K & S Freighters Pty Ltd v Linfox Transport

REASONS FOR JUDGMENT 1 This notice of motion filed by the applicant K & S Freighters Pty Ltd ("K & S") seeks interim injunctive relief against the respondent Linfox Transport (Australia) Pty Ltd ("Linfox") restraining Linfox from acting on a notice served on K & S on 19 August 1999 giving one week's notice of termination of contractual relationships between the two companies. That notice has been extended to today's date. The serving of the notice and/or its consequences if effective are alleged in the principal proceedings to constitute breaches of s 46(1) and s 47(5) of the Trade Practices Act 1974 (Cth) ("the TP Act") and a breach of contract. Both parties, I would note, are substantial entities conducting transport businesses. 2 I should state at the outset that while the present motion was brought on at short notice and, for that reason, limited the material I could reasonably expect to be placed before me, both parties for their own forensic reasons have further limited the evidence upon which they rely, the respondent in particular tendering no evidence at all on any matter likely to give rise to a factual issue in the proceedings. In the result, as will be seen, there is a lamentable poverty of evidence on factual matters, a poverty that has a sharp bearing on the fate of this motion. Background Circumstances 3 These can be stated relatively briefly: 4 1. For a period of approximately 30 years until 1996 K & S had provided transport services to the CSR Group ("CSR") and its predecessors in relation to its sawn wood and particle board products from mills situated in the vicinity of Mount Gambier in South Australia and of Tumut in New South Wales. 5 2. Towards the end of 1996, CSR entered into a contractual arrangement with Linfox under which Linfox became the sole provider of designated services to CSR, including the transport services previously provided by K & S to CSR. 6 3. Towards the end of 1996 and in consequence of Linfox becoming CSR's service provider, K & S and Linfox entered into what I will inexactly call a "subcontractual arrangement" in relation to the partial performance of Linfox's obligations to CSR at both Mount Gambier and Tumut. 7 4. The evidence of the actual relationship between K & S and Linfox is indecisive in crucial respects. It is clear that over an extended period, from 1996 until possibly May of 1998, negotiations occurred and draft agreements were exchanged for a two‑year contract renewable at Linfox's discretion, for services at Mount Gambier. The documentation seems silent on the arrangement that was to be put in place for Tumut. In the event, no written contract was executed by the parties, although the respondent has contended that on 11 November 1997 K & S did accept the terms of the draft of 1 October 1997 for a two‑year plus two further terms contract for Mount Gambier. 8 5. To quote from the affidavit of Mr Winser, the CEO of K & S: "Earlier this year [ie 1995], CSR agreed to sell its forests and Mr [sic] Gambier saw mill to Green Triangle Forest Products Pty Ltd ('Green Triangle'). About three months ago, representatives of [K & S] and representatives of [Green Triangle] entered into discussions. From [K & S's] point of view, the purpose of these discussions was to ascertain whether it was possible for it to contemplate becoming the principal contractor in relation to the transport of timber products from the mills. Approximately one month ago, Green Triangle invited expressions of interest from certain companies in respect of the provision of such services. [K & S] was one company thus invited to express an interest. I believe that expressions of interest were also invited from [Linfox], from a company trading as 'South West Freight', from a company trading as 'TNT' and from a company trading as 'Scotts Transport'. I do not know of any other companies which were invited to express an interest by Green Triangle." I should interpolate that I was provided with no further information at all as to what was the actual nature and burden of the expressions of interest referred to by Mr Winser. I will return to this matter. 9 6. Mr Winser's affidavit goes on: "Within the last month, on dates which I now no longer recall precisely, I had two telephone conversations with Mr D Spencer, the operations director of [Linfox]. At the first of those conversations he said words to me to the effect that he was aware that representatives of [K & S] had been talking to 'our customer' and were demanding that [K & S] leave 'our customer' alone. By the phrase 'our customer' I understood Spencer to be referring to Green Triangle. In the second telephone conversation, Spencer said words to me to the effect that [K & S] should 'get off our patch and we ought to be working together'. I understood those words to be a demand that [K & S] not express an interest in providing transport services as a principal to Green Triangle." 10 7. On 19 August 1999, K & S received the notice from Linfox purporting to terminate the arrangements between the two companies. That notice did not on its face provide any reason for the termination which was to be operative in relation to both the Mount Gambier and Tumut services. 