Zaps Carriers Pty Ltd v Dux Manufacturing Limited [2003] NSWIRComm 168 | Case summary

1 On 29 April 2002, Zaps Carriers Pty Limited (applicant/Zaps) filed a Summons for Relief under s 106 of the Industrial Relations Act 1996 (the Act) against Dux Manufacturing Limited (respondent/Dux) seeking certain declarations and orders varying or avoiding Transportation Agreements made between the applicant and the respondent on or about 30 June 1997 and 1 July 1999. Monetary relief to the amount of $3,662,702 was also sought. 2 That Summons was not served upon the respondent until early August 2002, and was first placed in the Registrar's list on 8 August 2002. It there followed the usual course and eventually conciliation was listed for 11 April 2003. In the light of later developments, that date was vacated and the Commission, in Chambers, listed the application for conciliation on 25 June 2003. 3 On 27 February 2003 the solicitors for Dux were advised by the solicitors for Zaps that they had been instructed to apply to the Industrial Relations Commission of New South Wales for interlocutory relief to restrain the termination of the Transportation Agreement (as well as other relief designed to maintain that Agreement on foot), pending the hearing and determination of the proceedings. Dux was requested to advise by 4 pm on 4 March 2003 of its attitude to Zaps' proposal that Dux extend the operation of the Agreement beyond 1 July 2003 for a period sufficient to enable that determination to occur. 4 On 4 March 2003, Zaps' solicitors were advised by the solicitors for Dux that: 1 The transportation agreement will end in accordance with its terms. 2 A tender process for our client's new transportation, distribution and warehousing services ("transportation arrangements") was conducted by our client through an independent transport consultant. Your client, submitted a tender which, as your client is now aware, was unsuccessful. Contracts for our client's transportation arrangements are being settled with the successful tenderers. The transportation arrangements commence on July 1, 2003. Parties to the new arrangements are working with our client to meet the commencement date to provide our client with a seamless transition for its transport services. 5 The Notice of Motion foreshadowed in the letter of 27 February was filed on 31 March 2003. It sought orders that: 2 Until the Hearing and determination of the proceedings or further order, the Respondents, whether by their respective servants or agents, shall: a extend the terms of the Agreement between the Applicant and the Respondent dated 1 July 1999 ("the Agreement") until 30 June 2005 (or such future time to enable the hearing and determination of the proceedings): b comply fully with its obligations under the Agreement (as continued by order 1): c be restrained from entering into an agreement for the transportation, warehousing and distribution of hot water systems and spare parts manufactured by the Respondent with any other person or entity: and d be restrained from terminating the Agreement (as continued by order 1). 3 The Respondents pay the Applicant's costs of and incidental to the Notice of Motion. 6 For the applicant appearances were announced on behalf of Mr M Kimber of senior counsel and Mr R Reitano of counsel. Mr R Buchanan of senior counsel and Mr K Watson appeared on behalf of the respondent. 7 The Commission was assisted by written submissions provided both before and after the hearing by counsel. In view of the urgency to publish this decision, I do not reproduce them in any detail but they have all been taken into account. 8 Tendered into evidence on the Motion were a number of affidavits: 9 On behalf of the applicant: John Zappia, Managing Director of Zaps (affidavits filed on 31 March and 16 May 2003) Henrik Christensen, General Manager of Zaps since April 1998 (filed 22 April 2003) Jude Findlay, Market Consultant, Managing Director of Findlay Consulting Pty Ltd (filed 22 April 2003) 10 On behalf of the respondent: Carl Bizon, General Manager of Dux Manufacturing Limited (filed 14 May 2003) Owen Evans, Logistics Manager for Dux since October 2000 (deposed 13 May 2003) Richard Koch, Company Director, Director of New World Business Solutions (New World), a logistics consultancy (filed 15 May 2003). 11 None of the deponents was required for cross-examination. Undertaking as to damages 12 In his affidavit Mr Bizon stated that as far as he could ascertain through searches, Zaps have little or no assets and would be unable to make any reasonable undertaking for damages to support the grant of an injunction. 13 Mr Kimber gave the usual undertaking as to damages. Background (as taken from the documentation) 14 The day-to-day business of Zaps consists primarily (80%) of the transportation, distribution and warehousing of Dux's goods. Dux conducts the business of manufacturing and selling "Dux" hot water systems. 15 Zaps has distributed, transported and stored Dux products since 1986. Since November 1987 it has been the exclusive carrier, within an increasing number of geographical areas for Dux and its predecessor, S W Hart & Co Pty Ltd (Hart). In 1988 Hart was taken over by Hardie Dux, which itself was acquired about March 1997 by GWA (the holding company of Dux). GWA from that time became and remains the manufacturer of Dux products. 16 On 30 June 1997 a written contract was entered into between Zaps and Dux (the 1997 contract). That contract, in accordance with additional terms granted, would have ended on 30 September 2000. In May 1998 and in February 1999 Dux sought to renegotiate the 1997 contract. 17 On 1 July 1999, Zaps and Dux entered into a new agreement (the 1999 contract). That contract had a term of two years, with the option for Zaps to seek a further two years, an option that was taken up by Zaps. With that extension, the contract would terminate on 30 June 2003. Jurisdiction - Submissions - Applicant 18 The basic position of the applicant on the Motion was that: 1 The Applicant submits that the Court should grant an injunction to stop the Dux contract being terminated on 30 June 2003 because, inter alia , that is the only means by which the Court can leave open as a real and available (and we say the most appropriate) remedy, namely a variation of the existing contract to ensure that the Applicant has a proper opportunity to work out its differences with the Respondent and avoid termination or, at the very least, to ensure that the Applicant has an opportunity to work out a fair actual notice period. 