Ross Human Directions v Chubb Security Holdings
[2009] NSWSC 38
•13 February 2009
CITATION: Ross Human Directions v Chubb Security Holdings [2009] NSWSC 38 HEARING DATE(S): 25 & 27 November 2008
JUDGMENT DATE :
13 February 2009JURISDICTION: Equity JUDGMENT OF: Smart AJ at 1 DECISION: See paras 62 and 63 CATCHWORDS: Construction of unique Personnel Agreement - no value as precedent CATEGORY: Principal judgment CASES CITED: Jones v Dunkel
Payne v Parker [1976] 1 NSWLR 191FILE NUMBER(S): SC 2342/2007 COUNSEL: K Richardson (P)
M Elliott (D)SOLICITORS: Watson Mangioni (P)
Mallesons Stephen Jaques (D)
IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION
SMART AJ
Friday, 13 February, 2009
ROSS HUMAN DIRECTIONS LIMITED ("ROSS")
v
CHUBB SECURITY HOLDINGS AUSTRALIA LIMITED ("CHUBB")
1 Ross and Chubb entered a Personnel Agreement dated 30 September 2002 under which Ross was to provide temporary labour and permanent personnel services to Chubb, that is, people to discharge temporary labour requirements and to select and recommend people suitable for permanent appointment. Ross ran a large recruitment of personnel business and Chubb had extensive requirements for temporary and permanent personnel. Under that agreement Ross was entitled to be paid for the services it provided but was obliged to pay rebates to Chubb.
2 The 2002 Agreement was varied by letter dated 1 April 2004 from Ross to Chubb but there is a dispute as to the terms and effect of the variations. By its summons filed 19 April 2007 Ross sought:
(i) a declaration that it was a term of the agreement (as varied) that Ross was not liable to pay rebates unless and until Chubb incurred $5.2m in Invoice Charges per year ("Benchmark Invoice Value")
(ii) a declaration that Chubb has breached cl 5.1 of the Agreement (as varied) by failing to pay Ross within 30 days of the invoice date for fees calculated in accordance with the Agreement (as varied)
(iii) alternatively a declaration that Chubb is estopped by its conduct from asserting that Ross was liable to pay rebates if Chubb did not incur $5.2m in Invoice Charges.
(iv) an order that Chubb pay Ross $432,825.80 (now amended to $401.161)
3 Chubb denied that the 1 April 2004 letter had the effect that the rebate payable to Chubb (or to which Chubb was entitled) was conditional upon any Benchmark Invoice Value.
4 Chubb denied that it was liable to pay the amount of any rebate it had received to Ross. (The rebates were payable after invoices were rendered). Chubb denied that it was estopped by its conduct.
5 By its Amended Cross Summons Chubb claimed $192,095 being rebates outstanding and unpaid for 2006 and 2007.
6 The sum of $401,161 does not represent claims in respect of 2004 and 2005. It appears that Ross is seeking the recovery of rebates which it paid to Chubb during 2006. Chubb asserts that Ross stopped paying Chubb rebates in respect of amounts that Chubb had paid Ross for services provided by Ross in late 2006 and early 2007. Chubb therefore seeks payment of those rebates by way of cross summons. The exact amount remains to be verified.
7 The Agreement of 30 September 2002 and the variation letter of 1 April 2004 have to be read together. It is necessary to look closely at the terms of each.
Agreement of 30 September 2002
8 Recital D was that Chubb had granted to Ross the right "to provide Chubb with the Services for all businesses within the Chubb Group throughout Australia … This right shall operate on a Master Vendor basis". "'Master Vendor' means that [Ross] shall undertake on behalf of Chubb the total management of recruitment services for Permanent and Temporary Labour." Under cl 2 Chubb appointed Ross as its "Master Vendor". "Temporary Labour" means a person who is an employee of Ross who works at Chubb at Chubb's instruction on a temporary basis by the hour. That would involve Ross in substantial "on costs", for example workers' compensation premiums. Under cl 3 the term of the Agreement was 2 years from 30 September 2002.
9 The Agreement contained what were described as commercial and operational provisions. These included cls 5.4.1, 5.4.2 and cl 13, that Ross would have a resident account manager at Chubb at Ashfield and interstate, Julia Ross Consultant, who would undertake a series of specified activities throughout the permanent recruitment process and a slightly different series of activities throughout the Temporary Labour process.
