Elite Fleet Pty Ltd v Westpac Banking Corporation
[2011] NSWSC 958
•23 June 2011
Supreme Court
New South Wales
Medium Neutral Citation: Elite Fleet Pty Ltd v Westpac Banking Corporation [2011] NSWSC 958 Hearing dates: 23/06/2011 Decision date: 23 June 2011 Jurisdiction: Equity Division - Duty List Before: Brereton J Decision: Defendant restrained from making payments from employee deductions to any person other than plaintiff.
Catchwords: INJUNCTIONS - Interlocutory injunctions - plaintiff seeks to restrain defendant from breaching negative stipulation in contract - seriously arguable case - seriously arguable that properly construed contract does not allow termination of agreement in way alleged by defendant - interlocutory injunction likely to be practically conclusive of issue - injunction seeks to enforce negative stipulation - consistent with equitable principles to enforce such stipulations - argument damages sufficient remedy - fact plaintiff will suffer non-compensable reputational damage and may be put in breach of obligations to third parties entails breach cannot be sufficiently remedied by award of damages - balance of convenience - detriment to plaintiff would be irremediable reputational damage - defendant would merely be paying moneys to persons other than plaintiff - damages not adequate remedy for breach of monetary obligations - interlocutory injunction granted. Legislation Cited: (NSW) Defamation Act 2005, s 9 Cases Cited: Doherty v Allman (1878) 3 AC 709 Category: Interlocutory applications Parties: Elite Fleet Pty Ltd (plaintiff)
Westpac Banking Corporation (defendant)Representation: Counsel:
IM Neil SC (plaintiff)
D Kulevski (defendant)
Solicitors:
Gillis Delaney Lawyers (plaintiff)
Allens Arthur Robinson (defendant)
File Number(s): 2011/ 185833
Judgment (ex tempore)
The defendant Westpac Banking Corporation ('Westpac') offers to certain of its employees a novated salary sacrifice arrangement by which they obtain the use of a private vehicle within their salary package. As part of those arrangements, when the employee leases the car, a fleet management provider, such as the plaintiff Elite Fleet Pty Limited ('Elite'), takes care of relevant matters and payments in respect of the car, including the lease payments to the financier of the car lease, payments for insurance and registration, and payments for servicing, petrol and roadside assistance. Elite is one of three fleet managers currently used by Westpac. A total of 173 Westpac employees, using 182 cars, have salary sacrifice arrangements managed by Elite. Each of the subject vehicles is financed by St George Finance Limited ('St George Finance'), now a wholly-owned subsidiary of Westpac.
The arrangements between Elite and Westpac are contained in a Fleet Services Agreement of 14 November 2008, relevantly made between St George Bank Ltd ('St George Bank') and Elite, prior to the takeover of St George by Westpac. It is accepted that subsequent to the takeover, the agreement now binds Westpac. The arrangements essentially are that once an employee chooses a car that he or she wishes to lease, the employee receives a quote from one of the contracted fleet managers, and if he or she wishes to proceed, does so through the fleet manager. The quote includes a forecast of the amount of expenses that the fleet manager will have to pay on an ongoing basis in respect of the car. Once the car is provided to the employee, the fleet manager notifies the payroll department of Westpac to commence salary deductions in a certain amount, and then on a fortnightly basis Westpac deducts the amount and forwards all employee deductions referable to a fleet manager to that manager's bank account. In addition to the amount forecast for car expenses, the deduction includes a management fee for the fleet management provider, which is the fleet manager's sole source of profit from the arrangements, as the other payments received by it are referable to the actual cost to it of providing the fleet services in respect of the vehicles. The deductions other than the management fee are, in due course, remitted by its fleet provider to the third parties with whom it has contracted. Half or more of the deductions are referable to the lease finance and, on that account, are paid to Westpac's subsidiary, St George Finance.
The arrangements between Elite and Westpac are contained in a Fleet Services Agreement of 14 November 2008, relevantly made between St George Bank Ltd ('St George Bank') and Elite, prior to the takeover of St George by Westpac. It is accepted that subsequent to the takeover, the agreement now binds to Westpac. Clause 3 provides that the agreement is for an initial term of 36 months from the commencement date, unless earlier terminated in accordance with clause 11 of the agreement. Clause 3.1 affords St George, and by extension Westpac, the option 'at its absolute discretion' to extend the term of the agreement for a period of 12 months upon providing written notice to Elite. Accordingly, unless earlier terminated in accordance with the terms of clause 11 or unless extended by Westpac under the option given to it in clause 3.1, the agreement will expire on 13 November 2011, the date of the close of the last day of the term of the agreement as prescribed by clause 3.2.
