Multimedia Communications Limited v Enable Services Limited
[2021] NZHC 568
•19 March 2021
IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY
I TE KŌTI MATUA O AOTEAROA ŌTAUTAHI ROHE
CIV-2020-409-607
[2021] NZHC 568
BETWEEN MULTIMEDIA COMMUNICATIONS LIMITED
Plaintiff
AND
ENABLE SERVICES LIMITED
Defendant
Hearing: 24 February 2021 Appearances:
S P Rennie and W G C Templeton for Plaintiff H R Smith and S N O Hider for Defendant
Judgment:
19 March 2021
JUDGMENT OF MANDER J
This judgment was delivered by me on 19 March 2021 at 3 pm pursuant to Rule 11.5 of the High Court Rules 2016
Registrar/Deputy Registrar Date: .
MULTIMEDIA COMMUNICATIONS LIMITED v ENABLE SERVICES LIMITED [2021] NZHC 568 [19
March 2021]
[1] The plaintiff, Multimedia Communications Limited (Multimedia), applies for an interim injunction to restrain the defendant, Enable Services Limited (Enable), from giving effect to its decision not to renew its contract with Multimedia. The dispute arises from an ultra-fast broadband connection and deployment services agreement (the Agreement) entered into between the parties on 21 December 2012. Multimedia seeks to restrain the cessation of the performance of Enable’s obligations under the Agreement until such time as the validity of its notice of non-renewal is determined by arbitration.
Background
[2] Multimedia provides a range of information and electrical services to telecommunications network owners. It has a particular expertise in fibre networks and has completed projects for a number of national telecommunications providers, as well as utilities companies and government agencies. Enable is the fibre broadband network provider for greater Christchurch and is one of a number of companies controlled by a holding company that is owned by the Christchurch City Council.
[3] In 2012, Enable approached Multimedia regarding the rollout of ultra-fast broadband and the parties subsequently entered into an agreement for the delivery and provision of connection and other services in Christchurch and its surrounding areas on a non-exclusive basis. The Agreement provided for the engagement of Multimedia on a project-by-project basis. Multimedia would receive a service order from Enable outlining the type of services required by it and the charges to be paid to Multimedia on delivery of those services. Upon Multimedia’s acceptance of the service order it would deliver the services required.
[4] Between 2012 and 2020 work was undertaken by Multimedia under the Agreement. The work it performed included the scoping and building of residential connections, commercial installations, multiple dwelling units (both residential and commercial), and the provision of other services. Over that time a number of formal amendments were made to the Agreement, including in June 2016 when the initial term of the Agreement was extended from five to eight years and a change made to
the terms of the renewal clause that is detailed below at [10]. The parties also entered into separate arrangements in respect of work falling outside of the Agreement.
[5] Throughout this period the parties were in periodic communication with each other regarding Multimedia’s performance of its obligations under the Agreement, including about changes and required improvement to services, and compliance matters. The parties held regular operational meetings and, more recently, co- governance meetings.
[6] On 29 October 2020, Enable gave notice to Multimedia that the Agreement would not be renewed because it was not satisfied with Multimedia’s performance (the non-renewal notice). The non-renewal notice advised that the Agreement would come to an end on 21 December 2020. Multimedia challenged the non-renewal notice in a letter to Enable of 3 November and the parties have since agreed that it will not take effect until Multimedia’s application for an interim injunction has been determined.
The dispute
[7] Multimedia disputes the validity of the non-renewal notice. It alleges that the renewal of the Agreement was to be “automatic” and that Enable has breached the Agreement by failing to take into account Multimedia’s performance in relation to what are described in the Agreement as “Ancillary Services Levels” that Enable is directed to have regard to under the Agreement. It is further alleged that Enable failed to act in good faith by failing to provide full particulars of Multimedia’s alleged non- performance in the non-renewal notice. Multimedia says this failure prevented it from being able to fully understand Enable’s allegations and from providing it with an opportunity to respond.
[8] For its part, Enable denies it has breached the Agreement in issuing the non- renewal notice. It denies failing to take into account Multimedia’s performance in relation to the “Ancillary Services Levels” and denies failing to have acted in good faith. It maintains that it is under no obligation to provide Multimedia with full particulars of its non-performance but that, in any event, it did provide examples of its dissatisfaction with Multimedia’s performance under the Agreement. Enable’s position is that its obligation to act in good faith does not require it to provide
Multimedia with an opportunity to respond to its dissatisfaction with Multimedia’s performance under the Agreement.
Agreement’s terms and conditions
[9] It is necessary to set out the relevant parts of the Agreement and those upon which each party places reliance and emphasis.
Renewal
[10] Clause 3.1 of the Agreement provides that the Agreement would continue for a period of five years. Under cl 3.2(a), if the parties mutually agreed, its term could be extended for a further period of up to five years. Both clauses were amended by way of a Deed of Amendment dated 17 June 2016. Clause 3.1 was amended to provide for an initial term of eight years and cl 3.2(a) was substituted with a provision that provided for an “automatic” extension of a further five years unless Enable was not satisfied with Multimedia’s performance. The full wording of the new cl 3.2(a) was as follows:
The Term shall automatically extend for a further period of five years (the Renewed Term) on the same terms and conditions unless [Enable] is not satisfied with [Multimedia’s] performance of the Services or its obligations under the Agreement and gives written notice to [Multimedia] advising that the Term shall not automatically extend not less than 30 days prior to the expiry of the Initial Term.
(emphasis in original)
[11]Clause 1.3 of schedule 2 of the Agreement provides as follows:
1.3 The Ancillary Service Levels are a key factor in the measurement of [Multimedia’s] performance under this Agreement and as to whether or not [Enable] will renew this Agreement for the Renewed Term. [Multimedia] must report to [Enable] on its achievement against the Ancillary Service Levels monthly including comment on continuous improvement, and the performance of the Services and the relationship to the level required.
