Some Legal Lessons from the Riteway Case
2 September 2008
[Full judgment available here]
The case was the first action brought for unfair contracts relief under the Independent Contractors Act. As such, the judgment spends considerable time discussing the meaning of the unfair contract provisions of the Act, what powers the Court has, how these should be exercised and what “unfair” means. The comments in the judgment give guidance to possible future unfair contract applications. More importantly, perhaps, and from a practical perspective, the comments help anyone who wants to ensure that they have fair contracts in place. This is ICA’s greatest interest.
To follow, are some extracts from the judgment. Here we summarise the main relevant points.
When considering whether a contract is unfair under the Independent Contractors Act the court must:
- Pay attention to the timing of the original contract and the terms that were made at the time.
- Look at the facts brought before the court, judge the case on those facts and not use previous cases to prejudge the existing case.
- Consider the balance of advantage and disadvantage to each party in the contract.
- Consider unfairness on two possible grounds: the substance of the contract and the circumstances in which the contract was formed.
- Only make an order that fixes the unfairness.
Extracts from the judgment:
“…a determination of whether a contract is unfair or not will not turn on an analysis of decided cases but will be a matter of assessment of each case.” [78]
“…there must be a balance of advantage and disadvantage to each party to a contract, in which neither party is disproportionately advantaged or disadvantaged…” [78]
“Under the ICA [Independent Contractors Act], the assessment must be made as at the time the contract was made” [79]
“In the context of the ICA [Independent Contractors Act], the substantive issue is whether the contract is unfair or hash by its terms; the procedural issue is whether it is unfair or harsh because of the means by or circumstances in which agreement was reached.” [82]
“…consequently, under the ICA a contract may be found to be unfair or harsh for substantive reasons relating to its terms and it may also or alternatively be found to be unfair for procedural reasons relating to the circumstances in which it was formed.” [82]
The ICA makes it clear that, in setting an order, it
- “…should be limited to an order which addresses and remedies any unfairness or harshness which the Court finds and no more.” [92]
Summary of the unfairness test:
- Determined on examination of the facts.
- Examines the terms of the contract or circumstances surrounding it.
- Commonsense approach.
- Proper balance of advantage and disadvantage between the parties
- Judicial discretion re voiding or varying the contract.
- Order to vary only to the extent of rectification of the unfairness.
Once the Court had determined its powers and the basis upon which unfairness should be considered, consideration of the specific Riteway case occurred.
On the specifics of the Riteway case the judgment declared:
“Riteway’s power to require the applicants to upgrade to a different sort of vehicle or configuration had the potential to be abused. Riteway’s requirements’ from time to time’ could be manipulated to disadvantage the applicants unless they had the ability to protect themselves…” [102]
On the contract:
“…whether it was unfair in the first place because of the power over the applicants which it gave to Riteway…In my judgment it was” [103 104]”this was not fair as, in my judgment ….it did not represent a proper balance of advantage and disadvantage between the parties.” [104]”…the Riteway-TWU agreement permitted Riteway….to manipulate the applicants into severing their relationship with it.” [105]
Other grounds on which the applicants applied for a finding of unfairness but which were found not to be relevant included:
- Lack of written contract.
- Lack of arbitration procedure.
- Lack of requirement for good faith bargaining.
- Potential to be paid less than employees.
- Undue influence and pressure was not supported by evidence.
The Final Decision
- “I have concluded that the contracts were unfair because they permitted Riteway to require the applicants to renew their vehicles with replacements which were materially different from the vehicles which had previously been acceptable, and did not require Riteway to make a commensurate increase in payments to the applicants such that the necessary additional expenses would be offset by such increased payments. ..With this in mind I conclude that clause 5 of the Riteway-TWU agreement should be varied in each of the applicants’ contracts so that Riteway’s power to require the applicants to replace their vehicles is limited to a power to require replacement of like with like.” [138]