10 Clause 5.5 of the Agreement states that where Ross provides services to Chubb the rates specified in Annexure A apply. Those latter words are important as the Annexure specifies the amounts to be paid by Chubb to Ross and the rebates payable to Chubb by Ross.
11 By Annexure A, sub cl 1.1 Chubb was bound to pay specified amounts to Ross for successful placements with Chub for permanent personnel. These amounts were expressed as a percentage of the salary payable to the appointee. Two columns were given, namely the Actual Charge and the Invoice Charge.
12 The Invoice Charge Rate and the Net Charge Rate for all temporary labour assignments was to be calculated as detailed in Annexure G
13 Sub-cl 2 of Annexure A provided:
"2.1 Permanent Personnel
The rebate payable to Chubb by [Ross] shall be the difference between the Actual Charge and the Invoice Charge specified in 1.1 above
2.2 Temporary Labour
- The rebate payable to Chubb by [Ross] shall be as defined in Annexure G."
14 Clause 5.6 of the Agreement provides:
"[Ross] agrees to pay Chubb a pre-bate as detailed in Annexure D. The parties agree to comply with all the provisions in Annexures A and D in relation to the payment of the pre-bate"
15 Under sub.cl 1 of Annexure D:
"[Ross] agrees to pay Chubb a pre-bate of $650,000 on or before October 2002 for trading year one [27 Sep 02 to 27 Aug 03]. This pre-bate amount is paid in advance of the trading period September 20, 2002 to August 20, 2003."
16 This pre-bate payment is subject to and is conditional upon:
- "(a) …
(b) Chubb agrees to provide [Ross] with access to Total Temporary Labour and Permanent Personnel trading spend (traded at invoice level and net of GST) of not less than $8.0 million p.a. This is based on historical spend for last twelve months 2001/2002 trading for recruitment services and the proportion of Temporary Labour is estimated total $6.1 million and for Permanent Labour is estimated total of $1.8 million. [Ross] with the full support of Chubb developing the business rules and compliance there to agrees to undertake national management of the Chubb account to ensure that the trading spend between the parties reaches a per annum spend level of the following spend targets:
Temporary Labour - Not less than 90% of $6.1 million
Permanent Personnel - Not less than 30% of $1.8 million
[90% of $6.1m is $5.49m and 30% of $1.8m is 0.54m, making a total of $6.03m]."
17. It was recognised that there would be "a three month phase period" before the total combined spends reached the desired targets.
18. Sub.cl 1(e) provided for Chubb and Ross to monitor the spend quarterly to ensure that the quarterly spend targets were met by Chubb. This envisaged a collaborative process.
19. Sub.cl 1(f) provided:
"The year one pre-bate paid by [Ross] to Chubb is not refundable to Ross on condition that Chubb trades within the agreed terms as specified in this agreement. Any adjustments to pre-bate paid in advance will be adjusted and recovered via the methods outlined in Annexure D - Prebate."
(See sub cl 3 of Annexure D).
20. Sub cl 2 of Annexure D provides that the rebate paid by [Ross] to Chubb is as defined in Annexure A for Permanent Personnel and Temporary Labour Services. (Annexure A, cl 2 deals with the calculation of rebates).
21. Sub cl 3 of Annexure D provides that quarterly monitoring of trading year one pre-bate will be performed in arrears and -
"The parties will continue to trade under the existing trading contract until the amount of pre-bate overpaid is recovered."
22. Both parties accepted that a pre-bate was an advance payment in respect of rebates calculated in accordance with Annexure A to the Agreement. The making of an advance payment was a benefit to Chubb giving cash flow advantages. It was anticipated that over time Chubb would become entitled to rebates equivalent in total to the amount of the pre-bate because of the volume of business Chubb placed with Ross.
23. Clause 10.4 of the Agreement provided that upon its termination for any reason whatsoever, the parties shall settle all outstanding moneys within 90 days. Sub cl 4 of Annexure D provides that following termination of the agreement for whatever reason [Ross] shall be given sufficient business to earn out the balance of any pre-bate.
24. Sub cl 5 of Annexure D provides that at the end of the trading period July to September 2003 Ross and Chubb "agree to reconcile the trading year one pre-bate and using trading year one actual spend calculate the amount of trading year 2 pre-bate to be paid by [Ross] to Chubb.
25. Around late 2003 - February 2004 there were discussions between officers of Ross and Chubb in which they reviewed the terms on which they did business. There were also discussions in March 2004.
