Corporate Transport Services v Toll [2005] NSWSC 166 | Case summary

The e-mail continued: "Understanding your position, you enter any new lease arrangement at the risk of CTS. I am happy to visit Gosford and discuss options face to face which I can do early next week. The future position/agency arrangement is not fully clear as I am reviewing all options with current Toll Gosford facility managers. Before any commitment is made I believe we do need to get together. If early next week is suitable, please let me know a day and time." 11 A meeting was arranged on 23 August 2004 between the plaintiff and Mr Valkenburg. Mr Ryan, who is a director of the plaintiff, gives an account of it as follows which begins with Mr Ryan's own words: "'Mike, as I said to you in my email, our lease is coming up for renewal at the end of next month, September, and we would like to discuss the future of the agency with you. We can't enter into a new lease if you are going to terminate us on 45 days notice. So if you guys don't want us to do your work anymore, for your corporate strategy reasons or whatever, fine - but just tell us. We need to make our arrangements with our landlord, and we need a reasonable time to unwind everything and to head in a new direction. And as long as we are still around, we want to be treated fairly. Our contract says annual rate reviews. We haven't had a rate rise since you took over from Maynes. Our last rise was October 2001, and now it's three years later. So they are the issues. We want to know from you what you are going to do.' He responded by saying: 'We are keeping the whole Gosford area under review'. I said: 'Mike, our last written agreement was a 1999 agreement. It has a notice provision of 45 days, but things have moved along a lot since then. We've spent all kinds of money, set up systems etc - all with a view to the long term which is what Warwick told us we would have when Mayne's owned the business. But if you want to terminate us, we need a decent time frame to wind up what we have here. If we stay on, we'll have to enter into a new lease - but for how long? It all depends on how long we have your business. Also, we have all kinds of other commitments - to drivers, our staff, our suppliers, and that's going to take some time to unwind. They are all going to want proper notice. We don't want them bringing unfair dismissal proceedings against us. But they won't have jobs if you terminate us. In summary, the last thing we want is for you to just say everything is fine, fine, while all along it is Toll's intention to take over what we are doing. 45 days notice is no good to us. We need a notice period long enough to take care of these issues. Also, if this agency finishes, we'll need to get started in something else. We have to make alternative plans for our future. So we need to know where we stand'. There was some further discussion. Mike Valkenburg appeared to me to be thinking over what I had said. He asked what we might do in the future. My son Jamin said: 'We'll develop other activities'. Finally Mike Valkenburg said: 'Well, what about 12 months. I think a 12 month period is fair notice to you. What do you say to 12 months?' I knew, from what had happened in the Industrial Relations Commission, and from what I had been advised in those proceedings, that this was at the outer limit of reasonable notice I could expect to get. I therefore said: 'Allright, we'll call it 12 months from today's date. The first thing I'll have to do is make the arrangements with the landlord. He will probably want some more money. If he does, perhaps Toll can help us there?' He said: 'We'll look at it, but I'm not promising anything'. The conversation turned to the rate rise. I said: 'In terms of the rate rise, all we are looking for is CPI - which is 7.9% as from the date of our last rate review, September 2002'. I said this because I had previously made the relevant calculations which led me to this figure. Mike Valkenburg said: "We'll give you a rate rise. CPI sounds reasonable to me, but Warwick Powditch will negotiate it with you'." 12 I can say immediately that Mr Valkenburg disputes this account. According to Mr Valkenburg what he said was that he was prepared to consider a further 12-month arrangement subject to resolution of the rate review issue and the lease issue, and he was happy to have a Mr Powditch liaise with Mr Ryan over the review. Mr Valkenburg says that at the time of that meeting, he had already made a decision in early 2004, that he would terminate any agencies that remained in key regional centres. In his way of seeing things, Gosford was one of the key regional centres. However, he had not worked out how he would be able to have the defendant take over the work which the plaintiff was performing. 13 On 24 August Mr Ryan spoke with the landlord. He ascertained that the landlord was prepared to lease the premises for another 12 months, but that the landlord wanted a rent rise of a quite substantial proportion over the rent that had been paid in the past. Mr Ryan tried to negotiate with the landlord about the price, but was told he could take it or leave it. Mr Ryan replied: "Well, we are not moving just for 12 months, so I'll take it". It does not appear that there has been any lease actually entered into between the landlord and the plaintiff, but the plaintiff has been paying rent at the higher rate. 14 On 25 August 2004 Mr Ryan sent an e-mail to the plaintiff, which said: "Thank you for your time in meeting with us on Monday at Tuggerah, and for your objective and constructive input Thank you also for your commitment, as discussed in the meeting, to CTSA continuing the agency for a further 12 months As also discussed, I have