Appeal against a decision of the Commission in Matter No. RFT 13 of 2012 given on 9 May 2014

WESTERN AUSTRALIAN INDUSTRIAL RELATIONS COMMISSION

FULL BENCH

CITATION : 2014 WAIRC 01294

DELIVERED : TUESDay, 2 December 2014

FILE NO. : FBA 8 OF 2014

Appellant

AND

Damien Cole Pty Ltd

Respondent

ON APPEAL FROM:

Jurisdiction : Road Freight Transport Industry Tribunal

Coram : Acting Senior Commissioner P E Scott

Citation : [2014] WAIRC 00394; (2014) 94 WAIG 627

File No : RFT 13 of 2012

CatchWords : Industrial Law (WA) - Appeal against decision of single Commissioner sitting as the Road Freight Transport Industry Tribunal - Assessment of damages arising from the wrongful termination of an owner-driver contract - Principles of assessment of damages in the law of contract considered - Error found in deduction of notional sum for loss of profit

Legislation : Owner-Drivers (Contracts and Disputes) Act 2007 (WA) s 38(1)(a), s 43(1), s 47(1), s 47(4)

Result : Appeal upheld, decision varied

Representation:

Appellant : Mr A Dzieciol (of counsel)

Respondent : Mr J Uphill, as agent, and with him Mr D Cole

Case(s) referred to in reasons:

Shacam Transport Pty Ltd v Damien Cole Pty Ltd [No 1] [2013] WAIRC 00872; (2013) 93 WAIG 1628

Australian Goldfields NL (In liq) v North Australian Diamonds NL [2009] WASCA 98; (2009) 40 WAR 191

Commonwealth v Amann Aviation Pty Ltd [1991] HCA 54; (1991) 174 CLR 64

Case(s) also cited:

Robinson v Harman [1848] EngR 135; (1848) 1 Exch 850; 154 E.R. 363

Hadley v Baxendale (1854) 9 Ex 341

Keldote Pty Ltd v Riteway Transport Pty Ltd [2010] FMCA 394

Transport Workers' Union of Australia, Industrial Union of Workers, Western Australian Branch v Sims Metal Management Ltd (2012) WAIRC 00235; (2012) 92 WAIG 709

Reasons for Decision

FULL BENCH:

The appeal and the order appealed against

1          This is an appeal under s 43(1) of the Owner-Drivers (Contracts and Disputes) Act 2007 (WA) (the Owner-Drivers Act), against a decision made by the Road Freight Transport Industry Tribunal (the Tribunal) on 9 May 2014 awarding Shacam Transport Pty Ltd (the appellant) a gross sum of $9,023.04 for a breach of contract.

Background

2          Edward Gregory Richardson and Carol Anne Richardson are directors of the appellant.  In 2011 the appellant entered into an owner-driver contract with Damien Cole Pty Ltd (the respondent) who undertakes a cartage business.  Part of its business is to cart offal and waste products.

3          After the respondent arranged for the appellant to purchase a 2007 Volvo prime mover in 2010, Mr Richardson commenced sub-contract driving work solely for the respondent carting offal and waste products from abattoirs in the south-west.

4          In March 2012, a dispute arose between the parties and the respondent terminated the contract without notice.

5          On 23 October 2013, the Full Bench allowed an appeal against a decision made by the Tribunal dismissing a claim by the appellant seeking damages against the respondent, for pay in lieu of reasonable notice:  Shacam Transport Pty Ltd v Damien Cole Pty Ltd [No 1] [2013] WAIRC 00872; (2013) 93 WAIG 1628.  The Full Bench held that the respondent was not entitled to terminate the owner-driver contract without notice and made an order to suspend the operation of the decision at first instance and remitted the case to the Tribunal for further hearing and determination.  The matter then came before the Tribunal for further hearing on 13 February 2014 for the determination of the quantum of damages to be ordered for the failure to provide reasonable notice of termination of the owner-driver contract.

The hearing on quantum of damages

6          When the matter was remitted to the Tribunal two issues arose.  The first was what period of time constituted reasonable notice to terminate the contract.  The second issue was whether there should be a deduction of a profit margin from the quantum of damages awarded.

7          After hearing from the parties, the Tribunal determined that in the circumstances a period of reasonable notice was six weeks.  The appellant does not take issue with this finding.

