IN THE WESTERN AUSTRALIAN INDUSTRIAL RELATIONS COMMISSION

SITTING AS

THE ROAD FREIGHT TRANSPORT INDUSTRY TRIBUNAL

CITATION : 2017 WAIRC 00370

DELIVERED : WEDNEsday, 28 June 2017

FILE NO. : RFT 29 OF 2015

Applicant

AND

Toll Transport Pty Ltd T/AS Toll IPEC

Respondent

CatchWords : Owner-driver contract dispute - Calculation of loss and damage for breach of contract - Identity of party to proceedings - Legal costs - Application for costs

Legislation : Industrial Relations Act 1979 (WA)  s 26, s 27, s 27(1), s 27(1)(a), s 27(1)(b), s 27(1)(c)
Owner-Drivers (Contracts and Disputes) Act 2007 (WA)  s 4(b), s 43, s 43(1)(j)
Corporations Act 2001 (Cth) s 131(1)

Result : Respondent ordered to pay applicant

Representation:

Counsel:

Applicant : Mr W Spyker

Respondent : Mr A Sharpe

Solicitors:

Applicant : Spyker Legal

Respondent : K & L Gates

Reasons for Decision

1         In Reasons for Decision issued on 10 February 2017 ([2017] WAIRC 00069), I found that Toll Transport Pty Ltd trading as Toll IPEC was obliged to pay Steve Burke Transport Pty Ltd that amount which represents the unexpired portion of the contract, from 11 September 2015 to the last working day of June 2016. 

2         The parties were to confer with a view to identifying and agreeing the amount due.  The parties have been unable to agree. 

Identity of the applicant and parties to proceedings

3         The resolution of this claim has been complicated by the issue of the identity of the applicant and how this affects the calculation of loss. 

4         In my Reasons for Decision of 10 February 2017, I made the following observations: 

30 The MAA (Metropolitan Agent Agreement) sets out that it is an agreement between Toll IPEC and Steve Burke.  The dispute that was referred to the Tribunal in 2013 had as its applicant the Transport Workers’ Union of Australia, Industrial Union of Workers, Western Australian Branch (the TWU).  The Deed of Release in respect of the 2013 dispute is between Toll Transport Pty Ltd t/as Toll IPEC and Stephen Burke.  The parties to that dispute are referred to in the Deed of Release as being Toll IPEC and Stephen Burke.  The background to the Deed describes Mr Burke as being a contractor.  (I also note in passing that in the 2013 referral, both the TWU in its Notice of referral and Toll in its Notice of answer referred to the applicant as being Mr Burke when it was the TWU.) 

31 Neither party raised the issue that this application is made by Steve Burke Transport Pty Ltd not by Mr Steve Burke personally, who is the party to the MAA and the Deed. 

32 As neither party has raised the issue of the separation of the corporate identity of Steve Burke Transport Pty Ltd and Stephen Burke it is my intention to treat Mr Burke and Steve Burke Transport Pty Ltd as one entity, albeit that, strictly speaking, they are not.  I think in the circumstances, it would be contrary to the intention of the parties in the way in which they have argued the matter and contrary to equity and good conscience to make that formal separation. 

33 Therefore, whilst I refer in these reasons to both Mr Burke, who is the sole director of Steve Burke Transport, and to him as a natural person, it should not be thought that there is any significance in the distinction between those two for the purposes of this matter. 

5         On reading the outlines of submissions of the parties, I noted that the issue of the income received by Steve Burke Transport Pty Ltd and the distribution of that income, including to Mr Burke personally, was the primary area of dispute between the parties. 

6         Therefore, I raised with the parties, through my Associate: 

(1) Whether the Tribunal should continue to treat the matter of quantum of damages in the same way – that is, to treat Steve Burke Transport Pty Ltd and Stephen Burke as one entity, as that was the way the parties treated the situation in the past and had argued the matter before me; and

(2) If so, should Mr Steve Burke be joined as a party. 

7         The applicant notes that in a Memorandum dated 15 June 2011, from Tony Consedine of Toll to Steve Burke, it is clear that the intention was for Toll to enter into the Metropolitan Agent Agreement (the MAA) with a corporate entity soon to be set up by Mr Burke.  Mr Burke established Steve Burke Transport Pty Ltd on 22 June 2011 and provided Toll with the details of the company and its ABN.  In spite of this, the MAA, dated 30 June 2011, was expressed as being between Toll and Steve Burke. 

8         All invoices issued to Toll were on the letterhead of Steve Burke Transport, and Toll made payments to the corporate entity.  The termination letter was addressed to the corporate entity. 

