Carna Group Pty Ltd v The Griffin Coal Mining Company Pty Ltd
[2015] WASC 142
•24 APRIL 2015
CARNA GROUP PTY LTD -v- THE GRIFFIN COAL MINING COMPANY PTY LTD [2015] WASC 142
| SUPREME COURT OF WESTERN AUSTRALIA | Citation No: | [2015] WASC 142 | |
| Case No: | CIV:1070/2015 | 26 FEBRUARY 2015 | |
| Coram: | LE MIERE J | 24/04/15 | |
| 14 | Judgment Part: | 1 of 1 | |
| Result: | Declaration granted | ||
| B | |||
| PDF Version |
| Parties: | CARNA GROUP PTY LTD THE GRIFFIN COAL MINING COMPANY PTY LTD |
Catchwords: | Contract Proper interpretation Declaration Specific performance |
Legislation: | Nil |
Case References: | Fitzwood Pty Ltd v Unique Goal Pty Ltd (in liq) [2001] 188 ALR 566 Geofizika DD v MMB International Ltd [2010] EWCA Civ 459; [2010] 2 Lloyd's Rep 1 Ibrahim v Barclays Bank Plc [2012] 4 All ER 160 Re Sigma Finance Corp [2008] EWCA Civ 1303 Sheehan v Carrier Airconditioning Pty Ltd (1997) 189 CLR 407 Simpson v Eggington (1855) 10 Exch 845; (1855) 156 ER 683 |
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
- IN CIVIL
- Plaintiff
AND
THE GRIFFIN COAL MINING COMPANY PTY LTD
Defendant
Catchwords:
Contract - Proper interpretation - Declaration - Specific performance
Legislation:
Nil
Result:
Declaration granted
Category: B
Representation:
Counsel:
Plaintiff : Mr M D Cuerden SC
Defendant : Mr J A Thomson SC
Solicitors:
Plaintiff : Clyde & Co Australia
Defendant : Allen & Overy
Case(s) referred to in judgment(s):
Fitzwood Pty Ltd v Unique Goal Pty Ltd (in liq) [2001] 188 ALR 566
Geofizika DD v MMB International Ltd [2010] EWCA Civ 459; [2010] 2 Lloyd's Rep 1
Ibrahim v Barclays Bank Plc [2012] 4 All ER 160
Re Sigma Finance Corp [2008] EWCA Civ 1303
Sheehan v Carrier Airconditioning Pty Ltd (1997) 189 CLR 407
Simpson v Eggington (1855) 10 Exch 845; (1855) 156 ER 683
1 LE MIERE J: The defendant, Griffin, is the owner of a coal mine in Collie, Western Australia. By a contract dated 28 January 2014 (the Contract) Griffin engaged the plaintiff, Carna, to provide mining services at Griffin's mine. It is a term of the Contract that all staff employees as agreed between Griffin and Carna and all maintenance and production employees of Griffin as on the day prior to the Commencement Date, which was 23 March 2014, (Select Personnel) shall be transferred to Carna. Carna is to employ all Select Personnel on terms no less favourable than those which they had when employed by Griffin with full recognition of service continuity. On the Commencement Date 358 employees who fell within the definition of Select Personnel including seven staff employees (the Staff Employees) were transferred to Carna.
2 On 25 November 2014 Carna served on Griffin a notice of default stating that Griffin had breached the Contract and that Carna would terminate the Contract if Griffin did not remedy the defaults within seven days. Subsequently Carna purported to terminate the Contract on the ground that Griffin had committed an insolvency default or had failed to remedy its defaults of which Carna had given notice. Griffin purported to terminate the Contract on the ground that Carna had repudiated the Contract. It is common ground that the Contract has been terminated. It is unnecessary to determine who terminated the Contract.
3 Clause 4.3(e) of the Contract provides that if the Contract is terminated and Griffin has elected not to take on the Select Personnel after termination of the Contract and as a result there is a redundancy payment due to Select Personnel then Griffin 'is liable for the redundancy payment'. Griffin has elected not to take on the Staff Employees after termination of the Contract.
