NEW ZEALAND STEEL LIMITED V NATIONAL DISTRIBUTION UNION INCORPORATED AND ORS HC AK CIV 2009-404-6090

NEW ZEALAND STEEL LIMITED V NATIONAL DISTRIBUTION UNION INCORPORATED AND ORS HC AK CIV 2009-404-6090 11 May 2010IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY CIV 2009-404-6090UNDER the Commerce Act 1986 BETWEEN NEW ZEALAND STEEL LIMITED Plaintiff AND NATIONAL DISTRIBUTION UNION INCORPORATED First Defendant AND THE NEW ZEALAND AMALGAMATED ENGINEERING PRINTING & MANUFACTURING UNION INCORPORATED Second Defendant AND AMALGAMATED WORKERS UNION NEW ZEALAND INCORPORATED Third Defendant AND NEW ZEALAND BUILDING TRADES UNION INCORPORATED Fourth Defendant AND LYALL FRANCIS JOHN KENDRICK, MARK PALMER, ANDREW THOMAS GILLARD, SHANE DOUGLAS EASON AND BRIAN MAXWELL JOLLEY Fifth Defendants Hearing: 4 December 2009 Counsel: P G Skelton and and S L Robertson for the plaintiff D Goddard QC and J E Standage for the defendants Judgment: 11 May 2010 at 10.30 a.m.JUDGMENT OF POTTER J on strike out application by first, second and fourth defendantsIn accordance with r 11.5 High Court Rules I direct the Registrar to endorse this judgment with a delivery time of 10.30 a.m. on 11 May 2010. Solicitors: Russell McVeagh, P O Box 8, Auckland Copy to: P G Skelton, P O Box 4314, Shortland Street, Auckland D Goddard QC, P O Box 1530, Wellington G Lloyd, EPMU, P O Box 14277, Kilbirnie, WellingtonTABLE OF CONTENTSIntroduction [1] Strike out application [7] Notice of opposition [8] Strike out principles [9] Pleadings [12] Issues [23] Commerce Act: Relevant provisions [24] Section 2: Definition of "Services"Submissions [37]Discussion [45] Section 44(1)(f) [52]Submissions [53]Discussion [68] Causes of action pleaded in the amended statement of claim [71] First cause of action: contravention of s 29 Commerce Act – exclusionary provisions prohibited [72]Submissions [76]Discussion [78] Second cause of action: contravention of s 27 via s 30 – price fixing [89] Third cause of action: contravention of s 27(1) and/or s 27(2) [98]The market [101]"Substantially lessening competition" [109] Fourth cause of action: claims against first to fourth defendants – accessory liability [120] Result [121] Costs [122] Timetable order [123] Schedules 1 and 2Introduction[1] The plaintiff, New Zealand Steel Limited, is an employer under a Collective Employment Agreement ("Collective Agreement") with the defendant unions. The fifth defendants are representative defendants on behalf of the employees of New Zealand Steel covered by the Collective Agreement who are deemed by s 2(8) of the Commerce Act 1986 ("the Act") to have entered into the Collective Agreement ("CA Employees"). The Collective Agreement is effective from 1 June 2008 to 31 May 2011. [2] New Zealand Steel claims it is required to pay the CA Employees above market rates under the Collective Agreement and wishes to employ "bulk contract labour services" as defined in the amended statement of claim to substitute for the performance of some work by the CA Employees under the Collective Agreement. But it is restricted or limited by exclusionary provisions of the Collective Agreement which are set out in schedules 1 and 2 to the Collective Agreement (attached to this judgment as schedules 1 and 2). [3] The exclusionary provisions (also referred to in this judgment as "the challenged provisions"): a) Specify the circumstances in which New Zealand Steel may use contractors to supplement the workforce employed at New Zealand Steel sites ("the contractor use provisions"); and b) Provide for "pay equalisation" for certain employees of contractors at New Zealand Steel sites, i.e. they require certain employees of contractors working on the sites to be paid comparable wages and allowances as if they were employees under the Collective Agreement performing the same work ("the pay equalisation provisions"). [4] In these proceedings New Zealand Steel challenges the exclusionary provisions as being in contravention of s 29, s 27 (via s 30) and s 27 of the Act. Inits amended statement of claim the plaintiff seeks declarations that the exclusionary provisions are unenforceable and also seeks permanent injunctive relief against the defendants under s 81 of the Act. [5] The first, second and fourth defendants ("the applicants") have applied to strike out New Zealand Steel's amended statement of claim in its entirety on the basis that it discloses no reasonable cause of action. New Zealand Steel opposes the strike out application. [6] It is not in dispute that the issues raised in this proceeding as to the alleged illegality and unenforceability of the exclusionary provisions were not raised by New Zealand Steel, or anyone else, at the time the Collective Agreement was negotiated and entered into. Clause 15.1.2 of the Collective Agreement states New Zealand Steel's "firm intention" to have available a domestic workforce to carry out routine tasks including maintenance tasks, on its sites.Strike out application[7] The applicants seek that the plaintiff's amended statement of claim be struck out upon the following grounds: a) The Act does not apply to performance of work by employees because an employee under a contract of service is not providing "services" to the applicants; b) By virtue of s 44(1)(f) and (i) of the Act, Part 2 of the Act (which includes ss 27, 29 and 30) does not apply to the exclusionary provisions because they do not relate to the remuneration and conditions of the employment of the employees; c) The exclusionary provisions are not exclusionary provisions for the purposes of s 29; d) Section 30 does not apply to the pay equalisation provisions;e) Section 27 does not apply to the exclusionary provisions; f) The amended statement of claim does not properly plead any relevant market for services in which it is alleged that competition is lessened for the purposes of s 27 of the Act.Notice of opposition[8] The plaintiff's notice of opposition directly opposes each of the grounds in the strike out application. In relation to ground f) the plaintiff says that matters of pleading are not matters that should cause New Zealand Steel's claim to be struck out. Generally, the plaintiff says that its claim is not frivolous and vexatious, but arguable or strongly arguable.Strike out principles[9] Rule 15.1(1) of the High Court Rules provides for the Court to order the whole or any part of a statement of claim to be struck out where it discloses no reasonably arguable cause of action; is likely to cause prejudice or delay; is frivolous or vexatious; or is otherwise an abuse of the process of the Court. The criteria for striking out are well established: Attorney-General v Prince & Gardner: 1a) Pleaded facts, whether or not admitted, are assumed to be true; b) The cause of action must be clearly untenable, i.e. it cannot succeed; c) The jurisdiction is to be exercised sparingly, and only in clear cases; d) The jurisdiction is not excluded by the need to decide difficult questions of law, requiring extensive argument;1 Attorney-General v Prince & Gardner [1998] 1 NZLR 262 (CA).e) The Court should be particularly slow to strike out a claim in any developing area of law; f) Defendants should not be subjected to substantial costs, often only partially recoverable, in defending untenable claims: Attorney- General v Body Corporate 2002002 ("Sacremento"). [10] While these principles are not in dispute, the plaintiff also referred to the note of caution by Williams J in Commerce Commission v British American Tobacco Holdings (New Zealand) Limited:3Courts should be more than usually cautious in striking out claims under the Commerce Act 1986 because of the elusive nature of some of the concepts involved and the multitude of transactions against which they are often to be measured.