Lefty's Excavator and Drott Hire Pty Ltd v Stratti and ors

APPELLANT Mr D H Murr SC with Mr J C Thompson Solicitors: Mr R Kent Norman Waterhouse, Lawyers LEGAL REPRESENTATIVES: RESPONDENTS Mr D J Higgs SC with Ms N Obrart Solicitors: Mr R A Dunbier R A Dunbier and Associates

JUDGMENT: - 1 - INDUSTRIAL RELATIONS COMMISSION OF NEW SOUTH WALES IN COURT SESSION CORAM: MARKS J BOLAND J STAFF J 17 December 2004

Matter No IRC 2142 of 2004 LEFTY'S EXCAVATOR AND DROTT HIRE PTY LTD v SAMUEL EDWARD STRATTI AND ORS Application by Lefty's Excavator and Drott Hire Pty Ltd for leave to appeal and appeal against judgments and final orders of Justice Schmidt given on 9.4.2003, 11.12.2003 and 17.3.2004 in matter no. IRC 2060 of 2000

1 These proceedings concern an application for leave to appeal and, if granted, an appeal from a number of judgments of Schmidt J delivered in proceedings brought under s 106 of the Industrial Relations Act 1996 ("the Act") by the applicant, Lefty's Excavator and Drott Hire Pty Ltd, against respondents Samuel Edward Stratti, Troy Kenneth Stratti, Stratti Ocean and Earthworks Pty Ltd and Detail Rock Tool Rentals, formerly Detail Rock Tools Pty Ltd. The applicant in those proceedings is the appellant in these proceedings and the respondents at first instance, with the exception of Stratti Ocean and Earthworks Pty Ltd, are the respondents to these proceedings. The respondents have also sought leave to cross-appeal against her Honour's judgments. The relevant judgments appealed against are: Lefty's Excavator and Drott Hire Pty Ltd v Samuel Edward Stratti & Ors [2003] NSWIRComm 106; Lefty's Excavator & Drott Hire Pty Ltd v Samuel Edward Stratti & Ors [2003] NSWIRComm 451; and, Lefty's Excavator & Drott Hire Pty Ltd v Samuel Edward Stratti and Ors [2004] NSWIRComm 45.

2 The proceedings have their genesis in two contracts. The first is a contract whereby Detail Rock Tool Rentals (the third respondent on appeal) sold an articulating hydraulic rock saw and excavator to the appellant for a total sale price of $230,000. That contract was made on 3 August 1998. There was contained within that contract a number of warranties made by the vendor, including a warranty that the purchaser would earn "$230,000 in gross fees in respect of the operation of the equipment [the excavator and rock saw] during the twelve-month period commencing on the date of this agreement". There was provision that if such fees were not earned upon the expiry of twelve months from the date of the Agreement the purchaser would have the right to return the rock saw and be paid the lesser of $150,000 or its then value. Interdependent with that agreement was a "works agreement" whereby a company entitled Stratti Ocean and Earthworks Pty Ltd (the fourth respondent at first instance) agreed "to the extent that it is able after having made all reasonable endeavours…(to) offer to the purchaser work sufficient to engage the Equipment [excavator and rock saw] for eight (8) hours per day for five (5) days per week" for a period of two years after the date of the agreement. The works agreement was also dated 3 August 1998.

3 Contained within the works agreement was reference to the fact that Stratti Ocean and Earthworks Pty Ltd had successfully tendered for parts of the Eastern Distributor and Airport Link construction projects as a sub-contractor and that it would appoint the appellant as one of its sub-contractors for those works.

4 The first and second respondents, Sam Stratti and Troy Stratti, are father and son and were directors of the corporate respondents and involved in the conduct of those businesses.

5 The directors of the appellant were Mr and Mrs Metaharis. Mr Lefty Metaharis was an experienced earth-moving equipment operator and his wife was concerned with the administration of the business.

6 From the outset there were difficulties between the appellant and the respondents: There was a delay in the delivery of the excavator and rock saw; the respondents failed to provide a bucket for which the appellant had paid $5,000; and, by January 1999 the respondents had failed to pay the appellant for work carried out using the excavator and rock saw by an amount exceeding $45,000. Furthermore, the appellant complained that it had anticipated that it would be provided with a substantial amount of excavation work using the rock saw equipment which would be carried out at $200 per hour. However, the respondents had not made that work available, at least to a substantial amount, and the appellant had been forced to carry out other excavation work using other equipment for which it was paid at the rate of $90 per hour.

