Three Hills Group Limited v New Zealand Post Limited
[2023] NZHC 3156
•9 November 2023
IN THE HIGH COURT OF NEW ZEALAND HAMILTON REGISTRY
I TE KŌTI MATUA O AOTEAROA KIRIKIRIROA ROHE
CIV-2023-419-155
[2023] NZHC 3156
BETWEEN THREE HILLS GROUP LIMITED
Plaintiff
AND
NEW ZEALAND POST LIMITED
Defendant
Hearing: 2 October 2023 Appearances:
P A Depledge for the Plaintiff
B McKinnon and B Marriner for the Defendant
Judgment:
9 November 2023
JUDGMENT OF GAULT J
This judgment was delivered by me on 9 November 2023 at 4:00 pm pursuant to r 11.5 of the High Court Rules 2016.
Registrar/Deputy Registrar
……………………………………
Solicitors / Counsel:
Mr P A Depledge, Barrister, Hamilton
Mr B Braatvedt (plaintiff’s instructing solicitor), BCB Law Ltd, Hamilton Ms B McKinnon and Ms B Marriner, Buddle Findlay, Wellington
THREE HILLS GROUP LTD v NEW ZEALAND POST LTD [2023] NZHC 3156 [9 November 2023]
[1] The plaintiff (THG) applies for an interim injunction restraining the defendant (NZ Post) from taking steps to terminate a contract for delivery of rural mail and from allocating mail and parcels to third party contractors in the contract delivery area.
[2] At least for the purpose of interim relief, the dispute centres on whether the contract is exclusive, that is whether NZ Post must exclusively use THG’s services for deliveries in the agreed area, and whether THG’s notice of termination was lawful.
Factual narrative
[3] On 1 April 2019, THG purchased the Tamahere RD3 rural post run, a rural delivery route from Hamilton to Tamahere, by taking an assignment of a three year contract for delivery services dated 1 November 2018 between PJ and BM Haughey Partnership and NZ Post.
[4] The contract was renewed with effect from 1 November 2021 by way of a Variation to Contract for Delivery Services (with variations marked in a Restated Contract for Delivery Services that do not appear to be material to the issues in dispute).
[5] The contract provides that THG will provide the services as set out in the Services Schedule, which in essence are:
(a)sorting and processing all mail and other items for delivery;
(b)uplifting all mail and other items as required;
(c)delivering all mail and other items to the appropriate destination in accordance with the specified timetable and route description; and
(d)delivering to the base office, nominated office or designated drop-point, immediately after completing each route, all mail and other items undelivered or uplifted for onward delivery.
[6] The Services Schedule requires THG to comply with the manual when performing services or in accordance with the reasonable requirements of NZ Post at any time. The manual provides that every endeavour will be made by NZ Post to have all product available to THG for sorting and assembling. Product includes mail and/or parcels.
[7] The contract provides that NZ Post can vary the route description and THG must alter its deliveries accordingly. NZ Post may also from time to time change the scope or details of the services, and the Services Schedule will be updated, but NZ Post must provide seven days’ notice for changes to delivery or round details.
[8] THG says that the contract provides that all mail to be delivered within RD3 is to be allocated to THG. NZ Post disputes this and says that it does not require exclusivity from contractors either.
[9] The contract contains a dispute resolution clause requiring the parties to negotiate first and then to mediate using the Resolution Institute rules and/or a mediation from the Resolution Institute.
[10]The contract also contains an entire agreement clause.
[11] THG also says that it entered into the contract in reliance on representations made to it by NZ Post. THG says that, prior to purchase, it discussed its business plan with NZ Post. The business plan was a mandatory requirement prior to assignment. THG says the business plan indicates that it expected retention of all existing customers within the Hamilton-Tamahere rural delivery area, as well as all new subdivisions and land development areas within this designated area. The business plan referred also to commercial businesses, home based businesses, schools, private clients, agents and new clients (builds and businesses) being established within the contracted areas.
[12] THG says that at two meetings, on 9 November 2018 and 19 February 2019, NZ Post management informed THG as to customers’ high expectations and Ms Kennedy from THG says that given THG was considering the purchase of RD3,
the largest rural delivery run in the Hamilton/Waikato region, NZ Post’s questions were naturally focused on whether THG had the capacity to adjust to and grow resources in order to meet the expectation of this large territory. Ms Kennedy says that THG successfully demonstrated that capability. THG was invoiced for NZ Post’s managerial time approving and facilitating the business assignment.
