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Federal Court of Australia - Full Court Decisions |
Last Updated: 2 April 2007
FEDERAL COURT OF AUSTRALIA
Energy World Corporation Ltd v Maurice Hayes & Associates Pty Ltd [2007] FCAFC 34
CONTRACT – construction –
inconsistency – could not be corrected without rectification
CONTRACT – terms of implied agreement to continue dealing
after expiry of written agreement
CONTRACT FOR SERVICES –
period of reasonable notice of termination
APPEAL –
advantages of primary judge
Maurice Hayes & Associates Pty Ltd
ACN 063 758 181 v Energy World Corporation Ltd
ACN 009 124 994 [2006] FCA 783 varied
Banque
Commerciale SA En Liquidation v Akhil Holdings Ltd [1990] HCA 11; (1990) 169 CLR 279
referred to
Brambles Ltd v Wail [2002] VSCA 150; (2002) 5 VR 169
discussed
Commissioner of Stamp Duties (NSW) v Carlenka Pty Ltd
(1995) 41 NSWLR 329 cited
Crane v Hegeman-Harris Co Inc
[1939] 1 All ER 662 cited
Equuscorp Pty Ltd v Glengallan
Investments Pty Ltd [2004] HCA 55; (2004) 218 CLR 471 cited
Fitzgerald
v Masters [1956] HCA 53; (1956) 95 CLR 420 considered
Hitchcock
v TCN Channel Nine Pty Ltd [2000] NSWSC 198
cited
Integrated Computer Services Pty Ltd v Digital Equipment
Corp (Australia) Pty Ltd (1988) 5 BPR 11,110 cited
Minister for
Immigration, Local Government & Ethnic Affairs v Hamsher (1992) 35
FCR 359 cited
Pukallus v Cameron [1982] HCA 63; (1982) 180 CLR 447
cited
Slee v Warke [1949] HCA 57; (1949) 86 CLR 271 cited
ENERGY WORLD
CORPORATION LTD ACN 009 124 994 v MAURICE HAYES & ASSOCIATES
PTY LTD ACN 063 758 181;
MAURICE HAYES & ASSOCIATES PTY LTD
ACN 063 758 181 v ENERGY WORLD CORPORATION LTD
ACN 009 124 994
WAD 216 OF 2006
MOORE, TAMBERLIN AND GYLES
JJ
21 MARCH 2007
SYDNEY (VIA VIDEO LINK TO PERTH) (HEARD IN PERTH)
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AND:
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AND BETWEEN:
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MAURICE HAYES & ASSOCIATES PTY LTD
ACN 063 758 181
Cross-Appellant |
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AND:
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ENERGY WORLD CORPORATION LTD
ACN 009 124 994
Cross-Respondent |
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DATE OF ORDER:
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WHERE MADE:
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THE COURT ORDERS THAT:
The appellant/cross-respondent bring in short
minutes of order to give effect to the reasons of the Court.
Note: Settlement and entry of orders is dealt with in Order 36 of
the Federal Court Rules.
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WESTERN AUSTRALIA DISTRICT REGISTRY
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ON APPEAL FROM A SINGLE JUDGE OF THE FEDERAL COURT OF
AUSTRALIA
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BETWEEN:
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AND:
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AND BETWEEN:
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MAURICE HAYES & ASSOCIATES PTY LTD ACN 063 758 181
Cross-Appellant |
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AND:
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ENERGY WORLD CORPORATION LTD ACN 009 124 994
Cross-Respondent |
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DATE:
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PLACE:
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SYDNEY (VIA VIDEO LINK TO PERTH) (HEARD IN
PERTH)
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REASONS FOR JUDGMENT
THE COURT:
1 This appeal from the judgment in Maurice Hayes & Associates Pty Ltd ACN 063 758 181 v Energy World Corporation Ltd ACN 009 124 994 [2006] FCA 783 concerns the financial ramifications of the termination of a consultancy arrangement whereby the respondent/cross-appellant Maurice Hayes & Associates Pty Ltd (the Consultant) provided the services of Mr Maurice Hayes to the appellant/cross-respondent, Energy World Corporation Ltd (the Company) (then named Energy Equity Corporation Ltd). The issues which arise on the appeal and cross-appeal are more confined than were the issues at trial.