7 In about March 1999 the appellant negotiated with the respondents to purchase additional equipment, being a hammer and a ripper, to be used with the excavator. The cost of that equipment was of the order of $45,600; being the amount then owed by the respondents to the appellant. The appellant needed this additional equipment because it was not being provided with sufficient rock saw work and this would enable it to undertake other types of excavation work. Because the hammer was to be delivered in about four weeks the respondents agreed to give the appellant use of a hammer until that equipment arrived. As it transpired the respondents never supplied the hammer which they had agreed to supply to discharge their indebtedness to the appellant, nor did the respondents ever pay to the appellant the amounts which they agreed were due and owing, namely the sum of $45,600.

8 From about January 1999 the appellant had looked elsewhere for excavation work for the use of the equipment which it had purchased from the respondents and thereafter declined to accept any excavation work from the respondents. At that stage the appellant regarded its obligations under the contractual arrangements with the respondents as being at an end because of the failure of the respondents to honour their contractual obligations.

9 Later in 1999 the appellant sought to negotiate the acquisition of an improved rock saw from the respondents, but those negotiations did not lead to any agreement. The appellant later arranged for the rock saw, which it had acquired from the respondent, to be modified, allegedly in breach of one of the conditions of use of the rock saw contained within the purchase agreement.

10 As at August 1999 the appellant was still complaining about the non-delivery of the hammer and was still being promised delivery. There was evidence that after the loan hammer failed the appellant asked a representative of the respondents to pick it up and take it away, but the respondents had not done so prior to the commencement of the proceedings before Schmidt J.

11 In the course of judgment delivered on 9 April 2003 Schmidt J found that the agreements were, or had become, unfair for a number of reasons. These included the breach by the respondents of their obligations to pay monies due and owing to the appellant for work performed and the failure to supply the hammer. Furthermore, her Honour found that the respondents, in allocating work to sub-contractors, had preferred to allocate that work in such a way that it favoured their own interests rather than the interests of sub-contractors, including the appellant.

12 There was a significant disagreement between the appellant and the respondents about what was meant by, and intended by, the sale agreement and the works agreement, both of which, as we have said, were said to be interdependent, where they referred to the nature and extent of the more lucrative rock saw work which would be made available to the appellant. Her Honour concluded that there was no guarantee that the appellant would be provided with rock saw work on an 8-hour/5-day-a-week basis over a period of 46 weeks in each of two years as the appellant claimed had been promised. Her Honour held, by reference to the provisions of the agreements and the evidence, that there was a general intention, at least on the part of the respondents, to provide 30 per cent rock saw work to be charged at $200 per hour and the remainder to be charged at $90 per hour. The appellant submitted that the agreement should be construed on the basis that the respondents were required to provide rock saw work on an 8-hour/5-day-a-week basis. Her Honour observed that the level of rock saw work made available by the respondents to the applicant consisted only of some 15 per cent of the total excavation work rather than the 30 per cent which she held had been in the contemplation of the respondents. In any event there was obvious tension between the appellant and the respondents about the failure of the respondents to make a sufficient amount of rock saw work available to the appellant. Her Honour held that the respondents had failed to make the reasonable endeavours required of them by the works agreement to provide rock saw work to the appellant and that this also constituted unfairness.

13 In her judgment of 9 April 2003 Schmidt J dealt with the modifications which the appellant had unlawfully made to the respondents' rock saw and the fact that in doing so the appellant had used another manufacturer who subsequently manufactured rock saws for sale in the marketplace in competition with the respondents. Her Honour held that this "was conduct properly to be taken into account in a determination of what relief, if any, should flow to the applicant in this case". Her Honour said, "I am not, however, satisfied that the conduct was such as to warrant any relief at all being refused, as a matter of the Court's discretion".

14 After finding that the agreements were unfair in the manner previously described, her Honour turned to deal with what "just compensation" should become payable under s 106(5) of the Act. Her Honour determined that compensation should be payable with respect to a number of items which were not contentious. These included the payment of the outstanding monies of $46,500 together with interest, payment of the sum of $5,000 paid for the supply of a bucket, which had never been supplied, together with interest.

