Active Tree Services Pty Ltd v Electrical Resource Providers Pty Ltd
[2014] WASCA 6
•9 JANUARY 2014
ACTIVE TREE SERVICES PTY LTD -v- ELECTRICAL RESOURCE PROVIDERS PTY LTD [2014] WASCA 6
| SUPREME COURT OF WESTERN AUSTRALIA | Citation No: | [2014] WASCA 6 | |
| THE COURT OF APPEAL (WA) | |||
| Case No: | CACV:1/2013 | 4 DECEMBER 2013 | |
| Coram: | MARTIN CJ NEWNES JA MURPHY JA | 9/01/14 | |
| 8 | Judgment Part: | 1 of 1 | |
| Result: | Appeal dismissed | ||
| B | |||
| PDF Version |
| Parties: | ACTIVE TREE SERVICES PTY LTD ELECTRICAL RESOURCE PROVIDERS PTY LTD |
Catchwords: | Contract Penalty Liquidated damages clause on early termination of contract Whether liquidated damages clause was a penalty Turns on own facts |
Legislation: | Nil |
Case References: | Andrews v Australia and New Zealand Banking Group Ltd [2012] HCA 30; (2012) 247 CLR 205 Dunlop Pneumatic Tyre Co Ltd v New Garage & Motor Co Ltd [1915] AC 79 Electrical Resource Providers Pty Ltd v Active Tree Services Pty Ltd [No 2] [2012] WADC 177 Ringrow Pty Ltd v BP Australia Pty Ltd [2005] HCA 71; (2005) 224 CLR 656 Spiers Earthworks Pty Ltd v Landtec Projects Corporation Pty Ltd [No 2] [2012] WASCA 53; (2012) 287 ALR 360 |
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA TITLE OF COURT : THE COURT OF APPEAL (WA) CITATION : ACTIVE TREE SERVICES PTY LTD -v- ELECTRICAL RESOURCE PROVIDERS PTY LTD [2014] WASCA 6 CORAM : MARTIN CJ
- NEWNES JA
MURPHY JA
- Appellant
AND
ELECTRICAL RESOURCE PROVIDERS PTY LTD
Respondent
ON APPEAL FROM:
Jurisdiction : DISTRICT COURT OF WESTERN AUSTRALIA
Coram : FENBURY DCJ
Citation : ELECTRICAL RESOURCE PROVIDERS PTY LTD -v- ACTIVE TREE SERVICES PTY LTD [No 2] [2012] WADC 177
File No : CIV 306 of 2010
Catchwords:
Contract - Penalty - Liquidated damages clause on early termination of contract - Whether liquidated damages clause was a penalty - Turns on own facts
Legislation:
Nil
Result:
Appeal dismissed
Category: B
Representation:
Counsel:
Appellant : Mr M Howard SC & Mr A P Hershowitz
Respondent : Mr M J Feutrill
Solicitors:
Appellant : Metaxas & Hager
Respondent : Bradley Bayly Legal
Case(s) referred to in judgment(s):
Andrews v Australia and New Zealand Banking Group Ltd [2012] HCA 30; (2012) 247 CLR 205
Dunlop Pneumatic Tyre Co Ltd v New Garage & Motor Co Ltd [1915] AC 79
Electrical Resource Providers Pty Ltd v Active Tree Services Pty Ltd [No 2] [2012] WADC 177
Ringrow Pty Ltd v BP Australia Pty Ltd [2005] HCA 71; (2005) 224 CLR 656
Spiers Earthworks Pty Ltd v Landtec Projects Corporation Pty Ltd [No 2] [2012] WASCA 53; (2012) 287 ALR 360
- REASONS OF THE COURT:
Introduction
1 This is an appeal from a decision of the learned primary judge in a contractual dispute involving the clearing and removal of vegetation from around power lines in Western Australia in order to reduce the risk of bushfire. The appellant (ATS) had the contract in Western Australia to carry out this work for Western Power. In 2008, ATS engaged the respondent (ERP), which operated in Victoria, to assist it in providing vegetation clearing services for Western Power. That required ERP to mobilise a workforce and certain plant and machinery from Victoria to Western Australia.
2 In general terms, the primary judge found that when ATS terminated its contract with ERP, without default by ERP, ERP had an entitlement to an 'Early Termination Fee' of $82,000 per month for two months from ATS. The primary judge ordered ATS to pay ERP the sum of $164,000 ($82,000 times two). ATS appeals against that decision. It alleges that the Early Termination Fee was a penalty and that the term requiring its payment was 'unenforceable as being void'.
