ADI v Aerospace Systems Management

3691/03 ADI LTD V AEROSPACE SYSTEMS MANAGEMENT PTY LTD JUDGMENT (Ex tempore; revised 24 July 2003) 1 HIS HONOUR: This is an application for urgent interlocutory relief. Notwithstanding the careful and skilful arguments of senior counsel for the plaintiff, I have decided not to grant the relief sought. I have, therefore, earlier today dismissed the application for interlocutory relief and ordered that the costs of the application be costs in the proceeding. I have also stood the matter into the Expedition List on Friday 25 July 2003. I now deliver my extempore reasons for judgment for those orders. 2 The summons, filed pursuant to orders of the Court on 9 July 2003, seeks declaratory and other relief in respect of an agreement between the plaintiff ("ADI") and the defendant ("ASM") for the provision by ASM of training services associated with the supply of an Australian Defence Air Traffic System ("ADATS"). The dispute is whether ASM is obliged to commence on 28 July, and thereafter continue until its conclusion, the ADATS controller conversion course at the Oakey facility at the RAAF and whether, subsequently, it will be obliged to complete the equivalent work on the Edinburgh facility when notified that work is to be carried out. 3 In addition to declaratory relief, ADATS seeks specific performance of the agreement by AMS. There is a claim to damages and equitable damages and a claim to the following interlocutory relief "An order, until further order, that the defendant commence and thereafter continue until its conclusion the ADATS controller conversion course at the Oakey facility of the RAAF, more particularly identified in Annexure A1 to the Agreement on 28 July 2002." 4 During the course of the hearing of the interlocutory application, the application for an order in those terms was modified. There was an exchange between senior counsel for ADI and me in which I expressed a concern that the Court ought not to make an order in the terms set out above, except conditionally upon ASM remaining in a position to carry out the work. I had in mind, having regard to the history of delay in performance of the agreement, that events may occur at the instigation of either the Commonwealth or the head contractor, a company called Raytheon, that would make it necessary to close down the conversion of the Oakey facility for a time and, therefore, terminate for that time the conduct of the controller conversion course. I asked counsel whether, once the work of ASM had commenced on 28 July pursuant to such an order, there would be any risk of interference of those kinds. After reflection, he said it would always be possible that such an interference might occur. 5 In due course, he modified the application for the order by deleting the words "and thereafter continue until after its conclusion". Thus, the order sought became an order requiring ASM to commence the controller conversion course at Oakey and nothing more than that. I made it expressly clear that I would consider the application as an application for only that relief, and I would not give further consideration to whether ADI would be entitled to relief in the form originally sought in the summons. 6 The background circumstances to this dispute are set out in the affidavit of Michael Matthew Brookhouse made on 9 July 2003. Mr Brookhouse is the Project Manager on behalf of ADI for the ADATS project. The ADATS system is a new air traffic control system being installed at 12 Commonwealth sites around Australia. It is also it be installed in three other places. Most of the sites are RAAF facilities, but Oakey is an Australian Army air field, and a site at Nowra is a Royal Australian Navy air station. The ADATS system will replace the prior air traffic control system used by the Commonwealth at all air force bases around the country. A head contract for the ADATS project was entered into by the Commonwealth and Raytheon on 25 November 1995. The head contract is for the design and installation of, and logistical support for, the ADATS system. 7 On 19 March 1996 Raytheon entered into a sub-contract with a company called Stanilite, to which a receiver was appointed shortly afterwards. The sub-contract with Stanilite was novated in favour of ADI, which was then substituted as the sub-contractor to Raytheon. The sub-contract is an enormous document even by the standards of modern commercial transactions. I was taken only to a couple of provisions of it and my attention is accordingly, confined to those provisions. 8 The ADATS system comprises at each of the facilities where it is to be installed a radar tower, a radar system, an air traffic control switch system, a data processing and display system and some further ancillary equipment. Under ADI's obligation as sub-contractor to Raytheon, Raytheon has overall responsibility for the ADATS project. ADI is required to provide development and engineering support for the air traffic control switch system, installation for all of the ADATS components, testing and commissioning the system as well as logistic support. 9 It is also responsible for development and provisioning the data processing and display system and radar system. ADI is required to train the nominated personnel in the system and prepare, maintain and implement a training support plan for that purpose. Standards are prescribed for the training programme. 10 In order to discharge its responsibilities in respect of training, ADI entered into a further sub-contract with ASM, which is the contract subject to the present dispute. All of the directors of ASM were former employees of ADI and also former RAAF air traffic controllers. The directors of ASM, therefore, have very considerable special experience relevant to the training function. 