The plaintiff (ANS) is in the business of providing commercial cleaning services. The defendant (DC) is also in the business of supplying cleaning services to its clients. DC is part of the group of companies under the banner Mastercare Property Services (NSW) Pty Ltd ('Mastercare'). Mastercare is a very substantial corporate group, with divisions in cleaning, property and investment. DC subcontracts to provide the cleaning services at the premises of Mastercare's clients. During the course of proceedings, the names DC and Mastercare were used interchangeably and to some extent, I follow that practice in this judgement.
On 26 May 2016 the parties entered into a contractor agreement whereby ANS provided cleaning services to clients of DC, in consideration for payment by DC to ANS. Materially, at the time the agreement was entered into, those clients were Woolworths or entities associated with Woolworths. The contractor agreement was subsequently varied, adding or subtracting from certain sites (5 September 2016), or adding new clients, WesTrac and Coates Hire (November 2016). The content of the substantive obligations under the contractor agreement was otherwise unaffected, save that Woolworths' specific requirements may or may not have been applicable to WesTrac and Coates Hire sites. Nothing turns upon this.
ANS supplied its services to DC's clients in the period from 26 May 2016 to 20 March 2017, at which point DC purported to terminate the contractor agreement; alleging certain breaches. ANS invoiced DC for its work in approximately the sum of $634,000; about which only approximately $266,000 had been paid. By this proceeding, commenced on 23 August 2017, ANS sues (in debt and damages) for the recovery of its unpaid fees; being approximately $369,000.
For its part, DC accepts that it has not paid ANS' fees; although it disputes the quantum owed (and, to some extent, ANS' entitlements to render certain invoices). DC justifies its termination of the contractor agreement and refusal to pay the balance on the basis of allegations that ANS had breached the contractor agreement. In particular, the most significant breach was said to be ANS' use of subcontractors to perform the services. This, DC says, was in fundamental breach of the contractor agreement. DC estimates (and ANS does not seriously dispute) that approximately 90% of the work performed on behalf of ANS was performed by these subcontractors. It partly resists ANS' claim for unpaid fees by contending that it did not get the services it contracted for, which prompted DS' valid termination of the contractor agreement.
In its pleadings, DC said that as a result of ANS alleged breaches, it has lost business of Woolworths and is exposed to claims for economic loss. For this, DC has brought a cross-claim by which it sought damages.
In defence of that cross-claim, ANS not only contends that the termination of the contractor agreement was wrongful, but also brings a separate and additional claim (to its debt claim) claim for loss of profits that would have been made had the contract continued until its likely end. This separate and additional claim was quantified as approximately $292,000. DC resists the claim for loss of profits on the basis that it validly terminated the contractor agreement, and further and/or alternatively, ANS was not ready and willing to perform its contractual obligations in any event.
The aggregate sum of ANS' claims is approximately $661,000 plus interest.
During the trial, the parties identified an agreed list of issues for the Court's determination. They were:
1. whether ANS is entitled to payment of the sum it claimed ($368,876.90, based upon invoices in a spreadsheet prepared by Vivienne Thompson), some other amount or no amount. This issue requires resolution of the following subsidiary issues:
1. whether, as between 26 May 2016 and 20 March 2017, ANS provided all services required of it pursuant to its contractual obligations;
2. whether ANS and DC agreed (by express consent, or acquiescence to the known state of affairs) to amend cl 4.5 of the contractor agreement to permit ANS to sub- contract (including franchising) its work under the contract;
3. whether ANS breached cl 4.5 of the contract, such that it did not perform the services required of it;
4. whether ANS' claim on the invoices identified in the Thompson spreadsheet should be reduced on the basis that the following invoices were not owed:
1. a general challenge to invoices ($15,600.72);
2. WesTrac Tomago invoices ($88,913.85);
3. WesTrac Mt Thorley invoices ($16,830.78);
4. Woolworths Bathurst invoice ($3,576.43).
1. If ANS provided only some services in accordance with the contractor agreement (by using employees) whether ANS is entitled to payment in respect of any and all invoices referable to those services.
1. Whether DC is entitled to terminate the contractor agreement;
2. if the answer to (3) is no, whether ANS is entitled to damages for repudiation or wrongful termination of the contractor agreement (being a claim for lost profits);
3. whether ANS was entitled to terminate the contractor agreement on 20 March 2017 (including loss of profits) by reason of DC's breach of cl 8 of the Contractor Agreement, in not paying the invoices in (Ms Thompson's) spreadsheet, or such of them as are found to be payable.
4. whether Woolworths' termination of its agreements with DC (Mastercare) in relation to
1. Virginia store; and
2. Bathurst store
were each caused by ANS' breach/es of the contractor agreement
1. Whether DC suffered loss or damage (including lost profits) by reason of Woolworths' termination of the agreements referred to in (5 (a) and (b)).
DC emphasised, at the outset of the trial, that the plaintiff had only run a case on contract (with no case in restitution) and that no point had ever taken by the plaintiff as to the fairness or otherwise of the provisions in the contractor agreement.
[2]
The contractor agreement
The contractor agreement was expressed to be dated 28 May 2016. The agreement was scheduled to commence on that date. After some hesitation, Counsel for ANS accepted that I should find that the agreement was effective from that date notwithstanding that it was later executed in September. ANS referred me to cl 2.1 and its reference to a 'Head Contract'. It did so for the purpose of emphasising that although Daintree Contractors Pty Ltd was the 'Principal' to the contractor agreement, ANS actually dealt with an entity, Mastercare, which fell under the umbrella of the Woolworths group.
ANS had a general obligation to comply with specific terms and conditions contained in schedule 2, which deal with its conduct, including any person engaged by ANS, while performing the 'Cleaning Services' (cl 3.1). The Cleaning Services were specified in schedule 4.
The specific terms and conditions applicable to the Cleaning Services relevantly included that:
1. ANS would carry out the Cleaning Services with minimum disruption to the normal business activities at the premises (sch 2, cl 4);
2. ANS would immediately notify DC if there were any unforeseen shortages of materials or labour which would affect its ability to perform the cleaning services (Sch 2, cl 6);
3. all Cleaning Services performed by ANS would comply with all applicable statutory regulations, standards and codes (Sch 2, cl 9); and
4. ANS would ensure that in performing the services, it complied with all requirements and obligations of the applicable work health and safety legislation (Sch 2, cl 10).
ANS had a general obligation not to engage in conduct which may harm DC or one of DC's clients, and would at all times act in the best interests of DC (cl 3.3).
ANS was also prevented, without obtaining DCs prior written approval, from assigning or sub-contracting any portion of the contract to any other person or entity (cl 4.5). The provision noted that in the event that ANS assigned or some-contracted all or part of the contract, DC would consider that to be a fundamental breach of the contract and was entitled to terminate the contract immediately without notice. Further, DC would be entitled to seek damages from ANS in that event.
In certain versions of the signed contract in evidence, it is noted that a handwritten notation appeared on the right side of the page with the words "WRITTEN CONSENT IS REQUESTED". Mr Miller, chief operations officer of ANS, later identified himself as the author of that notation. ANS' position at trial was that DC had granted such consent or otherwise acquiesced to ANS using subcontractors to perform the work. As will be seen, there was a significant dispute at trial as to the application of this provision and what followed from its non-observance.
DC's, or more precisely, Mastercare's performance own obligations to Woolworths were reflected in the contractor agreement. First, it was Mastercare which provided the cleaning equipment (this being the result of an amendment). Secondly, DC had rights to receive regular reports from ANS on the progress of the latter's cleaning services, or to review the Cleaning Services actually provided by ANS (cl 5.4). DC had a right to appoint another contractor to perform the services, so long as that did not interfere with or prevent ANS from providing the Cleaning Services (cl 5.5). Such entitlements, ANS submitted, were relevant to the issue of proof of whether the work the subject of ANS' unpaid invoices was actually performed.
Clause 7 of the contractor agreement provided that ANS would be liable to DC in certain circumstances; including:
1. an agreement to indemnify DC and keep DC indemnified from and against all costs, claims, losses, damages, demands, liabilities, causes of action, proceedings. Brought about or made against DC in connection with ANS' acts or omissions in performing the cleaning services (cl 7.2); and
2. for ensuring that it met all of its obligations in respect of wages, long service leave, superannuation, workers compensation and public liability insurance payments (cl 7.3).
In this proceeding, DC had formally put in issue (in its Defence and in a Cross-Claim) two such potential, or prospective, liabilities: first, under the claims by ANS subcontractors for under-payments (under the Contractors' Debts Act NSW). Secondly, a claim by the Fair Work Ombudsman for payments to workers which did not comply with a relevant award (presumed to be the Cleaning services Award 2010). However, at trial, Counsel for DC acknowledged that the invocation of this indemnity was purely protective and that, at the time of the trial, no such liabilities had crystallised. The claim for indemnity was therefore abandoned.
ANS issued its invoices on a monthly basis pursuant to clause 8. Where it had performed the services, the provision entitled ANS to receive the agreed monthly value of the services, as stipulated in schedule 3. Initially, DC took a point concerning the application of clause 8.4. That provision required ANS to issue invoices which, among other things, attached a completed subcontractor form. The pro forma of such form appears in schedule 5 and, as was explained to me, had the purpose of ensuring that someone with the requisite authority within ANS would declare that all wages had been paid consistent with an appropriate award; that workers compensation and public liability insurances were current and that all payroll tax would be paid for the relevant period. DC says that many of the invoices did not annex this form.
As noted in relation to clause 4.5, there were other specific provisions (in DS favour) for termination of the contract, such as cl 4.3. However, the matter of termination of the contract was generally regulated, in a variety of ways, by clause 12. Clause 12.1 dealt with the situation of termination when DCs head contract with the client had come to an end. Clause 12.2 entitled either party to terminate, without cause, upon 30 days written notice.
In the events which occurred, DC relied upon clause 12.3. That provision conferred a right upon DC to immediately terminate the contract, without notice, (relevantly) if:
1. ANS repudiated the fundamental obligations of the contract
2. …
3. ANS neglected or refused to perform the cleaning services;
4. ….
In this case, in its notice of termination, DC referred to cll 12.3(c) and (a) (in the alternative).
[3]
Pre-contractual communications
ANS first learned of the opportunity to do business with DC in May 2016. Mr Grant Whatmore, who was then an ANS employee (its then Operations Manager), mentioned to Mr Ian Miller, the Chief Operating Officer of ANS, of the conversation that he had had with Mr Greg Brown, general manager of Mastercare. The gist of this was that Mastercare had a contract to provide cleaning services but was having difficulty with its current subcontractors. The prospective opportunity was for ANS to provide those services to various Woolworth stores across Australia.
ANS commenced to provide its services from on or about the date it entered into its agreement with DC on 26 May 2016. However the written contract was only executed in September 2016: Mr Miller (and Mr Klimowicz) executed it for ANS; Mr Colin Walker (Director of DC and Managing Director of Mastercare) executed the contract for DC.
[4]
Clause 4.5 and the use by ANS of sub-contractors
On 1 September 2016, Mr Miller sent an email to Ms Tanya Best, the Sales and Marketing Executive of Mastercare, in which he attached the signed contractor agreement. Ms Best was asked to "not(sic)" the following 'amendments'. One of those was to provide for Mastercare's (sic) written consent that some services may be sub- contracted at some or all of the sites (the other proposed changes relating to the obligation to providing cleaning equipment, under cll 5.1 & 5.2). Mr Miller explained that this annotation was his way of informing DC that ANS was taking steps to ensure that it could use subcontractors.
On 5 September 2016, Ms Best sent a cryptic email response, simply saying "Thanks". Mr Miller said that he took this indication as representing DCs consent to ANS's use of sub-contractors.
The version of the contractor agreement exhibited to Mr Walker's affidavit plainly indicates that some suggested changes sought by Mr Miller (relating to cll 5.1 to 5.2), on behalf of ANS, were countersigned or initialled (on the left side of the page) by Mr Walker. But no such countersigning or initialling had occurred in relation to clause 4.5 in response to Mr Miller's annotated request, "WRITTEN CONSENT IS REQUESTED". When the contrast between Mr Walker's apparent response to cll 5.1 and 5.2 (a clear indication of assent to the proposed alteration through his initialling) and cl 4.5 (effectively, silence) was put to him, Mr Miller said that he had not seen this version of the document until he had read Mr Walker's affidavit.
In cross-examination, Mr Walker was shown two versions of this part of the contractor agreement. Both versions commonly contained a striking through of clauses 5.1 and 5.2; along with the notation (inserted in the middle of the clauses) 'N/A'. However, one version contained his initials alongside the left side of the page; the other one did not. It was put to Mr Walker that this difference meant that it must have been Mr Miller who had struck through clauses 5.1 and 5.2 (and inserted the N/A) and not, as he had thought, Mr Walker. Mr Walker was confident that he had inserted the notation 'N/A', since he considered that those letters were in his handwriting; but, on this point, I consider it more likely that it was Mr Miller who struck through the lines. At any rate, I do not think the circumstance is material: what is material is that Mr Walker had initialled changes to two provisions in the agreement (cll 5.1 & 5.2) requested by Mr Miller, but had not initialled, or otherwise given written assent to Mr Miller's requested change to cl 4.5.
Mr Miller also gave evidence that he had heard telephone conversations between Mr Whatmore (at that stage, with ANS) and Mr Brown about ANS' proposed use of subcontractors, back in May 2016. This, Mr Miller said, reflected DC's knowledge that ANS' subcontractors were being used. Mr Miller also explained that the pricing terms of the contractor agreement were such that they could only have been economically viable (from the point of view of ANS) if subcontractors were used rather than employees. Since this evidence from Mr Miller only emerged in his re-examination, I granted leave to Mr Brown to supplement orally his affidavit evidence. The substance of his evidence was that Mr Brown was adamant that he was not privy to any discussion or conversation about ANS' proposed use of sub- contractors.