3 Vegetation clearance work of this kind was known as 'VMO' work and was categorised according to its difficulty and the danger in carrying it out. Category 1 or 'VMO1' work was the most difficult and dangerous. It was specialised work requiring crews with specialist training. The primary judge described the work as follows in Electrical Resource Providers Pty Ltd v Active Tree Services Pty Ltd [No 2] [2012] WADC 177:
Depending upon the circumstances including the weather, the season and the location, the removal of vegetation can be a matter of urgency. Of course live power lines provide electricity to consumers. Obviously it is extremely dangerous for people to work with or near such lines, often at height, because of the risk of electrocution and death. The job of removing vegetation that is very close to or touching live power lines is called a VMO1 job. The job of removing vegetation that is not then close enough to pose such a danger, or poses a lesser danger to a pruner, for example, is called a VMO2 or VMO3 job as the case may be, depending upon proximity and estimated growth.
The cost of carrying out VMO work is scaled according to how dangerous it is.
A significant consideration in the business of vegetation removal is whether it can be achieved without disruption of the relevant power supply to consumers. This is difficult and challenging for VMO work.
Workers engaged in this work require special training and equipment. The equipment, including chainsaws on poles, cherry picking platforms and the like, must be insulated in special ways so as to protect the worker from electrocution following inevitable contacts during the job [5] - [8].
4 (All paragraph references in what follows are references to the primary judge's reasons unless otherwise stated.)
5 For the reasons which follow, the appeal should be dismissed.
The issues in the appeal
6 In the proceedings below, ERP had pleaded a variety of contractual terms allegedly relevant to its entitlement to recover the Early Termination Fee and the primary judge did not expressly identify which of the various terms he found proved. It was common ground in this appeal that there was a term of the engagement that ATS could terminate the contract at its absolute discretion upon giving 60 days' notice and that 60 days' notice was not given to ERP. It was also common ground that there was a term requiring the payment of an Early Termination Fee of $82,000 per month for two months, although the meaning, scope and nature of that term, and the primary judge's findings in that regard, were disputed, particularly in ERP's notice of contention.
7 At the hearing of the appeal, counsel for the appellant accepted that, in substance, its ground of appeal raised only one question - whether the primary judge erred in failing to find that the term requiring payment of the Early Termination Fee was a penalty.
8 ATS submitted that, on a proper analysis of the primary judge's reasons, the primary judge found that under the contract of engagement, the Early Termination Fee was 'not a "fee" payable to allow termination as such, but rather was an agreed sum payable on a breach of the term requiring [ATS] to give 60 days' notice of termination'. ATS' argument on penalty proceeded on that basis. ATS said, with reference to Andrews v Australia and New Zealand Banking Group Ltd [2012] HCA 30; (2012) 247 CLR 205, that whilst '[i]t may be accepted that the doctrine of penalties also applies to the enforcement of contractual provisions, which mandate the paying of a sum whether or not payable on a breach … that is not this case'.
9 ATS contended, in effect, that the Early Termination Fee was a penalty because it was essentially only an estimate of revenue that could be earned by ERP after termination in the 60 day period for which notice was required, whereas following termination of the contract, ERP's true loss would be the revenue it could earn less the costs associated with earning that revenue. ATS contended in this regard that the relevant principles were those stated in Dunlop Pneumatic Tyre Co Ltd v New Garage & Motor Co Ltd [1915] AC 79; Ringrow Pty Ltd v BP Australia Pty Ltd [2005] HCA 71; (2005) 224 CLR 656; and Spiers Earthworks Pty Ltd v Landtec Projects Corporation Pty Ltd [No 2] [2012] WASCA 53; (2012) 287 ALR 360. ATS accepted that it bore the onus of proof on the question of penalty.
10 ERP contended, including by way of notice of contention, that, properly construed, the primary judge's reasons indicate that he found, or at least ought to have found, that the termination fee was, in any event, payable upon termination, independently of the term requiring the giving of 60 days' notice, and was not collateral to it. ERP submitted that on this basis, the law of penalties had no application, but that even if it did, ATS had not proved that the termination fee was a penalty.
The primary judge's findings on penalty
11 His Honour appears, in effect, to have treated the requirement to pay the Early Termination Fee as a liquidated damages clause [93], [98].
12 ATS contends that the primary judge's error is, principally, apparent from his Honour's findings at [91] and [93] which show that the fee was set solely by reference to lost revenue.