[13] Mr Searle from NZ Post, who attended the 19 February 2019 meeting, denies any representation to the effect that THG would be provided with the exclusive right to deliver all mail and parcels within the RD3 area. He says there was no meeting on 9 November 2018.
[14] Following commencement of the contract, as early as 19 August 2019 THG raised concerns with NZ Post that it had not received what it had bargained for and what had been represented. Ms Kennedy had observed a Courier Post driver in the RD3 area delivering RD3 freight. This was the third time she had raised the issue with NZ Post. NZ Post’s response was that what had been happening was an historic process that was occurring prior to THG purchasing the run. As a general rule, if the address for delivery falls into THG’s run area, then product for that address falls into the RD3 run. However, NZ Post said there were exceptions to that and NZ Post parcel processing and further delivery to the end recipient is at the discretion of NZ Post and Courier Post.
[15] THG says that at a meeting in September 2019, NZ Post also informed THG that it would be removing all the freight for St Peter’s School and the Velodrome Complex from THG in accordance with NZ Post’s discretionary right. THG felt betrayed.
[16] On 11 December 2020, THG emailed NZ Post expressing concern that it had discovered that NZ Post had re-routed two big clients (Regal Haulage and Tamahere Model Country School) to a Courier Post run. NZ Post responded that this was an historic process whereby these businesses were assigned to courier prior to THG taking over the RD3 contract and this should have been clearly communicated by the exiting contractor. This is disputed by THG, and that other contractor. NZ Post’s response also said that for rural areas with large clusters of business, such as the
Hamilton Airport and surrounds, it is deemed necessary to operate a courier service due to the logistics providing an economic and sustainable offering in the area.
[17] On 16 January 2021, NZ Post gave a new depot instruction sheet to sorting staff, removing all freight for Regal Haulage and Tamahere Model Country School away from RD3.
[18] THG sought legal advice and its lawyer wrote to NZ Post on 23 February 2021. It alleged breaches by NZ Post.
[19] NZ Post’s response of 31 March 2021 denied the removal of any RD3 freight or the use of other couriers.
[20] The dispute continued. THG says its freight volume was down to three half vans a day most days of the week. Its fourth van, which was required for freight on Tuesdays and Wednesdays, was not needed as that freight had been removed from THG. THG also says that NZ Post was removing rural volume freight that can be palletised and large sized freight items.
[21]On 6 July 2022, THG raised a formal dispute with NZ Post.
[22] On 5 August 2022, Buddle Findlay responded on behalf of NZ Post indicating that NZ Post was considering bringing the contract to an end and wanted to discuss termination.
[23]A mediation took place in September or October 2022.
[24] On 9 November 2022, THG asked for a comprehensive review of rates as provided for in the contract.
[25] On 22 November 2022, NZ Post responded offering a discussion around staff costs and work arrangements to see how things might be improved but not a formal review, and notified THG of NZ Post’s intention to terminate.
[26] On 20 December 2022, THG and five other Waikato RD contractors met with NZ Post. They raised concerns about couriers or third parties operating within their runs. NZ Post denied this was happening. It agreed to undertake a comprehensive freight data review of each contractor’s run by the end of February 2023.
[27] During this period NZ Post also provided a map which THG says indicates that a vital portion of the RD3 run was to be annexed and placed into a new multi-courier model. THG says the multi-courier model has been operating since December 2022 in the RD3 territory. NZ Post says a multi-run business model pilot in Cambridge would not have any impact on THG.
[28] THG says that by February 2023 it had provided over 40 examples to NZ Post alleging redirection of freight away from RD3 to Courier Post or third parties.
[29] THG says that further directives from NZ Post to depot sorting staff on 9 March 2023 instructed them to remove more customers from THG’s run.
[30] On 29 March 2023, having made no progress with the freight data review or a response to the 20 December 2022 concerns, six contractors including THG informed NZ Post that they proposed suspending their contracts from 11 April 2023 (later revised to 14 April 2023). The email also raised a further notice of dispute under the contract, claiming breaches in relation to allowing couriers to deliver mail and other NZ Post items within the RD territories and that NZ Post rates were not reasonable given existing costs.
[31] On 30 March 2023, Mr Searle of NZ Post responded proposing a meeting with each contractor to discuss a route audit review.