4 Carna intends to terminate the employment of the Staff Employees on the ground that they are redundant whereupon each of the Staff Employees will be entitled to a redundancy payment. Carna asked Griffin to confirm that it agrees to pay the redundancy entitlements directly to each of the Staff Employees immediately upon being notified that they have been made redundant. Griffin refused to do so. Griffin says that it has no obligation to make redundancy payments directly to Select Personnel and its obligation under cl 4.3(e) of the Contract is to pay Carna the amount of the redundancy payments due to and paid to the employees. Carna has not terminated the employment of the Staff Employees and does not intend to do so until the issue of Griffin's liability to pay the redundancy payments is resolved. Carna says, and Griffin does not dispute, that when that issue is resolved Carna will terminate the employment of the Staff Employees and they will be immediately entitled to redundancy payments.
5 The issue which arises is the proper construction of cl 4.3(e) of the Contract. Carna contends that Griffin is liable to pay redundancy payments directly to Select Personnel. Griffin contends its liability is to reimburse Carna for those payments.
Principles of construction
6 The relevant principles of construction are not in dispute. The contract must be interpreted objectively, that is as having the meaning that would be given to it by a reasonable reader in the position of the parties at the time the contract was made. The text of the contract is of central importance. The contract should be given its natural and ordinary meaning. The text of the contract must be understood in its context. This requires that the text of the contract be read as a whole and against the background surrounding circumstances known to the parties and the purpose and object of the transaction. The court should take into account the commercial purpose of the contract and give it a business-like interpretation.
Relevant provisions of the Contract
7 Clause 4 of the Contract is concerned with Griffin's obligations. Clause 4.3 deals with employees of Griffin at the time of the commencement of the Contract. As I have said, the clause provides that the Select Personnel shall be transferred to Carna and Carna will assume the transfer and employment of all Select Personnel on terms no less favourable than those on which the Select Personnel had when employed by Griffin with full recognition of service continuity. Clauses 4.3(c) to (e) allocate responsibility between Griffin and Carna with respect to entitlements of the Select Personnel transferred to Carna. Clause 4.3(c) provides that Griffin shall have the obligation to pay all employee entitlements when drawn upon by the Select Personnel which may have accrued prior to the Commencement Date except redundancy payments accrued up to the Commencement Date. Carna shall be responsible for all Select Personnel entitlements accrued during the term of the Contract (the Term) and remain unpaid at the end of the Term including leave, pay and allowances. Any entitlements drawn upon by the Select Personnel are to be first paid by Carna and after payment, Griffin must reimburse Carna an amount reflecting Griffin's obligation to reimburse Carna for employee entitlements which accrued prior to the Commencement Date.
8 Clause 4.3(d) provides that Griffin indemnifies Carna against any claims made against Carna by or on behalf of any of the Select Personnel in respect of employee entitlements which accrued prior to the Commencement Date but excluding redundancy payments. Clause 4.3(d) provides a mechanism for the payment of the amount due from Griffin to Carna as a result of Griffin's liability to indemnify Carna. The liabilities of Griffin and Carna under cl 4.3(c) and (d) will be subject to the annual reconciliation process in Schedule 14 and will be paid through the annual Reconciliation Invoice except where the liabilities arise from an employee seeking a pay out of leave entitlements.
9 Clause 4.3(e) deals with redundancy costs and payments. The parties agree that cl 4.3(e) contains four limbs or component parts. I will set out the clause inserting numerals to indicate the limbs:
[1] The Principal is liable for any redundancy costs of any Select Personnel where that redundancy is requested to by the Principal in writing, to the extent permitted at law.
[2] The Contractor is otherwise liable for all redundancy claims on all Select Personnel made redundant during the Term.
[3] However, if this agreement is terminated for whatever reason, and the Principal has elected not to take on the Select Personnel post termination of the agreement and as a result, there is a redundancy payment due to that Select Personnel, the Principal is liable for the redundancy payment and the Contractor must not employ any Select Personnel made so redundant within the period for 12 months from end of Term of this agreement.
[4] The Principal may require the Contractor to reimburse to the Principal the amount paid for the redundancy paid by the Principal if the Contractor breaches this clause and payment is due and payable immediately to the Principal.
