Australian Ferries v State of SA and Ors No. Scgrg-99-124 Judgment No. S103
[1999] SASC 103
•19 February 1999
[1999] SASC 103
AUSTRALIAN FERRIES PTY LTD V STATE OF SA & OTHERS
CIVIL Ex Tempore
1 LANDER J. This is an application in the nature of an order for an interlocutory injunction to restrain the defendants until further order from enforcing a notice of termination dated 23 December 1998 given by the second and fourth-named defendants to the plaintiff.
2 The plaintiff was incorporated on 14 July 1997, and the sole director of the plaintiff is Edward Sain, who also, through his family trust, is the principal shareholder of the plaintiff. In or about May 1997, Mr Sain became aware that the State Government was calling for registrations of interest from parties wishing to establish a fast ferry service between Glenelg and Kingscote on Kangaroo Island. He sought and obtained an information memorandum which required expressions of interest from those interested by 23 May 1997.
3 The information memorandum provided that the successful operator would be required to enter into a contract with the Government. The contract would include terms and conditions relating to access rights to the port facilities, charges payable for the use of the port facilities and the liabilities of the parties. The information memorandum provided that the term of the licence was proposed to be for 10 years.
4 The information memorandum also dealt with the question of Government assistance. It asserted that the Government had made a substantial investment in safe harbours at the Patawalonga and Kingscote for the use of a fast ferry. It claimed that the Government would consider minor modifications to the facilities to accommodate a new vessel, but the operator should endeavour to plan their operations around the existing facilities as far as possible. The information memorandum specifically provided that preference would be given to operators with sound commercial acumen requiring no Government start-up assistance; 'On-going financial assistance to support the operation of the service will not be considered.'
5 The information memorandum set out the facilities available at both Kingscote and Patawalonga. Mr Sain lodged an expression of interest. Presumably, it was lodged on behalf of Australian Ferries Limited, although that company was not then incorporated. The expression of interest did not comply with the requirements set out in the information memorandum, but so much was acknowledged in the expression of interest. There were a series of exchanges between the MFP Development Corporation, which had the responsibility for the development for the project, and Mr Sain in relation to various information which the former required and the latter provided.
6 Eventually Mr Sain was advised that the company for which he was then acting would be considered the preferred operator for the fast ferry service, provided that the additional details required by the MFP would be delivered by 1 September 1997. The letter included the following further advice:
“Please note that we understand, based on your previous advice that no government assistance will be required.”
7 Mr Sain provided the information as requested and entered into a series of discussions with the MFP about the proposed service.
8 Mr Sain said in his affidavit sworn on 3 February 1999 in support of this application that he made it clear in his meetings with the Government representatives that he did not require any Government assistance to enable the ferry service to be conducted, other than the provision of appropriate infrastructure such as landing facilities and appropriate terminals at Glenelg and Kingscote. He says in paragraph 13 of that affidavit:
“I was informed by the Government representatives at my meeting with them that the provision of appropriate infrastructure by the Government was not a problem from the Government's point of view.”
9 Amongst documents submitted to the MFP was a business plan prepared on behalf of the plaintiff, which by then had been incorporated. The business plan confirms Mr Sain's deposition that the plaintiff did not seek any Government assistance in relation to the proposed project. The plan does say, however:
“The Government will be required to provide the long term infrastructure with regard to facilities at nominal or no cost to the venture as these facilities will continue to be the property of the Government and are provided for the benefit of the S.A. public, tourists and tourism in general.”
10 The document also provided:
“The Government will be requested to provide infrastructure such adequate (sic) wharf facilities with suitable the vessel proposed (sic), shelter and terminal facilities, office and maintenance premises and other minor long-term infrastructure.”
11 By letter dated 29 July 1997, the plaintiff required that the MFP accept:
“(2).. Provision of wharf facilities at Glenelg and Kingscote including the provision of further piling, pontoon and cover to the wharf area at Glenelg. The piling will be positioned subject to the vessel selected. The Kingscote facilities require minor maintenance and fending suitable to the vessel selected.
(3)Terminal at Glenelg and Kingscote to provide all weather, quality transit facilities similar in nature to local airport terminals.”
12 In a letter of the same date, the plaintiff indicated that an adequate terminal was essential to the plaintiff's operation.
13 On 25 August 1997, Mr Sain was informed that Cabinet had decided that the Government would not be prepared to meet the cost associated with the terminal at Glenelg. At that stage the anticipated cost of the terminal was in the order of $300,000. Mr Sain considered that advice, and on 26 August 1997 he wrote to the MFP acknowledging that the Government had rejected the request for the provision of a ferry facility at Glenelg but indicating that he wished to continue to pursue the licence to operate between Glenelg and Kingscote.
14 On the next day, there were news reports in the media to the effect that the Government had decided to scrap the proposed ferry service. Mr Sain protested to the MFP, the Minister for Tourism and the Premier. In response to Mr Sain's protest, the Premier requested Mr Kowalick, his chief executive officer, to convene a meeting between Mr Sain and the Government agencies involved in the Kangaroo Island fast ferry proposal. At about the same time, the plaintiff issued a public notice outlining the offer which it had made to the Government and asserting that the plaintiff was prepared to fund its own terminal and seeking no further Government assistance other than that which had already been committed.
