Australasian Protective Services v Palcove Pty Ltd - [2004] SADC 148

DISTRICT COURT OF SOUTH AUSTRALIA
(Civil)
AUSTRALASIAN PROTECTIVE SERVICES v PALCOVE PTY LTD
Reasons of His Honour Judge Lunn
1 November 2004
CONTRACTS
Claim for wrongful repudiation of long term contract for provision of undercover surveillance services - held, there was a concluded contract but it was subject to a term allowing withdrawal in an initial one month trial period - contract terminated in that trial period - judgment for the defendant.

AUSTRALASIAN PROTECTIVE SERVICES v PALCOVE PTY LTD
[2004] SADC 148

In this action the plaintiff has sued the defendant for $41,600 for damages for breach of contract and/or misrepresentation. However, the plaintiff’s counsel conceded that the claim for misrepresentation could not advance the plaintiff any further than the claim in contract. Accordingly, I confine these reasons to the claim in contract. The Statement of Claim also pleaded another claim for $2,175 for breach of a separate contract, but I was informed that this claim had already been resolved between the parties.
Overview[1]
[1] The facts set out in this overview were largely uncontested. Insofar as they were disputed I find them proved for the reasons given below.
David Longrigg (“Longrigg”) and Vanda Koch are the directors and controllers of the plaintiff company. They are also husband and wife. In 1998 they started the plaintiff company which provided discreet armed escorts for transporting cash from business premises to banks. Longrigg ran the operational side of the plaintiff’s business and Ms Koch its administration. Neither the plaintiff nor its directors had had any previous experience in providing undercover surveillance for retailers to combat shoplifting.
In 2002 the defendant operated fifteen shops in the Adelaide metropolitan area, and four or five in South Australian country towns, retailing general merchandise. Cheryl Brown was its executive manager of retail operations. David Jeal had been a manager of one of its stores and in October 2001 he had been promoted to be an area manager responsible for supervising about seven stores. Ms Brown was his direct superior.
In about mid 2001 the plaintiff negotiated a contract with Ms Brown for the plaintiff to provide armed cash banking services for the defendant. This required Longrigg and other employees of the plaintiff to collect cash from the defendant’s metropolitan stores and take it to the defendant’s bank. The defendant became the plaintiff’s biggest client. A good rapport was established between the plaintiff and the defendant’s personnel in the course of it performing this contract.
In about late 2001 the defendant became aware that it was losing very substantial quantities of stock through shoplifting. It decided to address the problem in several ways one of which was to employ a security company to provide undercover operatives at times of high risk of shoplifting to detect and apprehend the shoplifters. In about February 2002 Ms Brown negotiated an arrangement with a security company called “Enforce” for it to provide such services. Initially Enforce was employed on a trial basis of one month in one store at Munno Para and then its services were increased so that by June 2002 it was providing undercover surveillance in five of the defendant’s metropolitan stores. In March 2002 Ms Brown delegated the responsibility for arranging undercover surveillance in all of the defendant’s stores, and negotiating any extensions of the employment of Enforce, to Jeal. He had no previous experience in negotiating such contracts. He had no authority to bind the defendant to any contractual arrangements but was to have that done by Ms Brown who did have the necessary authority. The general plan was that undercover surveillance would be progressively introduced into all of the defendant’s stores for some hours each week and at times when the risk was highest. An amount of about $200,000 had been allowed in the defendant’s 2002/2003 budget for such undercover surveillance services which meant that they would be very substantially increased in that financial year.[2]
[2] Some of the budget allowance was for the country stores but that is not relevant for present purposes.
