Industrial Relations Commission of New South Wales CITATION: Transport Workers' Union of New South Wales (on behalf of Steve Cincotta t/as S & M Cincotta Pty Ltd and others) and Visy Board Pty Ltd [2005] NSWIRComm 178 APPLICANT: Transport Workers' Union of New South Wales PARTIES: RESPONDENT: Visy Board Pty Ltd FILE NUMBER(S): 5393, 5394, 5396, 5397, 5398, 5399, 5400 of 2003 CORAM: Sams DP; Macken Dr J; Tinney Mr G Contract of Carriage Tribunal - contracts of carriage - transport industry - contract agreements - termination of contracts - new tender for transport work - redundancy pay - whether goodwill or premiums paid to enter yard - conduct of company towards payments of goodwill - amounts of goodwill paid - taxation returns of companies - claims for compensation under s346 of the Act - attempts at conciliating claims unsuccessful - arbitration of claims pursuant to s349 of the Act - decision of part time members of the Tribunal - whether termination of contracts unfair, harsh or unconscionable - jurisdiction of tribunal - assessment of compensation pursuant to s349(4) of the Act. CATCHWORDS: Held, premiums paid - established practice - company aware of practice - earlier proceedings in Commission - jurisdiction established - no alteration to 2002 contract determination - termination of contracts unfair, harsh and unconscionable - premiums paid determined by reference to company tax returns - duration of head contract taken into account - termination payments taken into account - compensation ordered - no order as to costs. LEGISLATION CITED: Industrial Relations Act 1996 Monier PGH (Holdings) Ltd v Horsey and anor (1998) 86 IR 63 CASES CITED: Monier Roofing Pty Ltd v Quintrell (1997) 78 IR 38 Myer Stores Limited v Stowart (1994) 55 IR 21 HEARING DATES: 08/23/2004; 08/24/2004; 08/25/2004; 08/26/2004; 08/27/2004; 12/02/2004; 12/13/2004; 12/14/2004; 02/04/2005; 02/18/2005; 03/04/2005; 03/18/2005 DATE OF JUDGMENT: 06/10/2005 APPLICANT: Mr A Hatcher of Counsel UNION Transport Workers' Union of New South Wales LEGAL REPRESENTATIVES: RESPONDENT: Mr A Moses of Counsel SOLICITORS Blake Dawson Waldron JUDGMENT: - 15 - CONTRACT OF CARRIAGE TRIBUNAL CORAM : SAMS , DP MACKEN , The Hon Dr J. TINNEY , Mr G. 10 June 2005 Matter No. IRC03/5393 Transport Workers' Union of New South Wales (on behalf of Steve Cincotta t/as S & M Cincotta Pty Ltd) and Visy Board Pty Ltd Matter No. IRC03/5394 Transport Workers' Union of New South Wales (on behalf of Fast Fertilisers Pty Ltd) and Visy Board Pty Ltd Matter No. IRC03/5396 Transport Workers' Union of New South Wales (on behalf of K&S Johnstone Pty Ltd) and Visy Board Pty Ltd Matter No. IRC03/5397 Transport Workers' Union of New South Wales (on behalf of Kyle Howland t/as Naldon Holdings Pty Ltd) and Visy Board Pty Ltd Matter No. IRC03/5398 Transport Workers' Union of New South Wales (on behalf of Tikvesh Transport Pty Ltd) and Visy Board Pty Ltd Matter No. IRC03/5399 Transport Workers' Union of New South Wales (on behalf of Rob & Lin Transport Pty Ltd) and Visy Board Pty Ltd Matter No. IRC03/5400 Transport Workers' Union of New South Wales (on behalf of Leisureview Pty Ltd) and Visy Board Pty Ltd Applications by the Transport Workers' Union of New South Wales on behalf of its members for claims for compensation pursuant to Pt 7 Ch 6 of the Industrial Relations Act 1996 DECISION OF THE TRIBUNAL [2005] NSWIRComm 178 BACKGROUND 1 These are applications before the Contract of Carriage Tribunal advanced by the Transport Workers' Union of New South Wales ('the Union') on behalf of seven subcontractor members ('the carriers') formerly contracted to the respondent Visy Board Pty Ltd ('Visy'). This is a decision of the part time members of the Tribunal in accordance with s352(2) of the Industrial Relations Act 1996 ('the Act'). 2 The seven carriers (in addition to a number of others) all had their contracts terminated on 30 June 2003, after Visy decided to put the work of the owner drivers out to tender. While a number of the then existing carriers submitted a tender for the work, they were ultimately unsuccessful. As a result, the Union made claims for compensation pursuant to s346 of the Act. The applications might be shortly expressed as claims for the loss of goodwill the carriers have alleged to have lost when their contracts were terminated. 3 All of the carriers received termination payments (referred to as redundancy payments) agreed to with the Union, based on three weeks pay per year of service, plus an additional payment of $1500.00 per year of service. 