[11] However, counsel for the plaintiff accepted in the course of oral submissions, that the jurisdictional matters raised by the applicants' strike out application are threshold issues.Pleadings[12] The amended statement of claim was filed on 2 November 2009 following the first of the two strike out applications filed by the applicants. The applicants filed an amended strike out application in response to the amended statement of claim. The facts pleaded in the amended statement of claim must be taken to be capable of proof at trial for the purposes of the strike out application. [13] The amended statement of claim describes the parties and pleads the Collective Agreement. [14] At paragraph 17 "bulk contract labour services" are defined as comprising the provision of the services of a significant number of skilled and unskilled contract2 Attorney-General v Body Corporate 200200 [2007] 1 NZLR 95 (CA) at [51].3 Commerce Commission v British American Tobacco Holdings (New Zealand) Ltd (2001) 10 TCLR 320 (HC) at [39].workers according to the requirements of the purchaser in any given transaction. [15] It is then pleaded that the plaintiff acquires bulk contract labour services for a number of tasks. Four entities are named from which bulk contract labour services are supplied to the plaintiff, all of which are said to operate out of a local base in the Franklin District. [16] At paragraph 22 it is pleaded that there is a market for the supply of bulk contract labour services to businesses located in the Franklin District ("Franklin bulk contract labour market"). Alternatively, it is pleaded at paragraph 23 that there is a "Southwest Auckland bulk contract labour market" for the supply of bulk contract labour services to businesses in the Franklin, Papakura and Manurewa districts. [17] It is pleaded that the performance of work by contractors pursuant to a contract for bulk contract labour services is substitutable for the performance of work by the CA Employees pursuant to the Collective Agreement, in relation to capital works, specialist services or peak work loads at New Zealand Steel sites. [18] It is then pleaded at paragraph 25 that the provisions of s 15 of the Collective Agreement (the contractor use provisions, as set out in schedule 1), and clause 4.2 of the Preferred Contractors Supplementary Agreement dated 2 February 1996 ("the PCSA") (the pay equalisation provisions, as set out in schedule 2), have the effect or purpose of preventing, restricting or limiting the acquisition of bulk contract labour services by New Zealand Steel. [19] Paragraph 28 pleads that "but for" the exclusionary provisions the plaintiff would acquire or would have the ability to acquire contract labour to perform tasks in addition to capital works or specialist services, outside peak work load and at a competitive price. [20] It is pleaded at paragraph 29 that the contractors pursuant to a contract for bulk labour services would perform work substitutable for the performance of work by the CA Employees pursuant to the Collective Agreement, and at paragraph 30, that:... some or all of the CA Employees (acting either individually or as a group) would be or would be likely to be in competition with suppliers of bulk contract labour services in relation to the provision of those services.Further, at paragraph 31, that some current CA Employees would be, or would be likely to be, in competition with other CA Employees in relation to the provision of those services. [21] Four causes of action are pleaded, being contravention of s 29, s 27 (via s 30) (in relation to the pay equalisation provisions) and s 27(1) and/or s 27(2). The claim for relief in each case is a declaration that the exclusionary provisions/pay equalisation provisions are unenforceable, and a permanent injunction restraining the defendants from giving effect to the exclusionary provisions/pay equalisation provisions or engaging in conduct in contravention of Part 2 of the Act. An order is sought in each case varying the Collective Agreement by deleting the exclusionary provisions. These causes of action are considered in more detail later in this judgment. [22] The fourth cause of action pleads accessory liability on the part of the first to fourth defendants as agents for their respective members who are employed by the plaintiff.Issues[23] The strike out action raises the following issues: a) Is it reasonably arguable that notwithstanding the CA Employees are employed under a contract of service, the definition of "services" in s 2 of the Act does not exclude the plaintiff's challenge to the exclusionary provisions? b) Is it reasonably arguable that s 44(1)(f) of the Act (which excepts from the application of Part 2 of the Act certain contractual provisions relating to employees) does not exclude the plaintiff's challenge to the exclusionary provisions?c) In relation to the first cause of action, is it reasonably arguable that the exclusionary provisions are exclusionary provisions under s 29 of the Act? d) In relation to the second cause of action, is it reasonably arguable that s 30 applies to the pay equalisation provisions? e) In relation to the third cause of action, is it reasonably arguable that s 27 applies to the exclusionary provisions?Commerce Act: Relevant provisions[24] The purpose of the Act is stated in s 1A:The purpose of this Act is to promote competition in markets for the long- term benefit of consumers within New Zealand.[25] Competition means workable or effective competition: s 3(1). [26] The term market is defined in s 3(1A):...the term market is a reference to a market in New Zealand for goods or services as well as other goods or services that, as a matter of fact and commercial common sense, are substitutable for them.[27] Services are defined in s 2:Services includes any rights (including rights in relation to, and interests in, real or personal property), benefits, privileges, or facilities that are or are to be provided, granted, or conferred in trade; and, without limiting the generality of the foregoing, also includes the rights, benefits, privileges, or facilities that are or are to be provided, granted, or conferred under any of the following classes of contract: (a) a contract for, or in relation to,- (i) the performance of work (including work of a professional nature), whether with or without the supply of goods; or (ii) the provision of, or the use or enjoyment of facilities for, accommodation, amusement, the care of persons or animals or things, entertainment, instruction, parking, or recreation; or(iii) the conferring of rights, benefits, or privileges for which remuneration is payable in the form of a royalty, tribute, levy, or similar exaction; (iv) to avoid doubt, the supply of electricity, gas, telecommunications, or water, or the removal of waste water: (b) a contract of insurance, including life assurance, and life reassurance: (c) a contract between a bank and a customer of a bank: (d) any contract for or in relation to the lending of money or granting of credit, or the making of arrangements for the lending of money or granting of credit, or the buying or discounting of a credit instrument, or the acceptance of deposits:- but does not include rights or benefits in the form of the supply of goods or the performance of work under a contract of service.[28] Part 2 relates to Restrictive trade practices. Sections 27 and 29 appear in Part 2 under the heading Practices substantially lessening competition. [29] Section 27 provides:Contracts, arrangements, or understandings substantially lessening competition prohibited(1) No person shall enter into a contract or arrangement, or arrive at an understanding, containing a provision that has the purpose, or has or is likely to have the effect, of substantially lessening competition in a market. (2) No person shall give effect to a provision of a contract, arrangement, or understanding that has the purpose, or has or is likely to have the effect, of substantially lessening competition in a market. (3) Subsection (2) applies in respect of a contract or arrangement entered into, or an understanding arrived at, whether before or after the commencement of this Act. (4) No provision of a contract, whether made before or after the commencement of this Act, that has the purpose, or has or is likely to have the effect, of substantially lessening competition in a market is enforceable.