By about June 2002 the defendant had become dissatisfied with some aspects of the work being performed by Enforce. Its operatives were not necessarily attending at the times sought by store managers and dissatisfaction was being reported back to Jeal by the store managers of the stores where Enforce was working. At about the beginning of June Longrigg saw Enforce operatives at the Munno Para store and mentioned to its manager, Vanessa Hardy, that the plaintiff would be interested in becoming involved in such undercover surveillance work. This was reported back to Jeal. On a date which is unclear, but which was probably in about mid to late June 2002, Longrigg and Jeal coincidentally met each other at the defendant’s Hollywood Plaza store at Salisbury where they informally discussed for about half an hour the defendant’s dissatisfaction with the service being provided by Enforce and the plaintiff possibly providing such undercover surveillance services for the defendant (“the Hollywood meeting”). This meeting occurred in the office of the manager of the Hollywood store, Tanya Marshall, who was present for at least a substantial part of it. Longrigg was keen to expand the plaintiff’s business into a new area and Jeal was keen to overcome the problems with Enforce by finding an alternative service supplier which had a good working relationship with the defendant in a related area. There is considerable dispute about what was said, and not said, at this Hollywood meeting.
On 8 July 2002 there was a meeting between Longrigg and Jeal at the head office of the defendant at Underdale. Jeal had prepared a typed agenda for the meeting which set out under nine bullet points the general nature of the services which the defendant required from an undercover surveillance provider with particular emphasis on a number of issues with which there had been problems with Enforce, including rostered shifts. Also set out on this agenda was a table showing the projected hours for weekly undercover surveillance shifts for the metropolitan stores which totalled 144 hours.[3] Jeal indicated that the defendant was working towards setting up this level of undercover surveillance in the metropolitan stores, albeit with some flexibility. In the meeting it was envisaged that if the plaintiff was to provide the services it would do so as from 1 September 2002. There was no discussion about what the plaintiff would charge for providing such services. Either at this meeting, or shortly afterwards, Jeal requested Longrigg that the plaintiff submit a written tender for its provision of surveillance services to the defendant.
[3] For an unexplained reason one metropolitan store, Port Adelaide, was omitted from the table. It was projected to have been allocated between twelve and eighteen hours per week of surveillance.
Shortly before the meeting on 8 July the plaintiff had placed an advertisement in the Advertiser at a cost of $242, which was published on 10 July, seeking experienced staff for carrying out retail undercover surveillance work. It received numerous replies. Longrigg and Ms Koch did a feasibility analysis of the project, but on the assumptions that the plaintiff would be providing from the outset the undercover surveillance services for all of the defendant’s metropolitan stores and that the allocated shifts would total at least 200 hours per week. No record of the feasibility study has survived. The plaintiff prepared a written tender which dealt at some length with each of the topics raised by the bullet points on the agenda for the meeting of 8 July. The final paragraph set out a cost of $23 per hour. The tender emphasised that quality services would be provided. However, the tender document did not mention anything about a minimum number of hours per week, the number of stores at which the services were to be provided or when the provision of the services was to commence. The only reference to duration in the tender was that it was to be for the supply of the services for the financial year 2002/3 which in effect meant from their commencement until 30 June 2003. There was no reference in it to any initial trial period or a contract for one year. This tender was not a formality or a sham. It was an arms length dealing to ensure the defendant it was getting the services at a competitive price.
The tender was dated 3 August 2002 and was delivered by Longrigg to Jeal on the afternoon of Monday, 5 August. Soon afterwards Jeal gave a copy of it to Ms Brown, but he did not then discuss it with her. At that time both Ms Brown and Jeal were heavily involved in arrangements for opening a new store of the defendant in Port Pirie which occurred on 8 August.
In anticipation of needing the requisite employees to meet a 1 September commencement date the plaintiff arranged to interview twelve or thirteen persons who had responded to the advertisement on 16 August at the Novotel Hotel in Hindley Street. On 12 August Longrigg rang Jeal and was told he had not yet discussed the matter with Ms Brown.
At 8am on 16 August, as he and Ms Koch were driving to the Novotel Hotel, Longrigg rang Jeal.[4] Longrigg again requested a response to the tender but Jeal said in effect he had not yet spoken to Ms Brown about it. Longrigg said that they needed to know because the interviews were proceeding that day. Jeal said something to the effect that the plaintiff had gone “ahead on this off (its) own bat” and the defendant had not asked it to do so. It was apparently not a very friendly conversation. At 8.47am Jeal spoke to Ms Brown by phone for 2.30 minutes. It was arranged that they would discuss the tender at a meeting to be held on Monday, 19 August, but nothing more was discussed. At 8.52am Jeal rang Longrigg and spoke to him for 5 minutes. Longrigg alleges that in this conversation Jeal confirmed to him that the plaintiff had won the contract, but Jeal denies having said this. In this conversation Jeal indicated that he would have to speak to Ms Brown on 19 August about at which particular stores the plaintiff would commence its operations.