Clause 4 ("Consideration & Fees") relevantly provides as follows:
The parties acknowledge that Elite is providing the Fleet Services under the terms and conditions of this Agreement in consideration for the appointment by St. George of Elite to the St. George Panel of Fleet Providers and St. George performing its obligations under the terms and conditions of this Agreement. On behalf of the Employees to whom Elite provided a quote in accordance with clause 6.5.1 that was accepted by the Employee and a Novated Lease Agreement executed, St. George will deduct from the relevant Employee's salary and provide to Elite:
(a) the management fee as determined in accordance with clause 6.5.1(h);
(b) registration costs as paid by Elite;
(c) the lease payments to enable Elite to satisfy its obligations in clause 6.5.4;
(d) the quoted budgeted running and maintenance costs in accordance with clause 6.5.1 and 6.5.5.
Elite acknowledges that it receives all the remuneration to which it is entitles [ sic ] from the Employees and that no fees are otherwise payable by St. George under this Agreement to Elite.
Clause 11 ("Termination") relevantly provides as follows:
11.1 In addition to any other rights to terminate, St. George may terminate this Agreement in its discretion at any time, by providing Elite with 90 days written notice...
11.3 This agreement may be terminated by St. George without prior written notice in the event Elite:
(a) is in default in the performance and observance of its obligations under this Agreement and, where the default is capable of remedy, the default remains unremedied for a period of 14 days after written notice of the default has been given to Elite by St. George; or
(b) has a petition or other application presented in relation to it or a resolution is passed for the winding up, liquidation or dissolution of Elite or notice of intention to propose such a result is given or the entry of Elite into a scheme of management with any of its creditors; or
(c) has a receiver and manager appointed or an administrator or official manager or agent of a secured creditor to any of Elite's property;
(d) ceases to carry on business; or
(e) makes a fraudulent statement or misrepresentation in relation to the Fleet Services or the operation of St. George's business.
11.4 Transition Assistance. St. George may request Elite to assist in effecting Transition-Out at any time before the expiry of the Term or after receiving or issuing a notice of termination under this Agreement. Upon receipt of a Transition-Out assistance request, Elite must provide all services reasonably necessary to effect Transition-Out (including provision of the Fleet Services where necessary) as reasonably requested by St. George. St. George will pay Elite's reasonable costs in providing the services under this clause provided that if this Agreement is terminated under clause 11.3 all costs, losses and expenses incurred by St. George as a result of the termination will be borne by Elite, and Elite will bear its own costs of effecting Transition-Out in accordance with this clause.
On 1 June 2011, Westpac gave Elite 90 days notice of its intention to terminate the agreement. That notice period expires on 21 August 2011. In the letter serving that notice, Westpac alleged various defaults on the part of Elite in performance of the Fleet Services Agreement, but it has not at this stage invoked any of those defaults as grounds for termination for cause. Having referred to those defaults, Westpac's letter of 1 June 2011 continued:
Given Elite's ongoing failure to meet the service level requirements of the Elite Agreement, the bank is not confident that Elite will meet these requirements and provide the fleet services during the 90 day notice period. Accordingly, although the bank will continue to make relevant deductions from employees' salaries, it will no longer forward these amounts (other than the management fee) to Elite. Instead, the bank will forward these deductions direct to the relevant third party providers to be applied towards the required lease and other payments. This arrangement will continue unless the agreement is terminated earlier under cl 11.3.
On 6 June 2011 Elite approached the Court ex-parte for interim relief and obtained an ex-parte injunction, upon the usual undertaking as to damages, restraining Westpac until 8 June 2011 from making the payments from employee deductions described in clause 4 of the Fleet Services Agreement to any person other than Elite. When the matter returned to Court on 8 June, the injunction was continued by consent and without admissions until 16 June, to enable Westpac to adduce evidence for the interlocutory hearing. The interlocutory hearing took place on 16 June, when the injunction was further extended until today while judgment was reserved.