[12] Ancillary Service Levels are customer interaction metrics that include such matters as: completing a service order right the first time or without fault; providing notification of completion of the work; having sufficient capacity to meet the projected connection volumes; completing connection records correctly; and completing
reinstatement to the best industry practice. They are to be contrasted with Core Service Levels, which include fibre access provisioning and fault restoration.
Non-exclusivity
[13] Clause 2.3 provides that the Agreement is entered into on a “non-exclusive basis”:
2.3 Non-exclusive
This Agreement is entered into on a non-exclusive basis and nothing in this Agreement will restrict the right of [Enable] to obtain further goods, equipment, or services, including the services, of any type, from any other person.
No minimum level of business
[14] Clause 2.4(c) provides that: “Subject to the express terms of any particular Services Order, [Enable] does not guarantee any minimum level of business by entering into this Agreement.”
Clause 4.1 states that:
4.1 General Requirements
[Multimedia] will provide sufficient resources (including human resources, equipment, network, premises and other facilities) to enable it to perform its obligations on time and otherwise in accordance with this Agreement and any Services Order, except to the extent that any express provision in this Agreement or a Services Order requires [Enable] to provide any of the above.
[16]Clause 9.7(a) provides:
9.7 Review of Charges
The parties acknowledge that the Charges include an additional margin to address [Multimedia’s] concerns regarding uncertain volumes of Services that [Multimedia] will be instructed to provide under this Agreement. The parties agree that the Charges, other than those calculated on an hourly unit basis, will be reduced on the first two anniversaries of the Commencement Date by agreement to reflect consistent volumes of Services over the previous year and taking into account projected volumes of Services for the following year …
Express duty of good faith
[17] Clause 8.1 of the Agreement places an express obligation of good faith on the parties. It provides:
8.1 Mutual Requirements
Each party will proactively and fully co-operate with the other party in good faith with respect to all matters that relate to this Agreement.
[18] Under the heading “[Enable] responsibilities”, cl 8.5(b)(i) provides that in addition to its other obligations under the Agreement, Enable will:
(i)co-operate with, and provide assistance reasonably required to, [Multimedia] in relation to the provision of the Services.
Rights and remedies under the Agreement
[19] Clause 18.7 of the Agreement preserves the rights and remedies of the parties. It provides:
18.7Preservation of rights and remedies
Except as is otherwise provided in this Agreement, termination or expiry of this Agreement will not affect:
(a)any rights and remedies available to a party under this Agreement which have accrued up to and including the date of termination or expiry; and
…
[20] However, the Agreement contains mandatory dispute resolution processes. Clause 17.1 provides that in the event of “any dispute, difference or question” relating to the Agreement each party is obliged to “use its best efforts to resolve the dispute through good faith negotiations”. Timeframes are provided for informal dispute resolution and the escalation of disputes to the parties’ respective chief executive officers. Clause 17.1(d) states, where any such dispute arises, that each party must:
(d) continue to perform its obligations under the Agreement as far as possible as if no dispute had arisen pending the final resolution of any dispute, whether by settlement, arbitration or expert determination.
[21] Clause 17.2(c) confers each party with the right to refer an unresolved dispute to arbitration by a sole arbitrator who will decide the dispute in accordance with New Zealand law. The parties have now agreed to the present dispute being determined by arbitration.
Liability
[22] Under cl 15.1, subject to stipulated exclusions, the parties’ liability to each other “under or in connection” with the Agreement is limited to $500,000, “in respect of all claims, proceedings, actions, liabilities, damages, costs, expenses or losses. Clause 15.3 provides that neither party is liable for any indirect loss or damage, including any loss of profits, arising out of or in connection with the performance or non-performance of the Agreement.
Termination
[23] Termination for an irremediable material breach is provided for in the Agreement. Clause 18.1 states:
18.1 Termination for an Irremediable Material Breach
Either party may terminate this Agreement by written notice to the other party, with immediate effect on the date of termination specified in that notice, if that other party commits a Material Breach which is not capable of being remedied.
[24]A material breach is defined in cl 1 of the Agreement as meaning:
… any material breach by [Multimedia] of the terms of this Agreement or the occurrence of any event having a material effect on the ability of [Multimedia] to perform its obligations under this Agreement including the frequent or continued breach of or non-performance of the Core Service Levels, the Ancillary Service Levels, or the requirements set out in Schedule Three (Branding and Customer Service Guidelines).
The approach to an interim injunction application
[25] The approach to be taken to interim injunctions is well-established.1 An applicant must first establish that there is a serious question to be tried. That will
1 See NZ Tax Refunds Ltd v Brooks Homes Ltd [2013] NZCA 90, (2013) 13 TCLR 531; Intellihub v Genesis Energy Ltd [2020] NZCA 344.
require an applicant to satisfy the court that there is a tenable resolution of the issues in dispute upon which it has a real prospect of success at trial.2 The merits of the claim both in fact and in law should be considered carefully.3 However, the court will not attempt to resolve conflicts in the affidavit evidence as to facts upon which each party’s case may depend, nor “decide difficult questions of law which call for detailed argument and mature considerations” which are better dealt with at trial.4
[26] If there is a serious question to be tried the court will then need to assess where the balance of convenience lies.5 This requires an evaluation of the relative circumstances of the parties and the impact on them of granting, or refusing to grant, relief. Important considerations include the adequacy of damages for either party should they be successful at trial and how the status quo can best be preserved.6
[27] Finally, the court is required to stand back and make an assessment of the overall justice of the position following analysis of the first two issues.7
Is there a serious question to be tried?