15 On 28 August 1997, Mr Kowalick spoke to Mr Sain in relation to a meeting. On 29 August 1997, Mr Sain received a letter from Mr Kowalick confirming an appointment for Monday, 1 September 1997. In that letter, Mr Kowalick advised that neither the Premier nor the Minister for Tourism would be present but indicated who would attend from the Government side. In that letter, Mr Kowalick advised that Mr Sain had been told that the Government was not prepared to authorise the expenditure required to enable Mr Sain's project to proceed. The purpose of the meeting was to explain the Government's position in relation to expenditure. Mr Kowalick also said in that same letter:
“The assistance which you have previously requested from Government in relation to the fast ferry service to Glenelg includes not only expenditure on infrastructure but also expenditure by the Government on recurrent costs. Government's definition of recurrent costs includes any income forgone from fees and charges and cost recovery related to maintenance and sand management. Clearly if the Government met all or the major proportion of these costs (for any period) rather than being a cost to the operation of your business, then the Government would be directly subsidising your business.”
16 Clearly enough, Mr Kowalick was making it clear to Mr Sain that the Government would not enter into any agreement or even a lesser understanding which included an obligation on the part of the Government to meet any recurrent costs, including costs relating to sand management.
17 Mr Sain responded to that letter pointing out that the explanatory memorandum had indicated that the fees in relation to sand management and maintenance generally were indicated as being negotiable. His letter also stated that the maintenance of sand management at the facility at Glenelg was the responsibility of the Government whether a vessel operated from Glenelg or not. His letter claimed that in those circumstances, because the fee was negotiable, any recovery of costs was a bonus and could not be seen in any way as a subsidy to the operation.
18 On 1 September, Mr Kowalick wrote to Mr Sain in the following terms:
“I refer to your facsimile of 29 August 1997. A decision on this matter is a decision for Cabinet. Cabinet, as you know, has already expressed a view on this matter.
The group of people you are meeting today are capable of advising Cabinet whether to reconsider their decision but cannot commit the Government. Therefore, you cannot have any expectation that we can commit the Government at this afternoon's meeting.”
19 The meeting took place on 1 September 1997. There is some dispute between Mr Sain and Mr Kowalick as to what occurred on that day and at that meeting. On the one hand, Mr Kowalick had the impression at the meeting that the plaintiff was seeking support from the Government in the way of infrastructure and waiver of fees for sand management in order to establish the ferry service.
20 Mr Sain, on the other hand, says that he informed Mr Kowalick that his company was not seeking any significant support from the Government and was not seeking to have the Government put money into the project. Mr Sain said that he told Mr Kowalick that he would have preferred to have the Government meet the cost of the terminal, but if the Government was not prepared to do so, then the plaintiff would build the terminal at its cost.
21 Mr Sain said that it became apparent for the first time, at least to him, that the Government wanted a contribution of significantly more than $10,000 towards the cost of the Government maintaining a navigable harbour at Glenelg. At one stage, three persons left the room for the purpose of determining an appropriate fee. When they returned, they indicated that the Government would be prepared to accept $125,000 per annum.
22 Mr Kowalick then called for the plaintiff's budget and forecast. A significant amount of information was provided to him. Mr Kowalick says, in an affidavit filed in response to this application, that he believed that Mr Sain was seeking support from the Government by way of infrastructure and waiver of fees for sand management. He said that he made it clear to Mr Sain that there would be minimum, if any, financial support from the Government. He also told Mr Sain that he believed that the ferry service would not be financially viable.
23 He has said that he read the information provided by Mr Sain at that meeting, and the information convinced him that the plaintiff would lose money on the proposed ferry service, even if it carried as many passengers as the previous service run by Kangaroo Island Fast Ferries.
24 A further meeting took place between Mr Sain and Mr Kowalick on Tuesday night, 9 September 1997. Again there is a dispute about what was said at the meeting. Mr Kowalick says that he told Mr Sain at that meeting, that he was convinced that the proposal was not financially viable, but that if the plaintiff wished to proceed, Mr Kowalick wanted to ensure that it would be at no cost to the Government.
25 Mr Kowalick said he took pains to ensure that Mr Sain understood that the plaintiff would proceed at its own risk, and that the plaintiff would be required to pay a contribution towards the cost of maintaining berthing facilities at the Patawalonga and Kingscote harbours.
26 Mr Sain, in a further affidavit sworn on 16 February 1999, says that he reached an agreement with Mr Kowalick at that meeting, to the effect that the long term terminal facilities at Glenelg were to be integrated with the Holdfast Shores consortium development.
27 He said it was agreed with Mr Kowalick and Mr Jenkins, who was also present, that the plaintiff would continue to use the northern breakwater and continue to make its own arrangements for the provision of a temporary terminal on the northern breakwater, pending the completion of the Holdfast Shores development.
28 There is no doubt that Mr Kowalick handed a letter to the plaintiff at that time. That letter, which was dated the same day, and which was under the hand of Mr Kowalick, was in the following terms:
“Dear Mr Sain
I refer to our discussions of 1 September 1997 regarding a ferry service to Kangaroo Island. The matter has now been considered by Cabinet who agree that you and your fellow proponents should be permitted to conduct the service subject to the following conditions:
(1)... the extent of government funded capital works is to be limited to $110,000 for mooring facilities;
(2) normal port charges will apply;
(3)... the proponents are to make and finance their own arrangements for temporary terminals which are subject to normal planning approvals;
(4) long term terminal facilities at Glenelg are to be integrated with the Holdfast Shores Consortium development to reduce the incidence of overheads and provide a better level of amenity for tourists. It is the proponents responsibility to negotiate that with the consortium and the Holdfast Council could be asked to contribute to this development;
(5)... the Government requires an annual contribution of $125,000 to sand management costs paid quarterly in arrears after commencement;
(6) the proponents are to provide capital, or subordinated loans, of not less than $460,000 to the venture and in addition you are to provide a negatively pledged $250,000 in loan funds subordinated to unsecured creditors and the Government;
(7)... the proponents’ bankers agree to provide a working capital facility of not less than $100,000 and finance is secured for the vessel, and
(8) the proponents acknowledge by a signed acknowledgment of this letter that this is the full extent of the Government’s obligations to the venture. In particular the agreement acknowledges that should the proponents seek any further concessions from Government, the Government will in normal circumstances exercise its right to consider proposals from alternative providers of a service.