4 The following details apply to each of the carrier's circumstances: Carrier Principal Engagement Date Termination Date Truck Price Premium Termination Payment Sale Price S & M Cincotta P/L Steve Cincotta November 1997 30 June 2003 - $78,000 $18,685 $70,000 ($98,914) Fast Fertilisers P/L Steve Grant 2 March 1999 30 June 2003 $40,000 $80,000 $13,487 $12,000 K & S Johnstone Transport P/L Kevin Johnstone 1 July 1998 30 June 2003 $37,000 $73,000 $15,571 $85,000 ($120,000) Naldon Holdings P/L Kyle Howland September 1996 30 June 2003 $50,000 $120,000 $22,302 Not sold ($174,000) Tikvesh Transport P/L Sasko Atanasov June 2002 30 June 2003 $50,000 $110,000 $3,273 Not Sold Rob & Lin Transport P/L Robert Anevski 18 November 1999 30 June 2003 $10,000 $120,000 $11,402 Not Sold Leisure- John Paul March 1994 30 June 2003 $20,000 $62,500 $32,180 $37,000 view P/L ($68,000) Contract Agreements 5 The evidence identified a number of agreements entered into between Visy and the Union, on behalf of their owner driver members. The first relevant agreement took effect in December 1992 and continued for twelve months. The agreement included, inter alia, a list of seniority of the drivers and a provision relating to the sale of truck as follows: Nothing in this agreement or elsewhere, actually or implied, obliges the company to enter into any arrangements for the provision of transport services with any party being the purchaser of a truck from a Contractor. Subject to requirements, the Company agrees to interview the purchaser of a truck from a Prime Contractor and asses the suitability of such purchaser to provide transport services to the Company. Any new Prime Contractor will be subject to a probation period of three (3) months immediately following the commencement of an agreement to provide transport services, during which such agreement will be terminable with notice if for any reason the Company is dissatisfied with the services provided, and sufficient time to sell truck. The Prime Contractor selling his truck will have a three (3) year period passed before returning to the yard unless he undertakes in a purchase of a base truck and goes to the bottom of the list in seniority. 6 This agreement continued to be applied until it was replaced by the next agreement which commenced on 4 August 1997 for a period of three years with a further two year option ('the 1997 agreement'). The sale of truck clause was now expressed as follows: 1. Sale of Truck Nothing in this Agreement or elsewhere, actually or implied, obliges the Principle (sic) contractor to enter into any arrangements for the provision of transport services with any party being the purchaser of a truck from a Sub contractor. Subject to requirements, the Principle contractor agrees to interview the purchaser of a truck from a Sub Contractor and assess the suitability of such purchaser to provide transport services to the Principle contractor. Any new Sub contractor will be subject to a probation period of three (3) months immediately following the commencement of an agreement to provide transport services, during which such agreement will be terminable with notice if for any reason the Principle contractor is dissatisfied with the service provided, and sufficient time will be given to sell his or her truck in the yard. The Sub Contractor selling his/her truck will have a three (3) year period passed before returning to the yard unless he undertakes in a purchase of a base truck and goes to the bottom of the list in seniority. 1.1 The Sub Contractor selling his/her truck does so on the recommendation that the purchaser recognises the truck's market value. The Sub Contractor shall neither during nor after the term represent itself as being in any way connected with or interested in the Principle contractor's business. This includes claims to holding routes, runs or goodwill. 