Westpac alleges, in the evidence it has adduced, that Elite has outstanding obligations to account to various employees of Westpac in the order of about $98,000, and that Elite is indebted to Westpac on overdrawn accounts, payment of which Westpac has demanded, in the sum of about $787,000. Immediate repayment of that sum was demanded by Westpac on 10 June. On the other hand, Elite alleges that arising out of longstanding disputes between the parties, Westpac is indebted to it for several hundred thousand dollars. However, the main issue raised by Westpac on the interlocutory hearing is that it claims that it has now "transitioned out" the fleet services under clause 11.4 of the Fleet Services Agreement, and no longer requires Elite to provide such services. However, there is no evidence of any instruction or request by Westpac to Elite to that effect, nor of any instruction or request to cease to provide the fleet services.
On an application such as the present for an interlocutory injunction, the issues are first, whether the applicant establishes a serious question to be tried for final relief; secondly, whether the balance of convenience favours the grant or the withholding of interlocutory relief, having regard to the strength of the serious question; and thirdly, general discretionary considerations, including any questions of delay and the like.
I turn first to whether there is a serious question to be tried for final relief. It is plain from Westpac's 1 June 2011 letter that it intends not to perform its obligations under clause 4 of the Fleet Services Agreement by remitting the employee deductions to Elite. It is, in this respect, important to note that, as clause 4 makes clear, the money in question is not Westpac's money but the employees' money, and that Westpac merely deducts it from the employees' salaries and provides it to Elite, Elite acknowledging that such remuneration is received from the employees and not from Westpac. For that reason, assuming for present purposes that Elite is indeed indebted to Westpac for $787,000 in respect of the overdraft accounts, that does not give rise to any entitlement on the part of Westpac to set-off this obligation, which is an obligation in respect of moneys other than its own.
Secondly, although Westpac alleges that Elite is in some ways in default of its obligations to account to employees in respect of overpayments by way of deductions made from employees' salaries, that too is a matter between Elite and the employees, and not between Elite and Westpac. Moreover, at least at this stage, no employee has come forward to make such a complaint in the proceedings. It seems to me, on that basis, plain that it is strongly arguable that unless restrained, Westpac will, as it has indicated in its letter of 1 June, deal with employee deductions in a manner inconsistent with its contractual obligations under clause 4.
In answer to this, Westpac says that it has "transitioned-out" the fleet services under clause 11.4, so that there are no longer any fleet services in respect of which Elite is entitled to remuneration. In clause 1.1 of the Fleet Services Agreement, "transition out" is defined to mean:
The orderly transition of the Fleet Services from Elite to St. George or a replacement service supplier in the event of termination or expiry of this agreement.
In reference to clause 11.4 - which has already been set out above - the following points are to be noted. First, a request by Westpac to assist in affecting transitioning out may be made "at any time before the expiry of the term or after receiving or issuing a notice of termination under this agreement". That, therefore, admits that such a request could be made at any time after commencement of the agreement and whether or not notice of termination has been issued. Secondly, clause 11.4 describes the "transition out assistance" as including provision of the fleet services, where necessary. During the term of the agreement, in any event, Elite is required to provide the fleet services. The words "including provision of the fleet services where necessary" would have work to do, it seems to me, only if they operated as an extension of the obligations that already existed under the agreement; that is some indication that they are intended to apply to a period after the termination of the agreement. Thirdly, the clause provides for St George to pay Elite's costs in providing transition out services, unless the Fleet Services Agreement is terminated by Westpac for default on the part of Elite. Again, that suggests that transition assistance is intended to be something additional to what is otherwise required of Elite by the Fleet Services Agreement. Finally, if clause 11.4, in conjunction with the definition of "transition out", were construed to mean that Westpac could make a transition out assistance request and implement the transition out prior to termination of the agreement in accordance with its terms, that would render pointless the various provisions for termination of the agreement on notice and enable them to be defeated, or at least out-flanked, by a side wind.
It is unnecessary for me, on this application, to reach a concluded view about the construction of clause 11.4. It suffices that I conclude that it is at least seriously, if not strongly, arguable that upon its proper construction it does not authorise the de facto termination of the agreement by the transition to another fleet provider of the fleet services prior to the event of termination or expiry. That view receives further support from the definition of "transition out", which speaks of the orderly transition "in the event of termination or expiry of this agreement." In my view, it is seriously arguable that that means "upon" - and thus not before - termination or expiry of the agreement.
