Truckies win damages in key contractors ruling.

08 July 2010 11:06am

Three truck drivers who secured variations to their contracts in the first Independent Contractors Act ruling have won a combined $100,000 in damages, in a ruling that clarifies the broad nature of the Federal Magistrates Court's jurisdiction to deal with such claims.

The decision follows a mid-2008 finding that clauses requiring the owner-drivers to make substantial upgrades to the trucks they drove under contract for principal Riteway Transport Pty Ltd were unfair (see Related Article).

The drivers obtained court orders varying their contracts to curtail Riteway's power to demand the upgrades, but were required to make further submissions on the damages they argued should flow from the unfair clauses.

Riteway raised two threshold objections to the drivers' bid for damages: first, that in this case the Federal Magistrates Court lacked the jurisdiction to order it to pay damages; and second, that it could not have breached the contract because it did not exist in its varied form at the time the breach occurred.

Damages claim within accrued and associated jurisdiction

On the jurisdictional point, Riteway argued neither the Act nor the common law allowed the court to deal with the damages issue.

The Act empowers the court to cancel or vary part of a contract that it finds is unfair, but does not imbue it with the jurisdiction to award damages or compensation to the affected independent contractor or contractors.

Riteway maintained that the damages claim also failed to fall within the court's accrued and associated jurisdictions.

Federal Magistrate Robert Cameron rejected the principal's argument on accrued jurisdiction, instead finding that the damages claim flowed from the same "factual substratum" as the other aspects of the matter.

"A claim for unfairness in a contract which all parties acknowledged was about to come to an end, by whatever mechanism and at whoever’s instigation, must almost inevitably raise the prospect of a claim for damages, whether well-founded or not," he said.

He said the same set of facts that led the court to conclude that the contracts were unfair were also central to the question of whether Riteway had breached the contracts in a way that gave rise to damages.

"Not only do Riteway’s arguments fail to acknowledge the factual commonality of the ICA and the damages claims but, if accepted, would necessitate the institution of separate proceedings to deal with the damages claims which would only delay the final determination of the dispute between the parties and duplicate costs," he said.

Justice Cameron continued that the drivers' damages claim also fell within the court's associated jurisdiction in that it was a "federal matter" within s18 of the Federal Magistrates Act.

While the Act did not establish an express right to claim damages, the contracts in their varied form – the form that had been breached – only existed because of orders the court had made under the Act.

"Consequently, all rights arising out of the varied contracts are federal in character," he said.

That fact, combined with the finding that the unfair contract and damages issues stemmed from a common set of facts, meant that the court's associated jurisdiction was engaged, he said.

"The damages claims are intimately related to the claims of unfairness made under the ICA and to the orders made by the Court in determining those claims.The claims for damages flow directly from the orders varying the contracts and are based on the terms of the contracts in their varied form," he said.

Retrospective claim is valid

Riteway also failed in its argument that awarding the drivers damages would involve making a retrospective finding that it had breached the contracts, which the law did not permit.

Federal Magistrate Cameron acknowledged that when Riteway required the drivers to comply with the truck upgrade clauses and later terminated the contracts after they failed to make the upgrades, the court had yet to hear the case or determine that the contacts were unfair.

In an earlier stage of the proceedings he had found that the Act provided the court with the power to vary unfair contracts even after they had been terminated.

Federal Magistrate Cameron said that the extension of that finding was that such a variation created an enforceable right to sue for damages if it had been breached by the past conduct of one of the parties to it.

"The argument that Riteway could not, in reality, have complied with the contracts because, at the relevant time, they did not exist in their varied form distracts attention from the matters in issue in this final stage of the proceedings: whether, in all the circumstances, Riteway’s conduct amounted to a breach of the contracts and, if so, whether damages should be awarded," he said.

Another issue was whether the drivers could bring the claim because when they commenced the proceedings - before the contracts were varied - the claim for damages did not exist.

However, Riteway could not rely on that argument because it had consented to orders permitting the drivers to amend their applications to set out the breaches alleged and the remedies sought, he said.

"It must be concluded that although the causes of action now alleged in these proceedings were not in existence when the proceedings were commenced, no barrier to the applicants’ reliance on them exists on this account," he said.

Damages awarded for notice and goodwill

Having rejected Riteway's threshold objections, Federal Magistrate Cameron continued to determine whether it had breached the contracts and, if it had, the damages it should pay as a result.

Riteway in mid-2007 had written to the drivers indicating that it in its view the the drivers had terminated the contracts due to their failure to upgrade their trucks – the requirement the court had later deemed unfair, and varied.

Federal Magistrate Cameron found the principal's statement in the letters – and consequent failure to provide them with work – amounted to a wrongful repudiation of the contracts.

The drivers argued they were entitled to the damages flowing from Riteway's failure to afford them reasonable notice before terminating the contracts and for the loss of a $20,000 goodwill payment they otherwise would have been entitled to under the contract.

Federal Magistrate Cameron in determining reasonable notice looked primarily to the cases on commercial contracts, but said that the because the relationship between Riteway and the drivers in some respects resembled employment, the factors relevant to reasonable notice in that context were also relevant.

Taking into account all of these considerations, the drivers were entitled to three months' notice of termination, he found. They were therefore entitled to damages equal to the net income they had lost for the period, which he calculated at $10,800, $9,000 and $18,000 for the respective drivers.

The drivers were also each entitled to an additional $20,000 in damages to make up for losing a payment they were each entitled to under their contracts, representing the value of the goodwill.

Federal Magistrate Cameron on that basis ordered Riteway to pay the drivers a total $30,800 plus interest of $8,272.12; $29,000 plus interest of $7,788.68; $38,000 plus interest of $10,205.87 respectively.