15 Her Honour also dealt with the claim for compensation made by the appellant arising out of the failure by the respondents to provide adequate rock saw work. Having rejected the appellant's claim that the contracts should be construed so as to provide for a guaranteed minimum amount of work, her Honour determined that the matter should be approached on the basis that the appellant was entitled, at the least, to be provided with $230,000 worth of rock saw work in the first year, with credit to be given for any earnings of the appellant during that period but such credit not to include earnings referable to work performed outside the working hours contemplated by the works agreement. In this respect, her Honour found as follows: "[121] It seems to me that a just money order to reflect the respondents' failures to abide by the agreement they had reached in relation to the provision of rock saw work, is to require payment to the applicant of the difference between the earnings the applicant's work generated in the first 12 months of the parties' relationship, over 8 hours per day, performed either for the respondents or third parties, and the guaranteed $230,000 rock saw work. [122] While the evidence showed that Mr Metaharis regularly worked more than 8 hours per day, the Works agreement referred to 8 hours work being provided and the guarantee in the Purchase agreement, was based on 5 hours rock saw work. It would, in my view, accordingly be unjust to give the respondents the benefit of Mr Metaharis' work beyond 8 hours per day. This gross sum should then be calculated on a net basis, as proposed in the applicants' summons. Interest on that amount should flow from the date."

16 The appellant had claimed a monetary order extending over a two-year period. Her Honour declined to grant any monetary compensation with respect to the second period of one year for a number of reasons including the fact that the appellant had chosen not to return the rock saw at the end of the first year's guarantee period, the appellant had modified the rock saw and had in general terms undertaken its own business activities for other parties, and also because in the second year ending 30 June 2000 the appellant had earned $311,199 from the use of the excavator.

17 The parties were ordered to confer on the final orders which would reflect her Honour's reasons for judgment. They were unable to agree on the terms of the orders and Schmidt J delivered a second judgment on 11 December 2003 in which her Honour corrected some figures which had appeared in the earlier judgment and determined the basis upon which the monetary amount of compensation would be formulated, by reference to the "overtime" component. The parties were then directed to agree on further orders.

18 In a third judgment delivered on 17 March 2004 Schmidt J noted that the net amount due and payable as at the date of the first judgment was $48,088.40. The respondents had made an offer to settle the proceedings on 14 November 2001 upon payment of the sum of $50,000 together with costs as agreed or assessed and on the basis that the loan hammer would be returned. Because, ultimately, the appellant failed to recover an amount in excess of the $50,000 offered, her Honour ordered that the respondents were to bear the appellant's costs of the proceedings to 23 November 2001 but that thereafter each of the parties were to bear their own costs of the proceedings.

19 In calculating the monies which should become payable pursuant to her Honour's judgment, Schmidt J determined that the respondents should be allowed credit for the sum of $30 per hour for the use of the loan hammer by the appellant. It was agreed between the parties that the loan hammer had been used by the appellant for 385 hours and this constituted an allowance of $11,550.

20 Schmidt J had also declined to award any compensation in favour of the appellant with respect to monies expended by it in acquiring alternative and additional equipment for use with the excavator after it had severed its relationship with the respondents, including an allowance for depreciation on that equipment. The appellant had argued that it was forced to acquire this equipment in order to undertake other excavation work, presumably so as to mitigate its loss. Her Honour declined to award any compensation for this element having regard to "a proper balance between the parties' respective positions and conduct".

21 The grounds of appeal touched five distinct areas. The first related to the allowance by her Honour in favour of the respondents of the sum of $30 per hour (a total of $11,550) for the use of the loan hammer. The second was directed to her Honour's determination to provide monetary compensation over a period of the first year only (August 1998 to August 1999). The third was directed to the method of calculation adopted by her Honour in determining the "overtime component" and the overall amount of compensation to be awarded over the one-year period. The fourth concerned the rejection by her Honour of the claim for finance costs and depreciation; and the fifth related to the costs awarded.

22 With respect to the costs issue, this was not pursued by the appellant on the basis that it was a matter clearly within her Honour's discretion and that her Honour had not erred in the manner of the exercise of that discretion.