26. By letter of 1 April 2004 Ross wrote to Chubb proposing:
". contract period current until December 2004 [originally late September 2004]
· Total invoice value for temporary, contract and permanent recruitment for 2004 will be in the region on (sic) $5.2 million. ["on" should probably read "of"]
· Nil Pre-bate payment for 03-04. Rebates accrued monthly, measured through monthly reporting and remitted one calendar month plus two weeks following end of the month traded. We require a tax invoice for payment of rebates.
- …
· Payment terms of 30 days,
· Increase in temporary mark-up to 13% …
[This involved an increase of 1%]
· Increase in the 'actual' (net of rebate) permanent fee schedule
[The increases were specified]
· The critical issues for delivery of this contract are that candidates for both temporary and permanent vacancies are provided within agreed time frames …
[These were indicated]
· If the compliance of these critical KPIs [Key Performance Indicators] falls below 90% for the quarter we will rebate .5% on the net charge.
[These were specified later in the letter]
· … if a candidate falls out within the first 4 weeks of a permanent role we will offer a 5% credit on total invoice value if a suitable replacement cannot be sourced."· If compliance falls below 80% for the quarter we will rebate 1% on the net charge
27. These matters warrant comment:
(a) There were major changes in the pre-bate and rebate arrangements. There was no pre-bate payment for 03-04, nor for subsequent years. Rebates were to accrue monthly and be paid in arrears.
(b) The proposed commercial terms do not state that if Chubb does not spend in the region of $5.2m Chubb will not obtain a rebate. The construction of the second and third bullet points as commercial terms lay at the heart of the parties' dispute. Ross contended that Chubb did not receive any rebates unless the total invoice value for temporary labour and permanent recruitment was in the region of $5.2m. Does this apply for the period until September 04 or December 04? Chubb contended that it was entitled to rebates at the agreed rates irrespective of the total invoice value for temporary labour and permanent recruitment.
(c) It seems probable from the emails exchanged between Ms K D Saunders of Ross and Mr T Sinadinos of Chubb that a draft of the letter of 1 April 2004 was sent by Ms Saunders to Mr Sinadinos on 23 March 2004. This was confirmed by Ms Saunders in her affidavit. By his email of 24 March 2004 Mr Sinadinos advised as to the letter "I am OK with this as proposed on commercial matters and have forwarded to Rick Wilmott for his approval also. After I hear from RW assuming no changes then we enact this arrangement for next trading period. In anticipation of Chubb approval to these arrangements here, can I ask please that you proactively update this Chubb/JRR Operations manual as per these changes and resubmit to myself for distribution". In his email of 31 March 2004 Mr Sinadinos advised that he had discussed the letter with Mr Willmott who had approved what was proposed in the letter. Mr Sinadinos requested Ms Saunders to proceed and amend the Operations Manual with the changes set out in the letter and issue it to him. It is apparent that Mr Sinadinos on behalf of Chubb dealt with Ross. Mr Sinadinos held the position of Purchasing manager.
(d) In the opening paragraph of the letter of 1 April 2004 of Ross it is stated "we have set out our proposed solutions to be able to achieve mutually beneficial outcomes over the next twelve months." That does not sit readily with the statement that the contract period is current until December 2004.
(e) Payment terms were reduced from 90 days in the September 2002 Agreement by the letter to 30 days..
(f) Cl 7.2 of the Agreement of September 2002 provided that Ross would use all reasonable endeavours to meet KPIs. Under the letter financial penalties were imposed if compliance fell below the specified levels.
28. Mr J N McMahon, the Supply Chain Director of Chubb had worked in a number of roles at Chubb. He said that around January 2005 Chubb sought tenders or expressions of interest in relation to the provision and placement of permanent personnel and that around April 2005 this tender was awarded to Ross as part of a panel of four service providers and a contract was executed for a period of two years.