10 It is common ground that the third limb applies where, as here, the Contract has terminated and Griffin has elected not to take on the relevant employees after termination of the Contract. Carna says, and I accept, that it will terminate the employment of the Staff Employees when this dispute is resolved. It is common ground that a redundancy payment will then be due to each of the Staff Employees but, as I will refer to later, there is a dispute as to the amount of the redundancy payments.
The contending constructions
11 Carna says that the phrase 'the Principal is liable for the redundancy payment' means that the Principal, that is Griffin, must pay directly to each Select Personnel made redundant the redundant payment to which that employee is entitled. Carna says that that construction should be accepted for three reasons. First, that is the natural and ordinary meaning of the words 'the Principal is liable for the redundancy payment'. Secondly, that construction is more consistent with the structure of cl 4.3. Clauses 4.3(c) and (d) create a regime of payment by Carna of employee entitlements and reimbursement by Griffin of employee entitlements which accrued prior to the Commencement Date. However, redundancy payments are expressly excluded from that regime and dealt with separately in 4.3(e) which does not create a regime of payment and reimbursement and no mechanism such as the reconciliation process provided in 4.3(d). Thirdly, the relevant employees have a right to recover redundancy payments directly against Griffin by reason of Property Law Act 1969 (WA) s 11(2). Carna says that it would be incongruous if cl 4.3(e) were to be construed in a manner that the employees have the right to recover redundancy payments directly from Griffin but Carna could not enforce Griffin's obligation to pay the redundancy payment directly to the employee.
12 Griffin says that its construction of cl 4.3(e) is to be preferred for a number of reasons. First, Carna must have a pre-existing liability to make redundancy payments to the Select Personnel before cl 4.3(e) operates. The word 'liable' in circumstances where there is no consensually agreed legal obligation between Griffin and the Select Personnel to make a redundancy payment, and no express reference to Property Law Act s 11 gives rise to the inference that the parties did not contemplate any legal obligation enforceable directly by the Select Personnel against Griffin and hence the relevant liability is a legal obligation operative as between Griffin and Carna. If Griffin were liable to pay the Select Personnel directly, this would be a case of a stranger paying the amount of a liability between Carna and the Select Personnel. A payment by Griffin would not automatically release Carna's liability to pay the Select Personnel, unless the Select Personnel agreed to this and agreed to accept the payment from Griffin in discharge of Carna's liability. It is most unlikely that the parties would provide for Griffin to have a liability to make a payment directly to Select Personnel when this would not automatically release Carna's own liability to the Select Personnel. Carna's construction would not give effect to a business-like interpretation of the Contract.
The text
13 In The Interpretation of Contracts in Australia Sir Kim Lewison and David Hughes at [2.11] write that much of interpretation is intuitive. But where words, whose interpretation is in dispute, convey a particular meaning to a judge, the parties are entitled to the best explanation the judge can give as to why the words convey that particular meaning to him. In his dissenting judgment in Re Sigma Finance Corp [2008] EWCA Civ 1303 Lord Neuberger of Abbotsbury said:
Taking the provision on its own, there is considerable attraction in the judge's view that the more natural meaning of the phrase is meaning (a) or (b). However, the provision must, of course, be construed not merely by reference to the language used, but also in its documentary and commercial contexts. Miss Prevezer QC, for party D, suggested that it was illegitimate to start by considering the effect of the language of the provision on its own. However, while one is seeking to interpret the document as a whole, the ultimate issue between the parties turns on the meaning of the provision, and in order to resolve the issue, the reasoning and analysis have to start somewhere. The natural, indeed, I would have thought, the inevitable, point of departure is the language of the provision itself. However, where the interpretation of a word or phrase is in dispute, the resolution of that dispute will normally involve something of an iterative process, namely checking each of the rival meanings against the other provisions of the document and investigating its commercial consequences [98].
14 I will start with the language of the clause itself. The On-line Oxford English Dictionary gives the primary meaning of 'liable' to be 'bound or obliged by law or equity'. The On-line Macquarie Dictionary relevantly defines liable to mean 'under legal obligation, responsible or answerable'. Each counsel adopted that meaning of 'liable' or a meaning not significantly different. However, the phrase 'the Principal is liable for the redundancy payment' is expressed in the passive voice; it does not expressly say to whom Griffin must make the payment. In my view the more natural and ordinary meaning of the words is that the Principal must make the redundancy payment to the Select Personnel. The Principal's obligation or responsibility is for 'the redundancy payment due to that Select Personnel'. The redundancy payment is the payment to the relevant employee. It is that payment for which the Principal is responsible. The Principal is liable to make that payment, not to reimburse the Contractor for making that payment.
