Never Give Up Pty Ltd v A & B Morris Investments Pty Limited [2001] ACTSC 7 (2 February 2001)

Last Updated: 27 September 2001

Never Give Up Pty Ltd v A & B Morris Investments Pty Limited

[2001] ACTSC 7 (2 February 2001)

CATCHWORDS

CONTRACT - contract for supply of services of general manager of hotel - payments to increase year by year for ten years - whether contract terminable on reasonable notice - it was - misconduct of person appointed as general manager - whether requirement of reasonable notice of termination avoided - it was not - whether notice in fact given - it was not - questions of credit - no matter of principle.

Ogle v Comboyuro Investments Pty Ltd [1976] HCA 21; (1976) 136 CLR 444

No SC 714 of 1998

Judge: Miles CJ

Supreme Court of the ACT

Date: 2 February 2001

IN THE SUPREME COURT OF THE )

) No SC 714 of 1998

AUSTRALIAN CAPITAL TERRITORY )

BETWEEN: NEVER GIVE UP PTY LTD

(ACN 063 866 017)

Plaintiff

AND: A & B MORRIS INVESTMENTS PTY LIMITED

(ACN 008 561 313)

Defendant

ORDER

Judge: Miles CJ

Date: 2 February 2001

Place: Canberra

THE COURT ORDERS THAT:

1. There be judgment for the plaintiff in the sum of $45,750 together with interest to be assessed.

2. The plaintiff be at liberty to enter judgment once interest has been assessed.

3. The parties be at liberty to list the matter again, if necessary.

1. This is an action for breach of contract. The plaintiff (NGU) entered into an agreement to supply management services through a general manager for a hotel for which the defendant (ABM) had the overall management responsibility. After a series of incidents involving the general manager, ABM terminated the agreement. NGU claims that ABM failed to give reasonable notice, or any notice, of termination, as required by the terms of the contract. ABM says that no notice was required, and that, in any event, reasonable notice of seven days was given.

Pleadings

2. NGU alleges that in about January 1995 it entered into a "Profit Share Agreement" (the agreement) with a company called Rondda Enterprises Pty Limited (Rondda). To the extent that the contract was oral, it was alleged to be constituted by conversations between Mr Mark Higgins for NGU and Mr Barry Morris for Rondda. To the extent that it was implied, it was constituted by terms implied as a matter of business efficacy "and/or the working out of express terms".

3. The terms of the agreement were alleged to be:

"(a) NGU would nominate a person who would act as the general manager of the Hotel.

(b) NGU would be paid a percentage of the profits derived from the management of the Hotel, the initial percentage being 15% and increasing at 1% per annum until the percentage reached 25%.

(c) Once NGU's percentage profit reached 25% NGU would have the right to acquire a further 24% interest in the management rights relating to the hotel.

(d) Rondda would do all things necessary on its part to ensure that NGU have the benefit of the Profit Share Agreement.

(e) the term of the profit share agreement would be ten years."

4. It was alleged that terms (a), (b) and (c) were oral and that terms (d) and (e) were implied.

5. The hotel was the James Court Apartment Hotel (James Court). From January 1995 to June 1998 NGU and Rondda each performed its obligations under the agreement. In or about January 1998 ABM took over from Rondda the management function of James Court and the obligations to NGU under the agreement.

6. The arrangements between the parties continued until 15 May 1998 when Mr Morris refused to allow NGU's nominee, Mr Higgins, to continue to perform the duties of general manager of James Court.

7. NGU alleges that on 23 May 1998 ABM repudiated its obligations under the agreement by purporting to terminate the agreement without lawful grounds and that on 31 May 1998 NGU accepted the repudiation and thereby terminated the agreement. NGU claims damages from 31 May 1998 and continuing.

8. By its amended defence ABM admits the making of the agreement as alleged and the transfer of rights and obligations from Rondda to ABM. It admits terms (b) and (d), and denies terms (c) and (e) as pleaded. As to term (a), ABM alleges that it was a term and condition of the agreement that NGU would nominate a person acceptable to ABM, that the person nominated was to act in the best interests of James Court and with all due professionalism, skill and care in the position of general manager and that NGU would be paid an administration fee of $63,000 per year. No reply was filed, but it was not disputed that the terms alleged by ABM were to be implied in the agreement.

