The Truffle Group Performance Pty Limited v The Sydney Opera House Trust

[2006] NSWSC 460

CITATION:	The Truffle Group Performance Pty Limited v The Sydney Opera House Trust [2006] NSWSC 460 This decision has been amended. Please see the end of the judgment for a list of the amendments.
HEARING DATE(S):	16/05/06
JUDGMENT DATE :	18 May 2006
JURISDICTION:	Equity Division Commercial List
JUDGMENT OF:	Einstein J
DECISION:	Interlocutory injunctive relief granted against Sydney Opera House Trust
CATCHWORDS:	Equity - Interlocutory injunctive relief - Services Agreement for the provision by plaintiff of event catering services to the Sydney Operate House Trust - Purported notice of termination following notice of breach - Validity of notice of breach - Validity of notice of termination - Required content of notice specifying breach - Serious case - Balance of convenience
LEGISLATION CITED:	Evidence Act 1995 (NSW) Supreme Court Act 1970 (NSW) Supreme Court Rules 1970 (NSW) Uniform Civil Procedure Rules 2005 (NSW)
CASES CITED:	American Cyanamid Co v Ethicon Ltd [1975] AC 396 Appleton Papers Inc v Tomasetti Paper Pty Ltd [1983] 3 NSWLR 208 Beecham Group Limited v Bristol Laboratories Pty Limited (1968) 118 CLR 618 CH Giles & Co Ltd v Morris [1972] 1 WLR 307 Drummoyne Municipal Council v Australian Broadcasting Corporation (1990) 21 NSWLR 135 Eng Mee Yong v Letchumanan [1980] AC 331 Evans Marshall & Co Ltd v Bertola SA [1973] 1 WLR 349 FPM Constructions Pty Ltd v Council of the City of Blue Mountains [unreported New South Wales Court of Appeal, 10 October 2001, Basten JA] Fortescue v Lostwithiel & Fowey Railway Company [1894] 3 Ch 621 Gregory v Philip Morris Ltd (1988) 80 ALR 455 Hill v CA Parsons & Co Ltd [1972] Ch 305 Magna Alloys and Research Pty Ltd v Coffey [1981] VR 23 Makita (Australia) Pty Ltd v Sprowles (2001) 52 NSWLR 705 Plimpton v Spiller (1876) 4 Ch 286 Shercliff v Engadine Acceptance Corporation Pty Ltd [1978] 1 NSWLR 729 Stollznow v Calvert [1980] 2 NSWLR 749 Turner v Australasian Coal & Shale Employees’ Federation (1984) 6 FCR 177
PARTIES:	The Truffle Group Performance Pty Limited (Plaintiff) The Sydney Opera House Trust (Defendant)
FILE NUMBER(S):	SC 50059/06
COUNSEL:	Mr R E Dubler SC (Plaintiff) Mr A J Sullivan QC (Defendant)
SOLICITORS:	Middletons (Plaintiff) Mallesons Stephen Jaques (Defendant)

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION
COMMERCIAL LIST

Einstein J

Thursday 18 May 2006

50059/06 The Truffle Group Performance Pty Limited v The Sydney Opera House Trust

JUDGMENT

The application for interlocutory relief

1 There is before the court an application for interlocutory relief concerning a Services Agreement [“the Agreement"] entered into on 16 April 2002 for the provision of “functions services” at the Sydney Opera house.

2 The parties to the Agreement were Truffle Event Catering Pty Ltd [now ‘The Truffle Group Performance Pty Ltd’] ["the Group"] and Sydney Opera House Trust ["the Trust"].

3 The Group is in the business of event catering. An events caterer provides the food, beverage, waiters, tables, chairs, crockery, cutlery and glassware in venues for clients' functions.

4 Client functions include private celebrations such as weddings, corporate events such as Christmas parties and merger celebrations and events for large groups of overseas business or leisure travellers.

5 The Agreement followed a response by the Group to a tender from the Trust to provide the event catering services.

6 The Agreement provided for a number of extensions of the initial three-year term and was in 2005 extended for three years until April 2008.

7 The occasion for the commencement of proceedings was:

i. the service by the Trust of a purported notice of breach under clause 13.3 and 22.2 (b) on 16 March 2005;

ii. the service by the Trust of a purported notice of termination on 28 April 2006.

8 The Group contends:

i. that the notice of breach did not comply with clause 22.2 (b) of the Agreement;

ii. that the notice of termination is invalid;

iii. that there is a serious case to be tried;

iv. that the balance of convenience warrants an exercise of the discretion of the Court by restraining the Trust from taking any steps or engaging in any conduct in reliance upon either the purported notice of breach or the purported notice of termination pending the final determination of the proceedings.

9 The Trust denies each of these contentions.

The course of the hearing of the application

10 The application has been brought on very quickly. Each of the parties has relied upon a number of affidavits and each has addressed:

i. with written submissions;

ii. during the short hearing which took place late on the afternoon of 16 May 2006.

11 The parties agreed during the short hearing that the convenient course was for the Court to determine admissibility issues in this judgment. Hence the rulings in relation to those issues appear at the end of the judgment.

Interlocutory relief - the principles

12 There has not been any real issue as to the principles which obtain concerning the discretion to grant or refuse an application for interlocutory injunctive relief.

13 In approaching the interlocutory application it has seemed to me that the principles which govern the Court’s approach to the question are those generally dealt with and set out in Appleton Papers Inc v Tomasetti Paper Pty Ltd [1983] 3 NSWLR 208.