29. Mr McMahon said that around February 2005 Chubb carried out a separate global tender process in relation to the provision and placement of temporary 2005 to April 2005 and about February 2005 to December 2006, while the two tender processes were being carried out, Chubb continued to use the services of Ross for the placement of both temporary and permanent personnel. On 16 February 2005 Jane Beaumont, Managing Director Recruitment Solutions for Ross sent an email to Loc Phan, National Manager of Supply Chain Management for Chubb which relevantly provided:
"In response to the continued discussions we have had around the change in pricing for the January to March period, given that the stance of Chubb is that this cannot be backdated, and the planned date for contract agreement and move forward is likely to be March 10th, and against the backdrop of our discussions around the risk of change for Chubb, in good faith I have agreed that we will not implement the proposed change. This means that we will continue on current pricing that includes the rebate until either the date of the new contract, or the termination of our agreement should we not be selected to continue servicing Chubb. …"
30. On 5 December 2006 Chubb, by email informed Ross that it had decided to award the temporary recruitment contract to another company. Mr Loc Phan wrote, amongst other things:
"Your team has done a wonderful job in managing Chubb account …"
31. In subsequent correspondence in early 2007 difficulties arose over the transition of temporary staff. In
Ross' letter of 8 February it wrote:
"As your correspondence does not constitute a termination of our existing contract, we are not in a position to 'not fill' any roles that are already in the pipeline or are offered to us to fill up to the date the contract may be terminated; and we expect that Chubb will honour the contract in that regard;"
32. The matter passed into the hands of the legal officers (or Legal Affairs Directors). By letter of 3 April Chubb's Director of Legal Affairs wrote:
- "… Chubb's position is that its notification of 5 December 2006 constitutes adequate notice of termination of any contractual relationship and … without prejudice and without acknowledging any insufficiency of prior notice this letter shall constitute notice of termination pursuant to Section 10.1(b) … although Chubb has previously undertaken to give as much advance notice as is feasible, we do not believe 30 day notice period applies as [Ross] is in material breach as a result of its failure to pay rebates on invoices actually paid by Chubb. …"
33. From 1 April 2004 to 31 October 2006 both Ross and Chubb conducted themselves in a manner consistent with the Personnel Agreement as varied by the 1 April 2004 letter. See para 6 of Points of Contention and para 6 of Points of Defence. The parties were agreed that from 1 April 2004 to 31 December 2005 Ross rendered invoice charges to Chubb which collectively exceeded the Benchmark Invoice Value and that Chubb claimed rebates from Ross, which rebates were accepted. However, Chubb denied that its entitlement to rebates over this period was conditioned in any way upon the invoice charges collectively exceeding the Benchmark Invoice Value ($5.2 million).
34. I was told that there was no dispute as to 2004 and 2005 as the amount spent in each by Chubb exceeded $5.2m. Up to and including October 2006 Mr McMahon described the ordinary procedure followed during the course of the Personnel Agreement. Ross invoiced Chubb for charges in respect of the placement of temporary and permanent personnel. Ross forwarded the invoices direct to the particular business unit of Chubb in which the employee had been placed. The invoices were paid by Chubb's accounts department. At the end of each month Ross prepared a monthly activity spreadsheet (or report) itemising the invoice charges and calculating the rebates and the rebates referrable to those charges. There were also a lot of identifying details and financial details on the spreadsheet. Most if not all the employees listed on the spreadsheets were temporary employees.
35. Mr McMahon produced the monthly activity spreadsheets prepared by Ross and sent to Chubb for the 16 months from January 2006 to April 2007. Mr McMahon stated that an examination of the monthly activity spreadsheets revealed that:
(b) for the period 1 January 2006 - 31 October 2006 Ross calculated and paid rebates to Chubb totalling $400,161; and
(a) the invoice charges incurred by Chubb for the period from 1 January 2006 to 31 December 2006 totalled $3,243,206; and
(c) the monthly activity spreadsheet for November 2006 shows a rebate calculated by Ross of $32,664. (Mr McMahon said that amount had never been paid by Ross).
37. Mr McMahon said that over the period from December 2006 to April 2007 Ross continued to provide and place temporary personnel to Chubb and invoiced the business units within Chubb for those placements. Chubb continued to receive monthly activity spreadsheets (reports) but they did not contain any calculation of rebate referable to the invoice charges. Ross has not paid any rebates for the period November 2006 to April 2007.
Extrinsic Evidence
38. Ms Saunders said in her oral evidence (T5-6 and T7-8) that she had a discussion with Mr Sinadinos about February 2004 about the question of prebates (payment of a rebate in advance). She gave this evidence at T5, ll 2-11):
Q. Which it would then be free to use to pay your invoices?"Q. So rather than Chubb receiving a rebate on a monthly or some other periodic basis, it in fact gets an amount up front?
