Wannon Roadways Pty Ltd v Wallace-Smith

[2004] VSC 230

IN THE SUPREME COURT OF VICTORIA Not Restricted

AT MELBOURNE

COMMERCIAL AND EQUITY DIVISION

CORPORATIONS LIST

No. 4853 of 2004

IN THE MATTER OF V/LINE PASSENGER PTY LTD (FORMERLY NATIONAL EXPRESS GROUP AUSTRALIA (V/LINE PASSENGER) PTY LTD) (Subject to a Deed of Company Arrangement)
WANNON ROADWAYS PTY LTD	Plaintiff
v
SIMON ALEXANDER WALLACE-SMITH and PETER GEORGE YATES	Defendants

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JUDGE:	Mandie J
WHERE HELD:	Melbourne
DATE OF HEARING:	28 June 2004
DATE OF JUDGMENT:	30 June 2004
CASE MAY BE CITED AS:	Wannon Roadways Pty Ltd v Wallace-Smith
MEDIUM NEUTRAL CITATION:	[2004] VSC 230

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CORPORATIONS – appeal against partial disallowance of proof of debt by deed administrator

CONTRACT – Coach Passenger Services Agreement – whether contractor’s entitlement should have been reduced by reason of impact of Commonwealth fuel grants on fuel costs – whether literal interpretation of provision for adjustment of contractor’s fuel costs led to absurd consequences

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APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Mr G Hevey	NA Young & Co
For the Defendant	Mr P Crutchfield	Clayton Utz

HIS HONOUR:

1. By originating process filed 4 March 2004, the plaintiff (“Wannon”) appealed, pursuant to s.1321 of the Corporations Act 2001 (Cth), against certain decisions made on 16 February 2004 by the defendants, who are the deed administrators of V/Line Passenger Pty Ltd (“V/Line”). By those decisions, the defendants disallowed a proof of debt, in part only, in respect of five items. One item has since been admitted and three other items abandoned, leaving the following in dispute:

“$187,079 – 1 July 2000– 30 November 2002 Diesel Fuel Rebate.”

1. The sum of $187,079 is claimed by Wannon to be due pursuant to a written agreement entitled “Coach Passenger Services Agreement” (“the Agreement”), which is dated 28 February 2000 although not executed by the parties until 11 August 2000.  The defendants disallowed the claim on the ground that V/Line was “entitled to deduct this amount from payment due to Wannon under the agreement”. 

1. Subject to the Agreement, Wannon contracted to provide to V/Line “Coach Passenger Services” on certain routes and in accordance with certain standards (cll. 3.1, 3.3).  V/Line was entitled at any time to require Wannon to provide particular Coach Passenger Services (cl. 3.2), but only “in accordance with the Routes and Timetables set out in schedule 1” (which covered a Route and Timetables for “Ballarat – Horsham/Dimboola – Ballarat”). 

1. Clause 4.1 of the Agreement provides that V/Line must pay Wannon “the Total Monthly Service Charge referrable to each Accounting Period no later than 3 Business Days after the Payment Date”.  By cl. 1.1, “Total Monthly Service Charge” means “1/12 of the Annual Contract Sum as adjusted under schedule 5” and “Annual Contract Sum” means “the sum of the Contract Payment Components for each Contract Year for the Coach Passenger Services”. 

1. The “Contract Payment Components (as at the Commencement Date)” are set out in schedule 4 with items and amounts listed in a number of categories (including Fixed Vehicle Costs, Crew Costs, Distance and Maintenance Costs, Depot and Maintenance Costs and Rate of Return).  “Fixed Vehicle Costs” include amounts for registration and insurance.  “Crew Costs” include amounts for wages, superannuation and the like.  “Distance and Maintenance Costs” include amounts for fuel, oil, tyres, mechanics’ wages and so on.  The fuel costs were apparently based on a price per kilometre which can be deduced from the “Operating Statistics” (see p.53 of the Agreement).  “Rate of Return” appears to provide for overheads such as interest and depreciation and also for a management fee which is, presumably, profit or an element of profit.   

1. Cl. 4.3 of the Agreement provides that V/Line must share with Wannon any changes in annual revenue directly attributable to variation in ticket sales as a result of any change in patronage over and above certain patronage targets as therein defined and the clause goes on to provide a formula. 