11 8. By letter of 20 August 1999 to Linfox, K & S's legal advisers wrote (inter alia): "Although the [notice of termination] itself neglects to recite any reasons for the termination, you have previously expressed that to be in response to our client responding to 'an Expression of Interest' to provide services to Green Triangle Forest Products Ltd." 12 9. In response, by letter of 23 August 1999, Linfox's Operations Director stated (inter alia): "Much of the material contained in your letter is erroneous. At no time have I advised that our termination of the arrangements with your client was in response to your client responding to 'an expression of interest' to provide services to Green Triangle Forest Products Limited. Your client is, of course, entitled to respond to any Expressions of Interests. In relation to termination of the agreement, I had a telephone conversation with each of Legh Winser and Steven Fanning. During those conversations I expressed my extreme dissatisfaction with the comments that your client's [sic] had made to Green Triangle Forest Products Limited regarding the costs of our services. I was therefore very surprised to read the unfounded allegations in your letter that I had made any assertions that your client's response to an expression of interest was the basis for terminating the arrangements between us and your client. I also note, as a matter of interest, that the conversations I had with Mr Winser and Mr Fanning were witnessed. Your client well knows of its failure to perform the services it supplies to Linfox. It was informed on numerous occasions that the standard of its performance was far short than that required. Further, your client and its subcontractors have been involved in numerous failures to perform, causing financial loss and also damage to our reputation. As such, Linfox is exercising its rights to bring the arrangement between us and your client to an end." 13 10. By letter of 24 August to Linfox, K & S's advisers stated (inter alia): "Our client does not accept as genuine the reasons you now give for the termination of the Agreement. The statement that our client 'was informed on numerous occasions that the standard of its performance was far short than that required' is untrue. The only complaint of any substance our client has recorded is one made in late November or December last year which relates to the supply of trucks in the Tumut area. That matter was addressed by our client. Further Steven Fanning wrote to you indicating that any further complaints should be directed to him so that they could be responded to promptly. No further complaints have been received. Quite the contrary you have, on occasions, complimented our client on the standard of its service. In addition the minutes of the review meetings do not support your contention. In particular we draw your attention to the minutes of the last meeting on the 18th August 1999 (only one day prior to the purported notice of termination) which noted that 'the communication channel between both companies has improved noticeably with fewer problems'. We acknowledge that during your recent telephone conversations with Legh Winser and Steven Fanning you expressed dissatisfaction about comments allegedly made by our client to Green Triangle Forest Products Limited. In your conversation with Legh Winser you said that K & S should 'get off our patch and that we ought to be working together'. Mr Winser pointed out to you that you had only been doing that work for a couple of years whereas K & S had done the work previously for thirty years and had every right to go after the work. In your conversation with Steven Fanning you complained that K & S had been to see Green Triangle Forest Products Limited offering to reduce rates. You said in those circumstances it was difficult for Linfox to have a relationship with K & S. Our client totally and utterly rejects your assertion that you are terminating the arrangement because of performance considerations. If you intend to maintain that position would you please specify in detail what you regard as our client's non-performance. To our client the reason for termination appears to be quite obvious, namely because our client has sought to provide services to Green Triangle Forest Products Limited. … Clearly the notice period given by you, and now extended, is grossly inadequate. The minimum period that would be acceptable to our client is to the 1st October 1999. Accordingly we ask that you extend the notice period to the 1st October 1999. Our client notes that the volume of work has significantly reduced. Our client asks that volumes be restored to previous trading levels (approximately 250 loads per month ex Tumut and over 300 loads per month ex Mt Gambier), and be sustained until the proper termination of the agreement." 14 11. Thereafter, correspondence ensued in which Linfox purported to provide examples of the unsatisfactory performance claimed and K & S purported in response to refute or explain those examples. It is unnecessary to refer to that correspondence. 15 12. I should interpolate that I am satisfied on the material before me that there is a substantial factual contest between the parties as to the cause of the notice. For reasons I later give, that contest helps found a serious issue to be tried in relation to the purported termination of a contract or contracts between the parties. 