7 It is to be observed that clause 1.1 above was first included at this time. 8 The 1997 agreement continued to operate until replaced by the 2002 Agreement which was registered by Connor, C in this Commission in IRC 4748 of 2002. The nominal term of the 2002 agreement was for twelve months commencing on 1 April 2002. The sale of truck provision was in similar terms to the 1997 agreement, but included two additional subclauses (b) and (c). Sale of Truck Nothing in this Agreement or elsewhere, actually or implied, obliges Visy to enter into any arrangements for the provision of transport services with any party being the purchaser of a Truck from a Contractor. Subject to requirements, Visy agrees to interview the purchaser of a truck from a Contractor and assess the suitability of such purchaser to provide transport services to Visy. Any new Contractor will be subject to a probation period of three (3) months immediately following the commencement of an agreement to provide transport service during which such agreement will be terminable with notice if for any reason Visy is dissatisfied with the service provided, and sufficient time will be given to sell his/her truck in the yard. The Contractor selling their truck will have a three (3) year period passed before returning to the yard unless undertaking a purchase of a base truck and goes to the bottom of the list of seniority. (a) The Contractor selling their truck does so on the recommendation that the purchaser recognises the truck's market value. The Contractor shall neither during nor after the term represent itself as being in any way connected with or interested in Visy's business. This includes claims to holding routes , runs or goodwill. (b) The Contractor (the new fleet member), who did not buy into the yard structure, shall not sell or offer for sale the Vehicle into the yard structure of Contractors for a period of five (5) years. (c) Any vehicle sold into the yard structure of Contractors after three (3) months qualifying period will be done so in conjunction with the Acknowledgement signed by the contractors solicitor or accountant, in accordance with the terms contained in this agreement. The Statutory Framework 9 The Contract of Carriage Tribunal is established by s347 of the Act under Pt 7 ch 6 entitled "Compensation for termination of certain contracts of carriage." The Tribunal is constituted by a Presidential member of the Commission sitting alone, except in the case of arbitration proceedings where it is constituted by a Presidential member and two part time members, nominated by the Presidential member; one from each of the two arbitration panels appointed by the Minister for Industrial Relations to represent respectively the principal contractor/s and the carriers. 10 We note for present purposes that attempts at conciliating these claims were made by Sams, DP in compulsory conference, pursuant to s348 conducted on 23 February 2004. When this proved unsuccessful, the matters then proceeded to arbitration pursuant to s349 of the Act. 11 Section 352 provides that in arbitration proceedings, each part time member of the Tribunal has one vote. If the part time members both vote for or against a motion, the decision is the decision of the Tribunal; otherwise the matter is decided by the Presidential member alone, whose decision becomes the decision of the Tribunal. 12 The jurisdiction of the Tribunal to award compensation derives from the terms of s 346(1): (1) A carrier whose head contract of carriage is terminated by a principal contractor may claim compensation from the principal contractor if: (a) the carrier entered into the head contract of carriage by arrangement with a previous carrier whose provision of services to the principal contractor under contracts of carriage was replaced by the carrier, and (b) under the terms of the arrangement between the previous carrier and the carrier, a sum of money was paid by the carrier to the previous carrier as a premium or fee in connection with the entry into the head contract of carriage by the carrier, and (c) it is a custom and practice in the relevant section of the industry or business of the principal contractor that such a premium or fee be paid, and (d) the principal contractor knew or ought reasonably to have known that such a premium or fee had been paid to the previous carrier, and (e) the principal contractor failed to take reasonable steps to advise the carrier that it was not a requirement of the principal contractor that such a payment be made or requested. 13 The circumstances referred to in (a) to (e) above are said to be the jurisdictional gateway which must be satisfied before the Tribunal determines whether the termination of the head contract of carriage was unfair, harsh or unconscionable, and if so, whether compensation is payable. In other words, each of the matters in subs (a) - (e) must be satisfied to ground the claims proceeding to determination. See Monier PGH (Holdings) Ltd v Horsey and anor (1998) 86 IR 63. 