[32] On 31 March 2023, Buddle Findlay on behalf of NZ Post responded to the six contractors disputing the lawfulness of their proposed suspensions.
[33]On 13 April 2023, Mr Searle wrote to THG. The letter was in four parts:
(a)Proposal to terminate and review costs and arrangements – 22 November 2022. This part of the letter referred to NZ Post’s letter
of 22 November 2022 and said that NZ Post had not received a response. It referred to a complaint from Tamahere Eventide Home Trust (Tamahere Eventide), a Retirement Village and Care Home, and said this highlighted the need for the parties to bring the relationship to an end.
(b)Further correspondence and meeting. This part referred to the events since 22 November 2022 and indicated that NZ Post had not had a response to its proposal to terminate, its offer to review THG costs and arrangements or to the other arrangements it proposed. NZ Post said “It is not clear to us where you stand, and [we] do not want simply to let the matter drift”.
(c)Tamahere Eventide. This part addressed the complaint that NZ Post had received from the CEO of Tamahere Eventide alleging that NZ Post had not consulted with Tamahere Eventide or THG in relation to a “unilateral change” to the delivery of Tamahere Eventide’s freight; that freight was being “held up” in order to be “palletised”, which was causing serious health and safety issues; and insisted that NZ Post reinstate its usual delivery agents. The letter explained that on investigation it transpired that Tamahere Eventide’s concerns were with the delivery of product that was not managed through the NZ Post network. It said that THG had advised Tamahere Eventide that NZ Post was responsible and was trying to take freight away from local contractors, and expressed concerned about the way THG had handled this matter.
(d)Notice of termination. NZ Post stated that in its view THG’s actions (in relation to the Tamahere Eventide complaint) were in breach of clause 2.4(c) of the contract which requires that THG act in a manner which does not detract from the reputation, business and brand of NZ Post and immediately advise NZ Post of any issue which could adversely affect such reputation, business and brand. The letter said that in NZ Post’s view, THG’s actions were sufficiently serious to
warrant immediate termination. Notwithstanding that, the letter said, NZ Post did not propose to proceed with immediate termination. NZ Post went on, however, to say that THG’s actions confirmed its view that the relationship was no longer tenable. It also referred to the proposal to suspend services. Accordingly, the letter said, while NZ Post was willing to allow THG some time to assign the contract, it confirmed NZ Post’s proposal to terminate, pursuant to clauses 15.1 and 15.3. It said the contract would terminate on 13 October 2023 unless THG found an assignee in advance of that date, in which case NZ Post would help to facilitate an earlier termination date if that assisted. NZ Post also stated that, to address THG’s concerns over business being re-routed and to provide greater certainty, during the notice period:
(i)NZ Post would not take away any existing parcel customers in THG’s territory based on the sorting list, or allocate new business to another contractor in the territory, unless it is initiated by a customer or due to urbanisation, and in either case would only do so following consultation with THG;
(ii)Run 66 would continue to serve its existing list (noting that the recent changes regarding Regal Haulage and Tamahere Model School would stay in place); and
(iii)Express would continue to deliver in the territory in the usual way.
[34] THG’s contract suspension took effect on 14 April 2023. NZ Post also suspended the contract that day.
[35] Following further correspondence and meetings in relation to the suspension of services by THG and the other contractors (and by NZ Post), THG returned to work on 9 May 2023.
[36] Other RD contractors have filed affidavits in support of THG also alleging breach of exclusivity.
[37] NZ Post’s affidavits say that rural delivery runs as a single-cycle service, meaning delivery once a day. Sometimes items that miss the contractor’s daily pickup need to be delivered by another means such as a courier to meet the delivery target. Very large items which cannot be delivered by RD route are also allocated to couriers. In addition, some customers have specific requirements such as multiple pickups in a day. NZ Post acknowledges that mis-sorts also occur.
[38]THG says that it can accommodate a multi cycle service and large items.
[39] NZ Post says that scan data over the period from 28 November 2022 to 20 February 2023 indicates there has not been a significant volume of items delivered by other contractors on the RD3 route (1%). At a meeting to discuss this, the contractors including THG disputed the accuracy of the data.
[40] NZ Post also says THG’s reduced volumes reflect trends nationwide. THG replies that RD3 is in a high growth area.
THG’s claim and the interim relief sought
[41] Two months after the notice to terminate, THG commenced this proceeding and applied for interim relief.