14 In Appleton, McLelland J pointed out the importance of recalling that the Court here deals with a discretionary power conferred on the Court in very general terms, referring to section 66(4) of the Supreme Court Act, which provides that the Court may at any stage of proceedings on terms grant an interlocutory injunction in any case in which it appears to the Court to be just or convenient so to do.

15 As McLelland J made plain at page 216 citing from the judgment of Moffitt P in Stollznow v Calvert [1980] 2 NSWLR 749:

"While useful guidance is provided by the manner of exercise of the discretion in other cases, and by the factors considered in those cases to favour the exercise of the discretion in a particular way, each case must depend upon its own facts. It would be contrary to what I understand to be the accepted law in this country, to confine the exercise of a judicial discretion by judge made rigid formulae."

16 At page 214 McLelland J cited the full High Court decision in Beecham Group Limited v Bristol Laboratories Pty Limited (1968) 118 CLR 618 at 622, 623 where the Court had said that in dealing with applications for interlocutory injunctions

"The Court addresses itself in all cases, patent as well as other, to two main enquiries. The first is whether the plaintiff has made out a prima facie case, in the sense that if the evidence remains as it is, there is a probability that at the trial of the action the plaintiff will be held entitled to relief...the second enquiry...is whether the inconvenience or injury which the plaintiff would be likely to suffer if an injunction were refused, outweighs or is outweighed by, the injury which the defendant would suffer if an injunction were granted."

17 At page 214 McLelland J further referred to Shercliff v Engadine Acceptance Corporation Pty Ltd [1978] 1 NSWLR 729 at 736, 737, where the Court of Appeal explained the special sense in which the expression "probability" was used by the High Court in the Beecham case, and in particular had said that it did not refer either to a prediction as to the ultimate result or to a better than even chance of ultimate success. The Court said that:

"The degree of probability or likelihood of success is simply that which the Court thinks sufficient, in the particular case, to warrant preservation of the status quo."

18 As McLelland J reminds us at page 214, the Court had already stated that in that case the balance of convenience was very strongly in favour of the granting of interlocutory relief (to preserve the status quo), and accordingly the Court's statement, McLelland J believed, might be generalised by saying:

". . . that the degree of likelihood of success to be demonstrated is that which the Court thinks sufficient in the particular case to warrant consideration of where the balance of convenience lies."

19 McLelland J also cited from the Privy Council decision in Eng Mee Yong v Letchumanan [1980] AC 331 at 337 where the Privy Council had expressed the relevant principle in terms derived from the American Cyanamid case as follows:

"The Court's power to grant an interlocutory injunction...is discretionary. It may be granted in all cases in which it appears to the Court to be just and convenient to do so...the guiding principle in granting an interlocutory injunction is the balance of convenience; there is no requirement that before an interlocutory injunction is granted the plaintiff should satisfy the Court that there is a `probability', a `prima facie case' or a `strong prima facie case' that if the action goes to trial he will succeed; but before any question of balance of convenience can arise the party seeking the injunction must satisfy the Court that his claim is neither frivolous nor vexatious; in other words that the evidence before the Court discloses that there is a serious question to be tried..."

20 McLelland J at page 215 expressed the view that what was said in the Eng Mee Yong case is not inconsistent in substance with what is said in the Shercliff case notwithstanding that the form of words used in the two cases is different, and in the Eng Mee Yong case, the expressions "probability" and "prima facie case" seem to be used in somewhat different senses to those in which the same expressions are used in the Beecham case as explained in the Shercliff case. McLelland J pointed out that it must be remembered that

"No Court should consider itself fettered by the form of words as if it were a phrase in an Act of Parliament which must be accepted and construed as it stands."

21 McLelland J further noted that in considering the question of the "balance of convenience" as contemplated in the Eng Mee Yong case and the American Cyanamid case, the relative apparent strength of each party's case may be a relevant matter. As McLelland J pointed out this accords with what the Supreme Court of Victoria said Magna Alloys and Research Pty Ltd v Coffey [1981] VR 23 in the following passage relating to the High Court's judgment in the Beecham Group case:

"Having regard to the fact that the High Court cited the judgment of James LJ in Plimpton v Spiller with approval, the reference in Beecham's case...to a probability of success should not be understood as meaning that the plaintiff must show that at trial it is more probable than not that he will succeed. Indeed the High Court made it clear that that is not the issue for the judge to determine, for, in the passage already cited the Court said `...the Court does not...give or withhold interlocutory relief upon a forecast as to the ultimate result of the case.'

Rather the High Court should be understood as referring to the degree of probability which may be high or low. No doubt the strength or weakness of the plaintiff's case will be relevant when the judge comes to the question of the balance of convenience, if he ever does."