A further condition is that the Government and the proponents agree to a joint media release that the Government will provide facilities as per (1) above and the proponents will contribute as per (5) above.”
29 Mr Sain sought some explanation in respect to some of the terms of the letter and he received an explanation which he considered satisfactory. He immediately signed both copies of the letter on the bottom of the second page.
30 Mr Kowalick says that the letter of 9 September was never intended to be a final agreement for the use of the Patawalonga and Kingscote harbour, and to the best of his knowledge and belief Mr Sain was aware of that fact.
31 Mr Sain, on the other hand, says that on signing that letter he believed he had a final agreement with the Government to conduct the ferry service at Glenelg to Kingscote as soon as he could arrange for that service to commence.
32 He said he believed the terms and conditions of the agreement were set out in the following: (1) the information memorandum provided to him by the MFP; (2) the business plan provided by him to MFP; (3) Mr Kowalick's letter of 9 September 1997; and (4) matters agreed to by the parties during the course of their discussions up to and including 9 September 1997.
33 Of course, in a way, Mr Sain cannot be correct about that, having regard to his present application. There are matters which have been discussed subsequent to 9 September 1997, and which he says have been agreed, which he says form part of the agreement between the plaintiff and the defendants. If that is so he cannot be right when he says that he reached a final agreement with the defendants, or any of the defendants, on 9 September 1997.
34 By the same token it is not entirely clear to me why it is that Mr Kowalick did not believe that the letter of 9 September 1997 did not constitute an offer, and Mr Sain's acceptance did not constitute an acceptance, giving rise to an agreement. Those matters are not to be decided now.
35 In any event, the letter which Mr Sain signed makes it clear that the extent of the Government funded capital works is to be limited to $110,000 for mooring facilities. It was the plaintiff's responsibility to negotiate with the Holdfast Shores consortium to integrate the terminal facilities at Glenelg with the Holdfast Shores consortium. The letter makes it clear that the plaintiff wants to charge normal port charges and an annual contribution of $125,000 to sand management costs, paid accordingly in arrears after commencement.
36 The acceptance of the letter gave rise to an acknowledgment on behalf of the plaintiff that the letter contained the full extent of the Government's obligations to the venture. The letter does not indicate the period over which the ferry service is to run services, although the original information memorandum spoke of a term of ten years. Furthermore the letter does not indicate the period over which the fees are to be paid. However, on the face of the letter there is no reason to think that the fees would be payable otherwise than over the period of the term of the agreement, and on an annual basis.
37 On 18 September 1997 the Premier wrote to Mr Sain, and in that letter indicated that the letter of 9 September 1997 detailed the level of Government assistance to be provided to the plaintiff. It also outlined the plaintiff's contribution to Government fees and charges over the next two years.
38 Mr Sain has said in an affidavit that he understood that letter to mean that the letter was an attempt by the Government to put some limit on the time frame during which the fee of $125,000 was payable. It will be a matter in due course whether such a construction could ever be placed upon the letter.
39 The other construction is that the Government noted, for the first time, that Mr Kowalick's letter of 9 September 1997 did not provide for an adjustment of the fees and charges, and the Premier's letter was an attempt to introduce a term which would give rise to an adjustment of fees and charges after two years.
40 On 14 August 1997 the plaintiff purchased a ferry for the sum of $3,660,000. The contract, however, was subject to a special condition, which was to the effect that the purchase be subject to the plaintiff entering into an agreement with the Government to operate the service to Kangaroo Island.
41 It is not entirely clear on the documents whether the defendants were aware of the purchase prior to the meeting of 9 September 1997, and if so whom.
42 It is asserted by Mr Sain however, that the defendants, or at least officers of the defendants, were always aware of his intention to purchase the ferry and in fact, one of the officers assisted him in locating the ferry which was purchased.
43 After the meeting of 9 September 1997 Mr Sain advised the brokers handling the sale that approval had been given by the Government to the plaintiff to conduct the ferry service.
44 There were discussions between Mr Sain, on behalf of the plaintiff, and Mr Jenkins, on behalf of the MFP, in relation to the formal documentation to be addressed by the parties.
45 On 4 November 1997 the plaintiff took delivery of the ferry in Gosford. Whilst bringing the vessel to Adelaide Mr Sain was contacted and advised that it was unsafe for the ferry, now called Enigma Three, to enter the channel to the Glenelg harbour as a result of the accretion of seaweed.
46 The advice given to Mr Sain was to use Outer Harbour until dredging operations rendered the Glenelg harbour safe for the plaintiff's vessel.
47 Originally it was intended that the operation commence on 11 November 1997, but because of the problem identified in the Glenelg harbour, the operations could not commence until 22 November 1997. The Government dredged the harbour to enable the operations to commence.
