Highland Harvesters Pty Ltd v K J and S M Williams Pty Ltd

[1998] TASSC 119

119/1998

PARTIES:  HIGHLAND HARVESTERS PTY LTD
  v
  K J & S M WILLIAMS PTY LTD

TITLE OF COURT:  SUPREME COURT OF TASMANIA
JURISDICTION:  ORIGINAL
FILE NO/S:  134/1997
DELIVERED:  2 October 1998
HEARING DATE/S:  23 September 1998
JUDGMENT OF:  Underwood J

CATCHWORDS:

Contracts - General contractual principles - Construction and interpretation of contracts - Implied terms - Generally - Informal unwritten contract in the nature of a contract of employment - Test for implication of term that reasonable notice of intention to terminate must be given.

Hawkins v Clayton (1987 - 1988) 164 CLR 539; Byrne v Australian Airlines (1995) 69 ALJR 797, applied.
Aust Dig Contracts [105]

Contracts - General contractual principles - Construction and interpretation of contracts - Implied terms - Generally - Informal unwritten contract in the nature of a contract of employment - What amounts to reasonable notice to be determined at the time of breach - Matters relevant to what is reasonable.

Martin-Baker Aircraft Co Ltd v Canadian Flight Equipment Ltd [1955] 2 QB 556; Quinn v Jack Chia (Australia) Ltd [1992] 1 VR 56, followed.
Aust Dig Contracts [105]

REPRESENTATION:

Counsel:
             Plaintiff:  B R McTaggart
             Defendant:  M E O'Farrell and M H Lyon
Solicitors:
             Plaintiff:  Jennings Elliott
             Defendant:  Dobson Mitchell & Allport

Judgment category classification:
Court Computer Code:  
Judgment ID Number:  119/1998
Number of pages:  5

Serial No 119/1998
File No 134/1997

HIGHLAND HARVESTERS PTY LTD v K J & S M WILLIAMS PTY LTD

REASONS FOR JUDGMENT  UNDERWOOD J

2 October 1998

Roger Farley is a licensed tree faller.  He is the sole shareholder and director of the plaintiff.  Kevin Williams is a logging contractor.  He is a director of the defendant company.  The two men have known each other most of their lives.  In January 1996 a contract between the plaintiff company and the defendant company came to an end and this litigation arises out of the termination of that contract.  Throughout their dealings the acts and words of the two men were the acts and words of their companies so, for convenience, I shall hereafter simply refer to Mr Farley and Mr Williams.  

In 1995, Mr Williams had an oral contract with "Boral Timber".  The precise identity of Boral Timber was not disclosed by the evidence, but it was clear that "Boral" was a timber company that (inter alia) bought logs from logging contractors and operated a chip mill.  Every Monday morning Boral advised the logging contractors of the quantity of logs it would receive from each of them at its mill during the week.  This was known as the "quota".  Mr Williams' agreement with Boral specified a weekly quota up to a maximum of 500 tonnes.  Mr Williams owned skidders, traxcavators and other equipment necessary to get the logs from the bush to the mill.  He employed men to fell the trees (both saw logs and chip wood), to drag them to the landings and to prepare them for carting to the mill.  It appeared to be common ground that to act lawfully, a tree faller had to be licensed by some State authority. 

The whole operation was really controlled by Boral.  Upon the opening of a new coup, a supervisor employed by Boral walked through the coup and, having regard to the nature of the timber and the terrain, set a rate to be paid for felling the trees.  Different rates were struck for chip wood and saw logs.  If a faller thought the rates unreasonable, he could try and negotiate a better rate with the Boral supervisor.

Mr Farley was an independent contractor.  He supplied his own chainsaws, hammers, wedges, safety gear and other equipment necessary to fell trees.  The plaintiff company employed Mr Farley and the money it earned from contract tree felling, was held by it as trustee for the Farley Family Trust.  This was a lawful arrangement, with obvious taxation advantages for the Farley family. 

In 1995 Mr Farley was felling trees for a contractor he called "Shaw Forestry".  In July that year he approached Mr Williams to see if he had any work for him.  Mr Farley thought that if he worked for Mr Williams, he would make savings on his travelling and camping expenses.  There was some discussion between the two men about Mr Farley's licences, experience and capabilities.  Mr Farley explained to Mr Williams about his company being the contractor and, in the end, it was agreed that Mr Farley would work for Mr Williams as a tree faller.  It was agreed that for this work Mr Farley would be paid the rate set by Boral from time to time.  It appears that Mr Farley did not hold a current driver's licence at that time, and as part of the contract between them, Mr Williams said he would arrange for one of his employees, Mr Michael Luttrell, to pick Mr Farley up each morning from his home in Perth and return him there after work.  It was agreed that Mr Farley would start work shortly after this agreement was made.  The evidence does not allow a precise finding to be made as to when Mr Farley started work, but I find it was more than a week, but less than two weeks, after the discussion between the two men which resulted in the contract.  I also find that the reason for the delayed start was so that Mr Farley could give Shaw Forestry notice of his intention to terminate his contract.