Mr Brown explained that one of Mastercare's difficulties with the predecessor subcontractor to ANS, in respect to Woolworths sites, was Mastercare's suspicion that the previous subcontractor had itself been using subcontractors (this was what was called 'third tier subcontracting'). On 14 June 2016, Mr Brown sent an email to Mastercare's various subcontractors on Woolworths sites across Australia, including ANS, attaching a 'record of tool box' which cited Woolworths' policies. The document emphasised that it was "imperative" that those policies were followed. They were described as follows:
"(1) there is to be no 3rd tier contracting. No exceptions!!! All staff working on WOW sites that are clean by you must be employed by you and paid in accordance with cleaning services award
(2) you must provide passports or vevo confirmation that each employee that works on the WOW portfolio has the right to work in this country and is abiding by the restrictions of their Visa ie limits to allow hours of work
(3) all staff must have a current Pegasus card and must present yet when arriving on any WOW site. This identification must be on their person and visible at all times whilst on site."
On 15 June 2016 there was an email to Mr Brown, in response, purporting to attach the completed version of this 'Record of Tool Box Talk'. That completed version appeared to show the signatures of various ANS personnel, Messrs Klinkenberg, Batrac and Raymond; the effect of which might represent ANS' acknowledgement that its staff was, or would continue to be directly employed by it. As it transpires, all of Messrs Klinkenberg, Batrac and Raymond denied affixing their signatures to this document and a cursory comparison of their purported signatures set against their signatures in their affidavits support such denials. In short, the purportedly signed record of tool box talk is a forgery. I do not treat the document in any way adversely to the parties, or indeed material to the issues in this case, subject to one qualification. The qualification is that Mr Brown's preparedness to send the document to Mr Whatmore, on behalf of ANS, does tend to reinforce his evidence as to the importance, to DC, that ANS not use subcontractors (at least) on Woolworths sites.
[5]
Relevant contractual provisions
On 19 October 2015 Woolworths entered into a cleaning services agreement with Mastercare with an initial term of three years with a (potentially) extended term of one year. This agreement contained, relevantly, certain general service obligations. One of those set out, in clause 5.2, a performance management process ('PMP'), which was applicable to all services carried out by Mastercare at all the sites. Because of its significance to DC's relationship to ANS, I will set out relevant parts of the constituent elements of this PMP:
"(b) without limiting clause 18 of this agreement and in addition to compliance audits under clause 5.4 .. Woolworths may issue an Improvement Notice to the supplier in respect of any non-compliance with the Supplier's obligations under this agreement.
(c) If the Supplier does not rectify the areas of non-performance within the time stipulated in the improvement notice, Woolworths will issue an 'At Risk Notice' to the supplier … If the Supplier fails to meet its obligations under the agreement by the time specified in the at risk notice, Woolworth may immediately terminate the agreement in whole or in part in respect of the applicable site."
Other relevant provisions in this agreement concerned Woolworths' payment obligation to Mastercare (cl 15) and the termination provisions (cl 18). In relation to the former, counsel for ANS emphasised Woolworths' very prescriptive requirements for the issue, by Mastercare, of a correct invoice (cl 15.5), in contrast to ANS' own requirements to DC of the contractor agreement. This included, relevantly, provision (along with an invoice) of documents that adequately demonstrated to Woolworths the services were provided and the basis on which the amounts were claimed. Clause 15.6 also provided a mechanism for the resolution of disputes; whereby Woolworths was obliged to pay all non-disputed invoices even while there was a dispute concerning a portion of a particular invoice. (This again, contrasted with the contractor agreement, which contained no express dispute resolution regime for the payment of ANS invoices).
Clauses 3.5(a) and 18 set out several pathways for Woolworths to terminate Mastercare's services. The content of this clause is material to DC's cross-claim in so far as that claim concerns a claim for lost profits. Specifically, in the case of each of the Virginia and Bathurst sites, Woolworth invoked its rights under clause 3.5(a). That provision stated that:
"Woolworth may, on at least 15 Business Days' notice to the Supplier, terminate the Services at a specific site for convenience." (emphasis added)
It will be noted that there is no reference in this provision to any aspect of the PMP referred to in clause 5.2.
Clause 18, in paraphrase, set out rights to Woolworths to terminate:
1. without cause, upon 20 Business Days' notice (cl 18.1);
2. with cause, for a range of circumstances (cl 18.2);
3. a service in respect of a site with cause if the Supplier failed to perform the Services at that site in accordance with the agreement (cl 18.3); (emphasis supplied)
4. in relation to any insolvency of Woolworths, or any termination by Mastercare for non-payment of a non-disputed invoice (cl 18.4).
It may also be noted that cl 18.3 arguably would entitle Woolworths to terminate a Mastercare service at a particular site arising from the PMP referred to in clause 5.2. Woolworth did not however, expressly invoke such right when it terminated Mastercare's services at the Virginia and Bathurst sites.
[6]
Woolworths' correspondence with Mastercare (prior to commencement of the contractor agreement)
Mr Brown said in his affidavit that in early 2016 Mastercare was experiencing difficulties with subcontractors carrying out work at a number of Woolworths supermarkets in New South Wales and South Australia. He received a recommendation to speak to Mr Grant Whatmore, of ANS, with a view to changing the subcontractors for those sites.
A general feature of the evidence in relation to ANS' performance of its services on the Woolworths sites concerned the issue of various notices from Woolworths to Mastercare as part of a "PMP". I referred to the relevant provisions of Mastercare's agreement with Woolworths concerning this process above, but it is of some significance to note the interpretation of Messrs Brown and Walker to this process as it affected their beliefs as to DC's entitlements as against ANS. Understandably, they believed that the issue of these notices naturally reflected upon the performance of Mastercare; even though it was ANS workers who were performing the cleaning services. Their evidence was to the following effect: there were three kinds of notice. An 'improvement' notice was issued by Woolworths following an inspection by one of Woolworths coordinators, where matters required attention and improvement. Such notice gave Mastercare seven days to rectify a particular issue or issues. Mastercare would write up an 'Action Plan' to rectify the issues and was expected to submitted to the relevant Woolworths office. Mastercare's store manager would then have to sign off on the fact that the issue or issues have been appropriately dealt with. If it was not, the second step was the issue of an 'At Risk' notice. This was the next step in an escalating process which indicated that Woolworths did not consider that the issue or issues in the early notice had been fixed and, unless remedied within the following 7 days, Woolworths would proceed to terminate the contract for that particular site. Mr Brown accepted that once the matters in this particular form of notice had been dealt with, the 'slate had been wiped clean'. But if not, the third and final step would be the issue of a 'termination' notice, whereby Woolworths terminated the contractor's engagement at the relevant site. ANS was, or would, have been privy to Woolworths' performance management process: it was described in the original specifications and documents that Mr Brown had sent to Mr Whatmore in the middle of May 2016 and was the subject of general discussion in meetings at Woolworths sites.
Pausing here, it will be seen that the interpretation of Messrs Brown and Walker, in effect, that termination would automatically follow from an inability to rectify issues raised in an 'At Risk' notice, appears erroneous if regard is had to the text of the provisions of Mastercare's contract with Woolworths I have referred to.
These notices were important from Mastercare's point of view: such documents were kept on Woolworths file and may be relevant to future tenders by cleaning services companies like Mastercare.
Mr Brown met Mr Whatmore in May 2016 and the latter relevantly represented ANS' experience in cleaning supermarkets and, in particular, its previous cleaning of Woolworths supermarkets. On 17 May 2016, Mr Whatmore sent several documents to Mr Brown, including pricing information and insurance details, so as to enable ANS to commence cleaning Woolworths supermarkets. On the basis of Mr Brown's discussions with Mr Whatmore (and the documentation the provided), Mr Brown recommended to Mr Walker that DC retain ANS to provide cleaning services at the Woolworths supermarkets. On 27 May 2016, Mr Brown instructed ANS to commence the cleaning of three Woolworths' stores. Mr Brown personally demonstrated to ANS cleaners what was required in an induction process that took place between 27 and 29 May.
Mr Brown accepted in cross-examination that as at May 2016, Mastercare had had a variety of issues in its relationship with Woolworths, 'across-the-board'. He also accepted that at that point, it was an urgent task for him to obtain new cleaners to replace its existing subcontractors. Mr Walker similarly agreed that at the time that ANS contracted with DC, the latter was having difficulties with Woolworths; and accepted that it/Mastercare was at risk of losing Woolworths as a client.
It was put to Mr Brown that by late May 2016 the relationship between Mastercare and Woolworths in relation to the site had irretrievably broken down. Mr Brown disputed this characterisation; noting that a relationship could not be described in that way until termination had actually occurred. As at 26 May 2016, Mr Brown believed that the relationship would have been possible to retrieve if the requirements of the extant 'At Risk' notice had been met.
[7]
Mastercare's general dealings with ANS re Woolworths sites
Although the specific issues identified about Woolworths sites narrowed at the trial to the issues concerning the Virginia and Bathurst sites, it is pertinent to refer to some other aspects of Mastercare's general dealings with ANS in respect to Woolworths sites. It does tend to indicate some of the "across the board" issues (particularly in the SA Stores) or difficulties that Mastercare was experiencing with Woolworths.
On 10 July 2016, Mr Whatmore sent a lengthy email to Mr Brown titled 'Woolworths SA issues', which generally reported upon Mr Whatmore's discussions with Mr Batrac, which discussions were themselves referable to Mr Batrac's meeting with a Woolworths employee (Valerie Lagos). One of the dot points in the email was as follows: "She (Valerie) has indicated there are other contractors waiting to take over the sites from Mastercare - Yes I have heard this and have addressed it with Woolworths".
On 13 July 2016, Mr Walker sent an email to Mr Miller, referring to a Mastercare QA register, and commenting upon Woolworth complaints about the cleaning services in New South Wales and South Australia. Based upon information he received from Mr Brown and Mastercare's area management, Walker listed those problems (and supplemented them with some commentary) by saying (amongst other things):
"The real problems are:
(a) once a complaint is rectified it re-occurs;
(b) there is no sense of urgency in fixing complaints;
(c) the majority of the WOW rectifications/complaints have 7 days to fix .. Plenty of time really;
(d) in the case of Adelaide most action happens 2 days before the inspection on the 7th day… crazy
(e) the site does not then pass and we then receive an improvement notice
(f) and if the site does not pass the improvement notice we then receive an At Risk notice and if the site fails then we are terminated ….
….
(g) Your problem is Elvis (Batrac) is either lost interest and or stretched too thin and seems disorganised, for example, when receiving complaints does not action immediately instead waits days before taking action. You also need more supervision as area management or existing management to spend the time checking the Mastercare sites. .."
There was some dispute as to whether or not an improvement notice for Woolworths Stirling issued on 27 June 2016 was extant: it did not appear in Mastercare's July QA Report. Given that this was a Mastercare document, I infer that if issues concerning the Stirling store had remained, it would ordinarily be expected that they would have been referred to in the July report. Since there was no such inclusion, I infer that the issues in respect to Stirling had gone away, at least as at that month.
Mr Brown (who said he understood these reports) accepted that, with the exception of Woolworths Bathurst, every "Improvement Notice" or "At Risk" notice had been closed off by the time that ANS was removed in March 2017. This included a Dan Murphy's (Welland) store, which had been subject to an Improvement Notice on 9 June 2016, but which was closed off on 12 July 2016.
Mr Brown accepted that at least by September 2016, any issues which may have existed as between Mastercare and ANS had all been resolved. On 9 September 2016 one of DC' regional managers, Jasmin Halivlovic, sent a message of thanks to Messrs Whatmore and Batrac for the "great work" and service ANS was providing out in the Woolworths sites. Mr Brown said, and I accept, that the context suggested that this was a reference to the South Australian sites.
[8]
Woolworths Virginia
This site, and the Bathurst site in New South Wales were the focus for DC's complaints about ANS cleaning services to Woolworths.
In cross-examination, Mr Brown accepted that various notices have been issued by Woolworth in relation to this store ever since February and March 2016; that is well before ANS arrived on the scene. This store was the subject of an improvement notice on 9 May 2016 and, thereafter an 'At Risk' notice issued on 16 May 2016. It was then subject to a further improvement notice on 30 May 2016.
The contractor agreement listed the commencement date for work on this site as 3 June 2016, but Mr Brown noted that ANS commenced cleaning at this store on 7 June 2016.
Mr Elvis Batrac was ANS' South Australian operations manager. He was responsible for organising the provision of cleaning services to the Woolworths store at Virginia (South Australia). He deposed in his affidavit to receiving an email from Mr Whatmore on 4 June 2016, which forwarded on an email from Mr Brown requesting that ANS perform the work, given that DC no longer had confidence in its current cleaners.
Initially, as at 7 June 2016, Mr Steve Raymond was responsible for this store. Mr Raymond noted, in his affidavit, that Mr Whatmore had asked him to organise for a start at this site earlier then the foreshadowed starting date. Speaking generally in his affidavit, Mr Raymond observed that when he attended the various South Australian stores (including, I infer Virginia), the store appears to be in a state of disrepair, prior to ANS commencing to provide services. Given DC's acceptance of the many problems associated with these stalls and the urgent circumstances in which ANS was asked by Mastercare to commence its services, I accept Mr Raymond's evidence in this regard.
Whilst placed in the position of responsibility, Mr Raymond visited the site on 5 and 6 June 2016. He did this so that he could oversee their work and ensure that the cleaners could properly clean the floors, toilets and lunch rooms and comply with the Woolworths specifications manual. He accepts that the cleaners he had organised to attend Woolworths Virginia were subcontractors.