[42] The initial statement of claim dated 9 June 2023 but filed on 13 June 2023 pleaded four causes of action:
(a)breach of contract – not making all mail and parcels in the RD3 route available to the plaintiff for delivery/use of third party contactors in the plaintiff’s territory;
(b)breach of contract – failure to consult and exercising discretion under the contract and services schedule arbitrarily, capriciously, or unreasonably (relating to method of payment);
(c)breach of the Fair Trading Act 1986; and
(d)misrepresentation.
[43] THG’s interim injunction application dated 12 June 2023 also filed on 13 June 2023 sought:
(a)an injunction restraining NZ Post from acting on the notice/proposal to terminate served on the plaintiff on 13 April 2023;
(b)an injunction restraining NZ Post from terminating the contract otherwise than pursuant to the terms of the contract; and
(c)an injunction restraining NZ Post from allocating mail and parcels to third party contractors in the RD3 area.
[44] There was further delay including because, following discussion between counsel, THG indicated that it would amend its claim.
[45] On 12 July 2023, the Court allocated the 2 October 2023 hearing date for the interim injunction application.
[46] THG filed an amended application dated 17 July 2023 but seeking the same relief as in the original interim injunction application.
[47] The amended statement of claim dated 28 July 2023 added a breach of contract cause of action for unlawful termination. At least until this amendment, THG may have mistaken NZ Post’s letter of 13 April 2023 as terminating for breach rather than under clause 15.
[48] At least in part as a result of the lack of urgency since the termination notice of 13 April 2023, the hearing took place only 11 days before the six months’ notice of termination was due to take effect. Given the lack of urgency, the extent to which the submissions focused on the substantive merits of the dispute given NZ Post’s position that there is no serious question to be tried, with reference to the extensive affidavit
evidence filed, and the Court’s other commitments, I asked counsel about interim arrangements pending determination of the application. The Court expects parties to cooperate in reaching interim arrangements in any event, but that is particularly so where the parties have created a situation that puts unnecessary pressure on the Court to prioritise determination of an interlocutory application.
[49] By memorandum of counsel dated 4 October 2023, NZ Post advised that it had extended the termination date until the earlier of two weeks following release of judgment or 10 November 2023, but it was not prepared to agree to a longer extension proposed by THG.
Principles governing grant of interim injunctions
[50] The general principles governing applications for interim injunctions are well established. They were summarised by the Court of Appeal in Commerce Commission v Viagogo AG:1
The principles that govern the grant of interim injunctions under r 7.53 and the court’s inherent jurisdiction are well settled. The court will usually adopt a two-stage approach.2 The first inquiry is whether there is a serious question to be tried. If that threshold is met, the court moves on to consider whether the balance of convenience favours granting or refusing relief. But as this Court observed in Klissers Farmhouse Bakeries Ltd v Harvest Bakeries Ltd, considerations are marshalled under these (non-exhaustive) heads as “an aid to determining, as regards the grant or refusal of an interim injunction, where overall justice lies. In every case the Judge has finally to stand back and ask himself that question.”3
[51] In relation to the threshold of a serious question to be tried, Ms McKinnon, for NZ Post, submitted that Courts conduct a reasonably close analysis of the legal and factual basis of the plaintiff’s claim and any defence that may be raised by the defendant in order to determine whether there is a serious question to be tried, citing Andrew Barker KC’s commentary in Sir Peter Blanchard (ed) Remedies – A to Z of New Zealand Law,4 which in turn refers to Henry Roach (Petroleum) Pty Ltd v Credit
1 Commerce Commission v Viagogo AG [2019] NZCA 472, [2019] 3 NZLR 559 at [30].
2 See American Cyanamid Co v Ethicon Ltd [1975] AC 396 (HL).
3 Klissers Farmhouse Bakeries Ltd v Harvest Bakeries Ltd [1985] 2 NZLR 129 (CA) at 142.
4 Sir Peter Blanchard (ed) Remedies – A to Z of New Zealand Law (online ed, Thomson Reuters at [51.6.2]).
House (Vic) Pty Ltd.5 This indicates, as Eichelbaum J put it in Ansell v NZ Insurance Finance Ltd,6 that the serious question step is not to be brushed over lightly and it is not sufficient for the plaintiffs just to say that there is a tenable cause of action from a legal point of view, and a conflict of evidence on the facts. However, it is necessary in this case to emphasise the point, dating at least from American Cyanamid Co v Ethicon Ltd and repeated recently in this Court in The Christian Church Community Trust v Bank of New Zealand, that:7
At this stage of the proceeding, it is not the Court’s function to attempt to resolve any conflicts of evidence on which the claims of the parties rely, nor is it for the Court to determine any difficult questions of law which may require more detailed consideration.8
Serious question to be tried
[52] Although the exclusivity issue arose first, I deal with the termination issue first since exclusivity is only relevant to interim relief if the contract remains in effect.