spoken with the landlord. He has agreed to extend the lease for a further 12 months, from 30.09.04, at a rate of $89.00 per square metre. This is an annual rental of $53311.00. The current rental is $68.00 per square metre - approx. $41000.00 per annum. The original lease rate was fixed for the term of the lease. The rate quoted is comparable to rates available in the area. Can you please advise your position on this arrangement? Bearing in mind the revenue drop experienced by CTSA with the loss of Parceline and fashion work, and the attendant reduced space requirement, may we propose that CTSA and Toll share the rental equally at $27000.00 each While this represents a 35% additional cost to CTSA in comparison with alternative smaller premises available, we would be prepared to accept this in the circumstances. Also, in addition to offering to consider the lease arrangements, you offered to consider a rate rise. BACKGROUND; CTSA has been on the same rate since occupying these premises at Mayne's 'request' for suitable premises for handling Express, Parceline and Fashion work. These premises were occupied 30.09.01 CTSA proposes for your consideration, that a rate adjustment in line with the movement in CPI - Sydney, All Groups would be appropriate; some specific services may need to be addressed individually, where the rate is not appropriate ABS statistics show an increase June 2001 to June 2004 of 7.9%. This adjustment applied to the current base rate of $2.40, produces a new base of rate of $2.59 I look forward to your response". 15 That provoked a response from Mr Valkenburg on 26 August, as follows. "In response to your email as a result of our recent meeting, I would like to advise the following: 1. The arrangement will continue for a further 12 months subject to the resolution/acceptance of the rent and rate review. 2. At the time of our meeting, I was obviously not aware of what your current landlord would propose for a 12 month extension. I am also not aware of current availability or pricing in the area. At this point in time, Toll Priority is not prepared to split the rent for the Tuggerah property. I believe all other options need to be explored by CTS including a smaller office/warehouse site, providing it does not impact on service levels, legal obligations or freight integrity. 3. Rate review as discussed has been passed on to the NSW Country Manager - Warwick Powditch to negotiate direct with you. I have asked Warwick to expedite this process." 16 Mr Powditch sent an e-mail on 30 August 2004 saying to the plaintiff: "Effective from the next pay period your rates will increase by 4%. Please liaise with Brian Strong to agree on individual rates per service."

I suspect that the plaintiff misread that e-mail, and took it to be a statement that the rates would increase by four percent and no more. I do not read it that way. It seems to me that what the e-mail was offering was an immediate four percent increase, and that particular items would then be the subject of further negotiation. It is of some relevance that the pay structure under the agreement which had been entered with Mayne was one which provided numerous different measures of remuneration - there was an ad hoc kilometre rate; there was a pick-up and delivery consignment rate; there was a sum of money for a dedicated afternoon cluster run and line haul to Sydney; there was a charge for EFTPOS installation; there were two different types of callout fees, and, for consignments over 50 kilograms, there was a schedule of rates where the price changed every 25 kilograms of consignment weight. 17 There was no further negotiation on the question of whether the defendant would make any contribution towards the expense that the plaintiff was incurring for increased rent, or on increased rates. 18 On 15 November 2004 the defendant gave the plaintiff a letter which terminated its engagement, by three months' notice expiring on 18 February 2005. The letter contained an offer about the terms of termination, as follows: "Upon termination of the Agreement, Toll offers to: · take over the lease of the Gosford Depot on the same terms and conditions of that lease that bound CTS. However, Toll will not be liable for any debts or liabilities that have been incurred by CTS pursuant to the lease; and · engage all of CTS's contract carriers and employees on terms and conditions which are no less favourable than would have been the case when engaged by CTS. The above offer will be however, subject to the following: (a) Toll satisfying itself that there is nothing in the lease which Toll considers would not be in its best interests; (b) the employees and contract carriers attending an interview to Toll's satisfaction; and, (c) the offer shall not be extended to the Site Manager/Depot Manager employed by CTS." 19 There was a prompt response by the plaintiff's solicitor, threatening action in the Industrial Commission under section 106. There were ongoing negotiations between the plaintiff's solicitor and the solicitor for the defendant, relating to the amounts which were claimed by the plaintiff to be outstanding from the defendant. 20 There were some discussions about the basis on which the parties might be able to resolve their differences. The question of an injunction was raised again in February 2005. By agreement and without admissions, the termination date of the contract was extended until tomorrow, 4 March 2005. 21 The plaintiff claims that it will ultimately be entitled to relief on four separate bases. The first of them is that there is an implied term in the contract between it and the defendant, whereby the defendant will do all things necessary to enable the plaintiff to have the benefit of the agreement, not hinder or prevent the fulfilment of the purpose of express promises, and act reasonably and in good faith in performance of the agreement. 