13 His Honour said at [91] that ERP's manager, Mr Garlick, gave evidence to the effect that he had calculated the sum of $82,000 per month by taking the contractual hourly rate (normal time) chargeable to ATS for one VMO1 crew ($570 per hour). He then multiplied that by eight hours to get a daily figure. He then multiplied the daily figure by 18 working days per month to give a monthly figure of approximately $82,000, and then multiplied that figure by two to obtain a figure for two months (or 60 days).
14 The effect of this was that ERP would recover two months' revenue with respect to a single VMO1 crew on the assumption that there would be no overtime and that they would work 18 days per month.
15 In relation to ERP's costs, the primary judge said that Mr Garlick had 'neglected to make any allowance for the costs of earning the $82,000 per month … However, the error does not detract from the genuineness and honesty of the calculation as a pre-estimate of damages' [92]. His Honour also made cryptic references to ERP's costs at [96, 38.3], including with respect to its 'delays in obtaining alternative work should 60 days' [notice] not be given', although the intended scope and meaning of the finding is not, with respect, pellucid.
16 In this appeal, ATS referred to the evidence of Mr Garlick (whose evidence the judge largely accepted) given in cross-examination in relation to ERP's cost structure:
You had to pay the higher costs, you say, for the machinery and the four-wheel drive and the cherry-picker?---Yeh, that's why we put in the full amount, because we still have to pay the blokes, we still have our rental fees.
But the damages wouldn't have then been $82,000 a month, they would have been considerably less after those expenses are deducted?---The - the total revenue for those two months goes to cover all the overheads. We - we haven't - without that 60 days' notice, we haven't had any less bills or employee wages or anything than we wouldn't normally have (ts 116). (emphasis added)
17 Also in relation to ERP's costs, with particular reference to the period of 60 days' notice, Mr Garlick's evidence given in examination in chief included the following:
[I]f the contract … terminated through no fault of ERP … we needed 60 days' notice as a minimum to find alternative work for our crews.
…
[I]f it wasn't ERP's fault for the stand-down that we didn't want it - that we would still expect to be paid if we were still over there with our resources and someone else had caused an issue.
…
[W]hat was the issue about 60 days?---The skills our guys have got require a lot of planning to - to structure work for them. So the maintenance on live power lines goes through a process where the files - the work files are generated, taking two to four weeks. There's an assessment of the structures they're going to work on, so whether the poles, if they're working on them alive, are actually safe to work on. Then the system is set up so that when they're working, if anything goes wrong, if anything touches a power line that shouldn't, a bit of metal work or something breaks, the power goes off automatically. It's set up to one shock - one shock to lock out …
[L]ike a - a circuit breaker. Generally overnight, if your lights are flickering on and off, there's something on the power line, but it blows itself clear, or tries to blow itself clear a couple of times before your power goes off. So to set that process up, and put on the applications for that, that's a 10 day process. Plus the planning of the files, assessing the work in the field. It's a six to eight week turnaroundto actually get the guys on the field, so just to ring up and say 'we've got live lines available' doesn't work (ts 42, 43, 58). (emphasis added)
Disposition
18 ATS did not contend in its ground of appeal that, at the time the contract was entered into, the primary judge should have found that, after termination, there was no prospect that ERP would incur fixed costs in relation to its VMO1 plant and equipment or in relation to keeping its specialist VMO1 workforce together pending redeployment in remunerative work in Victoria. Nor did ATS contend that the primary judge should have found that, at the time the contract was entered into, there was no prospect that it could take up to 60 days for ERP to obtain alternative employment in Victoria using its VMO1 workforce and plant and equipment after termination of the contract in Western Australia.
19 The result is that, on the basis of the principles in Dunlop Pneumatic Tyre Co Ltd v New Garage & Motor Co Ltd and Ringrow Pty Ltd v BP Australia Pty Ltd, which ATS said were applicable in the circumstances, the appeal cannot succeed. ATS has not, in this appeal, laid the foundation for an argument, let alone an appellate finding that, judged at the time the contract was entered into, a payment of $164,000 in default of giving 60 days' notice would be an extravagant and unconscionable amount in comparison with the greatest loss that could conceivably be proved to have followed from the breach of the term requiring the giving of 60 days' notice: Ringrow Pty Ltd v BP Australia Pty Ltd [21] - [22], [32].
20 ATS' appeal, in effect, assumes, without ever alleging or demonstrating, that in the 60 day period following any termination, ERP's costs with respect to VMO1 work were variable costs which were capable of being avoided or which would have not have been incurred, or that ERP could, upon termination, immediately and without delay put its VMO1 workforce and plant and equipment to productive use elsewhere.
21 Accordingly, the appeal should be dismissed. It is unnecessary to address other questions raised by the notice of contention.
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