New South Wales Supreme Court CITATION : G & JM Transport Services Pty Ltd v SITA Australia Pty Ltd [2009] NSWSC 645 HEARING DATE(S) : 26 June 2009 JUDGMENT DATE : 13 July 2009 JUDGMENT OF : Gzell J DECISION : A renewed agreement on same terms as current agreement from expiry of term of current agreement. A further contract on terms as negotiated. CATCHWORDS : CONTRACTS - General Contractual Principles - Construction and Interpretation of Contracts - contractor to notify intention to negotiate with principal to renew agreement or enter into a further contract - consent not to be unreasonably withheld - whether contractor could elect to renew - whether further contract on same terms as current agreement CATEGORY : Principal judgment Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896 Maggbury Pty Ltd v Hafele Australia Pty Ltd [2001] HCA 70; (2001) 210 CLR 181 Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52; (2004) 219 CLR 165 Lewis v Stephenson (1898) 67 LJQB 296 Price v Asheton (1834) 4 LJ Ex Eq 3 Booker Industries Pty Ltd v Wilson Parking (Qld) Pty Ltd (1982) 149 CLR 600 CASES CITED : Australis Media Holdings Pty Ltd v Telstra Corporation Ltd (1998) 43 NSWLR 104 Coal Cliff Collieries Pty Ltd v Sijehama Pty Ltd (1991) 24 NSWLR 1 Courtney & Fairbairn Ltd v Tolaini Brothers (Hotels) Ltd [1975] 1 WLR 297 Mallozzi v Carapelli SPA [1976] 1 Lloyd's Rep 407 Walford v Miles [1992] 2 AC 128 United Group Rail Services Limited v Rail Corporation New South Wales [2009] NSWCA 177 Ainsworth v Criminal Justice Commission (1991-1992) 175 CLR 564 Auspac Corporate Managers Pty Ltd v J Noble Pty Ltd [2003] NSWSC 548 PARTIES : G & JM Transport Services Pty Ltd (Plaintiff) SITA Australia Pty Ltd (Defendant) FILE NUMBER(S) : SC 5054/08 COUNSEL : R Angyal SC/ M Seck (Plaintiff) J Fernon SC/ D Mackay (Defendant) SOLICITORS : Fox O'Brien Solicitors (Plaintiff) Baker & McKenzie (Defendant) IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION GZELL J MONDAY 13 JULY 2009 5054/08 G & JM TRANSPORT SERVICES PTY LTD v SITA AUSTRALIA PTY LTD JUDGMENT 1 The plaintiff, G & JM Transport Services Pty Ltd, provides waste collection services to the defendant, SITA Australia Pty Ltd. 2 A company related to G&JM, G & K Roadways Pty Limited, executed an agreement to provide waste collection services to SITA on 20 October 2003. This old agreement contained a number of provisions preventing the contractor from receiving any consideration, or paying any consideration, on the assignment of goodwill in the contractor's business of waste collection for SITA. 3 For example, cl 15.2 of the old agreement was in the following terms: "The Contractor acknowledges and agrees that no goodwill, either expressed or implied, is created in the business of the Contractor by this Agreement or by the Contractor providing the Services and the Contractor shall not sell the Vehicle or seek any payment from a third party on the basis that any goodwill is attached to the Vehicle or the business of the Contractor by reason of this Agreement." 4 The vehicle was defined as the cab chassis provided by the contractor to perform the waste collection services at the commencement date being the cab chassis of the vehicle specified in a schedule. 5 The old agreement also contained a provision with respect to the term of the agreement and the making of any further contract upon termination. Clause 7 was in the following terms: "This Agreement shall commence on the Commencement Date and, subject to clause 10, continue for five (5) years from that date. The Contractor must advise the Company in writing no later than six (6) months prior to the expiry of the Term of its intention to negotiate and seek approval from the Company to renew the Contract or enter into a further contract for a further term. Consent will not be unreasonably withheld." 6 Clause 10 dealt with termination. 7 Proceedings were instituted by G&K and other of SITA's contractors in the Industrial Relations Commission of New South Wales seeking relief with respect to the provisions in the old agreements denying contractor goodwill as unfair contracts in terms of the Industrial Relations Act 1996, s 106(1). Those proceedings were settled. As part of the settlement the contractors entered into newly negotiated agreements with SITA that did not contain the goodwill provisions. G&JM rather than G&K was the named contractor and it executed a new agreement on 19 September 2007. It is still current. 8 The current agreement has an effective date of 1 July 2007. Clause 7 is in the following terms: "7.1 This Agreement shall take effect from the Effective Date and, subject clause 10, continues for five years from the Effective Date ( Term ). 7.2 The Contractor must advise the Company in writing no later than six (6) months prior to the expiry of the Term of its intention to negotiate with the Company to renew this Agreement or enter into a further contract for a further term. Consent will not be unreasonably withheld. If this agreement is renewed by agreement between the parties, the term of any new Agreement will be minimum 5 years and maximum 8 years, should a new truck be purchased by the Contractor, from the date of renewal." 9 G&JM owns the cab/chassis truck by which it conducts its waste collection services for SITA. The body of the truck and its internal fittings are owned by SITA. 10 In March 2008, G&JM wrote to SITA saying it had been advised that it had been allocated a new SITA body and it was, therefore, preparing to purchase a new cab chassis truck. G&JM sought confirmation that a new eight-year contract would be offered on the same terms as the current contract. SITA's response was as follows: "I can confirm that, should you purchase a new vehicle, G & K Roadways Pty Limited will remain on its existing contract. At the expiration of that contract the company will be given a new contract with a term that equates to effectively 8 years from the date of purchase of the new truck. The terms of that agreement will be in accordance with the terms of SITA's national agreement as at that date." 11 G&JM has not purchased a new truck. It commenced these proceedings in October 2008 seeking declarations as to the proper construction of clause 7.2 of the current contract. G&JM submits that clause 7.2, on its proper construction, provides as follows: "If the Contractor wishes to enter into a new agreement on the terms of this Agreement [ie renew this Agreement] or, on the expiry of the Term, to enter into a further agreement on the terms of this Agreement for a term of five years, it must advise the Company of its intention in writing no later than six months prior to the expiry of the Term. The Company may not unreasonably withhold its consent [to the course of which the Contractor has advised it]. If the Company does not withhold consent to the renewal of this Agreement, a term of the new agreement will be: five years from the date of renewal; or if the contractor has purchased a new truck, eight years from the date of renewal." 