Electrical Resource Providers Pty Ltd v Active Tree Services Pty Ltd [No 2] - [2012] WADC 177

JURISDICTION : DISTRICT COURT OF WESTERN AUSTRALIA
IN CIVIL

LOCATION: PERTH

CITATION: ELECTRICAL RESOURCE PROVIDERS PTY LTD -v- ACTIVE TREE SERVICES PTY LTD [No 2] [2012] WADC 177

CORAM: FENBURY DCJ

HEARD: 20 & 21 MARCH, 23 & 25 OCTOBER 2012

DELIVERED : 21 DECEMBER 2012

FILE NO/S: CIV 306 of 2010

BETWEEN: ELECTRICAL RESOURCE PROVIDERS PTY LTD
Plaintiff
AND
ACTIVE TREE SERVICES PTY LTD
Defendant

Catchwords:

Contract - Contract for services - Whether term setting early termination fee accepted by silence and conduct - Whether term breached - Whether fee a reasonable pre-estimate of damage - Turns on own facts

Legislation:

Nil

Result:

Judgment for the plaintiff

Representation:

Counsel:

Plaintiff: Mr E J Myers
Defendant: Mr A P Hershowitz

Solicitors:

Plaintiff: E J Myers
Defendant: Metaxas & Hager

Case(s) referred to in judgment(s):

Nil

FENBURY DCJ:

General background

The plaintiff, Electrical Resource Providers Pty Ltd (ERP) and the defendant Active Tree Services Pty Ltd (ATS) are both in the business of constructing and maintaining electric power supplies.
In Australia the maintenance of electricity or power poles, especially in rural areas and areas where vegetation grows in close proximity, is of great importance because of the risk of fire.
Thus it is that corporations involved in the supply of electrical power expend significant funds and energy in reducing the risk of fire from electrical causes. They pursue this goal by maintaining power poles and implementing policies requiring the removal or pruning of vegetation that is too close to or is in contact with electrical power poles and lines.
The business of removal of this hazardous vegetation is graded for importance, difficulty and dangerousness by reference to its proximity to the electrical power lines and poles. Vegetation that is very close to, touching or nearly touching power lines needs to be removed because it poses a fire risk.
Depending upon the circumstances including the weather, the season and the location, the removal of vegetation can be a matter of urgency. Of course live power lines provide electricity to consumers. Obviously it is extremely dangerous for people to work with or near such lines, often at height, because of the risk of electrocution and death. The job of removing vegetation that is very close to or touching live power lines is called a VMO1 job. The job of removing vegetation that is not then close enough to pose such a danger, or poses a lesser danger to a pruner, for example, is called a VMO2 or VMO3 job as the case may be, depending upon proximity and estimated growth.
The cost of carrying out VMO work is scaled according to how dangerous it is.
A significant consideration in the business of vegetation removal is whether it can be achieved without disruption of the relevant power supply to consumers. This is difficult and challenging for VMO work.
Workers engaged in this work require special training and equipment. The equipment, including chainsaws on poles, cherry picking platforms and the like, must be insulated in special ways so as to protect the worker from electrocution following inevitable contacts during the job.

Background contract

ATS conducted operations relevant to VMO work in, amongst other places, Western Australia. ATS had a contract with Western Power to carry out this sort of work.
ERP operated in Victoria but could provide VMO1 services in Western Australia and was asked to tender for VMO work with ATS referrable to ATS' contract with Western Power.
Unsurprisingly ERP had concerns about sending a VMO1 team, including vehicles and machinery across the country for a job of uncertain duration. However, according to ERP, a 12 month period of certainty of work was a viable proposition.

