Agreements for the sale of ‘vehicles with work’: a cautionary tale for purchasers and vendors

A recent case before the New South Wales Court of Appeal illustrates the possible pitfalls when entering into an agreement for the sale of a ‘vehicle with work’.

What issues need to be considered when drafting an agreement for the sale of a ‘vehicle with work’?

Agreements for the sale of ‘vehicles with work’ need to be carefully drafted. Consideration must be given to a multitude of issues including:

• Is any term of the agreement ‘unfair’ or ‘harsh’ under the Independent Contractors Act 2006 (Cth) or the unfair contract provisions of the Australian Consumer Law?
• Is the purchaser engaged as a genuine independent contractor or is the arrangement a sham?
• Has the vendor made any representations that are potentially misleading or deceptive?
• Is the vendor guaranteeing the availability or volume of work?
• Does the agreement involve the hire of the vehicle and, if so, have PPS issues been considered?
• Is the purchaser covered by state owner driver legislation? The owner driver legislation in some states restricts the vendor’s ability to make deductions (including for equipment hire charges) from amounts due to the owner driver.

What happened in B & R Stevens Transport Pty Ltd v Burkitt [2016] NSWCA 259?

Mr Burkitt drove a truck for his own company, Cement Express. Cement Express had hauled products for Independent Cement & Lime since around 2000. Cement Express was subcontracted other hauliers to do the same work.

Cement Express wished to sell a prime mover and Stevens Transport wished to purchase it. After oral negotiations, the parties reached agreement in April 2009. There was no deposit and no formal contract for sale was signed.

By letter dated 2 April 2009, Cement Express confirmed the offer in the following terms:

This letter is to confirm an offer to yourself to purchase a 2008 K108 Kenworth Prime Mover and job from [Cement Express] and to tow a company owned fully maintained bulk pressure tanker hauling for [Cement Express] on a full time basis. As you would be aware [Cement Express] are unable to guarantee your business because we are governed by market demand. Our full intention is to support you whilst Independent Cement & Lime are supporting us and have been doing so for the last ten years …

Stevens Transport paid $350,000 to Cement Express in June 2009. Stevens Transport then began using the prime mover to haul cement for Cement Express in July 2009.

Sometime in 2011, Independent Cement & Lime notified Cement Express that it would not be renewing its existing contract with Cement Express and that the contract would cease on the last day of February 2012. On the same day, Cement Express wrote to all of its subcontractors advising them of Independent Cement & Lime’s decision.

In February 2012, Stevens Transport issued invoices to Cement Express for about $50,000, said to be short paid under previous invoices issued between July 2009 and August 2010.

Stevens Transport brought proceedings against Mr Burkitt and Cement Express in the New South Wales District Court seeking damages for breach of contract in the amount of $110,000 and $50,000 in short paid invoices.

Stevens Transport contended that the purchase price was $350,000, comprising $240,000 for the prime mover and $110,000 for goodwill. Stevens Transport argued that had not received what it bargained for, in that it had received a truck but no other business rights, contrary to references in some of the documents and discussions to the sale including ‘goodwill’.

Mr Burkitt contended that the price was $400,000 for the truck ‘with work’, and with no component for goodwill. He asserted there was a side-deal for deductions of approximately $2,000 a fortnight to be made from payments otherwise due to Stevens Transport for haulage services.

The New South Wales District Court agreed with Mr Burkitt, finding that the term of the contract was $400,000 for a ‘vehicle with work’ and that there was no component for goodwill. The District Court described the side-deal as effectively an interest free loan to Stevens Transport, which was only able to obtain finance for $350,000.

Stevens Transport appealed to the Court of Appeal, which ultimately upheld the District Court’s decision.

Lessons to be learned

The protracted and expensive litigation that eventuated between Stevens Transport and Cement Express may have been avoided if the parties had documented their agreement and clearly set out what rights and assets were being transferred and how the purchase price was to be apportioned.

If you would like assistance in drafting vehicle sale or hire agreements, please contact Gillian Bristow on +61 7 3231 2925.