8          At the hearing on 13 February 2014, Mr Richardson gave uncontradicted evidence that after the contract with the respondent was terminated he sought work for the appellant's prime mover and himself by looking in newspapers in the employment section.  Because he had not been in the business of contracting trucks out for long he contacted a few friends that he knew had businesses about where to go and what he could do.  The outcome of his inquiries was that there was not much work around at that time.  However, a friend of his who operates a business trading as Kimberley Water Carting out of Kununurra was looking for a part-time driver.  Two weeks after the contract with the respondent was terminated, Mr Richardson commenced work for Kimberley Water Carting in Newman on a construction mine site.  He worked approximately five weeks at this site.  A few weeks later he carried out another week's work for Kimberley Water Carting just out of Fitzroy Crossing.  The prime mover owned by the appellant was not engaged in any of this work.  Mr Richardson's total earnings in this period was $19,270 net.

9          After having regard to the gross amounts that Mr Richardson was paid by Kimberley Water Carting and superannuation paid, the Tribunal assessed Mr Richardson's earnings during the six week notice period as being a gross amount of $1,720, plus $5,980 and $4,025 which came to a total gross amount of $11,725.

10       The fact that steps were taken by Mr Richardson to mitigate the loss of the appellant following the termination of the contract was not challenged by the respondent.

11       The parties agreed that the earnings under the contract were $7,400 per week and the variable outgoings for the operation of the appellant's prime mover was $2,608.66 per week (exhibit A).  This resulted in loss of income per week of $4,791.34.  Whilst the basis of the calculation of this agreed amount was not revealed to the Tribunal, it is clear that the variable outgoings include items such as fuel which was used by the prime mover to perform the cartage work the appellant had contracted with the respondent to perform.

12       At the hearing before the Tribunal, Mr Uphill on behalf of the respondent made a submission that a profit margin of $2,000 per week ought to be offset from the award of damages.  The argument was that as Mr Richardson did not use the prime mover when working with Kimberley Water Carting there was no basis for a profit margin to be awarded.  The basis on which that submission was put is that a profit margin is similar to variable outgoings which are sums not incurred or earned as a result of Mr Richardson not working the vehicle.  Thus, in the same way as variable outgoings were not incurred it was argued that the profit margin should not be taken account of.

13       The amount of $2,000 per week was calculated by the respondent by having regard to a table of expenses and income set out in exhibit R3.  Exhibit R3 was tendered at the initial hearing at first instance during the evidence given by Mr Damien Cole, the owner of the respondent.  Mr Cole said when giving evidence that exhibit R3 had been prepared by Ms Jenny Tanner, the financial controller, and is an estimate of variables of the long distance work carried out by the appellant in relation to proposed earnings (ts 64, 16 April 2013).  Exhibit R3 provides as follows:

(LONG DISTANCE)

28/03/2013 14:56

 EXPENSES

OWNERSHIP 48 MONTHS ANNUAL

CAPITAL COST $205,000

FIT UP $0

STAMP DUTY $0

OTHER COSTS

TOTAL CAPITAL COSTS $205,000

OVERHEADS

LICENCE $28,836 $7,209

INSURANCE TRUCK $14,152 $3,538

INSURANCE OTHER $4,000 $1,000

INTEREST $65,600 $16,400

DEPRECIATION $102,500 $25,625

TOTAL OVERHEADS $215,088 $53,772

OPERATING

FUEL $390,000 $97,500 25%

REPAIRS/TYRES $130,416 $32,604

TOTAL OPERATING $520,416 $130,104

TOTAL RUNNING EXPENSE $735,504 $183,876

INCOME

CONTRACT PAYMENT $1,539,200 $384,800 $32,067

LESS EXPENSE $735,504 $183,876

MARGIN $803,696     $200,924

 52%

Assumptions

Used VOLVO 520 HP

4 years ownership

Finance over 48 months - 30% residual

Insurance truck and public liability

Based on figures provided by Fertal, October

2010

14       At the hearing on 13 February 2014, Mr Uphill also tendered into evidence a profit and loss statement prepared by the appellant for the period July 2011 through to June 2012 (exhibit B).  Exhibit B shows that in that period the appellant received income from the respondent, including a diesel fuel rebate, of $298,833 and incurred expenses of $260,564.20.  Part of those expenses was wages and salaries of $88,900, other salaries of $2,200 and superannuation of $8,001.  Items which could clearly be said to constitute variable items included fuel of $89,144.20 and sub-contract drivers of $8,727.27.  There were also amounts claimed for some matters that could not be regarded as variable outgoings such as motor vehicle insurance of $6,703.03 and motor vehicle registration of $8,019.37.  The operating profit specified in exhibit B was $38,268.80 with a net profit of $25,996.97.