48 As it happened, however, the seaweed continued to return and the Government continued to dredge the harbour to allow the operations to continue.
49 The MFP advised Mr Sain that it was concerned that a licensed agreement should be in place before the operation commenced. However, the formal agreement could not be complete before 22 November 1997, so the MFP offered to put in place an interim agreement for the period of six months.
50 In due course the licensed agreement was executed some time in December 1997, and backdated to 10 November 1997. I suppose so as to coincide with the proposed date of commencement of operations.
51 The MFP sent a copy of that agreement to the plaintiff, advising that the licence constituted the first stage of finalising a long-term arrangement for the plaintiff to operate a fast ferry service between Adelaide and Kangaroo Island.
52 Neither the plaintiff nor Mr Sain took any legal advice in relation to the interim licence agreement executed in December and which operated for November. Operations commenced during the summer period 1997 and February 1998. It is Mr Sain's evidence that the plaintiff enjoyed 'good custom'. The level of business decreased after the summer season, although the plaintiff did continue to operate a daily service from Glenelg to Kingscote until 1 May 1998.
53 At that stage the plaintiff was also operating a service to Edithburgh, three days per week.
54 Mr Sain says that in June 1998 he discovered that there was a problem with the water depth at the Glenelg harbour. By mid July 1998 the seaweed problem was so great that regular voyages for the ferry could not be planned. In August 1998 the Government surveyed the water depth which revealed that the water depth at that time was approximately 1.5 metres and datum. The ferry needs greater than 2.6 water depth datum for the ferry to have access from the harbour. Transport SA were advised of that in September 1998.
55 It is likely, on the facts, as now understood, that it was some time in the middle of 1998 that the sea grass problem, or at least the extent of the sea grass problem, was identified. Sea grass migrated into the harbour. Why it does so is not entirely clear, but it is in sufficient volume to affect the safe navigation of the harbour.
56 In April 1998 the first licence agreement expired. Between April 1998 and August 1998 there was an exchange of correspondence between the plaintiff and the Government and the Government's advisers in relation to a further licence agreement. On 10 August 1998 the parties entered into a further licence agreement for a period of four months, which was said to have commenced on 1 June 1998 and was to expire on 30 September 1998.
57 Apparently the period between April and June 1998 was not governed by a licence agreement.
58 The second licence agreement obliged the Minister for Transport and Urban Planning to use best endeavours to maintain a navigable channel at Patawalonga, by carrying on the dredging works in the Patawalonga harbour.
59 Clause 7(3) of the licence agreement provided for a release and discharge by the plaintiff of that minister and the South Australian Ports Corporation in respect of any economic loss or damage suffered by the plaintiff as a result of, or arising out of, the inability of the vessel to obtain access to the licensed areas at Patawalonga or Kingscote because of inter alia inadequate water depths at either of those ports.
60 Clause 7(4) provides:
“Despite the provisions of Clause 7.1, it is acknowledged and agreed by the parties that neither MTUP nor the Corporation in any way warrants, represents or undertakes that the Vessel will be able to obtain access to the Licensed Areas at the (sic) either the Patawalonga or Kingscote.”
61 The clause is significant. No like clause appeared in the first licence. However, that may be explained because the sea grass problem had probably not been identified at least to the extent of the problem at the time of the execution of the first licence.
62 At or about the same time as the second licence agreement was executed, the Government established a task force to investigate the sea grass problem at Glenelg.
63 Mr Sain said that he had a number of discussions with a solicitor on behalf of the Government who assured him that the formal contract, which had been alluded to in earlier correspondence, would be finalised before 30 September 1998.
64 That did not happen. In due course he sought an interview with the Premier, which was granted. They met on 17 September 1998. The meeting was also attended by Minister Laidlaw, Minister Hall, Mr Kowalick, Mr Oswald, and the solicitor acting on behalf of the Government.
65 Mr Sain claims that at that meeting he made it clear that the plaintiff needed to have some firm assurance from the Government whether or not it wanted the ferry service to be continued, in particular as the plaintiff had been seeking a formal contract from the Government for some considerable time.
66 He said he told the Premier that the plaintiff reserved its rights to bring appropriate claim for damages as a result of the Government's inaction. He undertook to provide the Premier with a submission, which he did on 29 December 1998.
67 That submission canvassed two main options. The first option was to terminate the ferry service with or without compensation for the plaintiff. Option two was to maintain the ferry service, either by the plaintiff sharing the risk of the Government, or a further option that the plaintiff restructure to allow the Government and other groups to take an equity position within the company.
68 On 24 December 1998, Minister Laidlaw rang Mr Sain and informed him that the Government had decided to terminate this service with effect from 22 January 1999. The plaintiff received a notice of termination on the same day.