2 The starting point for the appeal is the agreement made on 28 September 1994 between the Consultant and the Company (the Agreement) whereby the Consultant agreed to provide the services of Maurice Hayes to the Company as Chief Financial Officer for a term of four years commencing on 1 July 1994 and renewable thereafter by mutual agreement of the parties. The fee was at the rate of $128 400 per annum on an indexed basis together with other expenses.
3 The first question concerns the proper construction of sub cl 8.6 of the Agreement, forming part of cl 8 dealing with termination and, in particular, the word ‘lesser’. The clause is as follows:
‘In the event that the Company terminates this Agreement for any other reason other than as stated in clause 8.1 hereof or the Term (as extended or renewed) is not renewed the Company shall pay to the Consultant the Fee for the remaining period of the contract or six (6) months whichever is the lesser period.’
(Emphasis added)
4 Clause 8.1 was as follows:
‘The Company may by notice in writing to the Consultant terminate summarily the engagement of the Consultant under this Agreement if:-
8.1.1 in the opinion of the Company the Consultant is not carrying out the Specified Services in a manner satisfactory to the Company;
8.1.2 in the opinion of the Company the Consultant has committed or is preparing to commit a serious or persistent breach of any of the provisions of this Agreement;
8.1.3 the Consultant, goes into liquidation or receivership or suspends payment or compounds with or assigns its estate for the benefit of its creditors; and
8.1.4 the Consultant or employee is convicted of a criminal offence carrying imprisonment as a possible penalty.’
5 The Consultant argued, and the primary Judge accepted, that the word ‘lesser’ should be construed as ‘greater’ on the basis that where there is an obvious mistake the Court can give effect to the true contractual intention of the parties without there being the need for any rectification. The Company challenges that finding.
6 On 12 November 1997 the parties agreed that the term of the Agreement was extended to 30 June 2001. Notwithstanding the expiry of the term of the Agreement on 30 June 2001 services continued to be provided by the Consultant and charged for until the end of May 2003. The Consultant claimed, and the primary Judge found, that it was a term of the agreement between the parties that commenced after 30 June 2001 (the 2001 Agreement) that the Company pay the Consultant $190 000 (exclusive of GST) per annum rather than (as contended for by the Company) that it was a term of the new agreement that the Company pay the Consultant at a rate equivalent to $75 per hour plus GST. The Company challenges that finding. That is the second question.
7 The third question relates to the period of reasonable notice of termination of the 2001 Agreement. In the event that the first challenge is decided in favour of the Company and ‘lesser’ is construed to mean ‘lesser’, then the Consultant cross-appeals to contend that, as it was entitled to a period of reasonable notice of termination of the 2001 Agreement, the primary Judge erred in holding that a period of one month was a reasonable period and rather should have found that it was entitled to payment of six months’ fee in lieu of notice.
8 The primary Judge said that there were no major factual disputes in the case as the differences between the parties related to the inferences that were to be drawn and the conclusions that were to be reached from primary facts which were not materially in dispute ([2006] FCA 783 at [5]). The facts are set out [2006] FCA 783 at [6]–[47]. It is unnecessary to reproduce all of those facts for the purposes of this judgment but they should be taken as having been adopted by us.
CONSTRUCTION OF CLAUSE 8.6
9 The point of construction arose in an unusual fashion. The Consultant made no claim to the payment of a termination payment under cl 8.6. There was a claim based upon an alleged variation to the Agreement whereby, if the Agreement was terminated through no fault of the Consultant, or was not renewed, the Consultant would become entitled to a payment equal to one month’s fee for every completed year of continuous service with the Company. In the alternative, it was argued that the Company was estopped from denying such a variation. The primary Judge rejected each of those contentions. The primary Judge took the view that, even though there was no claim by the Consultant and thus no issue on the pleadings, cl 8.6 ‘was a live issue because it was an incident of the case advanced by the respondent at trial’. Not surprisingly, the parties had directed no attention to that issue during the trial. After the trial, the Judge asked the parties for submissions on the proper construction of cl 8.6 and, in particular, whether, in the absence of rectification, the word ‘lesser’ should be construed as ‘greater’. There is no reference in the judgment or elsewhere in the appeal book to any amendment to the application or pleadings to raise that issue. The Company apparently raised no procedural objection and no ground of appeal is directed to that aspect of the matter. Nonetheless, the application should have been amended to claim the relief granted (see the authorities referred to by Dawson J in Banque Commerciale SA En Liquidation v Akhil Holdings Ltd [1990] HCA 11; (1990) 169 CLR 279 at 297). Furthermore, as noted later, if the claim had been pleaded in the first place a different picture is likely to have been painted.