2 Even on the evidence filed thus far, the Court could ultimately find that:- (a) The 1999 contract is unfair in that it fails to contain provisions designed to ensure, inter alia, that the Applicant will be given 12-24 months actual notice of any termination of this longstanding contractual arrangement. (b) The contract is unfair and/or operated unfairly in that it permitted (or failed to prevent) the Respondent from leading the Applicant to believe that it would be granted a further contract beyond 30 June 2003 but then, in spite of those representations/assurances, proceeded to terminate its contract with the Applicant by the provision of grossly inadequate actual notice (i.e. 4 ½ months) … … (d) The Applicant, quite reasonably and understandably given the representations/assurances as to continuity beyond June 2003, did not make active and concerted attempts in the latter part of 2002 and prior to 13 February 2003 to secure other significant transport contracts to replace the Dux contract. … … 3 If the Court does not now grant the injunction sought by the Applicant to keep the contract on foot until this case is heard and determined, then it will be of no consequence that the Court may ultimately reach the conclusion and express the view that the Applicant should have had a substantial period of actual notice because, at that time, it will be too late . That is, the opportunity to award what the Court might ultimately regard as the most "appropriate" remedy will have been lost. 19 The Court has power to grant interlocutory relief in the form sought in the Notice of Motion (see Gough & Gilmour Holdings Pty Limited v Caterpillar of Australia Limited (No 9) [2001] NSWIRComm 260 at 17-20, 24, Sea Acres Rainforest Centre Pty Limited v State of NSW (2001) 109 IR 56 at 70 [49], Teletech International Pty Limited v Medical Benefits Fund of Australia Limited (unreported, Maidment J, 28 September 1998) at p 2, Selman v Sweet [2003] NSWIRComm 14 at 9, 15-17 and Logan & Ors v WorldAudio Limited & Ors [2003] NSWIRComm 87 at 15). 20 The source of the power is the implied (or incidental) power to grant interlocutory relief to ensure that any final relief that might be open to the Court is not frustrated or put at naught (see Gough & Gilmour Holdings Pty Limited v Caterpillar of Australia Limited (No 9) [2001] NSWIRComm 260 at 17-20, 24, Sea Acres Rainforest Centre Pty Limited v State of NSW (2001) 109 IR 56 at 70 [49], Logan v WorldAudio Limited [2003] NSWIRComm 87 at 19-20 and Collison v Hewston (2001) 103 IR 403 at 409 ff). 21 The fact that the challenged contract or arrangement has a fixed term, rather than operates in perpetuity, does not preclude the grant of interlocutory relief in the form sought in the Notice of Motion. This is especially so where there has been a number of such contracts and an expectation of continuity. 22 The primary relief sought in the proceedings is for the 1999 Contract to remain on foot in a varied form or at least to provide for a fair period of actual notice. The granting of primary relief will be frustrated or put at naught if the relief sought in the Notice of Motion is refused. 23 Damages are not an adequate remedy for the loss to be suffered by the applicant and there is, in any event, no warrant or requirement to simply convert the applicant's primary claim for contractual variation into a claim for money. 24 The applicant will suffer irreparable harm if the relief sought in the Notice of Motion is refused. This is because:- (a) The applicant has a high level of dependence on the Dux product contract for its survival (80% of its business). (b) The fact that the applicant has not received fair and adequate notice of termination in which to reorganise its affairs and to seek out alternative replacement contracts for the Dux products contract (and indeed had an expectation of continuity); and (c) The consequence being that if the Dux contract is terminated on 30 June 2003 Zaps will have to either close its doors and cease trading altogether or substantially downsize its business. Jurisdiction - Submissions - Respondent 25 The basic position of the respondent as to jurisdiction is that: 2 As to the present application the Respondent formally submits that the Commission has no jurisdiction to grant interlocutory relief because - a) The exercise of the Commission's jurisdiction is conditioned upon a finding that a relevant unfairness has been established. Such a finding cannot be made until there is a full and final hearing between the parties. Any other approach denies procedural fairness to a respondent and exceeds the Commission's jurisdiction; and b) Those cases which establish the special jurisdiction to grant Mareva injunctions are concerned with the preservation of assets within the jurisdiction to meet any judgment and provide no basis for injunctive relief in the present case. … 5 The exceptions to this rule are extremely limited and depend upon the real prospect that the Commission's ability to make any effective order may be set at nought by the conduct of the respondent, which conduct is for the purpose of defeating the exercise of jurisdiction or will at least have that effect. … 7 It is accepted that there are decisions of single members to the effect that the power to grant interlocutory injunctions is not limited to the grant of Mareva injunctions. … 8 … It is clear that the necessity to show that the exercise of the Commission's jurisdiction would be defeated also provides the jurisdictional foundation for any suggested power to grant some other form of interlocutory injunction see Kenross Contractors Pty Ltd v Allied Constructions Pty Ltd (2001) 104 IR 66 at 76-83 ( Kenross ). 