9         The applicant also refers to s 131(1) of the Corporations Act 2001 (Cth) which provides that: 

If a person enters into, or purports to enter into, a contract on behalf of, or for the benefit of, a company before it is registered, the company becomes bound by the contract and entitled to its benefit if the company, or a company that is reasonably identifiable with it, is registered and ratifies the contract:

(a) within the time agreed to by the parties to the contract; or

(b) if there is no agreed time — within a reasonable time after the contract is entered into.

10      The applicant says that given the circumstances and the timing of the signing of the MAA, the company being set up and ratified, Steve Burke Transport Pty Ltd became bound by the contract and entitled to the benefit of the MAA. 

11      The applicant notes my Reasons for Decision and that only after that decision does the respondent say that it is necessary to depart from the approach taken in the matter to the point of its Outline of Submission on Quantum filed on 23 May 2017 by seeking to distinguish between Mr Burke personally and the company for the purposes of the assessment of damages. 

12      The applicant says Mr Burke is the sole director of the company and is reliant on the company as his sole source of income.  This is confirmed in the letter from the accountants, HTC Partners, dated 16 May 2017, that the company’s benefit flowed through to Mr Burke via various mechanisms including dividends, Director’s Fees and Employee Benefit Expenses. 

13      The respondent says that the Tribunal should not continue to treat Mr Burke and Steve Burke Transport Pty Ltd as one entity when considering quantum, and that Mr Burke should be joined as a party. 

14      The respondent says that as Mr Burke personally was the party to the MAA, he is the proper applicant in these proceedings and the applicant’s case appears to claim Mr Burke’s loss rather than that of the company.  There is said to be a three‑fold difference in the quantum actually claimed and that which might be expected if the claim was made by reference to the loss of Steve Burke Transport Pty Ltd.  Therefore, the respondent says the Tribunal should acknowledge the legal distinction between Mr Burke and Steve Burke Transport Pty Ltd for the purposes of the hearing on quantum, and he should be joined to the proceedings. 

15      The respondent also notes that for Mr Burke to be taken to have entered into the MAA on behalf of the company before the company was registered, the Corporations Act 2001 (Cth) s 131(1) requires that the company ratify the contract within a reasonable time and it did not do so. 

16      Having considered the parties’ arguments, I have decided that what must be considered is the company’s situation, not Mr Burke’s, and I have decided against joining Mr Burke to the proceedings.  This is for two reasons. 

17      Firstly, I noted in my reasons for decision at [32] that neither party had raised the issue of the separation of the corporate identity and that I intended to treat Mr Burke and the company as the one entity, albeit that strictly speaking they are not.  To continue to do so for the purposes of determining loss risks double‑counting.  It would also be contrary to the doctrine of privity of contract (Dunlop Pneumatic Tyre Co Ltd v Selfridge & Co Ltd [1915] UKHL 1; [1915] AC 847; Wilson v Darling Island Stevedoring and Lighterage Co Ltd [1956] HCA 8; (1956) 95 CLR 43 at 66, 67 and 80).  There are no circumstances in this case to justify varing from that approach. 

18      I have decided against joining Mr Burke to proceedings as it is not necessary and only complicates matters.  The applicant is the company, not Mr Burke. 

19      Secondly, Toll intended that the company would be the party to the contract, the company performed the work and invoiced Toll.  Toll paid the company.  It is disingenuous to now rely on this technicality of the lack of ratification of Mr Burke entering the contract on behalf of the company when Toll’s own conduct recognised that the contract was with the company. 

The law regarding loss and damage

20      According to s 43(1)(j) of the Owner‑Drivers (Contracts and Disputes) Act 2007 (the OD Act), the Full Bench of the Commission deals with appeals against decisions of the Tribunal.  In Shacam Transport Pty Ltd v Damian Cole Pty Ltd [2014] WAIRC 01294; (2014) 94 WAIG 1835, it set out the principles for loss and damage flowing from a breach of contract at [22]. 

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.

…

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.

21      The applicant says the loss suffered by reason of Toll’s breach is the income earned each year and disbursed to Mr Burke either as Director’s Fees or Employee Benefit Expenses and profits as follows: 

Applicant’s submissions, 18 April 2017 [22]

22      The average for the years 2012 to 2015 is a figure of $267,920.  The amount for the year 2016 was $101,921.  Therefore, the loss is simply the deduction of the amount from the average each year, being $165,999.  The applicant says that this is the amount which would, but for the respondent’s breach of contract, have been paid to Steve Burke as either Director’s Fees or Employee Benefit Expenses, or retained as profit, and this is the amount he seeks. 