22 At page 216 McLelland J cited Lord Diplock's judgment in American Cyanamid in terms of the power to grant interlocutory injunctions. The passage was as follows:

"My Lords, when an application for an interlocutory injunction to restrain a defendant from doing acts alleged to be in violation of the plaintiff's legal right is made upon contested facts, the decision whether or not to grant an interlocutory injunction has to be taken at a time when ex hypothesi the existence of the right or the violation of it, or both, is uncertain and will remain uncertain until final judgment is given in the action. It was to mitigate the risk of injustice to the plaintiff during the period before that uncertainty could be resolved that the practice arose of granting him relief by way of interlocutory injunction; but since the middle of the nineteenth century this has been made subject to his undertaking to pay damages to the defendant for any loss sustained by reason of the injunction if it should be held at the trial that the plaintiff had not been entitled to restrain the defendant from doing what he was threatening to do. The object of the interlocutory injunction is to protect the plaintiff against injury by violation of his right for which he could not be adequately compensated in damages recoverable in the action if the uncertainty were resolved in his favour at the trial; but the plaintiff's need for such protection must be weighed against the corresponding need of the defendant to be protected against injury resulting from his having been prevented from exercising his own legal rights for which he could not be adequately compensated under the plaintiff's undertaking in damages if the uncertainty were resolved in the defendant's favour at the trial."

23 At page 216, McLelland J pointed out that it is the task of the Court on an application for an interlocutory injunction to seek to fulfil this purpose in the manner best calculated to achieve justice between the parties in the circumstances of the particular case. McLelland J pointed out that with possible exception of a passage in the Beecham Group case which deals with what are said to be special considerations arising in a patent suit in which there is a substantial issue as to the validity of the patent, which McLelland J then proceeded to consider,

". . . the decisions to which I have already referred provide authoritative guidance (not however to be interpreted as `rigid formulae') as to how this task of the Court should normally be approached, but do not deny the proposition that the ultimate task of the Court is as I have described it."

24 I have endeavoured to approach the present application for interlocutory relief applying the principles as expressed by McLelland J. The matter is put shortly by Meagher, Gummow & Lehane, Equity Doctrines and Remedies, 2nd Edition at para 2168.

"What the plaintiff must prove is that he has a serious, not a speculative, case which has a real possibility of ultimate success and that he has property or other interests which might be jeopardised if no interlocutory relief were granted. Then it becomes a matter of seeing if, in all the circumstances of the case, the Court should nonetheless exercise its discretion by declining to issue an interlocutory injunction."

25 Likewise in Meagher, Gummow and Lehane at paragraph 217 the learned authors say:

"What is meant by saying that the Court must take into account the balance of convenience and the question of hardship is that it must consider carefully what effects the granting of an injunction will have on both parties and in particular whether to grant one would cause hardship to the defendant or to refuse one would cause hardship to the plaintiff."

Specification of breaches - the principles

26 Plainly enough the serious question issue in so far as treating with the attack on the notice of breach, requires that some attention be given to what is the requisite content of such a notice.

27 In FPM Constructions Pty Ltd v Council of the City of Blue Mountains [unreported New South Wales Court of Appeal, 10 October 2001] Basten JA drew attention to a number of authorities dealing with the required content of a notice specifying breach. His Honour observed that what may be sufficient to "specify" a matter sufficiently for a particular purpose has been considered in differing contexts with different levels of precision and detail required.

28 Basten J drew attention to the following observations made by Gleeson C J in Drummoyne Municipal Council v Australian Broadcasting Corporation (1990) 21 NSWLR 135 at 137:

" The requirement that a plaintiff must 'specify' the act or condition which he claims was attributed to him which follows from the scheme of the Defamation Act , the provisions of the Supreme Court Rules , and the ordinary rules of pleading, is one which, in its practical application, raises questions of degree. Almost any attribution of an act or condition to a person is capable of both further refinement and further generalisation. In any given case a judgment needs to be made as to the degree of particularity or generality which is appropriate to the occasion, and as to what constitutes the necessary specificity. If a problem arises, a solution will usually be found in considerations of practical justice rather than philology."

29 These considerations simply throw up the fact that the sufficiency or insufficiency of that which was contained in the subject notice of breach, may be expected to raise difficult questions of law requiring very careful consideration to be given to the current context.

The critical terms of the agreement

30 The critical clauses of the agreement for present purposes appear to be the following:

“Clause 13 Reporting, Records and Audits

13.1 During this Agreement Operator must prepare and submit to SOH quarterly (or, if the parties agree another interval, that other interval) a Service Level Report for that period (as applicable):


(a) the Achieved Service Levels;

(b) any recommended improvements to the Services or Required Service Levels;

(c) potential or actual problems in supplying Services in accordance with this Agreement; and

(d) any other relevant matter in relation to the supply by Operator of the Services.


13.2 A recommendation made by Operator under clause 13.1 is not binding on the parties unless agreed in writing by them as a variation of this Agreement in accordance with clause 29.

13.3 Operator must keep adequate records in sufficient detail to enable its compliance with this Agreement to be verified. Operator acknowledges SOH’s right to inspect such records which must include:


(a) monthly management accounts and working papers prepared by Operator to meet its obligations under this Agreement.

(b) Operator’s working papers and Business Activity Statements for the purpose of reconciling information provided by Operator to SOH; and

(c) Operator’s Revenue figures for the purpose of confirming the calculation of the Turnover Fee.

13.4 SOH or its auditors may, after giving at least 2 days notice to Operator:


(a) examine the Records at any time during Operator’s usual business hours; and

(b) conduct an audit to verify Operator’s compliance with this Agreement.


13.5 If any audit indicates that Operator has not complied with this Agreement, SOH may invoice Operator for SOH’s costs of the audit.”

“Clause 22 How can the Agreement be terminated?