22 The case which the plaintiff wishes to advance is that, in circumstances where the meeting of 23 August 2004 led the plaintiff to believe it would be given 12 months notice, it is neither reasonable nor in good faith to turn around, in November, and terminate the agreement on three months' notice. 23 The second contention that the plaintiff wishes to present is that the conversation of 23 August 2004 resulted in a variation of the contract, whereby its term was extended by 12 months, or alternatively the period of notice was extended from 45 days to 12 months. There is some suggestion in Mr Ryan's affidavit that, even if there was any conditionality in the contract, concerning resolution of the rates of pay and contribution towards lease expenses issues, by 31 August 2004 those issues had been resolved. They had been resolved in a way which the plaintiff found very unsatisfactory, but still resolved. 24 The third way in which the plaintiff wanted to put its case is as a promissory estoppel. It is that the meeting of 23 August 2004 contained a representation by the defendant as to the manner and circumstances in which it would exercise its contractual power to terminate the agreement, and that the plaintiff acted to its detriment in reliance on that representation. 25 There are several ways in which the plaintiff contends it acted in reliance upon the representation. After the Newcastle agency business came to an end, Mr Ryan and his sons turned their business energies to property development. They did this using various corporate vehicles, the principal one of which was AIPT Pty Ltd. Substantial development projects were underway by 23 August 2004, by companies in various parts of the Ryan empire. In connection with those projects, companies in the Ryan group had engaged in significant borrowings. The borrowings were, in total, of the order of $7 million. While there were these borrowings, the plaintiff's case is that if the contract with the defendant were to continue, the plaintiff would have had a small amount of extra borrowing capacity. The plaintiff says that, in the belief that it's income stream from the defendant would continue for 12 months, it caused AIPT to enter into a lease of some premises at 400 Hunter Street, Newcastle, for 12 months, and arranged for those premises to be fitted out as a unit display suite, to be used for the purpose of marketing, development projects carried out by companies in the Ryan group. A lease of those premises was entered into by AIPT on 20 September 2004. 26 Examination of the lease shows that it is not quite a 12 month lease, because the lessee has the right to terminate on one month's notice, at certain break points during the lease term. As I read it, the lessee is not free to give a month's notice whenever it likes, however. 27 AIPT embarked upon paying an amount totalling $210,000 for fit out of those premises. This fit out had been completed by the time that the letter of termination of 15 November 2004 was received. While it is AIPT which entered this lease, and paid for the fit out, it was done, the plaintiff says, on the basis that surplus income generated from both the plaintiff, and another company in the group, called Access Couriers, would be available to service the associated obligations. Furthermore, there are cross-guarantees between companies in the Ryan group, so that the plaintiff is a guarantor of, inter alia, the AIPT indebtedness. According to Mr Ryan's evidence, the financial situation of the group at the moment is so precarious that the unavailability of the surplus income from the plaintiff would put AIPT in a position where it could not service its obligations, and where the likelihood is that the lenders to the group, principally National Australia Bank, but other lenders as well, would then be likely to call up their loans. If there were to be a calling up of the loans, it would be completely disastrous, because the development projects are at the moment part finished, although by August of 2005 it is expected that they will be finished, at least to a sufficient extent to be able to pay off a significant part of the indebtedness. Furthermore, Mr Ryan and his sons have personally guaranteed all these borrowings, and mortgaged their houses. It is put that they would be at risk of losing their houses if the corporate empire were to fall over. 28 There has been an attack on Mr Ryan's evidence that the plaintiff generates $100,000 of profit, and Access Couriers generates another $100,000 of profit, which could be used for the purposes for which Mr Ryan says it is used. The accounts of the plaintiff and Access Couriers, prepared by external accountants, and the tax returns of those companies, show that in the years ended 30 June 2001, 2002 and 2003 Access's results were, respectively, a profit of just short of $21,000, a loss of just short of $17,000, and a profit of just short of $5,000. For the same three years, the financial results of the plaintiff are a loss of something less than $500, a loss of a little less than $3,000, and a profit of a little over $11,000. 