Multimedia maintains there is a serious question to be tried
[28] Multimedia argued that the non-renewal notice, purportedly based on Enable’s dissatisfaction with Multimedia’s performance under the Agreement, is invalid. It says the service of the notice of non-renewal on 29 October 2020 was “completely unannounced and without any prior warning”. Multimedia emphasised that the Agreement had been of some eight years duration, over which, it argued, it had successfully completed a significant amount of work for Enable. Revenue generated
2 American Cyanamid Co v Ethicon Ltd [1975] AC 396, [1975] 2 WLR 316 (HL); Klissers Farmhouse Bakeries Ltd v Harvest Bakeries Ltd [1985] 2 NZLR 129 (CA) at 133; Re Lord Cable (dec’d) [1977] 1 WLR 7 (Ch) at 431.
3 Shotover Gorge Jet Boats Ltd v Marine Enterprises Ltd [1984] 2 NZLR 154 (HC) at 157.
4 American Cyanamid Co v Ethicon Ltd, above n 2, at 407; Sutton v The House of Running Ltd [1979] 2 NZLR 750 at 753 (SC); Villa Maria Wines Ltd v Montana Wines Ltd [1984] 2 NZLR 422 at 425 (CA).
5 Klissers Farmhouse Bakeries Ltd v Harvest Bakeries Ltd, above n 2; American Cyanamid Co v Ethicon Ltd, above n 2.
6 Intellihub v Genesis Energy Ltd, above n 1, at [23]; American Cyanamid Co v Ethicon Ltd, above n 2, at 408; Wellington International Airport Ltd v Air New Zealand HC Wellington CIV-2007- 485-1756, 30 July 2008 at [6]–[14].
7 NZ Tax Refunds Ltd v Brooks Homes Ltd, above n 1, at [47]; Intellihub v Genesis Energy Ltd, above n 1, at [23].
by the Agreement peaked in the year ending 2017 when some $20 million was earnt which represented 90 per cent of Multimedia’s total revenue at that time. Present revenue from the Agreement is estimated at between $8 and 9 million, representing approximately 58 per cent of its total revenue.
[29] Multimedia sought to illustrate the high volume of work it carried out by reference to annual performance bonds it was required to provide to Enable under the Agreement. Those bonds were calculated on the basis of a percentage of the value of the previous year’s work. In the first year, the performance bond was calculated at
$200,000 and that grew to a peak of $1.55 million. The most recent performance bond was valued at $950,000. Multimedia submitted the value of these performance bonds indicates the significant level of ongoing work it has conducted for Enable.
[30] Multimedia also points to the variations to the Agreement entered into by the parties over the years, in particular to two variation agreements in March and July 2020. These two agreements recorded the addition of new services to be undertaken by Multimedia as part of the Agreement, as well as an option in the March variation for Enable to acquire 10 per cent of the shareholding in Multimedia. Multimedia argued that these agreements evidence a significant ongoing commercial relationship that is consistent with the “automatic” renewal of the Agreement for a further five years at its expiry date of 21 December 2020. Multimedia further submitted that the July variation agreement that covered detailed pricing structures applying to a new area of work demonstrated the ongoing nature of the parties’ relationship, and that this cannot be reconciled with the October notice of non-renewal alleging poor performance by Multimedia that was received less than four months later.
The renewal clause and the measurement of performance
[31] Multimedia emphasised that cl 3.2(a) of the Agreement provides that the term of the Agreement will “automatically extend” for a further period of five years and that, under cl 1.3 of sch 2 of the Agreement, “Ancillary Service Levels” are a “key factor” in the measurement of its performance under the Agreement as to whether or not Enable will renew the Agreement for the further five year term. Multimedia submitted that Enable made no reference in its non-renewal notice to Multimedia’s
performance against the Ancillary Service Levels despite them being a “key” factor for the purposes of renewal. It was submitted that these Ancillary Service Levels provide an important objective measurement to which Enable must have regard in exercising its discretion not to renew the Agreement. Multimedia says no other provision in the Agreement refers to such a specific criterion regarding the issue of renewal.
[32] Multimedia submitted that it had achieved very high percentage levels of performance during 2020. It referred to a report summary, entitled “Enable Service Level Terms Report – MMC”, which was described as a set of performance measurements relating to both Ancillary Service Levels and Core Service Levels. It was submitted that the fact percentage performance levels exceeded 99 per cent for each of the months June through October 2020 indicated a highly satisfactory level of performance. Multimedia submitted that because Ancillary Service Levels were a “key factor”, Enable’s discretion as to non-renewal could not be exercised solely on a subjective assessment and that, in the absence of any reliance on those “levels” or any mention of the same in its October notice of non-renewal, Enable had invalidly exercised its discretion.
The obligation of “good faith”
[33] Multimedia argued that the express obligation of good faith imposed by cl 8.1 of the Agreement was relevant to how Enable had “satisfied” itself as to Multimedia’s performance of services and obligations under the Agreement when exercising its discretion under cl 3.2(a). Multimedia submitted that Enable acted contrary to its overarching obligation under the Agreement to act in good faith by failing to provide prior notice of alleged performance issues that would jeopardise the Agreement’s “automatic” renewal, and by not giving it a fair opportunity to rectify such issues.
[34] In alleging breach of good faith, Multimedia stressed that the Agreement constituted a “relational contract” and involved a continuing relationship between the parties on a long term basis with significant ongoing commitments required by them. Reliance was placed on the observations of Thomas J in Bobux Marketing Ltd v Raynor Marketing Ltd, who reviewed the concept of good faith in the context of a
relational contract and the practical consequences of adhering to that obligation.8 Thomas J noted that relational contracts are predicated on “[e]xpectations of loyalty and interdependence” that allow for the “rational economic planning of the parties”.9 Good faith supports these expectations by ensuring “a deliberate measure of communication, cooperation and predictable performance based on mutual trust and confidence”.10
[35] Multimedia submitted that where there is an express duty of good faith in a relational contract the obligation to ensure communication and cooperation between the parties to the benefit of both, as well as predictable performance, was even more critical. It was argued that this had been expressly provided for in cl 8.5(b)(i), which placed an obligation on Enable to cooperate and provide assistance to Multimedia when reasonably required to in relation to the provision of services. It was submitted that this obligation underlined the good faith obligation on Enable to at least provide fair notice to Multimedia of any concerns likely to adversely affect renewal of the Agreement and to provide it with a fair opportunity to resolve them.