The contract

The business transacted between the parties was fairly well recorded and documented as prudent business practice requires. There is not a great deal of dispute about who said what to whom.
ATS and ERP reached an agreement that ERP would carry out VMO1 work. ERP says it was agreed the term of the contract would be at least 12 months. ERP did that work for about 10 months and then following the cessation of Western Power work to ATS, ATS ceased to provide VMO work to ERP.
In essence ERP is suing for the loss of two months VMO1 work in Western Australia, alleging that it was agreed that ERP was entitled to 60 days notice of termination and on the relevant occasion ERP got no meaningful notice at all.
It is further alleged that ATS had guaranteed 12 months work and only provided 10 months.
It is also alleged that ATS agreed that the amount payable for termination without notice would be $82,000 per month calculated as set out in the correspondence.`

Evidence

The principal officer of ERP was Christopher Garlick who gave evidence and spoke to the emails and documents said partly to evidence the contract. There was little controversy about what Mr Garlick said; his evidence about events can be accepted. It is his assumptions and decisions that are challenged.
The agreement upon which ERP relies is alleged to be partly written, partly oral and partly implied. The content of the email said to comprise the written parts are particularised in par 3 – 9 inclusive of the statement of claim.
There is much dispute about how the content of these admitted communications should be construed.

The email communications evidencing the contract

Dealings between the parties commenced by an email dated 6 May 2008 from ATS to ERP, exhibit 1.1, in which ATS invited ERP to submit an offer to provide relevant services.
ERP was instructed to follow certain and express guidelines and 'the terms and conditions in the included sub‑contract agreement'. ERP was to include pricing schedules which 'should include the following information'. There is also reference to rates having to be fixed from 1 June 2008 through to 30 June 2009 which is a period of 13 months.
Mr Garlick gave evidence that ERP wanted a guarantee of a minimum of 12 months work in Western Australia before he would mobilise his 'guys over here' (ts 41).
When asked what ATS response was to that, through Glen Fraser, Mr Garlick said:
… Glen – he said that they can't – it's an undefined workload. He reckons there will be more than a year's work, but he couldn't give a 100% guarantee on a year of work. But he said that he'd give us an assurance that until the workload started to run out and I think he drastically reduced that we'd be engaged [sic].
Mr Garlick's evidence was to the effect that the resolution of this difficulty was that 60 days notice was agreed at a meeting on 26 May 2008. 'He was happy to give us 60 days or more notice' (ts 43).
In relation to the discussion about a termination fee, Mr Garlick said he was invited by Mr Fraser to submit details of an acceptable termination fee which is what he did.
From the correspondence ATS seemed anxious to do business, wishing to engage a contractor to do VMO work for Western Power in Western Australia without delay.
Mr Garlick's evidence was to similar effect, that there was an atmosphere of urgency in the negotiations. Indeed Mr Glen Fraser, who was the relevant officer at ATS at the time that negotiations took place, also described a situation of some urgency in ATS obtaining a crew as soon as possible. He said that ATS had approached Western Power to see if the power could be turned off so that non VMO2 crew's could clear lines but all to no avail. He said that ERP was one of the few crews available that could actually do live line work at the time. He also said that there was an enormous backlog of VMO1 work, indeed more than 12 months worth.
It seems plain that ATS anticipated at the relevant time that up to 13 months work, that is work up until the end of June 2009, would be available.
ATS required completed and signed agreements with pricing schedules to be returned to ATS by 16 May 2008 which was within 10 days of the initial contact.
A 38 page contract had been attached to the email of 6 May 2008. It was common ground that the document was adapted from the contract let to ATS by Western Power.
The contract contained provisions dealing with its duration and termination.
Clause 4 heading 'engagement', at 4.1 headed 'no minimum' provided as follows:
The value of the services required under this agreement will be affected by external factors including weather conditions, response to fires and storm damage and the extent of vegetation growth, all as determined by the inspections conducted by the contractor. The contractor does not guarantee any minimum value of services required under the agreement.
Clause 5 provided heading 'contract period':
Services to be provided during contract period:
(a)the sub‑contractor shall provide the services from 23 June 2008 to 1 July 2009 ('contract period');
Clause 5.2 'early termination of contract period' provided:
The contract period shall be subject to early termination as provided in the agreement.
Termination was further dealt with in cl 18. Clause 18.1 headed 'Termination at Will' provided:
In addition to the rights of the parties as otherwise provided in the agreement, the contractor may, at anytime and at its absolute discretion, terminate the agreement by giving the sub‑contractor written notice to that affect which may include a period of notice.