A. That's correct.
A. Could use it for whatever purposes it wished to.
Q. Yes. You appreciated in 2004 that that was something that Chubb thought was a benefit to it?"
And at T5, ll 29-34:A. Yes
"Q. It was your understanding, though, that in 2002 when Chubb and Ross Human Directions entered into their agreement that Ross Human Directions were prepared to agree to give this prebate benefit to Chubb but in return wanted an assurance from Chubb that it would commit to a certain minimum level of purchases?
At T6 ll 1-13 her evidence was:A. Yes."
"Q. And he [Sinadinos] told you and your colleague Neil that Chubb would not be able to agree to a minimum spend of $8 million, is that right?
Q. Just listen to my question, please? At this meeting Mr Sinadinos to your recollection said to you that Chubb would not agree to a minimum annual spend of $8 million correct?A. Yes, he agreed that he would be able to commit on behalf of Chubb to a minimum spend of in the order of 5.1 million.
A. That's right.
A. Yes."
Q. What he told you was that he anticipated Chubb's expenditure would be in the region of $5.2, correct?
39. Ms Saunders agreed that after Neil (her superior) said that Ross would not pay a prebate she said that Ross would pay Chubb a rebate monthly in arrears. She did not remember exactly what happened with the conversation after that point.
40. In re-examination Ms Saunders said (T9, ll 1-10):
"Tas Sinadinos framed a minimum expectation of trading invoice value that he expected to - that Ross expected to achieve and this was based on our prior year trading results. From there Neil talked about the fact that the prebate would not be honoured up front and in fact it would revert to the ongoing payment of rebates as it had for the prior year because we had extended the - Chubb had earnt out the prebate and there were rebates that flowed on from that. I then confirmed the methodology that would Allow us to manage the rebates on a monthly basis from that point forward for the second year of the contract."
41. Ms Saunders did not seem to be certain whether the minimum of $5.2 million was part of the commercial terms or a statement of expectation on the part of Mr Sinadinos. She did expect Chubb's minimum spend to be in the region of $5.2 million.
42. Mr Sinadinos was not called. Mr McMahon said that Mr Sinadinos left Chubb's employ in early 2005. Mr McMahon said that he had not spoken to Mr Sinadinos about this matter and did no know where he was. He had not made any enquiries to find him but he believed that the Legal Department did. I have no evidence as to the scope and vigour of these enquiries.
43. In a case where both parties considered the written draft of the letter of 1 April 2004 before it was adopted and that was in considerable detail and dealt with and refined what had been discussed, prime attention has to be directed to the terms of the letter.
44. Chubb relied on the evidence of Mr J J Watson, the Finance Director of Chubb from about March 2003 until February 2008. He did not have any involvement in the negotiation of or entry into the Personnel Agreement or the 1 April letter (or the drafting of that letter). Mr Watson did not recall being involved in any discussions with personnel from Chub or Ross in respect of the terms of that letter. Mr Watson said that in or around mid to late 2003 Mr Sinadinos began reporting to him in his capacity as Finance Duirector. Mr Watson was not aware of there having been any practice within Chubb by which rebates were made conditional on a minimum annual spend nor could he recall any instance where rebates had been refunded. He asserted that neither Mr Sinadinos nor anyone else at Chubb told him that the payment of rebates to Chubb would be conditioned on any minimum annual spend being achieved.
45. Mr Watson's evidence has limited value. Mr Sinadinos conducted the negotiations with Ross and it seems that he referred the letter to Mr R Wilmott as his superior officer and obtained his approval. Mr Willmott was described as the Human Resources Manager at Chubb.
46. Having regard to the conduct of the parties these conclusions and inferences can be drawn:
(a) for the year ending 31 December 2004 the parties proceeded on the basis that the letter of 1 April 2004 from Ross to Chubb governed their relationship as to the financial terms it stated. It amended the Agreement of 30 September 2002, the provisions of which, after allowing for the amendments, continued to apply.
(b) There was no pre-bate applicable from September 2003 to 31 December 2004 or subsequently.
(c) For the years ended 31 December 2005 and 31 December 2006 the parties proceeded on the basis with the exception or possible exception of the requirement of a minimum spend in each year in the region of $5.2 million that the terms of the Agreement of 30 September 2002 and the amending letter of 1 April 2004 continued to apply to their relationship. As from about April 2005 Ross ceased to undertake on behalf of Chub the total management of recruitment services for permanent personnel (or labour) and was part of a panel of four service providers and a contract was executed for two years. This was not in evidence. I do not know precisely to what period it applies. Nor do I have any figures as to the effect of the change in arrangements. As this matter was not raised by the parties I will assume it is of no consequence.