[36] Multimedia argued that this requirement, together with both the express obligation of good faith set out at cl 8.1 and the implicit requirements of good faith in a long term relational contract, obliged Enable to provide Multimedia with fair and reasonable notice of any concerns it had that were likely to adversely affect the Agreement’s renewal. In the absence of Multimedia having complied with that duty, it was submitted that its notice of non-renewal was defective.
Legitimate expectation
[37] Linked to Multimedia’s allegation that Enable breached its obligation of good faith is a related argument that it had a legitimate expectation the Agreement would be “automatically” renewed, particularly, in its submission, because of its “very satisfactory performance” against the Ancillary Service Levels. Multimedia argued that Enable’s conduct had led to that expectation through its failure to raise with
8 Bobux Marketing Ltd v Raynor Marketing Ltd [2002] 1 NZLR 506 (CA).
9 At [44].
10 At [44].
Multimedia aspects of its conduct or performance that could be expected to jeopardise the renewal of the Agreement.
[38] While Multimedia acknowledged the Agreement expressly provided for only a 30 day period of notice, it emphasised that the amended cl 3.2(a) provides that the term “shall automatically extend” and that such language supported its legitimate expectation of renewal, particularly given the high performance measures on the Ancillary Service Levels that it obtained in 2020. Multimedia argued the alleged performance issues relied upon by Enable in its October notice were of insufficient importance to warrant non-renewal in the face of a clause that provided for “automatic” renewal.
Summary of Multimedia’s argument
[39] In summary, Multimedia maintained that Enable’s purported notice of non- renewal was of no effect because of its failure to rely on the Ancillary Service Levels that the Agreement expressly indicated was to be a “key factor” and its failure to have regard to Multimedia’s very satisfactory performance against those levels. It alleged Enable had failed to provide particulars to Multimedia of its alleged non-performance under the Agreement, particularly as it related to objectively measurable instances of non-performance of services or obligations. Multimedia further claimed Enable had failed to communicate with it in respect of any concerns that would jeopardise renewal of the Agreement, all of which amounted to a breach of its express obligation of “good faith”.
Enable denies there is a serious question to be tried
[40] I turn now to Enable’s response to Multimedia’s challenge to its non-renewal notice. Enable submitted there is no serious question to be tried because its notice of non-renewal represented the valid exercise of its discretion not to renew the Agreement as a result of being dissatisfied with Multimedia’s performance.
[41] Enable’s position is that it became concerned about Multimedia’s performance in 2018 and 2019. It sought to address these performance issues by way of an agreed suite of “problem statements” that it developed with Multimedia. It was submitted
that these concerns related to key areas that affected its business and put in question Enable’s trust and confidence in Multimedia. Enable described Multimedia’s progress to resolve the issues in the “problem statements” as being “slow and ad hoc”, notwithstanding the regular feedback it provided to Multimedia, including at monthly governance meetings.
[42] Enable highlighted in its evidence how, following a reorganisation at Multimedia of its team, progress on remediating the issues in the “problem statements” “slowed to a near stop”. The relationship between the parties was described as “tense”. While not contractually obliged to do so, Enable maintains it provided a “non- exhaustive list of examples of its dissatisfaction” when it provided the non-renewal notice to Multimedia that reasonably informed it of the reasons why the Agreement was not being renewed.
Exercise of a contractual discretion
[43] Enable submitted it was indisputable that it had a contractual discretion not to renew the Agreement if it was not satisfied with Multimedia’s performance under the Agreement. It submitted that the exercise of this discretion had involved making an assessment of all relevant factors, leading to an entirely legitimate subjective determination as to whether the Agreement should be renewed. Insofar as that Agreement referred to any objective measures, they were included in the weighing process.
[44] Enable acknowledged there was an objective measurement in the Agreement that related to Ancillary Service Levels. However, this was only “a” key factor and was only one of a range of objective and subjective considerations for Enable to weigh in assessing Multimedia’s performance of its services and obligations, many of which could not be measured on clearly objective grounds. In Enable’s submission, a subjective assessment of Multimedia’s performance was unavoidable.
[45] Enable emphasised that the circumstances in which a court can legitimately interfere in the exercise of a party’s contractual discretion given to it by the other contracting party are limited. So long as the discretion is exercised honestly and in good faith for the purposes for which it was conferred, and is not used in a capricious
or arbitrary manner, or in a perverse way in defiance of all reason, the courts will not intervene.11
[46] Enable submitted that Multimedia had failed to discharge the onus upon it to provide evidence capable of satisfying a court that Enable’s dissatisfaction with Multimedia’s performance and its choice not to renew the Agreement was perverse in its defiance of reason. In that regard, it pointed to its identification of numerous performance issues that had resulted in the compilation of “problem statements”. Enable submitted that Multimedia had attempted to reconfigure these difficulties by relabelling them as “continuous improvement” initiatives, but they were in fact performance concerns as was acknowledged in subsequent governance meeting minutes.
[47] Enable argued that Multimedia had attempted to deny or minimise these matters, but that they represented clear evidence of issues that had emerged with Multimedia’s performance and of Enable’s dissatisfaction, which Enable maintained Multimedia has failed to adequately address. While Multimedia may hold a differing view on aspects of its performance, Enable submitted the evidence showed that the exercise of its discretion was neither capricious nor arbitrary, and that its issuing of the non-renewal notice was far from unreasonable, in the sense that no reasonable contractual party could have so acted.