14 Section 349 of the Act deals with the determination of whether compensation is payable and the matters which must be taken into account by the Tribunal in determining the amount of compensation payable: 349 Arbitration of claim (1) The Tribunal may determine that compensation is payable in relation to a claim only if it is satisfied that the termination of the head contract of carriage concerned was unfair, harsh or unconscionable. (2) The Tribunal may direct that any person (including, but not limited to, a previous principal contractor) who or which is not a party to a claim notified to the Industrial Registrar under section 348 (1), is to be a party to the arbitration proceedings. (3) Subject to subsection (4), the Tribunal may order that a carrier, previous carrier, principal contractor or previous principal contractor joined as such a party is liable to pay solely, or jointly with another party or parties, compensation under this Part. (4) In determining whether or not compensation is payable and, if so, the amount of compensation, the Tribunal is to have regard to the following matters: (a) the amount of the premium or fee paid by the carrier as referred to in section 346, (b) any amount paid to the carrier by the principal contractor (including but not limited to redundancy payments) in respect of the termination of the head contract of carriage, whether or not such payment was made expressly on account of the payment of that premium or fee, (c) the duration of the head contract of carriage, (d) the likelihood of the carrier being able to use the motor vehicle required by the head contract of carriage for other types of work, and the availability of any such work, (e) the re-sale value of the motor vehicle, (f) the preparedness of the principal contractor to guarantee a flow of work to the carrier for a specified period in the future. (5) If the Tribunal determines that compensation is payable by more than one party, the Tribunal is to determine the respective proportions of the total sum to be paid by each. (6) Quantification of any compensation is to be approached as though in a claim for damages for breach of contract and compensation is payable only in respect of pecuniary loss resulting from termination of the head contract of carriage. Without limiting the amount of compensation that may be determined to be payable, compensation may include the whole or a part of the amount of premium or fee paid by the carrier. (7) A claim for compensation may not be dealt with by the Tribunal if the claim (however described) is the subject of an application before, or has been determined by, any court or other tribunal. (8) The Tribunal must not make a determination under this Part if the determination has the effect of altering or varying a contract agreement or a contract determination. CONCLUSIONS Jurisdiction 15 The respondent conceded that no jurisdictional barrier existed arising from s346(1)(a) of the Act. 16 Each of the carriers gave evidence that a premium was paid in connection with the carrier's entry into the head contract of carriage. Although the respondent challenged some of the amounts allegedly paid as premiums, we are of the opinion that a premium was paid in each instance. For this reason the jurisdictional gateway in s346(1)(b) has been opened. 17 There is no doubt that there was a firmly established practice in Visy's yard that a premium or 'goodwill' had to be paid for a carrier to enter into the yard to perform work. Not only did each of the carriers give such evidence, but most of the evidence otherwise supported that contention. The requirements of s346(1)(c) were thus established. 18 A balanced reading of the evidence of the carriers and, more importantly, of the managerial staff of Visy shows clearly that the Company both knew, and ought to have known, that the carriers were paying premiums for their entry into the yard. The very fact that the Company wanted a clause in the agreement to indicate its opposition to such payments at the very least indicates its knowledge of the payments being made. At hearings before the Industrial Relations Commission on 21 February 2002 and 9 April 2002 the fact that premiums were paid for work at Visy was raised and not denied by the Company representatives present. During negotiations for termination payments for the carriers the payment of premiums by the carriers was tacitly acknowledged by the Company. The elements therefore of s346(1)(d) were established. 