11 Under the terms of the agreement between ADI and ASM, ASM agrees to provide services associated with the conversion training of Australian Defence Force air traffic controllers on to the ADATS system. The training services are to be provided by ASM at each of the 15 sites where installation is required. The syllabus for training was developed by the directors of ASM and is based on a generic site, the Williamtown facility, and applies this information to the particular air space and procedures applicable to the other sites. 12 Clause 3.2 of the agreement specifies that ASM is deemed to know and understand the requirements of ADI so far as is relevant to the provision of the training services. There are provisions for payment of fees, and for variation to the work, and in respect of the impact of variations on the fee (Clause 6.5). Clause 10 deals with termination. Clause 10.3 permits ASM to terminate if ADI, inter alia, commits a substantial breach of the agreement. It appears that ASM has not purported to terminate under that clause. 13 Clause 11 is important in the present case. It deals with dispute resolution. Clause 11.1(a) obliges the parties to endeavour to resolve any dispute speedily by negotiation. It says that if a dispute is not resolved by negotiation then, before either party has recourse to litigation, that party must submit the dispute to expert determination. The dispute between the parties has not been submitted to expert determination at this stage. That is apparently because of clause 11.8, which states: "Notwithstanding the other provisions of clause 11, nothing shall prevent a party from seeking urgent interlocutory relief against the other party in any Court of competent jurisdiction." 14 I should also note clause 11.7, which stipulates that each party must continue to perform its obligations under the agreement despite the existence of a dispute. 15 Clause 13.2 permits ADI by notice in writing to reschedule performance of the services covered by the contract, ADI undertaking to give reasonable notice of its intention to do so. There are provisions for liquidated damages for delay. Clause 13.5 limits the liquidated damages recoverable by ASM against ADI to $295,000. 16 The usual training period to be provided by ASM has a currency period of 35 days, not stipulated in the contract, but said to be a standard applied by Air Services Australia. The contract does not extend to refresher training and, in fact, ASM has made direct arrangements with the Commonwealth to provide services of that kind. 17 It is a feature of the training that a substantial portion of it must be undertaken on site and, in effect, at a particular time during the installation of the ADATS system by ADI and others under the head contractual arrangements. Therefore, if ASM does not provide training during the 35 day currency period stipulated by ADI, the completion of the installation of the ADATS system in the facility in question will be delayed. 18 Out of the 15 facilities to which I have referred, there are only two remaining sites on which training is required under the agreement, the sites at Oakey and Edinburgh. It is expected that Oakey will take 35 training days, but Edinburgh will only take 25 training days, the difference being that at Edinburgh there are fewer facilities and only two of the three training modules will be required. 19 Mr Brookhouse's affidavit annexes some material which indicates there have been substantial delays in the completion of the ADATS project. What was expected to be completed in about 2000 is still incomplete in July 2003. Mr Brookhouse says that some delays are attributable to Raytheon, but frequently were caused by the Commonwealth as Raytheon's client. 20 On 20 December 2000 ASM wrote to ADI seeking to claim the maximum amount of liquidated damages of $295,000 because of these delays. There were subsequent discussions, including a meeting on 6 February 2001, and then full payment of liquidated damages to ASM was agreed. Four instalments of liquidated damages were subsequently paid during the period from February to July 2001. Since February 2001, further sites have been completed and further work has been done. On 12 February 2001 ASM wrote to ADI regarding its ongoing expenses due to delays in completion of the work. 21 During work on the Tindal site, the Commonwealth identified what its officers referred to as a latent defect in the ADATS system with regard to a phenomenon called "cross talk", which affected radios on site. Mr Brookhouse says that it affected the radios in a very minor way. The Commonwealth prevented any further sites being commissioned or accepted until the problem was resolved. Mr Brookhouse says ADI believes the position taken by the Commonwealth was unreasonable and that further delays should not have occurred because of the so-called "cross talk" problem. The delays caused by the Commonwealth's decision prevented ASM from conducting its training work and it was not until September 2002 that the Tindal site was eventually commissioned. 22 On 26 November 2002 Mr Brookhouse, on behalf of ADI, wrote to ASM regarding ASM's claim for ongoing delay costs associated with changes to performance schedules. There were without prejudice negotiations and without prejudice letters were written. 23 In June 2003 ADI was notified by Raytheon that training was to commence at the Oakey site on 24 July 2003. On 10 June 2003 ADI gave notice to ASM in writing of the commencement date of the training at the Oakey site. In mid-June the Commonwealth informed ASM that they would not be ready for training to occur at Oakey on 24 July, but probably would be ready in the subsequent week. Formal notification by Raytheon to ADI followed. 