ERP did not agree to cl 4 or cl 18. By email letter dated 19 May 2008 – exhibit 1.43, ERP offered alternative provisions as follows:
Clause 4.1 – minimum workload guarantee of one year. If the contract is terminated early, a claim for lost profit and crew relocation expenses would be placed on ATS by ERP.
Clause 18 – termination of contract. If contract is terminated through no fault of ERP, please refer to our comments above. ERP requires 60 days notice to find alternative work for the crews.
Clause 18.4 – an early termination fee will be calculated for insertion into the contract.
In the closing paragraphs of this letter Christopher Garlick, general manager of ERP stated:
I thank you for this opportunity and look forward to negotiating the points mentioned to an acceptable position.
Basically the first company/s that provides ERP with a secure commitment to accept crews will be afforded our resource.
If you are interested in locking in ERP crew/crews, please contact me as soon as possible.
Following receipt of this communication there was a meeting convened between ERP and ATS during the afternoon of 22 May 2008. ATS and in particular Mr Glen Fraser the then general manager, purported to reduce the main issues agreed at that meeting to writing (exhibit 1.49). Somebody at the meeting circled each of the unnumbered dot points in the 19 May letter and gave it a number. The response on 22 May 2008 referred to this 'numbered format'.
As a response to ERP's response about 4.1, which was formatted number 1, which sought a minimum workload guarantee of one year and so on, ATS replied 'ATS will require the services of ERP for the duration of the VMO1's. We give an assurance that until such times as the number of VMO1's are drastically reduced, we will continue to use ERP's services assuming that no safety, quality or product differ the issues'.
And then with respect to the proposed cl 18 of the contract dealing with termination, which bore numbered format 6, which sought 60 days notice, ATS responded 'agree to 60 days or more where possible'.
Finally with respect to cl 18.4 relating to the early termination fee calculation being inserted into the contract ATS responded 'ERP to determine'.
In the last paragraph of the email of 22 May, Glen Fraser for ATS said 'we look forward to receiving your revised hourly rate fee structure broken down into the necessary fields of the template provided'. This was in response to agreement of the need to revise the rates suggested by ERP, bearing in mind increases and adjustments.
ERP responded by email attaching a letter dated 23 May 2008 addressed to Glen Fraser of ATS which opened with the paragraph:
Thank you for your email yesterday regarding the points discussed at our recent meeting. In response to the items ERP are to clarify I offer the following: (Underlining mine)
Paragraph 1 headed 'early termination fee'
An early termination fee of $82,000 per month will be applicable for each month short of 12 months from our agreed start date 3 June 2008.
The letter also contained the promised revised rates.
Glen Fraser, in his evidence during the trial, said that he believed he left ATS shortly after the date of this letter being 23 May 2008.
The email was headed 'updated letter of offer ATS'. Chris Garlick of ERP wrote to Glen Fraser of ATS 'please find revised offer attached as discussed'.
However, it appears to be Glen Fraser who responded by email to Chris Garlick on 26 May 11.24 am being exhibit 1.52. He, to, headed the email 'Re: updated letter of offer ATS'. Along side the word 'importance' he wrote 'High'. He wrote 'Thanks for the update. As per our meeting, can you provide a full breakdown of the rates as agreed? We need this today if possible to allow Matt to get everything lined up to issue work packages.'
At 4.45 pm later that day, 26 May 2008, Matthew Allan, 'Matt', of ATS, sent another email to ERP, copying to Glen Fraser, relating to ERP's 'crew one'. The first paragraph of that letter reads:
Chris, as per our phone conversation, could you please send through all training details to Megs Buzza for the ERP1 crew … . They will be doing their ATS induction on Tuesday, 3rd June 2008 from 8 am with Megs and will be able to start cutting immediately after this.
Two days later, in email exchanges on 28 May 2008 at 10.31 am (EST?) ATS to ERP (page 55) ATS writes 'Chris we are getting pressured by WP to get these training docs in. Could you please ensure that we have all certificates for ERP one crew in by tomorrow and for the second crew by early next week.'
In its response ERP writes by email at 8.45 am (Perth time?):
Getting it together now.
We are still awaiting Orange books and I am talking with Thiess for a lot of the training we did there. We lost one of our live line guys however I am working on training a couple more guys next Wednesday …'
These communications strongly suggest that the parties had commenced to perform their obligations under the contract which in turn suggests they believed they had reached agreement. Mr Garlick's evidence was consistent with this conclusion.
It is noticeable that nothing further was said about the termination fee and in particular the response by ERP in relation to what ATS required in that regard.
It is clear from the correspondence and the evidence that from about 26 May ATS and ERP dealt with each other on the basis they had an agreement. The conduct of the parties for the following months is only consistent with that being the fact. I accept Mr Garlick's evidence on those matters.
Ten months go by.