16 13. Insofar as the consequences to K & S from the termination are concerned, Mr Winser has deposed as follows: "If the respondent is permitted to act upon the purported notice of termination which it has given, it will cause some disruption to the applicant's business. It will be necessary to re-deploy a number of vehicles, namely approximately 12 B-double prime mover and trailer rigs and approximately 50 ordinary prime mover and semi trailer rigs. In addition, a number of its employees will be made redundant, namely one at Tumut and approximately 3 or 4 at Mt Gambier. I am concerned that if the respondent acts upon its purported termination notice, the applicant's business will be adversely affected in that: Green Triangle will believe that the respondent terminated the contract for good cause connected with the applicant's performance thereunder and will, consequently, not consider the applicant as a supplier of transport services to Green Triangle in the future; The applicant will lose the opportunity to be seen to be providing an acceptable level of service in respect of transport of Green Triangle's product." 17 Before dealing with the principal claims of K & S (these relate to the TP Act) it is appropriate to refer first to the contract claims. The Contract Claim 18 There is very real opacity in this claim, not in relation to the types of breach of contract alleged but rather in relation to the nature and existence of the alleged contract or contracts between the parties. 19 For present purposes, the evidence, unsatisfactory though it may be, is sufficient to establish a serious issue to be tried as to whether there was a single or separate contracts for the Mount Gambier and Tumut services that was or were terminable on reasonable notice. Even if the Mount Gambier services were governed by a two plus two contract, as it has been called - and this equally is arguable - that contract contained no express provision governing termination prior to the expiry of the initial contract on 30 September 1999. I should note in passing that at one stage K & S appears to have disavowed there being any contractual arrangement at all, a position from which it now resiles. 20 The applicant's case, as I now understand it, is put in two ways: first, that the notice given was unreasonably short and in breach of the term of the contract to be implied ad hoc that reasonable notice of termination would be given; secondly, the service of the notice for the reason K & S alleged - that is, to thwart or hinder K & S's participation in the expression of interest process - was in breach of an implied term of good faith and fair dealing in contract performance and enforcement, this term being implied into a commercial contract of this variety as a matter of law: see the observations of Finkelstein J in Garry Rogers Motors (Australia) Pty Ltd v Subaru (Australia) Pty Ltd [1999] FCA 903. 21 I am satisfied in relation to the making and to the alleged breach of both implied terms that there is a serious issue to be tried. I have earlier indicated my view on the character of the factual dispute concerning Linfox's reasons for termination. Here I need only note in relation to the terms said to be implied in the alleged contract or contracts between the parties that (a) given the nature and duration of the arrangement between Linfox and K & S and the resources employed in it, the implication ad hoc of an implied term requiring reasonable notice is strongly arguable; and (b) notwithstanding the view I took in Hughes Aircraft Systems International v Airservices Australia (1997) 146 ALR 1 at 36-37 (despite my stated preference to the contrary) on the place of a duty of good faith and fair dealing in Australian law, the subsequent decision of the New South Wales Court of Appeal in Alcatel Australia Ltd v Scarcella (1998) 44 NSWLR 349 clearly makes the availability of such an implication in the contract alleged a serious issue to be tried. 22 Having so found there to be a serious issue, I would not though be prepared, on the contract claim standing alone, to award interim injunctive relief. My reason for this attitude relates both to the balance of convenience and to the availability of damages as a satisfactory remedy in the circumstances. I emphasise I am talking of the contract claim standing alone. My reasons briefly for this view are as follows. 23 K & S concedes that the contract or contracts will come to an end and that such disruption as this entails will occur inevitably. The effect of the Trade Practices Act claims apart, the issue for practical purposes will be one of the reasonableness of the notice. By its letter of 24 August 1999, K & S indicated its then view that a period of about six weeks from the service of the notice would be the minimum acceptable period. Whether or not such a period would be found to be that which was reasonable in the circumstances, I have no reason on the material before me for considering that the period would be significantly greater than six weeks. Bearing in mind (a) that there has been a long period of dealing between the parties that would provide substantial guidance on aspects of the assessment of damages for breach of contract; (b) that if Linfox's