24 On 27 June 2003 ASM wrote to ADI asserting that the agreement between them was terminated for frustration. The letter referred to "the history of the negotiations conducted prior to the agreement being signed", and criticised ADI for failing to acknowledge or take into account extensive discussions and correspondence between the parties dealing with issues which, according to ADI, had not been in contemplation. The letter complained that the attitude taken by ADI, evidently in without prejudice negotiations, amounted to a reluctance to "recognise agreements relating to the ongoing provision of training services which were made in good faith", and the letter said this attitude was "very disappointing from a business integrity perspective". The letter concluded, "your failure to negotiate a suitable basis for undertaking the remaining tasks means ASM will not be able to perform the remaining training." 25 At the hearing today some submissions were made as to the meaning of the words "will not be able to perform". I take the view that those words are ambiguous and do not amount to an assertion that it would be impossible for ASM to perform the Court's orders if the Court were to make orders in the terms originally sought. Therefore, there is no such evidence before me as would require me to take into account, in the exercise of my discretion whether to grant the orders sought, that the defendant would be unable to perform them. The wording used in the letter is open to the interpretation that the defendant was simply unwilling to do so. 26 On 3 July 2003 ADI received from Raytheon what Mr Brookhouse describes as a formal notice that commencement of the training at Oakey was required to commence at 28 July 2003. That seems to me to have triggered the provisions of clause 19 of the agreement between ADI and Raytheon. 27 On 4 July 2003 Mr Gardiner from ASM left a voicemail message for Mr Brookhouse expressing the view that the parties should "sit down with a cup of coffee and discuss". Since that left open the possibility that there might be some further negotiations and indeed, negotiations undertaken pursuant to clause 11.1(a), I decided (when the matter was before me on 14 July 2003) that it would be appropriate for the parties to explore the possibility of amicable resolution of their dispute. To encourage them to do so, I made order for mediation under s 110C of the Supreme Court Act. Neither party dissented from the proposition that this step should taken. There was, I am informed by counsel, a mediation pursuant to my orders yesterday, but it failed to produce resolution of the dispute. Therefore, the matter came back to me today as a contested application for interlocutory orders by the plaintiff. 28 As always, the issues for the Court to consider in an application for interlocutory relief are whether there is a serious question to be tried, whether the balance of convenience favours the granting of that relief, and whether there are any discretionary bars to relief. So far as the former question is concerned, there is, as I have indicated, a contest between the parties as to whether the contract between them has been frustrated. Counsel for ASM has conceded today, however, that for the purposes of the interlocutory contest there is a serious question to be tried as to whether the contract has been frustrated. The rest of the evidence shows, in my view, that there is a serious question to be tried as to whether the contract, if not frustrated, requires ASM to complete the training programmes for the two remaining sites. It was not suggested today that was any ground for resisting that proposition, if the contract has not been frustrated - although I was told (though there is no evidence of this) that the defendant will eventually contend that arrangements were made in the course of meetings and correspondence, from which it alleges the plaintiff has resiled. 29 It is not necessary to explore the question of balance of convenience in this case, because there is a strong discretionary ground for refusing relief. 30 I was taken in argument to three special principles arising in circumstances such as these:

(a) equity will not by order enforce the performance of a contract of personal service; (b) equity will not, except rarely, grant an interlocutory mandatory injunction; (c) equity will not make an order, the performance of which would involve the Court in continual superintendence of the performance of the contract between the parties. These three broad propositions obviously overlap in circumstances such as the present. 31 It is fair to say that over time the crispness of the propositions has been reduced. In relation to the third proposition, concerning mandatory injunctions, the law is now as stated by Gummow J in Business World Computers Pty Limited v Australian Telecommunications Commission (1988) 82 ALR 499. As far as the continual supervision proposition is concerned, the present law is conveniently set out in the judgment of Brennan CJ, McHugh, Gummow, Kirby and Hayne JJ in Patrick Stevedores Operations No 2 Pty Limited v Maritime Union of Australia (1998) 195 CLR 1 at 46 (pars 78-81). It is unnecessary to reiterate here the statements of principle contained in those cases. Neither of them, taken in isolation, would cause me to decline relief in this case. 32 As to contracts of personal service, one finds discussions of general principles with different emphasis in ICF Spry, Principles of Equitable Remedies (4th ed) (1990) at 116-118, and R P Meagher, WMC Gummow and JRF Lehane, Equity Doctrines and Remedies (4th ed) (2002) pars 550-5. Prior to the decision of Sir Robert Megarry in C H Giles & Co Limited v Morris & Ors [1972] 1 WLR 307, there were dicta seeming to require the rule to be presented as a rule of law. In that case his Lordship suggested the rule was rather a rule of thumb and would not, for example, prevent the Court from making an order to require the defendant to execute a contract, even though the contract be a contract for the provision of personal services. That decision has been considered and applied more recently by English courts: see Co-operative Insurance Society Ltd v Argyll Stores (Holdings) Limited [1998] AC 1; Posner & Ors v Scott-Lewis [1987] 1 Ch 25. 