(d) From the materials before me the competing claims appear to relate principally to the recruitment and supply of temporary labour. That is the area involving substantial sums.
(e) From 1 January 2006 to 31 October 2006 Ross continued to pay rebates to Chubb. It may not have become apparent until late November 2006 that the total invoice value for Temporary and Permanent recruitment for 2006 would not be in the region of $5.2 million. That appears to have been a yearly figure. In written submissions Ross explained that the reason why it overpaid the amount was because under the 1 April variation rebates were initially payable after monthly reporting which happened 6 weeks after a month ended. Ross was reconciling the figures for November 2006 in about January 2007 and would have realised that Chubb had not met the minimum spend for 2006.
(f) Mr Sinadinos, Purchasing Manager should be taken as dealing on behalf of Chubb with Ross and Ross was entitled to act on what he wrote and accepted as to the re-negotiated arrangements. While the oral evidence helped to set out the context in which the re-negotiated arrangements were made what was principally involved was the construction of the terms of the 1 April 2004 letter in conjunction with the 2002 agreement.
Plaintiff's Submissions
47. 1. The variations in the 1 April 2004 letter represented a change from the 2002 Agreement including:
(a) nil prebate payments for 2003-2004
(b) the actual charges for the successful placements with Chubb of Permanent Personnel would increase
(c) rebates would accrue monthly, measured through monthly reporting. Chubb would not be entitled to retain the rebate unless Chubb incurred a total invoice value for Temporary, Contract and Permanent recruitment of $5.2 million per year.
(d) Chubb would pay Ross within 30 days of the invoice.
(e) Ross' compliance with critical KPIs would affect Chubb's ability to accrue the rebate.
2. In support of its submission that the third bullet point of the letter of 1 April 2004 ("Total invoice value for Temporary Contract and Permanent recruitment for 2004 will be in the region of $5.2 million) was intended to be the minimum spend requirement which must be met before rebates would be paid Ross pointed out -
(a) the bullet point appears under the heading "Commercial Terms - thus the parties intended this term to be contractually binding
(b) the 2002 Agreement already contained a minimum spend requirement and a mechanism whereby the parties had to agree the minimum spend for trading year two of the Agreement (see Annexure D cl 5) - thus the parties did not need to spell out exactly what work this bullet point was doing as it was filling in the gap of that part of the 2002 Agreement which needed to be agreed for trading year two.
4. The construction contended for by Chubb would work an unwarranted radical change in the commercial substratum of the 2002 Agreement.3. The April 1, 2004 letter varied but did not do away with the 2002 Agreement and, as varied, it remains on foot. The letter is clear as to what aspects of the 2002 Agreement were to be varied and silent as to those which were not to be varied. The only agreed variation to rebates was as to the timing of the rebate advance - rebates would not be paid yearly in advance but monthly in arrears. No part of the letter states that Chubb's obligation to meet a minimum spend requirement was thereafter abolished.
5. The construction of the 1 April letter contended for by Ross is supported by the objectively known circumstances. Reliance was placed on the extrinsic evidence.
6. The parties continued to conduct themselves as if the 2002 Agreement (as varied) was on foot until at least March 2007 when the 2002 Agreement (as varied) was formally terminated by Chubb. If, which is denied, the 2002 Agreement as varied was due to expire in December 2004, in or around December 2004 the parties agreed to hold over on the terms of the 2002 Agreement (as varied) which remained on foot until at least March 2007 (or perhaps, the terms of which continued to apply until the period of the holding over ended, that is, at least until March 2007).
7. In reliance on the conduct of Chubb, Ross continued to provide the services to Chubb until March 2007, Chubb is estopped from asserting that the 2002 Agreement was not varied by the 1 April letter and that Ross is not entitled to receive re-payment of the rebate error amount. (Chubb did not suggest that the 2002 Agreement was not varied by the 1 April letter.)
Defendant'sSubmissions
48. 1. At all times including from 1 April 2004 until the termination of those arrangements in December 2006 Chubb was entitled to and did receive rebates from Ross and that entitlement was not dependent upon Chubb having satisfied any minimum level of expenditure.