[48] Insofar as Multimedia relied on its performance against Ancillary Service Levels, Enable submitted that this consideration was not to the exclusion of other factors that it was entitled to take into account. In any event, it submitted that Multimedia’s reliance on its performance against Ancillary Service Levels was misconceived. It maintained that Multimedia has in fact never reported on these service levels despite being contractually required to do so, and that the evidence it relies upon does not relate to Ancillary Service Levels.
11 Young (as Trustees of Young Trust) v Tower Insurance Ltd [2016] NZHC 2956, [2018] 2 NZLR 291 at [108], citing Ludgate Insurance Company Ltd v Citibank NA [1998] Lloyd’s Rep IR 221 (CA) at 35–36; Myall v Tower Insurance Ltd [2017] NZHC 251 at [91]; and see Stephen Kós “Constraints on the Exercise of Contractual Powers” (2011) 42 VUWLR 17.
No legitimate expectation of renewal nor breach of good faith
[49] Enable submitted that it had not breached its obligation of good faith by issuing the non-renewal notice after allegedly creating a legitimate expectation of renewal. It submitted there was no evidence of any clear, unequivocal promise of renewal.12 Enable rejected Multimedia’s contention that the obligation of good faith required it to provide regular feedback on areas requiring improvement to ensure that it retained a renewal of the Agreement. Enable submitted that, in any event, Multimedia must have been aware that it would be reassessing its position based on whether it was satisfied with Multimedia’s performance because it knew that genuine problems and issues had been raised with it.
[50] Enable submitted that it was under no contractual obligation to provide a “report card”, to give advice that a particular issue was essential to the Agreement’s continuation, or provide it with an opportunity to remedy. The duty of good faith did not alter the fundamental obligations of the Agreement or require Enable to prioritise Multimedia’s commercial interests over its own genuine concerns13 or interests.14
No minimum level of business
[51] Enable emphasised the non-exclusive nature of the Agreement and that Enable is free to obtain services from other providers, as it has done over the years. The Agreement expressly provides, subject to the terms of any particular Services Order, that no minimum level of business is guaranteed as a result of being a party to the Agreement. It follows, in Enable’s submission, that in the absence of it being obliged to provide work to Multimedia under the Agreement, it cannot be enjoined to do so.
[52] In response to Multimedia’s submission that the provision of adequate resourcing and the entering into of significant performance bonds makes it implicit that Multimedia would be engaged under the Agreement to undertake a certain level
12 Burbery Mortgage Finance & Savings Ltd v Hindsbank Holdings Ltd [1989] 1 NZLR 356 (CA) at 361.
13 Heli Holdings Ltd v Helicopter Line Ltd [2016] NZHC 976 at [113].
14 Young (as Trustees of Young Trust) v Tower Insurance Ltd, above n 11, at [109], citing Thiess Contractors Pty Ltd v Placer (Granny Smith) Pty Ltd [2000] WASCA 102; and Topline International Ltd v Cellular Improvements Ltd HC Auckland CP144-SW02, 17 March 2003.
of work, Enable submitted that no such implied term or “assumption” of a continuing flow of work can be read into the Agreement. To do so would contradict the express terms of the Agreement, which provide that work will only be confirmed on the issue of a Service Order.
[53] Enable submitted the uncertain volumes of services that Multimedia may be instructed to provide was recognised by the margin provided in cl 9.7(a), and, to the extent that Multimedia was under an obligation to have the capability to resource work, it carried the risk. It was noted that, despite there being no guarantee of work, it was open to Multimedia to determine its resourcing levels depending upon whether it wished to be in a position to accept certain levels of Service Orders. Similarly, the performance bond was described as a standard commercial practice that was not an indicator of future work and had been reducing as volumes of work undertaken by Multimedia decreased since 2019.
Conclusions as to whether there is a serious question to be tried
[54] In Vero Insurance New Zealand Ltd v Fleet Insurance and Risk Management Ltd, Asher J, in approaching the issue of whether a serious question to be tried had been made out on the argument before him, observed:15
[76] When a Court considers an interim injunction application, on occasion it is possible to express a concluded view on a question of law. The Court may have sufficient confidence that all matters that could be raised for and against the proposition have been aired before it, and that the claim is clearly untenable. In such circumstances there is no serious question to be tried. On other occasions, factual propositions relied on by an applicant may be obviously wrong or without foundation, and a Court can have the confidence to put them to one side.
[55] However, where difficult questions of law arise or there are arguable differences as to what the facts are, and a “tenable combination of resolutions of the issues of law and fact” is available upon which a plaintiff could succeed, that will likely tell in favour of there being a “serious question to be tried”.16
15 Vero Insurance New Zealand Ltd v Fleet Insurance & Risk Management Ltd HC Auckland CIV-2007-404-1438, 21 May 2007 at [76].
16 Henry Roach (Petroleum) Pty Ltd v Credit House (Vic) Pty Ltd [1976] VR 309 at 311, referring to
American Cyanamid Co v Ethicon Ltd, above n 2. See also Sutton, above n 4.
[56] In the event of Enable being dissatisfied with Multimedia’s performance under the Agreement, it has a discretion not to extend what would otherwise be the automatic renewal of the Agreement. A significant part of Multimedia’s argument is said to be Enable’s failure to take into account a key factor in the measurement of its performance, namely the Ancillary Service Levels upon which it was required to report to Enable on a monthly basis. This was described by Multimedia as a “prescriptive constraint” on Enable’s discretion.