10 The primary Judge held that it was clear that the contractual intention was to provide the Consultant with a termination payment of a minimum fee for six months, regardless of whether the relationship between the parties ended by the non-renewal of the term on expiry of the existing term or by the termination of the Agreement (other than for a reason set out in cl 8.1) during the currency of the term. His Honour deduced that conclusion from the presence in the clause of the words ‘or the Term (as extended or renewed) is not renewed’. His Honour held that the literal meaning of ‘lesser’ rendered those words otiose and that it was obvious that there was a mistake by the draftsmen in using the word ‘lesser’ as the word ‘greater’ should have been used to give effect to the obvious intention of the parties. The primary Judge applied the principle succinctly expressed by Dixon CJ and Fullagar J in Fitzgerald v Masters [1956] HCA 53; (1956) 95 CLR 420 at 426–427 as follows:
‘Words may generally be supplied, omitted or corrected, in an instrument, where it is clearly necessary in order to avoid absurdity or inconsistency.’
11 It may be accepted that the word ‘lesser’ gives no practical content to the words ‘or the Term (as extended or renewed) is not renewed’. In that sense, it may be said that there is an inconsistency. However, the terms of cl 8.6 do not enable a conclusion to be drawn as to how the inconsistency should be resolved. It could be cured just as easily by omitting the words ‘or the Term (as extended or renewed) is not renewed’ as by substituting ‘greater’ for ‘lesser’. Put another way, the terms of the clause do not enable the conclusion to be drawn that the contractual intention was to provide the Consultant with a termination payment of a minimum of six months on non-renewal of the term. The principle of construction in question does not enable a court to speculate as to the proper resolution of the inconsistency. Furthermore, as submitted on behalf of the Company, the substitution of ‘greater’ for ‘lesser’ would involve a significant variation in the effect of the clause as it would have operated in the event of termination during the term of the Agreement. In this respect the decision involves a substantial rewriting of the clause in a respect which was not considered by the primary Judge. The clause, of course, must be construed in the light of the circumstances which existed at the time the Agreement came into force, looking ahead at what might occur rather than in the light of events as they actually occurred.
12 It is significant that no claim for rectification was made either originally or when the issue was raised by the primary Judge. A claim for rectification would have enabled examination of evidence as to the actual intention of the parties. Even in a rectification claim it is not sufficient to show that there was a mistake in the drafting. It is necessary to make it quite clear what the correct wording should be. In Slee v Warke [1949] HCA 57; (1949) 86 CLR 271 the High Court cited with approval the following passage from Simonds J in Crane v Hegeman-Harris Co Inc [1939] 1 All ER 662 at 665:
‘let it be clear that it is not sufficient to show that the written instrument does not represent their common intention unless positively also one can show what their common intention was’.
As it was put by Wilson J (agreed in by Gibbs CJ) in Pukallus v Cameron [1982] HCA 63; (1982) 180 CLR 447 at 452:
‘The second principle governing the rectification of a contract which is material to this case is that which requires the plaintiff to advance "convincing proof" ... that the written contract does not embody the final intention of the parties. The omitted ingredient must be capable of such proof in clear and precise terms ... The Court must not assume for itself the task of making the contract for the parties.’
(Citations omitted)
(See also Brennan J 180 CLR at 456).