Email communication – breach - termination

On 16 February 2009 at 1.16 pm ERP contacted ATS by email the subject being 'ERP tree clearing resource for week 23^rd Feb – 27^th Feb.'
ERP sought release of 'live line tree' crew to help with Victorian bush fires for a period of one week.
On 23 February 2009 by an email at 7.03 pm from ATS to ERP, ATS says:
Chris, as we discussed, we would like your live line crew to return to WA on Monday 9 March 2009. Can you please program this into your schedule.
ERP responds on 25 February 2009 at 10.52 to ATS as follows:
Given that the 9^th March is a public holiday in Victoria, would it be okay if we provided a live line crew commencing on Tuesday 10^th March?
Who would you like me to liaise with regarding the work detail? We used to deal with Colin however I understand there has been some restructuring.
ATS responded the same day by email at 5.51 pm to ERP:
Tuesday, 10^th March is acceptable to recommence the live line crew in WA. It would be best to deal with Neil in the first instance regarding the work dealings. He may refer you to either to Rod or Warren dependent upon were the work packages are located (sic).
On 25 March 2009 ERP sent an email to ATS entitled 'ERP ATS Vegetation Offer' which stated (exhibit 2):
Hi Chris as discussed last week, please find attached an offer from ERP to be part of ATS vegetation management tender moving forward.
In good faith and based on our current working relationship, ERP are offering ATS first right of refusal to secure our resource for VMO1 cutting.
Naturally if you do not wish to commit to any formal agreement, ERP would still hope to support ATS in the vegetation management in the future.
We are current securing long term guaranteed work agreements with other clients and we want to offer similar to ATS. We believe this would be a nice fit for both our businesses. Please call if you have any queries.
On Thursday 26 March 2009 at 5.39 pm ATS emailed ERP subject 'outstanding training requirements'. The email implied that ERP's personnel on hire to ATS were not fully trained and that they should have been.
In another email on the same date but three hours later and in response, EPR appeared bemused by the implied criticism assuring ATS that all ERP people were trained properly. That email was acknowledged by ATS on Friday 27 March 2009 at 10.42 am.
Later that day, 27 March, ATS emailed ERP subject: Re 'ongoing work' as follows (exhibit 1.61):
I understand you have told Andy Marinkovic that your crew will be turning up for work on Monday 30/3/09, despite being told there is no work available for them.
Warren Goodfield also advised your WA manager, Adrian Hallis on Monday 23/03/09 that there would be no work for your crew the following week and he confirmed this again during the week.
Warren also advises that he has been told the crew is not available the week after next commencing 6/4/09.
I did say to you on the phone that I wanted your crew to return but I was unsure how long they would be required.
If your crew does arrive for work on Monday they will not be paid.
It is quite difficult to follow this email given its reliance on conversations unconfirmed in any contemporaneous email communications.
On the following Monday, 30 March 2009, at 3.45 pm ERP responded to ATS subject 'Cessation of live line crew' as follows:
I find this action totally unacceptable and must say it is very disappointing especially concerning that only last week ERP offered ATS first option of our resource for the upcoming Western Power tender. To receive an email at 7.30 pm on a Friday night given my 'out of office' was a very poor method of communication.
As you are aware ERP were requested by Sp Aus Net to maintain our live line crew in King Lake until the end of April to support the bushfire recovery project. However as this crew had been working with ATS for the previous 12 months, ERP gave you the option of having the crew return to support your VMO1 project. Subsequently you requested the crew return due to the number of VMO1s that had been identified. To have the work to now cease in less than 3 weeks leaving the crew stranded is very unprofessional of ATS and reflects very poorly on your company resource management. We now have a live line crew without work and a cost of thousands of dollars to our company. As you can understand the formation of the crew for your work (2 x G and G and B 1 x other) means sourcing work is very difficult as traditional G and B crews require 3 x G and B line works.
I have also been advised that there is VMO1 work however the VAs have not been processed to allow this work to be completed. If this is correct then ERP are being penalised for shortcomings within ATS and again this is very disappointing.
ERP will be invoicing ATS for the flights that were booked and we are currently trying to source alternative work for this crew.
Regarding crew availability, Warren did ask for a copy of our crew's moving forward and advised that the crew would have the week ending 19/4 off to extend the Easter break.
Can you please advise when and if you require a crew moving forward to allow us to program our resources?