stated reason for termination is found in the event to have been the actual reason, with the consequence that an injunction would compel further reliance by Linfox on a subcontractor whose performance was of concern to it; and (c) the real likelihood that in the circumstances breach of the duty of good faith and fair dealing would sound only in damages because of the existence of a parallel term as to reasonable notice implied ad hoc - the contract case alone is not one in which it would be appropriate to award equitable relief. I indicate "equitable relief" because standing alone as a claim in the accrued jurisdiction of this court, any relief given in respect of that claim alone would be under s 23 of the Federal Court of Australia Act 1976. The Trade Practices Act Claims 24 Insofar as presently relevant, the provisions of the TP Act relied upon by K & S are in the following terms: "46 Misuse of market power (1) A corporation that has a substantial degree of power in a market shall not take advantage of that power for the purpose of: (a) eliminating or substantially damaging a competitor of the corporation or of a body corporate that is related to the corporation in that or any other market; (b) preventing the entry of a person into that or any other market; or (c) deterring or preventing a person from engaging in competitive conduct in that or any other market. … 47 Exclusive dealing (1) Subject to this section, a corporation shall not, in trade or commerce, engage in the practice of exclusive dealing. … (5) A corporation also engages in the practice of exclusive dealing if the corporation refuses: (a) to acquire goods or services from a person; … for the reason that the person or, if the person is a body corporate, a body corporate related to that body corporate … has not agreed not to supply, goods or services, or goods or services of a particular kind or description; (c) to particular persons or classes of persons or to persons other than particular persons or classes of persons; or (d) in particular places or classes of places or in places other than particular places or classes of places. … (10) Subsection (1) does not apply to the practice of exclusive dealing constituted by a corporation engaging in conduct of a kind referred to in subsection (2), (3), (4) or (5) or paragraph (8)(a) or (b) or (9)(a), (b) or (c) unless: (a) the engaging by the corporation in that conduct has the purpose, or has or is likely to have the effect, of substantially lessening competition, … (13) In this section: … (b) a reference to competition, in relation to conduct to which a provision of this section other than subsection (8) or (9) applies, shall be read as a reference to competition in any market in which: (i) the corporation engaging in the conduct or any body corporate related to that corporation; or (ii) any person whose business dealings are restricted, limited or otherwise circumscribed by the conduct or, if that person is a body corporate, any body corporate related to that body corporate; supplies or acquires, or is likely to supply or acquire, goods or services or would, but for the conduct, supply or acquire, or be likely to supply or acquire, goods or services." 25 Put shortly, K & S's claims are as follows: (a) In relation to s 46(1) (i) that the relevant market is that for the contract to provide Green Triangle with road haulage services for its timber products at Mount Gambier; (ii) Linfox as the incumbent contractor has a substantial degree of power in that market; (iii) in terminating its arrangement with K & S for the reasons alleged by K & S concerning the latter's participation in the expression of interest process, Linfox took advantage of that power for the purposes specified in paras (a), (b) and (c) of s 46(1) in that K & S was a competitor and prospective entrant in the relevant market. (b) In relation to the s 47(5) claim (i) Linfox refused to acquire K & S's services because K & S had not agreed, as Linfox has allegedly required, that K & S would not participate in the expression of interest process that could itself have led to K & S supplying services to Green Triangle; and (ii) Linfox acted for the purpose of substantially lessening competition by attempting to eliminate or damage a second competitor from a group of only four remaining competitors for the contracts. Evidentiary Matters 26 1. It is Mr Winser's evidence that contracts of carriage of the type let by CSR and now, it is said, prospectively by Green Triangle are evergreen contracts. These he described as follows: "They are not contracts for a specific period of time but are contracts which it is anticipated will last indefinitely. They are, however, subject to review at regular intervals. Reviews might well occur after 12 months and then approximately every 3 to 4 years to assess performance and whether the parties, generally, wish to continue with the arrangement. Unless there is some intervening event, such as a dissatisfaction by one party with the operation of the contract, or a change of ownership of one of the parties to the contract, it is anticipated that the contracts would continue indefinitely." 