9 No such proposition can be made good in this case. 10 The limits to the exercise of the jurisdiction identified in Kenross should be respected. … 11 An applicant, on the settled authorities, does not have the right to the maintenance of any particular factual position unless the very existence of the Commission's power to grant effective relief is under threat - see Kenross and the cases discussed therein. Consideration 26 It is the position of the applicant that it received only 4 ½ months actual notice of termination. In all the circumstances set out in the affidavits of its witnesses, actual notice of 12 to 24 months should be ordered and, at the very least, the Transportation Agreement should be ordered to remain in force until the substantive application is heard and determined. 27 It is the position of the respondent that the applicant has had at least 15 months notice of termination of the Agreement. The contract itself has never provided for its continuance beyond 30 June 2003. A fair reading of the material in all the affidavits makes it clear that Dux has been dissatisfied with the performance of the applicant since at least 30 July 2001. 28 In my view the immediate issue to be decided in relation to these interlocutory proceedings is just what notice the applicant did have that the Transportation Agreement would not be renewed beyond 30 June 2003. 29 Before turning to consider that issue, I note that it is common ground that at the time the applicant exercised the option in 2001 for a further two years, the respondent informed the applicant that the 1999 Contract would not be extended beyond its 30 June 2003 expiration date. 30 However, the applicant claimed that the respondent had held out to the applicant the possibility of a continuing role in the transportation of Dux Products. 31 I now turn to the evidence said to support that contention. 32 22 March 2001: Letter from Dux to Zaps: We are in receipt of your advice dated 12th March 2001 to take up the option of renewal of the current agreement. We advise that Dux will not be renewing the agreement between our companies in its current form. The basis of this advice is the failure of Zaps Carriers to meet the major requirement of the cost of freight as a percentage of sales. We have constantly pursued the issue of cost at our fortnightly meetings with no tangible result. We feel that by taking control of our logistics and re-establishing full contact with our customer base we have an improved chance of succeeding in this critical cost area. We look forward to a continuing role for Zaps Carriers in our logistics organisation, many opportunities exist and Zaps will be invited to participate in the tender process for the available work. 33 12 April 2001: Letter from Dux to Zaps: Further to our meeting on the 27th March 2001 where Dux advised the intention to seek a new form of agreement for the two year period terminating on the 30 June 2003. This new agreement would not include an option for extension beyond the 30th June 2003. 34 30 July 2001: Letter from Dux to Zaps: At our meeting in June we spoke very frankly about the future and the consequences of continuing business in the climate that existed at the time. I came away from that meeting with a message from you that Zaps were in for the long haul. My expectation was that Zaps and Dux would act in such a way that a relationship would be built to ensure the continuance of our working relationship beyond the contract period. … We have had no cooperation in our efforts to review your organisations performance in line with the contract terms. In an effort not to cause more aggravation during June I withdrew in my attempts to pursue this. … 35 In relation to the performance review referred to in that paragraph, Dux went on to say: We have suspended the audit process at the request of your company following expressions of concern over the format and our right to audit. At our triennial certification audit we were advised by QAS that we must audit Zaps as our second largest supplier and by far the most influential supplier with regard to customer delivery satisfication. … In response … . We are also advised that if Dux wishes to pursue an audit that the time will be charged to Dux as an out of contract expense based on the fact that the audits are not related to the contract. … The fact that Zaps is treating Dux with total contempt in what should be standard business practice is beyond my understanding. I strongly question your company and you as its principle [sic] as to your bonifidies [sic] with respect to a genuine desire to act within the principles of the quality standard and the terms of the contract. I fail to understand the continuing behaviour of recalcitrance when it comes to Zaps submitting to a review of its business and delivery performance. What is there to hide in our business relationship? We feel very distant from our customers when it comes to an understanding of our delivery performance through Zaps and feel that Zaps are holding Dux back from a full understanding of our delivery network. Please do not force us to go to the market to find out what we should have access to through our business partner. What can be done to enable Dux to realise this necessary business review and also meet the contract conditions? Possibly we could attempt to answer this question and where we are headed in the future at our planned meeting on the 6th August 2001. 36 18 September 2002: Fax from R Koch to Jude Findlay: We have completed our evaluation of responses received and are pleased to advise that your Company has been selected to participate in the tender to provide logistics services on behalf of Dux Manufacturing Limited. 37 On 12 February 2003, John Zappia was advised in an email from Carl Bizon that: Please be advised that your submission to perform our warehousing, transport and distribution work beyond 30/6/03 has been unsuccessful. Conversations recorded in Affidavit of John Zappia 38 Conversation 19 May 2001 re letter of 22 March 2001 (Zappia, Findlay, James Hanley): James Hanley said: "In certain areas Zaps do a great job. It's not about changing Zaps it's about addressing issues and getting it right in those areas in which you do not have direct control." I [Zappia] understood by James Hanley's use of the words " … direct control …" to mean the Western Australia, South Australia and Tasmanian areas. 