The context
15 In Geofizika DD v MMB International Ltd [2010] EWCA Civ 459; [2010] 2 Lloyd's Rep 1 at [70] Lord Neuberger of Abbotsbury MR warned that first impression can be a dangerous guide to meaning; it is liable to be subjective, it is normally impossible to explain and it not infrequently turns out to be wrong. It is necessary to look at the words in the context of the instrument as a whole. Looking at the Contract as a whole, and in particular cl 4.3(a) to (e) confirms the natural and ordinary meaning of the phrase under consideration. Clause 4.3(c) and (d) in effect set up a regime of payment by Carna of employee entitlements, including entitlements which accrued prior to the Commencement Date which the Principal has an obligation to pay, and reimbursement of those payments by the Principal to the Contractor, Carna. Furthermore, cl 4.3(d) and Schedule 14 provide a mechanism for calculating, reconciling and reimbursement of those entitlements. The payment of redundancy payments is expressly excluded from that regime. Clause 4.3(e) provides who is responsible for redundancy payments in the different circumstances addressed but does not expressly provide for payment by Carna and reimbursement by Griffin and importantly provides no mechanism for calculating and verifying the amount of the payments.
16 Griffin says that cl 4.3(e) contemplates that there must be a pre-existing liability from Carna to the Select Personnel to make redundancy payments before cl 4.3(e) operates. Carna's liability under its employment contracts with Select Personnel is necessarily separate from Griffin's liability to make a redundancy payment under cl 4.3(e). Griffin submits that the use of the phrase 'liable for the redundancy payment' indicates a legal obligation to pay the redundancy payment but there is no consensually agreed legal obligation as between Griffin and the Select Personnel to make a redundancy payment. In those circumstances, Griffin submits, the use of the word 'liable' indicates that the parties must have contemplated that the relevant liable was a legal obligation operative as between Griffin and Carna. I do not accept that argument. The clause contemplates that the Select Personnel has an entitlement to a redundancy payment. Carna, as the employer, has an obligation to pay the redundancy payment. However, the word 'liable' in the phrase 'the Principal is liable for the redundancy payment' creates a liability; it is not a reference to a pre-existing liability. The parties to a contract, A and B, may agree that B must make a payment to C. B is 'liable' to make the payment to C. The liability arises from the contractual provision.
17 The Select Personnel are not a party to the Contract. However, that does not assist in determining whether the liability of Griffin is to make the redundancy payment to the Select Personnel or to make the payment to Carna. Whether the liability is to pay the Select Personnel directly or to make the payment to Carna is a question of construction. The meaning of the contract must be ascertained from the language the parties have used.
Business-like interpretation
18 Griffin says that its construction of cl 4.3(e) advances the commercial purpose of the Contract and Carna's construction would not give effect to a business-like interpretation of the Contract. The Court may be assisted by a consideration of the commercial purpose of the contract and will endeavour to give a commercial contract a business-like interpretation. The principle of construction that a commercial document should not be given a construction that is commercially unlikely is well-established. However, as Finkelstein J pointed out in Fitzwood Pty Ltd v Unique Goal Pty Ltd (in liq) [2001] 188 ALR 566 at [47] a judge must be cautious when there is an attempt to sway a case by reference to commercial good sense, because views may differ on what is good sense.
19 Griffin says that a payment by Griffin to the Select Personnel does not necessarily discharge Carna's liability to the Select Personnel and it is unlikely that the parties would provide for Griffin to have a liability to make a payment directly to Select Personnel when this would not release Carna's own liability to the Select Personnel.