[57] Multimedia denies Enable’s allegation that it has never reported on Ancillary Service Levels. However, it does not appear from the affidavit evidence that Multimedia has furnished Ancillary Service Levels to Enable in the form of a discrete body of performance indicators. It may be that metrics that fall into that category have been reported upon, but the evidence remains opaque. Multimedia sought to rely upon a document described as “Enable Service Level Terms Report – [Multimedia]” as demonstrating its high level of satisfactory Ancillary Services performance. However, the two service levels under the heading “Fibre Access Provisioning”, being “Scope appointment miss” and “Install appointment miss”, which Multimedia initially relied upon to demonstrate Enable’s failure to have regard to Ancillary Service Levels, were actually Core Service Levels. Multimedia performed well on those Core Service Levels, but the data relating to Ancillary Service Levels upon which it placed such reliance for the purpose of its argument remains unclear, as is the issue of whether it has ever reported on such levels.
[58] In its non-renewal notice, Enable provided what it described as examples of Enable’s dissatisfaction with Multimedia’s performance. These included: a failure by Multimedia to ensure its personnel and subcontractors were trained to a competent level to carry out their tasks to a professional and efficient manner; failing to meet health and safety standards and to appropriately and urgently deal with complaints; failing to proactively and fully cooperate with Enable on matters that relate to the Agreement; and failing to ensure that the work was performed to the level required. Other identified concerns included failing to correctly report on Multimedia’s performance under the Agreement and failing to ensure its personnel were suitably qualified and had the requisite skills, expertise and qualifications to carry out their duties with due care, skill and diligence.
[59] Multimedia vigorously disputed those allegations. It maintains that it has performed the Agreement to a consistently “very satisfactory level” and that whatever performance issues there may have been, they did not rise to a level that could not be remediated. It points to the two variation agreements entered into in 2020 as indicating non-performance was not an issue.
[60] The conflict between the parties regarding the standard of the performance of the Agreement cannot accurately be determined on the basis of competing affidavit evidence. It is not apparent that either party’s view of the contractual relationship and the standard of performance is obviously wrong or without foundation which would enable me to confidently adopt one view of the contest. However, an important part of Multimedia’s argument for the purpose of obtaining injunctive relief was that Enable had exercised its discretion in an invalid manner by failing to have regard to the Ancillary Service Levels. I am bound to observe that Multimedia has, at this stage, failed to convincingly demonstrate that this was the case. In contrast, the notice of non-renewal upon which Enable relies lists a combination of performance issues that appear to relate to both Core and Ancillary Service Levels. These examples of Enable’s dissatisfaction arise against an apparent background of difficulties in the parties’ relationship, which Enable seems to have periodically raised with Multimedia.
[61] This leads to the other main aspect of Multimedia’s argument. This aspect is based upon the obligations of good faith in a relational contract, which Multimedia argued require high levels of “communication, cooperation and predictable performance” in furtherance of the ongoing commercial relationship. Multimedia is critical of the details provided by Enable in its non-renewal notice, which it described as both unexpected and incoherent. Further, it maintains that Enable was in breach of its obligation to engage proactively with it to provide reasonable assistance and that its unparticularised assertions set out in the non-renewal notice reflected a failure to properly articulate the areas of non-performance and its expectations of required improvement. In the absence of giving prior notice of the level of dissatisfaction that would put renewal of the Agreement in jeopardy, Multimedia argued it was not open to Enable to exercise its discretion to issue the non-renewal notice.
[62] As I have previously recounted, Enable strongly disputes that it was under any obligation to provide reasons in the notice in order to exercise its contractual discretion or that it had failed to engage with Multimedia over a significant period about the inadequacies of the services it was providing. Again, without the evidence of each party being properly tested, no firm conclusions can be reached regarding the competing cases. I have some reservations as to whether Multimedia’s case is capable of giving rise to a sufficiently tenable question about whether Enable was entitled to exercise its discretion not to renew the Agreement and that it was not within its contractual rights to do so. However, cl 3.2(a) anticipates that the Agreement will automatically extend unless Enable is not satisfied with Multimedia’s performance of the services or its obligations.
[63] It follows that the validity of Enable’s decision not to renew the Agreement is dependent upon the conclusions it has reached about Multimedia’s performance and the legitimacy of the exercise of its discretion, in the sense that its decision was reached in good faith and cannot be categorised as perverse. In order to succeed, Multimedia must reach a high threshold but, because of the significant conflict in the respective evidence of the parties, I do not consider I can properly reach the conclusion that the propositions relied upon by Multimedia are so obviously wrong that they can confidently be put to one side. I reach that conclusion notwithstanding the reservations previously expressed.
[64] I am mindful that this matter is to be the subject of arbitration. I must be circumspect in expressing premature conclusions in the absence of there having been a thorough canvassing and testing of the evidence. The questions of fact that are raised will require detailed examination and argument and will no doubt require further evidence. Because of the conclusions I have reached regarding other issues that I consider decisively bear on Multimedia’s application, it is not necessary for me to express a firm or final view on whether there is a serious question to be tried. I proceed on the basis that there is such a question, although, as will become apparent, that premise is not critical to the outcome of the application.
The balance of convenience
[65] It is necessary at this next stage, when considering the balance of convenience, to weigh the consequences of pre-trial intervention or non-intervention by the court against the potential practical consequences for the parties should the dispute be substantively determined in a way that is inconsistent with the outcome of the application for interim relief.17
The dispute resolution process and the status quo
[66] In accordance with the dispute resolution process provided by the Agreement, the validity of the non-renewal notice has now been referred to arbitration. Multimedia places reliance on cl 17.1(d) of the Agreement, which provides that “[i]n the event of any dispute, difference or question arising out of or in connection” with the Agreement, each party must “continue to perform its obligations under the Agreement as far as possible as if no dispute had arisen” until resolution of the dispute. Multimedia maintains that until arbitration has resolved the dispute, Multimedia is obliged to continue to perform its obligations under the Agreement. Multimedia argued that because cl 17.1 refers to “any” dispute or difference, the parties intended that all disputes in relation to the Agreement are to be subject to the dispute resolution process and that, until resolved, the obligations imposed on each party under the Agreement continue until the dispute resolution process has been completed.