39 Conversation 15 June 2001 (Christensen, Findlay, Natalie Lunn, Zappia, Bill Tosh and Owen Evans): Zappia said: "Bill, you want to change the contract in its current form. I'm concerned that Dux are considering putting the logistic services to tender again as it did back in 1998. … There's no reason why Zaps should nto be entitled to exercise the option to renew the contract." Bill Tosh said: "This is not about getting rid of Zaps. It's about Dux taking control of its stock in the Moss Vale warehouse. We only wanted to amend the contract in its current form. Zaps will be a part of Dux in the future. However, Dux needs to take control of its stock at Moss Vale and that would mean a lesser role for Zaps in the future. There will be a continuing role for Zaps once the contract expires in June 2003 but Dux propose to take control over the Moss Vale warehousing and Western Australian, South Australian and Tasmanian areas. Zaps does a very good job but you need to get Brisbane right. We want Zaps to have lift loaders on all Sydney vehicles as soon as possible." Zappia said: "Owen, you talk about moving forward all the time? Where then do we fit with Dux in the future?" Owen Evans said: "Zaps will play an important role with Dux after June 2003." Zappia said: "Good, I need to know for our future so that I know whether to continue to invest in the business?" 40 Conversation 22 June 2001 (Findlay, Christensen, Zappia, John Pearce, Carl Bizon, Owen Evans, Bill Tosh, James Hanley and others - Dux sales conference at Moss Vale): Bill Tosh said: "We must continue to plan a working relationship so as to ensure the long term continuance of our partnership beyond the term of this contract." 41 Conversation 18 October 2001 (Findlay, David Robinson, Christensen, Zappia, Tosh, Hanley, Evans, Bizon): Carl Bizon said: "There will be no price increases. It is clear in the contract that there is no allowance for an increase. It's buyer beware as far as I'm concerned. However, if Zaps continue to perform to our standard then there will be a place for Zaps to work with Dux once the contract expires but not necessarily doing the same role. Zaps are good operators but you definitely need to fix Brisbane as it is putting at risk the relationship. Dux need to be able to track its products in the delivery cycle, the current method is antiquated." Zappia said: "I'll do whatever it takes to maintain this relationship. I've being [sic] doing this for sixteen years and as you know will do whatever is necessary to maintain the relationship. I have too much money invested in the business and many employees to consider. I have always acted upon requests made by Dux … I'm prepared to invest more money … Carl Bizon: "It's up to you guys to get it right … Dux are not prepared to have its products delivered on 7 year old Isuzu trucks blowing black smoke. Zaps need to update some fleet if Zaps want to be a part of Dux in the future." 42 Conversation 23 October 2002 (meeting Findlay, Zappia, Bizon, Hanley, Kerry Cormack, Owens and Tosh re issues outstanding since 1999 as to stock-take variances, short payments and damaged stock): Carl Bizon said: "If we can get these issues resolved let me just say that all these issues will be written into the new contract." Zappia said: "If this means going forward I think we can resolve these issues. I first need to speak to Henrik Christensen to clarify the details." 43 After that meeting Mr Zappia "remained of the belief that Zaps would succeed in the tender process and that Dux would enter into a new contract with Zaps. I was therefore not prepared to forego Zaps' claim for payment of $144,000 unless I was given an assurance that Zaps were to continue business with Dux beyond 30 June 2003. 44 8 November 2002: Conversation at meeting (Findlay, Christensen, Zappia, Bizon, Hanley): further attempt to resolve issues discussed 23 October 2002: Zappia said: "It is Zaps intent and mine personally that by the end of today's meeting our partnership will be back on even keel so that we can move forward." Carl Bizon said: "We need to fix these issues and if they are fixed then I see a positive outcome in the tender process for Zaps. If we get a positive result today then I see no issue precluding Zaps and Dux going forward in business beyond the length of the current contract." and at that same meeting: Zappia said: "Any problems in our relationship arise due to Zaps being misled into a bad contract by John Pearce." Carl Bizon said: "Any new contract with Zaps will have provision for price reviews written at the outset. In future we should convene fortnightly meetings between Zaps and Dux as a means of quickly resolving any future issues which may arise between us." 45 Conversation at a meeting in November 2002 (Owen Evans and John Zappia): Zappia said: "Where do you see the future partnership between Zaps and Dux?" Owen Evans said: "Dux want to change its distribution method. I believe that Zaps will be working in partnership with Dux in the future." 46 It should be noted that many of the conversations relied upon by the applicant were held in the course of attempts by Dux to renegotiate the 1999 contract and discussions as to continuing problems between Dux and Zaps. It should also be noted that the parts relied upon in those conversations by the applicant were denied, in whole or in part, by the respondent's witnesses. 47 The expectations of Zaps are typified by the following statement from Mr Zappia's affidavit: On 23 October 2002 Zaps submitted its tender for the provision of line haul, warehousing and distribution services for Dux. I expected that Zaps would have tendered successfully for the provision of logistic services on behalf of Dux for line haul and the eastern coast of Australia. 