2. Cl 5.5 and Annexure A dealt with the payments to be made between the parties. The rates specified in Annexure A shall apply. Annexure A prescribed the amount Ross should charge Chubb for its services for the placement of Permanent staff and Temporary staff. For each there was an "invoice rate" and an "actual rate" (Permanent staff) or "net rate" (Temporary staff) The difference between the invoice rate and the actual rate or the net rate was the rebate payable to Chubb. Annexure A also addressed the amount of the rebate payable by Ross to Chubb. Ross had an unqualified obligation to pay rebates. There was nothing in Annexure A that rebates would only be paid if a minimum spend obligation was met. It did not talk about minimum spend.
3. Annexure D was expressly concerned with pre-bates, not rebates generally. The first year pre-bate, and not rebates generally, was subject to and conditional upon Chubb agreeing to providing Ross with access to trading spend of not less than $8 million per annum. The $8 million assurance did not concern whether Chubb would get rebates but whether Chubb would have anticipated rebates for one year of trading paid to it in advance. The year one pre-bate and not rebates generally was not refundable to Ross on condition that Chubb trades within "the agreed terms as specified in the agreement", and that any adjustments to pre-bate paid in advance will be adjusted and recovered via the methods outlined in Annexure D. Reference was made to cl 3 of Annexure D. Under the pre-bate scheme Chubb received its rebates for a particular period in advance and calculated by reference to an estimate of spend for the trading year. If spend for that trading year was higher than estimated, further rebates were payable by Ross. If lower than estimated Ross' obligation to pay further rebates was suspended until the pre-bate was earned through subsequent trading.
4. Nothing in the agreement either in respect of this pre-bate scheme or the terms concerned with rebates provided that Chubb was not entitled to any rebates at all unless and until it had met a certain level of expenditure. The payment of rebates by Ross was mandatory and there was no qualification of Chubb's entitlement to rebates.
5. Ross' stated purpose in its letter of 1 April 2004 was to set out "Our understanding of expected activity and proposed variation to the current contract."
6. Ross' contention that it was a term of the contract that as from 1 April 2004 Ross was not liable to pay Chubb a rebate unless and until Chubb incurred $5.2 million in Invoice charges per year should not be accepted for these reasons:
(a) there is no statement in those terms in the 1 April 2004 letter;
(b) the 1 April letter expressly provided that rebates were to be paid and that they were to be paid on an ongoing basis throughout 2004. This is inconsistent with there being a term that Ross would not be liable to pay Chubb a rebate unless and until Chubb spent $5.2 million;
(c) the words "in the region of $5.2 million" are imprecise and the boundaries of that region are not defined. This was one of the parts of the 1 April letter through which Ross was expressing its "understanding of expected activity."
(d) Not even the contract in its original state entitled Ross to refuse to pay a rebate unless and until a certain minimum spend was met, nor did it entitle Ross to seek a refund of the pre-bate if a certain minimum spend was not met. The construction advocated by Ross has confused the basis upon which payment of a rebate by way of pre-bate has been agreed and Chubb's unqualified entitlement to be paid rebates.
( f) The parties had never before agreed to the imposition of a term making rebates conditional upon a minimum spend. This is a major matter and there is no express statement that Chubb's entitlement is so limited.(e) it would have been unusual for Chubb to have agreed to a rebate which was conditional upon a minimum spend. Such an arrangement would have required approval from executives at Chubb including the Finance Director. Such approval was not obtained.
(g) Upon the basis that Chubb would not spend $8 million and that Mr Sinadinos' expectation was that Chubb would only spend $5.2 million, Ross was not prepared to pay rebates by way of a pre-bate. Ross was prepared to pay a monthly rebate in arrears.
7. Ms Saunders' evidence does not assist Ross. Her evidence does not call for a response. No Jones v Dunkel inference can be drawn from Mr Sinadinos not giving evidence. He has not been a Chubb employee since 2005 and is not in the control of Chubb: P ayne v Parker [1976] 1 NSWLR 191.
9. No sustainable basis has been demonstrated by Ross to support the estoppel claim.8. Even if the contentious passage in the 1 April letter operated as Ross contends (which is denied), such a term had no operation after 2004. By its express terms it was limited to expenditure by Chubb for 2004. The letter said nothing about the position thereafter. Ross' claim to recover rebates paid in 2006 must fail.
Cross-Claim
49. Both parties accepted that the same issues arise on Ross' claim and Chubb's cross claim. If Chubb's entitlement to be paid rebates in 2006 and 2007 was not conditional upon an annual minimum spend in the region of $5.2 million, Chubb is entitled to retain the rebates it has been paid for the period 1 January 2006 - 31 October 2006 and to be paid the unpaid rebates from 1 November 2006 - 31 March 2007.