[30] Section 29 provides:Contracts, arrangements, or understandings containing exclusionary provisions prohibited(1) Subject to subsection (1A), for the purposes of this Act, a provision of a contract, arrangement, or understanding is an exclusionary provision if – (a) it is a provision of a contract or arrangement entered into, or understanding arrived at, between persons of whom any 2 or more are in competition with each other; and (b) it has the purpose of preventing, restricting, or limiting the supply of goods or services to, or the acquisition of goods or services from, any particular person or class of persons, either generally or in particular circumstances or on particular conditions, by all or any of the parties to the contract, arrangement, or understanding, or if a party is a body corporate, by a body corporate that is interconnected with that party; and (c) the particular person or the class of persons to which the provision relates is in competition with 1 or more of the parties to the contract, arrangement or understanding in relation to the supply or acquisition of those goods or services. (1A) A provision of a contract, an arrangement, or an understanding that would, but for this subsection, be an exclusionary provision under subsection (1) is not an exclusionary provision if it is proved that the provision does not have the purpose, or does not have or is not likely to have the effect, of substantially lessening competition in a market. (2) For the purposes of subsection (1)(a) and (c), a person is in competition with another person if that person or any interconnected body corporate is, or is likely to be, but for the relevant provision, would be or would be likely to be, in competition with the other person, or with an interconnected body corporate, in relation to the supply or acquisition of all or any of the goods or services to which that relevant provision relates. (3) No person shall enter into a contract, or arrangement, or arrive at an understanding, that contains an exclusionary provision. (4) No person shall give effect to an exclusionary provision of a contract, arrangement, or understanding. (5) Subsection (4) applies to an exclusionary provision of a contract or arrangement made, or understanding arrived at, whether before or after the commencement of this Act.(6) No exclusionary provision of a contract, whether made before or after the commencement of this Act, is enforceable.[31] Section 30 appears in Part 2 under the heading Price fixing:Certain provisions of contracts, etc, with respect to prices deemed to substantially lessen competition(1) Without limiting the generality of section 27, a provision of a contract, arrangement, or understanding shall be deemed for the purposes of that section to have the purpose, or to have or to be likely to have the effect, of substantially lessening competition in a market if the provision has the purpose, or has or is likely to have the effect of fixing, controlling, or maintaining, or providing for the fixing, controlling, or maintaining, of the price for goods and services, or any discount, allowance, rebate, or credit in relation to goods or services, that are – (a) supplied or acquired by the parties to the contract, arrangement, or understanding, or by any of them, or by any bodies corporate that are interconnected with any of them, in competition with each other; or (b) resupplied by persons to whom the goods are supplied by the parties to the contract, arrangement, or understanding, or by any of them, or by any bodies corporate that are interconnected with any of them in competition with each other. (2) The reference in subsection (1)(a) to the supply or acquisition of goods or services by persons in competition with each other includes a reference to the supply or acquisition of goods or services by persons who, but for a provision of any contract, arrangement, or understanding would be, or would be likely to be, in competition with each other in relation to the supply or acquisition of the goods or services.[32] Section 44 sets out exceptions to Part 2 of the Act. Most are not relevant to this case. For example, subs (1)(a) provides an exception for partnerships. Subsections (1)(c) and (d) provide exceptions for restraint of trade provisions. Subsection (1)(e) provides an exception for provisions obligating compliance with standards issued by the Standards Association. [33] Section 44(1)(f) is relevant in this case. It provides that nothing in Part 2 applies:(f) To the entering into of a contract, or arrangement, or arriving at an understanding in so far as it contains a provision that relates to theremuneration, conditions of employment, hours of work, or working conditions of employees.[34] Subsection (1)(i) provides that Part 2 shall not apply to any act done to give effect to a provision of a contract, arrangement, or understanding, or to a covenant referred to the preceding paragraphs of the subsection. [35] Part 6 provides for enforcement, remedies and appeals. New Zealand Steel relies on s 81 which empowers the Court to grant an injunction on the application of the Commerce Commission or any other person. [36] Section 89(2) empowers the Court to make orders varying or cancelling a contract entered into in contravention of the Act.Section 2: Definition of "services"Submissions[37] The applicants say that this is not a Commerce Act case. They say the plaintiff's pleadings are flawed in two fundamental respects: first, under the definition of "services" in s 2 and secondly under s 44(1)(f), and that the correct application of either of these provisions takes this case outside the Act. I shall consider the competing arguments in respect of each of these two provisions. [38] The definition of "services" is set out in [27] above. Under s 2 "services" includes a contract for the performance of work, whether with or without the supply of goods, but by virtue of an exception at the end of the definition, does not include the performance of work under a contract of service. [39] A contract for services and a contract of service are not defined in s 2. However, Gault on Commercial Law4 states:The definition of "services" in s 2(1) Commerce Act includes work done under a contract for services, but not the performance of work under a4 Thomas Gault (ed) Gault on Commercial Law (looseleaf ed, Brookers) at [CA2.26.02].contract of service. The Act therefore regulates markets for the services of independent contractors, but not markets for employment services. However, the Act's regulation of the services of independent contractors is limited by ss 44(1)(e), (f) and (i) (see CA44.04).[40] Of the corresponding provision in the Australian Trade Practices Act 1974Miller's Annotated Trade Practices Act5 states:The definition specifically excludes the performance of work under a contract of service, in order to ensure that the Act does not intrude into employer/employee relationships.[41] The applicants contend that the exclusion of the performance of work under a contract of service from the definition of "services" excludes from the scope of the Act the performance of work by employees and thus, in this case, by the CA Employees under the Collective Agreement. They say the Act is not intended to promote competition between employees; that this is outside the purpose and scope of the Act which is concerned with competition in markets in New Zealand. They say the exclusion of contracts of service from the definition of services, ensures that employees are able to engage in collective bargaining without being in breach of the Act. [42] New Zealand Steel does not dispute that services exchanged under employment contracts are not "services" in terms of the Act, but says that performance of work or labour under contracting relationships is clearly intended to be included within the definition, being labour provided under "a contract for ... the performance of work". [43] New Zealand Steel submits that it cannot be correct that any anti-competitive term contained in an employment agreement cannot be challenged under the Act, simply because the relevant employees are not supplying a service within the definition of "services". [44] Mr Skelton, counsel for New Zealand Steel, referred to s 54(1)(b) of the Employment Relations Act 2000 which requires that a collective agreement "... must5 Russell Miller Miller's Annotated Trade Practices Act (31st ed, Law Book Co, 2010) at [1.4.115].not contain anything – (i) contrary to law". He submitted that if the exclusionary provisions are in breach of the Act they are void and unenforceable and the fact that New Zealand Steel is a party to the Collective Agreement cannot make them lawful.Discussion[45] The Collective Agreement is made between New Zealand Steel and five Unions, four of which are named as defendants. The applicants view the issue in terms of the CA Employees' performance of work under the Collective Agreement which would be excluded from the application of Part 2 of the Act by the definition of "services". [46] New Zealand Steel seeks to apply the definition of "services" to the independent contractors who are the subject of the exclusionary provisions. It says that but for these provisions, there is a real possibility that independent contractors would enter the market for the provision of labour to New Zealand Steel. [47] There is little assistance available from decided cases. However, in Decision 580, New Zealand Rugby Football Union Inc,6 the Commerce Commission considered the NZRFU's application under the Act for authorisation to enter certain arrangements in relation to its National Provincial Championship ("NPC") of a kind prohibited by s 27 (directly and via s 30), and s 29 of the Act. The Commission discussed the definitions of "market" and "services":7A "market", as this term is used in the Act, can only be for "goods" or "services", as these terms are used in the Act. Applying the Commerce Act definition of "services":• rugby played by employees is not a "service";• rugby played by independent contractors is a "service"; and• rugby played by "volunteers" who receive no payment or remuneration other than for expenses might be a "service" in particular circumstances.6 New Zealand Rugby Football Union Inc Commerce Commission Decision 580 (2 June 2006).7 At [38].