On 7 June, Mr Batrac said he went to the site and undertook a quick inspection.
As noted, as at 9 June 2016, this store was already subject to an 'At Risk' notice from Woolworths. That notice (dated 8 June 2016) cited, among other comments, safety concerns about the unauthorised use of chemicals, decanted chemicals, no strip and seal and concerns about the trading floor, including there being no polish on the floor (not being buffed daily), a very average standard of clean, dust and dirt build up surrounding bollards, and a build-up of stock/rubbish and dirt.
Mr Batrac received a 'QA' report stipulating DC/Mastercare's requirements that ANS was asked to attend to. Mr Walker recognised that, at the time ANS commenced at this site, it did not have a "clear run", in the sense of no pre-existing difficulties to contend with, but he expected that it had the capacity to resolve the issues. This expectation, Mr Walker explained, arose through his understanding (informed by Mr Whatmore had told him) about ANS' prior experience in working at Woolworths' sites.
On 10 June 2016 ANS received the covering email which attached an 'At Risk' notice from Woolworth. The next day, Mr Brown sent an email to Mr Whatmore and others, emphasising the critical nature of the 'At Risk' notice and authorised ANS to use extra hours to rectify the concerns.
The following day (a Saturday), Mr Walker sent an email to a number of people, including Mr Whatmore and Mr Batrac (of ANS), emphasising the critical importance that all the defects listed on the 'at risk' notice be rectified over the weekend and the strip and seal completed on the Monday. Mr Walker instructed them to utilise the extra hours in the detail cleaning and, if required, utilise more hours. He also instructed Mr Whatmore to "explain nicely (to Woolworths' store manager) that you guys had been 'dropped into it' and would have the defects rectified by Tuesday morning.
Mr Raymond did not see this 'At Risk' notice. Mr Batrac did. In his affidavit, Mr Batrac said that on 13 June 2016, he attended the site to undertake a 'Strip and Seal'. He took photos of the store before and after completing this work. On about the same day he says he met with Mr Walker and the Woolworths store manager, named 'Andrew'. Mr Batrac referred to a meeting with Mr Walker on 13 June, also in the presence of Woolworths' store manager, Andrew. According to Mr Batrac (who was not challenged on this point), Andrew had said that "things had improved since Advanced had been brought on", but he was not prepared to sign off on the risk notice yet. He wanted to see more consistent improvement and wanted things to keep improving before signing off on the dismissal of the risk notice".
Mr Batrac deposed to a separate meeting with Mr Walker. He says he explained to Mr Walker that the Virginia store manager would not sign off on notices until he saw prolonged levels of improvement: previous equipment failure, lack of equipment, such as swing polishers for upstairs areas. He also recalled Mr Walker using disparaging words about the Woolworths store manager (Andrew). Mr Walker did not respond to Mr Batrac's account of conversations at this meeting in his affidavit (although he identified a meeting with Mr Batrac on 14 June). Further, Mr Batrac was not cross-examined on his recollections of these conversations. I accept his recollections of what Mr Walker said to him.
On 21 June 2016, Ms Sarah Tutty, of Woolworths, sent an email to Mr Brown which referred to and attached photos of a damaged floor at the site arising from the cleaners use of the buffer. (An internal Woolworths email that day, anticipating a claim against Mastercare for damage, ended with the disparaging aside that "They (referring to Mastercare) clearly do not know what they are doing from a cleaning perspective".)
Mr Brown virtually immediately sent an email to Mr Batrac asking how the damage to the floor could have happened and demanding a response that day. Mr Batrac's response was the effect that there were many irregularities across the whole shop: plastic joining strips lifting, tiles lifting, floor plates and drain access plates not sitting flash, cuts and abrasions on the floor. Mr Batrac put this down as an accident and asserted that this was in no way attributable to the buffer machine.
Co-incidentally, on 21 June 2016, Mr Walker inspected all Woolworths South Australian stores, including Virginia. (He had earlier inspected the site on 14 June 2016). Mr Walker sent an email to Mr Batrac, which in substance was to the effect that as a result of ANS' cleaning services, Mastercare's cleaning rate, as determined by Woolworth, was higher; and Mr Walker had noted that the Virginia "floors look good".
At an unspecified date around this time, Mr Batrac said, in his affidavit, that he had a conversation with Mr Brown regarding the state of the site. Mr Batrac recalled telling Mr Brown that Mastercare had failed to provide ANS with a swing polisher for the upstairs part of the site; making it difficult for ANS to do what Mastercare wanted. He said that Mr Brown had responded that it was not his problem; to which Mr Batrac asserted that the store was failing to provide correct stock and chemicals for ANS' cleaners to use. Mr Brown did not refer to any such conversation in his affidavit; but Mr Batrac was not challenged on the veracity of his account of such conversation in cross-examination. I accept his evidence in this regard.
On 5 July 2016, Woolworths terminated the Mastercare contract for the Virginia site. The notice of termination provided no specific factual explanation for Woolworths' decision. There was no express reference to a lack of improvement in cleaning standards following the previous issue of an 'At risk ' notice. The termination notice cited Woolworths' entitlement to terminate on 15 days' notice.
Mr Walker said in his affidavit that he was surprised and disappointed to receive this notice, even though he had understood that there had been serious concerns relating to this site. He said that he had thought those issues were being addressed by ANS. He said that his initial reaction was that it was unreasonable that Woolworths terminated the contract given that it was an old store and the floor was difficult to clean according to the necessary standards. When he gave evidence under cross-examination, it was put to him that he thought it was wrong for Woolworths to terminate the contract at this site. He did not disagree.
In a summary contained in his affidavit, Mr Miller (of ANS) noted that in the cleaning industry, once an 'at risk' notice was issued by a client, it is usual that the next step that a client would take is to terminate its arrangements. He also noted that in the period of just over a month in which ANS provided services in respect that this site, no notices had been issued by Woolworth to Mastercare. That summary was not challenged by Mastercare/DC.
It was put to Mr Brown that the real reason for Woolworths' eventual termination of its arrangement with Mastercare/DC in relation to the store was that neither DC nor ANS made the Woolworths store manager feel comfortable or managed him well. Mr Brown disagreed with this proposition. But on 7 July 2016, Mr Brown sent an email to Mr Whatmore in which he reported a comment from the Woolworths store manager to the effect that the termination notice was issued since "we" had not made the store manager feel comfortable or managed him well. In its context, the "we" could only have been a reference to Mastercare - ANS had no role in managing Woolworths. This report, if true (and no one was called from Woolworths to indicate why it terminated its contract with Mastercare at this particular site) would tend to show that Mastercare's relationship with Woolworths was decidedly precarious, at least in relation to this site, if such explanation could be given as the ostensible reason for the termination of Mastercare's relationship in respect to this Woolworths' site.
Curiously, the contractor agreement (by amendment) stipulated that ANS' work for this site was terminated only from 31 July 2016.
[9]
Woolworths Bathurst
The contractor agreement listed the commencement date on this site as being 16 June 2016.
In his email to Mr Whatmore on 7 July 2016, to which I refer above, Mr Brown referred to the store being subject to the issue of an improvement notice. He described the Bathurst store as a "disgrace".
On 13 July 2016, Mr Brown was copied into an email that Jasmin Omerbegovic (one of Mastercare's regional managers) had sent to Mr Klinkenberg, concerning a quality assurance (QA) report required for this store, the delivery of a buffing machine and failure to return communications.
Mr Klinkenberg was not initially involved in the provision of cleaning services to this store. Mr Klinkenberg's involvement with this site commenced in about the middle of October 2016 when he was asked by Mr Whatmore, essentially, to fix problems that had emerged from Mastercare's previous subcontractors. Mr Whatmore had referred him to the history of this store being the subject of three improvement notices. Mr Klinkenberg first attended the store on 19 October 2016.
On 19 October 2016, Mr Klinkenberg performed a 'Strip and Seal' and after he had finished, the regional managers from Mastercare (Jasmin Halilovic and Jasmin Omerbegovic) confirmed that the matters in a QA report for the store (detailing matters requiring rectification) had been addressed. Mr Klinkenberg later sent an email to Mr Halilovic, noting that according to Mastercare's apparent ratings, ANS' work had represented some improvement from the previous cleaners. Mr Klinkenberg said in his affidavit, and I accept, that when he attended the site on 25 October, he saw the Woolworths' site manager sign off on Mastercare's QA report.
An improvement notice had been issued by Woolworths in relation to this site on 21 October 2016 for unsatisfactory cleaning standards. It is not clear, in the evidence, what happened in response to this notice before a further improvement notice was issued by Woolworths in connection with this site on 15 November 2016. This (latter) notice contained an allegation that cleaners are taken product off the shelves without paying for them.
On 16 November 2016, Woolworths had sent Mastercare a 'Store Check Report, detailing a large number of matters that needed to be rectified for this store. Mastercare, in response, devised a rectification plan.
On 16 November 2016, Mr Brown had also sent an email to Mr Whatmore indicating that ANS would be "exited" from cleaning all the Woolworths stores that they were currently cleaning for Mastercare. The same day, Mr Klinkenberg said in his affidavit that he had received a call from Mr Whatmore; in which the latter told him that Mastercare did not want ANS continuing to clean this store and in response to Mr Klinkenberg's inquiry as to why, Mr Whatmore said that Mastercare wanted to bring back its previous contractor.
The tenor of Mr Klinkenberg's affidavit evidence was that it came as something of a surprise to him when he was told by Mr Whatmore on 16 November 2016 that ANS would no longer be continuing to clean the store anymore. Under cross-examination Mr Klinkenberg denied that he had received any indication from Woolworths that notices would be issued. According to his affidavit evidence, Mr Whatmore told him that DC want to bring back its previous contractor. Mr Klinkenberg had reported to Mr Miller (on 17 October 2016) that whereas Mastercare's previous contractor had scored 65% for quality, ANS' improvement had been assessed at 72%.
On 17 November 2016, Mastercare instigated an action plan to rectify issues associated with that notice.
On 18 November 2016, an internal Mastercare email (which was copied to Mr Brown) indicated that all items on the QA and the improvement notice had been rectified. The message was signed off: "Please close this job." It appears from this, that at the point where ANS was being transitioned by DC, out of the Bathurst site, in order to perform work elsewhere, there were no outstanding matters requiring rectification.
ANS completed its involvement on this site on 20 November 2016. It was put to Mr Brown that DC's attitude was that DC could do what it wanted, irrespective of ANS's rights or expectations. Mr Brown explained that his priority was to ensure that DCs clients were getting the best service; which I do not regard as a fully responsive answer. At any rate, Mr Brown said he thought that ANS would be better suited to what he regarded as the easier sites associated with Coates Hire and WesTrac.
From the time that DC had 'exited' ANS from all Woolworths sites (including Bathurst) on 16 November until 22 November, there were no further developments concerning the site. Then on 22 November, an 'At Risk' notice was issued. It was received by Mastercare on 23 November 2016. Mr Klinkenberg had left this site two days before. This notice contained a similar complaint to that which had appeared in the 'Improvement' Notice issued on 15 November 2016, namely that a product had been taken off the shelf and not paid for. In the 'At risk' notice of 22 November, the product was identified as magic stainless wipes. No product had been identified in the earlier improvement notice of 15 November.
Then on 8 December 2016, Mr Brown received a communication from Sarah Tutty (of Woolworths), advising that the store cleaner had been caught twice taking stock of the shelf, as well is using the same cloth to clean the toilets and thinks. The basis for this conclusion was not made clear. At any rate, these situations, she said, were "serious". She had noted that both situations had been addressed with Mastercare previously but no action had been taken in terms of replacing the cleaner.
On 9 December 2016 Woolworths terminated Mastercare's agreement in relation to the Bathurst store. As with the Virginia site, the notice of termination indicated Woolworths' reliance upon cl 3.5(a) of the cleaning services agreement; entitling it to terminate a service in relation to a particular site "for convenience". This was a matter of a few weeks after Mastercare had removed ANS as it cleaners for this site.
That same day, Mr Walker described the termination, in an email to Mr Brett Cooper (Woolworths) as being "plain wrong" and stated that he did not accept it due to the ongoing matters involving the site.
On 13 December and on behalf of Woolworths, Ms Tutty responded by saying that the termination was and referred to the store's cleaning standards being "unsatisfactory of late".
In his affidavit, Mr Walker said that by early December 2016 he decided to terminate ANS contract for the cleaning of the Woolworths stores. He was not challenged on that evidence and I accept it. Be that as it may, it is not apparent whether DC took any formal steps to terminate ANS association with Woolworths' stores (and then, involving the entirety of the relationship with ANS) until March 2017.
In its notice of termination of 20 March 2017, DC referred, amongst other things, to ANS repeated failures to carry out cleaning at the Bathurst site. The notice was no more specific than that: it did not, for example, raise Mastercare/DC's apprehension that Woolworths had terminated services for this site as a result of any alleged theft by cleaners at that site.
[10]
WesTrac Mt Thorley & Tomago
In his affidavit, Mr Brown said that towards the end of October 2016, he thought that ANS might be better suited to what he regarded as easier cleaning sites, being some WesTrac and Coates Hire sites, with a view to lesser involvement with Woolworths. In issue in this proceeding was WesTrac's 23 hectare site at 1 WesTrac Drive, Tomago and a smaller site 11 Mt Thorley Rd, Singleton, both being in NSW.
ANS' contractor agreement with DC was amended so as to indicate its commencement on WesTrac sites in November 2016. The starting date for the Tomago site was 7 November 2016. The starting date for Mt Thorley site was 14 November 2016.