9. ABM admits that it excluded NGU's nominee but asserts that it was entitled to do so on the ground that he had failed to act in the best interests of James Court and with all due professionalism, care and skill. ABM further admits that it repudiated the contract but says that it did so on the ground that NGU had been given an opportunity to nominate a suitably qualified person to replace its previous nominee as general manager and that NGU had failed to do so within a reasonable time.

10. Ultimately both counsel accepted that the case turned on whether the "opportunity" to nominate a suitable replacement manager had been given to NGU. The issue so formulated assumes that it was an implied term of the agreement that ABM was not entitled to terminate the agreement without reasonable notice to NGU. Such a term was never pleaded, but as the case was conducted on that basis, so it must be determined.

Fact not in dispute

11. The facts which are not disputed, or which are so clearly established that there is no need to discuss the evidence in detail, are as follows.

12. NGU represents the commercial side of the partnership between Mark Higgins and Catherine Higgins, who are husband and wife. ABM represents one of the many business interests of Mr Barry Morris. The Higgins family and the Morris family were friends over many years. Their friendship began when they were neighbours in Griffith and their small children went to the same school. Mr and Mrs Higgins owned and ran the Telopea Park Motel (it was given differing names in the evidence). Mr Morris owned and ran the Forrest Motor Inn. As time went by Mr Morris prospered while Mr and Mrs Higgins ran into financial difficulty. To assist them, Mr Morris suggested that they form a company. Mrs Higgins worked in a solicitor's office and she chose the name and organized the incorporation. Mr Morris was one of the directors and an accountant, Mr Terry Higgins (no relation) was the other director. There was some sort of a trust into which the profits, if any, of NGU were channelled to the benefit of the Higgins family. Eventually the Telopea Park Motel failed and had to be sold. Mr Higgins became a real estate salesman.

13. Mr Morris, presumably through one of his companies, acquired the Travelodge Motel, which was on a prime development site at the corner of Northbourne Avenue and Barry Drive, Civic. The existing motel was demolished and James Court was built in its place. James Court was a high-rise apartment hotel. Individuals could buy one or two bedroom apartments on unit title from one of the Morris companies. The apartments could then be let to guests overnight or for longer periods, initially through Rondda and later through ABM, on behalf of the respective unit holders. Rondda/ABM retained title to the non-residential parts of the building, to which guests had access, such as the reception area and the gym. Overall Rondda/ABM managed James Court like a hotel. Management of some hotel-like facilities, such as the restaurant, were delegated by Rondda/ABM to others.

14. James Court opened to guests at the end of September 1994. Some but not all of the apartments had been sold at that stage. Mr Morris engaged a general manager, a Mr Singh Gowral, but became dissatisfied with his services, especially after Mr Gowral announced that, as a result of cancer, he was not willing to accept the responsibility and attention such a large enterprise required. Although Mr Gowral had implemented a marketing plan, Mr Morris felt he needed someone more attuned to sales and marketing and thought Mr Higgins' ideas in these areas would work very well. Thus, although Mr Morris seems to have been critical of Mr Higgins' lack of effort in running the Telopea Park Motel, he engaged Mr Higgins to work part-time in the marketing of James Court. Business began to grow. Mr Higgins spent his time selling James Court apartments and promoting in government and corporate circles the accommodation offered by the hotel. By December 1994 he was spending more time on James Court business than he was in his real estate employment.

15. In mid or late December Mr Morris made an offer to Mr Higgins for Mr Higgins to become general manager of James Court. The exact terms of the offer, the location and the identity of those present are in dispute, and I shall return to these aspects. There is no dispute, however, that the offer was for Mr Higgins to perform the duties of general manager through NGU and that Mr Higgins sought and was given time to think about the offer over the pending holidays.

16. Mr and Mrs Higgins went to Melbourne for the 1994 Christmas holiday period. Mr Morris called Mr Higgins in Melbourne on Mr Higgins' mobile telephone and Mr Higgins told him that he would accept the offer. He began duty in February 1995.