[48] The Commission held:839. For rugby playing to be a "service: within the meaning of the Act (and therefore to be analysed under Part II), then there must be some rugby players who are independent contractors or volunteers. The Commission considers that:• there are clearly some NPC rugby players who will play in the MD1 [Lower Division] (in the counterfactual) and who will be volunteers;• there is a real possibility that there are NPC rugby players who will be playing in the MD1 and who would be independent contractors (but for the Proposed Arrangements); and• there is a real possibility that players might be engaged by the PD [Premier Division] unions as independent contractors using the independent contracting procedure in clause 4.2 of the CEA. 40. The Commission cannot rule out the possibility that some players might now, or at some point in the future, be employed as independent contractors, who are providing "services" in terms of the Act. 41. The Commission is therefore satisfied that there will likely be "services" (in the sense intended by the Act) provided by some NPC players (whether playing for PD or MD1 teams). These services will be provided within one or more markets for the purposes of the Act.[49] The Commission analysed: 9As stated in the jurisdiction section, the rugby played by employee players would not comprise "services" and would therefore not form part of any relevant "market". Attention in this section was therefore restricted to the effect on a market for (and services provided by) non-employee players.[50] New Zealand Steel submits that likewise, but for the restrictions imposed by the exclusionary provisions, New Zealand Steel would increase its use of contract labour beyond the areas permitted by the contractor use provisions (peak work loads, capital works, special services, and agreed work currently carried out by contractors) and there would be a valid "market" for such services. If that were to occur, New Zealand Steel posits that groups of employees may choose to tender as independent contractors to provide bulk contract labour services in the market for those services.8 At [39]-[41]9 At [44].[51] I consider such an argument is not clearly untenable. There must also be a reasonable argument that employees (who by definition are not supplying "services"), cannot through the medium of an employment contract effectively limit and restrict independent contractors from supplying services to the employer under contracts for the provision of work or labour. Put another way, it cannot be correct that any anti-competitive term within an employment agreement cannot be challenged because the employees who are parties to that agreement are not supplying "services" under the Act. The answer to Issue a) is therefore "yes".Section 44(1)(f)[52] This provision is set out at [33] above. It is included in s 44 which creates exceptions to the restrictive trade practices provisions in Part 2 of the Act. It seems to be common ground that the purpose of s 44(1)(f) is to ensure that collective bargaining and collective employment agreements under the Employment Relations Act are not in breach of Part 2 of the Act.Submissions[53] The applicants submit that "as a simple matter of language", the pay equalisation provisions are provisions relating to the remuneration of employees and accordingly they fall within the core purpose of s 44(1)(f), namely to protect certain arrangements relating to employment relationships from the prohibitions in Part 2. [54] They further submit that the fact the suppliers of bulk contract labour services listed in paragraph 20 of the amended statement of claim are not parties to the Collective Agreement, but that New Zealand Steel is required by the pay equalisation provisions to secure their agreement to complying with those provisions in relation to their employees, is not relevant and does not alter the analysis. Section 44(1)(f), they contend, is concerned with subject matter, and the pay equalisation provisions which relate to the remuneration of the CA Employees are clearly within the subject matter of s 44(1)(f).[55] In relation to the contractor use provisions, the applicants submit that these are effectively a condition of employment of a basic and fundamental kind, along the lines:You will not dismiss me in order to replace me with a contractor.[56] The applicants refer to New Zealand Steel's stated position, that but for the challenged provisions it would use bulk contract labour services more extensively, and that some of the CA Employees having lost their jobs, might elect to provide services as independent contractors. They submit that the contractor use provisions limit the ability of New Zealand Steel to terminate the employment of CA Employees and thus relate directly to their conditions of employment. [57] New Zealand Steel submits that, correctly interpreted, s 44(1)(f) applies to exempt from Part 2 of the Act a provision that: a) directly relates to remuneration, conditions of employment, hours of work, or working conditions b) of employees who are parties to the contract, arrangement or understanding. [58] New Zealand Steel says it is "self-evident" that the contractor use provisions do not fall within s 44(1)(f). It submits that the prohibition on using contractors for certain types of work is not a provision "in relation to the remuneration, conditions of employment, hours of work, or working conditions of employees". It is directed to how New Zealand Steel operates its business, attempting to bar the use by New Zealand Steel of independent contractors for particular tasks. [59] New Zealand Steel points out that cl 15.1.3 of the Collective Agreement provides:No permanent employee will be laid off as a result of the use of contractors.[60] New Zealand Steel accepts this is a condition of employment which is not open to challenge. Therefore, it says, the applicants are incorrect in their submissionreferred to at [55] and [56] above. New Zealand Steel says it does not intend to dismiss employees in order to replace them with contractors. Rather, it wants the choice to engage independent contractors at a competitive price and it anticipates that some groups of employees may choose to tender as independent contractors to achieve more flexible working conditions and other advantages as perceived by New Zealand Steel. [61] As to the pay equalisation provisions, New Zealand Steel submits that the legislature could never have intended by s 44(1)(f) to protect from the application of the Act an agreement between A and B which attempts to fix the conditions of employment or contract of a third party, C. Any such arrangements, New Zealand Steel contends, restrict the freedom of C to negotiate his or her own conditions of employment which is completely outside the policy behind New Zealand's labour laws. [62] Mr Skelton cited from Ascot Cartage Contractors Pty Ltd v Transport Workers Union of Australia:10In general the Trade Practices Act forbids an agreement between two traders that neither should do business with another particular trader. It would be surprising that Parliament would tolerate persons in the employment of one trader acting in concert to pressure their own employer to force him to cease to do business with another trader.