23      The applicant also says that Mr Burke was an owner‑driver for the purposes of s 4(b) of the Owner‑Drivers (Contracts and Disputes) Act 2007 and the sole director of the company, and therefore the two items of Director’s Fees or Employee Benefit Expenses are alternative and standard accounting methods of disbursing the profits, or what would have contributed to the profits, of the business. 

24      The same figure is arrived at by an alternative method of calculation.  This is the total income less expenses for accountancy, depreciation, finance costs, but not Director’s Fees or Employee Benefit Expenses.  The applicant says this is the method used in Shacam Transport Pty Ltd v Damian Cole Pty Ltd [2014] WAIRC 01294.  It says that by deducting the variable expenses from the overall income, the result is the quantification of the net income that falls into the hands of the operator (in this case, Mr Burke).  Either methodology is said to produce the same loss figure. 

25      The applicant says that treating the company’s loss as Mr Burke’s loss and treating them as one entity for the purpose of assessing quantum of loss is consistent with the requirements of s 27(1)(a) and (b) of the Industrial Relations Act 1979 (the IR Act).  To do otherwise is to rely on legal technicalities. 

26      The respondent says it is not valid to include those amounts that flowed through to Mr Burke, such as Employee Benefit Expenses.  This is reinforced by the fact that the wages for Mr Burke’s partner, Ms Curlewis, were included in that category, and cannot be seen as other than a normal business expense to be deducted for the purpose of calculating the loss. 

27      It also says that the two years during which the Blackwoods work was part of the company’s work, which was compensated for by the settlement, ought to be excluded for the purpose of averaging the company’s income. 

28      It also objects to the inclusion of an expense for legal costs relating to this matter. 

Calculations

29      For the purpose of calculating the loss arising from the breach, and to put the company in the position it would have been in but for the breach, I conclude that I ought to look at what the real loss was, not at how the various aspects of the accounts and financial reports of the company are categorised. 

30      The applicant’s tax and financial accounts are divided into various groupings.  In some years, the accounts provided a Director’s Fee and some years it did not.  Some years it provided Employee Benefits Expenses as significantly higher than in other years.  The way these were categorised affected the profit or loss for the year.  In 2012, there were no Director’s Fees, Employee Benefits Expenses were $152,600 and a profit of $120,497, totalling $273,097 income derived through the contract.  In 2013, there were also no Director’s Fees but there were Employee Benefit Expenses of $188,570, and a profit remaining of $95,259, totalling $283,829.  In 2014, the Director’s Fees were $150,000 and the Employee Benefit Expenses were $216,268, a loss of $107,205, leaving a total of $259,063.  In 2015, $120,000 was paid as Director’s Fees, $63,320 as Employee Benefits Expenses, a profit of $72,374 and a total of $255,694.  In 2016, $100,000 was paid in Director’s Fees and $4,875 in Employee Benefits Expenses and a resultant loss of $2,954, totalling $101,921. 

31      It seems to me that the method of apportionment amongst those items meant that Director’s Fees, Employee Benefit Expenses and profit were combined in different ways each year.  Where either Director’s Fees or Employee Benefits Expenses or both are high, the profit or loss is affected significantly.  As this is a company with a sole director who (apart from the sole director’s partner, Ms Curlewis) was the only person working in the business, the Director’s Fees, the Employee Benefits Expenses and the Profits all come from the same pool of funds.  They all come from the amounts paid to the company by Toll, as Toll was the only source of income for the business. 

32      If no Director’s Fees were paid, or no Employee Benefits Expenses paid, then the profit would be around the same amount rather than fluctuating from year to year.  Therefore, I intend to treat Director’s Fees, Employee Benefit Expenses and profits as one figure.  These figures take account of the total income and the fixed and variable expenses of running the business.  I deal with Ms Curlewis’s wages later. 

33      The alternative method of calculation of loss advocated by the applicant is valid, too.  That is, to deduct from the total income received from Toll, the variable expenses of such items as accounting, depreciation, finance costs, office expenses and truck expenses.  The result is the same. 

Years to be averaged

34      I would remove the 2012 and 2013 figures from the calculations of loss because those years include the Blackwoods run (a significant proportion of the run) which was removed from the work undertaken by the company for Toll.  There was a settlement after its removal.  Therefore, 2014 and 2015 are to be used for the average income. 