33 Probably a stricter approach is still required in the application of the Australian law. What is clear, however, is that in determining whether on an interlocutory basis, an order should be made in the exercise of its equitable jurisdiction, the Court will always have careful regard to the practical considerations raised by the granting of relief and the practical consequences of doing so. Even if interlocutory injunctive relief were in principle available to enforce a contract of personal service, the Court would not make the order if there would be no practical utility in doing so. 34 In the present case it is significant that the relief sought by the plaintiff is nothing more than an order requiring ASM to, as it were, report for work on 28 July 2003. The application for an order which would compel ASM to carry out the training programme over the currency period of 35 days has been expressly abandoned. The question which arises is whether, as a practical matter, anything useful would be achieved by making such a limited order. 35 Counsel for ASM referred me to evidence including, in particular, his client's letter of 27 June 2003, in which it asserted that ASM would not be available to perform the remaining training. That, coupled with evidence indicating there is a serious dispute between the parties in which, I infer, ASM denies any obligation to carry out the remaining training work, should leave the Court to conclude, according to counsel's submission, that ASM would do no more than comply with the terms of the order made against it. That is to say, if required by the Court to do so, the defendant would present itself by its officers for work on 28 July, but not on 29th or any subsequent day. 36 Counsel for ADI contended that I should not draw those inferences. He drew attention to evidence of the special expertise of the directors of ASM, who are (as he said) "Air Force people", and evidence showing that they developed the training programme and they have an independent relationship with the Commonwealth which includes a relationship for the provision of refresher training. Counsel asked me to infer from that evidence that if an order was made that they commence the training programme on 28 July, they would then perform it through the ensuing 34 days of the currency period. He pointed out that the "set to work" phase for the Oakey facility had commenced. He said it was evident in the circumstances, circumstances that would be known both to ASM and the Commonwealth, that refusal by ASM to carry out the training programme would put the whole of the completion of the Oakey facility at risk. 37 My view is that the evidence does not allow me to make the inferences counsel for ADI urged me to make. Indeed, what seems to emerge strongly from the evidence before me now (although there is no evidence from ASM) is that ASM contests any obligation to complete the work and is "unavailable" and, therefore, unlikely to do anything more than it is ordered to do by the Court. 38 My conclusion, therefore, is that an order in the terms now sought by ADI would have no practical utility and for that reason alone, I ought not to make it. 39 There were two other issues in contention at today's hearing which I shall note, although neither of them provides any unequivocal guidance to the exercise of my discretion to grant or refuse interlocutory relief. The first arises out of clause 19.1 of the agreement between Raytheon and ADI. To the extent relevant, that clause says in sub-cause 19.1.1 that where ADI is delayed in delivery of the supplies (defined to include provision of the training programme) by any cause arising out of breach of the provisions of that contract by Raytheon or out of any other act or omission on the part of Raytheon or "by any other cause" which unavoidably delays performance by ADI and is beyond its reasonable control, and could not have been reasonably contemplated or allowed for, and cannot be accommodated or rescheduled, then ADI may claim an extension of time by giving a notice to Raytheon no later than 21 days after the cause of the delay arose. 40 Counsel for ASM said that this clause may have been activated on two occasions: first, when delays occurred at an earlier time for reasons attributable to the Commonwealth and secondly, when "other cause" arose by virtue of ASM's letter of 27 June 2003 saying it would be unavailable to carry out the tasks. While there was no evidence that a notice had been given within the 21 day time period in respect of the earlier cause for delay, he said that the consequences of failure to give that notice should not be visited upon his client. So far as the second cause for delay was concerned, there was still time to give a notice within the 21 day time period. In either event, it would be open to ADI, according to ASM, to initiate the procedure in clause 19.1 to produce an extension of time, so as to enable ADI to respond without prejudice to ASM's unavailability to complete the work. 41 ADI's answer to this submission was that to attempt to trigger clause 19.1 would, in the present circumstances, be to enter into a dispute with Raytheon. The extension of time procedure may itself lead to litigation between ADI and Raytheon and could not be regarded as an appropriate remedy or answer for ADI in the circumstances produced by ASM's failure to honour its obligations. 