13 A succinct, more recent, statement of principle is that of McLelland A-JA in Commissioner of Stamp Duties (NSW) v Carlenka Pty Ltd (1995) 41 NSWLR 329 at 345:
‘In general, the remedy of rectification of an instrument is available where it is established by clear and convincing proof that at the time of execution of the instrument the relevant party or parties as the case may be had an actual intention (if more than one party, a common intention) as to the effect which the instrument would have which was inconsistent with the effect which the instrument as executed did have in some clearly identified way.’
14 The requirements to be met for rectification where a court can examine evidence of actual intention are hardly to be circumvented by a rule of construction which depends upon deduced intention. A claim for the amount in question based solely upon reading ‘greater’ instead of ‘lesser’ would have been bold, to borrow a description from Austin J in a similar situation in Hitchcock v TCN Channel Nine Pty Ltd [2000] NSWSC 198 at [37], particularly if pleaded side by side with the claim that there was a later agreed variation of the clause. Such a claim could only have been credibly put forward originally if based upon rectification.
TERMS OF 2001 AGREEMENT
15 The role agreed to be filled by Hayes pursuant to the Agreement was that of Chief Financial Officer. The designation of duties later changed to Project Finance Executive and then Executive Manager – Finance. There were corresponding changes in the duties to be performed. On 12 November 1997 the parties extended the term of the Agreement to 30 June 2001. The annual fee increased to $190 000 in 1997. There was no formal variation of the Agreement in any of these respects.
16 The Company faced financial difficulties from late 1998. In late 1999 Hayes was informed by the then Managing Director that his position would be abolished but that he would be retained in a consulting role for specific projects. As a result of the financial difficulties and a result of a request by the then Managing Director, for the period from July 2000 until 30 June 2001, the Consultant rendered invoices at a rate equivalent to an annual fee of $138 000 rather than the agreed fee of $190 000 per annum. The primary Judge held that the difference was not forborne and the Consultant was held to be entitled to the difference. There is no appeal from that finding. In early 2001 Hayes’ title was changed again to Senior Consultant – Financial and Commercial, and there was a change of duties. Thereafter, Hayes assisted a Mr Allen in dealing with the bank and the conduct of an asset realisation programme.
17 There was inconclusive correspondence between Hayes and the new senior executives of the Company in the first half of 2001 as to his future role. In around late February or early March the new Managing Director informed Hayes that he did not favour consultancy agreements and preferred direct employment. Hayes said he would be prepared to consider terminating the existing Agreement if his claims for outstanding matters were resolved. In June 2001 there was a discussion between Hayes and another new executive, Mr Jordan, as to his position after the Agreement expired, which again was inconclusive.
18 On 29 June 2001 Hayes sent a letter in the following terms to Jordan:
‘Dear Ian
Re: Consultancy Agreement and Proposed New Arrangements
Your letter dated 5 March 2001 and my letter dated 14 March 2001 refers.
The current Consultancy Agreement expires on the 30 June 2001, we are however prepared to continue the Agreement on the existing conditions.
Would you please as a matter of some urgency advise us as follows:
1. EEC’s proposed settlement of outstanding partial payments ($52,695.28) as at end June 2001
2. Whether you will be extending the current Agreement or proposing new terms and conditions for employment of Maurice Hayes & Accociates [sic] and/or Maurice Hayes’
There was no evidence of any response to that letter.
19 On and from 4 July 2001, Hayes attended for work at the premises of the Company where he continued doing the work that he had been doing before 30 June 2001 in connection with the asset realisation programme. He continued working on a full time basis and the Consultant continued to render invoices for fees to the Company monthly. The Consultant’s invoices reflected claims for Hayes working eight hours per day at an hourly rate of $75 (plus GST). The Company paid the invoices submitted by the Consultant.
20 By February 2003 the asset realisation programme was well advanced. There was a discussion between Hayes and Jordan in which Jordan said that, because of the progress that had been made on the asset realisation programme, there was less work for Hayes to do. Hayes said he was prepared to reduce the number of hours that he worked for the Company.
21 On 29 April 2003 Jordan advised Hayes that there would be no ongoing need for his services except on a possible ad hoc basis. Hayes continued to attend the premises and render services during the month of May 2003. The cessation of the provision of services by the Consultant at the end of that month was then formalised.