19 As to whether Visy "failed to take reasonable steps to advise the carrier that it was not a requirement" of Visy that premiums be paid, the principles laid down by the Full Bench in Monier Roofing Pty Ltd v Quintrell (1997) 78 IR 38 (pp 45-50) are very pertinent when applied to the facts at Visy. There is no doubt that Visy did not 'recognise goodwill' and that the Company, in fact, would have preferred that no premiums were to be paid. However, on the evidence they did not take sufficiently convincing steps to advise the carriers that the payment of goodwill was not a requirement of Visy. In fact, all the evidence suggests that Visy suspected the payments were being made and turned a blind eye to the practice which they could have stopped at the point of engagement of each carrier had they so wished. It is plain from the dicta in Monier's case (supra) that mere murmurings against the payment of goodwill does not bring into operation the escape clause in s346(1)(e). 20 In the case of Tikvesh Transport Pty Ltd, Visy management went beyond mere murmurings and the carrier, Mr Atanasov, was interviewed by Mr Cashion, the manager, following the 2002 Industrial Relations Commission hearings which ratified the 2002 Contract Carriers' Agreement. Goodwill was a topic in these discussions. Despite the discussions and the terms of the Agreement, Mr Atanasov still paid the premium and was allowed to commence work in the yard. At that point, Mr Atanasov could have been prevented from paying out the large sum of money had Visy management indicated that the paying of a premium would debar the carrier from carrying for the Company. It would also have protected Visy from a subsequent claim for compensation. 21 The respondent argued that the Tribunal lacks jurisdiction to make orders for compensation having regard to the provisions of s349(8). This section precludes the making of a determination which has the effect of altering or varying a contract agreement or determination. 22 This argument is predicated on the existence of the Visy Board Industrial Packaging Contract Carrier Agreement which was approved by the Industrial Relations Commission on or about 19 September 2002. Clause 20(a) of that Agreement (so far as is relevant) provides: The contractor selling their truck does so on the recommendation that the purchaser recognises the truck's market value. The Contractor shall neither during nor after the term represent itself as being in any way connected with or interested in Visy's business. This includes claims to holding routes, runs or goodwill. We are of the view that the 'goodwill' referred to in the clause refers to the goodwill in Visy's business and not the perceived goodwill applicable to the carriers' business. We note the comments in Myer Stores Limited v Stowart (1994) 55 IR 21 at pp31-32. In any event, no order for the payment of compensation on the facts contained herein could have the effect of altering or varying the Visy Board Industrial Packaging Contract Carrier Agreement. TERMINATION OF THE CONTRACTS 23 The claim that the termination of the carriers' contracts was unfair, harsh and unconscionable centred around the decision of the Company to put the carrying work out to tender. The Union argued that the decision was made in the knowledge that premiums had been paid by the carriers and that there was no consultation with the carriers about the effect the tender would have on their legitimate interests. Although they were allowed to tender, there appeared to be no realistic prospect of them winning the tender. The applicants argued that the tender process was designed to end the system of premium-paying drivers at Visy. 24 Even if this formed part of the motivation of Visy, the tender process was also designed to reduce the operating costs of the Company. For the carriers to have succeeded in their tender they would have had to reduce their unit rates to win the work and to provide facilities otherwise sought by Visy. 25 Visy conceded that the decision to put the work out to tender and the contractors' tender being unsuccessful, made the carriers redundant and further, that they did not take into account the premiums paid by the carriers, nor their commercial interests. Visy claimed that these arguments are irrelevant because Visy had the legal right to act as it did. The Company also argued that it had paid $1500 for each year of service to the carriers as an additional severance payment. 