42 My view of clause 19.1 is that it may well have been attracted in both of the circumstances intended by ASM, but I am not prepared to rely on the availability of clause 19.1 as a sufficiently satisfactory alternative to the application for interlocutory relief, that I would conclude for that reason alone that the interlocutory relief should not be granted. This is because I agree with counsel for ADI that the invocation of clause 19.1 would generate, in all probability, another front in the dispute which has led to the conflict between the plaintiff and the defendant. 43 The second matter relates to clause 19.2 which deals with default by ADI. Clause 19.2.1 authorises Raytheon by notice in writing to ADI to terminate the contract between them forthwith in the event of ADI: "(g) failing to commence work under the sub-contract [that is the contract between Raytheon and ADI], or proceeding at a rate of progress so as to endanger the due and proper completion of the sub-contract and failing to take action to remedy such default or tender compensation in lieu thereof within 30 days of being given notice in writing by the contractor [Raytheon] requiring the sub-contractor [ADI] to remedy such default." 44 Counsel for ASM said that this provision shows that the problem presented by the ASM letter of 27 June 2003 and its refusal to agree to attend for the training programme on 28 July is not as urgent as ADI suggests. The clause shows that if training does not commence on 28 July, then it will be up to Raytheon to give a notice under clause 19.2.1(g), and then ADI will have 30 days either to remedy the default, by finding someone else to carry out the training, or to tender compensation in lieu of doing so. That, according to ASM's submission, gives ADI sufficient time and there is no need for the Court to intervene by urgent interlocutory order. 45 The evidence before me now, in Mr Brookhouse's affidavit, is that replacement of ASM with another training programme provider will not be an easy matter. The difficulties of doing so are summarised in paragraphs 68 - 77 of the affidavit. They relate to the fact that the directors of ASM have special training, qualifications and experience, and there may be some difficulty in ADI obtaining access to all of the relevant equipment for the purpose of engaging someone else. The only evidence before me, that of Mr Brookhouse, is that it would take any new training company at least six months to familiarise themselves with the system, the remaining sites and preparation of the course training materials. Therefore, the further time provided for under 19.2.1(g) would not be enough time for ADI to remedy the default by finding someone else to do the work. The alternative of tendering compensation would undoubtedly lead to further disputation, given that there is no relevant definition which would assist in the quantification of compensation for that purpose. 46 It seems to me, therefore, that ASM's reliance on clause 19.2.1(g) would not be sufficient to persuade me, absent other considerations, to decline to grant of relief to the plaintiff on an interlocutory basis. However, that clause does show that there is some more time available before serious and potentially irremediable consequences are visited upon ADI in consequence of ASM's unavailability to carry out the Oakey training programme on 28 July. It seems there will be at least another 30 day period thereafter for something to be done. 47 That leads me to say, having regard to both clause 19.1 and clause 19.2 of the agreement between Raytheon and ADI, that there is a strong case for expedition of the present proceeding regardless of whether interlocutory relief is ordered. The position is that unless the dispute between the parties is sorted out, or absent that resolution, ADI makes arrangements for someone else to carry out the training work, there will be serious consequences for ADI under its contract with Raytheon and presumably serious consequences for Raytheon and the Commonwealth with respect to timely completion of the Oakey and Edinburgh facilities. 48 The Edinburgh facility has not yet been allocated a final timetable, but I was informed from the bar table that the training is likely to be required in about October of this year. It seems to me desirable, if it can be achieved, that an expedited final hearing of this proceeding should take place before then. 49 Therefore, I accede to the plaintiff's request that the matter be stood into the next available Expedition List. I should say that counsel for ASM agreed with that course. 50 On the question of costs, counsel for ASM asked me to make an order for costs in his client's favour. It seems to me there are too many gaps in the evidence at this stage for me to make any confident determination on any question of costs. It was not unreasonable, in my view, for ADI to initiate the present proceeding by urgent application for relief. What emerged, only during the course of final argument, was that no useful form of relief was formulated by ADI, having regard to the practical concerns that I have set out. The usual order for costs in these circumstances is that costs should be costs of the proceeding, and I shall make that order. **********

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