69 The notice of termination is in the following form:
“ NOTICE
TO: AUSTRALIAN FERRIES PTY LTD
116 Melbourne Street
NORTH ADELAIDE SA 5006
WHEREAS:
·....... The Minister for Transport and Urban Planning, the Minister for Industry, Trade and Tourism and the South Australian Ports Corporation entered into an agreement on or about 10 August 1998 (the “Licence Agreement”) with Australian Ferries Pty Ltd;
·....... Pursuant to the terms and conditions of the Licence Agreement, Australian Ferries Pty Ltd was granted a non-exclusive and non-transferable licence by the Minister for Transport and Urban Planning and the South Australian Ports Corporation to use certain areas situated at the Patawalonga and Kingscote respectively (the “Licensed Areas”) for the purpose of operating a passenger ferry service between the Patawalonga and Kangaroo Island;
·....... The Licensed Areas at the Patawalonga and Kingscote are vested in the Minister for Transport and Urban Planning and the South Australian Ports Corporation respectively;
·....... The term of the Licence Agreement commenced on 1 June 1998 and expired on 30 September 1998;
·....... The licence granted to Australian Ferries Pty Ltd under the Licence Agreement to use the Licensed Areas expired on 30 September 1998 and the use by Australian Ferries Pty Ltd of the Licensed Areas after that date may be determined at any time by the Minister for Transport and Urban Planning and the South Australian Ports Corporation
THE MINISTER FOR TRANSPORT AND URBAN PLANNING AND THE SOUTH AUSTRALIAN PORTS CORPORATION HEREBY GIVE NOTICE to Australian Ferries Pty Ltd that its licence to continue to use the Licensed Areas is terminated with effect from 22 February, 1999 and further, that Australian Ferries Pty Ltd is required to cease using the Licensed Areas and to vacate the Licensed Areas by that date.”
70 The plaintiff responded to that notice on the same day advising that it would take legal advice in relation to the notice of termination. Mr Sain says at no stage prior to that time had the plaintiff received any notification from the Government of any alleged breach by the plaintiff of the terms of the agreement for the operation of the ferry service.
71 Following the notice of termination, there was an exchange of correspondence between the solicitors acting for the plaintiff and the Crown solicitor's office. By letter dated 13 January 1999, the plaintiff's solicitor sought undertakings from the State of South Australia in the following terms:
“17... Our client requires the following undertakings in writing from the State of South Australia and each of the government authorities:
17.1to refrain from taking any step to prevent our client from carrying on its business after 22 February 1999 until such time as this matter is resolved either by way of agreement between the parties or appropriate Court order.
17.2to withdraw the notice of termination dated 23 December 1998;
17.3to provide us, for our client’s approval, with a draft of the formal contract;
17.4to compensate our client for the damages sustained by it in consequence of the wrongful repudiation of the agreement, the breach by the State of South Australia and the government authorities of the Fair Trading Act, the publication of the press release on 24 December 1998, and the failure to ensure access to Glenelg Harbour for our client’s vessel;
17.5to maintain the Glenelg Harbour navigation channel so that it may be used by our client’s vessel on a daily basis;
17.6to meet the cost of appropriate corrective advertising to be conducted by our client throughout South Australia, in both the electronic and print media, in terms and at times that may be determined by our client; and
17.7to pay our client’s solicitor/client legal costs to date.”
72 Mr Sain claims that as at the date of the swearing of the affidavit, the undertakings were not given. It is, of course, for that reason these proceedings were brought. The facts to which I have referred are not much in dispute. Mr Lambert, who was the project adviser within the department of the Premier and Cabinet, has filed an affidavit in which he refers to inaction on the part of the plaintiff in relation to reaching an agreement with Holdfast Shores consortium and the establishment of a terminal on the southern breakwater. He also refers to the failure by the plaintiff to sail the vessel from Glenelg to Kangaroo Island, and from Kangaroo Island to Glenelg.
73 In his affidavit, he indicates the cost of maintaining the dredging operation, which, of course, is not insignificant. Indeed, between 3 September 1998 and 25 January 1999, the Department of Transport spent $208,000 for dredging work on the harbour channel. His evidence is that the dredging is costing approximately $20,000 to $21,000 per week.
74 Mr Lambert indicated in his affidavit the reasons why the Government gave notice to the plaintiff. Those reasons are identified as follows:
“38... In addition to the matters deposed to in paragraph 37 above, the notice determining the plaintiff’s use of the licensed areas (“EJS 61”) was given in the context of:
38.1the plaintiff having made no positive steps to reach agreement with Holdfast Shores Consortium for the establishment of a terminal on the southern breakwater;
38.2the plaintiff failing to sail on occasions when information available to the Department of Transport suggested that the ferry could have operated (although it is accepted that the ultimate decision rests with the ferry’s master);
38.3the Government being aware that the plaintiff had offered the vessel for sale;
38.4the plaintiff failing to make any concrete proposal for a permanent terminal on the northern breakwater despite continued pressure from the Government;
38.5the plaintiff failing to pay:
38.5.1the licence fee for the first 6 month licence (“EJS 40”) in the sum of $62,500.00;
38.5.2....... rent of premises and use of electricity at Kingscote in the sum of $2,790.10;
38.5.3an electricity account in the sum of $1,113.60 for electricity use at the Harbour.”
75 Mr Sain has replied to Mr Lambert's affidavit. He claims that in a meeting which took place on 23 July 1998, an agreement in principle was reached by the parties for the permanent terminal facility to be constructed on the northern breakwater. The meeting was attended by representatives of the Government, including a Government solicitor, the Holdfast Bay council, the Holdfast Shores consortium, and himself, a solicitor who was acting on his behalf, and possibly he thinks also Mr Lambert himself. He said that agreement was confirmed in a letter dated 3 August 1998 which he forwarded to the solicitor representing the Government who was present at that meeting.
76 He said that his understanding, based on discussions which he had with the Government was that the agreement which had been reached with Mr Kowalick on 9 September had been varied by the parties to allow for the permanent terminal to be housed on the northern breakwater subject to DAC approval, and not on the southern breakwater as is implied in Mr Kowalick's letter of 9 September 1997.