Mr Brown was challenged as to his explanation for why ANS was being shifted to the WesTrac sites. He differentiated the degree of difficulty between servicing retail centres such as Woolworths; compared to office buildings. It was suggested that because of the large quantity of sites and the difficulty of getting cleaners on time at the appropriate hours meant that servicing of WesTrac (and Coates Hire, which was part of the same group) was, indeed, more logistically difficult than ANS' previous responsibilities for the Woolworths sites. It was put to him that the decision to transition ANS out of Woolworths had nothing to do with any lack of satisfaction with ANS performance on the worksite and more to do with Mastercare's own interests. It was put to Mr Brown that, in reality, there was no practical difference between Woolworths sites and WesTrac (and Coates) sites. Mr Brown disagreed with this. In re-examination, Mr Brown explained that there were differences, in the levels of foot traffic, corridors and (in the case of the latter sites), the absence of food and perishables on site. It strikes me that it is obvious that there would be different requirements between Woolworths stores and WesTrac stores; although whether or not the degree of 'logistical difficulty' was the same is hard to say.
In his affidavit, Mr Walker explained that the decision to deploy ANS at the WesTrac and Coates Hire was based on two reasons: first, the commercial sites were a lot easier and simpler to clean than a supermarket; secondly, ANS had performed jobs for the 'Goodstart Early Learning' business located near some of the WesTrac/Coate Hire sites; so it was likely that it would be easier for ANS to manage and supervise these sites. Mr Walker added that the WesTrac sites did not require cleaning on a daily basis. I did not follow ANS' complaint that by reason of this switch to WesTrac stores, DC had breached ANS' rights - this was not at any rate, the subject of any pleaded complaint.
At any rate, in its notice of termination, DC justified termination of the contractor agreement, in part (particular (b)), because of ANS' failure to carry out cleaning services and required hours at the Tomago site, between 3 January 2017 and 16 February 2017. On its face, this description is ambiguous: Counsel for ANS construed the complaint to relate only to the temporal aspect of under servicing; rather than the actual adequacy of the cleaning services when they were performed. I think that is a reasonable construction: having regard to particular (a) in the notice of termination, which emphasised the 'unsatisfactory' nature of ANS' work performed at the Woolworths Virginia site, it was open to DC to cite, as a particular of breach, the adequacy of ANS' performance at the Tomago site if it wanted to. In short, the description of this particular of breach works against DC.
Nevertheless, a general issue for determination is the quantum of ANS' claim and, in that connection, DC has put in issue invoices issued in connection with works at WesTrac Tomago and WesTrac Mt Thorley.
Accordingly, it is necessary to consider the evidence of ANS's provision of services to these two specific WesTrac sites for the entirety of the relevant period.
On 21 November 2016, Mr Brown received a general complaint by Ms Angelini Wati, procurement manager at WesTrac that Mastercare had not met its KPIs as per the contract. She warned him that Mastercare had two weeks from now to get it issues sorted so that it could continue to contract further same day, Ms Wati notified Mr Brown of complaints at the Tomago store, dealing with such things as no bin liners (Admin), the non-removal of rubbish (Cat shop) and mirrors not cleaned properly; as well as toilet paper running out in the women's toilets located near the waratah storeroom.
On 24 November 2016 Ms Wati made a further complaint to Mr Brown about the cleaning of the toilets at Tomago.
On 28 November 2016 Ms Wati sent an email to Mr Brown attaching a spreadsheet of identified cleaning issues at Tomago from 23 November 2016 to 28 November 2016. To some extent this was a summary of the earlier notifications to him. The document listed things such as toilets smelling the other side of building and not cleaned properly, floor is not mopped in building L, the ladies toilet bowl not been cleaned for a while, rubbish being left outside the door, numerous days of dried urine on the floor beneath the urinal in the parts admin toilets.
On 2 December 2016, Mr Brown received notice of further cleaning issues at Tomago: issues with cleaning; desks had not been cleaned, floors were dirty, scrap paper bins were not indeed; and the men's bathroom had not been cleaned at the same previous standard.
On 15 December 2016, Mr Brown received a call from Darren Wingrove, of WesTrac, regarding an incident that occurred at the Mount Thorley site. The contemporaneous evidence does not reveal the specific concern, however Mr Brown apologised for what he took to be unprofessional behaviour displayed by Mr Les Ponting.
On 19 December 2016 Mr Brown received notice of a complaint that the main male change rooms at the Tomago site had not been cleaned for over a week. A complaint three days earlier had also been made about the toilets in the lunch room and cafe area not being clean at all.
On 4 January 2017, David Pilton of WesTrac sent an email to Mr Brown complaining about a repeated failure to clean the first aid room at the Tomago store.
On 12 January 2017, Mr Pillton sent an email to Mr Brown requesting an update on the numbers of cleaning personnel assigned to the Tomago site. He expressed his view that there were still inadequate numbers of competent cleaners assigned to the site to achieve the desired cleaning standard. At the same time he indicated that he had lost all confidence in the cleaning quality. Ms Nyman (also of WesTrac) sent an email to Mr Brown early that day complaining about the absence of toilet paper in the men's toilet (in the stalls) and the failure to clean the floors. Earlier, Ms Nyman also noted a bad odour coming from the hand dryer in the men's toilet.
On 13 January 2017, Mr Brown had a general discussion with Mr Whatmore, in Penrith; in which, relevantly, he provided a warning to ANS that needed to fix recurring problems and communicate with Mastercare. Mr Brown's evidence, in this respect, was unchallenged.
On 7 February 2017, after having received a complaint about a different WesTrac site (at Albury), Mr Brown sent an email to Messrs Whatmore and Klinkenberg putting ANS on notice it had one week to sort out its portfolio or (Mastercare) would find other cleaners.
On 16 February 2017, Mr Klinkenberg notified Mr Brown that Mr Whatmore's employment by ANS had been immediately terminated.
Mr Ewald Klinkenberg was ANS' Operations Manager. He was responsible for the company's services at Mt Thorley. He said in his affidavit that he got involved approximately two or three months after the store had been given to ANS. In his affidavit, Mr Klinkenberg said that one of the issues his company face was that WesTrac's expectations did not reflect what was required of ANS in accordance with the scope of the works, a 'Daily Task List' which set forth numerous tasks in different parts of a site (offices, toilet rooms, change rooms, kitchens and lunchrooms).
In the course of his cross examination, Mr Klinkenberg was referred to some of the litany of specific complaints (exhibited to Mr Brown's affidavit) about the quality of cleaning services, affecting either WesTrac Mt Thorley or Tomago (predominantly concerning the latter) in the period from November 2016 to late February 2017. Mr Klinkenberg had referred to Mr Brown's affidavit on another topic in his own affidavit in reply, but did not say anything about the matters Mr Brown had raised about the WesTrac stores at Tomago or Mt Thorley. The questioning was not objected to. Mr Klinkenberg did not address these complaints in his affidavit in reply. Under cross-examination, he generally accepted that the complaints did, in fact, concern services that fell within the scope of the works.
[11]
Lead up to termination of contractor agreement
Mr Walker, who was responsible for the decision to terminate the contractor agreement, said in his affidavit that he had formed the view, based upon his own observations and the reports that he had received, that ANS was incapable of delivering satisfactory cleaning services by mid-March 2017. But when he gave evidence, under cross-examination, he said that he had taken the decision to terminate the agreement in late January 2017 or early February 2017.
On 20 February 2017, Mr Miller notified Mr Brown that Mr Whatmore no longer worked for ANS.
On 24th February 2017, Mr Miller and Mr Brown exchanged a series of text messages. In one of those messages, Mr Brown conveyed to Mr Miller how Mastercare had felt embarrassed and let down by what had occurred at WesTrac Tomago.
On 8 and 9 March 2017, Mr Miller was taking steps to arrange a meeting with Mr Brown; apparently, to discuss the matter of ANS' unpaid invoices. It was put to Mr Brown that he was trying to avoid such a meeting and, in the light of evidence later given by Mr Walker, to the effect that Mr Brown should not respond to Mr Miller's demands and in spite of Mr Brown's denial, I accept that this was the position.
Mr Brown acknowledged that as at 10 March 2017, Mr Miller was trying to talk with him about ANS' unpaid invoices. That day, Mr Miller sent Mr Brown an email providing a "snapshot" of the accounting position as at 7 March. This provided a specific breakdown totalling what amounts were owing for the Coates, WesTrac and Woolworths sites. Mr Brown said that he would have forwarded this on to Ms Li or Ms Chan, within the accounts section of Mastercare.
Mr Miller had not received a response to his email to Mr Brown of 10 March, so on 13 March, he sought an update (by email) from Mr Brown on when payment would be made. He sought an urgent response. Mr Brown provided no response to either email; nor to Mr Miller's request for a telephone conversation made on 14 March.
But Mr Brown did meet with Mr Miller on 14 March 2017. It appears from an email of that date that Mr Brown had requested that Mr Miller provide him with a synopsis and consolidated spreadsheet relating to the account. Mr Miller provided this later that day, by email. The spreadsheet that was sent was prepared by Ms Vivienne Thompson and underpins and quantifies ANS' claim for unpaid invoices in this proceeding. Mr Miller concluded that email by reiterating Mr Brown's urgent advice as to when the monies would be paid.
Mr Miller did not receive such advice from Mr Brown, despite further reminder email requests sent to Mr Brown on 16, 17 and 20 March 2017. The last of Mr Miller's emails to Mr Brown was sent at 11:18am. In re-examination, Mr Brown explained his omission to respond to these emails by asserting that Mastercare/DC's relationship with ANS had, by this stage, broken down and explained, moreover, it was not his role, but rather, Mr Walker's responsibility, to confront Mr Miller's repeated demands.
Separately, Mr Miller had sent an email to Mr Walker on 17 March 2017, requesting a meeting to discuss a meeting (to discuss 'several things'). He repeated that request in an email to Mr Walker at 11:25am on 20 March 2017.
[12]
DC's Notice of Termination
It appears that unbeknown to Mr Miller to that point, Mr Walker had already (at 11:14am) sent an email to Mr Miller which attached DC's Notice of Termination of the contractor agreement with ANS.
Mr Walker accepted that is was his decision to terminate the contract agreement. He said he had reached that decision in late January 2017 or early February 2017; although, as I noted, in his affidavit, he said it had been reached in March.
The notice of termination recited ANS' obligations pursuant to cll 2.2 and 3.1 of the Agreement. DC alleged breaches in the following particular respects:
1. the work performed in relation to all works Virginia was unsatisfactory;
2. ANS failed to carry out the cleaning services and required hours to WesTrac Tomago between the 3/1/2017 and 16/02/17. ANS under serviced the site by 231.58 hours;
3. ANS failed to carry out to cleaning services in December 2016 and two cleaning services in January 2017 in relation to Coates Albion Park;
4. ANS failed to carry out three cleaning services in December 2016 and for cleaning services in January 2017 in relation to Coates Berkeley Vale;
5. ANS failed to carry out any cleaning services in relation to Coates Parkes;
6. ANS failed to carry out for cleaning services in December 2016 and two cleaning services in January 2017 in relation to Coates Port Macquarie;
7. ANS failed to carry out a cleaning service for the week ending 23/12/2016 and also the 13/01/2017 in relation to WesTrac Tamworth; In addition to this ANS also did not carry out the cleaning to this site on the 17/01/2017, 21/02/2017, 24/02/2017 and 28/02/2917
8. ANS failed to carry out three cleaning services in January 2017 in relation to Coates Mudgee;
9. ANS' cleaning staff not adhering to Coates' strict protocols in relation to signing in and/or out on sites;
10. ANS in instances not completing the full time allocated sites;
11. ANS in instances not providing the required/appropriate cleaning chemicals and equipment to ensure that sites are cleaned in a hygienic and/or professional manner
12. ANS' lack of consistency in cleaning times and days in relation to Coates Hire sites;
13. ANS' lack of consistency with cleaning staff at various Coates Hire sites as reported by Coates' Managers.
The notice asserted that as a result of ANS' alleged repeated failures to carry out cleaning at two Woolworth sites, at Virginia and Bathurst, the cleaning contract in regard to those sites had been terminated.
The notice specified that as a result of ANS' repeated failure to perform works in accordance with its obligations and its repeated failure by company's management to promptly return telephone calls and respond to communications to it, this amounted to a neglect or refusal to perform the cleaning services, and/or a repudiation of the fundamental obligations of the agreement. This, DC asserted, entitle it to terminate the agreement immediately pursuant to cl 12.3 and notice was given that the agreement was so terminated.
At this point I note that because of the way that the parties identified the scope of the issues for the Court to determine at about the commencement of the trial, it has not become necessary for me to consider the accuracy or validity of many of DC's particulars of breach, especially insofar as they concern particulars (c)-(h). At trial, there was little detailed cross-examination, for example, of events at the Coates stores, or WesTrac sites other than Mt Thorley or Tomago. Counsel for DC, did however explain that there may be some residual relevance in those specific complaints in so far as they concerned a proportion of the disputed unpaid invoices.
On that basis, counsel for ANS cross-examined Mr Walker only a limited number of the particulars of breach set out in the termination notice. As to particular (a), it was put to Mr Walker that even if (contrary to ANS' position) ANS' services at this site was unsatisfactory, this was only an historical fact, which did not warrant termination nearly 9 months later.
As to particular (b), it was put to Mr Walker that any 'underservicing' at WesTrac Tomago was not a reason to terminate. It was also put that Mr Miller had tried to speak with Mr Brown and it may have been possible to reconcile the parties' differences as to the work performed, as recorded in the invoices.
There was no issue at trial regarding particulars (i) and (j).