22.1 This Agreement terminates on the earliest of the following:


(a) the end of this Agreement as specified in clause 3.1; or

(b) this Agreement is terminated in accordance with clauses 12.6(c), 22.2, 22.3 or 22.4

22.2 SOH may terminate this Agreement with immediate effect by giving notice to Operator:


(a) in accordance with schedule 2, Operator fails to meet the Required Service Levels; or

(b) Operator breaches clauses 4.1, 4.2, 4.3, 7, 10.1, 13, 14 or 24 of this Agreement, and either the failure or breach is not capable of remedy, or Operator has failed to remedy the breach within 14 days (in the case of a failure to pay) or 30 days (in the case of any other breach capable of remedy) after receiving notice requiring it to do so.

22.3 A party may terminate this Agreement with immediate effect by giving notice to the other party ( Other) if:


(a) the Other breaches any other material term of this Agreement not capable of remedy; or

(b) the Other breaches any other material term of this Agreement capable of remedy and fails to remedy the breach within 30 days after receiving notice requiring it to do so.

22.4 Either party may terminate this Agreement with immediate effect by giving notice to the other party if any step or event referred to in clauses 22.5(a) to 22.5(d) inclusive is taken or occurs.”

The evidence

31 Notwithstanding the affidavit material traversing a deal of the past history between the parties which is no doubt contentious from time to time, the crucial evidence which requires assessment concerns:

i. that which goes to the serious case issue;

ii. that which goes to the balance of convenience issue.

32 However it may be remarked in passing that clauses 3.2 and 3.3 of the agreement are presumably relevant to the position which obtained in mid April 2005 when the most recent three-year extension to the term occurred. These clauses provided as follows:

“3.2 SOH will review the performance of Operator under this Agreement as at each Review Date (Review), including:


(a) the achievement by Operator of the Required Service Levels;

(b) the performance by Operator of its obligations under this Agreement; and

(c) any other factor SOH considers relevant from time to time,
and notify Operator as soon as practicable after each Review Date whether Operator’s performance is satisfactory or unsatisfactory. If SOH notifies Operator under this clause that Operator’s performance is unsatisfactory, the parties must deal with the unsatisfactory performance as a problem in accordance with clauses 12.4 and 12.5.

3.3 If:


(a) in SOH’s reasonable opinion, Operator has complied with its obligations under this Agreement; and

(b) either SOH has notified Operator in accordance with clause 3.2 that it has performed satisfactorily for each Review, or SOH has not so notified Operator but the parties have, in SOH’s reasonable opinion, resolved the problem as contemplated in clause 3.2, up to the End Date,

then if requested by Operator, SOH must give written notice to Operator that this Agreement is extended in accordance with clause 3.1.”

33 As noted above, there is a deal of evidence before the Court concerning the history of the relationship arising out of the Agreement. For present purposes, it is sufficient to provide the following overview of events.

Events between November 2003 and March 2006

34 There is evidence of the following events:

· In November 2003, the Internal Audit Bureau, the Trust’s auditors at the time, attempted to conduct an audit of the Group’s financial records

· Between April 2004 and March 2006 the Group alleges it continued to perform its obligations under the Services Agreement

· Between October 2005 and March 2006 the Group relocated their offices twice

· Between October 2005 and March 2006, meetings were conducted and communications passed back and forth between the Group and the Trust.

· The Trust alleges that two notices of breach, dated 28 October 2005 and 24 November 2005, were sent to the Group

· The Trust alleges that it repeatedly expressed its continuing concern about the Group’s financial position and their failure to meet obligations

Events relevant to the March 2006 audit according to the Group

35 The Group’s evidence as to the relevant events given in Ms Sandy Barnes’ affidavit of 11 May 2006 is as follows:

· On or about 3 March 2006, she had a telephone conversation with Mr Kelly (Sydney Opera House's Director of Finance and Systems). Part of the conversation was with words to the following effect:

Mr Kelly said: "We want to do an audit. We are looking at the 13th and 14th of March. Is that convenient?"

Ms Barnes said: "Yes."

Mr Kelly said: "We want to audit the period from July 2004 to December 2005."

· On or about 3 March 2006 she had a conversation with Ms Benjamin. Part of the conversation was with words to the following effect:

Ms Barnes said: "Sara, I have just had a call from Lindsay Kelly at Sydney Opera House. He wants to do an audit - for the period from July 2004 to December 2005. They are looking at coming in on the 13th and of 14th March."

· Between 3 March 2006 and 13 March 2006 (but Ms Barnes cannot recollect the exact date), she had a conversation with Ms Benjamin. Part of the conversation was with words to the following effect:

Ms Benjamin said: "I am having difficulty getting all the documents together for the Opera House Audit. They have been misplaced during our office reshuffle when the sales team relocated to the Tower."

· On 13 & 14 March 2006 Ms McRae from Deloittes and Ms McLeod, from Sydney Opera House attended Truffle's offices in Market Street.

· When Ms McRae and Ms McLeod attended Truffle's offices, Ms Benjamin and Ms Barnes met them. They then had a conversation. Part of the conversation was words to the following effect:

Ms Barnes said: "At the moment, we have only got records for you for the period November 2005 to February 2006. As we have accommodated additional staff at Loftus Street, the records for July 2004 to September 2005 have been misplaced. We are still looking for those documents, and will give you those documents once we have found them. In the meantime, here are the documents for November 2005 and up to February 2006. I will now leave you with Sara.