Termination
[53] THG says that NZ Post’s decision to give notice to terminate was subject to a good faith clause and an implied duty of good faith designed to give effect to the reasonable expectations of the parties, and that the discretion to terminate could not be exercised capriciously, arbitrarily or unreasonably.
[54] In relation to NZ Post’s decision to terminate, THG says the discretion was exercised in bad faith and capriciously. Mr Depledge, for THG, submitted that NZ Post had not considered that:
(a)termination would eliminate all goodwill;
(b)there is a genuine dispute yet to be addressed;
5 Henry Roach (Petroleum) Pty Ltd v Credit House (Vic) Pty Ltd [1976] VR 309 at 311.
6 Ansell v NZ Insurance Finance Ltd HC Wellington A434/83, 30 November 1983.
7 The Christian Church Community Trust v Bank of New Zealand [2023] NZHC 2523 at [17].
8 Mad Butcher Holdings Ltd v Standard 730 Ltd [2019] NZHC 589 at [15] following American Cyanamid Co v Ethicon Ltd [1975] AC 396 (HL) at 407; Villa Maria Wines Ltd v Montana Wines Ltd [1984] NZLR 422 (CA) at 425; and Health Club Brands Ltd v Colven [2013] NZHC 428 at [9].
(c)unilateral termination without the offer of adequate compensation would be unconscionable; and
(d)these types of contracts are traded for substantial goodwill value and NZ Post agrees to and charges a fee for the assignment of such contracts knowing this.
[55] Mr Depledge submitted that THG raised a genuine dispute to be addressed and that NZ Post’s decision to terminate was to avoid that dispute. He submitted there is a serious question to be tried in relation to the lawfulness of NZ Post’s notice to terminate.
[56] NZ Post says the contract provides that either party can terminate without cause by giving at least 90 days’ notice. It says its notice was lawful, in accordance with the contract terms and reasonable. It says there is no express or implied obligation of good faith that applies to clause 15.1, and its termination was not arbitrary, capricious or unreasonable.
[57]Clauses 15.1 and 15.3 of the contract provide:
15.1 Either party may terminate any Services Schedule without cause by giving the other party at least the period of notice specified in the relevant Services Schedule unless agreed otherwise by the parties. The Company may require the Contractor to cease providing the Services prior to the expiry of that period, with an agreed compensation sum to be payable to reflect this (or as reasonably determined by the Company, if agreement on the sum cannot be reached within 10 days after the Company required the Contractor to cease providing Services under this clause). If the Contractor provides less than the required period of notice, unless expressly agreed with the Company in writing, the Contractor will be liable for the full cost to the Company for replacement services for the outstanding notice period.
…
15.3 This Contract terminates when all Services Schedules under it have terminated in accordance with their terms.
[58]Clause 1.5 of the Rural Services Schedule states:
1.5 A party must not exercise any discretion under the Contract or this Service Schedule arbitrarily, capriciously or unreasonably.
[59]Mr Depledge also referred to clause 1.4(h) of the contract, which provides:
1.4 The Company will:
…
(h) use reasonable endeavours to assist the Contractor to increase productivity in performing the Services and decrease the Contractor’s costs in performing the Services, including providing general advice to assist the Contractor with preparing an annual business plan if required and providing access to preferred supplier procurement rates;
[60] THG’s challenge to termination depends in part on qualifying what appears to be a contractual right to terminate on notice without cause in clause 15.1 on the basis that this is a relational contract and that deciding to give notice is a contractual discretion subject to reasonableness rather than an unfettered contractual right. The Courts have accepted there is room for such a reasonableness qualification in some contracts.
[61] Mr Depledge referred to The Christian Church Community Trust v Bank of New Zealand,9 where Cull J considered it was reasonably arguable that the so-called default rule or approach set out in Braganza v BP Shipping Ltd 10 may be applicable to the banking relationship in that case and to the exercise of the bank’s discretion to terminate (close or suspend the customer’s account etc) under a clause that said it could do so for any reason.