At the time the contract was made, Mr Williams employed three men to drag the timber from the bush after it had been felled and to get it ready for transportation.  He thought that the operation would be more efficient if the faller helped the others when not felling trees.  This would enable Mr Williams to reduce the whole team from four to three men.  Either at the time the contract was entered into or shortly thereafter, Mr Farley agreed to Mr Williams' request to help the others when not felling trees and, in return, Mr Williams agreed to pay Mr Farley an extra $200 per week. 

Upon this basis, Mr Farley worked for Mr Williams from about the middle of August 1995 until about 8 November 1995 when Mr Farley suffered a back injury.  He was off work for about six weeks.  During this time, Mr Williams obtained the services of other tree fallers as and when he could.  After his return to work, Mr Farley continued until 23 January 1995.  On that day he was unwell, so he rang Mr Luttrell and told him not to pick him up.  The next morning at the usual hour of 5.30am, Mr Farley waited for Mr Luttrell to pick him up, but he did not arrive.  About 8.30am, Mr Farley telephoned Mr Williams to report that Mr Luttrell had not turned up.  Mr Williams said he knew that, because the previous day he had instructed Mr Luttrell not to take Mr Farley to work.  There was a dispute between the evidence of Mr Williams and the evidence of Mr Farley with respect to precisely what was said thereafter during this telephone conversation.  The difference between the two accounts is of no great moment in the circumstances of the case, but where there is a difference, I prefer the evidence of Mr Farley to that of Mr Williams.  It is quite clear that Mr Williams was displeased with Mr Farley's unexpected absence from work on 23 January 1995.  It is equally clear that he then determined to dispense with Mr Farley's services.  That day he obtained temporary tree faller permits for his other two employees.  I have no doubt that a significant matter then in Mr Williams' mind was that during the five months that Mr Farley had been working for him, the former had been off work for six weeks on compensation, in addition to being absent on this day.  Mr Farley's account of the conversation on the telephone on 24 January 1996 is consistent with a determination on Mr Williams' part to unilaterally terminate the contract.  Mr Williams claimed in cross-examination that he only wanted to discuss the situation with Mr Farley, and that at the time of talking to Mr Farley on the telephone, he had not resolved to bring the contract to an end.  However, that account is inconsistent with his direction to Mr Luttrell not to bring Mr Farley to work and inconsistent with Mr Williams making no attempt to speak to Mr Farley prior to the latter ringing him.

I find that Mr Williams said to Mr Farley on the telephone that "he wanted to call it a day".  I find that he then said that he would get the dockets out of the truck and "I'll pay you what I owe you and we'll call it a day".  I further find that Mr Farley asked Mr Williams why the contract was being brought to an end, and Mr Williams said, "Because we can't afford a faller on contract, we want one on wages".

Mr Williams claimed that he said to Mr Farley on the telephone that "it wasn't working out and we ought to call it a day" and claimed that Mr Farley responded, "all right we'll call it a day" and thereby agreed to the termination of the contract.  However, I reject that evidence.  In addition to the matters to which I have already referred, it is clear from the way in which Mr Williams gave his evidence that his recollection of the details of this telephone conversation was not good.

Mr Farley has brought these proceedings against Mr Williams upon the basis that:

• it was an implied term of the contract that he would be given notice or money in lieu thereof before the agreement would be terminated;

• Mr Williams was in breach of that implied term; and

• is liable to pay damages for breach of contract.

  The defendant's response to the plaintiff's claim is:

• there was no implied term as alleged by the plaintiff, but in any event,

• the agreement was terminated by mutual agreement during the telephone conversation on 24 January 1995.

• Alternatively, if there was an implied term that notice of termination had to be given, reasonable notice was, at most, one month, but in any event,

• the plaintiff has suffered no damage.

  Shortly after 24 January 1995, Mr Farley visited Mr Williams at his home.  He took with him a form issued by the Department of Social Security entitled "Employment Separation Certificate".  Mr Farley said that he asked Mr Williams if he would complete this form.  Mr Williams handed it to his wife and asked her to complete it.  This was done and the form handed back to Mr Farley.  In the space under the heading "Give Reason for Voluntary Termination of Employment or for Unsatisfactory Work Performance:" Mrs Williams wrote, "Roger left under mutual agreement".