[67] In reply, Enable submitted that Multimedia’s argument overlooked the critical words of cl 17.1(d) that the requirement placed on a party to continue to perform its obligations under the Agreement was only “as far as possible” pending final resolution. Enable submitted that the clause was not intended to impose a requirement on a party to remain in a contractual relationship after providing notice of the non- renewal of the Agreement. It submitted further that, where the dispute relates to the existence of the entire contract, it could not have been intended that the parties would remain obliged to work together until the conclusion of an arbitration process that could take an indeterminate length of time to complete.
17 Vero Insurance New Zealand Ltd v Fleet Insurance & Risk Management Ltd, above n 15, at [78].
[68] I do not consider it is necessary to come to any concluded view regarding the effect of cl 17.1(d) for the purpose of determining whether an interim injunction should be granted. This is because, whatever obligations arise from the Agreement, it is not contended that the present application can result in an order that can force Enable to provide work to Multimedia. The current application does not explicitly seek to require Enable to issue service orders to Multimedia for the purpose of obtaining work under the Agreement. That aspect of the application brings into relief the apparent practical futility of granting Multimedia interim relief by restraining Enable from giving effect to the notice of non-renewal. As noted earlier, Enable maintains that the Agreement was entered into on “a non-exclusive basis” and there is no restriction on the right of Enable to obtain services from other parties. Further, under cl 2.4(c) of the Agreement, there is no guarantee of any minimum level of business that Enable must provide to Multimedia.
[69] Multimedia argued that Enable’s ability to use other contractors and the absence of any guarantee of a minimum level of business cannot translate to Multimedia obtaining no economic benefit under the Agreement given the significant and ongoing obligation it has under the Agreement to maintain resourcing and capability, including to ensure a trained and specialist workforce. It also argued that the lack of any guarantee of a minimum level of business does not equate to Multimedia receiving “no work” because that would defy the commercial purpose of the Agreement. In its submission, it would also breach Enable’s overarching obligation of good faith and render the obligations imposed on Enable meaningless. However, while Multimedia submitted that the Agreement was based on the mutual assumption of the parties that there would be a substantial and continuing flow of work, it did not suggest that the interim injunction presently sought could extend to force Enable to issue service orders to Multimedia pending the final outcome of arbitration.
[70] Multimedia maintained that the utility of the injunction was that it would retain the status quo and that, by maintaining the present contractual relationship, Multimedia preserved its right to seek specific performance as a remedy through the arbitration process. Multimedia submitted that, unless Enable was restrained from giving effect to the non-renewal notice and from ceasing to perform its obligations
under the Agreement, the remedy it intends to seek from the arbitrator will be rendered redundant. Should the arbitrator conclude that the non-renewal was invalid and that the Agreement automatically extended, it would be “impossible for it to pick up the pieces” because the contractual relationship would effectively have come to an end and Multimedia would have needed to have taken steps in the interim to downsize and restructure. In that regard, Multimedia pointed to the consequences of a significant loss of revenue and large redundancies, estimated to be perhaps 60 per cent of its employees, including overseas workers, and that its ability to take on future work would be compromised. It was argued that, in this event, its remedy would be limited to a claim in damages and performance-based relief would no longer be available to it.
[71] The difficulty with that analysis is that, in the absence of Multimedia receiving service orders from Enable, the consequences for its business will be the same. Moreover, resolution of the present application does not involve, nor require, the Court to determine the terms and conditions of the Agreement that will apply during the interim period. An injunction granted on the basis sought will neither preclude, nor have any affect on the position taken by Enable, namely, that it is under no obligation under the Agreement to instruct Multimedia to perform services. Enable maintains that in an area of reducing work within a finite network it was well within its rights to contract with other service providers and to allocate work elsewhere, particularly having regard to the state of relations between parties who have experienced a mutual loss of trust and confidence. Despite the perceived consequences for its business, Multimedia’s application for an interim injunction would not have any effect on Enable’s position or, in any practical sense, on its own situation..
[72] The application seeks to keep the Agreement between the parties on foot, but while the dispute remains extant there can be no expectation of Multimedia receiving service orders from Enable, nor does the application seek a mandatory direction to such effect. In the circumstances, the utility of the order has not been demonstrated. It is apparent that the type of injunctive relief sought will simply lead to more issues arising between the parties and the likely need for further intervention and supervision by this Court in respect of matters that are destined to be the subject of substantive determination by the agreed process of arbitration. I consider my conclusion regarding
this fundamental aspect of the application to be determinative of the outcome. However, in deference to the arguments made by the parties, I briefly review the remaining issues relating to the balance of convenience and the overall interests of justice.
Damages and reputational harm
[73] An influential consideration is whether damages would provide an adequate remedy.18 Where damages will be sufficient it generally follows that the balance of convenience will not favour injunctive relief.19 Multimedia submitted that damages would be difficult to assess and would not provide adequate compensation for its loss should it ultimately be successful at arbitration. It maintained that the loss of significant revenue would cause irreparable damage to its business. It would necessitate an immediate restructure of its business that would include numerous redundancies and the loss of many skilled employees. However, it is not apparent how the calculation of damages for such losses would be any different from the type of assessment that can be undertaken, often with the assistance of expert evidence, in cases of this type, and which may involve significant consequences for the aggrieved party.20
[74] Multimedia emphasised that, even if damages were later awarded, its business would be greatly harmed by the non-renewal notice being given effect, not just from the loss of work but from the interim steps it would be required to take to restructure its business and the loss of its capacity to undertake projects in the future due to a diminished skilled workforce and the loss of other resources. Again, however, the estimation of such losses can be calculated with expert input. In any event, such consequences appear unavoidable. Presently, there is little prospect of Multimedia obtaining any significant degree of work under the Agreement in the interim, nor is it apparent how it would be able to retain staff if there is insufficient work. Even if injunctive relief were granted on the terms sought, it is unclear how Multimedia could avoid having to restructure in order to conserve its capability to take on new projects
18 American Cyanamid Co v Ethicon Ltd, above n 2, at 408.
19 Cabco Group Ltd v Bartlett (2009) 6 NZELR 500 (HC) at [30].
20 Sky Scrapers General Trading LLC v Zoono Ltd [2020] NZHC 2960 at [35].
and preserve its ability to be competitive in respect of other aspects of its business that are not dependent on the Agreement.