29 When it became apparent that the defendant was proposing to challenge Mr Ryan's evidence about the availability of $100,000 in profits in the plaintiff, I permitted some supplementary evidence to be given. Mr Ryan has caused to be printed overnight some documents from the computerised accounting system used internally by the plaintiff and Access. Those documents show that for the year ended 30 June 2004 the plaintiff achieved a net profit of a little over $100,000, and Access achieved a net profit of a little over $138,000. The closest to an explanation which Mr Ryan could give for the discrepancy between figures of this magnitude, and figures of the magnitude which were shown in the accounts and tax returns, is that the raw data is given to the external accountants of the plaintiff, and that allocation of some items is made to other companies in the group. That explanation is not one which I am prepared to dismiss as implausible. The print out from the computerised accounting records shows that the income of the plaintiff for the year ended 30 June 2004 was, in gross terms, a little short of $1.1 million. This income is derived in its entirety from the contract with the defendant. 30 If it is the income so generated, after payment of those expenses which ought properly be attributed to it - whether or not those expenses are all shown in the management accounts of the plaintiff - that provides a source from which the plaintiff is able to meet ongoing financial commitments, in my view it is sufficiently established for the purpose of an interlocutory proceedings that the plaintiff would suffer loss if it were to not have that income stream continue - the loss being that the guarantees the plaintiff has given would be called on by virtue of a default. 31 The defendant submits that there is an insufficient demonstration of a case to be tried concerning the estoppel issue. It is clear that there is a significant dispute in the evidence, and also that even if the evidence of Mr Ryan about the content of the meeting were to be accepted, there would be room for argument about the legal consequences which ought be taken as flowing from the saying of the words to which he deposes. In particular, there would be argument about whether it was reasonable to regard what was said about a 12 month term as a firm representation, when issues about the rates, and lease contribution, had not been resolved. 32 Mr Moses submits that the present case is one where an interlocutory injunction would be in practice final. He reminds me that, when an interlocutory injunction will be in practice final, greater care needs to be taken by the court in evaluating the case, and the prospects of the case. 33 I do not accept that there is a case where the interlocutory injunction will be in practice final. The court is able to offer a date for the hearing of the matter on a final basis in May. The plaintiff's claim is that the defendant cannot terminate the contract until August 2005. While an interlocutory injunction would determine the question until May, there is not the same need for forming a preliminary view about the prospects of success as when the interlocutory injunction forecloses the entire issue. 34 Mr Moses also reminds me of the principle that a court is reluctant to issue an interlocutory order which will in practice require constant supervision, and reluctant to issue an interlocutory order in a circumstances where people will be kept in a relationship which involves personal trust and confidence. 35 The High Court in Patrick Stevedores Operations (No 2) v Maritime Union of Australia (1998) 195 CLR 1 paras [78] - [80] made clear there is no absolute bar to the granting of an injunction which involves supervision by the court, and rather it is a matter of degree. I adopt the summary of the authorities given by Hamilton J in Liristis Holdings Pty Ltd v Q-Corp Marine Pty Ltd [2001] NSWSC 418. 36 Concerning interlocutory injunctions where ongoing co-operation may be needed, it is a factor which the court takes into account, but by no means a decisive matter. For instance, the courts have granted interlocutory injunctions to restrain breach of a hotel management agreement, where a hotel manager has complete control of the financial fortunes of the hotel owner concerning the hotel in question, and there is a need for the parties to co-operate with each other. Examples are Holiday Inns (Pacific) Inc v Leisure Developments (Qld) Pty Ltd, (Sheppard J, Federal Court 7 October 1987, unreported); 179 Elizabeth Street v Austcorp Hotels Pty Ltd, (Young J, 13 December 1993, unreported); and Australia Asia Pacific Hotels Ltd v Australian Frontier Holiday Operations Pty Ltd [2000] NSWSC 340. The Court of Appeal in New South Wales has recognised there is no longer a strict rule against granting an injunction which has the effect of keeping people in a personal relationship: Curro v Beyond Productions Pty Ltd (1993) 30 NSWLR 337 at 346-7. See also Posner v Scott Lewis [1987] Ch 25. As the English Court of Appeal said in C H Giles & Co Ltd v Morris [1972] 1 WLR 307 and the House of Lords approved in Co-operative Insurance Society Ltd v Argyll Stores (Holdings) Ltd [1998] AC 1, it is a rule of thumb rather than a rule of law that says that a court will usually not require specific performance of a contract for the provision of personal services. The same applies to an interlocutory injunction to restrain termination of a contract under which personal services are provided. 37 Here, in any event, the services which are being provided are not personal services in the sense in which the 19th century cases talked about the expression, where one natural person works in close proximity to, and interacts with, another natural person. Rather, they are commercial services, provided by one corporation to another where one of the parties has significant responsibilities toward the other. 