  Mr Farley said that when he read that he said to Mr Williams that the answer was incorrect and he handed the form back again.  Mr Farley said that Mrs Williams took the form inside the house again and on her return handed it back to Mr Farley.  The words "Roger left under mutual agreement" were crossed out and, in lieu thereof, Mrs Williams had written, "We couldn't afford a faller on contract pay we wanted a faller on a faller's wage."  According to Mr Williams' evidence, Mr Farley did not immediately return the form but left the house with it after his wife had completed it on the first occasion.  He said that a few days later Mr Farley returned with the form, but on this occasion he did not speak to Mr Farley at all.  He said he was in the kitchen and his wife met Mr Farley outside and took the form from him.  Mr Williams said that his wife brought the form into the kitchen, and after a conversation between the two of them, she altered the wording as set out above and handed it back to Mr Farley. 

  On behalf of the defendant it was submitted that the form was evidence which tended to support the proposition that the contract had been terminated by mutual agreement.  I do not agree. The form was completed by Mrs Williams.  Mrs Williams was not privy to the telephone conversation between her husband and Mr Farley on 24 January 1996.  There was no evidence that Mrs Williams was authorised to make any statement on behalf of the defendant and, in any event, at best, the statement "Roger left under mutual agreement" is only Mrs Williams' understanding of what the situation was when she wrote those words on the form.  The correctness of her understanding was challenged either the same day or a few days later, and apparently accepted by her as incorrect, for she altered the words she had written on the form.  In those circumstances, I do not see the employment separation certificate as being probative of the claims of either party with respect to the circumstances surrounding the termination of the contract. 

  Accordingly, I find that the contract was terminated without notice by Mr Williams on 24 January 1996.  The next question is whether it was an implied term of the contract that it could not be terminated without reasonable notice. 

  In BP Refinery (Westernport) Pty Limited v Shire of Hastings (1942 - 1991) 180 CLR 266, the Privy Council's advice contained this passage at 283:

  "... In their [Lordships'] view, for a term to be implied, the following conditions (which may overlap) must be satisfied: (1) it must be reasonable and equitable; (2) it must be necessary to give business efficacy to the contract, so that no term will be implied if the contract is effective without it; (3) it must be so obvious that 'it goes without saying'; (4) it must be capable of clear expression; (5) it must not contradict any express term of the contract."

  Subsequently, the High Court cast some doubt upon the universal application of the rigid formula set down in the above passage, particularly in the case of informal oral contracts.  See Hawkins v Clayton (1987 - 1988) 164 CLR 539 at 572 - 573. With respect to agreements such as the present one which are not reduced to complete written form, the test for the implication of terms has now been authoritatively stated by the High Court in Byrne v Australian Airlines (1995) 69 ALJR 797. McHugh and Gummow JJ said at 813:

  "Secondly, where the contract is not in writing and is oral or partly oral or it appears that the parties themselves did not reduce their agreement in a complete written form, caution is required against an automatic or rigid application of the cumulative criteria identified in BP.  We should proceed on the footing that the present case is to be approached in this way.

  In such situations, the first task is to consider the evidence and find the relevant express terms.  Some terms may be inferred from the evidence of a course of dealing between the parties.  It may be apparent that the parties have not spelled out all the terms of their contract, but have left some or most of them to be inferred or implied.  Some terms may be implied by established custom or usage, as described above.  Other terms may satisfy the criterion of being so obvious that they go without saying, in the sense that if the subject had been raised the parties to the contract would have replied 'of course'.  Hospital Products Ltd v Unites States Surgical Corporation (1984) 156 CLR 41 at 121. If the contract has not been reduced to complete written form, the question is whether the implication of the particular term is necessary for the reasonable or effective operation of the contract in the circumstances of the case; only where this can be seen to be true will the term be implied. Hawkins v Clayton (1988) 164 CLR 539 at 573."

  I hold that to give reasonable or effective operation to the contract between the parties, it was their imputed intention that the contract could only be terminated after reasonable notice of intention to do so had been given by one party to the other.  The evidence of Mr Williams made that clear.  The presence of a licensed tree faller was critical to the success of his log contracting business.  He said that although at times he could stockpile logs in the bush, most of the time he needed the faller to work each day so that he could fill his quota.  If Mr Williams' contract faller could terminate his contract of service at any time without notice, Mr Williams' business would be in chaos.  This he discovered to be the case when Mr Farley was sick for six weeks and again when he failed to show up for work on 22 January 1996.  Similarly, Mr Farley was dependent upon the income from the contract for if it was terminated, he would have to find replacement work as soon as possible in order to keep himself and his family.  Also, both parties had capital invested in their businesses which needed to be utilised to make a return.  Further, although the parties to the contract were both corporations, the reality for the two men was that Mr Williams engaged Mr Farley to work for him as a tree faller.  In these circumstances, had the subject of notice to terminate the contract been raised at the initial discussion in July 1995, both parties would have said, "Of course reasonable notice on either side is necessary to terminate the contract" see Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41 at 121.