26 The carriers responded that these payments were in reverse order of merit as they were based on length of service which "gave the most to those who were likely to have paid nothing or lesser amounts for the work, and had got the best return in terms of years of income, as against those who had paid the most but got the least return on their investment." 27 We are satisfied that the circumstances surrounding the termination of the carriers' contracts of carriage amount to unfair, harsh and unconscionable conduct in accordance with s349 of the Act. COMPENSATION 28 In assessing the amount of compensation payable in the case of each of the Visy carriers, the provisions of s 349(4) are foundational. 29 Set out in para 4 Supra are the figures to be taken into account when considering ss 349 (4) (a to c). 30 Sections 349 (4) (d to f) are of no relevance in these proceedings as no claim is made with respect to losses incurred in relation to trucks, and no guarantee of future work was made. Start and finish dates and termination payments made were not in dispute. 31 Applying these figures to each of the carriers, the applicants claimed compensation in each case in the following terms: S & M Cincotta Pty Ltd - $ 59,315 Fast Fertilizers Pty Ltd - $ 61,513 K & S Johnstone Transport Pty Ltd - $ 57,429 Naldon Holdings Pty Ltd - $ 97,698 Tikvesh Transport Pty Ltd - $106,727 Rob & Lin Transport Pty Ltd - $108,598 Leisureview Pty Ltd - $ 30,320 These figures represent the premiums claimed to be paid by the carriers, less the amounts paid to them on termination. 32 The respondent challenged all of the claims of premiums paid by each applicant. 33 In general, there was contradictory evidence tendered to explain the difference between the truck price and the premium paid. Many tax returns were tendered and, in most cases, there were large discrepancies between the amount claimed as premium, and the amounts disclosed in their respective company tax returns. 34 For this reason, the Tribunal had great difficulty in determining actual premiums paid. 35 With respect to Naldon Holdings Pty Ltd, evidence showed that the Company had amortised goodwill paid over seven years of the contract, and at the date of termination was $36,000. Goodwill had been amortised at $12,000 per year, with this amount taken up as an operating expense of the business. 36 This complies with standard accounting practices issued by the Australian Accounting Standards Board. The taxation advantage of this practice was in stark contrast to other applicants who maintained goodwill as an intangible asset over the period. 37 Furthermore, in the case of Tikvesh Transport Pty Ltd, the last carrier to enter the yard, the amount declared for goodwill in the company tax returns for 2002 and for 2003 was $35,000. Yet, Mr Atanasov in his application claimed the goodwill was $110,000. 38 Again, in the case of Rob & Lin Transport Pty Ltd, company tax returns for the year in question list goodwill as $110,000, yet the claim by this applicant in this case is $120,000. 39 In view of such confusing evidence, the Tribunal has to seriously consider which figures should be chosen to represent the basis of the claims. We accept the company tax return figures as documentary proof, prepared by professional accountants and approved by Company Directors, with legal responsibility for their actions. 40 With regard to the provisions of s349(4)(c), we do not consider that the above- mentioned figures adequately take into account the varying durations of the head contract of carriage. 41 The contracts of carriage of the longest duration are those involving the lowest cost to purchase (in premium and truck value), as well as those who have had the greatest benefit from the premiums paid. 42 We have set out below a list of the applicant carriers in descending order of duration of contract. After allowing for the termination payments already made, and taking into account the contract duration period, we have arrived at a compensation figure we consider appropriate as follows: Carrier Length of Service Compensation Leisureview Pty Ltd 9.25 years Nil Naldon Holdings Pty Ltd 6.75 years $21,000 S & M Cincotta Pty Ltd 5.6 years $37,000 K & S Johnstone T'port Pty Ltd 5 years $37,000 Fast Fertilizers Pty Ltd 4.25 years $44,000 Rob & Lin Transport Pty Ltd 3.6 years $75,000 Tikvesh Transport Pty Ltd 1 year $31,000 43 In view of the circumstances we have described, the Tribunal orders the payment of the compensation amounts recorded above. 44 No order for costs was sought. These matters are now concluded. 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.