[4] The times of the telephone calls on 16 August are established with precision by the mobile phone accounts.
On 19 August Jeal met with Ms Brown and obtained her approval for the employment of the plaintiff. It was on the basis of it being in three stores initially for a trial period of one month. It was decided that the first three stores to be allocated to the plaintiff should be Morphett Vale, Port Adelaide and the City. There was probably a telephone call later that day in which Jeal informed Longrigg that these would be the stores. Jeal prepared a facsimile dated 20 August to the plaintiff in which he wrote, inter alia:
“As a trail (sic) basis for the first month we’ll be starting you in 3 Cheap as Chips stores. …. This contract is an open contract, meaning that we review the Security needs of our stores on a monthly basis. Cheap as Chips reserves the rights to terminate, extend or change the hours of security as the needs arise to suit the demands of our business. …”
Jeal was unable to send this fax together with rosters for the periods of surveillance to be provided by the plaintiff for the three named stores from 25 September until the end of October. On either 22 or 23 August Jeal and Longrigg met by chance and Jeal gave Longrigg the fax and the rosters. There is a dispute about what, if any, response Longrigg made to the contents of the fax and the rosters. However, the plaintiff gave no written reply and did not indicate in writing that the arrangements were not as set out in this fax. At about this time it was agreed that the plaintiffs would not commence the contract until 25 September.
On Friday, 13 September Longrigg and Jeal spent several hours together while they visited the Morphett Vale, Port Adelaide and City stores to discuss with the managers there the arrangements for the plaintiff’s undercover surveillance work. There was no suggestion that Longrigg raised on that day any complaint about what the defendant was proposing to do. The plaintiff employed a few casual staff to enable it to fill its rostered commitments for the three stores and those staff commenced work on 25 September.
In about late September Longrigg began to inquire persistently of Jeal what would be the next three stores in which the plaintiff would be employed, but Jeal did not give him an answer. On 1 October Jeal visited the Morphett Vale, Port Adelaide and City stores and obtained some negative feedback from their managers about the performance of the plaintiff’s staff. On 8 October there was a further telephone discussion between Longrigg and Jeal in which Longrigg again inquired about what would be the next three stores to be allocated to the plaintiff and Jeal responded by saying words to the effect that no further stores were to be allocated until the plaintiff had successfully completed the one month trial period. Up until this point the relationship between Longrigg and Jeal had been cordial, but after that intimation it became embittered.
On 9 October Longrigg and Ms Koch met with Mr Ramsay, the accountant of the defendant, with whom they were dealing in respect of the cash collection contract. They complained to him that Jeal had reneged on a promise to give them the undercover surveillance work for all fifteen metropolitan stores. Mr Ramsay knew nothing about the matter and was unable to assist the plaintiff.
On 14 October there was a discussion between Mr Ramsay, Ms Brown and Jeal at which Mr Ramsay mentioned the allegations made by the plaintiff on 9 October. Almost immediately Jeal rang Longrigg and there was a heated disagreement about what had previously transpired between them. Longrigg denied there had been any trial period agreed and that the plaintiff was only to be allocated the further stores progressively. On 15 October Ms Koch rang Ms Brown to complain about statements allegedly made by Jeal to Longrigg on the previous day. One of the undisputed terms of the arrangement was that there would be monthly feedback meetings to review the plaintiff’s performance of its surveillance services. The first of these had previously been scheduled for 16 October. It was attended by Longrigg and Ms Koch for the plaintiff and Jeal and Ms Brown for the defendant. It commenced with a review of the feedback from the three stores which was largely negative. Ms Brown sought to treat this as teething problems and while some issues were resolved others were left in abeyance. The meeting then discussed the telephone call between Longrigg and Jeal on 14 October which degenerated into a verbal brawl between Longrigg and Jeal who challenged each other’s integrity and truthfulness. Ms Brown and Ms Koch then terminated the meeting because it was getting nowhere.