  On behalf of the defendant, it was urged upon me that no term of reasonable notice should be implied because it was common ground that if Boral did not want any logs, then Mr Farley did not work.  The evidence was that on occasions the chip mill shut down for maintenance and sometimes, due to lack of demand, the quota was less than 500 tonnes per week.  This undisputed evidence does not, in my view, touch upon the issue of notice to terminate the contract.  It does have a bearing on other terms of the contract, however.  This evidence leads me to find that it was a term of the contract that the plaintiff would work for the defendant, in the manner described, to enable the defendant to fulfil his contractual obligations to Boral.

  Accordingly, I find that it was an implied term that the contract could not be terminated by either party unless reasonable notice of intention to terminate had been given or money paid in lieu of such notice.  The next question is, what is reasonable notice?

  It was common ground between the parties that the reasonableness of the length of notice of termination fell to be determined in the circumstances as they existed at the date of termination.  See Martin-Baker Aircraft Co Ltd v Canadian Flight Equipment Ltd [1955] 2 QB 556 at 581; Quinn v Jack Chia (Australia) Ltd [1992] 1 VR 567 at 580.

  Initially, Mr McTaggart for the plaintiff, submitted that seven months' notice was reasonable.  I think this may have been based upon the evidence of Mr Farley that, apart from a little casual work, he did not find reasonably permanent work until about seven months after the contract had been terminated.  However, the force with which the submission was made diminished somewhat when it was put to Mr McTaggart that a consequence of its acceptance was that his client was similarly obliged to give Mr Williams seven months' notice of termination of contract.

  In my view, this contract was in the nature of a contract of employment and the issue of what was reasonable notice falls to be determined with that in mind.  There was no evidence of industry practice or usage.  The evidence of Mr Farley that he gave somewhere between seven and fourteen days' notice of intention to terminate his contract with Shaw Forestry, is not evidence of industry practice or usage.  Macken, McCarry and Sappideen in The Law of Employment, 4th edn, at 166 - 168, set out the factors that the cases have considered relevant in determining what constitutes reasonable notice for the termination of a contract of employment.  In the present case, the length of the contract was quite short, viz, less than six months.  During the life of the contract, the defendant paid the plaintiff remuneration each fortnight.  The work performed by Mr Farley under the contract was mobile, in the sense that it could easily be transferred to another site and another contractor.  Although the work to be performed under the contract was skilled, it was not "high grade" work.  The industry in which the contract was performed was uncertain, in that the amount of work available depended upon forces outside the control of the parties.  Termination of the contract would not involve either party in capital losses.  In all these circumstances I have reached the conclusion that a fortnight was a reasonable time for the giving of notice of intention to terminate the contract.

  It follows from all of the foregoing that Mr Williams was in breach of an implied term of the contract between him and Mr Farley in that he failed to give fourteen days' notice of his intention to terminate the contract and Mr Farley is entitled to recover damages for breach of contract.

  With respect to damage, Mr O'Farrell for the defendant, submitted that as the plaintiff company was the trustee of the Farley Family Trust and the income tax returns for the financial years ending June 1994, 1995 and 1996 showed that the whole of the income of the company was distributed to members of the trust, the company suffered no loss from the breach of contract.  I do not understand this submission or the basis for it.  It was untrammelled by authority.  The company earned money from the performance of its obligations under the contract.  How the company chose to dispose of its income was a matter for the company.  I reject the submission.

  There remains the final question, namely, the assessment of the damages.  For the year ending June 1995 the plaintiff's gross earnings were $85,630 and the expenses $35,500, leaving net earnings before tax of $50,130.  For the next year, the gross earnings dropped to $41,791 and the expenses to $17,562, leaving net earnings before tax of $24,229.  It seems reasonable to assume a fortnightly rate of earnings (gross) at the time of the breach of contract in the sum of $3,293.  Had the contract not been terminated, 41 per cent of that income would have been expended on business expenses, leaving a net sum (before tax) of $1,942.87.  It is reasonable to round that figure off to $2,000.

  There will be judgment for the plaintiff against the defendant for $2,000.