Of course, it is relevant to consider not only whether there is a seriously arguable case in principle, but also whether there is a seriously arguable case on a final basis for the type of relief presently sought. The need to do so is accentuated in the present case, since any interlocutory injunction is likely to operate until 31 August 2011 when the agreement will terminate in any event, so that in respect of the type of relief granted, although not the ultimate question of liability, the interlocutory decision is likely to be practically conclusive. Accordingly, the question is not only whether there is a seriously arguable case of breach of contract, but also whether it is seriously arguable that the plaintiff should have an injunction to restrain that breach as opposed to damages for breach of contract.
The first argument put to the contrary is - although I am not sure that it was put in precisely these words - that such an injunction would be in the nature of specific performance of part of an agreement, in circumstances that might require the ongoing supervision by the court of the contract for the remainder of its term and which, involved relations of trust between the parties. However, the injunction, at least as framed, is largely in terms of enforcing a negative contractual stipulation, and it is well-established that despite the Court's reluctance to grant specific performance of parts of a contract, it is entirely consistent with principles of equity to restrain breaches of negative contractual stipulations. As Lord Cairns LC observed in Doherty v Allman (1878) 3 AC 709 (719-720):
If the parties, for valuable consideration, with their eyes open, contract that a particular thing shall not be done, all that a Court of Equity has to do is to say, by way of injunction, that which the parties have already said by way of covenant, that the thing shall not be done; and in such a case the injunction does nothing more than give the sanction of the process of the Court to that which already is the contract between the parties.
There is therefore no objection to the type of relief sought. The complaint that it would involve ongoing supervision of a contract is not a weighty one in the present circumstances: all that the injunction sought would require is that Westpac not disburse such deductions as it makes, other than to Elite, and in particular that it not itself directly pay third party service providers as opposed to remitting the funds to Elite for it to do so. So far as the question of a relationship of trust is concerned, the injunction would not require Westpac to continue to accept services from Elite, but only to deal with the moneys it deducts from its employees' salaries in a certain way.
The other significant argument in this area was that it was said that damages were not only a sufficient but the quintessential remedy for a breach of contract of this type. That may have been the case many years ago. To my mind, at least in the second decade of the 21 st Century, the circumstance that a party may be out-of-pocket in the short term through a deliberate breach by another party of its contractual obligations is not necessarily one in respect of which damages can be said to be a sufficient remedy. The time value of money is not sufficiently compensated by an award of interest, if the absence of money in the short-term results in, at worst, the insolvency of the creditor or puts that creditor in a position where it is unable to meet its own obligations, or inflicts reputational damage on the creditor, particularly as damages for injury to reputation are at least ordinarily not recoverable as damages for breach of contract but only in defamation, which would not be available in the context of this case, inter alia, because of the corporate status of the parties [see (NSW) Defamation Act 2005, s 9]. It seems to me, that if courts have been reluctant in the past to enjoin the timely performance of monetary obligations, that is a reluctance which, in this day and age, is no longer as appropriate as it might once have been. In any event, because the reputational damage to Elite would not be recoverable easily, if it at all, by way of damages for breach of contract, and because failure to remit these funds is likely to put Elite in breach of its obligations to remit those funds to third parties, there is every reason why Westpac's obligation should be considered as one the breach of which would not sufficiently be remedied by an award of damages.
I conclude, therefore, that Elite has a seriously arguable case for final relief by way of an injunction in the form sought on an interlocutory basis.
As to the balance of convenience, the question is really one of balance of prejudice, and boils down to comparing the detriment to Westpac, if an interlocutory injunction is granted but it eventuates that an injunction ought not have been granted; against, on the other hand, the detriment to Elite, should I wrongly decline an injunction. It seems to me that in the later case, the risk is that Elite would suffer irremediable and irrecoverable reputational damage and may in fact be put in a position where it is unable to meet its own obligations to third party service providers and is thus put in breach of those obligations. In the former case, if I were to wrongly grant an injunction, the result would be that Westpac would remit the moneys deducted from employees to Elite for payment in due course to third party providers, in accordance with its contractual obligation, rather than paying them direct in accordance with its unilateral wish to do so. It seems to me that there is precious little detriment to Westpac from the incorrect granting of an injunction: Westpac will not be out-of-pocket at all.
The balance of convenience favours the grant of interlocutory relief, and no other discretionary consideration such as delay tells against it.
I order that until the hearing or further order, the defendant be restrained from making the payments from employee deductions described in clause 4 of the Fleet Services Agreement between St George Bank Limited and Elite Fleet Limited dated 14 November 2008 to any person other than the plaintiff.
I order that costs of the interlocutory application be the plaintiff's costs in the proceedings.
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Decision last updated: 26 August 2011
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