As to particular (k), Mr Walker accepted that this circumstance, if it were true, would not itself justify termination. It was put that the word "instances" meant only 'on several occasions', but Mr Walker said, when cross-examined, that the problem was systemic.
As to particular (l), Mr Walker explained that the lack of consistency in cleaning times in relation to the Coates hire site led to a diminution in quality of service.
As to particular (m), the lack of consistency in cleaning staff was a reference to the different staff in Coates sites. This was important since staff had to be inducted.
On 28 July 2017, approximately one month before ANS commenced this proceeding, Mr Walker sent Mr Miller an email in which he contended that ANS had failed to pay mandatory statutory costs and other matters. The email attached a 'without prejudice' letter prepared by Mastercare's solicitors (the letter itself was not in evidence). Nevertheless, the email was, ostensibly, relied upon to support DC's indemnity claims, but that purpose was spent, having regard to DC's abandonment of that aspect of its cross-claim. It was put to Mr Walker in cross-examination that this email was sent as a threat and, implicitly, a means of deterring ANS from pursuing DC for its unpaid invoices. Although Mr Walker denied these propositions, whatever his motivations, on its face, it is difficult to see how the email could be construed as anything other than a threat to ANS if it continued to agitate for payment of its invoices.
[13]
General
To prove its claim in debt for unpaid invoices, ANS relied primarily upon a spreadsheet prepared by Ms Vivienne Thompson (hereafter the "Thompson spreadsheet"). The Thompson spreadsheet contained the details of all the invoices rendered by ANS in the period from September 2016 to March 2017. The gist of the document was to indicate that the value of the total invoices was approximately $369,000; of which approximately $242,534 was overdue. The spreadsheet also recognised, through the use of red markings that certain invoices (valued at approximately $15,000) were disputed, prior to DC's decision to terminate.
In her affidavit, Ms Thompson referred to instructions she received from Grant Whatmore in May and June 2016 as to the circumstances in which she would issue invoices in connection with ANS services regarding the various Woolworths stores across the country (including, relevantly, Virginia and, eventually, Bathurst). The invoices were to take a particular form suitable for issue to Mastercare. She herself was advised on 1 June 2016 that all invoices were to be sent to Ms Cindy Chan, a Mastercare employee.
She explained the way that accounts were processed. This included the following: a member of the operations team or sales team sent a formal request to her to commence invoicing customers that ANS would commence working with, in the form of a "new/change customer form"; that the same employee would send a spreadsheet with various details including the place where the new work will take place, the proposed date that the plaintiff would commence the work, the amount she would be required to bill customers for and the frequency with which she could issue invoices. She said that the amounts that ANS would receive from Mastercare/DC were those which Mr Whatmore had negotiated with Mastercare/DC. These processes were generally applicable to both the Woolworths and WesTrac (and Coates Hire) cites the subject of the dispute.
Ms Thompson explained in her affidavit that she did not get involved in the daily operations and management of any of the stores in respect to each ANS provided services. She did, however, note that from time to time she received some specific emails about various stores. For example, on 14 December 2016 she received an email from Ms Chan requesting confirmation as to the rate payable to ANS for the work carried out at WesTrac Tomago.
The balance of Ms Thompson's affidavit referred to requests for payments of outstanding invoices. Save as to certain requests for relatively minor amendments to the invoices, there was very little, if any, explanation from Ms Chan, or anyone else on behalf of Mastercare, as to why the invoices were not paid. There was no positive assertion made by Ms Chan (or anyone else) that the work the subject of the invoices had not been performed.
DC does not primarily dispute the arithmetic underlying this spreadsheet, although its in-house accountant, Ms Li, prepared an internal business document which showed that the amount was less. Ms Li was not called by DC to give evidence as to that. DC' point, which clearly emerged during Ms Thompson's cross examination, was that she was not in a position to directly say whether work had been done, as asserted by each invoice. Ms Thompson was reliant upon the inputs of other people.
Certain ANS personnel who were responsible for its services, such as Mr Batrac (for South Australian operations) and Mr Klinkenberg (the NSW Operations manager) were challenged as to whether or not they had directly sighted work subject of the invoices. Unsurprisingly, having regard to their positions and responsibilities - and lack of involvement in the process of issuing invoices - they said no.
The content of the invoices (some, but not all of which was in evidence) is itself evidence of the work performed. There was no suggestion of any dishonesty in the issue of invoices - at least nothing to that effect was put to ANS witnesses. Further, as Ms Thompson pointed out, and I accept, ANS' system of accounting, described in detail in her affidavit, was such that it can be inferred that if there was a genuine complaint about the non-performance, or in adequate performance, of any service the subject of a particular invoice, then it would ordinarily have been expected that that would come to her attention. Ms Thompson provided several examples of such communications with Ms Chen, on behalf of the defendant. She said that it might lead in certain circumstances, to the cancellation of an invoice. But the essence of her evidence was that there was very little challenge, by way of express complaint, by Mastercare/DC to the amounts stipulated in the invoices.
As an initial, or preliminary point, DC contends that ANS' claim must fail since, although the Thompson spreadsheet may be taken to establish claims that work was performed, it does not establish the underlying fact that the work was actually performed. Further, it says, the operation managers of ANS who were called to give evidence for ANS were also not in a position to depose that the work was performed.
I do not accept DCs contention that ANS claim for unpaid invoices must fail because of its failure to prove a link between the content of the (disputed) invoices and the work they described. The contract (principally by clause 8) set out the requirements for ANS to issue invoices for the "Cleaning Services " a defined term, referable to services specifically set out in Schedule 4. The amounts of the invoices were set in accordance with rates set out in the agreement. There was no requirement, and the invoices did not specify, with any real precision, the work performed; let alone take any other positive steps to substantiate performance of that work. This was, as I have noted, in striking contrast with Mastercare's agreement with Woolworths, by which documentary substantiation was required.
By its practical operation, the subject agreement had to be implemented alongside Mastercare's performance of its obligations under its own agreements with its clients, such as Woolworths. The evidence in the proceeding disclosed much correspondence that Mastercare received from its clients as to the performance (quality) of the cleaning services. In order to respond to some of those complaints, on occasion, Mastercare relied upon its managers or agents to attend the various sites and to correspond with ANS managers. In so far as its relationship with Woolworths was concerned, Mastercare was to some degree itself capable of substantiating the performance of work by cleaners in order to render its invoices. Further, Mastercare had to provide the cleaning equipment for ANS workers to use.
It follows that it was not only ANS that was in a position to identify the work performed. DC/Mastercare was also in a position to challenge not only the adequacy or quality of the services supplied, but also whether the cleaning services were performed at all. This opportunity was reflected in the practices, described by Ms Thompson, where personnel within DC's financial or accounting section (Ms Li or Ms Chan), periodically did challenge some invoices. This could lead, theoretically, and sometimes did lead, in actuality, to invoices issued by ANS being either cancelled or varied.
I note also, that until its termination of the agreement, subject to those invoices about which it raised specific challenge, Mastercare never raised any generalised complaint about the sufficiency of ANS' system for proving that the invoices that ANS had issued reflected the work it had performed.
The specific challenges DC raised centred upon:
1. items of work challenged as being not performed, and/or which it says were not properly invoiced (about $15,600);
2. the WesTrac Tomago invoices (totalling $88,913.85) which it says were not owed;
3. the WesTrac Mt Thorley invoices (totalling $16,830.78) which it says were not owed; and
4. the Woolworths' Bathurst invoice (totalling $3,576.43), which it says was not owed.
Such challenges may be addressed on their individual merits, but for present purposes, the circumstance that such challenges could be made at all reflects the reality that the practical operation of the agreement was such that, at least generally, there was not such a complete absence of certainty on DC's part as to the work performed by ANS that indicates that the Court can accede to its preliminary submission that ANS has not proven that the work the subject of the disputed invoices was not performed.
[14]
Clause 4.5
As I have already noted, a significant issue in this proceeding concerns the operation of clause 4.5. ANS contends that clause 4.5 was either amended so as to permit it to use subcontractors or, alternatively, DC acquiesced to ANS use of subcontractors.
I do not accept either contention.
As to the question of amendment, clause 16 of the contractor agreement makes it plain that the contract could only be amended in writing and agreed to by both parties. There was no amendment to clause 4.5 that satisfied this requirement. The importance of written, rather than informal, consent being procured was reinforced by several circumstances. First, the terms of clause 4.5, recognised that breach of the provision was taken to be a fundamental breach of the agreement. Secondly, another condition of engagement (the breach of which also entitled DC to terminate) was that ANS procure workers compensation insurance. Counsel for ANS accepted that such insurance could only extend to ANS employees - not subcontractors. This important protection for DC's benefit could be set at nought if ANS could substitute sub-contracted labour for its employees. Thirdly, a further indication of the importance of written transparency for the use of subcontractors appears in cl 8.4 of the contractor agreement.
I do not accept DC's submissions, based upon emails exchanged between ANS and DC, involving Mr Miller and Ms Best as evidence of an agreement to amend. First, a reasonable person in Mr Miller's position could not have taken Ms Best's short response on 5 September 2016 to Mr Miller's written request to use subcontractors as some form of informal assent (even assuming a sales and marketing employee in Best's position had the authority to agree to changes) to ANS' use of sub-contractors. Secondly, Mr Miller's evidence ignores a follow-up email by Ms Best on 14 September 2016, when Ms Best clarified (if such clarification were necessary) that if ANS wished to sub-contract a site it would need to seek DCs permission.
As the question of acquiescence, firstly, I accept DC' submission that there is no documentary evidence to support ANS' contention.
Secondly, ANS relied upon Mr Miller's evidence of him being privy to telephone conversations between Mr Whatmore and Mr Brown on the subject of the use of subcontractors. But there was no indication, in either of Mr Miller's affidavits, of any conversations about the use of sub-contractors, from May 2016 to execution of the agreement in September 2016. Mr Brown denied such conversations. I accept Mr Brown's evidence when he said that, because of Mastercare/DC's difficulties with previous subcontractors on its sites, and the importance to it of its relationship with Woolworths (which proscribed, to some extent, the use of sub-contractors), had Mr Miller mentioned anything about ANS' proposed use of subcontractors, this would have raised some alarm within DC and the matter would have been referred to Mr Walker. I also note that emails passing between Mr Whatmore and Mr Brown on 18 and 19 May contained no reference to ANS' proposed use of subcontractors.
Thirdly, there is no textual indication, anywhere, to indicate that the pricing arrangements for the contract executed in September 2016 (reflected, for example, in schedule 3) were negotiated otherwise than upon a common assumption that it would be ANS' employees that would be performing the work.
Fourthly, whatever assumptions or descriptions of his mental state Mr Miller may have held on the subject ANS' contract to use subcontractors is not itself admissible in relation to ANS's obligations.
Fifthly, whether or not the use of employees (rather than subcontractors) to do the work was economically viable to ANS, in the absence of any communication with DC on that matter, was of no account to DC. In this respect, ANS relied upon some evidence given by Mr Brown, to the effect that his assessment of the pricing quoted to him by ANS indicated that it would be consistent with award rates for employees. Mr Brown was taken in cross-examination, at some length, through the Cleaning Services Award 2010. The point of this appeared to be to show that Mr Brown had some awareness that if he understood or appreciated that not all of the cleaners were ANS employees, he would have been conscious that the contract was not economically viable for ANS. Having heard him give evidence, I am not satisfied that Mr Brown gave any real thought to the subject of the economic viability of the contract to ANS at the relevant time, being May 2016. At that point Mr Brown had only been performing his responsibilities for only a short time.
It was similarly suggested to Mr Walker that, on the basis of the labour rates quoted in the agreement, it must have been apparent to him that the project could not have been economically viable from ANS' point of view. Mr Walker was cross-examined on his understanding of award rates for different classifications of worker before the proposition was put to him that it ought to have been clear that ANS could not do the work it tendered for if it was obliged to do the work through employees. Put another way, Mastercare must have known that the contract could only be economically viable if ANS engaged sub-contractors. It was not clear to me, however, why Mastercare/DC should have been solicitous to ANS' economic interests in this respect. At any rate, Mr Walker explained, and I accept, that to the extent that any assessment was undertaken as to Mastercare's anticipated labour costs, such assessment would have been undertaken by others; and not someone in his position and with his responsibilities.
Sixthly, Mr Walker was challenged on the statement in his affidavit where he referred to the "strict requirement" (in cl 4.5) that sub-contractors not be used without Mastercare's approval. It was put to him that it was a matter of indifference to Mastercare, noting that work had already been undertaken by ANS for several months (since May) when the written contract was signed in September. It was put to him that if the clause was so important, Mr Walker would have taken steps to ensure that the contract has been signed back around May. But although the contract was signed in September, the agreement itself was dated (and expressed to commence) in May. Counsel for ANS eventually accepted that the agreement came into operation in May 2016. ANS, by executing the agreement, represented its assent to its terms (Toll (FGCT) Pty Limited v Alphapharm Pty Limited [2004] 219 CLR 165 at [45] - [47]).
Seventhly, Mr Walker was also referred to the absence of any reference in the Termination Notice to ANS' use of sub-contractors; and, before that, the omission of any complaint about the use of sub-contractors in correspondence to ANS prior to termination of the contractor agreement. This was, so it was put on ANS' behalf, because the matter was of no importance to DC when it terminated. One difficulty with that submission is that it depends upon establishing when Mastercare and DC became actually (as opposed to constructively) aware of the use of sub-contractors. ANS did not establish this.
Finally, I do not find any election or forbearance by DS or any other associated doctrine (such as promissory estoppel) (Agricultural & Rural Finance Pty Ltd v Gardiner (2008) 238 CLR 570) capable of generating any reasonable expectation in ANS that, contrary to the terms of the contractor agreement, DS condoned or accepted its use of sub-contractors.