By email dated Friday, 3 April 2008 (exhibit 11) from Andrea Blackburn of Western Power to Chris Perrott of ATS, and referring to an earlier discussion 'on Thursday' that Perrott said was in fact the Thursday the week before (ie, 26 March) ATS was notified Western Power was reducing the work required because of budgetary factors relating to overspending before 'Distribution Cutting'.
This was followed up by a more detailed email from Western Power to Perrott on Monday, 6 April 2009 (exhibit 12). This email referred to a new and reduced budget for distribution cutting but also stated that 'VMO1 cutting to continue as scheduled. As VMO1 numbers decrease to a manageable level, live line crew strength may decrease accordingly.'
The final group of documents to be mentioned, being in chronological order of creation, but tendered earlier, were three emails relating to lodgement of a claim. Exhibit 3 was an email dated 27 July 2009 from Chris Garlick to ATS setting out relevant history and giving notice of a claim for $164,000.
Exhibit 4 was ATS' response dated 18 August 2009 rejecting the claim and explaining why.
Exhibit 5 is ERP's response dated 20 August 2009.

Observations – Did ATS agree to 60 days notice of termination?

As I have indicated in the remarks I have made so far this is not a case where there is a great deal of dispute about events. Chris Garlick was the general manager of ERP and he was the person involved in the transaction from start to finish on behalf of ERP. Mr Glen Fraser was the general manager of ATS and he was involved in the matter until about 28 May 2008. Thereafter other persons including Matthew Allen, Megs Buzza took responsibility on behalf of ATS. By February 2009 when difficulties started to occur, Chris Perrott was in charge on behalf of ATS.
The change in personnel at or about 28 May 2008, apparently brought about by a restructuring within the company, may well have been a factor in the lack of ATS' response to ERP's proposals. Perhaps that can be said to have been unfortunate from ATS' point of view, however it is quite clear to me that prior to and during May 2008, from the email correspondence and also having regard to the oral evidence in the case, that ATS was very keen to have ERP in Western Australia at work, as soon as possible, cleaning vegetation from power lines. There was a sense of urgency in the negotiations. This can be picked up particularly from the email traffic but also the evidence of Chris Garlick as I have mentioned.
In my view this factor needs to be borne in mind in the consideration of the case.
In its email of 19 May 2008, exhibit 1.43, the relevant contents of which are set out earlier in these reasons I mentioned that ERP gave notice of requiring 60 days notice of termination.
As I set out ATS' response to this was 'agree to 60 days or more where possible'.
ERP asserts that ATS' response means that it agreed to 60 days notice and that ATS would try and give more notice if possible.
ATS' interpretation is that the response means that it agrees to giving notice, whether 60 days or more, if possible.
Clearly there was no punctuation in the response (not unusual it might be said, these days). What is clear is that ERP wanted 60 days notice and would not have left Victoria and have travelled to Western Australia unless that was agreed.
I can only reiterate that ATS wanted ERP at work. I think an independent observer or reasonable bystander would say that ATS agreed to 60 days notice. That view is consistent with what the parties said next. ERP stated that 'an early termination fee will be calculated for insertion into the contract' and ATS responded 'ERP to determine'.
Thereafter, in its response, ERP said:
An early termination fee of $82,000 will be applicable for each month short of 12 months from our agreed start date 3 June 2008.

Was the fee agreed at $82,000 per month?