17. Each month Rondda made a payment into an NGU bank account of what was referred to in NGU's case as salary and in ABM's case as an administration fee. It represented the monthly component of $63,000 a year. ABM deducted instalments of tax and issued group certificates as if Mr Higgins was its employee. From about October 1995 James Court began to make a profit and NGU was paid, through a second bank account, an additional amount being initially 15 percent of the annual profits of ABM, increasing by one percent a year.

18. As general manager, Mr Higgins was responsible for supervision of the ABM staff at James Court who worked in reception and housekeeping. He also attended personally to some of the building maintenance aspects, having a background as an electrician. He also spent periods away from James Court marketing and attempting to build up the business. The previous marketing plan was updated in consultation with Mr Morris. Mr Morris kept a close watch on the affairs of James Court and worked out of an office in the building during the early part of Mr Higgins' engagement. The two men were in daily contact. There were also weekly meetings of a group which included Mr Morris, Mr Higgins and Mr Chris Close, financial controller of the Morris companies. Mr Higgins usually arrived at James Court from Monday to Friday between 6.30 am to 7 am and did not leave for home until 8 pm or after. He also came in on a Sunday morning and usually called in at Mr Morris' house at about lunch-time on that day to discuss business matters on an informal basis.

19. According to the evidence, in 1997 or 1998 Mrs Higgins became a director of NGU, and Mr Morris ceased to be a director in late 1998. Mr Higgins has never been a director of NGU.

20. In late April or early May 1998 there occurred the first of two incidents which were to have a drastic effect on the relationships between the parties. Mr Higgins, for his own purposes, ran a laundry or dry-cleaning account at James Court. At the end of April he owed about $100 on that account. He saw it as a requirement of Mr Morris that the account be paid by the end of the month. He wrote a cheque on a bank account of NGU for the amount owing. He gave it to Mrs Vicki Sheffield, the front office manager of James Court. He asked or instructed her to enter the amount as a payment in James Court's books on that day, but not to present the cheque to the bank until the following Monday, which was 11 May 1998.

21. Mr Morris got to hear of what had happened and, without speaking to Mr Higgins at that stage, wrote the following letter to "The Director, Never Give Up Pty Limited, McLaren Street, Pearce ACT":

"Dear Cathy,

It is with great distress that I find it necessary to write to you concerning a particular incident that has occurred at James Court in the last week.

Never Give Up Pty Limited (NGU) provides management and marketing services to A & B Morris Investments Pty Limited (Morris) trading as James Court Apartment Hotel. NGU provides the services of Mark Higgins to undertake the management and marketing services on behalf of NGU. Morris pays NGU a management service fee equal to $63,000 plus 18% of the management fee (net of the staff incentive program) received by Morris. The management service fee paid to NGU for the ten months to 30 April 1998 was $142,003.43. The management fee for the financial year to June 1998 will therefore be in the vicinity of $170,000.

It has been reported to me that your employee, Mark Higgins, has attempted to collaborate with another member of staff to falsify the company's records. Mark suggested to that employee that a cheque paid to James Court be credited against NGU's laundry account with James Court but requesting that the employee not bank the cheque into James Court's bank account for a number of days.

The following very serious matters arise from the suggestion by Mark Higgins:

1. As the senior member of the management team at James Court, other staff members would naturally feel intimidated by the request of the general manager and, as has happened in this case, the request was carried out. This presents me with a most difficult situation.

2. What other incidents of similar behaviour have gone undetected.

3. Mark Higgins is engaging in coercive conduct that threatens the basic fabric of the internal controls established in the business. These internal controls have been implemented to protect the apartment owners and their investment, Morris' business, NGU's contract, Morris' employee relations and the moral and honest conduct of my business (something I value most highly).

4. Coercive behaviour is in contravention of Morris' employment discrimination policy which is published and displayed for all members of staff.

5. Mark Higgins suggestion that another staff member collaborate with him may lead other staff to believe that this kind of behaviour is acceptable and that other staff may engage in such conduct. If this environment exists my internal controls are worthless and the business is threatened.