1. Cl. 5.1(a) of the Agreement provides:

“The Annual Contract Sum will be adjusted:

(a)for the effect of cost movements in accordance with the provisions contained in parts 1, 2, 3 and 4 of schedule 5…”

1. Schedule 5, headed “Payment Adjustments”, lists the various Contract Payment Components in a table with columns headed “Method of Adjustment” and “Timing of Adjustment”.  The Method of Adjustment provided in schedule 5 varies with the item involved.  For example, “Registration” and “Traffic Accident Charge”  are to be adjusted in accordance with movements in the charges of VicRoads for compulsory vehicle registration and compulsory third party insurance respectively.  “Wages” are to be adjusted in accordance with movements in the Transport Workers’ Award.  “Driver’s Uniforms”, “Parts”, “Tyres”, “Bus Cleaning”, “Administration Costs” and a number of other items  are to be adjusted in accordance with movements in the “CPI Multiplier”.  The items included under “Rate of Return” are fixed for the contract term.  “Fuel” (and “Oil” and “Lubricants”) are dealt with as follows:

No.	Description	Method of Adjustment	Timing of Adjustment
1.	Fuel, Oil  Lubricants	Adjusted in accordance with movements in the bulk diesel price as provided to VLP by its supplier	Adjusted on 1 January, 1 April, 1 July and 1 October during the Contract Term

1. The Diesel and Alternative Fuels Grants Scheme Act 1999 (Cth) introduced a scheme (“DAFGS”) of monetary grants for the use of diesel fuels in road transport in “rural” areas, based on the quantity of fuel used, such grants to be available from 1 July 2000 to 30 June 2002. An applicant for a fuel grant had to satisfy the Commissioner that the applicant, inter alia, used diesel fuel in a defined motor vehicle for the purposes of an enterprise carried on by the applicant.

1. It is common ground that Wannon received the equivalent of the said sum of $187,079 as fuel grants under the DAFGS. 

1. By letter dated 13 July 2000, V/Line wrote to Wannon as follows:

“Formula for GST Calculations. National Express Coach Contracts.

I am writing to you in regard to the impact of the new GST tax on our current road coach contracts. 

Many of you may be aware that the Department of Infrastructure and the Bus Association of Victoria established a joint working party to consider the impact of the introduction of the Commonwealth Government’s A New Tax System on bus contracts.

The joint working party appointed Pitcher Partners to provide advice on:

·    The impact of the removal of various embedded taxes on costs relevant to bus contracts and;

·    Procedural matters of tax invoices and registration.

The findings of the working party were that with the abolition of embedded taxes and the introduction of the Diesel and Alternative Fuels Grants Scheme (DAFGS) would result in the following reductions in contract costs from 1 July, 2000. 

[There followed a table setting out percentage reductions in various cost items, including a 31.4% reduction in fuel cost]

However, the Department of Infrastructure and the Bus Association are now reviewing the percentages as the result of some further changes relating to the GST and once this review is finalized and accepted as the industry model, then [V/Line] considers it appropriate to adopt the revised model. 

Any changes will be made retrospective from 1 July, 2000. 

…”

1. By letter dated 19 September 2000, V/Line advised Wannon that its costs item for fuel would be reduced (including retrospectively reduced) by 17.8c per litre in respect of fuel grants under the DAFGS.  Wannon did not agree to this reduction at any time.  Mr Grey, the sole director of Wannon, deposed that he attempted to negotiate the reimbursement of these deductions over many months with a Mr Smithwick and a Mr Arthur, the relevant officers of V/Line to whom he was directed.  Mr Grey deposed that he also referred the matter to Bus Association Victoria and was asked by a committee member of that organisation to wait until a case in Western Australia was determined (the result of which he had never received).  Mr Grey deposed that the matter had not been resolved at the time when V/Line went into external administration in or about late December 2002. 

1. Counsel for the defendants, Mr Crutchfield, submitted in a written outline that the object of schedule 5 of the Agreement was to provide for adjustments to the Annual Contract Sum having regard to costs movements in respect of the Contract Payment Components listed in the schedule.  No doubt that is correct as a generality.  In the outline, Mr Crutchfield next submitted that the “rebate” (more accurately, the “fuel grant”) constituted a “movement in the bulk diesel price” for the purposes of schedule 5 because as a matter of commercial reality, it “formed part of the price”. 

1. In my view, the above submission overlooks the full terms in schedule 5 dealing with the Method of Adjustment for Fuel.  It was not “movements in the bulk diesel price” but “movements in the bulk diesel price as provided to VLP by its supplier” which the parties agreed would be the criterion for the method of  adjustment of Wannon’s fuel costs.  If that is correct, there is no evidence that there was any movement in the bulk diesel price as provided to V/Line by its supplier and therefore no basis for adjusting Wannon’s fuel costs under the Agreement.  Although there is no evidence, it is reasonable to assume that V/Line purchased diesel fuel from a supplier as part of its business activities and further to assume that this price, from time to time, was capable of objective ascertainment.  