As I have mentioned ERP heard nothing further from ATS about the termination fee during the busy communicational toing and froing that occurred in the following days as the parties commenced the business of implementation of their agreed obligations, which each performed satisfactorily, for the next 10 months or so.
Put another way there was no response from ATS to ERP about the calculation of termination fee ERP provided. Both parties went about the business upon which it appears to me they were bent.
It is put on behalf of ERP that by silence and conduct ATS accepted ERP's proposals concerning the existence and means of calculation of the termination fee. A reasonable bystander/objective observer might well regard ATS' conduct (ie, in proceeding to arrange for and utilise the services of ERP) together with ATS' silence (following ERP's communication of requested termination fee details) as signalling to ERP that the fact and quantum of the fee were accepted.
The gist of submissions provided indicate that ERP's view is they would never have sent a VMO1 crew to WA from Victoria, with all of the costs and arrangements that that requires, if their requirement for 60 days notice of termination was not agreed.
Having heard Mr Garlick and considered the correspondence I accept that ERP had that view.
The same point is not made with respect to the termination fee. This is understandable given the details of the suggested fee were 'offered' by ERP.
In my view ATS agreed to pay a termination fee.

Was the fee a reasonable pre-estimate of loss?

ERP maintained that ATS, by silence and conduct, agreed the fee would be $82,000 per month (see amended statement of claim cl 12.3.6 and cl 12.3.7).
The asserted fee of $82,000 per month was calculated by Mr Garlick. He arrived at an hourly rate first. He selected a figure of $130 per hour for each worker, of which there were three resulting in $390 per hour. The hire of a cherry picker he fixed at $110 per hour. The wood chipper and tipper he fixed at $40 per hour and the support vehicle of $30 per hour giving a figure in total of $570 per hour (ts 117).
Mr Garlick assumed 18 work days in a month, taking into account a nine day fortnight, each fortnight with one rostered day off. He also assumed an eight hour day, an agreement for two months notice of termination which gives 570 x 8 x 18 x 2 = $164,160 or, rounded down, $82,000 per month.
In making this calculation, Mr Garlick neglected to make any allowance for the cost of earning the $82,000 per month. There was no controversy about this. However, the error does not detract from the genuineness and honesty of the calculation as a pre‑estimate of damages.
Mr Garlick's evidence, emphatically, was that as a result of the termination without notice, ERP had three VMO1 qualified men idle for the two months. These men were not the same every week because of roster variations and so on, but he was unshakeable in his view. Hence, ERP said the calculation of the asserted monthly amount for the fee for early termination was a reasonable pre‑estimate of damages made in good faith at the time and therefore not a penalty.
On behalf of ATS it was put that given that ATS was at the mercy of Western Power, such that Western Power could cease providing work at any time without notice, ATS would never have agreed to 60 days notice of termination. It is argued that it would not have made commercial sense.
That might be so but I do not think that I can give the proposition any weight. This case requires an analysis of what happened, what was done and what is a reasonable interpretation of what was done. It is not possible to take into account what inferentially one of the parties might, perhaps should, subjectively have believed.
In par 38 of its written submissions ERP states:
ERP relies on the principles stated in Ringrow Pty Ltd v BP Australia Pty Ltd [2005] 224 CLR 656 where the High Court discussed the principles relating to a penalty clause. Applying the principles to this case:
38.1The sum of $82,000 was a genuine pre-estimate of the damage likely to be caused by the breach bearing in mind ERP has assessed the loss for one crew and part only and not more.
38.2The amount was not stipulated as in Terrorem.
38.3The circumstances that ERP was a Victorian company that had to relocate resources to Western Australia and rent premises and faced relocation expenses and delays in obtaining alternative work should 60 days not be given are inherent circumstances of the particular contract judged of as at the time of the making of the contract, not as at the time of the breach.
38.4The sum stipulated for was not extravagant and unconscionable in amount in comparison with a greatest loss that could conceivably be proved to have followed from the breach. This is particularly exemplified when the actual earnings per month as shown in exhibit 1.63 is considered.
38.5The termination of the contract or stand down of workers were not trifling matters that would cause trifling damages.
I accept those submissions. I am satisfied on the balance of probabilities that the sum of $82,000 per month termination fee was not a penalty and was a genuine pre‑estimate of damages.
In my view the plaintiff is entitled to judgment of the sum of $164,000 together with interest at 6% per annum from 31 May 2009 which is $35,030 giving a total of $199,030.