· On 14 March 2006 Ms Barnes had a conversation with Ms McRae and Ms McLeod with words to the following effect:

Either Ms McRae or Ms McLeod said: "We have now looked at the documents that you gave us. Have you managed to find the other documents?"

Ms Barnes said: "No."

Either Ms McRae or Ms McLeod said: "In that case, we will stop the audit for the moment. At this stage, the records that we have reviewed are adequate, but we can't do any further work at this stage. We will come back next week once your files are found.

Ms Barnes said: "That is fine. I will give you a call once the documents have been found. In the meantime, I will print out the General Ledger Sales Activity Report for the period July 2004 to June 2005."

· Ms Barnes then printed out the General Ledger Sales Activity Report for the period July 2004 to June 2005, and gave it to either Ms McRae or Ms McLeod.

· Some time during the week beginning 27 March 2006 (Ms Barnes cannot recall the exact date) she telephoned both Ms McLeod and Mr Kelly. She was not able to speak with either Ms McLeod or Mr Kelly but left them a message on their answer phone advising them that the files had been found and inviting them to return to complete the audit.

Events relevant to the March 2006 audit according to the Trust

36 On the other hand, the Trust contests the Group’s account of events relevant to the March 2006 audit.

37 In particular both Ms McRae and Ms McLeod deny that the words “At this stage, the records that we have reviewed are adequate…” or words to that effect were said on 14 March 2004.

38 Ms McRae maintains that, as to the date of her affidavit sworn on 15 May 2006, the Group has not provided adequate books and records.

39 The Trust further contests Ms Barnes’ recollection of the subsequent phone message and puts forward Ms McLeod’s account as follows:

· In answer to paragraph 10 of Ms Barnes Affidavit, Ms McLeod denies that Ms Barnes left her a message on 27 March 2006 advising that the missing files had been found and inviting her to complete the audit. Ms McLeod says that Ms Barnes left her a message requesting only that she call Ms Barnes on or about 20 or 22 March 2006.

· Ms Benjamin left a message requesting that Ms McLeod call her on 21 March 2006. Ms McLeod returned Ms Benjamin’s call on 23 March 2006, and they had a discussion during the course of which words were said to the following effect:

Ms Benjamin said: “We’ve found those missing records. I had started to reconstruct some but we then found the documents. You can come back now.”

Ms McLeod said: “Well, in addition to your reconciliations, we also require support for all the deductions Truffle Group’s been making.”

Ms Benjamin said: “That will take about a week or so - I’ll let you know when all the documents are ready.”

Ms McLeod said: “Contact me when all the documents are ready.”

Ms Benjamin said: “Ok.”

· Ms McLeod did not hear from Ms Benjamin again after that discussion until they met in the course of trying to complete the audit on 20 April 2006.

The notice of breach

40 The notice of breach was in the following terms:

“This letter is formal notice under clauses 13.3 and 22.2(b) of the Services Agreement requiring you to remedy the following breach of the Service Agreement:

Failure to keep adequate records in sufficient detail to enable its compliance with the Agreement to be verified.


As advised verbally in late November 2005, again in writing on 27 February 2006 and 3 March 2006, Sydney Opera House undertook an audit of the Truffle group records on 13th and 14th March 2006.

The audit team consisting of Kylie McRae of Deloittes and Fiona McLeod of Sydney Opera House were advised early in this audit process that the detailed records relating to Sydney Opera House business were not available for the period prior to November 2005. The audit team was advised that these had been lost.

In 2003 Sydney Opera House, through its auditor at the time, Internal Audit Office, attempted to conduct a similar audit. At the time Truffle Group would not allow access to the records to support the compliance with the Agreement.

You have 30 days to remedy this breach. In particular we need provided all information which enables the audit to be completed.

Continued failure to remedy these breaches within the time periods specified in clauses 22.2(b) and 22.3 will give the Sydney Opera House Trust the right to terminate the Agreement.”

The notice of termination

41 The notice of termination was in the following terms:

“Re: Notice of Termination

I refer to:

(a) the Services Agreement between the Sydney Opera House Trust (the “Trust”) and Truffle Group Performance Pty Limited (“Truffle Group”) dated 16 April 2002 (the “Services Agreement”); and

(b) our notice to you dated 16 March 2006 of a breach of the Services Agreement, (“Notice of Breach”), a copy of which is attached.

The breach of contract notified in the Notice of Breach has not been remedied within 30 days as required under clause 22.2 of the Services Agreement.

On 20 April 2006 our audit team, Kylie McRae of Deloittes and Fiona McLeod of the Trust, attended your offices to conduct an audit of your records to verify Truffle Group’s compliance with the Services Agreement, in accordance with clause 13.4 of the Services Agreement.

The audit was not able to be completed and our audit team found that Truffle Group has not rectified its failure to keep adequate records in sufficient detail to enable its compliance with the Services Agreement to be verified. In particular:

1. Truffle Group’s records were not maintained in sufficient detail to enable its compliance with the Services Agreement to be verified.

2. Truffle Group’s records were not adequate as they were not kept in adequate detail and the audit trail was convoluted and unclear. For example, there was no clearly identifiable trail between what is in the Truffle General Ledger and what appears in the monthly reconciliation sheet sent to the Trust. In addition, there was insufficient transparency and support on deductions.

3. Truffle Group’s record keeping procedures were not adequate as they were significantly below usual business practices.