77 Mr Sain addressed in his further affidavit the various matters which Mr Lambert identified in paragraph 38 of his affidavit, which were those matters relied upon by the Government for the purpose of reaching the decision which it did.
78 In respect of paragraph 38.1, Mr Sain claims that the agreement with Mr Kowalick was subsequently varied by the parties to allow for the construction of the terminal on the northern breakwater, as I have already mentioned.
79 In respect of paragraph 38.2, he said that the plaintiff's vessel, contrary to Mr Lambert's assertion in that paragraph, had sailed on every occasion when it had been practicable for it to do so.
80 There was a good deal of argument on the application before me as to whether the vessel had failed to sail on a number of occasions because of the seagrass problem. It was implicit in the argument advanced on behalf of the plaintiff that the plaintiff had already suffered financial detriment by reason of the seagrass problem and the Government's inaction in response to it.
81 It was also submitted on behalf of the plaintiff that there was not only a failure to address the seagrass problem, but on occasions it was not addressed properly in that the dredging operation carried out from time to time was insufficient.
82 I might at this stage comment that Mr Sain brought in no evidence to support his assertion that the vessel had been frequently unable to sail because of the seagrass problem. My understanding of the evidence is that after 1 May 1998 the plaintiff's vessel has sailed infrequently. It is difficult to determine on how many occasions it has sailed between 1 May and today, but an examination of the information before me might suggest that it has perhaps sailed on no more than 15 occasions.
83 Whilst it was asserted from the bar table, against the objection of counsel for the defendants, Mr O'Sullivan, that the vessel had failed to sail for a number of reasons, one of which was the failure of the defendants to properly dredge the harbour, no evidence was brought forward by the plaintiff to support that assertion.
84 Having regard to the fact that it is the defendants' case, as evidenced by Mr Lambert's affidavit, that the plaintiff has failed to sail its vessel in contravention of the licence agreement, it is perhaps surprising that the plaintiff did not bring in evidence to show its endeavours in relation to sailing the vessel.
85 Mr Harris, who appeared on behalf of the plaintiff, applied at one stage to call Mr Sain to lead further evidence in relation to this and other matters.
86 Mr O'Sullivan objected to that course of action. Before I ruled upon whether or not the plaintiff was entitled to call further evidence, the application was abandoned.
87 The absence of such evidence in relation to the plaintiff's sailing of the vessel in the last nine months, and the evidence which leads to the inference that the vessel had sailed on only about 15 occasions, in my opinion, is important. It is not so much important as to whether or not there is a serious question to be tried, but it is important in relation to whether or not it would be appropriate to grant an injunction, having regard to the balance of convenience between the parties.
88 In relation to paragraph 38.3 of Mr Lambert’s affidavit, Mr Sain said that the plaintiff had offered its vessel for sale to mitigate the damage it would otherwise suffer if it was unable to continue to conduct the service.
89 In relation to the complaint about the failure of the plaintiff to bring forward any specific proposal for the construction of the permanent terminal, he said the plaintiff was awaiting confirmation from the Government that the northern breakwater would be made available for the construction of such a terminal, together with the long-term formal contract for at least a period of ten years.
90 He said the licence fee referred to in paragraph 38.5.1 has not been paid as a result of an agreement struck between himself and the solicitor for the Government that the payment of that fee be deferred pending the finalisation of the formal contract.
91 In relation to the fees and charges identified in paragraphs 38.5.2 and 38.5.3, he said those fees were payable by the plaintiff and would be paid in the normal course of the plaintiff’s business.
92 Mr Sain raised one other matter of importance in Mr Lambert’s affidavit, and that is in relation to the obligation to keep the Glenelg harbour navigable. Mr Sain asserted in his affidavit that the Government, and, therefore, the defendants, are under an obligation to maintain the Glenelg harbour for the benefit and at no cost to the Holdfast Shores consortium. He believed that the figure of $125,000 contribution required by his company was to offset the Government's obligations in that respect. Mr Lambert denies any obligation on behalf of the defendants to the Holdfast Shores consortium to keep the harbour navigable.
93 Mr Harris sought to cross-examine Mr Lambert in relation to a memorandum which he had prepared and circulated to persons employed in the Transport Department and persons employed to negotiate with Holdfast Shores consortium. Although Mr O'Sullivan objected, I allowed Mr Harris to cross-examine Mr Lambert.
94 The memorandum which Mr Lambert had written suggests that the Holdfast Shores consortium claims that the Government is under an obligation to keep the harbour navigable to a depth of three metres. His memorandum indicates that a letter came from the consortium claiming that a failure on the part of the Government to keep the harbour navigable to a minimum of three metres water depth at low water would be a 'serious breach of the Holdfast Shores development agreement'.
95 Mr Lambert's memorandum denies any Government responsibility to that effect. His memorandum points out that the agreement referred to by the consortium requires the minister to undertake such dredging as may be reasonably required or necessary in order to maintain the depths of water within the Glenelg harbour commensurate with functions contemplated for the use of that harbour.
96 In cross-examination he said that even if there was an obligation on the part of the defendants to maintain the harbour to a navigable depth of three metres, that obligation does not presently arise because the development has not proceeded so far that there are vessels using the harbour which would require that depth of water.
97 It can be seen, from perhaps that too long recitation of the facts, that the parties are not agreed as to whether the Government had any right to terminate the licence agreement in circumstances where previously the Government might have agreed with the plaintiff that it would enter into an agreement for a term of ten years.
