within the joint judgment of Fisher CJ and Hungerford J in the Full Court of the Industrial Court of New South Wales in Baker v National Distribution Services Ltd (1993) 50 IR 254. At 271 their Honours said: "The test of unfairness within the meaning of s 88F of the Industrial Arbitration Act, and hence s 275 of the present Act, has received much attention by the Court and by the previous Industrial Commission over very many years, but, in our review of the cases, the approach stated by Sheldon J in Davies v General Transport Development Pty Ltd [1967] AR (NSW) 371 over 26 years ago has endured; his Honour commented (at 374) that unfairness of a contract or arrangement was to be determined according to "the common sense approach characteristic of the ordinary juryman ….It is a plain matter of morals not law." His Honour cautioned, however, (at 374,375) that the section's "massive power makes it imperative that it should be exercised with proper restraint … it should not permit itself to become a refuge for those who are merely disgruntled with a bargain entered into on even terms. … the discretion should be exercised to protect victims of wrong dealing not to prescribe anodynes." Those words by his Honour echoed what had been said earlier by Beattie J in Agius v Arrow Freightways Pty Ltd [1965] AR (NSW) 77 at 89 that it was a matter of deciding "in each particular case by the application of the tribunal's common sense and sense of justice whether a particular transaction is unfair, harsh and unconscionable". The nature of the unfairness attracted by s 88F was considered later by the Industrial Commission in Court Session (Perrignon and Dey JJ, Cahill J dissenting) in A & M Thompson Pty Ltd v Total Australia Limited [1980] 2 NSWLR 1 at 13 as follows: "It has been said that fairness is determined by the commonsense approach of a juryman and that it is a moral and not a legal issue ( Davies' case). Whether this be so or not, it does seem that in distinguishing between what is fair and what is not fair the Judge must apply standards which appear to him to provide a proper balance or division of advantage and disadvantage between the parties who have made the contract or arrangement. In doing so he would always have to bear in mind the conduct of the parties, their capability to appreciate the bargain they had made and their comparative bargaining positions when entering into the contract or arrangement." (at 271-2). 20 In determining whether there is an unfair contract for the purpose of proceedings brought under s 106 and especially taking into account subs (2), the Court is required to exercise a value judgment reflecting contemporary community values derived from the commonsense approach characteristic of the ordinary, reasonable, hypothetical "standard" member of the community. The value judgment must obviously take into account the totality of the circumstances of the relationship between the parties and the totality of the interests of each of the parties. 21 In determining what should be considered to be unfair when ascertaining what circumstances should apply to the termination of this contract by the respondent I take into account the following: 1. Whether the contract be one of employment or principal and independent contractor, the courts will imply a right to terminate upon reasonable notice, in the absence of any express term to the contrary. What is reasonable will depend upon all of the circumstances. Such a provision can never, in my opinion, be unfair. The converse is that any period which is not reasonable must ipso facto be prima facie unfair. I do not regard the fixing of a period in a contract by reference to an arbitrary period (here, one week) as indicating in any way that that period is reasonable. 2. It is more likely than not that the applicant was an independent contractor and that he anticipated that his engagement would last for approximately 12 months. It is more likely than not that the respondent had the same contemplation. 3. The applicant at the time of commencement of the proceedings was aged 59. He gave evidence that work was difficult to obtain in the central west area of New South Wales and, in any event, his age inhibited his ability to obtain alternative employment. 4. The applicant was required to relocate from Lithgow to Manildra in order to take up the engagement. 5. The respondent acted unfairly in terminating the engagement of the applicant. 6. The unfair termination took place at the very beginning of the contemplated period of engagement. 22 The approach which I have adopted proceeds on the basis that the respondent could terminate the engagement of the applicant at any time upon giving reasonable notice. The question then, in the circumstances of these proceedings is what is reasonable having regard to the interests of both the applicant and the respondent, by applying contemporary community values of fairness. In all the circumstances it is my opinion that a period of five months was appropriate by way of reasonable notice. In making this assessment I am conscious that there is no necessarily magic line which can figuratively be drawn in the sand which reflects perfectly the value judgment to be exercised in all the circumstances of these proceedings. On one view of it, it is arguable that as little as three months might represent a reasonable period of notice. On the other hand, it might be argued that the applicant should ultimately be given the benefit of a contract expiring in December 2000, the period when the project was thought to be completed, less any allowance by way of mitigation to reflect moneys earned during that period. I have been influenced to select a period of five months because the applicant's engagement was terminated at an early stage when he had only been working there for a short period. In some respects it might be thought that the converse should apply namely that given such a short period of engagement a shorter period of notice would be reasonable. However there are circumstances where, in my opinion, the termination of an engagement without justifiable cause which occurs shortly after it is entered into should require the assessment of a longer period of reasonable notice. I instance the recent decision of the Full Bench of this Court in King v State Bank of New South Wales [2002] NSWIRComm 353 where the Court on appeal extended the period of reasonable notice from six months to nine months albeit that there was a short period of employment only, given the circumstances which applied in those proceedings. 23 It follows, therefore, five months having been assessed as reasonable notice, the contract between the applicant and the respondent should be varied accordingly. In terms of compensation, the applicant should be awarded entitlement to payment of an amount against the respondent to reflect five month's earnings at the average rate of earnings paid to him from date of inception of the contract to date of termination. I understand the evidence to be to the effect that the applicant worked invariably six days per week for which he was paid $450 per day. The applicant was responsible for his own expenses, and they related predominantly to the motor vehicle. There is, in my opinion, insufficient evidence to enable the Court to assess what allowance should be made for this factor. In that the applicant did not adduce any satisfactory evidence about this matter, I propose to give the parties an opportunity to reach some consensus about any such allowance and I shall reserve the right of the respondent to seek leave to re-agitate this matter. 24 The applicant gave evidence that he gained employment on a casual basis after termination of his contract with the respondent and earned about $2,500, before taking up full-time employment with S & K Engineering Pty Ltd, apparently on 7 July 2000. The sum of $2,500 should be set off against the monetary amount otherwise payable. 25 The applicant has sought interest and costs. Although the applicant's contract was terminated in February 2000 proceedings were not commenced until a summons was filed on 22 December 2000. No doubt it was this factor which motivated counsel for the respondent to submit that interest should not run until the date of issue of the summons. Whilst there was a delay between the date of termination of the contract and the date of commencement of the proceedings I do not regard the delay as being an inordinate one. In all the circumstances the applicant is entitled to interest calculated in accordance with the Supreme Court Act from 4 February 2000 until the date of this judgment. 26 The applicant having succeeded in the claim the usual costs order would normally apply. However, I shall refrain from making any order for costs and grant liberty to apply in the event that the respondent may wish to make any submissions to the contrary. ORDERS 27 Consequent upon the finding of unfairness which I have made I make the following orders: 1. The contract between the applicant and the respondent is varied to provide that where the respondent seeks to exercise a right of termination without cause, termination shall be effected upon giving reasonable notice. 2. The applicant is directed to bring in short minutes of order reflecting these reasons for judgment. 3. Liberty to apply with respect to costs and to the terms of final orders, including interest. ________________ DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.