48 That expectation was also evident in Mr Zappia's reply to the affidavits of Owen Evans and Carl Bizon. While acknowledging that there were considerable difficulties in the relationship between the applicant and Owen Evans in particular, he said that the relationship between the applicant and the respondent remained workable at all material times; and the applicant was, however, always prepared to discuss the terms of the new agreement to operate as and from 1 July 2003 and, indeed, I expected that such negotiations would take place in the latter part of 2002 or in early 2003 after the applicant was successful in the tender process. Extracts from the Affidavit of Mr Jude Findlay 49 Conversation at meeting on 15 June 2001 (Zappia, Christensen, Natalie Lunn, Findlay, Tosh, Evans): John Zappia said: "Zaps are entitled to exercise the option to renew the contract." Bill Tosh said: "Dux want a greater control of its business but there will be a lesser role for Zaps in the future. Zaps can continue to service the eastern sea board of Australia but the Moss Vale warehousing and western Australian, South Australian and Tasmanian areas would not be a part of that role. Brisbane is of some concern. You need to get it right. Zaps trucks need lift loaders on all Sydney vehicles." Owen Evans said: "Zaps will have a future role to play." 50 Conversation at sales conference on 22 June 2001 (Christensen, Zappia, Findlay, Evans, Tosh, Hanley and David Welsh): Bill Tosh said: "Zaps and Dux must continue working successfully together and like Melbourne we need to become integrated in other locations and will look at Brisbane first." John Zappia said: "Then we will look at larger warehouse premises in Brisbane." 51 Conversation at meeting on 18 October 2001 (David Robinson, Zappia, Christensen, Findlay, Tosh, Hanley, Evans, Bizon) re Zaps proposal for new pricing structure: Carl Bizon said: " … If you continue to perform to our standard then there will be a future for Zaps and Dux together but not necessarily in the same role." "It's up to you guys to get it right … Dux will not have its products delivered on 7 year old Isuzu trucks blowing black smoke. Zaps need to update some fleet if Zaps want to be a part of Dux in the future but you need to get Brisbane right. I'll come back to you about your pricing proposal." 52 Conversation in early December 2001 with Owen Evans (Dux) at Moss Vale: Owen Evans said: "Thanks for you help throughout the year. We will continue to pursue improvements together in the future." Findlay said: "Where do you see Zaps in the future?" Owen Evans said: "Dux sees an ongoing relationship, not in its current form but that there would always be a need for Zaps but from time-to-time I will be going to the market place just to ensure that we are not being disadvantaged." 53 Conversation on 20 December 2001 with James Hanley at Moss Vale: Jude Findlay said: "James, how is everything going between Dux and Zaps?" James Hanley said: "look you and me know there are issues but overall Zaps do a great job, we know that. Zaps have been here a long time and will be here in the future what that role is at the end of the contract still needs to be worked out." 54 Discussions at meeting on 5 September 2002 at Moss Vale mainly concerning the future of the Brisbane operation (Bizon, Hanley, Evans, Christensen, Robinson and Findlay) but also concerning the Dux tender for the provision of logistic services: Bill Tosh said: "It's important that Zaps submit a tender and partake in the process as it's not our intention to get rid of Zaps. We'd like to see Zaps as part of our future distribution arm." James Hanley said: "Make sure you get the tender done. We don't want Zaps to go. We do need to be seen following protocol. Let's all agree though Zaps do it very well, but why would you want Western Australia and South Australia. Perhaps you will only want to tender for the East Coast of Australia, anyway that decision is up to you guys, you might still want the Lot!" 55 Discussion at meeting on 23 October 2002 at Moss Vale concerning unresolved issues: Findlay said: "In what way are we holding Dux to the contract." Carl Bizon said: "You won't let us use another carrier. Look, in the next contract there will be provision for all the things missing in the current contract, for price increases, fuel allowances etc, which will be fair to Zaps and Dux." 56 Conversation at meeting on 8 November 2002 (Findlay, Zappia, Christensen, Bizon, Hanley): John Zappia said: "We are here to consider all options to ensure that Zaps are here for the long term." Carl Bizon said: That's why I am here, no one likes the current arrangement and that is why I hired Richard Koch to ensure that the new contract is fair to both sides but we need to fix these issues concerning stock take variances and damaged stock, otherwise there is no future." 57 According to Mr Findlay: After several hours of negotiations both parties came to acceptable arrangements to the effect Zaps would write off over $100,000 worth of claims on the understanding and belief that Zaps would be invited to continue servicing Dux after 30 June 2003. At the conclusion of the meeting all representatives went to a lunch at a restaurant. While travelling with James Hanley in his car to the restaurant I recall a discussion concerning the future of Zaps business with Dux during which words to the following effect were said: Findlay said: "Its' good to have cleared up some those issues at the meeting. Do you see the path clear to go forward mate?" James Hanley said: "We never want to see Zaps go, there have been issues, there'll always be issues in this game." As a consequence of the discussions that I had participated in the Dux representatives especially during the latter part of 2002 I was entirely comfortable that Zaps would be successful in its tender for the Dux contract work from 1 July 2003 at least with respect to the warehousing and distribution work in the Eastern states of Australia. Extracts from the Affidavit of Henrick Christensen 58 Discussions in May and June 1999 re continuation of the 1997 agreement: On more than one occasion during the course of those meetings, and particularly during the course of meetings held in May and June 1999, John Pearce said words to the following effect:- John Pearce said: "Unless Zaps agrees to my terms, there will not be a future for Zaps within the Dux organisation." John Zappia said: "But we have more than 15 months to run on our existing contract." John Pearce said: "I don't care." 59 Meeting on 15 June 2001 (Findlay, Natalie Lunn, Zappia, Christensen, Tosh, Evans) to discuss changes Dux wanted made to the 1999 agreement: John Zappia said: "What is the future for Zaps with a new General Manager." Owen Evans said: "Zaps plays an important role for Dux." John Zappia said: "Good because I want to continue to update the fleet." 