[63] Mr Goddard QC, counsel for the applicants, challenged the applicability of this authority. He noted that the Australian legislation equivalent to the Act, the Trade Practices Act 1974, includes a cluster of provisions which deal with employment relationships which have no equivalent in the Act because in New Zealand they are dealt with under employment legislation. He noted, in particular, that the conduct of the respondent unions in the Ascot Cartage case was challenged under s 45D(1) of the Trade Practices Act (which prohibits secondary boycotts) and that the exception relied on by the respondents in s 45D(3) provided:(3) A person shall not be taken to contravene, or to be involved in a contravention of, sub-section (1) by engaging in conduct where –10 Ascot Cartage Contractors Pty Ltd & Anor v Transport Workers Union of Australia & Ors[1978] 32 FLR 184 at 153.(i) the remuneration, conditions of employment, hours of work or working conditions of that person or of another person employed by an employer of that person; or (ii) an employer of that person having terminated, or taken action to terminate, the employment of that person or of another person employed by that employer; or . . .[64] Mr Goddard emphasised that the focus of this excepting provision is on the parties: the employer and the employees of that employer; that it is tied back to the employees' own employment and thus prohibits boycotts to enhance or protect the employment conditions of employees of other employers. He contrasted this with the subject matter focus of s 44(1)(f). [65] Mr Skelton said he was unable to accept Mr Goddard's proposition that s 44(1)(f) extends to non-parties to the employment contract so as to protect from application of the Act, provisions in an employment contract amounting to restrictions on the freedom of third parties to negotiate their own conditions of employment. He noted that neither the Employment Relations Act nor its predecessor legislation has provided for collective bargaining in respect of someone else's conditions of employment. [66] In the absence of New Zealand authority and acknowledging that the relevant Australian provisions were worded differently from s 44(1)(f), Mr Skelton referred to the Ascot Cartage case and to Ausfield Pty Ltd v Leyland Motor Corporation of Australia Ltd11 for authority that indirect employee benefits are not protected by s 44(1)(f). He submitted that the pay equalisation provisions are not exempt from the Act because they relate to remuneration paid to contract labour employees. Further, he submitted that the exclusionary provisions are not exempt from the Act to the extent they are an attempt to improve the conditions of the CA Employees under the Collective Agreement, which is an indirect motive. In this context, he referred to the NZRFU authorisation decision in which the Commerce Commission held12 that s 44(1)(f) did not operate to exclude the potential application of Part II in respect of the Player Movement Regulations because they would have only "an indirect effect on conditions of employment".11 Ausfield Pty Ltd v Leyland Motor Corporation of Australia Ltd (1977) 31 FLR 477 (FCA).12 At 322.[67] New Zealand Steel submits that the exclusionary provisions do not have any direct or immediate relationship with remuneration or conditions of work of the CA Employees in the sense required by s 44(1)(f). It points to the fact that wage rates and other payments relating to remuneration are the subject of extensive prescription elsewhere in the Collective Agreement. It considers that the exclusionary provisions are directed at matters such as security of tenure and availability of overtime and do not have a direct relationship to remuneration or conditions of employment of the employees so as to fall within the exception provided by s 44(1)(f).Discussion[68] There is little authority to assist in the interpretation of s 44(1)(f). New Zealand Steel referred to Australian authorities which require a "direct" relationship between the challenged provision and the matters to which the exception relates.13In s 44(1)(f) these matters are remuneration, conditions of employment, hours of work or working conditions of employees. [69] I accept that the statutory context in which the Australian judgments have been determined, differs from that under the Act, but the approach of the Australian Courts may well have some relevance in the interpretation of s 44(1)(f). I have considerable reservations about the broad interpretation of s 44(1)(f) advanced by the applicants, for on that basis it is difficult to imagine any term in an employment agreement which would not fall within the exception. I doubt that the exception can have been intended by the legislature to provide blanket protection from the Act for all provisions of an employment agreement. Such a broad interpretation is not necessary to achieve both the purpose of the Act – to promote competition in markets – and to protect the ability and freedom of employees to negotiate collective agreements with an employer or employers under the Employment Relations Act. [70] I conclude that it is at least reasonably arguable that the exclusionary provisions do not directly relate to the remuneration, conditions of employment and working conditions of the CA Employees within the meaning and intent of13 Ausfield Pty Ltd v Leyland Motor Corporation of Australia at 480.s 44(1)(f). Thus the exception in s 44(1)(f) arguably does not prevent the application of Part 2 of the Act to the exclusionary provisions. The answer to Issue b) is therefore "yes".Causes of action pleaded in the amended statement of claim[71] I turn to consider the causes of action pleaded in the amended statement of claim. While I have concluded that New Zealand Steel has a reasonably arguable case in relation to the definition of "services" in s 2 and the application of s 44(1)(f), it seems to me that it faces difficulties in trying to plead its claim under s 29, s 27 via s 30 and possibly under s 27 of the Act. I shall consider each of the causes of action in turn.First cause of action: contravention of s 29 Commerce Act – exclusionary provisions prohibited[72] Section 29 is set out at [30] above. [73] The first cause of action is pleaded in paragraphs 32-35 of the amended statement of claim. At paragraph 33 New Zealand Steel pleads that the exclusionary provisions are exclusionary provisions within the meaning of s 29(1) of the Act. It pleads at paragraph 33(b) that the CA Employees are in competition with each other, or are deemed to be by s 29(2) of the Act and the facts pleaded at paragraphs 29 and 31 of the amended statement of claim (refer [20] above). [74] At paragraph 33(c) New Zealand Steel pleads that the exclusionary provisions have the purpose of preventing, restricting or limiting the acquisition of bulk contract labour services by the plaintiff (as is required by s 29(1A) for the provisions to be exclusionary provisions). [75] At paragraph 33(d) it pleads that the suppliers of bulk contract labour services are in competition with the CA Employees in relation to the supply of contract labour services or are deemed to be by s 29(2).Submissions[76] The applicants submit:• the argument of New Zealand Steel under s 29 is flawed because the CA Employees do not provide services within the meaning of the Act;• S 29(1) requires that the parties to the contract or agreement must be in competition with each other for a provision to be an exclusionary provision under s 29. This means in competition to supply goods or services. Because the CA Employees are employed under a contract of service (the Collective Agreement) they are not supplying services, and so are not in competition with each other or with contractors to supply services. Therefore s 29(1)(a) and (c) do not apply.• Individual employees cannot supply "bulk contractor labour services", so s 29(1)(a) and (b) do not apply.• As to the plaintiff's argument under s 29(2), the provision does not apply. The hypothetical counterfactual scenario posited by New Zealand Steel, of former CA Employees choosing to work for contractors, involves thecontractor providing services to New Zealand Steel and not the former employees. Nor could individual employees provide "bulk contract labour services". So the scenario does not involve employees providing services to New Zealand Steel in competition with each other as required by s 29(1)(a).