98 On any application of this kind, the plaintiff must establish that there is a serious question to be tried, or that the plaintiff has made out a prima facie case in the sense that if the evidence remains as it is, there is a probability that at the trial of the action, the plaintiff will be held entitled to relief; CastlemaineTooheys v South Australia (1986) 161 CLR 148 per Mason CJ at 153.
99 It seems to me that the plaintiff has established that there is a serious question to be tried. I do not mean by that that the plaintiff has established the defendants are liable to the plaintiff. I merely mean that the plaintiff had brought forward sufficient evidence to establish that there is a serious question to be tried if the matter is to proceed to trial.
100 It was argued on behalf of the defendants that the particular relief sought by the plaintiff would, in the circumstances, never be granted. It may be that the relief sought on the summons is not entirely appropriate to the causes of action which the plaintiff might in due course raise with more particularity in the plaintiff's pleadings.
101 I would not be prepared to find that the plaintiff has failed to make out the serious question and the threshold question because of the particular relief sought in the summons. Whilst I am satisfied that a serious question to be tried has been made out, two other matters need to be established if the plaintiff is to be entitled to an interlocutory injunction. The plaintiff must establish that it will suffer irreparable injury for which damages will not be an adequate compensation, and also that the balance of convenience favours the granting of the injunction.
102 In support of this application, Mr Sain claims that the balance of convenience lies with the plaintiff. He has said that the notice of termination and the issue of the press release by the Minister on Christmas Eve has had a significant and deleterious effect upon the plaintiff's business. He claims that the number of bookings for travel to and from the Glenelg Harbour which have been made since notice of the termination was made public have been considerably less than at the corresponding times last year. He says there has been a significant decrease in passengers using this service in 1998/1999 compared with the previous period. The sole undertaking of the plaintiff is the undertaking of the operation of the ferry service from Glenelg to Kangaroo Island. In the event that the plaintiff is not able to continue with its business, it will not be able to generate sufficient income to meet its financial commitments. The plaintiff is indebted to Mr Sain for a significant amount of money. Mr Sain advanced large sums of money to the company in conformity with the obligations imposed in the letter of Mr Kowalick's of 9 September 1997. Not only is the plaintiff indebted to Mr Sain but the plaintiff is also indebted to associates of Mr Sain, and I am told in his affidavit that the total amount owing by the plaintiff to Mr Sain, his family and his associates is nearly $830,000. As I understand Mr Sain's affidavit he has also contributed capital to the extent of $460,000, although the precise way in which the equity has been injected into the company is not entirely clear. The plaintiff is also indebted to a financier to the extent of $3,185,000 relating to the acquisition of the ferry.
103 I am prepared to accept that the notice of termination and the accompanying publicity has had a deleterious effect upon the plaintiff's business. I am also prepared to accept that if the plaintiff is not able to conduct its business in the future, then it will not receive by way of income sufficient funds to service its loan obligations to the ferry financier and to repay Mr Sain, his family and associates in relation to the loans advanced by them. Ultimately, that might mean that the capital invested by Mr Sain, his family and associates might also be lost. On the other hand, if this injunction was granted and an order made as requested by the plaintiff requiring the defendant to continue to maintain the Glenelg Harbour so that the ferry can use the harbour at all times, the defendant would incur costs of approximately $22000 per week being $20000 for dredging and $2000 for survey. The defendants would be put to a cost in excess of $1 million in the next year simply to maintain the harbour to the required depth necessary for the operation of a ferry.
104 In the event that the plaintiff is unsuccessful in its action against the defendants, there is a real risk that any moneys expended by the defendants in conformity with an order made by this court would become irrecoverable. I have assumed for the purpose of these reasons that the financier of the ferry is a secured creditor, if not over the whole of the undertaking of the company, at least over the ferry itself. The plaintiff argues that requiring the defendant to dredge and to continue to dredge the Glenelg Harbour is no hardship at all, because the defendant has that obligation in any event, that obligation arising by reason of separate obligations to the Holdfast Shores consortium. I have already referred to the evidence of Mr Lambert in respect of that. However, I am satisfied on the evidence given by Mr Lambert that even if the defendant is under an obligation to dredge the Glenelg Harbour because of obligations to the Holdfast Shores consortium - a matter, of course, which I do not decide - in a practical sense no obligation will fall upon the defendants to carry out the dredging for that consortium for some months.
105 The matter comes down to a matter of judgment. On the one hand, the plaintiff will suffer significant financial hardship or may suffer significant financial hardship unless this injunction is granted. On the other hand, it cannot be said that the granting of the injunction will necessarily mean that the plaintiff will generate sufficient income to meet its obligations to its financier and its principal shareholders. If the injunction is granted, then the defendants will be put to a significant cost, which might well be irrecoverable in the event that the plaintiff is unsuccessful. In arriving at that judgment, there are other matters which have to be taken into account. The plaintiff did not bring forward any evidence of its financial position, except evidence given in a general sense by Mr Sain in his affidavit. That evidence does suggest that the plaintiff's assets exceed its liabilities. However, the evidence as I read his affidavit would suggest that the current liabilities of the company exceed its current assets. The plaintiff did not establish its relationship with its financier and whether or not the vessel is wholly secured by that financier. It has not therefore established whether the vessel would be generally available in the event that the plaintiff was called upon to pay for the costs of the dredging in the event that an injunction will be made.
106 The plaintiff, in my opinion, ought to have brought forward a balance sheet to establish its true financial position. A balance sheet would have enabled the court to determine the relationship between its assets and liabilities and make some judgment as to whether or not the plaintiff would be in a position to meet any commitments that might arise as a result of the granting of the injunction. More importantly perhaps, the plaintiff should have produced a profit and loss statement to the court.