It follows that by cl 4.5 of the contractor agreement, it was a fundamental term that ANS was prevented from using sub-contractors in the services pursuant to the contractor agreement, where it could not procure DC's prior written consent to do so.
[15]
The validity of DC's termination of the contractor agreement
[16]
Clause 4.5
As noted, DC's termination notice was expressed to be based upon ANS' neglect or refusal to perform the cleaning services and/or repudiation by DC of its fundamental obligations. For present purposes, it is sufficient to reiterate that the particulars in the notice emphasised, amongst other things, ANS' unsatisfactory work in the Woolworths store in Virginia (South Australia); its omissions to carry out cleaning services at various times to WesTrac Tomago. The termination notice also asserted that as a result of its failures to carry out cleaning services at two Woolworths sites at Virginia (SA) and Bathurst (NSW), (DC's) cleaning contract(s) in regard to those sites had been terminated.
It is common ground that cl 4.5 was substantially breached: sub-contractors were utilised by ANS without DC's prior written consent. The breach was significant. In his closing submissions, Counsel for ANS appended calculations showing that ANS would not profitably perform the contract without the use of sub-contracted labour (this being done to advance his submission that DC had acquiesced to ANS' use of sub-contracted labour). According to Mr Putland's calculations, and if ANS' 'franchising' costs were taken to involve the costs associated with paying workers who were not ANS employees, then only about 7.64% of ANS' costs were spent on the labour of its employees. Put another way, over 92% of the work appeared to be sub-contracted.
No reference was made in the termination notice to ANS use of subcontractors. Nevertheless, it was common ground that should I find that clause 4.5 was breached, then that provision was of such essential or fundamental nature as to entitle DC to terminate the contract. Another way of stating the matter is that breach of the provision automatically terminated the contractor agreement (Cheshire & Fifoot Law of Contract, 11th Australian edition [21.2]).
Despite the omission to refer to it in its notice of termination, it was unnecessary for DC, in purporting to justify its termination of the contractor agreement, to refer to that breach at the time of its election to terminate: Shepherd v Felt and Textiles of Australia Ltd (1931) 45 CLR 359; and Sunbird Plaza Pty Ltd v Maloney (1988) 166 CLR 245 at 262 & 277. Having regard to the way that DC characterises clause 4.5, it has been said that this principle applies where a non-stipulated ground of termination is based on the non-fulfilment of a contingent condition (Rivat Pty Ltd v B & N Elomar Engineering Pty Ltd [2007] NSWSC 638 at [61]).
Finally, it was not suggested that the principle was inoperative because DC was aware of this ground, at the time it terminated the contract, but relied upon other (invalid) ground(s) for termination. As I have said, it is not apparent in the evidence when DC discovered ANS' use of sub-contracted labour.
On the basis of a breach of clause 4.5 alone, I therefore find that DC validly terminated the contractor agreement.
As indicated, DCs notice of termination to ANS in March 2017 contained a broad range of other particulars of breach. However in the way that it presented its case at trial, DCs complaints about ANS' non-performance of services at WesTrac and WesTrac Tomago were effectively subsumed by DC's arguments that no work was done at those sites.
In the way that the case proceeded, Counsel for DC accepted that it became no longer necessary for me to determine, for example, whether the particulars (j)-(m) in the notice of termination provided separate justification for the termination.
That leaves DC's complaint about ANS' alleged repeated failures to carry out cleaning at the Woolworths' sites at Virginia SA and Bathurst NSW. This is integral to DC's cross-claim. I will return to this subject when dealing with DC's cross-claim, below.
Otherwise, no further reliance was placed by DC on the matters set out at length in the notice of termination.
[17]
Consequences of valid termination for ANS' unpaid invoices
[18]
No loss of profits
It follows that ANS' claim for loss of profits must fail; premised as that claim was upon the proposition that DC had wrongfully terminated the contractor agreement.
A further basis for rejection of this particular claim is ANS's acceptance of the position that if I should find, as I have so found, that it was using subcontractor labour, it would be unable to claim damages arising from any wrongful termination by DC since it would not be ready and able to perform its own obligation to ensure that it was its own employees that were providing the labour (absent any approval from ANS), and not sub-contractors. It was common ground that approximately 90% of the work performed on behalf of ANS was undertaken by sub-contractors. It emerged during the course of Mr Putland's evidence that ANS' direct employee costs constituted a very small (7%) of its total labour costs (comprising franchise payments, direct employee costs and sub-contractor costs). Mr Miller had indicated, when he gave evidence, that this was an economic necessity for ANS.
It is well established that where a promisee sues for wrongful termination, in order to ground an entitlement to recover damages, it needs to establish that it was itself willing and ready to perform its promises: Foran v Wight (1989) 168 CLR 385. At the time that DC terminated the contract in March 2017, ANS was not able or willing to perform all of the services with its own employees; and without the use of sub-contractors. That being so, it was not open to ANS to claim damages on the basis of any wrongful termination by DC.
If, however, I am wrong as to the finding that I made about termination on the basis of ANS breach of clause 4.5, and subject to any other valid basis for DC to terminate, I would have accepted ANS' submission that the quantum of such claim was limited only to $5,777.10, having regard to DC's likely exercise of its unilateral right (under cl 12.2) to terminate, without cause, on 30 days' notice.
[19]
Reduced entitlement to unpaid invoices based upon employees' work
That leaves for consideration DC's claim for unpaid invoices issued prior to DC terminating the contractor agreement. Counsel for ANS submitted that if I was to find, as I have so found, that cl 4 .5 (a) proscribed the use of sub-contractors without prior written approval; and (b) such term was breached, that this did not, on the proper construction of the contractor agreement, mean that DC could escape from its liability to pay ANS' outstanding invoices. Rather, Counsel for ANS submitted that cl 8 conferred a right upon ANS to payment for invoices which satisfied the requirement of that provision and which was not conditional upon observance of the requirements in cl 4.5.
Counsel for DC characterised clause 4.5 as being both a condition precedent, and a condition subsequent. There has been some criticism of the distinction between these concepts (Meehan v Jones (1982) 149 CLR 571 at 582) as elusive. The particular question in issue here is what follows from DC' valid termination of the contractor agreement on the basis of ANS' admitted use of subcontractors. If it was necessary to do so, I would consider the relevant part of clause 4.5 (ie the second sentence of that provision) as being properly characterised as a condition subsequent.
Counsel for DC contended that since the obligation in cl 4.5 was not performed, DC had no liability, upon the exercise of its right to terminate to pay for previous invoices. Alternatively, Counsel for DC submitted that if there was any such liability, it was only restricted to such payment of invoices referable to work performed by ANS employees.
An issue of construction arises from that part of clause 4.5 which reads as follows:
"Should the contractor assign or subcontract all or part of this contract, the Principal will consider this to be a fundamental breach of the contract and the Principal may terminate the contract immediately without notice and with no obligation to compensate the Contractor from that date" (emphasis added)
ANS had pleaded its claim for unpaid invoices, in substance, as a claim for damages for breach of contract. No claim for a quantum meruit was relied upon. I raised, for the parties' consideration, whether it could be said that the claim was simply one for debt independently of a claim in contract (Young v Queensland Trustees Ltd (1956) 99 CLR 560 at 569-70). That cause of action would have the advantage, for ANS, that a debt is established by proof of specified performance, with the onus then cast on the debtor to establish valid reason for discharge.
I consider that the claim can be characterised as one in debt, without it being necessary for ANS to prove a breach of contract. However, as DC submitted in its supplementary submissions (provided, with the Court's leave, after judgment had been reserved), and subject to contrary agreement, the right to a payment under a contract only matures into a debt only if the performance to which the payment relates was in fact given (Cheshire & Fifoot, Law of Contract 11th Australian ed [26.12]). So even if the claim was one in debt, attention is drawn back to the terms of the contract to ascertain whether performance has been provided in accordance with the contract.
Under general law, the well-established principle, articulated by Dixon J in McDonald v Lascelles Ltd (1933) 48 CLR 457 (at 476-7), is that the exercise of a right of termination will not operate to divest unconditionally acquired rights:
"When a party to a simple contract, upon a breach by the other contracting party of a condition of the contract, elects to treat the contract is no longer binding upon him, the contract is not rescinded as from the beginning. Both parties are discharged from the further performance of the contract, but rights are not divested or discharged which have already been unconditionally acquired. Rights and obligations which arise from the partial execution of the contract and causes of action which have accrued from its breach alike continue unaffected… when a contract, which is not void or voidable at more, or liable to be set aside in equity, is dissolved at the election of one party because the other had not observed an essential condition or has committed a breach going to its root, the contract is determined so far as it is executory only and the party in default is liable for damages for its breach." (emphasis added)
However, this principle is subject to the parties' intention, as revealed by the proper construction of the contract (Westralian Farmers Ltd v Commonwealth Agricultural Service Engineers Ltd (1936) 54 CLR 361 at 379). Here, the language of clause 4.5 is such as to make it clear, subject to a qualification are referred to below, that from the point of valid termination, DC was under no obligation to "compensate" from that date. That word could only make sense if it was to be interpreted as meaning no obligation to pay for invoices reflecting past work performed in breach of ANS obligation (relevantly not to use sub-contracted labour without written approval). It does not mean no obligation to pay for any further work performed by ANS even after the right to terminate has been exercised by DC.
In this regard, I agree with DC's submission that the use of the word "compensate" in cl 4.5 should be given a congruent meaning as it appears in the termination clause in cl 12.3. There, as in cl 4.5, from the point where termination becomes effective, it does not make sense to construe the meaning of compensate as relating to prospective labour services; as none would be permitted to be provided.
Such rights as ANS acquired to receive payment for services were conditionally acquired on the basis of its use of its employed labour (or sub-contracted labour as approved by DC). I do not accept ANS' submission that its right to receive payment under clause 8 was unconditional.
On the other hand, I do not consider that, properly construed, the relevant part of clause 4.5 would entitle DC to withhold payment for the entirety of ANS' invoices, even where such work was undertaken by ANS employees. Clause 4.5, by terms, acknowledged that there were a range of sites where ANS was to perform its work, and a provision such as clause 4.5, served the purpose of deterring ANS from concealing the use of sub-contracted labour on some or all of those sites. It does not follow that where ANS supplied its services in the proper fashion, with its employees, that it should be deprived of payment for those services even where it had breached the obligation elsewhere, and on other occasions.
This construction is consistent, also, with cl 8.3, which set forth certain circumstances in which ANS was entitled to receive payments upon a pro-rata basis.
The parties agreed if I was to find that ANS was entitled to receive payment for such portion of its invoices attributable to its employees labour, the evidence (based largely upon the calculations of Mr Putland) indicates that the amount validly invoiced is $40,905.05.
Subject to any other defences (including set off), ANS is entitled to receive payment for this amount.
[20]
Right of set-off
In supplementary submissions made, with leave, after Judgment had been reserved, Counsel for DC submitted that in circumstances where ANS had not rendered performance of the work by its employees, it was not entitled to retain payments it received following non-performance of that obligation. Thus, he said, DC had a right to set off against any further liability to pay ANS invoices rendered in respect to work performed by ANS employees DC's own entitlement to be repaid monies it had previously paid when the work had been substantially performed by subcontractors. This, DC said, would effectively extinguish any liability to ANS.
Counsel relied upon observations in McDonald v Dennys Lascelles Ltd (1933) 48 CLR 457, dealing with the consequences of termination of a contract for the conveyance of land upon the vendor's retention of monies paid by the purchaser. Those observations referred to the purchaser's rights, in equity, or in restitution, to recover purchase monies paid in the circumstances.
Counsel for DC acknowledged that this defence of set-off would require amendment to its pleadings. I am not prepared to accede to such application to amend.
First, if such claimed entitlement is sourced in restitution (for such counts as money had and received or monies paid by mistake), conceivably ANS might wish to rely upon a defence of change of position. On any equitable claim, ANS might have considered and wished to raise equitable defences (such as laches, or acquiescence), or other discretionary considerations against the relief.
Secondly, and following on the first point, had DC's proposed new defence been raised in a timely fashion, it would certainly have provoked factual enquiry within ANS and, conceivably, would have encouraged it to adduce evidence. If the amendment was allowed, ANS would be deprived of that opportunity (FF Seeley Nominees Pty Ltd v El Ar Initiations (UK) Ltd (No.2) (1990) 55 SASR 314 at 315), unless an adjournment was obtained. DC did not seek an adjournment to enable ANS to meet the new defence. Another way to say this is that there is a strong likelihood that ANS would have run its case differently, at least in some respect.
Thirdly, no explanation has been provided by DC as to why the defence could not have been brought any sooner than after judgment was reserved. It is to be expected of parties wishing to amend that some explanation for the delay is brought (Aon Risk Services Australia Pty Ltd v Australian National University (2009) 239 CLR 175 at [102]). No explanation has been provided here.
Fourthly, to the extent that any equitable basis would be relied upon by DC, it would throw up the question of the Court's jurisdiction to consider it. For the reasons above, it is, to say the least, inconvenient to expect the Court to deal with the defence on that basis at this stage of the proceeding.
I was not satisfied, in the circumstances, that the interests of justice supported the amendment necessary for DC to put this new defence.
[21]
Work not done?
To reiterate, so far I have found that ANS would be entitled to payment in respect to those invoices referable to work performed by its employees which has generated an agreed value of $40,905.05.
I have already found that ANS has established, prima facie, a system for proving that the invoices issued (and summarised in the Thompson spreadsheet) reflected at least its contention that the work was done.