• The "but for" reliance by the plaintiff is too simplistic. Removal from the Collective Agreement of the challenged provisions would not free the CA Employees to compete either with one another or with independent contractors. They would be bound by the remaining terms of the Collective Agreement.• The plaintiff's claim under s 29 is problematic because of confusion by New Zealand Steel about the "target" of the exclusionary provision, i.e. the personwith whom dealings are restricted or prevented. The amended statement of claim is inconsistent as to whether the target is New Zealand Steel itself or contractor suppliers of bulk labour services. New Zealand Steel seems to be claiming the provisions prevent New Zealand Steel, a party to the challenged provisions, from acquiring services from contractors who compete with CA Employees. This falls outside the scope of s 29 which addresses the concern that a target person is excluded from the relevant market because two parties have entered into an agreement preventing competition between those parties in dealing with the target, i.e. "a concerted refusal to deal or a group boycott". 14[77] The plaintiff submits:• The applicants' submission that the parties are not in competition with each other is based on a narrow view of the relevant area of competition. There is "scope for judicial flexibility", referring to Gault on Commercial Law:15In some cases, the Courts will have no option but to take a narrow view of the relevant area of competition. However, in other cases there will be scope for judicial flexibility. . . Given the obvious legislative intention behind s 29 to allow free access to the marketplace, a liberal view is more likely to achieve the legislative objective. While recognising that "relates" requires some connection between the exclusionary provision and the area of competition between the parties, a Court may hold that that connection may be slight or indirect.• The approach taken by Barker J in Picture Perfect Ltd v Camera House Ltd16favoured a "liberal" view of the connection between the exclusionary provision and the area of competition between the parties.• Looking at the objective of s 29 of allowing free access to the marketplace, the CA Employees are:14 Gault on Commercial Law at [CA29.02].15 At [CA29.07(5)].16 Picture Perfect Ltd v Camera House Ltd [1996] 1 NZLR 310 at 319.(a) in competition with independent contractors, especially in the counterfactual scenario of the absence of the exclusionary provisions: s 29(2); and (b) also in competition with each other (as co-employees, for promotion etc, and in the counterfactual if they chose to act as independent contractors).Discussion[78] The notes from the New Zealand Law Society seminar Competition Law for Non-Specialists state: 17As with naked price-fixing and resale price maintenance, there is very little case law on s 29's ban of collective boycotts. The reason is that these areper se prohibitions and it is simply a matter of applying the statutory language to the facts in issue.[79] Section 29 is designed to target a concerted refusal to deal by a group of competitors in respect of a particular other competitor or class of competitor. A typical example of a collective boycott is an agreement, arrangement or understanding between A and B, who are competitors in a market for goods or services, to exclude C from competing in that market with A and/or B, by preventing or restricting supply to C, or acquisition by C, of the goods or services that would enable C to compete. There are three elements required for a provision to be "exclusionary" under s 29(1). [80] Section 29(1)(a) requires that there be a provision of a contract between persons who are in competition with each other, i.e. an agreement between competitors. [81] The Collective Agreement is between New Zealand Steel and the Unions on behalf of the CA Employees. Clearly New Zealand Steel and the CA Employees are not in competition; the relationship is that of employer and employee. The17 Andy Nicholls and Matt Sumpter Competition Law for Non-Specialists (NZLS CLE Seminar, June-July 2009) at 47.employees are the only parties to the contract that could potentially fulfil the requirement in s 29(1)(a). [82] New Zealand Steel submits that rather than taking a "narrow view of the relevant area of competition", a "liberal view" should be preferred. It argues that the CA Employees are in competition with independent contractors, both currently under the Collective Agreement where work performed by contracted labour in the permitted areas could be performed by current employees, and also under the "but for" provision under s 29(2) where, absent the exclusionary provisions, New Zealand Steel could choose whether work was done by CA Employees or contractors, putting the CA Employees in competition with the contractors. Thus, it is contended, the two sources of labour are substitutes. New Zealand Steel also says that the CA Employees are in competition with each other. [83] The applicants contend that the CA Employees cannot be considered as supplying services in competition with independent contractors, even under the counterfactual, as they are employed under a contract of service. Nor, they submit, can the CA Employees be in competition with each other as suppliers of services, for the same reason. The applicants also point out that even if some CA Employees were to leave their positions and take up work as independent contractors under the "but for" provision in s 29(2), (as the plaintiff maintains they may well do), once they become ex-employees they cease to be parties to the Collective Agreement, and so would fall outside the requirement. They cannot be suppliers of services and employee parties to the contract at the same time. [84] I agree with the submissions of the applicants. The plaintiff's case cannot, as a matter of law, be pleaded to achieve compliance with s 29 and in particular s 29(1)(a). The plaintiff's attempt to construct a cause of action from a factual situation which is outside the scope and intent of s 29, in my view cannot succeed. [85] Although I have found that this cause of action must fail under s 29(1)(a) I shall briefly consider the other requirements of s 29.[86] Under s 29(1)(b) the relevant provision must have the "purpose" of preventing, restricting or limiting the supply of goods or services to or the acquisition of goods or services from, a particular person. It is difficult to apply this requirement to the facts of this case because s 29 is aimed at a group/collective boycott situation where a number of parties agree with, say, a particular manufacturer that the manufacturer will not supply a particular party who is not a party to the agreement (the target). As the applicants point out, there is some confusion whether it is New Zealand Steel that is being targeted or excluded or whether the target is other contractors supplying labour services. [87] Under s 21(1)(c) the person or business to which the provision relates must be in competition with one or more parties to the contract, arrangement or understanding. The same difficulty is encountered under s 21(1)(c) as under s 29(1)(a). The CA Employees are not in competition in a way that would enable this requirement to be fulfilled. [88] The answer to Issue c) is "no". I conclude that the first cause of action cannot succeed. It will be struck out.Second cause of action: contravention of s 27 via s 30 – price fixing[89] Sections 27 and 30 are set out respectively at [29] and [31] above. [90] The second cause of action relates only to the pay equalisation provisions which are claimed by the plaintiff to be "price fixing" in breach of the Act. Provisions fulfilling the requirements of s 30 are deemed to have the purpose, effect or likely effect of substantially lessening competition for the purpose of s 27. [91] At paragraph 37 of the amended statement of claim the plaintiff pleads that by entering into the pay equalisation provisions the defendants have "maintained the price of bulk contract labour services supplied to the plaintiff at a level such that the suppliers of such services can pay their workers at the equivalent of the rate of pay that would be paid to the CA Employees for the CA Employees to carry out the tasks to be performed by contractors at the plaintiff's sites".