[62]As Cull J said:11
The common law has developed a default rule controlling the exercise of unilateral contractual powers or discretion. The rule is that a party, on whom a contract confers a discretionary power, must not exercise the discretion arbitrarily, capriciously or in bad faith, or unreasonably in the sense that no reasonable contracting party could have so acted.
[63] In C & S Kelly Properties Ltd v Earthquake Commission, Mander J explained:12
9 The Christian Church Community Trust v Bank of New Zealand [2023] NZHC 2523 at [52].
10 Braganza v BP Shipping Ltd [2015] UKSC 17, [2015] 1 WLR 1661.
11 The Christian Church Community Trust v Bank of New Zealand [2023] NZHC 2523 at [38].
12 C & S Kelly Properties Ltd v Earthquake Commission [2015] NZHC 1690 at [73].
To summarise, Commonwealth Courts are willing to intervene in the exercise of a prima facie unfettered discretion. Such intervention will ordinarily be premised on an implied term to constrain the exercise of the discretion so as to give effect to the reasonable expectations of the parties. The exercise of contractual discretion will be open to challenge where it can be established that it was not exercised honestly in good faith; or not exercised for the purpose(s) for which it was conferred; or when exercised in a capricious or arbitrary manner; or otherwise falls into the category of what would be considered Wednesbury unreasonableness.
[64] This passage was quoted in Woolley v Fonterra Co-operative Group Ltd,13 where the Court of Appeal assumed (without expressly deciding) that the default rule applies in New Zealand. It did not consider that appeal was an appropriate vehicle for either general endorsement or rejection of the Braganza approach. It noted it was not dealing with an employment case which, as the UK Supreme Court’s judgments recognise, involves a relational contract of a different character from an ordinary commercial contract.14
[65] In Bathurst Resources Ltd v L & M Coal Holdings Ltd,15 the majority of our Supreme Court referred to Mid Essex Hospital Services NHS Trust v Compass Group UK and Ireland Ltd (trading as Medirest),16 where Jackson LJ reviewed the authorities on contractual discretions and contrasted contractual discretions with absolute contractual rights and observed that the former involves “making an assessment or choosing from a range of options, taking into account the interests of both parties”. The majority in Bathurst Resources found the contractual rights under the relevant clause in that case (involving a choice to modify another clause as to whether delay in paying the performance payments was an actionable breach) could not be classed as contractual discretions that could be subject to review by a court on the basis that they were exercised for an improper purpose.17
[66] Mr Depledge submitted that the delivery contract here is akin to such a relational contract. He referred to Leota v Parcel Express,18 where the Employment Court found that a courier driver was an employee rather than an independent
13 Woolley v Fonterra Co-operative Group Ltd [2023] NZCA 266 at [96].
14 At [112].
15 Bathurst Resources Ltd v L & M Coal Holdings Ltd [2021] NZSC 85, [2021] 1 NZLR 696 at [278].
16 Mid Essex Hospital Services NHS Trust v Compass Group UK and Ireland Ltd (trading as Medirest) [2013] EWCA Civ 200, [2013] BLR 265 at [83].
17 Bathurst Resources Ltd v L & M Coal Holdings Ltd [2021] NZSC 85, [2021] 1 NZLR 696 at [279].
18 Leota v Parcel Express [2020] NZEmpC 61, (2020) 17 NZELR 395.
contractor (even though he signed an agreement stating he was engaged as an independent contractor and not as an employee). Mr Depledge also submitted the contract has a three year term and a right of renewal.
[67] As Mr Depledge submitted, the Braganza approach applies Wednesbury reasonableness by analogy, recognising the difference between the decision-making process and the outcome.19 He submitted it is seriously arguable that NZ Post’s decision-making process (at least) was subject to Wednesbury reasonableness.
[68] Ms McKinnon submitted that clause 15.1 provides both parties with an absolute contractual right, namely a binary decision that requires no evaluation or adjudication to be undertaken before being entitled to take the decision,20 not a contractual discretion.