Thereafter, there were attempts at reconciliation, but they did not succeed. The plaintiff received its rosters for November which included no more stores and reduced hours. The plaintiff indicated it was not prepared to continue unless the number of stores was increased, which the defendant would not agree to at that stage. Ms Brown would not agree to the plaintiff’s employment continuing unless a proper working relationship could be restored between Longrigg and Jeal, which did not occur. The plaintiff ceased work on 25 October and on that day solicitors for the defendant wrote to the plaintiff indicating the arrangement was at an end and denying the plaintiff’s claim for compensation.
The plaintiff’s “contemporaneous notes”
The plaintiff kept on its computer a Word document which purported to be contemporaneous notes of the dealings between its directors and the defendant. Its purpose was to provide the plaintiff with a record to which it could refer for its own internal purposes. It was not kept with a particular view to its use in any litigation. It purported to record details of numerous telephone and personal attendances between Longrigg and/or Ms Koch on the one hand and representatives of the defendant on the other hand.
Against the objection of the defendant I received the tender of these notes as a business record under s45a of the Evidence Act 1929. There is an issue as to what, if any, weight is to be given to them.
I do not find these notes to have been concocted, or significantly altered, by the plaintiff to bolster its case. There are too many obvious errors in the notes which would have been eliminated if the plaintiff had had any such fraudulent intent. Overall the notes have the appearance of an internal record which was kept as a fairly rough aide memoire to enable the plaintiff to keep track of what had been occurring in its dealings with the defendant.
There are a number of significant errors in the notes. Clearly some of them were far from contemporary, eg the notes of the Hollywood meeting. Three entries dated 15 September should have been dated 15 October, and, if the entries were made in proper chronological order, it would seem that several entries bearing dates between 25 September to 9 October were also incorrectly dated. The precise times of the telephone calls on 16 August do not entirely match the more reliable mobile phone records.
These notes are also significant for what they do not contain. The important meetings of 8 July and 13 September are not mentioned. That suggests there was no great care taken in compiling the running record. While some weight can be placed on the entries they cannot be treated as wholly reliable or accurate. To some extent they are merely self-serving as they are the plaintiff recording what it believed might be useful thereafter for its own purposes.
The witnesses
Cheryl Brown was an impressive witness and I accept her evidence as being accurate and reliable. I prefer her evidence to that of Ms Koch and reject that Ms Brown made any admissions at the meeting of 16 October which are contrary to the defendant’s case.
I accept the evidence of Tanya Marshall about what she recollected was said at the Hollywood meeting. Her honesty and impartiality as a witness were not challenged. While the reliability of her memory was put in issue I accept her unshaken and unequivocal evidence on the vital issue that a trial period was mentioned at that meeting. While it is not clear whether she was present for the whole of the meeting that does not directly affect her testimony of what she said was said as distinct from what she claimed was not said.
There are substantial parts of the evidence of Ms Koch which I cannot accept. I do not accept her evidence that on about 23 August, when she first saw the fax from the defendant, she was present when Longrigg rang Jeal and spoke to him on a conference phone disputing that there would be a trial basis for the first month and that initially the contract was only to be for three stores and not all fifteen stores. Neither Longrigg nor Jeal spoke of any such telephone conversation. If there had been such a conversation, and it had the significance which she attached to it, it is highly likely that it would have been recorded by her in the “contemporaneous notes”, but nothing about it appears there. She also claimed that there was already a complete oral contract in place prior to 16 August, but for reasons which will be given later, that was impossible. She had apparently misconstrued whatever she had been told by Longrigg about what had been discussed between him and Jeal. Her claim that there was a contract for twelve months is contrary to the terms of the tender which she signed. Accordingly, little weight can be given to her evidence unless it is supported by other credible evidence.