38 There have been some complaints by the defendant of inadequacies in the plaintiff's performance of its agreement. It gives three specific examples; in July 2004 when a scanner fell off a forklift; in August 2004 when a customer complained that one of the plaintiff's drivers smelt of alcohol, and, most seriously, on 11 October 2004 when the plaintiff lost a consignment of methadone which should have been delivered to a pharmacy. These instances, while they are significant, do not, in my view, demonstrate that the plaintiff is someone not fit to be trusted with continuing to carry on the business. To some extent mistakes are inevitable, and the proportion of misdeliveries is, Mr Ryan said, and I accept, extremely small. 39 In my view, there is a serious question to be tried about whether the 23 August 2004 meeting resulted in the giving of a representation that the agreement would not be terminated before August 2005, and a serious question to be tried as to whether the plaintiff has suffered detriment in reliance on that representations. 40 When I am satisfied that there is a serious question to be tried concerning that aspect of the case, it is not necessary for me to consider whether there is also a serious question to be tried on the other ways in which the plaintiff puts its case, which I have earlier outlined, nor about the fourth way in which the plaintiff puts its case, which is that the termination amounts to unconscionable conduct contrary to section 51AC of the Trade Practices Act 1974 (Cth). 41 I referred earlier to the principles relating to injunctions which require supervision by the court. I do not regard the present case as one which will involve continual supervision by the court. The type of order which would be needed to provide interlocutory protection, is one that until the determination of the suit or further order the defendant not treat as valid its termination notice of 15 November 2004. No supervision of that order is called for. 42 I turn to the balance of convenience. There was a submission made by the defendant that I ought have regard only to the detriment which the plaintiff would suffer in considering the balance of convenience. I do not accept that submission. Whenever a court is making a judgment about the balance of convenience, it is making a pragmatic judgment about what is the best way of preserving the situation pending a hearing. For that purpose, it can take into account how the granting, or refusing, of the injunction will affect third parties, or the general public. The fact that such people can be affected by the granting of an interlocutory injunction is, indeed, something which is expressly recognised by the court in the terms of the usual undertaking as to damages which is required upon grant of an interlocutory injunction. Part 28, rule 7(2) Supreme Court Rules requires the undertaking to be one under which payment can be ordered "to any person, whether or not a party, affected by the operation of the interlocutory order …". Even if a particular court does not include non-parties within the class who can be compensated under its standard form of undertaking as to damages, it retains the power in any particular case to require an undertaking which extends to paying compensation to non-parties: Smith Kline & French Laboratories (Australia) Ltd v Department of Community Services and Health (1989) 89 ALR 366 at 371 per Gummow J. In my view, it is open to the Court to take into account how a refusal of an interlocutory injunction, which turned out at trial to be one which would have protected a right of the plaintiff, would affect not only the plaintiff, but also other companies in the Ryan group, and Mr Ryan and his sons personally. Conversely, the Court can take into account how a granting of an interlocutory injunction to protect a right which the plaintiff claims but which the trial showed the plaintiff did not really have, would affect not only the defendant, but also other people. In the present case, it is not claimed that anyone other than the defendant would be adversely affected if an interlocutory injunction were to be granted. 43 Further, the defendant puts nothing in the scales of balance of convenience so far as detriment to it itself is concerned. It does not put a case that, for instance, the operations would be more profitable if it took them over itself or gave them to someone else to run, or that it could well be at risk if the plaintiff continues to run them. In those circumstances, in my view, the balance of convenience favours the granting of the injunction. 44 There is one other matter. The plaintiff has offered the usual undertaking as to damages. The evidence suggests that the plaintiff is in a financially precarious situation, notwithstanding the cash flow it generates. As the purpose of an undertaking as to damages is to provide financial protection to people who might be affected by the operation of an interlocutory order, it is elementary that, if it is to meet that purpose, it be given by a person or entity who is financially capable of performing it if called on to do so: Spry, Equitable Remedies, 6th ed. p. 485 and cases there cited. I would regard it as necessary, to protect the defendant, for there to be more than the undertaking of the plaintiff to support an undertaking as to damages. If an undertaking as to damages were forthcoming from AIPT - which is the extra undertaking the defendant seeks - as well as from the plaintiff, I would have been prepared to grant an interlocutory injunction restraining, until the hearing of the suit or further order, the defendant from treating as valid the termination notice dated 15 November 2004. 45 I will adjourn the matter to 9.45 am Friday 4 March 2005 for directions. **********

Corporate Transport Services v Toll

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Judgment (14 paragraphs)

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Cases Cited (5)

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