60 Meeting on 5 September 2002 at Moss Vale (Christensen, Findlay, Bizon, Tosh, Evans, Kerry Cormack, Hanley): Bill Tosh said: "We have recently sent our tender documents. Have Zaps received them?" Jude Findlay said: "We are not too sure as John Zappia is currently overseas, and it might be in his in tray." Bill Tosh said: "Are you going to tender?" Christensen said: "Depending upon whether or not we are wasting our time. We do not wish to tender if Dux wants to get rid of us." Bill Tosh said: "Dux wants Zaps to tender." Carl Bizon said: "I can't see why there would not be a role for Zaps. We want to take more control in Moss Vale and lets admit it you have difficulties in controlling your agents but are doing a great job in your own locations, except in Brisbane where there have been some issues." Christensen said: "I believe the delivery issues with Brisbane have been resolved and we are moving into larger premises in October. That will resolve the issue of insufficient warehouse space." Carl Bizon said: "That sounds good." 61 Conversation at meeting on 8 November 2002 (Christensen, Findlay, Zappia, Bizon, Hanley) re short payments and delivery problems: John Zappia said: "It is my intention to have these issues resolved by the end of this meeting in order for the partnership to get back on track and for Zaps and Dux to move forward." Carl Bizon said: "If we are able to resolve these issues, I cannot see any reason why Dux and Zaps cannot continue the relationship beyond June 2003." 62 Telephone conversations around November 2002 between Richard Koch and Henrik Christensen included statements such as the following: Christensen said: "We have been doing Dux for more than 16 years and have been a major part of their growth and are proud of being associated with Dux." Richard Koch said: "I know, Carl Bizon has told me that you were doing a great job on the Eastcoast, but Zaps has some problems with their external warehouses." … Richard Koch said: "I am sure from conversations with Carl, that Dux wants to maintain your services in the Eastern states, we just have to ensure that you are competitive." … Richard Koch said: "Don't worry too much about it. We will discuss it with you when you are presenting the figures to Dux at a meeting in Moss Vale within the next few weeks, but I have no doubt there is a future between Zaps and Dux." … Richard Koch said: "Yes I know. It does not look like they [Dux] understand their business and that is why they are interested in keeping you on." 63 Telephone conversation mid November 2002 between Richard Koch and Henrik Christensen: Christensen said: "How's it looking for Zaps?" Richard Koch said: "Good, your prices are on par with the other tenderers and I know where the difference is compared to your current pricing. You are not charging enough for handling." Christensen said: "That is one of the points we have raised with Dux." Richard Koch said: "I am sure that once the tender process is over I could sit down and mediate the differences between yourself and Carl." 64 Telephone conversation on 28 November 2002 with Carl Bizon after Henrik Christensen had been advised by Owen Evans that Dux no longer wanted Zaps to speak directly to Dux customers concluded as follows: Carl Bizon said: "50% of your problem has just left and just leave the other 50% to me. I inherited Owen from John Pearce. You have to remember that and lets just get over this tender process than [sic] I will take care of the rest of your problem. These tow are the ones who have caused Zaps all the problems over the last couple of years but as I said, just leave the other part to me. You are doing a good job in the Eastern states. We just want to become more involved with the distribution meaning us taking control of Moss Vale and the agents. Zaps is a vital part of the Dux business and you are doing a great job in your own warehouses. You have fixed the problems in Brisbane and I can't see why you and I can't resolve all issues and continue well beyond June 2003. Just remember, don't take Owen so serious." 65 Telephone conversation just prior to Christmas 2002 with Owen Evans: Christensen said: "How are you going with the tender process." Owen Evans said: "We have not had a chance to meet. It has been deferred until after New Year." Christensen said: "How is it looking for Zaps?" Owen Evans said: "You will be okay. There will be a few changes but Dux would not change Zaps in the areas where you are performing well." 66 The statements by the applicant's witnesses set out above were denied either specifically or generally in the affidavits deposed to by the respondent's witnesses. I do not quote in any detail from those affidavits. The tenor of them was that there existed long standing problems arising out of the operation of the 1997 and later the 1999 Agreements, and long standing dissatisfaction with the performance of Zaps. Dux's intention to conclude the Agreement in accordance with its terms on 30 June 2003 was advised to Zaps on 21 March 2002. 67 According to Mr Bizon, the business relationship between Dux and Zaps since 2001 has been, at best, civil. He expressed the view that at least since late 2001, that business relationship was irreparably damaged. He deposed that: 77 It was about this time, in or around late 2001, when I can recall having at least 2 conversations with John Zappia regarding the damage that was being caused through Dux's and Zap's business relationship. 78 In those conversations, I said words to the effect: " John, our business relationship has fundamentally broken down. We should explore and discuss ways in which we can exit from the [sic] our current arrangement in a strategic way that is convenient and beneficial to us both." On both occasions, John Zappia declined to enter into discussions on the issue. 68 On 28 June 2002 Dux was made aware that the Summons for Relief, the subject of these proceedings had been filed by Zaps on 29 April 2002. From that date staff who had contact with Zaps were advised to be cautious in their relationship with Zaps in particular in relation to words or conduct that might be used as a basis for implying a continuation of the relationship. Further Consideration 69 The particular considerations advanced by the applicant as being relevant to the grant of interlocutory relief in the form sought in the Notice of Motion are: (a) the existence of a serious question(s) to be tried; (b) the sufferance of irreparable injury for which damages will not be an adequate remedy; and (c) the balance of convenience favouring the grant of the relief. 