The major credibility issue in the trial was the conflict between the evidence of Longrigg and Jeal. Neither were very impressive witnesses and where there is no other evidence on a topic the issue must be resolved on which was the less unsatisfactory witness on the point.
Longrigg is an enthusiastic, aggressive and forceful person. In some parts of his evidence he was clearly wrong. Initially he claimed that Jeal had been present at the Munno Para store when he had mentioned his interest in undercover security work to Vanessa Hardy. In cross-examination he was equivocal on the point. His version of the Hollywood meeting is inconsistent with Jeal having been at Munno Para, and I find that he was not there. He was adamant that the tender had been delivered to the defendant on 3 August by an employee of the plaintiff, Ted Szenczyk. In cross-examination he claimed that he could call Szenczyk to support him on this and there would also be likely to be a business record showing his delivery of the tender, but he did not call Szenczyk and he did not produce any such records. As 3 August was a Saturday, and the defendant’s head office was not open on weekends, it is implausible that delivery would have occurred when he said it had. His evidence about the date of the Hollywood meeting was unsatisfactory. The “contemporaneous notes” merely dated it as July and referred to it as being approximately early July which suggests that the note was not particularly contemporaneous. It was pleaded as being on 2 July which presumably came from the instructions of Longrigg. In his evidence he stated the meeting was on 28 June, but it was unclear from where he got that date. His evidence about his acquiescence in terms of the fax of 20 August about the trial period and the initial three stores was unconvincing. There is a likelihood his animosity for Jeal has coloured his evidence. Overall I am not prepared to place any great weight on his evidence on disputed matters.
Jeal claimed that his typed agenda for the 8 July meeting was not given to Longrigg until Longrigg requested it after the meeting was concluded. From the terms of the document this is implausible. There was no reason for Jeal to put his own telephone number on a document which he did not intend to give to the other party. I infer that he gave that evidence in an attempt to counter the evidence of Longrigg that his handwritten notes on the agenda of the date of 1 September and the notation of minimum on the projected hours for the stores were made contemporaneously during the meeting rather than afterwards. His evidence about the telephone calls on 16 August was evasive and unconvincing. The likelihood is that in his enthusiasm to procure the plaintiff as the undercover surveillance provider he said more to Longrigg in his second telephone discussion on 16 August than he was authorised to say, albeit that he was then confident that Ms Brown would subsequently ratify what he had indicated to Longrigg. His evidence in cross-examination that he was not very annoyed with Longrigg when he rang him on 14 October, but only became so later, is not believable. Clearly the reason for the call, and its promptness, was because of how incensed he was that Longrigg had tried to go over his head and to undermine his position with the defendant. As with Longrigg, it is likely that his animosity towards Longrigg has coloured his evidence. I am not persuaded about the general reliability of his evidence on disputed matters where it is not supported by other credible evidence.
Findings on the Contract
There are some parts of the plaintiff’s evidence which appear to suggest that the plaintiff knew before the tender was submitted of the hourly rate charged by Enforce for its services and that it knew that its own price was acceptable. I reject this. There was no discussion about the plaintiff’s price prior to the delivery of the tender. While Jeal probably told Longrigg that Enforce was about to increase its price he did not disclose the price it was charging. The last paragraph of the tender was pointless if the plaintiff already knew its price was acceptable to the defendant. The whole arrangement was dependent upon the plaintiff putting forward a price which was acceptable to the defendant. That is why there could not have been a concluded contract prior to 16 August and why the plaintiff needed to know on 16 August whether its price was acceptable. The fact that its tender price of $23 per hour was less than the price being charged by Enforce probably induced Jeal to say on 16 August that the plaintiff had won the contract.