Decision
50. The Agreement of 30 September 2002 and the letter of 1 April 2004 have to be read together. That letter makes substantial amendments to the initial Agreement. The Agreement makes detailed provisions for the payment of a pre-bate for year one of the contract. A pre-bate is a payment in advance of a rebate or rebates. A rebate is the difference between the Invoice charge and the actual charge (Permanent staff) or net rate (Temporary staff). The pre-bate of $650,000 is a large amount. Chubb agrees to provide Ross with access to trading spend (traded at invoice level and net of GST) of not less than $8 million per annum. There is thus a term which, if performed, will ensure Ross receives a specified amount of work.
51. Sub-cl 2 of Annexure A which provides for the rebate payable to Chubb does not mention a minimum or trading spend. Under sub cl 1 of Annexure D it is the pre-bate payment which is subject to and conditional upon Chubb agreeing to provide Ross with access to a trading spend of not less than $8 million per annum. There are further conditions designed to make the intended arrangement work over year one, and, if necessary, into the following year - see, for example sub cl 1(b)
52. Immediately following the second bullet point of
· "Nil pre-bate payment for 03 - 04. Rebates accrued monthly, measured through monthly reporting and remitted one calendar month plus two weeks following end of the month traded. …"
(There is no further reference to "pre-bate" payment or payments in the letter)
Is the bullet point:
· "Total invoice value for temporary, contract and permanent recruitment for 2004 will be in the region of $5.2 million."
53. Putting to one side, for the moment, the question of the lack of precision in the language used and the related question whether it was meant to have contractual force or was a statement of what was expected that bullet point appears to relate to the previous bullet point and to rebates. The phrase "Total invoice value" is not inconsistent with the phrase "Invoice Charge" used in Annexure A. In my opinion this is Ross' strongest argument. There are strong countervailing considerations.
54. Originally, the requirement of a minimum spend of $8 million per annum was closely linked to the payment of a large non-refundable pre-bate ($650,000). That spend was designed to enable Ross to earn sufficient income so that the rebates it had to pay to Chubb and the other obligatory provisions of the Agreement would, through the work given to Ross, cut or balance out, via the rebates to which Chubb was entitled, the pre-bate of $650,000.
55. In the original Agreement the entitlement to rebates was not linked to there being a minimum or trading spend. The requirement of a minimum or trading spend of $8 million per annum and the other adjusting provisions were linked to producing rebates which would absorb the non-refundable pre-bate.
56. Despite the terms of the 2002 Agreement which remained, albeit substantially amended by the letter of 1 April 2004 and the absence of any statement in that letter or implication in that letter that henceforth the entitlement to rebates depended on there being a minimum spend in the region of $5.2 million per annum Ross contended that by its amending letter the parties agreed to a requirement that entitlement to rebates depended on total invoice value for temporary, contract and permanent recruitment being in the region of $5.2 million. I do not agree.
57. The letter does not expressly state that no rebates are payable unless and until Chubb's trading or minimum spend is in the region of $5.2 million per annum or words to that effect. There would not need to be an express statement. It would suffice if on the correct construction of the letter read with the 2002 Agreement it could be said that the intention of the parties was that the terms of the third bullet point were intended to have contractual force. That is not the case.
58. I have borne in mind the need when dealing with commercial arrangements or documents to avoid a narrow or pedantic approach.
59. In a given case a Court could determine whether a trading spend was in the region of $5.2 million and I would include amounts of $4.8 million and above as being in the region of $5.2 million.
60. I think that the third bullet point under the heading Commercial Terms of the amending letter falls within the ambit of "Our understanding of expected activity" in the third paragraph of that letter. In other words that third bullet point is a statement or understanding of expected activity. The trading spend of $5.2 million was reached in 2004 and 2005.
61. It is unnecessary to proceed further. However, while there was a holding over under the 2002 Agreement and the amending letter of 1 April 2004, the third bullet point which refers to total invoice value for temporary, contract and permanent recruitment for 2004 being in the region of $5.2 million could not be part of that holding over. It seems to be limited to 2004 by its terms and does not apply to 2005, 2006 and 2007.
62. I dismiss the Summons and would give judgment for Chubb on the cross-summons. I stand the cross-summons over for 14 days so that the amount can be checked and agreed.
63. Chubb should prepare Short Minutes of Order and serve a draft within 7 days.
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