In answer to this, DC broadly raises two contentions. DC's first submission is that, where it is shown in the Thompson spreadsheet that specific invoices were disputed by DC at the time, it should be found that the dispute should be resolved in DC's favour. Counsel for DC said that there were only three sites where these invoices were contested: the Woolworths Bathurst site; and the WesTrac Mt Thorley and Tomago sites.
DC's further alternative, or fall-back, submission is that if the Court was to accept the correctness of the Thompson spreadsheet as proving the non-disputed work that was performed, than in that circumstance, specific discounts, amounting in value to $124,921.78, should be made. This was presented in tabular form (paragraph 38) in DC's Counsel's written submissions and was largely sourced in documentation (including email correspondence) proving instances where specific items of work were not attended to by ANS workers.
For its part, ANS submits that in circumstances where it has proven, generally, through its system, that the spreadsheet, being a summary of the invoices, is proof of the work done, and evidential burden shifted to DC to prove otherwise. It also invokes the principle in Blatch v Archer (1774) 98 ER 969, that evidence is to be weighed according to the proof which was in the power of a party to have produced, and the other party to have contradicted.
The concept of a party's evidential burden was considered closely by the High Court in Strong v Woolworths (2012) 246 CLR 182 at [51]-[54]. It is the 'second sense' of the concept identified by the plurality that appears most relevant here: that is, that where the claimant adduces evidence sufficiently weighty to entitle, but not compel, the trier of fact to find in the claimant's favour, the defendant faces a tactical or provisional burden: that if it does not call sufficiently weighty evidence, it runs the risk that ultimately, the trier of fact will find that the claimant will be found to have discharged the ultimate burden of proof.
ANS' counsel submitted, as I understood him, that DC was in no lesser position to prove the work that was done and that which was not done. He referred me, amongst other things to DC's entitlement (under cl 5.4) under the contract agreement with ANS, to review the cleaning services provided by ANS. I would infer that such right of review would include a right of inspection of what was being done on the shop floors, and possibly also, review as to who was performing it given the importance, to DC that the labour only be performed by its contractor's employees. He said that, in substance, ANS' invoices were rendered in a relatively mechanical fashion and it was DC, partly also by reason of performance of its obligations to Woolworths, that was in a better position to identify what work had and had not been done.
Counsel for ANS also emphasised that at various times throughout proceeding, including in the preparation of its defence, DC had closely reckoned with, and assessed for itself, those invoices which it would challenge. For example, initially in its Defence (paragraphs 12(a)-(b)), DC had implicitly put in issue that the disputed amount for invoices was only approximately $35,000. Counsel put that this amounted to an admission that only $35,000 was in dispute. This was, he added, consistent with DCs internal calculations prepared by the in-house accountant, Ms Li. Ms Li had taken the Thompson spreadsheet and, in an amalgam of Ms Thompson's work, generated her own spreadsheet. The results appeared at the last page of Ms Li's spreadsheet (appearing at page 150 of Ex D1). They may be depicted as follows:
Disputed invoices $21,763.59
No service/Deduction $2,146.77
Overcharged $105.60
[22]
With a minor adjustment, this yielded a figure of $24,015.96.
Of some particular significance to Ms Li's spreadsheet is where it is apparent (through a green/grey shading) that DC disputed ANS' invoices. There was no indication in this section of Ms Li's spreadsheet that there were disputes about invoices ANS had issued concerning Woolworths Bathurst, WesTrac Tomago, or WesTrac Mt Thorley.
Ms Li's spreadsheet was put into evidence by DC. As I have noted, she was (unlike Ms Thompson, who was called for ANS) not called by DC. On the basis of the work performed by the parties' respective accountants, I find that DC certainly asserted several disputes to individual invoices, but the basis for the disputation is not established. In circumstances where, as I have found, the Thompson spreadsheet did at least establish a prima facie basis for proof of the work in the invoices, I consider that an evidential burden, in the second sense identified in Strong v Woolworths, does arise as against DC, and subject to my consideration of the content of the table in the defendant Counsel's submissions, find that on the balance of probabilities, ANS had established its entitlement where the invoices were generally disputed.
That leaves the matter of DCs contention that on the basis of complaints raised by DC's clients, I should find that notwithstanding that the invoices supported and indeed required payment to ANS, ANS work was so unsatisfactory or negligent that I should find that no work was done at all. This is a contention grounded in the table which appeared in the submissions of counsel for DC. It covered not only Woolworths Virginia and Bathurst, WesTrac Mt Thorley and Tomago, but a whole range of Coates Hire sites in respect to which the level or adequacy of ANS' performance of services was not the subject of any close scrutiny in the trial.
I do not accept DC's contention. The table reconstructed by counsel for DC, taken at its highest, amply summarises specific omissions and, more generally, poor performance by ANS workers in respect to DCs clients at the many sites upon which those workers were engaged. The evidence for such complaints is set out, in much detail, in Mr Brown's affidavit. But the table does not fairly indicate the extent to which services were actually performed and where they were performed such as to enable the Court to properly assess what proportion of an invoice might be reduced on account of work not being done. The table does not, for example, set out the dimensions of the site: for all the Court knows, certain locations on a site where it is asserted that some omission occurred may be only a small part of the cleaning services to be provided upon a site generally. It does not indicate how long any work was actually performed for. This is in a context where DC (Mastercare) was at least in as good a position as ANS to assess the hours performed by ANS workers through its right to review and where, at all times, it had the overriding ability to terminate, either unilaterally or for cause, if it was chronically dissatisfied with ANS' performance.
The Court is not now in a position to meaningfully adjudicate or compare the value of (a) the services supplied in comparison with (b) the value of such services after having taken into account the various omissions referred to in that table. This is all the more so when the table itself was not distilled in Ms Li's spreadsheet calculations and, even if it was, she was not able to be tested upon them given that DC did not call her to give evidence.
Counsel for the defendant urged upon me, perhaps as his client's best case in this respect, the case of WesTrac Tomago. He referred me to complaints (by way of example) that there were numerous days of dry urine with the (toilets) not being cleaned for two weeks (24 November 2016) that change rooms had not been cleaned for over 1 week (19 December 2016), bathrooms near the café not being cleaned for some time (22 February 2017). But even if I were to accept that the overall standard of performance was egregiously poor, I am not prepared to find that no value should be ascribed to the services rendered by ANS workers where it was entitled to render invoices at a fixed rate on a monthly basis by the terms of the contract agreement and DC had the power to terminate its relationship with ANS. DC has not indicated how, in such circumstances, how the difference between the services required to be performed, and the services actually performed is to be measured.
Leave was granted after judgment was reserved to ANS to put on supplementary submissions in response to the table in Counsel for DC's primary written submissions. DC's Counsel thereafter put on some short submissions in response. I have taken those submissions into account in this section of these reasons.
[23]
DC's cross-claim
Initially, the issues on the cross-claim were distilled to whether DC has suffered loss and damage or should be indemnified by ANS in respect to:
1. Woolworths' termination of contract in relation to the sites at Virginia (SA) on 31 July 2016 and Bathurst (NSW) on 9 December 2016; and
2. DCs exposure to claims by underpaid contractors and/or the Fair Work Ombudsman
Ultimately, however, DC abandoned its claim for indemnity (at least in this proceeding [1] ). That leaves its claim for damages. This is based upon the contention that Woolworths' termination of its contracts with DC at the Virginia and Bathurst sites was due to ANS' alleged repeated failures to carry out cleaning in relation to those sites.
As a preliminary matter, I note that DC is making a claim concerning a loss of profits from a contract to which it was not itself a party. The relevant party - the party that contracted with Woolworths - was Mastercare. Generally, a party is only able to recover for its own loss and not that of a third party (Beswick v Beswick [1968] AC 58; Coulls v Bagot's Executor and Trustee Co Ltd (1967) 119 CLR 460; Cheshire & Fifoot, Law of Contract (11th Australian ed) at [23.2] fn 5). However, no point was taken by ANS about this. In view of the findings I make about this claim, below, I say no more about this particular point.
Another preliminary point is that DC's contention is quite separate to any contention that DC suffered loss as a result of establishing that ANS had breached the fundamental condition in clause 4.5 of the contractor agreement. DC stated no case that Woolworths terminated Mastercare services at the Virginia and Bathurst sites because ANS had used subcontractors on those sites.
[24]
ANS liability
To succeed with its cross-claim, DC must establish:
1. that by its failures to carry out cleaning at the two subject sites ANS breached the contractor agreement; and
2. a causal connection between the relevant asserted breach (the repeated failure to carry out the cleaning services) and the asserted loss (here, the loss of Mastercare's contracts with Woolworths in respect to the two sites)
It is not necessary for DC to justify termination of the contractor agreement on the basis of the alleged breach - termination is not a prerequisite to damages for breach of contract (Luna Park (NSW) Ltd v Tramways Advertising Pty Ltd (1938) 61 CLR 286 at 300). In this regard, the notice of termination did not specify the breach, by reference to provisions in the contractor agreement. This matter tended to be rolled up in DCs justification of its decision to terminate.
In its cross-claim (which makes cross-reference to sub-paragraph 8(b) to its defence) DC pleaded that the breach was ANS' failure to provide cleaning services (at the Virginia and Bathurst sites) in accordance with the requirements of the Contractor Agreement. No particulars were supplied by DC as to what 'requirements' of the contractor agreement were being referred to in this regard. It might be surmised that reliance is placed upon cll 2.1 - 2.2 of the contractor agreement, which obliged ANS to perform the "Cleaning Services" specified in Schedule 4 to the agreement. Schedule 4 referred to certain cleaning specifications of Woolworths, its cleaning services manual, cleaning specifications for itself and its subsidiary (HTH). Although I can infer that ANS was aware of the contents of these documents, the documents themselves were not in evidence. To the extent, therefore, that DC sought to make out a case that a particular Woolworths specification was not complied with by ANS, it is difficult for the Court to form a view about the matter.
DC relied upon the fact of improvement notices, and at risk notices being issued in relation to these sites. These were conveyed by Woolworths to Mastercare under cover of emails to Mr Brown referring to 'unsatisfactory cleaning standards (understood to be) provided by Mastercare'. But those indications do not set forth the non-compliance with Woolworths specifications, or other requirements, either.
I have noted that Woolworths provided no meaningful explanation for its termination of Mastercare's services at the Virginia site. It appears that one specific complaint was damage to a floor, but ANS' explanation, not seriously contested, in this regard, was that the issue was more to do with structural problems with the floor rather than cleaning issues.
Clause 7 to Schedule 4 of the contractor agreement stipulated that all reasonable care was to be taken to avoid causing damage to fixtures, furnishings. There is no allegation, however, that ANS acted unreasonably in that regard. It is not clear to me what DC's position as to breach really is, other than to say that because Woolworths terminated Mastercare's services, this must have been because it was dissatisfied with the cleaning services, and that, therefore, it was axiomatic that ANS had not performed to Woolworths requirements. Although there may be some basis in logic for this position, it is not established by fact, including but not limited to what requirements were not complied with. I reject the complaint of breach in relation to the Virginia site.
In respect to the Bathurst site, there were indications that at the time of termination, one of Woolworths' grievances was that an item or items had been taken off the sheIf at this store. I note that by clause 3 of Schedule 4, ANS was obliged to immediately report to DC any theft, whether known or suspected, of the 'Access items', but that concept carried a limited definition (identification badges, access cards, keys or passwords). There is also a general term in the contractor agreement (cl 3.3) that ANS not engage in conduct that may harm DC. Conceivably, if an ANS worker stole an item or items from a shelf, this may indirectly harm DC/Mastercare in terms of its relationship to Woolworths. But as Mr Klinkenberg said, a cleaner taking a product off the shelf without paying for it, whilst prima facie plainly improper, may have been less culpable if some innocent explanation was available (such as a pre-existing practice of cleaners taking products off the shelf followed by the inadvertent failure to report that occurrence).
As with the Virginia site, that leaves DC reliant upon the sequential issue of improvement and at risk notices. But as indicated, ANS' cleaning services at this site had ceased weeks before Woolworths terminated Mastercare's contract for the provision of services at the site. Further, and as was also the case with the Virginia site, there is no indication as to which of the Woolworths' requirements were not met.
I am not satisfied that DC has established a breach by ANS of the contractor agreement in respect to the performance of the Cleaning Services at the Bathurst site.
There was discussion during the trial as to whether DC was entitled to terminate the contract, under clause 12.3(c) of the contractor agreement, in the sense that ANS might be said to have neglected or refused to perform the Cleaning Services. That was put at a very general level, and could be said to embrace DC's complaints about ANS' performance at the Virginia and Bathurst sites. I take 'refusal' in this context as carrying its plain and ordinary meaning of indicating an unwillingness to perform. I do not accept that in relation to either site, ANS' conduct evinced such unwillingness.
In relation to 'neglect', I take that to mean a failure by ANS to exercise (reasonable) care in the performance of its cleaning services. There is no express term in the contractor agreement requiring ANS to perform the cleaning services with reasonable care. ANS' obligation, being strict in nature, was simply to perform the Cleaning Services, as per cl 2.2. In the absence of any pleaded reliance by DC upon an implied term, how that implication might be said to arise (whether in law and/or in fact) and particulars as to how such implied term was breached in the circumstances, it would be procedurally unfair for me to make a finding that ANS negligently performed the services in connection with these sites.
Thus, I find that DC has not established that ANS breached the contractor agreement in connection with its cleaning services at the Woolworths Virginia and/or Bathurst sites.