6. Mark Higgins, if he knowingly issued a cheque that was not able to be banked on the day it was issued, has engaged in a fraudulent act.

This particular incident is of itself relatively small. The principles involved, however, are significant and require explanation by NGU. I would appreciate your urgent attention to these matters and a written explanation by 12 May 1998.

Yours sincerely,

A & B Morris Investments Pty Limited

BJ Morris

Managing Director

cc. Mr M Higgins"

22. The address to which the letter was directed was that of the Higgins family home. The letter was written after consultation with Mr Paul Green, solicitor, who acted for Mr Morris and his companies. As it happened, Mrs Higgins worked for Mr Green as his personal assistant. Mr Morris took the letter to Mrs Higgins and handed it to her at her place of employment. The letter is dated 8 May 1998, but there is a conflict in evidence about whether Mr Morris handed it to her on that day or the previous day. I shall return to that issue.

23. On the evening of Friday, 8 May 1998, the second of the incidents occurred. James Court was entertaining a number of business guests at a reception. The guests were officers of the Department of Defence, who looked after travel and accommodation arrangements on behalf of the Royal Australian Air Force. Through the efforts of Mr Higgins, James Court had been successful in obtaining an amount of business from that source. The reception was to mark some such "deal", as it was described by one of those present. The reception took place in an unoccupied apartment. There were four women and one man present from the Department of Defence, and two women from James Court, when Mr Higgins arrived at about 4.45 pm. A woman called Annette, otherwise not identified, arrived a little later. There was an amount of liquor consumed and a congenial atmosphere prevailed. By about 7.45 pm there were three women from the Department of Defence remaining together with their male colleague and Mr Higgins. Without warning or explanation, Mr Higgins pulled the hair of one of the women and called her "a stupid girl". She went to the bathroom crying. Mr Higgins then said to one of the other women "Do you care, do you care?". He took hold of her head and face and let her go only when approached by the man from Defence. Everybody except Mr Higgins and the woman, Annette, began to leave. As they left Annette said, "Don't leave me here with him". The evidence stops at that point.

24. Mr Higgins maintained in his evidence that he has no memory of this incident beyond going to the apartment and sitting in a chair. His next recollection is waking up in bed at home the next morning. Mrs Higgins gave evidence that she does not remember anything unusual about her husband when he arrived home at about 10 pm that evening. Nothing was said to her by Mr Higgins the next day, Saturday, 9 May 1998, about the incident. That evening there was a dinner at the Higgins' home at which Mr  and Mrs Morris and Mr and Mrs Close were present. They were later joined by others, including Mr Ken Cush, solicitor and neighbour of the Higgins'. At that stage Mr Morris had heard nothing about the incident. There was no evidence that anything was said at the dinner about the letter of 8 May.

25. Nevertheless, Mr Higgins considered the letter at some stage over that weekend. He went to James Court on Sunday, 10 May to attend to some of his duties and whilst there he typed a response to the letter. That response was as follows:

"10 May 1998

A & B Morris Investments Pty Ltd

Att: Mr B Morris

Managing Director

Dear Barry,

In response to your letter of 8 May I would like to assert at no time did I have any intention of collaborating with any staff member to falsify company records. I requested that my cheque be posted on Thursday and banked on Saturday.

This incident was a totally innocent action.

1: Never has any other incidents taken place.

2: I recognise the internal controls that are in place and I uphold these controls, and make sure that the controls are upheld.

3: I have never deliberately pressured any staff to do anything that constitutes any compromise to the hotel or any member of staff.

The principals (sic) concerning this matter are now unequivocal.

As I stated to you, what I did was a very innocent act. With no clandestine motive.

I have operated with you now for some years, I believe I have demonstrated my integrity.

Never have I compromised myself or the position I hold. The innuendo that somehow I am operating without the utmost interest of the hotel I find offensive.