107 I am not satisfied on the evidence before this court that the plaintiff has ever traded at a profit. The extent of the liabilities to Mr Sain, his family and his associates suggests that the company's liabilities have grown over the period in which it has traded. That might be due to a number of reasons. It might be due to a lack of trade generally. It might be due to the plaintiff's own actions. It also might be due to insufficient capital to allow the company to trade. There could be any number of reasons. But it was important, in my opinion, for the plaintiff to establish that it had traded profitably and to satisfy me that in the event that an injunction will be granted, it would trade profitably. That is self-evident, in my opinion. There would be no point in making an injunction or granting an injunction putting the defendants to the cost of dredging the harbour at the rate of $22,000 per week if it was only for the purpose of allowing the plaintiff to conduct its operations at a loss, thereby increasing the plaintiff's liabilities at the expense of its own assets.
108 The plaintiff did bring forward some evidence of bookings and persons who had travelled on the vessel. The evidence suggests that there have been very few people carried on the vessel since May 1998 and shows very few trips since that time. The fact that the vessel has sailed so infrequently since May 1998 to this point of time indicates that the company has not been able to trade profitably. In any event, no evidence was led in that respect. The plaintiff should also have brought in evidence that it had the support of its financiers and its directors, shareholders and associates of Mr Sain. Except for Mr Sain, whom it might be inferred would clearly support this company, there was no evidence that the company has any other financial support available to it. Even in respect of Mr Sain, there is no evidence he is capable of supporting the company.
109 I am not satisfied to the degree of satisfaction required on an application of this kind that ever since May 1998, the plaintiff has been conducting a viable operation.
110 I am not satisfied that if I was to grant the injunction sought, it would be able to carry out a viable operation.
111 I am not able to say how long it might be that the operation could continue, even if the injunction was granted. There is nothing before me from the plaintiff or from any of the plaintiff's supporters, whoever they might be, to indicate that the plaintiff would continue the operation on a regular commercial basis until the date of trial. Indeed, there is nothing before me to suggest that it had the financial capacity to do so. As its current liabilities exceed its current assets, there is nothing before me to indicate that it had the capacity to start up an operation or to continue an operation after today. In those circumstances, absent any evidence of loss on the part of the plaintiff, there is no evidence that the plaintiff will suffer financial harm by reason of the refusal to grant the injunction. On the other hand, if the defendants are in breach of obligations which they owe the plaintiff, either in law or equity or pursuant to some statutory cause of action, the plaintiff would be entitled to damages. In my opinion, in the circumstances of this case, where there is no evidence that the plaintiff is trading profitably, damages would be an adequate remedy.
112 There are other matters. The plaintiff would require as part of its order and indeed brought in as part of its minutes of order, not only an order that the notice of termination have no effect but an order restraining the defendants from ceasing to maintain the Glenelg Harbour/the Kingscote Harbour to a depth of 3 metres chart datum. The proposed order and other associated orders have some difficulty. First, they may be mandatory orders, even though expressed in the negative term, and therefore prohibited by s.7 of the Crown Proceedings Act. Secondly, they may be orders which this court is incapable of enforcing. The fact of the matter is that the defendants' claim that they have been carrying out the dredging of the Glenelg Harbour now for some months. They claim that the dredging ought to have enabled the plaintiff to sail at any time that the plaintiff wished to. The plaintiff, on the other hand, says that the dredging has been carried out inadequately. If an order was made requiring the defendants or one of them to carry out the dredging, such an order would give rise to ongoing complaints and arguments as to whether or not the dredging had been carried out appropriately and within the terms of the order. It would be difficult for the courts to enforce such an order. For that reason, as well as the other reasons, damages seem to me to be an adequate remedy.
113 The plaintiff offers an undertaking as to damages. In the event that the plaintiff is successful, then, of course, the undertaking would not be called upon. In the event that the plaintiff is unsuccessful, it seems to me the undertaking as to damages may be of little value. In the event that the plaintiff is unsuccessful, the plaintiff will have to discharge its obligations to its financier, which, as I have said, I have assumed has security over the vessel. It would have to meet its own legal costs. It will have to meet the defendants' legal costs. Whether the plaintiff could ever meet the undertaking given would depend to a certain extent upon the company realising the Enigma III. The realisation of that asset would probably be in the hands of the secured creditor. There is a current valuation of the vessel in the range $3.6 million to $5.5 million, which the valuer fixed at $4.8 million. I do not doubt the evaluation of the valuer, although the evaluation is greater than the purchase price. The plaintiff or its secured creditor would have to sell the vessel overseas in a difficult market, and that itself might be difficult.
114 In those circumstances, on what I know of the plaintiff's financial position, which is insufficient, I admit I cannot be confident that the plaintiff would be in a position to honour the undertaking given to the court.
115 In the end therefore, I refuse this application for three reasons. First, I am not satisfied that the plaintiff has made out that the balance of convenience requires the order to be made. In other words, I believe the balance of convenience is with the defendants.
116 Secondly, I believe that damages are, in the circumstances of this case, an adequate remedy, particularly so when I cannot be satisfied that the plaintiff would trade profitably if the order was made.
117 Thirdly, I am doubtful that the undertaking as to damages would properly protect the defendants in the event that the plaintiff failed.
118 I therefore dismiss the application for an interlocutory injunction dated 3 February 1999.
1
0