4. Truffle Group’s records were not adequate as it would take several weeks of review to verify compliance. In particular, the only way to audit compliance with the Services Agreement would be to undertake a manual reconciliation of invoices and other records which would take at least 3 – 4 weeks – this is not “adequate record keeping” as required by clause 13.3 of the Services Agreement.

Accordingly, in accordance with clause 22.2 this letter is notice of termination of the Services Agreement.

As stated in clause 22.2, the termination has immediate effect.

In accordance with clause 23.1 the Trust elects to bring into operation the Exit Plan set out in Schedule 4 of the Services Agreement. The Exit Date will be 26 May 2006.

We will be in contact with you shortly to organise a time to meet and plan the exit process.

Notice of Breach

It has become clear to our audit team and I understand was admitted by Chris James on 20 April 2006, that Truffle Group has been paying Turnover Fees only with respect to revenue earned from food and beverage operations and not total Operator Revenue as defined in the Services Agreement. Truffle Group have also made deductions which they should not have made or incorrectly calculated the deductions it did made. This means that the Turnover Fees have not been paid in accordance with clause 14.2 of the Services Agreement.

This notice is given to record an additional potential right of termination of the Trust and to reserve the Trust’s rights to seek recovery from Truffle Group of the shortfall in Turnover Fees.”

The serious case issue

42 Clearly enough the question of whether or not the purported notice of termination was valid centres upon the anterior validity or invalidity of the 16 March notice of breach.

43 The submissions by the Group challenge the validity of the notice of breach on the following bases:

i. the proper construction of clause 22.2 (b) is said to require that which is said not to have here occurred: namely the need for a notice of breach specify the alleged breach and what is required to remedy that breach in a way which would enable the Group readily to understand what it had to do in order to comply with the notice [and the Group contend that bearing in mind the seriousness of termination, the clause should be construed contra proferentum];

ii. the contention is that save for one possible matter , the notice of breach fails to notify what is required in order to remedy the breach. The proposition is that arguably the notice does in fact convey the requirement for remedial action by the production of detailed records relating to Sydney Opera House business for the period prior to November 2005;

iii. the contention is that the notice of breach alleges a failure to provide documents in 2003 in which respect the Group contends as follows: the 2003 audit is said to have taken place; there is said to have been a request for documents and a claim that the request was beyond the scope of that audit; documents not covered by clause 13.3 are said to have been called for.

iv. the Group contends that the contract continued to operate from 2003 until 16 March 2006 and that there continued to be payment of fees due and received as such.

v. the contention is that if there had been any breach of clause 13.3 in 2003, the Trust had plainly elected to affirm the contract despite knowledge of that alleged breach;

vi. the additional contention is that the second sentence of the penultimate paragraph of the notice of breach, in requiring that there be provided "all information which enables the audit to be completed," travels well outside anything which could sensibly be accepted as a notice requiring remedy, being open-ended and impossible of being understood and complied with in those terms .

44 The Trust disputes each of these contentions. Its proposition is that there is only one breach of the agreement identified in the notice of breach, being that set out in the first paragraph: "failure to keep adequate records in sufficient detail to enable [the Group's] compliance with the agreement to be verified".

45 The Trust contends that the statement [in the penultimate paragraph of the notice of breach] that it needed to be provided with "all information which enables the audit to be completed", is in effect to be read as a requirement that it be provided with records in adequate detail "to enable compliance with the Agreement". [transcript 46.20]

46 The submissions by the Group challenge the validity of the notice of termination on several bases, a number of which raise contested allegations as to matters of fact. These have been briefly referred to earlier, it being common ground that the Court cannot on an interlocutory injunction determine disputed questions of fact.

47 However the Group also contends that the notice of termination, particularly in sub-paragraphs 2, 3 and 4:

i. relies upon matters having no correspondence to or relationship with anything identified in the notice of breach;

ii. remain at a level of abstraction;

iii. were not as a matter of fact identified as such to the representatives of Group at the time.

48 The proposition put by Group is that even if made out, there is a real dispute as to whether these matters would constitute a breach of clause 13.3.

49 The proposition put by Group is that there is no obligation within clause 13.3:

i. to have an audit trail that satisfies the opinion of Deloittes;

ii. to provide documents which are not convoluted;

iii. to provide documents which would permit the defendant to verify compliance in a time less than a few weeks.

50 The Group's proposition is that the requirement to be found in clause 13.3 of the agreement, uses the words "adequate records" and does not require perfection or ease of audit. The proposition is that compliance or no, with the obligation to keep adequate records is an objective matter. The proposition is that the complaint made by the Trust that "it would take several weeks to recap the actual turnover fee owing for the 2004 through to the 2006 financial years" [which in fact covers 24 reported turnover fee circumstances] does not ex facie establish that the records are not adequate to enable compliance to be verified.

51 The Trust contends that the termination notice does not extend beyond the scope of the notice of breach. The contention is that the termination notice does no more than to detail the manner in which the documents fail to come within the contractual description [as being documents which are adequate records in sufficient detail to enable the Group's compliance with the agreement to be verified]

Serious case established

52 In my view there is no doubt but that the Group has established:

i. a serious and not a speculative case having a real possibility of ultimate success;

ii. a case with a sufficient degree of likelihood of success to warrant consideration of where the balance of convenience lies.

53 It is unnecessary to go beyond observing that the plaintiffs above described contentions impugning the validity of the notice of breach raise a number of matters which are very clearly arguable.