[69] There is force in NZ Post’s argument that clause 15.1, on its face, is an absolute contractual right in a commercial contract the exercise of which is not subject to reasonableness constraints. It may be doubted whether the contract is a relational contract and whether clause 15.1 involves a contractual discretion to which the default rule applies. Contractual clauses providing a right to terminate without cause are common and extending Braganza to them would appear to be an unwarranted interference in the freedom of contract. For example, in Saturn Portfolio Management Ltd v Chamberlain,21 Woolford J accepted on an interim injunction application that a contractual requirement of good faith did not apply to a clearly defined right to terminate without cause.
[70] Here, however, there is a mixed question of fact and law. Clause 1.5 of the Rural Services Schedule expressly provides that a party must not exercise any discretion under the contract or the service schedule arbitrarily, capriciously or unreasonably. While that clause refers to any “discretion”, in the context of this interlocutory application I cannot deny there is a serious question whether the nature
19 Braganza v BP Shipping Ltd [2015] UKSC 17, [2015] 1 WLR 1661 per Lady Hale, with whom Lord Kerr agreed.
20 Citing TAQA Bratani Ltd v Rockrose UKCSB LLC [2020] EWHC 58 (Comm), 188 ConLR 141 at
[35] and [53].
21 Saturn Portfolio Management Ltd v Chamberlain [2017] NZHC 1962 at [25]-[30].
of the contract and the parties’ expectations as to its term allow for the application of clause 1.5 or the default rule to clause 15.1.22 Factual matrix and context may inform the assessment of the nature of the contractual relationship. Despite the detailed affidavits, there is little evidence about the contract negotiations relevant to this issue.
[71] Also, although NZ Post says the contract term is three years expiring in November 2024, the term and right of renewal are not clear from the unsigned version of the Restated Contract for Delivery Services in evidence. Clause 15 recognises a distinction between termination of the contract and termination of individual service schedules. The 1 November 2018 contract stated that the contract commenced on that date and remained in force until terminated in accordance with the contract. It also provided that each schedule specified a services schedule end date, and that the schedule would automatically renew for a further term of the same period unless either party gave notice to terminate (at least three months before the end of the current term). In the 1 November 2018 contract, the relevant services schedule end date was 31 October 2021. In respect of the renewed contract, while it is clear enough from the Variation to Contract for Delivery Services that the commencement date was 1 November 2021 even though it is blank in the unsigned Restated Contract for Delivery Services in evidence, the services schedule end date is also blank.
[72] Nor on the untested affidavit evidence can I deny there is a serious question whether NZ Post’s decision to terminate was lawfully exercised if it was subject to reasonableness constraints.
[73] For these reasons, I conclude that the lawfulness of NZ Post’s notice to terminate is a serious question to be tried.
Exclusivity
[74] As a preliminary point, I note that at the commencement of the hearing, Mr Depledge addressed NZ Post’s objection to the admissibility of a further affidavit of Ms Kennedy dated 29 September 2023 addressing exclusivity on the grounds it was
22 I accept that if clause 1.5 does apply, there seems to be no need to imply the default rule.
filed late and was not strictly reply evidence. I received it de been esse. In the event, it was not material.
[75] THG claims that as a result of the pre-contractual representations and/or the contract, NZ Post is obliged to make all mail and parcels in the RD3 route available to THG for delivery, and that NZ Post is in breach. Mr Depledge submitted that THG would never have taken the assignment if there was not exclusivity.
[76] NZ Post disputes the exclusivity claim. It says there is no clause in the contract that provides for exclusivity, and it should not be read in. It relies on the entire agreement clause.
[77] There is also force in NZ Post’s argument that the contract on its face does not provide for exclusivity, at least as claimed by THG. THG has to contend with the entire agreement clause too. Although Ms McKinnon submitted there was not a serious question to be tried, her submissions acknowledged that whether NZ Post’s use of its own couriers in RD3 was a breach of contract is an issue appropriately resolved at trial. There is also a dispute as to pre-contractual representations relating to exclusivity. On the affidavit evidence, I accept there is a serious question to be tried.
Balance of convenience
[78] Mr Depledge submitted that if an injunction preventing termination is not granted, THG will suffer irreparable loss and its directors will lose their family home and livelihood. He submitted that the loss of income as a result of allocating mail and parcels to third parties is rapidly diminishing the value of THG’s business and putting its viability at risk, and that THG cannot sell the business with this uncertainty about exclusivity. He submitted this needs to be remedied before they can sell. He submitted that damages are too difficult to calculate particularly as the contract could potentially last for many years. He submitted the status quo with the added restriction that third parties are not used is the fairest outcome. He characterised the added exclusivity restriction as an attempt to mitigate THG’s loss.