1. In my opinion, fuel cost adjustments are prima facie governed by schedule 5 of the Agreement in the manner therein provided.  The “movements” must be determined by reference to the bulk diesel price as provided to V/Line by its supplier.  It is not suggested, and there is no evidence (as I have said), that the purported adjustment or reduction in this case reflects in whole or in part any “movements in the bulk diesel price as provided to [V/Line] by its supplier”.  There is thus no apparent basis for such adjustment or reduction.   

1. Mr Crutchfield maintained the above submission but, perhaps having regard to the difficulties inherent in it, orally advanced an alternative and quite different submission.  Mr Crutchfield submitted that the words “as provided to VLP by its supplier” led to absurd results and should be disregarded.  He submitted that the parties intended that Wannon should be reimbursed only for its actual costs, as adjusted from time to time, and that Wannon should receive a fixed “Rate of Return” or profit, whereas if Wannon did not have to adjust its fuel costs downward for the receipt of the fuel grant, it would make a “windfall profit” which was outside the intent of the Agreement. 

1. Mr Crutchfield referred to Westpac Banking Corporation v Tanzone Pty Ltd [2000] NSWCA 25, in which the New South Wales Court of Appeal considered that the literal interpretation of a rent review clause led to such absurd results or consequences that the clause “should be construed so as to avoid the absurdity by supplying omitting or correcting words”.[1]  In that case, the New South Wales Court of Appeal considered, on the facts, that there was no rational basis or explanation for the form of words used when a literal interpretation was attributed to them.  The interpretation of the words was not merely unreasonable, but fell into the absurdity category. 

   [1]Citing Fitzgerald v Masters (1965) 95 CLR 420; Watson v Phipps (1985) 63 ALR 321; Cooper Brooks (Wollongong) Pty Ltd v Commissioner of Taxation (Cth) (1991) 147 CLR 297; Mannai Investments Co Pty Ltd v Eagle Star Life Assurance Co Limited [1997] AC 749 and Investors Compensation Scheme Limited v West Bromwich Building Society [1998] 1 WLR 896.

1. In the present case, I do not think that the results of the application of the words, as literally interpreted, are in any way absurd, or even unreasonable.  I do not think that it is an absurd consequence that Wannon, rather than V/Line, should receive the benefit of a government fuel grant intended to be paid to certain users of diesel fuel.  Nor do I consider that it is an absurd consequence that Wannon’s profits should be substantially increased by the fuel grants, rather than V/Line’s payments to Wannon and its resulting contractual costs reduced thereby.  There are a number of ways that Wannon might have increased its profits without attracting any of the criteria for adjustment in schedule 5.  For example, Wannon might conceivably have reduced its labour, or its labour costs, and so increased its profits, in one way or another, without attracting any adjustment (the scheduled adjustment, based on the relevant award, is concerned with one type only of cost change).  I do not think that there is anything unreasonable, let alone absurd, in the parties selecting, as an objective criterion for the adjustment of fuel costs, the movements in V/Line’s own cost of fuel as represented by the price provided to it by its supplier.  I consider that there is no  basis in law to remove the words “as provided to VLP by its suppliers”, as Mr Crutchfield submitted.  Further, if those words were removed, one is left with a vague formula “adjusted in accordance with movements in the bulk diesel price”, a formula which does not precisely identify the price involved, in particular whose price.   If the parties had wished to adjust the cost of fuel by reference to movements in Wannon’s “real “ or “actual” fuel costs rather than by reference to the price of fuel to V/Line (or anyone else), it would have been easy to  so provide.

1. I should mention that Mr Crutchfield also relied upon the contents of V/Line’s letter of 13 July 2000 (set out above) as being pre-contractual conduct which provided evidence of what the parties intended in their Agreement.  However in my opinion, the letter does not provide evidence of such intention.  The letter simply foreshadows the unilateral intention of V/Line to make retrospective changes to “current road coach contracts”.  There is no evidence of any joint intention of the parties.  Mr Crutchfield contended that the letter constituted pre-contractual conduct, in part because the Agreement was not executed until August 2000.  I do not accept this contention either.  V/Line’s letter speaks of “current road coach contracts” and it would also appear that the parties intended that this particular Agreement operate according to its terms from Monday 28 February 2000, because that is the date appearing on page 1 of the Agreement, notwithstanding that the “Commencement Date” has been left blank in cl. 1.1. 

1. When the Agreement is construed in accordance with its terms and looking at schedule 5 in the context of the Agreement as a whole, I conclude that Wannon’s cost of fuel should not have been adjusted or reduced based on the receipt of the fuel grants and, therefore, V/Line was not entitled to make the deductions which it made. 

1. Accordingly, in my opinion, the appeal should be allowed and the defendants’ decision varied so as to increase the debt admitted to proof by the sum of  $187,079.