22 The Consultant claimed that it was entitled to fees at the rate equivalent to that of $190 000 per annum for the services performed after 30 June 2001. The Company said that the Consultant was entitled to be paid on the basis which had been invoiced and paid after that same date.
23 Having considered the decision of the Victorian Court of Appeal in Brambles Ltd v Wail [2002] VSCA 150; (2002) 5 VR 169 the primary Judge inferred that the Consultant and the Company agreed that after 30 June 2001 the Consultant was to provide the services of Hayes to the Company on the same terms as those in the Agreement save that the 2001 Agreement was to be of indefinite duration. His Honour also found that the Company impliedly endorsed the Consultant’s request that the Consultant continue to render invoices at the reduced rate whilst recognising that the Consultant continued to reserve its rights to claim the balance at the rate consistent with the agreed amount of $190 000. His Honour, therefore, found that the Consultant was entitled to the difference between the amount invoiced between 1 July 2001 and 30 April 2003 and the amount that would have been payable had the Consultant rendered those invoices at the rate of $190 000 per annum, exclusive of GST.
24 It is submitted for the Company that the primary Judge took too much from Brambles [2002] VSCA 150; 5 VR 169 and, in particular, elevated a factual decision into a statement of law, namely, that the terms of a detailed written agreement for a fixed term continue to govern the parties where they continue dealing with each other after the fixed term has expired. The Company is correct in submitting that the effect of Brambles [2002] VSCA 150; 5 VR 169 is that it is open to a court to draw the relevant inference but it is expressly said that (5 VR 169 at 188):
‘the question whether an implied or tacit agreement to continue dealing on the same terms save that the agreement should be terminable on reasonable notice is to be inferred is, ... an evidentiary or factual question.’
Although the primary Judge was assisted and influenced by the discussion of the topic in Brambles [2002] VSCA 150; 5 VR 169, it does not appear that he elevated that discussion to a binding proposition of law.
25 It is submitted for the Company that the true issue is whether the conduct of the parties after 4 July 2001 showed a tacit understanding or agreement that the Consultant was to be paid at the rate of $190 000 per annum. This was said to be an objective question, relying upon Integrated Computer Services Pty Ltd v Digital Equipment Corp (Australia) Pty Ltd (1988) 5 BPR 11,110; and Equuscorp Pty Ltd v Glengallan Investments Pty Ltd [2004] HCA 55; (2004) 218 CLR 471. The primary Judge approached the matter along those lines (see [2006] FCA 783 at [162]). It needs to be borne in mind that the Judge upheld the Consultant’s claim that the Agreement was in full force and effect so far as the rate of remuneration was concerned until 30 June 2001, contrary to the position of the Company. This explains the fact that the Judge gave little weight to the pre 30 June 2001 discussions in his assessment of the relevant facts.
26 The Company makes some valid points. The Company’s financial difficulties and the necessity for an asset realisation program at the insistence of the bank continued at all relevant times following 30 June 2001. Whilst the forbearance which existed earlier may not have overcome the written contract, once the written contract had come to an end it is said to be inherently unlikely that the parties would have agreed to an unpaid debt accumulating. New management had not given any assurances of continuation at the contract rate notwithstanding the Consultant’s attempt to achieve that result. The Company’s fundamental point was that, when the facts from 30 June 2001 are looked at, there is no objective circumstance which pointed in favour of payment being made at a rate higher than that which was being invoiced and paid.
27 However, it can also be said that there was no objective circumstance after 30 June 2001 which precluded finding that the arrangement would continue as before. The Company had chosen not to respond to the oral and written requests for clarification by the Consultant and had not taken the opportunity to reject the notion that the arrangement would continue as before.
28 It was open to the primary Judge to make the factual finding that he did. The fact that others may have come to a different conclusion does not establish appealable error. The advantages of a trial Judge in a case such as this should not be underestimated even where there are no primary facts in dispute. The case unfolds at trial in a way which cannot be reproduced on appeal. In the present case, for example, a number of issues dealt with at trial were not the subject of argument on appeal. A Full Court should usually defer to an inference drawn by the primary Judge if two competing inferences are equally available (see Minister for Immigration, Local Government & Ethnic Affairs v Hamsher (1992) 35 FCR 359 at 368).