15       On the basis of exhibit R3 and exhibit B, Mr Uphill made a submission that the annual margin of the profit in exhibit R3 was equally split between wages of $100,000 and profit of the same amount.  That he submitted is consistent with the amount allocated to wages and salaries set out in exhibit B.  Thus, wages could be expected to be about $100,000 a year, or a weekly figure of $2,000 per week.  Alternatively, it was submitted that if the operating profit of $38,268.80 is taken into account, that that would amount to a notional profit of $735 per week (AB 28).  In written submissions filed on 16 October 2014, however, it is stated on behalf of the respondent that the operating profit of $38,268.80 was for nine months of operation from July 2011 until the end of the contract on 27 March 2012.  Thus, for a full year, the profit margin would be $51,024 or $1,000 per week.

16       The Tribunal accepted the submission made on behalf of the respondent and found that in undertaking an employment relationship during the period in which notice should have been given the appellant effectively decided to forego endeavours to make a profit from the use of the prime mover to gain a short term benefit of receiving a wage.  Thus, in choosing not to undertake the business during the weeks of employment with Kimberley Water Carting, the appellant could not reasonably expect to have generated this notional profit.  Therefore, an amount of $2,000 per week during four weeks of employment was deducted from the award of damages.

17       After making this finding, the Tribunal calculated the gross amount to be paid to the appellant by the respondent in lieu of reasonable notice as:

Grounds of appeal

18       The grounds of appeal in this matter are as follows:

(a) In ground 1 of the appeal it is pleaded that the Tribunal erred in law in the assessment of the appellant's damages arising from the wrongful termination of the owner-driver contract by the respondent, in that the Tribunal deducted an amount of $2,000 per week from the damages awarded to the appellant for the four weeks that the appellant's director, Mr Richardson, was working as an employee, when there is no basis in law for making such a deduction.

(b) Ground 2 is expressed in the alternative.  It pleads that the Tribunal erred in law, and in fact, in finding that, of the average amount of $7,400 per week that the appellant earned from providing services to the respondent pursuant to the owner-driver contract, there was a profit margin in an amount of $2,000, when there was no evidence, or insufficient evidence before the Tribunal, from which the Tribunal could have made such a finding.

19       The appellant seeks that the further decision of the Tribunal in matter RFT 13 of 2012 be varied, by deleting the calculation of the pay in lieu of notice in [22] of the reasons for decision, and substituting the following in lieu:

Consideration of the grounds of appeal – assessment of damages

20       Pursuant to s 47(1) and s 47(4) of the Owner-Drivers Act if the Tribunal determines a dispute referred under s 38(1)(a) of the Owner-Drivers Act, the Tribunal may order payment of a sum of money by way of damages.

21       Following the remittal of the case to the Tribunal by the Full Bench, the task before the Tribunal was to assess the damage that flowed from the breach of the owner-driver contract.  The loss that flowed to the appellant from the breach of contract was the loss of income the appellant would have received if provided with reasonable notice to terminate the contract.

22       The relevant legal principles governing an assessment of damages were summarised by Buss JA in Australian Goldfields NL (In liq) v North Australian Diamonds NL [2009] WASCA 98; (2009) 40 WAR 191.  At [276] his Honour observed:

The general contractual principle governing the measure of damages is that the innocent party suing for breach of contract is to be placed in the same position, so far as money can do it, as if the contract had been performed: see Tabcorp Holdings Ltd v Bowen Investments Pty Ltd (2009) 236 CLR 272 at [13] per French CJ, Gummow, Heydon, Crennan and Kiefel JJ; Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64 at 80 per Mason CJ and Dawson J; L Shaddock & Associates Pty Ltd v Parramatta City Council (No 1) (1981) 150 CLR 225 at 237 per Gibbs CJ; Wenham v Ella (1972) 127 CLR 454 at 471 per Gibbs J. The innocent party is entitled to damages for loss of bargain (expectation loss) and damage suffered, including expenditure incurred, in reliance on the contract (reliance loss): see Gates v City Mutual Life Assurance Society Ltd (1986) 160 CLR 1 at 11 - 12 per Mason, Wilson and Dawson JJ. The innocent party should receive the monetary sum which, so far as money can, represents fair and adequate compensation for the loss suffered by reason of the breach of contract. Ordinarily, this involves a comparison between the position in which the innocent party would have been if the breach of contract had not occurred and what, relevantly, represents the position in which the innocent party is in after the occurrence of the breach: see Amann Aviation (at 116) per Deane J.

23       Thus, the Tribunal was required to assess the loss or losses flowing from the respondent's breach of contract, which when assessed should aim to place the innocent party (in this matter the appellant) in the position it would have been if six weeks' notice had been given by the respondent to terminate the owner-driver contract.