23 It is necessary to deal with the remaining grounds. It should first be observed that, under s 188 of the Act, a grant of leave is necessary before an appeal may be brought to this Court as currently constituted. The provisions of s 188 and the circumstances in which it will be applied were considered by a Full Bench of the Commission in Knowles v Anglican Church Property Trust (No 2) (1999) 95 IR 380. There is reference in Knowles to other authorities in this area. The respondents submitted strongly that there was no public interest involved in the proceedings or in the manner in which they were determined by her Honour. It was submitted furthermore that there were no substantial issues of principle or law involved, nor was there any wider implication for the jurisprudence of this Court.

24 We agree that the proceedings will not attract the grant of leave. We add for completeness that the same approach will apply to the application brought by the respondents by way of leave to cross-appeal. That cross-appeal was restricted in essence to the method of calculation of the extent of the underpayment and the costs order made by her Honour. These are directed to two of the grounds of appeal contained within the appellant's application for leave to appeal.

25 With respect to the second, third and fourth grounds we are of the opinion that there is no public interest in granting leave to appeal. Each of the matters were considered carefully by her Honour. Each of the orders made with respect to these matters did not disclose any error in the manner in which her Honour approached the difficult question of the formulation and awarding of just compensation, and no questions of principle or law arise.

26 This leaves for consideration the first ground of appeal, namely that relating to the offset of the hire charges for the loan hammer which her Honour imposed.

27 During the course of oral submissions Mr D H Murr SC, who, together with Mr J C Thompson of counsel, appeared for the appellant, utilised, by way of analogy, circumstances which often arise where agreement is reached to purchase a new motor vehicle and that motor vehicle is not readily available. The analogy upon which Mr Murr relied was circumstances where the dealer offered the purchaser a loan vehicle pending the delivery of the new vehicle. If the transaction ultimately fell through because the dealer was unable to procure the vehicle from the manufacturer then it would be unusual for the purchaser to be compelled to pay a fee for the hire of the vehicle, especially where no fee had been negotiated.

28 Mr Murr submitted that this was the situation which had occurred in the circumstances of these proceedings. That is, the respondents had agreed to provide the appellant with a loan hammer whilst the new hammer was being manufactured. There was never any suggestion at that, or any later stage, that the appellant would have to pay for the loan hammer. Indeed, as the evidence discloses, the appellant persisted with enquiries concerning the availability of the new hammer for many months but was fobbed off. All of this occurred against a background where the appellant had, in effect, already paid the purchase price for the hammer because the respondents had owed it the sum of $45,600 which had accumulated since August 1989 and had crystallized by January 1999 or, at the latest, March 1999. It was manifestly unfair, as her Honour had found, that the respondents had failed to pay the appellant monies properly due and owing to it, and it was additionally unfair that the respondents had failed to deliver the new hammer in breach of the subsequent agreement to do so in discharge of their indebtedness to the appellant.

29 In these circumstances is it unjust that the appellant should be compelled to make any allowance for hire of the loan hammer? Whilst it is arguable that such a result might be unjust as contended for by the appellant, it is clear that if the appellant had not availed itself of the loan of the hammer it would either have had to acquire a hammer or hire a hammer from another source. Accordingly, to accede to the submissions of the appellant would have given the appellant a bonus by way of free use of a hammer used for the purposes of the appellant's business (and returned to the respondents in a state of disrepair) plus full reimbursement of the cost of a new hammer. In these circumstances there was no error in the manner Schmidt J disposed of this question that would attract the grant of leave.

30 Schmidt J's order required the appellant to give the respondents credit for interest calculated under the Supreme Court Rules with respect to the charges for the hire of the loan hammer. The appellant consented to this interest being taken into account and her Honour's orders cannot be the subject of attack on this item.

31 For these reasons we are of the opinion that her Honour's discretion has not miscarried in any respect. There is no aspect of the proceedings or the judgments of Schmidt J which would justify the grant of leave to appeal. Leave to appeal is refused with respect to both appeals.

32 The appellant should pay the respondents costs of the appeal and the respondents should pay the appellant's costs of the cross appeal.

33 We make the following consequential orders: 1. Leave to appeal is refused on the appeal and cross appeal. 2. The appellant is to pay the respondents' costs of the appeal. The respondent is to pay the appellant's costs of the cross-appeal. 3. Costs are to be assessed in default of agreement.

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