20 Griffin relies upon the decision of the High Court in Sheehan v Carrier Airconditioning Pty Ltd (1997) 189 CLR 407. In that case a receiver of the property assets and undertaking of a company, TOC, appointed by a bank having a security over the whole of the company's assets for a debt exceeding the company's assets, paid debts owing to subcontractors in order that they complete work which would assist in the realisation of the bank's security. A majority of the High Court held to the effect that, although for certain purposes the receiver was made a company's agent, these payments were as a matter of substance made by the receiver on behalf of the bank and not as agent for the company. At page 430 Dawson, Gaudron and Gummow JJ said:
The established pattern of English authority indicates that, at least as a 'general rule', if a payment was so made by the receiver to a creditor of TOC and accepted by the creditor in satisfaction of the debt of TOC, nevertheless the payment would not discharge the liability of TOC to the creditor, unless made as agent for and on behalf of TOC and with the prior authority of or subsequent ratification by TOC.
- Their Honours went on to observe that in any event there was authority that the creditor could not later maintain an action for the debt because a subsequent action by the creditor against the debtor would be classified as an abuse of the process of the court. Their Honours concluded:
Accordingly, in the circumstances of the present case, even if the acts of the receiver in tendering amounts for payment of the debts of TOC to [the creditor] are not to be classified as activities as agent of TOC, the practical effect of the working out of the legal relations between the parties, including the subsequently appointed liquidator of TOC, would produce a result equivalent to a discharge of TOC (431).
1. payment by a third party to a creditor under legal compulsion on account of a debt owed by a debtor will automatically discharge the debtor's debt; and
2. that is the case even if the legal compulsion arises out of a contractual obligation voluntarily assumed by the third party.
22 The relevant inquiry is not whether the same matter of law payment of the redundancy payments by Griffin would have discharged Carna's liability, but whether that is likely to have been a matter adverted to by the parties. If the parties are not likely to have adverted to the issue or not likely to have considered that the payment by Griffin may not have discharged the liability of Carna, then the issue is not relevant to the construction of cl 12.3(e). It is likely that reasonable business people in the position of Griffin and Carna at the time of making the Contract would have assumed that payment of the redundancy payments by Griffin to the Select Personnel would have discharged Carna's liability for the redundancy payments. That assumption is reasonable either because payment by a third party to a creditor under legal compulsion on account of a debt owed by a debtor will automatically discharge the debtor's debt even if the legal compulsion arises out of a contractual obligation voluntarily assumed by the third party or because a subsequent claim by any of the Select Personnel against Carna would be classified as an abuse of the process of the court and would produce a result equivalent to a discharge of Carna.
23 Griffin gives a hypothetical example to show that the construction advanced by Carna will not produce the intended consequences or a business-like result. The Select Personnel may choose not to accept the payment from Griffin and may prefer to receive payment from Carna for practical and compliance reasons given that Griffin is not their employer. Receipt of a large redundancy payment when a person is not the employer of the Select Personnel may require the Select Personnel to provide an explanation of the nature of the repayment to the ATO for taxation purposes.
24 There is no evidence that the payment by Griffin to the Select Personnel of a redundancy payment in accordance with a contractual obligation to pay the redundancy payment due to the Select Personnel from their employer in the circumstances of this case would give rise to any tax difficulties for the Select Personnel. Griffin's submission was made at a high level of generality. In neither its written nor oral submissions did Griffin refer to any statutory provisions, taxation rulings, taxation determinations or practice statements which form any basis for a reasonable hypothesis that the taxation authorities may not treat a redundancy payment by Griffin to the Select Personnel as a genuine redundancy forming part of an employment termination payment taxed at different rates than ordinary income.
25 Benjamin Franklin wrote to Jean Baptiste Le Roy in 1789: 'In this world nothing can be said to be certain, except death and taxes'. In that sense it is possible that one or more of the Select Personnel may decline to accept the redundancy payment from Griffin but I am not satisfied that business people in the position of Griffin and Carna at the time the Contract was made would have contemplated that possibility as sufficiently real or likely to deter them from agreeing that Griffin would pay the redundancy payment directly to the Select Personnel.