Neither the plaintiff nor Jeal had any real regard for contractual proprieties or niceties. Longrigg said he treated the defendant’s handshake as its bond. Neither party, and particularly the plaintiff, sought to articulate the essential terms of the arrangement as an offer or to differentiate between speculation and hope and what was actually promised. The plaintiff was clearly very excited about the prospect of significantly enlarging its business by entering into this new field. This is illustrated by its renting further premises as from 1 August to accommodate substantial numbers of additional staff before the arrangement was finally bedded down.[5] Jeal, perhaps through inexperience, also became unduly enthusiastic to solve the defendant’s problems with Enforce by setting up a new arrangement with the plaintiff which, from the experiences of the cash transit contract, he believed was a good operator with which the defendant could work harmoniously. All of this contributed to a confusion of objectives and motives without any clear articulation of what were the contractual terms being agreed to. At the best my findings about them can only be very much on the balance of probabilities.
[5] The arrangement was between the company and its directors and so was not at arms length, but that does not detract from the inference.
It was always the defendant’s intention to deal with the plaintiff in the same way as it had dealt with Enforce, namely to have a progressive roll-out of the stores and an initial trial period of one month. This was the instruction of Ms Brown to Jeal when she delegated the undercover surveillance portfolio to him. As it is corroborated by Tanya Marshall, I accept Jeal’s evidence, and reject the denials of Longrigg, that he said to Longrigg at the Hollywood meeting that there would be a progressive roll-out of the stores and that there would be an initial trial period of one month. It is unclear whether those matters were mentioned again before 16 August, but they had been put forward as part of the proposals of the defendant and had not been negated or withdrawn.
The likelihood is that Longrigg did not attach much significance to the conditions. It may well be that there was little detail given by Jeal of how the stores were to be rolled out and whether it would take as long as five months. In his enthusiasm Longrigg probably thought that the trial period was a formality and the plaintiff would have no difficulty in performing satisfactorily.[6] There is also the likelihood of an expectation that the defendant would not insist on its legal rights about a trial period and the plaintiff could negotiate its way out of any difficulties which might arise.
[6] This is borne out by the terms of the tender and Longrigg's evidence about the anticipated quality of the plaintiff's proposed operatives.
As stated above, I accept Longrigg’s evidence in preference to Jeal’s that in their second telephone discussion on 16 August Jeal did say that the plaintiff had won the contract. This contract incorporated both the terms of the tender and also the oral terms which had been discussed earlier principally at the Hollywood meeting and on 8 July. I am satisfied one of those terms was that there would be a trial period for one month. This would give either party the right to withdraw for up to one month after the performance of the contract had started.
I find that the plaintiff made no complaint after receipt of the fax of 20 August about its reference to a trial period for one month. This is consistent with the plaintiff having known from previous negotiations that there would be such a trial period. On their own evidence Longrigg and Ms Koch understood the significance of the defendant being able to withdraw before the end of a trial period. The most likely inference is that they were then, and had previously, been prepared to take that risk. They had believed that the quality of their service would be such that the defendant would quickly bring all its stores into the contract to obtain the benefits of the undercover surveillance and that would ensure its profitability. The plaintiff’s assumptions came unstuck when the allocation of the additional stores did not occur after Jeal said on 8 October that reports of unsatisfactory performance meant that no further stores were to be allocated until the trial period had been successfully completed.[7] The plaintiff had always realised that it needed a substantial number of hours of work each week under the contract to make it economically viable. Once it became apparent in early October that the increased hours were not going to materialise promptly, and indeed were to be reduced in the November roster, the plaintiff did not wish to proceed with the contract.
[7] The relevant point is the belief of the defendant that the performance was less than satisfactory. I have not sought to determine whether the adverse feedback was well-founded or not.
The plaintiff’s entitlement to the profits of a long-term contract, whatever its duration might have been, was dependent under the terms of the contract on neither it nor the defendant opting to withdraw from the arrangement before the end of one month from its commencement. There was nothing in the terms of the contract about the trial period which limited the right to withdraw to any specified circumstances having occurred: either party could withdraw as it saw fit. The defendant withdrew because a proper working relationship had not been established between Longrigg and Jeal. The plaintiff withdrew because the defendant was not bringing other stores into the arrangements quickly enough but it was under no obligation to do so. Accordingly, the contract was terminated under its own terms. There was no breach or repudiation by the defendant. Hence the plaintiffs’ claim for damages fails and there will be judgment for the defendant.