24       When regard is had to the facts of this matter, the loss that flowed from the respondent's breach was the gross profit expected from performance of work pursuant to the terms of the contract for a period of six weeks immediately following the termination of the contract.  Thus, the appellant has the right to be placed in the position it would have been if the contract had been performed; that is if six weeks' notice to terminate the contract had been given by the respondent.

25       The starting point in an assessment of damages in this matter is that if the appellant had been provided with six weeks' notice of termination the contract would have remained on foot for a period of six weeks.  Thus, the appellant's income from the respondent would have been $7,400 gross a week and it would have paid $2,608.66 a week in variable outgoings.

26       It is not in dispute that taking into account variable outgoings of $2,608.66 a week the appellant would have earned a gross amount of $28,748.04 in the period of notice.

27       The appellant through its director, Mr Richardson, took steps to mitigate the appellant's loss suffered by reason of the failure by the respondent to provide reasonable notice to terminate the contract.  Mr Richardson was unable to secure work as an owner-driver, but he was able to obtain work as an employee.  Thus, from the amount of $28,748.04 it is agreed an amount of $11,725 should be deducted, which is a gross amount of $17,023.04.

28       In circumstances where there was no dispute that the appellant had mitigated its loss, no deduction should have been made for a notional loss of profit.  The appellant had been unable to secure work using the prime mover owned by it, but was able to secure work for its director, Mr Richardson, as an employee.  To make a deduction of an amount allocated to profit could not be said to place the appellant in the same position so far as money can do it, as if the contract had been performed.  Thus, there is no reason in fact or at law why an amount representing a notional profit should have been deducted from the award of damages.

29       For these reasons, we are of the opinion that ground 1 of the appeal has been made out.  Whilst in light of this finding it is not necessary to consider ground 2 of the appeal, we would make the following observations:

(a) We do not agree that there was no evidence before the Tribunal upon which an assessment of a profit margin could be assessed.  An assessment of a head of damage need not be calculated in a way that is precise.  In Commonwealth v Amann Aviation Pty Ltd [1991] HCA 54; (1991) 174 CLR 64 Toohey J observed (138):

[T]he quantification of damages is 'in many cases no more than an approximation lacking in mathematical or economic accuracy or sufficiency' (Pennant Hills Restaurants (1981), 145 C.L.R., at p. 636) or even that the assessment of damages 'does sometimes, of necessity, involve what is guess work rather than estimation' (Jones v. Schiffmann (1971), 124 C.L.R. 303, at p. 308). It is now almost a century since Bowen L.J. said in Ratcliffe v. Evans ([1892] 2 Q.B. 524, at pp. 532-533):

'As much certainty and particularity must be insisted on ... in ... proof of damage, as is reasonable, having regard to the circumstances and to the nature of the acts themselves by which the damage is done. To insist upon less would be to relax old and intelligible principles. To insist upon more would be the vainest pedantry.'

(b) The Tribunal had before it a statement of income paid by the respondent and an estimate of expenses incurred by the appellant.  The estimate was prepared by the respondent's financial controller (exhibit R3).  It also had before it exhibit B which was a profit and loss statement prepared on behalf of the appellant showing income received and actual expenses incurred by the appellant.  As exhibit R3 was an estimate and exhibit B was a statement of actual expenses, less weight should have been given by the Tribunal to the calculations contained in exhibit R3 than exhibit B.

(c) In any event, exhibit R3 does not support the respondent's argument that an amount of $2,000 a week should be deducted from the measure of damages.  To do so would, when the expenses set out in exhibit R3 are analysed, result in a double counting of some variable outgoings.  In particular, the amount allocated to fuel and repairs and tyres was $130,104 per annum or approximately $2,502 per week.  Also, exhibit R3 does not take account of other expenses which are accounted for in exhibit B.  These include:

(i) variable expenses for the cost of payments to sub-contract drivers, travel and accommodation expenses; and

(ii) numerous other fixed costs such as bank fees, bookkeeping fees, company costs, credit fees, insurance, loan expenses and stamp duty.

(d) As exhibit B contains a comprehensive list of expenses incurred by the appellant and is not merely an estimate of some expenses, if an amount representing the profit generated from the engagement of the appellant's prime mover should have been deducted from the quantum of damages, then the Tribunal should have assessed that amount by regard to a gross profit of $38,268.80 for nine months reflected in exhibit B, which is approximately $1,000 per week.

Conclusion

30       The appellant seeks to vary [22] of the reasons for decision at first instance.  Such a course of action is not open as the decision the subject of the appeal is not the reasons for decision but the order made on 9 May 2014.

31       As ground 1 of the appeal is made out, we are of the opinion that an order should be made to uphold the appeal and vary the decision by deleting the sum of $9,023.04 and substituting the sum of $17,023.04.