REASONABLE NOTICE OF TERMINATION
29 The primary Judge held that the 2001 Agreement contained an implied term that the contract was terminable by either party giving to the other party reasonable notice of termination. There is no challenge to that conclusion. His Honour decided that a reasonable period of notice in the circumstances of the case was one month which was, in fact, given and received. The Consultant challenges that finding and contends that it should have been held that the Consultant was entitled to six months’ notice of termination.
30 The positive finding of the primary Judge was clearly and succinctly reasoned as follows ([2006] FCA 783 at [187]):
‘... I take into account the nature of the post 30 June 2001 contract and the limited scope of the duties which Mr Hayes was required to perform thereunder. The post 30 June 2001 contract was in effect a contract whereby the applicant was to provide Mr Hayes’ services to assist in relation to the asset realisation programme. It was not a senior executive position. Further, it would have been apparent to Mr Hayes that the work which would be available in that capacity under the post 30 June 2001 contract would be of a finite duration. I find that Mr Hayes was in a position to assess progressively the amount of work that was left to do in order to complete the asset realisation programme. Further, he would also have been aware from his conversation with Mr Elliott in February 2001 that the respondent under the control of EWI did not generally favour consultancy agreements. Accordingly, Mr Hayes was in a position himself to make a continuing assessment of the likely duration of the post 30 June 2001 contract.’
31 His Honour went on to consider three particular arguments which had been submitted on behalf of the Consultant – the overall length of time for which the Consultant had provided Hayes’ services to the Company; Hayes’ age; and the question of the Consultant having sufficient time to make alternative contractual arrangements.
32 The Consultant relies upon the same factors on appeal as were dealt with by the primary Judge and, in addition, draws attention to the professional standing of Hayes, his qualifications and experience and the fact that he was not provided with any form of pension arising out of the consultancy arrangements. It was contended that authorities dealing with dismissal of executives established a ‘tariff’ in the circumstances of at least six months’ notice when a list of factors is considered.
33 The positive finding of the primary Judge set out above is persuasive. The determination of a reasonable period of notice is very much a question of fact. We have already mentioned the advantage which the trial Judge had in this case. The question of reasonable notice of termination of the 2001 Agreement is very much tied up with the nature of that agreement in general which was considered by the primary Judge. The factors relied upon by the Consultant are amongst the factors which might merit consideration but they are certainly not mandatory. The endeavour to establish a tariff based upon other cases in other contexts so as to fetter decision making in this case is misconceived.
34 The Consultant sought to rely upon a memorandum from the then Managing Director of the Company to the then Chairman of the Company of 10 July 2000 stating that the Agreement was in effect until 30 June 2001 and if not renewed, six month fee was payable. It is submitted that a common belief that payment of six months’ fee on termination was payable was relevant to the question of reasonable notice. That submission cannot be accepted. Such a memorandum could not be relevant to the question which arose at the point of termination of a different contract in a new commercial setting.
35 The Consultant also submitted that the finding against it was influenced by the fact that the primary Judge had found that a six month fee was payable on termination of the Agreement, thus leading to an element of potential double dipping. The entitlement to the termination fee was referred to by the primary Judge in rejecting two of the arguments advanced by the Consultant – the overall length of service and the age of Hayes. However, the reasons for the positive finding of the primary Judge are not affected by such a consideration and remain persuasive.
CONCLUSION
36 The appeal is to be allowed as to the construction of cl 8.6, but otherwise should be dismissed. The cross-appeal should be dismissed. The appellant/cross-respondent should bring in short minutes of order to give effect to these reasons. If agreed, the orders can be made in chambers. If not agreed, the matter will be relisted. Each party has had some measure of success. However, the appellant/cross-respondent succeeded in overturning part of the judgment and succeeded on the cross-appeal. The orders should provide for payment of one-half of the appellant/cross-respondent’s costs of the appeal and cross-appeal by the respondent/cross-appellant.
Associate:
Dated: 21
March 2007
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Mr P Sheiner of Christensen Vaughan |
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Mr DM Stone of Williams & Hughes |
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