54 Plainly also the factual issues which require determination can only be properly treated with at a final hearing.

Balance of convenience

55 The balance of convenience is heavily weighted in favour of the granting of interlocutory relief now sought. Without being exhaustive the factors to be taken into account include the following:

i. the Group has operated an ongoing business with many valuable bookings;

ii. a valuable asset of the Group is in contention;

iii. the contention of the Trust that damages are plainly an adequate remedy requires careful analysis;

iv. there is no absolute rule that in no circumstances will equity grant specific performance or injunctive relief when there is an element of personal service in a contract: cf Fortescue v Lostwithiel & Fowey Railway Company [1894] 3 Ch 621 at 639.3-640.2; CH Giles & Co Ltd v Morris [1972] 1 WLR 307 at 317.8–319.2; Hill v CA Parson s & Co Ltd [1972] Ch 305, Evans Marshall & Co Ltd v Bertola SA [1973] 1 WLR 349 at (the first instance decision which was reversed), and 379-380; Turner v Australasian Coal& Shale Employees’ Federation (1984) 6 FCR 177 at 192-193; and Gregory v Philip Morris Ltd (1988) 80 ALR 455 at 481-2;

v. the issue of the propriety of particular equitable relief whether by way of specific performance or injunctive relief is always instant specific;

vi. the evidence falls short of any proof that there is constant supervision required pursuant to the terms of the Agreement or which de facto has been the order of the day in terms of the services carried out under the Agreement

56 The evidence given by Mr James a director of the Group, includes the following:

i. If Truffle is prevented from continuing performance of catering services at the Sydney Opera House, this will effect Truffle's business in the following circumstances:

a) Truffle's existing contracted events;
b) any existing enquiries and negotiations currently underway;
c) any future enquiries; and
d) any future referrals and business introductions.

ii. In relation to existing contracted events:

a) Truffle has 13 events (totalling in value $358,000) in the Opera House under contract with Truffle from date to the period ending 31 December 2006;
b) termination of the Services Agreement will cause Truffle to be in breach of these existing contracted events by being unable to provide the contracted catering service at the Sydney Opera House and will expose Truffle to potential damage claims, the amount of which is impossible to quantify;
c) Truffle will have to contact each of these clients and advise them of the need to immediately make alternative event plans and if necessary, this should happen as soon as possible;
d) the effect of these cancellations will be significant, including requests for compensation and may include claims of a non-financial nature such as anxiety and stress particularly if the client does not wish to have another caterer do the function, or the Opera House is unable to provide an alternative caterer; and
e) some of these clients are repeat customers who will no longer have trust or confidence in Truffle's event organising capabilities. This will cause irreparable damage to Truffle's reputation and standing.

iii. In relation to existing enquiries for events and negotiations currently underway:

a) Truffle currently has $1,342,242 worth of enquiries from date to the period ending 31 December 2006. These enquiries range in certainty from "Enquiry 1" level to "Verbal Confirmation and Contracts Issued" level;
b) termination of the Services Agreement will cause loss to the Truffle's Opera House business and a high likelihood of loss to existing enquiries in relation to other aspects of Truffle's businesses;
c) as the event catering industry is a small industry, termination of the Services Agreement will cause a significant nervousness among clients due to perceived uncertainty of Truffle's financial viability going forward causing irreparable damage to Truffle's reputation and standing;
d) competitors will capitalise on this uncertainty and may make competing bids for business that are currently in the negotiation phase;
e) as clients need certainty in planning the event, clients are unlikely to jeopardise their own reputations by committing to a caterer perceived as risky in the industry; and
f) reduced conversion of existing enquiries into sales will cause reduced total sales with a consequence that existing investment in staffing and equipment will become uneconomic. This will have a snowballing effect on Truffle's operations and profitability.

iv) In relation to future enquiries:

a) as event contracts are won by caterers based on market standing, future enquiries for all of Truffle Group's business will be adversely affected;
b) recent event successes and a high standing in the event industry and among the corporate client community are paramount in generating future enquiries;
c) the negative impact of a termination of the Services Agreement on Truffle's market standing and reputation will be significant and irreparable;
d) competitive bids by Truffle for future business will be clouded by the reduced market confidence in Truffle's financial viability; and
e) the value of this loss cannot be quantified at this stage.

v. In relation to future referrals and business introductions:

a) industry connections and industry reputation are an important and vital part in the catering business;
b) the negative impact of a termination of the Services Agreement on Truffle's market standing and reputation and consequent reduction in business referrals will be significant;
c) these referral sources include inbound tour operators, corporate event managers, tourism operators, and other venues.

57 There is evidence put forward by the Group in terms of its balance sheet as at 31 March 2006 disclosing net assets of over $1,000,000

58 There is evidence that the Group's current operations at the Sydney Opera House are profitable.

59 There is in place A$60,000 guarantee.

60 The contention put forward by the Trust to the effect that damages are clearly shown to be an adequate remedy hence requiring that the interlocutory application be dismissed, fails to treat with the entitlement of the Group to require its contract with the Trust to be honoured, absent an entitlement in the Trust to terminate pursuant to one or other of the routes provided for in clause 22. Nor do the contentions put forward by the Trust comprehend the need for the litigious process on a final hearing to treat with the Groups contention that in truth the essential nature of the agreement is somewhat akin to that of a licensee of premises: the proposition being that there is no evidence suggesting constant supervision or similar.