Ms Curlewis’s wages

35      I would also remove the amount paid to Ms Curlewis in wages and superannuation of $44,813 from the Employee Benefits Expenses for the financial year 2015.  I reject the applicant’s argument that because Ms Curlewis was Mr Burke’s partner at that time, that this is a benefit which flowed through to him.  This amount did not form part of those three components I have found would, but for the accounting methodology, have formed the profit. 

36      Therefore, for that year, the Employee Benefits Expenses ought to be reduced by that amount. 

37      In any event, the issue is not resolved by what flowed through to Mr Burke.  It is the total of the loss to the company that is relevant. 

Legal costs

38      The legal costs for 2016 of $8,350 are those incurred by the applicant in pursuing this matter and were treated as an expense.  If this were to be allowed to remain in the calculation, it would have the effect of enabling the applicant to recover legal costs which s 27(1) of the IR Act prohibits the Tribunal from ordering.  I note in passing that s 27(1)(c) prohibits the Tribunal from ordering the payment of costs ‘for the services of any legal practitioner’.  There is merely a one line expense in the accounts so it is difficult to know whether all of the expense relates to this matter and all of it relates to the legal practitioners’ services as opposed to other associated costs.  In any event, the applicant did not seriously challenge its removal. 

Total loss

39      Therefore, the calculation of the real or underlying loss to the applicant is caused by the breach: 

● The income received less expenses. 

● The expenses include variable expenses, for example, accounting, depreciation, finance, office and truck expenses, Ms Curlewis’s wages and the legal costs, but does not include the Employee Benefit Expenses or Director’s Fees. 

● The calculation is to be an average of the 2014 and 2015 figures. 

● The loss is then the difference between those figures as an average compared with the 2016 figures. 

40      Therefore, the average for those two years is: 

41      The income for 2016 was $101,921.  The legal costs of $8,350 which were deducted need to be added back in.  Therefore, the income figure for 2016 to be used for the purpose of calculating the loss is $110,271.  The difference between the average of 2014 and 2015, and 2016 is $124,701.  This constitutes the loss suffered by the company as a result of the respondent’s breach. 

Costs

42      The applicant says that notwithstanding the provisions of s 27(1)(c) of the IR Act, it is appropriate to order that the respondent pay the applicant’s costs in the circumstances.  He refers to authorities for dealing with matters which are frivolous or vexatious as justifying such orders. 

43      The applicant says that the respondent originally sought documents for the purpose of dealing with the question of costs to demonstrate the applicant’s overheads and operating costs, despite those matters being set out in the applicant’s profit and loss statements.  However, at conciliation, the respondent’s solicitors said they no longer required such documents. 

44      The applicant asks that the Tribunal exercise its discretion and depart from what it describes as ‘the ordinary rule’, and require the respondent to pay the applicant’s legal costs in the proceedings. 

45      At the hearing, the applicant appeared to concede that the Tribunal cannot order the respondent to pay the applicant’s legal costs because of the provision of s 27(1)(c) of the IR Act.  However, he seeks an allowance for witness costs. 

46      According to s 43 of the OD Act, s 27 of the IR Act applies to the exercise of the jurisdiction of the Tribunal.  Section 27(1)(c) of the IR Act provides: 

Except as otherwise provided in this Act, the Commission may, in relation to any matter before it —

…

(c) order any party to the matter to pay to any other party such costs and expenses including expenses of witnesses as are specified in the order, but so that no costs shall be allowed for the services of any legal practitioner, or agent;

…

47      The applicant refers to the ‘ordinary rule’ in respect of costs.  However, the requirements of s 27(1)(c) do not constitute an ordinary rule such that the Tribunal can depart from it and exercise discretion to do otherwise.  The provisions of s 27(1)(c) are quite clear that the Commission may order costs and expenses but not the costs for the services of any legal practitioner or agent.  Therefore, there is no power for the Tribunal to make the order for legal costs sought by the applicant. 

48      As to witness costs, in Denise Brailey v Mendex Pty Ltd trading as Mair and Co Maylands (1993) 73 WAIG 27 the Full Bench noted that the Commission’s consideration of that issue arises under s 26 of the IR Act, meaning that equity, good conscience and the substantial merits of the case are to be considered.  It said ‘costs ought not to be awarded, except in extreme cases’.  The test in this jurisdiction is not one of frivolous or vexatious pursuit or defence of a claim. 

49      This is not a case that meets the ‘extreme’ case test but one which arose due to some confusion about the applicant’s calculation of loss and the applicant calling a witness to explain the calculation on which the claim was based. 

50      The application for costs must be dismissed. 

51      A minute of proposed order shall now issue.