Regards

Mark Higgins

cc. Mrs Higgins"

26. Mr Higgins took the response and handed it to Mr Morris at his home some time that day.

27. Although Mr Morris knew nothing until the Monday about the incident on the Friday evening, there was, presumably, an unusual atmosphere at the Saturday dinner in view of the serious nature of the allegations made by Mr Morris in his letter of 8 May. The atmosphere was, presumably, even more unusual on the Sunday when Mr Higgins handed Mr Morris his response in which he claimed that he found the letter of 8 May "offensive". It is curious that there is no evidence of anything unusual on either occasion.

28. On the morning of Monday, 11 May 1998, police, acting on the complaint of one or more of the women at the reception, called at James Court. They spoke first to a receptionist and then to Mr Higgins. They told him that they were making enquires into "an incident on Friday", that he was involved, and that they could not tell him more at that stage.

29. Mr Higgins then went and spoke to Mr Morris. What was said in the conversation is a matter of dispute.

30. Later in the day Mr Higgins spoke to his solicitor, Mr Cush. Also, on the same day, Mr Morris spoke to his solicitor, Mr Green, and informed him that there had been an incident in James Court on the Friday night, that police were involved and that Mr Higgins was involved but was "too drunk" to remember what happened.

31. Mr Higgins composed a letter about the Friday incident and on the morning of Tuesday, 12 May 1998 gave it to a policewoman to deliver to the women concerned. The letter was not in evidence and its contents are unknown except to the extent that Mr Higgins described it as an "apology letter".

32. On the Tuesday or Wednesday Mr Higgins informed Mr Morris that he had written the letter of apology.

33. On the night of Wednesday, 13 May, Mr Morris spoke to Mr Green over the telephone. Mr Green advised Mr Morris that Mr Higgins should be given "verbal notice of his termination", and advised against the writing of a letter.

34. Late in the afternoon of Friday, 15 May, Mr Morris invited Mr Higgins to coffee in the Mosaics Brasserie in or next to James Court. Mr Morris told Mr Higgins that he wanted him to clear his desk, hand over the keys and leave the premises. Mr Morris claimed in evidence that he also said, "I am giving you the opportunity to nominate another manager and you've seven days to do that". Mr Higgins, in his evidence, denied that Mr Morris told him any such thing, but he agreed that he was told in effect to clear out and hand over the keys. It will be necessary to return to the details of this conversation in the light of the other evidence.

35. Mr Morris then set about informing staff that Mr Higgins would no longer be working in James Court. In particular he instructed Mrs Sheffield that evening to "resume the position of acting general manager" which she agreed to do. In the meantime Mr Higgins had arranged to meet Mrs Higgins and they were standing outside James Court as Mr Morris was leaving to go home. She said to Mr Morris, "I've just heard the good news". Mr Morris replied, "It's not good news" or something similar and got into his car and drove off.

36. At about 7.30 pm on Monday, 18 May 1998, Mr Higgins consulted Mr Cush and was advised to ask Mr Morris four questions which Mr Cush wrote down for him. On the evening of that day Mr Higgins telephoned Mr Morris. There is a certain amount of common ground about what was said in the conversation, but there is a conflict on one important issue. Mr Morris said that he said to Mr Higgins, "I have given you seven days to find a replacement", in effect repeating the statement that he claims he made the previous Friday evening. In any event, Mr Higgins told Mr Morris that somebody had come to see him that day and had told him that he had heard that he, Mr Higgins, had been sacked. Mr Higgins told Mr Morris that he thought there was an understanding that anybody who tried to contact him at James Court should be told that he had left over a disagreement. According to Mr Higgins' evidence, Mr Morris replied, "Well, I don't know anything about that. I'll look into it tomorrow". Mr Higgins then read the questions that Mr Cush had written out for him and made a short note of the answers that Mr Morris gave. He then went to his computer and copied the questions and typed the answers as he recalled them aided by the notes he had made. The questions written down and the notes have been destroyed. A printout from the computer is as follows:

"Telephone attendance on Barry Morris. Date: Monday 18^th May 1998 at approximately 8.05 pm.

I then asked Barry the following questions:

1. Have you terminated my employment at James Court?

Response: Yes, I thought it was fairly evident on Friday.

2. Is there any chance of reinstatement?

Response: No.