27 2. The only evidence I had before me relating to the Green Triangle expression of interest process, apart from the time at which K & S was approached, is Mr Winser's statement of belief that four other companies, including Linfox, were also invited to participate and that one of these has indicated it did not wish to give an expression of interest. 28 3. Significantly, I have no evidence as to (a) what precisely was envisaged by the expression of interest process; (b) what was its scope, duration and content, and the content if any of the services it envisaged; and so on, notwithstanding that K & S was an invitee in the process and it could have provided such evidence. Importantly, there is no evidence before me that would allow me to safely infer where this expression of interest lay on the spectrum bounded at one end by the possibility that it amounted to no more than a preliminary inquiry as to possible future action that might be taken by Green Triangle and/or by each invitee and at the other, by a precise precursor for or even substitute for a request for tender. 29 4. Expert affidavit evidence was provided by an economist, Associate Professor Pound, in support of the applicant's case. (a) In relation to market definition, he deposed without further elaboration that: "The market within which the applicant and respondent operate is the market for the provision of contracted management services for the road haulage of timber produced by Green Triangle Forest Products Pty Ltd ('Green Triangle'). In this market there is a single buyer - Green Triangle which currently has contracted its timber haulage to the respondent but which has called for expressions of interest to provide such haulage services as from 1 November 1998." (b) In relation to the award of contracts of the type supposedly to be let by Green Triangle, he observed: "In order to be seen as a potential winner of such a tender, reputation is critical. The successful bidder must be able to display that it can provide the trucks as, where and when required and that they perform the timber delivery services in accordance with prescribed error rates. Under such circumstances an incumbent which has held such a contract for any reasonable period of time has a significant advantage over other bidders for the contract. It has shown that it is able to meet the specifications required by the buyer of the services. The reliability of the incumbent is known. If the buyer were to switch with confidence to another freight company's services, it would need to incur significant transactions costs and learning costs in discovering the standard of service which could be provided and the ability of the new company to deliver. Under such circumstances, the advantage accruing to the incumbent provider of services is such that it is unlikely that a new bidder would be seen as offering a viable commercial alternative." (c) He considered that the winner of an evergreen contract will enjoy a long‑term position of market power, free from any constraining threats by its rivals. (d) In relation to the service of the seven days' notice of termination after the invitation of expressions of interest, he concluded: "[t]he lack of a credible commercial reason for this action and the timing of this action lead me to believe that the only possible inference which can be made is that it was done with the purpose of raising a significant barrier to the chances of the applicant's bid succeeding and to suppress competition in the market for the provision of contracted management of timber haulage services." (e) Assuming the correctness of K & S's version of Linfox's reason for terminating the arrangement, Associate Professor Pound opined: (i) that the termination had the purpose of seeking to damage K & S's reputation in the eyes of Green Triangle and so reduce its chances of being seen as a major rival to Linfox; and (ii) "If the applicant had been doing a bad job as asserted by the respondent, then the rational economic response by the respondent if it wished to ensure that the applicant was not seen in a favourable light by Green Triangle would have been to retain its services over the next two months and let market forces speak for themselves. Instead the respondent has chosen to use its market power to preempt such market forces. I believe its actions have also signalled an implicit threat to other parties with which it is subcontracting that they should also consider the undesirability of submitting an expression of interest to Green Triangle. It is in the respondent's commercial interest to prevent the emergence of viable alternative tenderers in the market for the provision of timber haulage management services. It appears to me that the respondent has sought to use its market power to raise significantly the costs of the applicant's tender bid, and to make the probability of any such tender bid being successful, insignificant." 5. It should be emphasised that Linfox has not put on any evidence touching the matters raised by Associate Professor Pound. Submissions and Conclusions 30 I have previously described the substance of the two Trade Practices Act claims made by the applicant. Neither, in my view, rises to the point of establishing a serious issue to be tried, let alone a case in which the balance of convenience would lead to the award of injunctive relief. 