61 The contentions put forward by the Trust suggesting a loss of confidence in the Group have been taken into account in the overall assessment of the balance of convenience. Ultimately the strength of the serious case must also be taken into account as a loss of confidence can only have a material effect if shown to be justifiable in particular terms. These are matters to be litigated.

62 Finally I note that the Group has undertaken to apply for expedition, to have its evidence available within 10 days and to pursue a hearing date as soon as possible thereafter.

Decision

63 The principled exercise of the discretion is to grant the interlocutory relief pending the determination of the proceedings.

Objections to evidence

64 Each of the parties has taken certain objections to material in the affidavit evidence sought to be produced by the other.

65 It has to be recalled that the Court is not dealing with a final hearing. In truth the touchstone involves the requirement, subject to dispensation with such, that the usual rules applied to the adducing of evidence at an interlocutory hearing require to be complied with.

Evidence of Mr Whitton

66 The Trust has objected to the whole of the affidavit of Mr Whitton sworn on 12 May 2006. In my view the whole of that affidavit is admissible on the interlocutory hearing. Relevantly:

i. Mr Whitton is shown by his curriculum vitae to have by his training study or experience acquired specialised knowledge in the areas of accounting and audit and business consultancy and across the various areas summarised his report under the heading "Background".

ii. Mr Whitton had been supplied with a copy of the Expert Witness Code of Conduct under the Uniform Civil Procedure Rules 2005 and agreed to be bound by the terms of that code.

67 The material attack on admissibility of the affidavit centres around:

i. the proposition that the opinions expressed are not based on work performed by Mr Whitton but upon work which was undertaken by an employee who undertook a limited interim review of the revenue audit trail in the manner described;

ii. the further proposition that the requirements of the Evidence Act 1995 s79, summarised by Heydon JA in Makita v Sprowles (2001) 52 NSWLR 705 at 85 and following have not been observed.

68 As to i it must be remembered that the inquiry involves whether or not the Court should be satisfied that there is a sufficient prospect that particular evidence will be forthcoming on a final hearing. The effect of the evidence given by Mr Whitton is that following a limited interim review of the revenue audit trail, a number of particular steps which were involved were ascertained. The review was carried out by an employee of Lawler Partners. This is an accounting and audit firm.

69 Mr Whitton has given evidence referring to that review as "our review". Based upon the matters set out in his report he proceeds to set out his own opinion that “the records of the Group are in sufficient detail to enable an independent auditor to verify compliance by [the Group]“ with the agreement.

70 Whilst I would certainly accept that the report is borderline in terms of exposing the reasoning processes which were involved, it certainly outlines particular of the steps involved in terms of the audit trail of revenue recording of events held. There is sufficient, although just sufficient, appearing from the report, to permit its admission into evidence at an interlocutory level as pointing to the likelihood of more detailed evidence of similar ilk being available at the final hearing. The shortcomings in the report are essentially matters going to weight which in the circumstances is only slender.

71 The objection grounded upon the proposition that the material work was carried out by the above described employee and not by Mr Whitton is misconceived on this interlocutory application, because Mr Whitton has clearly exposed himself as having sufficiently participated in the exercise, to permit him to express the opinions which he has.

72 Even had this evidence of Mr Whitton been rejected, the above-described reasons for finding that a serious case has been established would have been no different. The issues raised going to the suggested invalidity of the notice of breach raise a number of technical questions of law. The anterior question of whether the records of the Group were at a particular point of time in sufficient detail to enable an independent auditor to verify compliance by the Group with the agreement are far too complex to permit of clarity of resolution on one interlocutory hearing.

Evidence of Mr James and Ms Barnes

73 The whole of the affidavits of Mr James are allowed. He has been a director of the Group since 1999. He is in a position to give evidence of the matters dealt with in these affidavits.

74 Seemingly an important area of objection concerns the evidence which he gives,

(1) in relation to the number and value of events which the Group has under contract in the Opera House from the present time up until the end of 2006; and

(2) as to the value of the enquiries from the date to the end of 2006.

75 These matters receive more particular attention in paragraph 20 of his second affidavit where he not only gives evidence that approximately 190 events are listed in the Events Diary for the period in 11 May 2006 to the end of 2006, but also gives the status of those events in terms of the distinction between ‘verbal confirmation’, ‘enquiry’, ‘quoted’, ‘confirmed with deposit paid’ and ‘contract issued’. Bearing in mind the witnesses position in the company all of this evidence is allowed on an interlocutory basis.

76 The objection to the reading of paragraph 4 of the affidavit of Ms Barnes sworn on 16 May 2006 is disallowed.

77 None of the objections of the Group to the affidavits mobilised by the Trust are of substance.

Orders

78 Upon the usual undertaking as to damages being continued the appropriate orders will be:

Order that the defendant, by itself, its servants and agents be restrained until determination of the proceedings at first instance, from taking any steps or engaging in any conduct in reliance upon either the 28 April 2006 purported Notice of Termination of the Service Agreement dated 16 April 2002 or the purported Notice of Breach of the same agreement dated 16 March 2006.

Costs

79 The parties will be given an opportunity to address on costs.

19/05/2006 - "the" removed in para 3. Colon changed to fullstop in para 13. Final bullet point in para 35 second paragraph "I" changed to "She". Paragraph 43 "The" changed to "the" in para iv and v. "contentions" changed to "contention" in paragraph 60. - Paragraph(s) 3, 13, 35, 43, 60.