26 In my view, considerations of business common sense do not assist in the interpretation of cl 4.3(e). Griffin's contentions that Carna's construction of cl 4.3(e) is not in accordance with business common sense rests on the proposition that payment of the redundancy payments by Griffin may not discharge the liability of Carna. For the reasons I have stated, I doubt that the proposition is correct. In any event, any doubt that payment by Griffin may not discharge the liability of Carna must be weighed against the obvious commercial benefits to Carna from its construction of cl 4.3(e). There are commercial benefits to Carna in Griffin making the redundancy payments directly to the Select Personnel rather than Carna making the payments to the Select Personnel and being reimbursed by Griffin. One benefit is that Carna would not have to have the cash flow to enable it to make the payment in the first place. The redundancy payments are likely to be a substantial sum in aggregate. On the termination of the Contract Carna may not have sufficient cash flow to be able to make the payment. It is rare that a contractor is advantaged by making a payment and being reimbursed by the principal rather than the principal making the payment directly. A further potential commercial disadvantage to Carna of Griffin's contractual construction is that if Carna must pay the Select Personnel and then receive payment from Griffin, Griffin may set off any claims it has against Carna and not pay the whole of the redundancy payment.
27 In short, views may differ on the relative commercial benefits of the constructions of cl 4.3(e) advanced by Carna and Griffin respectively and the business common sense of each interpretation. I find each of the constructions advanced by Griffin and Carna is a business-like interpretation and considerations of business common sense do not assists in determining the proper construction.
Declaration
28 For the reasons stated, the meaning of cl 4.3(e) is that Griffin is liable to pay the redundancy payments due to the Select Personnel directly to each of the Select Personnel.
29 The primary relief sought by Carna is a declaration of the proper construction of cl 4.3(e) of the Contract. Griffin concedes that if Carna's construction of cl 4.3(e) is correct then the court should declare that construction. Carna submitted that the court should declare that:
Upon [Carna] terminating the employment of each of the [Staff Employees] Griffin is liable under cl 4.3(e) of the Contract to pay the redundancy payments directly to each of the employees.
- The court should make a declaration to that effect. I will hear counsel as to the precise form of the declaration.
Specific performance
30 Carna also seeks an order that Griffin perform its obligations under cl 4.3(e) of the Contract to pay all redundancy payments due to each of the relevant employees directly to each of those persons. Griffin opposes the making of such an order. Griffin's opposition is primarily based upon a difference between Carna and Griffin in relation to the quantum of redundancy payments due to the Staff Employees. That difference arises from a difference as to the proper construction of the Black Coal Mining Industry Award 2010 and in particular the provisions of the award relating to the calculation of redundancy payments
31 Senior Counsel for Carna, Mr Cuerden SC, submitted that there is no genuine dispute about the quantum of the redundancy payments in the sense that the construction of the award advanced by Griffin and the calculation of relevant redundancy payments by Griffin is not a reasonable interpretation and calculation. Initially, Ms Fellows, Griffin's human resources superintendent, calculated the relevant redundancy payments in accordance with the manner Griffin had calculated redundancy payments under the award in the past. However, she was then told by Mr Riordan, Griffin's chief financial officer, that she had incorrectly calculated the relevant redundancy payments because she had adopted an incorrect interpretation of the award. Mr Riordan instructed Ms Fellows to recalculate the redundancy payments in accordance with the award interpretation of which he informed her and which he said was in accordance with legal advice.
32 The question of the proper construction of the relevant provisions of the award arose late in these proceedings. It did not arise on the pleadings. The parties agreed that it is not a matter that I should determine at this time.
33 It is not appropriate to make an order in the nature of specific performance that upon the Staff Employees' employment being terminated Griffin pay the redundancy payments due to them. An order of the court requiring a party to do something should inform that party what it has to do to comply with the order and should be readily capable of enforcement should the need arise. There is a difference between the parties concerning the quantum of redundancy payments due to the Staff Employees. That difference has not been determined by the court or otherwise authoritatively resolved. Griffin should not be at risk of being in contempt of court if it pays the redundancy payments in an amount which it asserts to be correct but subsequently turns out to be wrong. Accordingly, it is not appropriate to make an order in the nature of specific performance requiring Griffin to pay the relevant redundancy payments to the Staff Employees.
Liberty to apply
34 The parties should confer with a view to resolving how the matter should be determined. There will be liberty to apply to the court to resolve the issue of what Griffin should be required to do to comply with its obligations under cl 4.3(e) of the Contract if the parties do not resolve that matter themselves.
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