[92] New Zealand Steel alleges that these provisions have the purpose and effect of fixing, controlling or maintaining the price payable by the plaintiff for bulk contract labour services at a price artificially higher than that which otherwise would have prevailed in the Franklin or Southwest Auckland bulk contract labour market and that the pay equalisation provisions are deemed by s 30 to substantially lessen competition in the market for these services. [93] The plaintiff states by way of particulars that the CA Employees are deemed to be in competition with one another by s 30(2). [94] The arguments advanced by the parties are similar to those advanced in respect of the alleged s 29 contravention. [95] In addition, the applicants contend that because the second cause of action relates only to the pay equalisation provisions, s 44(1)(f) applies and must dispose of this cause of action. I have analysed the application of s 44(1)(f) previously in this judgment and have concluded that this issue is arguable. [96] However, I consider the second cause of action faces essentially the same difficulties as the first cause of action. Under s 30(1) the requirements to establish a breach are: a) The existence of a relevant provision of a contract (or agreement/understanding). This requirement is not in issue here. b) The provision has the purpose, or has or is likely to have the effect of fixing, controlling or maintaining the price for services that are supplied or acquired by the parties to the contract, in competition with each other. For the reasons previously given, the CA Employees are not in competition with each other to supply services. The pleading of the counterfactual scenario under s 30(2), which is in similar terms to s 29(2), likewise faces the same difficulties.The applicants further point out that the plaintiff pleads only that the provisions affect the price paid for services by New Zealand Steel. It does not plead that any other purchaser is affected, and the applicants contend that the provisions could not logically affect any other purchaser. They argue that s 27 protects the process of competition rather than an individual participant such as New Zealand Steel, so if other market participants are not affected then again the situation falls outside the scope of the section. I consider there is merit in this contention. c) The person or business targeted must be in competition with one or more parties to the contract. This requirement encounters the same difficulties as under s 29(1)(c). [97] The answer to Issue d) is "no". I conclude that the second cause of action cannot succeed. It will be struck out.Third cause of action: contravention of s 27(1) and/or s 27(2)[98] Section 27 is set out at [29] above. [99] The third cause of action is pleaded at paragraphs 41-43 of the amended statement of claim. The plaintiff pleads that the exclusionary provisions "have the purpose, or effect or likely effect of substantially lessening competition in the Franklin bulk contract labour market or the Southwest Auckland bulk contract labour market". New Zealand Steel further pleads that the defendants have contravened s 27(1) in that they have entered into the Collective Agreement with the exclusionary provisions, and have contravened s 27(2) by giving effect to the exclusionary provisions. [100] Two keys issues are raised by the pleadings in the third cause of action:a) The definition of the market; and b) Whether the exclusionary provisions have the effect of "substantially lessening competition" in the pleaded market.The market[101] In the amended statement of claim the market pleaded is: At paragraph 22 "A market for the supply of bulk contract labour services to businesses located in the Franklin district ("Franklin bulk contract labour market")". Alternatively, at paragraph 23 "A market for the supply of bulk contract labour services to businesses located in the Franklin district, Papakura district and Manurewa ("Southwest Auckland bulk contract labour market")". [102] The applicants point out that the original statement of claim pleaded a separate market for the supply and acquisition of labour at each of three New Zealand Steel sites. This invited a strike-out application on the ground that the market could not, on any view, be confined to a single employer. [103] The applicants submit that the two markets pleaded in the amended statement of claim are not markets for services in the sense the Act uses the term "market". They say the focus appears to be, improperly, on how the work is done, not what service is provided in a defined market. They argue that the performance of work under a contract of service, is not a service within the definition of "services" in s 2, and the mere reselling at a "bulk" level through a contractor does not convert to a "service" something which is not a service. [104] The applicants say the plaintiff needs to specify a service and the market in which that service is supplied, which the amended statement of claim fails to do. [105] New Zealand Steel responds that matters of pleading raised by the applicants are not matters which should cause the strike-out application to be successful. Itcontends that market definition is essentially a factual issue for trial. The written submissions cite from Transpower New Zealand Ltd v Todd Energy Ltd:18In any event, market definition is a "practical jury question of fact and degree": Tru Tone.19 As the High Court recognised, there is a limit as to how far the court should go on a strike-out in seeking to resolve such questions.[106] New Zealand Steel does not accept that there cannot be a market for bulk contract labour services. It offers to amend its pleading to include the particular types of services provided, such as the services of welders and/or electricians. [107] Counsel referred to two types of bulk contract labour supplied: a) Where the bulk service provider provides a bundle of services for a particular job; and b) Where the bulk service provider provides labour for a specific type of activity, for example welders. Mr Skelton said that the pleadings can be amended to refine the types of services provided in the market for bulk contract labour. [108] I accept that the pleading in relation to the defined market may well be capable of refinement, generally in the manner indicated by counsel for New Zealand Steel, so as to disclose a cause of action under s 27. In order properly to plead the market for provision of a particular service or bundle of services, New Zealand Steel may find it necessary to define the particular types of services provided and then plead separately the market for each such service that is alleged to be harmed in terms of s 27, by the exclusionary provisions. How the pleading is re- cast is for the plaintiff but I consider New Zealand Steel should be allowed the opportunity to refine its pleadings in this respect.18 Transpower New Zealand Ltd v Todd Energy Ltd [2007] NZCA 302 at [153].19 Tru Tone Ltd v Festival Records Retail Marketing Ltd [1988] 2 NZLR 352 (CA) at 358."Substantially lessening competition"[109] The applicants say the purpose of the Act is to protect the process of competition, not to protect particular competitors. The written submissions cite as authority Union Shipping NZ Ltd v Port Nelson Ltd;20 Fisher & Paykel Ltd v Commerce Commission. 21 They say the process of competition is not harmed because one market participant (albeit a large one) enters into a contract under which it agrees to pay a higher than market price for a particular service for a limited period. They note the absence from the pleadings of any allegation or suggestion that the challenged provisions have any adverse effect on any market participant other than New Zealand Steel. They say the suppliers of any relevant service dealing with all purchasers other than New Zealand Steel, are unaffected by the challenged provisions. Therefore, they contend, the challenged provisions have no effect on the competitive process and cannot, in and of themselves, harm competition in the market. [110] The plaintiff responds to those submissions: a) It can provide more particulars of how competition is harmed; b) The exclusionary provisions affect the suppliers of contract labour across the market and not just current or potential suppliers to New Zealand Steel; c) It is a question of fact for trial as to whether the effect on suppliers to New Zealand Steel results in a lessening of competition in the market that is substantial in the context of that market; d) There is no general proposition of law that exclusive supply agreements do not contravene s 27. It is a question of fact in every case (referring to the applicants' reliance on Fisher & Paykel Ltd v Commerce Commission).20 Union Shipping NZ Ltd v Port Nelson Ltd [1990] 2 NZLR 662 (HC) at 714.21 Fisher & Paykel Ltd v Commerce Commission [1990] 2 NZLR 731 (HC) at 760.