If I am wrong about DC's failure to establish breach, or breaches of the contract by ANS, in order to sustain a claim for damages, as I have indicated, it would then be necessary for DC to establish the element of causation. Ordinarily, this element may be proven by the application of the 'but for' test (Kenny & Good Pty Ltd v MGICA (1992) Ltd (1999) 199 CLR 413 at 425); however that may be complicated where the contract breaker's conduct is only one of several contributing to the loss. In such instances, it is sufficient to establish causation to prove that the breach was a material cause of the loss (Alexander v Cambridge Credit (1987) 9 NSWLR 310 at 315B, 357G; Henville v Walker (2001) 206 CLR 459 at [106]; Cheshire & Fifoot, supra [23.37]). The task is made more difficult, however, where the connection may require proof of the decision-making of a third party, in this case, Woolworths.
In this case, there were notices of termination by Woolworths to in respect to its decisions to terminate services at both sites, however those notices did not themselves articulate the factual reasons with any level of factual specificity. Because of this, DC invites the Court, in each case, to infer that the issue of the notices of termination was the final, and formal, step of a sequence of events which inevitably pointed to Woolworths' dissatisfaction with the cleaning services, attributable to the inadequate or non-performance by ANS proven by the lack of resolution of the 'At Risk' notices, to such degree that such conduct was a material cause of Woolworths' decision to terminate.
As to the Virginia site, ANS relied upon internal Woolworths' correspondence in the last week of May 2016 in which it appeared, at least at that point, that Woolworths' had already resolved to terminate Mastercare's contract at that site. This was before ANS' work began on the site, in the first week of June. There had, ANS also noted, been earlier notices issued to Mastercare earlier in the year, in February or March, referable to that site.
ANS also relied upon Woolworth's prior termination of Mastercare's services concerning the Northgate site, also in South Australia, before ANS commenced its services. From this, the Court was invited by ANS to infer that there were serious problems, across the board (or at least in South Australia) in the relationship between Woolworths and Mastercare prior to, or independent from, any involvement by ANS' workers.
ANS also relied upon evidence of some of its witnesses which indicated that Woolworths was cognisant of ANS workers having only just come on to work on the site, and that it appeared to form a negative view of Mastercare prior to that time.
DC relied upon the issue of 'At Risk' (9 June 2016) notice during the period in which ANS was performing services on this site, prior to 'termination notice' (5 July 2016). It will be recalled that these two forms of notice were part of (the second and third steps of) a staged PMP, by which Woolworths notified its cleaning of contractors of defective performance, provided opportunity to rectify and if it was still dissatisfied, could terminate.
I am also mindful that DC/Mastercare provided additional personnel resources and authorised the use of further hours in an attempt to deal with the notices issued under this process. This is also in a context where part of the reason why DC engaged ANS to act as its contractor was assurances or representations made by Mr Whatmore, on ANS' behalf, about its previous experience with Woolworths stores.
Having regard, however, to the terms of Woolworths' contract with Mastercare which I referred to earlier, I do not accept the issue of a termination notice would automatically result following Woolworths' review of works after it had issued an 'At risk' notice; even if that may have been a predicable result. Plainly, Messrs Brown and Walker might have been apprehensive that termination would follow, but Woolworths exercised a unilateral right to terminate services in the Virginia and Bathurst sites not under the termination provisions of its contract with Mastercare (cl 18, and especially cl 18.2 or 18.3) but under a general provision - cl 3.5 - entitling it to terminate services at a site "for convenience". Such discretion could be exercised whether or not a particular matter referred to in an 'At Risk' notice was rectified, to Woolworths' satisfaction. It follows that I do not accept from the mere sequence of the issue of the 'Improvement' or 'At risk' notices alone establish that Woolworths terminated the contract on the basis of the strict application, or implementation, of its performance management process, involving the issue of the various notices.
In relation to this site, there was evidence that Mr Walker was surprised about the termination and thought that the decision to terminate was capricious, based more upon the Woolworths' store manager's sensitivity.
On balance, I am not persuaded that the repeated inadequacy of ANS' services can be blamed as a material cause for Woolworths decision to terminate the Mastercare contract on the Virginia site. There had been a significant history of difficulty in relation to the cleaning at this site, and although Mastercare did authorise additional services for ANS to treat the problems in the 'At Risk' Notice, the level of surprise and indignation Mr Walker expressed (with Woolworths - not ANS) at the decision to terminate does not make me confident as to what was the ultimate, or real reason(s) motivating Woolworths' decision to terminate. I reiterate that Woolworths exercised its power to terminate "for convenience". It did not itself attribute its decision to terminate in accordance with to its powers in cl 18.2 or 18.3, say, for the contractor's failure to perform services at the site in accordance with the agreement (incorporating, relevantly, the performance management process).
By the express terms of cl 3.5, that provision might have entitled Woolworths to act in a capricious fashion. It is not, however, necessary or appropriate to consider whether such a broad power might have been confined, by implied term, or by a process of construction, by notions of good faith or reasonableness: this was a matter for Mastercare in its dealings with Woolworths. No one from Woolworths was called by DC to elaborate any further on why it exercised this power in the way that it did. There is no evidence that Mastercare sought, or received, any further explanation from Woolworths as to why it terminated Mastercare's services at this site when it did.
I am fortified in this view by having regard to the obvious significance of Woolworths to Mastercare/DC's portfolio of clients, if DC truly believed that it was ANS' conduct that contributed to the loss of a contract with this client at Virginia, then it is perhaps surprising that, notwithstanding that the events the subject of this site had occurred in an early part of the relationship between ANS and DC, DC had not taken any steps against ANS as a result of the loss of the contract. It is more surprising still that it took until ANS' pursuit of its unpaid invoices (in February-March 2017) before DC complained about the events concerning the Virginia site many months before. To the contrary, Mastercare's thinking, at about the time of Woolworths' termination, was that it had failed to manage its relationship with Woolworths and/or that it was Woolworths which had acted unreasonably.
As to the Bathurst site, many of the above considerations relating to the Virginia site are relevant also to this site. But in this case, DC's argument is in one important sense, weaker: DC acknowledges that ANS had left the site (on 21 November 2016) several weeks before Woolworths had issued the termination notice in respect to this site (9 December 2016).
DC relies strongly upon Woolworths' complaint about items being taken off the shelf. It is not clear to me that Woolworths' complaint made on 8 December 2016, about items being taken off the shelf and the use of the cloth to clean the toilets and sinks (the last matter which appeared to be of more concern), was specifically referable to ANS' workers; as distinct from someone else's cleaners: perhaps it was, but perhaps it might have been referable to the successor cleaner to ANS.
DC noted that items being taken off the shelf were referred to in 'improvement' and 'at risk' notices issued whilst ANS was on contract, but according to what I understood its case was generally (and, for reasons referred to above, erroneously), a termination notice would be issued within 7 days of an 'at risk' notice. Here the 'at risk' notice was issued 17 days before the issue of the termination notice.
DC also relied upon evidence from Mr Walker, who deposed to his awareness of cleaning standards at this site; and, in that regard, referred to Woolworths 'maintaining' their position about its dissatisfaction with the cleaning services. That hearsay evidence, although not objected to, did not indicate any greater particularity (including the timing for when such indication was provided) and, in these circumstances, I ascribe little weight to this evidence. A difficulty for DC is, as I have explained, that Woolworths' power under cl 3.5 to terminate services for a particular site was unfettered. Even if, as occurred in this instance, a Woolworths employee explained to Mr Walker that the decision to terminate was due to unsatisfactory cleaning services, that explanation (assuming it was given by someone authorised to give it) is vague and may be incomplete. Moreover, it may not have been justified: Mr Walker's reaction to receiving the notice indicated that he thought it was wrong.
As with the Virginia site, I also note that it was not until another 3 months' at least, before Mastercare complained that ANS' conduct had caused it to lose the Woolworths contract in relation to this site. As indicated, again in reference to the Virginia site, no one was called from Woolworths to explain why it exercised its unfettered right under clause 3.5 of its agreement with Mastercare in the way that it did.
I am not persuaded that it was ANS' unsatisfactory cleaning services which caused DC to lose its contract with Woolworths in respect to this site.
It follows that DC's cross-claim fails.
[25]
Quantum
If I am wrong in the above conclusion, DC valued its loss of business in relation to the Woolworths (Virginia and Bathurst) sites at the aggregate sum of $113,299.86 ($62,823.93 for Virginia; $112,649.22 for Bathurst). This valuation was arrived at through an internal spreadsheet prepared by Ms Li.
As I have noted, Ms Li was not called to give evidence for DC on its cross-claim. The calculations were contained in Mr Walker's affidavit.
Ms Li's spreadsheet referred to DC's gross profits. It was put to Mr Walker that the more appropriate measure was net profits, and that that would, more appropriately require assessment of DC's equipment costs, consumables (assuming that these were not supplied by Woolworths), equipment insurance (if there was such insurance), equipment maintenance costs and public liability insurance. Later, in re-examination, Mr Walker said that ANS took responsibility for equipment costs, as it did for public liability insurance. In my view, there was no material difference between the gross and net profits.
An implicit assumption underlying Ms Li's calculations, and DC's claim generally is that the contracts with Woolworths in relation to both the Virginia and Bathurst sites would have run, potentially, for another 4 years.
Having regard to the pre-existing difficulties in Mastercare's relationship with Virginia at the Virginia and Bathurst site, I do not think that such assumption is real. Woolworths exercised its right to terminate under cl 3.5, a provision conferring a unilateral and unfettered right to terminate "for convenience." For the purposes of the argument, if I was to assume that the power was exercised because of Woolworths dissatisfaction with the particular cleaning services from the particular cleaner at the date of termination of Mastercare's services at these sites, I would need to weigh the probabilities of Mastercare's contract with Woolworths going 'full term'. This brings into focus the principles of Malec v JC Hutton (1990) 169 CLR 638, The Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64 and Sellars v Adelaide Petroleum NL (1994) 179 CLR 332; which principles require me to assess the degree of probability that Mastercare's contract with Woolworths would run to the date of expiry of the term.
This is in the context, in part, of an industry in which there may be a rapid turnover of cleaners - it was Woolworths' dissatisfaction with its existing cleaners which was the genesis of the relationship between DC and ANS. It is also partly in the context where Woolworths had (as demonstrated in this case) very broad powers to terminate without cause; and, finally, the context where at least throughout 2016, Mastercare's relationship with Woolworths in relation to the Virginia site (in particular) was precarious. Any further real slip up from whatever subcontractors were deployed by Mastercare would very likely spell the termination of services at that particular site.
If it was necessary to form a view, I would have assessed the probability of Mastercare's contract with Woolworths in relation to the Virginia site, enduring for the remainder of the term at no more than 20%. On the basis of DCs calculations, I would have awarded loss of profits in relation to the Virginia site of $12,565.
In relation to the Bathurst site, it is a striking circumstance that the termination notice was issued weeks after ANS workers had left the site. I also note that the termination notice was issued only a day after the immediately preceding 'At risk' notice. It is, in that circumstance, not surprisingly Mr Walker had, and expressed, the strong reaction that the termination was wrong, at least in so far as it related to a failure to comply with Woolworths' cleaning standards. These circumstances suggest to me that but for Woolworths' decision to terminate Mastercare services in relation to this site when it did, Mastercare's position in relation to the Bathurst site was similarly precarious. I would not have ascribed the probability of Mastercare completing up to another four years of its contract in relation to the site at any higher than 25%. That would have yielded a loss of profits in the sum of $121,456.
[26]
Summary
In answer to the agreed issues presented for the court's determination, I find:
1. ANS is entitled to receive the sum of $40,905.05 in respect to unpaid invoices, having regard to my findings that:
1. to the extent that services were provided on its behalf in the relevant period, ANS did not provide all of them in accordance with its obligations to DC under the contractor agreement;
2. there was no amendment to clause 4.5 of the contractor agreement (relevantly, permitting ANS to use subcontractors) and DC did not acquiesce to ANS' use of subcontractors to perform the work the subject of the agreement;
3. ANS breached clause 4.5 of the contractor agreement by sub-contracting (including franchising) its work under the contract. This meant that it did not perform all of the services required of it under the contract;
4. ANS' claim in relation to the unpaid invoices is not be reduced to reflect DC's contentions that certain invoices it identified were not owed;
5. ANS is entitled to receive payment in respect to those invoices referable to work performed by its employees under the contractor agreement. The value of these invoices is $40,905.05.
1. DC was entitled to terminate the contractor agreement on 20 March 2017 on the basis of ANS' breach of clause 4.5, proscribing its use of subcontractors without DC approval;
2. it follows that ANS has no claim for loss profits or any other claim for damages arising from any wrongful termination by DC.
3. The same result would have been reached on the basis that, even if DC had wrongfully terminated the agreement on 20 March 2017 (either because of an erroneous exercise of a right to terminate or its refusal to pay its invoices), ANS was not ready and willing to perform its obligations under the contract agreement, since it could only render its services through the use of subcontractor labour;
4. Woolworths' termination of its agreement with Mastercare in relation to the Virginia site was not caused by ANS' failure to provide services in accordance with the contractor agreement.
5. Woolworths' termination of its agreement with Mastercare in relation to the Bathurst site was not caused by ANS' failure to provide services in accordance with the contractor agreement;
6. Putting aside the question whether DC was entitled to loss of profits to a contract to which Mastercare - not DC - was the contracting party, DC has not suffered loss or damage (including loss of profits) by reason of the matters referred to in (5) and (6) above.
I will give the parties the opportunity to make further submissions (not exceeding 3 pages), with any supporting documentation, as to the orders that should be made to reflect these reasons. Such submissions should include any issues concerning interest and costs. Such submissions are to be sent to my Associate and served within seven days of publication of these reasons. Subject to any contrary application being made to the Court, those orders will be made on the papers. Exhibits may be returned.
[27]
Endnote
DC expressly reserved its entitlement to rely upon its contractual rights if and when such claims are made against it in the future.
DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.
Decision last updated: 27 March 2019