[79] Mr Depledge submitted that, on the other hand, NZ Post will suffer no loss and therefore the balance of convenience favours THG. At the very least, he sought to preserve the status quo, continuing the contract until it is terminated in a lawful way.
[80] Ms Marriner, for NZ Post, addressed the balance of convenience and submitted that damages are an adequate remedy for THG. She noted that the pleading only seeks damages, to which Mr Depledge replied that the pleading will be amended to seek injunctive relief. Ms Marriner submitted that the interim relief sought goes beyond maintaining the status quo. She submitted NZ Post will be prejudiced if it is prevented from terminating. She also referred to THG’s delay.
[81] I consider the balance of convenience weighs against interim relief, for several reasons. First, damages are more likely to be an adequate remedy for THG if it succeeds than they would be for NZ Post if it succeeds. THG’s damages for unlawful termination and/or breach of exclusivity should be quantifiable based on THG’s past performance and NZ Post’s records of payments to its replacement contractor and its couriers, which NZ Post is obliged to preserve. The evidence does not indicate that THG tried unsuccessfully to assign the contract before termination takes effect. THG’s claim of irreparable harm to it or its directors is not supported by financial evidence. As Mr Depledge acknowledged, there is no evidence that THG cannot meet its obligations pending trial.
[82] On the other hand, if exclusivity were conferred pending trial, NZ Post and its customers whose delivery needs are not met by THG in a single cycle would be unduly prejudiced and damages would likely not be an adequate remedy. THG’s offer to accommodate more deliveries has only arisen in evidence in the proceeding since the notice to terminate.
[83] Secondly, while it is not helpful to seek to characterise restraining NZ Post from allocating mail and parcels to third party contractors in the RD3 area as mandatory in this context, as the Court of Appeal said in Commerce Commission v Viagogo,23 it is common ground that such interim relief goes beyond maintaining the status quo. Granting interim relief conferring the disputed exclusivity pending trial
23 Commerce Commission v Viagogo AG [2019] NZCA 472, [2019] 3 NZLR 559 at [90].
reflecting THG’s substantive contention would not be appropriate, particularly given the practical implications of the order for the affected parties – NZ Post, customers and couriers. Given NZ Post’s extensive delivery network, other rural delivery contracts with the same terms may also be affected. In this context, I accept Ms Marriner’s submission that I should not effectively decide the merits of the substantive issue on this application.
[84] Thirdly, the exclusivity dispute dates back to 2019 and in some instances relates to what NZ Post says are historic arrangements that precede the contract. Granting interim relief requiring exclusivity only after the notice to terminate would not be appropriate.
[85] Fourthly, the order sought restraining NZ Post from terminating the contract “otherwise than pursuant to the terms of the contract” is vaguely worded and assumes the current notice to terminate is invalid.
[86] Fifthly, while there are serious questions to be tried, THG has not established a strong case.
[87] Sixthly, even preserving the status quo in existence before the notice to terminate by restraining NZ Post from acting on it involves requiring both parties to continue to perform the contract despite their disputes, which may be problematic. In any event, I consider preserving the status quo is outweighed by the other factors in this case.
[88] Finally, while I accept that court proceedings were a last resort, THG’s delay in challenging the notice to terminate is a secondary factor also counting against interim relief. After the notice to terminate dated 13 April 2023, proceedings were filed on 13 June 2023 but termination was only squarely challenged in the amended pleading in late July 2023.
Overall justice
[89] Stepping back, I consider that overall justice does not favour interim relief. THG has an arguable case but the balance of convenience factors weigh against
interim relief especially in relation to the order sought restraining NZ Post from allocating mail and parcels to third party contractors in the RD3 area. Given the extent of the dispute and the likelihood that damages will be an adequate remedy for THG if it succeeds, I conclude that an interim injunction should not be granted either to stop termination taking effect or in relation to exclusivity.
Result
[90]The interlocutory application for interim injunction is dismissed.
Costs
[91] Both parties signalled that they would seek costs (NZ Post said on an increased basis). My preliminary view is that costs should follow the event on a 2B basis. However, if costs cannot be agreed, memoranda (not exceeding three pages) may be filed within 20 working days, and I will determine costs on the papers.
Gault J
9
1