[111] New Zealand Steel says it can provide additional particulars of the degree or extent to which competition is harmed in the market. By way of example it says that the exclusionary provisions prevent providers of contract labour from supplying labour to New Zealand Steel in two ways: a) From tendering for "prohibited" areas of work; and b) By setting the price at which New Zealand Steel can obtain contract labour at above what it would otherwise be, thus reducing demand. [112] New Zealand Steel contends that without the scale and steady income of New Zealand Steel work, some suppliers of contract labour are likely to be precluded from operating or competing to operate, in the market at all. Thus the effect is on the market not only on individual participants in the market. [113] New Zealand Steel argues that the cases cited by the applicants do not support the general proposition that an effect on a small number of market participants could never amount to lessening of competition in the market. It contends that this is a factual issue – the significance of the purchasing power of New Zealand Steel in the market – as to which there will be evidence given at trial. [114] New Zealand Steel submits that the issue of the extent to which the exclusionary provisions lessen competition ought to be left for trial to be decided upon the basis of the evidence adduced at trial. [115] The applicants point out that it is a necessary element in the New Zealand Steel case that the wages provided for in the Collective Agreement are materially above market rates. They expand upon this point by arguing that if the wages specified were lower, New Zealand Steel would not be pursuing this claim which, they say, highlights that the s 27 cause of action is an indirect attack on the remuneration provisions of the Collective Agreement. [116] Whether the wages provided for in the Collective Agreement are materially above market rates will be a matter of fact for determination at trial.[117] In the Transpower case the Court of Appeal stated (albeit in a different context, referring to tying/bundling services together): 22We acknowledge that on this analysis, the claim starts to look more like a claim Todd pays too much. However, Todd should have the chance at trial to argue the matter and whether that results in a substantial lessening of competition.[118] Likewise in the circumstances of this case I consider New Zealand Steel should have the opportunity to pursue its argument that the effect of the exclusionary provisions results in substantial lessening of competition, providing further particulars as to how it claims competition is harmed. [119] The answer to Issue e) is "yes". I conclude that the third cause of action, if appropriately re-pleaded, is arguable and should not be struck out.Fourth cause of action: claims against first to fourth defendants – accessory liability[120] This cause of action alleges that the first to fourth defendants were parties to the contraventions of ss 27 and 29 alleged against the CA Employees. It stands or falls with the findings on the previous causes of action. It will require amendment accordingly, if it is retained.Result[121] The strike-out application is allowed to the extent that the first and second causes of action are struck out.Costs[122] Both parties have had some measure of success and I consider it appropriate that costs lie as they fall. However, I have not heard from the parties on the issue of22 At [192].costs. If they wish to make submissions they should do so within twenty-one working days of the date of this judgment.Timetable order[123] The plaintiff is to file an amended statement of claim within twenty-eight working days of the date of this judgment.COLLECTIVE EMPLOYMENT AGREEMENT SCHEDULES 1 AND 2 SCHEDULE 1(Exclusionary Provisions with respect to the use of Contractors) The following provisions of the Collective Agreement are Exclusionary Provisions with respect to the use of contractors. 15.1.1 The parties to the CA acknowledge that contractors may be required to supplement the domestic workforce to meet intermittent peak work loads, provision of specialist services and capital works. It is agreed that contractors will not be preferred for reasons such as:• securing cosmetic reductions in employment numbers;• relative productivity statistics; or• the failure to investigate adequately other alternatives. 15.1.2 It is the company's firm intention to have available a domestic workforce which has the ability/skills/equipment to carry out the routine tasks, inclusive of maintenance tasks, on its sites. 15.2.1 CRITERIA FOR USING CONTRACTORSContractors may only be used for:• Peak Work Loads – i.e. Work load over and above the normal fluctuations in routine work.• Capital works – i.e. erection, installation or commissioning of new plant and equipment.• Special Services – i.e. use of special skills not possessed within the company.• Work which is currently carried out by contractors and agreed by both parties. 15.4.2 If the above clauses have been followed, management may engage the services of contractors to supplement its existing workforce. 15.7 PREFERRED CONTRACTORSDetails of requirements to obtain preferred contractor status shall be as per "The Preferred Contractors Supplementary Agreement".SCHEDULE 2(Exclusionary Provisions with respect to Pay Equalisation) The following provisions of the Collective Agreement are Exclusionary Provisions with respect to pay equalisation. 15.2.2 WAGE EQUALISTIONAny contractors so engaged by the company at any of its sites will have their wages equalised to a comparable position being worked by an employee covered by this Collective Agreement. 15.2.3 EXCEPTIONS TO PAY EQUALISATIONPay equalisation may not apply in the following tasks:• Capital Works: Where contractors are engaged to erect, install and commission new plant or equipment that increases assets, as part of the company's Capital Plan and where the company's employees are not required to interface with the contractors.• Specialist Skills: Where production, service or maintenance work necessitates specialised skills, not covered by work definitions expressed in this contract, and contractors are engaged to perform such work.15.3.4 Contractors employees shall be paid comparable wages and allowances, as if the company's employees were undertaking such work. Exclusions to this may be capital work and specialist skills. 15.3.5 (a) The company will ensure that all contractors are made aware of their obligations under clauses 15.2.2 and 15.3.4. (b) The company will ensure that from 1 June 2005 contractual arrangements with contractors contain provisions requiring contractors to comply with clause 15.2.2 and 15.3.4. Compliance with this provision will be reviewed as part of the Company's contract management process. (c) In addition, if at any time there is evidence that a contractor is not complying with this obligation the appropriate course of action will be to notify the Supply Manager, Site Convenor and the Manager Human Resources. (d) The Supply Manager (or a person nominated by the Supply Manger) will then investigate the allegations, and raise the matter with the contractor in question to ensure that the relevant clause is being complied with and that any non-compliance is promptly rectified. (e) The Supply Manager will ensure that the Manager Human Resources and Site Convenor are kept up to date with all relevant developments, and the manager Human Resources will in turn ensure that all parties to this agreement are also informed of all outcomes. The following provisions of the PCSA are Exclusionary Provisions with respect to pay equalisation.The Contractor shall –4.2 Know and comply with the Contractor provisions of the CEC and in particular the requirements for equalisation of pay rates as specified for some types of work on site.