3. On what basis did you terminate my employment at James Court?

Response: I am not prepared to nominate the basis but surely it is evidence enough to you.

4. What proposal do you have to buy out Never Give Up's interest at James Court?

Response: I am only going to pay that while you are working there."

37. Mr Morris' version in his evidence-in-chief is somewhat different and it will be necessary to return to it in detail. It was supplemented by handwritten notes that Mr Morris said he wrote into a notebook immediately after the conversation. The notebook was not discovered until after the hearing was adjourned part-heard on 3 May 2000 and resumed the following day. The notebook entry (exhibit 4), reproduced as closely as possible to the handwritten original, is as follows:

"18/5/98

20:00

MH: Someone called in to see me today and they were told I was sacked

BM: Peter Bartels called and Vicki advised me he was told you no longer worked here.

MH: No it was Danny and someone who called in to the hotel. This is not what was agreed

BM: I will talk to Danny tomorrow and correct the problem.

MH: What happens with my 18% of JC.

BM: Your 18% interest only

(End of page)

exists while you work at J.C.

@

MH: Was the reason I was dismissed, the incident with the girls last Friday night.

BM: I am not giving a reason, your contract has been terminated.*

MH: But are there any other reasons for my being terminated.

BM: I am not giving reasons, I think you know what they are.

(End of page)

*and you still have the option to offer an alternate G.M. subject to my approval

MH: I am investigating some alternative.

MH:

@ Is there any chance of being reinstated?

BM: No"

38. The conflict between the two written versions is confirmed by the oral evidence of both witnesses. The effect of the conflict is that Mr Morris asserts that he repeated what he had said on the Friday about an opportunity given to NGU through Mr Higgins to nominate or "offer" a replacement general manager. This again is a disputed issue which needs to be resolved.

39. The next development which is undisputed is that Mr Morris wrote on behalf of ABM to Mrs Higgins on behalf of NGU a letter dated 23 May 1998. However, there is another disputed issue relating to a conversation in the meantime between Mrs Higgins and Mr Green about her considering nominating herself for management of James Court. Mrs Higgins says there was no such conversation at all and that she never indicated to Mr Green that she was considering doing so. Mr Green's evidence was that she said it on 20 or 21 May 1998. This issue needs to be resolved also.

40. The letter of 23 May is as follows:

"Mrs C Higgins

Director

Never Give Up Pty Limited

Mc Laren Street

Pearce ACT 2607

Dear Cathy

I refer to the meeting between Mark Higgins and the writer on 15 May 1998.

Mark was your company's nominee to meet the company's obligations to provide management services to A & B Morris Investments Pty Limited (Morris) trading as James Court Apartment Hotel.

At the meeting with Mark, I advised that his services were no longer required as the manager of James Court. I also advised that should your company wish to continue to provide management services to Morris then suitably qualified person or persons should be nominated to Morris within 7 days so that the nominee could be assessed and, if acceptable, approved by Morris.

I note that no person has been offered to Morris to provide management services to James Court. Accordingly, I advise that the contract for the provision of management services by Never Give Up Pty Limited is terminated.

I also advise that the management service fee for the period 1-15 May 1998 will be paid to your company on 1 June 1998.

Yours sincerely,

A & B Morris Investments Pty Limited

BJ Morris

Managing Director"

41. Mrs Higgins wrote a response on the day she received the letter, namely 26 May 1998 and sent it by fax. It was as follows:

"Dear Barry,

Thank you for your letter of 23^rd May 1998 received today.

This is the first occasion you have communicated with Never Give Up Pty Limited indicating that there was any option for the Company to appoint an alternate Manager, and to continue with the contract. I understood from Mark Higgins that his services were terminated, and I understood that you had repudiated the agreement with Never Give Up Pty Limited simultaneously.

Mark Higgins was an employee of Never Give Up Pty Limited, held no office or function within the Company, and you were never authorised to communicate instructions through him for Never Give Up Pty Limited. The Company advises that it wishes to appoint Catherine Higgins as Manager of James Court. As you are aware, she has had previous experience in running the Telopea Park Motel, and has a good understanding of the operations of James Court and its requirements through her association with Mark Higgins