31 My reasons for reaching this conclusion can be stated shortly. They relate essentially to deficiencies in the evidentiary material before me. 32 For the purposes of establishing the relevant market for the s 46 claim, the applicant relies upon Associate Professor Pound's statement of market definition set out above and on K & S's long‑standing business connection with CSR in the Mount Gambier region. The latter, I should state immediately, has as it stands only slight if any relevance to the matter. Associate Professor Pound's statement is no more than a dogmatic and unsubstantiated assertion of a fact and an assertion, moreover, on an issue central to any claim that K & S may have under s 46(1) or, for that matter, s 47(5) because of the provisions of s 47(10). 33 I have not been provided with the slightest indication as to why the relevant market is as is asserted rather than, for example, simply road haulage or timber product haulage generally, or in south‑eastern Australia or in South Australia. I make the last comment as there is no evidence before me giving any indication of the timber products industry within this State. That it is not a matter of judicial notice. All that there is is this assertion that does no more than invite questions as to its plausibility. It assists little in establishing whether there is a serious issue to be tried in relation to Linfox's allegedly substantial degree of power "in a market". 34 Though my function in a proceeding of this character is not to find those facts that must be made out if K & S's claim is to succeed, neither am I required to give the appropriate level of credence for interlocutory injunction purposes to an unsubstantiated assertion that a particular fact exists (i) where it manifestly would be a matter of real contention, as it has been, in a proceeding such as this, even at an interlocutory stage; (ii) where the assertion itself, without satisfactory explanation, suggests an artificially narrow definition (I suggest no intentional impropriety in this); and (iii) where it is unsupported by any independent evidence from other sources that reasonably suggests that the market might be as asserted. 35 My dissatisfaction with the evidence on the relevant market is compounded by the absence of any evidence from Green Triangle that would be vital to the definitional question which could illuminate whether, if at all, Linfox should be taken for interlocutory purposes to have power in "the market". It is Green Triangle that controls entry into and exclusion from that market. It is Green Triangle that is able to render potent or impotent the actions of any competitor in that market, irrespective of the alleged purpose of that competitor in engaging in that conduct. It may well be that in the alleged market, Green Triangle's attitude may be such that even on the applicant's version of events Linfox is engaged in shadow‑boxing. I should re‑emphasise that I refer to Green Triangle because of the way in which the applicant seeks to define the relevant market by reference to that company. 36 The comments I have made in relation to the market and to Linfox's alleged power in it apply as well to the s 47 claim. For a claim under that section to be made out, s 47(10), as explained in s 47(13), must be satisfied. Irrespective of what Linfox's purpose may have been vis‑a‑vis K & S in relation to the expression of interest, I am not satisfied, for the reasons I have given, that there is such satisfactory evidence at this stage of the relevant market as could lead to the conclusion that there is a serious issue to be tried for the purposes of satisfying the s 47(10) condition. 37 Quite distinct from the above, there is the real uncertainty in the evidence concerning the expression of interest. That uncertainty, in my view, is of relevance when one comes to the balance of convenience. Because I am uncertain as to the nature of the expression of interest process, I am likewise uncertain how significant is the need to protect, or how appropriate it would be to protect, K & S's interest in it by way of the remedy of a s 80 injunction. For example, the length of time the expression of interest process may take and whether it will be merely a precursor to a further process are matters upon which I have no evidence at all. I would be reluctant in any event to award an injunction which would be of undefined duration without greater evidence than I had before me of apprehended prejudice to K & S from Linfox's conduct, even assuming there was a serious question to be tried. In saying this, I do not disregard the public interest influence upon the discretion to award injunctive relief in Part IV cases. 38 I should note finally, both parties have made written and oral submissions in relation to a number of matters I have found unnecessary to consider in these reasons. They presuppose findings other than those I have made. 39 In the event then, I am not satisfied that the conditions to be met for the purposes of the award of injunctive relief have been made out in the circumstances, either in relation to the Trade Practices Act claim or, as I have previously indicated, in relation to the breach of contract claims. 40 Accordingly, I will dismiss the notice of motion. I certify that the preceding forty (40) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Finn J.