[75] Damages are the normal remedy for breach of contract and are viewed as more appropriate than requiring parties to continue in a hostile relationship.21 Although injunctions forcing parties to carry on business together where the contractual relationship has broken down are rare,22 there is one particular aspect of the Agreement that requires mention. Clause 15 appears to cap Enable’s potential liability to
$500,000. Multimedia submitted that this limitation on liability is a further reason why damages should not automatically be viewed as overriding the right to secure specific performance. However, before such a limitation can support the argument for interim performance, it is necessary for the claimant to establish a substantial risk as to loss, and even then the granting of an injunction remains an exercise of the court’s discretion.23
[76] In the exercise of that discretion, the fact that such a restriction on liability was one that was agreed to by the parties may, depending on the circumstances of the case, be a relevant consideration — as may be the scale of any shortfall and the degree of risk of it occurring.24 Presently, Multimedia’s potential losses are assessed in only general terms and there is a lack of detailed evidence upon which any accurate assessment can be made of Enable’s possible liability. While figures relating to Multimedia’s revenue at the height of its commercial relationship with Enable exceed the contractual cap, there is no financial evidence of the impact of the Agreement on the profitability of the business or its solvency. Its current estimate is that it derives some 58 per cent of its work from Enable. However, in the absence of any guaranteed work from Enable over the interim period it is not clear what effect, if any, the lack of interim relief would have on any calculation of damages, even if it was found that Enable was obliged to provide some level of work to Multimedia under the Agreement.
21 Co-operative Insurance Society Ltd v Argyll Stores (Holdings) Ltd [1998] 1 AC 1 (HL) at 15–16, cited with approval in Retail Focus Group Ltd v Forsgren NZ Ltd [2014] NZHC 1984 at [76].
22 Morton v Eltham Borough [1961] NZLR 1 (SC) at 3.
23 AB v CD [2014] EWCA Civ 229, [2015] 1 WLR 771 at [27]–[30], cited with approval in Finewood Upholstery Ltd v Vaughan [2017] NZHC 1195, [2017] NZAR 994 at [55].
24 AB v CD, above n 23, at [30].
In the circumstances, I do not consider Multimedia has demonstrated why damages cannot provide a suitable remedy.
[77] Both parties also made competing submissions regarding damage to their respective reputations. Multimedia maintains it will suffer significant reputational damage if the non-renewal notice is given effect to and that its overall credibility in the broadband connection industry will be severely affected. Enable claims it is already suffering reputational damage as a result of Multimedia’s poor performance. It argues that being forced to maintain contractual relations with Multimedia and to ostensibly continue to do business with it when it is dissatisfied will only compound an already difficult situation.
[78] These competing claims cannot be resolved on the present state of the evidence. However, of some relevance is that the parties’ relationship has not been totally severed. They continue to work together in respect of other areas of work and on different projects, and to that extent their continued commercial relationship may mitigate the reputational fallout from the Agreement not being extended. Non-renewal of the Agreement may well carry associated reputational consequences but, should Multimedia ultimately be successful, its position will be vindicated. It will also be free to recover damages should it be able to establish financial loss as a result of damage to its reputation from Enable’s breach.25
Overall justice
[79] While the relational contract between the parties has been longstanding, it is apparent that there have been ongoing difficulties between them. Ordering Enable to continue to work with Multimedia when their relationship under the Agreement has broken down will likely only result in further issues arising between them. Multimedia argued that there would be no onerous consequences for Enable if the Agreement was preserved in the meantime, given its stance that it is not obliged to provide further work to Multimedia. Equally, however, the utility of interim relief to restrain Enable
25 Retail Focus Group Ltd v Forsgren NZ Ltd, above n 21, at [84], citing Malik v Bank of Credit and Commerce International SA (in liq) [1998] AC 20 (HL) at 40–41.
from treating the non-renewal notice as effective is elusive when it is unlikely to make any material difference to Multimedia’s commercial position.
[80] Standing back, I am satisfied that the overall justice of the situation does not favour the granting of an interim injunction to restrain Enable from giving effect to the non-renewal notice until the arbitration process is completed. I do not underestimate the impact of Enable’s decision not to extend the Agreement on Multimedia’s business. However, it is not apparent that the granting of interim relief in the terms sought would make any material difference to its economic situation pending the determination of the dispute. Such an interim order would not have the effect of preserving the parties’ previous position or result in the retention of a status quo that would insulate Multimedia from the consequences of the breakdown of the Agreement.
[81] It is in the interests of both parties to expedite the arbitration process presently in train and to obtain a swift and fair resolution of their dispute. Having regard to the conclusions I have reached regarding the merits of the interim application, I do not consider the relief sought is necessary to achieve that objective, nor do I consider that injunctive relief is required to preserve the potential remedies that, in the circumstances, will realistically be available to the arbitrator.
Result
[82]Multimedia’s application is declined.
Costs
[83] Enable is entitled to costs. If the parties are unable to agree on costs, memoranda may be submitted (no more than four pages) and a determination made on the papers.
Solicitors:
Rhodes & Co, Christchurch Simpson Grierson, Christchurch
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