70 It was common ground that the applicant was advised on 22 March 2001 that Dux would not renew the Agreement with Zaps in its current form. 71 The position was made crystal clear in the letter of 12 April 2001 from Dux to Zaps: the new form of agreement for the two year period terminating 30 June 2003 would not include an option for extension beyond 30 June 2003. 72 The fact that the position of Dux had not altered since those letters were sent was just as clearly stated in its letter exactly one year later to Zaps dated 21 March 2002, as set out below: Re Transportation agreement dated 01st July 1999 With reference to the above agreement, I would like to confirm the discussion I had with you last year and our recent telephone conversation. The transportation agreement between us expires on June, 30, 2003, at the end of the term, as extended under Clause 4.2. In relation to our requirements after June, 30, 2003, we propose to put the supply of transportation services out to competitive tender. To allow a reasonable time frame for any adjustments that may be necessary as a result, it is our intention to follow the following timetable: Go to the market seeking expressions of interest in tendering for the contract in July 2002. Evaluate offers with a view to having made our decision and advising you of the outcome by December 2002, if possible. Please also be advised that it is our intention, regardless of who the successful tenderer is that we will be resuming control of the Moss Vale Warehouse and the loading function at the end of the current agreement. You stated in our last conversation that you believe that you had rights to our transport and distribution beyond the end of the current agreement. The contract is very clear and I can see no basis for this view. If you have any evidence or reasons to support your position, please bring them to our attention as soon as possible (and in any event within the next 14 days) otherwise we will proceed on the basis of the outlined timetable. 73 It would appear that one consequence of that letter being sent to Zaps, was the filing on 29 April 2002 of its Summons for Relief under s 106. The relief sought in that Summons was predicated on the basis that the 1999 contract would terminate on 30 June 2003. Nothing could be clearer than the fact that the applicant recognised that notice of the contract's non-extension beyond that date had been given. The Summary of Matters of Fact and Law in the Summons referred to the purchase of trucks at significant expense, probable redundancy of at least 57 people, costs for warehouses, and investment in distribution software, as well as other matters raised in these proceedings. 74 In these interlocutory proceedings, the applicant relies on statements by Dux such as that found in the letter dated 22 March 2001 that "we look forward to a continuing role for Zaps Carriers in our logistics organisation, many opportunities exist and Zaps will be invited to participate in the tender process for the available work", to found its claim that actual notice of 12 to 24 months effective from 12 February 2003 should be ordered. 75 What is held out in those words, and other like statements, is the opportunity to tender for available work in competition with other carriers. Zaps does have experience in the transportation requirements for Dux, and one would assume that might give it some advantage in that tender process. However, no promise or guarantee of success in such tender process is held out. 76 Even on the claims made by the applicant, it is not said that Zaps has been told it would retain to the full extent its then transportation arrangements with Dux. At its highest, as set out in those claims, work retained might relate to the eastern seaboard of Australia. 77 As early as the discussions that took place in 2001 at the time Zaps exercised its option to extend the Agreement to 30 June 2003, Dux had advised that after that date, any role that Zaps had in the transportation operations of Dux, would be lesser in extent to its existing role and, indeed, was still to be worked out. 78 Those discussions, taken with the stated position of Dux as set out in the letters to Zaps dated 22 March 2001 and 12 April 2001, almost dictate that it would have been prudent for Zaps to institute, as from that time, the steps it eventually took after 12 February 2003 to seek out alternative business. 79 I find that the applicant on the basis of those letters had notice from April 2001 that the Agreement would terminate on 30 June 2003. Any doubt that that was the situation could not survive the later letter dated 21 March 2002. The applicant therefore had, on one view of the situation, two years and three months notice, and on a more restricted view, fifteen months notice of the termination. 80 The applicant also relies upon advice given, without demur, to Dux of its expenditure of considerable moneys in connection with the Agreement. In that regard, I set out the contents of an email sent to John Zappia by Owen Evans, copied to H Christensen, on 9 August 2002: I note that the lease on your premises in Melbourne expires this month. Please do not make any allowance for Dux requirements in any arrangements you make in Melbourne beyond the end of this month. Dux have no requirement for warehouse space from you in Melbourne and will discontinue the existing additional payments (made for a proportion of your Laverton warehouse) from the end of August. This additional payment will not continue into any new premises or arrangement you acquire. The same will apply to all other Zaps warehouse locations, ie as the lease expire please do not assume any requirements (or costs) on Dux's behalf. Please contact me if you require any clarification. 81 Mr Evans said he received no response to that email. My attention was not drawn to any response. (Whether the email was actually received by Mr Zappia would ultimately need to be the subject of evidence.) 82 In relation to this application for interlocutory relief, I accept that there are serious issues to be tried. That fact is obvious not only from a perusal of the Summons but also of other documentation so far before the Court. 83 In respect, however, of the applicant's claim that if the relief in the terms sought is not granted, it will suffer irreparable injury for which damages will not be an adequate remedy, I take into account the findings I have already made as to what notice the applicant had as to termination of this Agreement on 30 June 2003. 84 I also take into account the forensic history in relation to the relationship between the parties. As early as 29 April 2002, the applicant filed a Summons for Relief seeking orders varying the 1999 Contract and seeking monetary relief to the amount of $3,662,702 in relation to the alleged unfairness in the operation of the contract anticipated to accrue by 30 June 2003. 85 The Summons, although made known to the respondent earlier, was not served on it until early August 2002. 86 On 26 June 2002 Abbot Tout, solicitors, acting separately from Kells The Lawyers who were instructed by the applicant to act in the s 106 proceedings, on instructions from Zaps, wrote directly to G J McGrath, GWA Internet Limited asking to obtain, if possible, his assistance in resolving for Zaps, a significant problem. Those problems were set out in an executive summary and it was said that Zaps, a reluctant litigant, looked to Mr McGrath for assistance in reaching (without prosecuting the s 106 Summons for Relief) an amicable resolution which would restore the mutually beneficial commercial relationship which has inured for some considerable years past. 87 A meeting was sought with Mr McGrath, or a nominated executive to try to resolve all matters in issue and restore the otherwise injured relationship. It was said that it was Zap's earnest wish that the legal costs in prosecuting and defending the Industrial Commission proceedings could be avoided altogether and the proceedings could be discontinued. 88 Dux, through Carl Bizon, responded to that approach, and one further approach, on 6 August 2002: I am the General Manager of Dux Manufacturing Limited. I have been referred copies of your letters to Geoff McGrath, dated June 26 and July 26, 2002. As Managing Director, Geoff will not involve himself in the operating issues of the companies within the group and has referred the matter to myself. As the matters dealt with pertain with Dux, I respond directly to you. … … If Dux is served with the claim, it will defend the matter strenuously. Dux will resist any claim that tries to restrict its rights to deal on an open and commercially efficient basis past the end of the current contract. Dux has considered the issues raised in your letter and fails to see how Dux can enter into any resolution of the matters between Zaps and Dux while the threat of Zaps' proposed litigation, the views on which I have expressed in the paragraph previously, remains active. 89 It is mandatory pursuant to s 109 of the Act for the Commission to try to settle by conciliation any s 106 application filed. In the present case, if the application had been served when filed, the applicant could have sought to expedite that conciliation process. The contract was still on foot. Specific problems were raised. The conciliation process is a very flexible one and it is not inconceivable that a managed procedure might have been able to be put in train to assist the parties, at the very least, to avoid these interlocutory proceedings in the dying days of the Agreement. 90 One of the matters raised by the applicant as a ground for granting interlocutory relief is that it expects that it will be necessary to terminate the services of at least 57 employees. That possibility was raised in its Summons for Relief. Steps to alleviate the position of those employees could have been taken as early as 2001, either by obtaining alternative work or giving them advice as to the termination date of the Agreement. 91 In the light of what I have set out and decided earlier, I find that the balance of convenience falls in favour of the respondent. The respondent, while it has settled upon new transportation arrangements, has not finalised its contract(s) with the proposed supplier(s). That, in my view, is a very proper approach to take, not only as a prudent commercial measure, but also in recognition that these interlocutory proceedings have been pending before this Commission. 92 I refer to the submissions set out earlier. The difference between the parties as to the relief sought crystallised , in essence, to the contention by the applicant that the Commission should, by interlocutory order, preserve what might ultimately be the most (my emphasis) appropriate remedy, that being, an extension to the period of operation of the contract, not monetary relief. 93 On the other hand, the contention by the respondent was that, in considering whether to grant injunctive relief in the terms sought by the applicant, the Court would look rather to whether an (my emphasis) appropriate remedy would be ultimately available to be ordered. The Summons for Relief had quantified the monetary relief sought. 94 I have decided on the material advanced by the applicant in these proceedings, that the orders sought in its Notice of Motion should not be made. For that reason, while I have noted the authorities cited by counsel in support of their positions, I do not express a view as to which of those propositions I would embrace if the circumstances before the Court were different. 95 The Court orders that the Notice of Motion filed on 31 March 2003 be dismissed. 96 The parties are to confer as to costs. In the event that agreement cannot be reached, the matter may be relisted for final short submissions. 97 I note that the conciliation as to the substantive application required by s 109, is set down for 25 June 2003 at 10 a.m. It may be that in the meantime the parties have further discussions in the light of this judgment. ************************

Zaps Carriers Pty Ltd v Dux Manufacturing Limited

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Judgment (8 paragraphs)

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Cases Cited (6)