12 Lord Hoffman said in Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896 at 912 that the interpretation of a written contract involved the ascertainment of the meaning that the document would convey to a reasonable person having all the background knowledge that would reasonably have been available to the parties in the situation in which they were at the time of the contract. That observation was cited with approval by Gleeson CJ, Gummow and Hayne JJ in Maggbury Pty Ltd v Hafele Australia Pty Ltd [2001] HCA 70; (2001) 210 CLR 181 at 188 [11]. 13 In Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52; (2004) 219 CLR 165 at 179 [40] the High Court reaffirmed that the meaning of a commercial document was determined objectively and that required, not only consideration of the text, but also the surrounding circumstances known to the parties and the purpose of the transaction in question. It said: "This Court, in Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451, has recently reaffirmed the principle of objectivity by which the rights and liabilities of the parties to a contract are determined. It is not the subjective beliefs or understandings of the parties about their rights and liabilities that govern their contractual relations. What matters is what each party by words and conduct would have led a reasonable person in the position of the other party to believe. References as to the common intention of the parties to a contract are to be understood as referring to what a reasonable person would understand by the language in which the parties have expressed their agreement. The meaning of the terms of a contractual document is to be determined by what a reasonable person would have understood them to mean. That, normally, requires consideration not only of the text, but also of the surrounding circumstances known to the parties, and the purpose and object of the transaction ( Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451 at 461-462 [22])." 14 G&JM submitted that the surrounding circumstances known to the parties were that the old agreement contained provisions denying that a contractor had goodwill; those provisions were challenged as unfair before the Industrial Relations Commission; the current agreement resulted from settlement of those proceedings; and the challenged provisions do not appear in the current agreement. These circumstances were not challenged by SITA. 15 It was submitted that the current agreement contains provisions designed to protect the security of ongoing work in cl 7.2 and goodwill in cl 15.2. 16 Viewed objectively, and in light of the change in cl 7 in the current agreement, there was a common intention to benefit a contractor who purchased a new vehicle and had its contract renewed by an additional three years in the term of the renewed contract. 17 Clause 15.2 of the current agreement is in the following terms: "The Company shall be under no obligation whatsoever to engage the services of a purchaser of the Vehicle unless the Company expressly agrees to do so. However, the Company shall not unreasonably withhold the offer of a suitable contract for the provision of services to a Prospective Purchaser, subject to the Prospective Purchaser executing an indemnity in favour of the Company with respect to any claim arising out of the sale/purchase of the Vehicle including but not limited to any existing or future claim for goodwill." 18 The prospective purchaser is defined in the current agreement as a company that wishes to purchase the truck of an existing contractor to provide the waste collection services and to enter into a new contract with SITA for an agreed term. 19 It can be said from the challenge to cl 15 of the old agreement, amongst other provisions, as being unfair and the agreed removal of provisions denying contractor goodwill, that the common intention with respect to cl 15.2 of the current contract was to protect any goodwill attributable to the contractor's provision of waste collection services to SITA under the current agreement. 20 But that protection is not to be vouchsafed under the national agreement of which SITA spoke in its response of March 2008. 21 Grant De Fries is the general counsel of SITA. He said that SITA did not yet have a standard national agreement but he expected that one would be finalised within a year. 22 Mr De Fries was cross-examined. A working draft of the proposed national agreement had been sent to a prospective contractor to SITA in January 2008. It was put to Mr De Fries that if G&JM had sought a new contract with SITA in March 2008, the draft of the national agreement would have been offered to it as the terms of a new contract. Mr De Fries denied this proposition saying that G&JM's contract did not expire until 2012 and it was within the six months prior to its expiry that the terms of a new contract would be negotiated. 23 That must be so. When one talks of a renewed contract one is talking about a new contract to take effect from the expiry of an earlier contract. A fortiori when one is speaking of entering into a further contract. 24 Mr De Fries was taken to the terms of the draft national agreement that provide against the development of goodwill by a contractor operating under the draft agreement. He said it was his intention that those provisions should be part of the final national agreement. 25 Clause 2.6(d) of the draft provided that in allocating opportunities to provide waste collection services, the contractor acknowledged and accepted that: "no "goodwill" will or may be associated with this Agreement and/or the Vehicle that is recognised by SITA". Clause 11.2(c) provided that where a contractor wished to sell his vehicle to a third party, the approval or otherwise of the purchaser as a contractor was at the complete discretion of SITA. Clause 11.2(d) provided that SITA did not recognise any goodwill associated with the vehicle. And schedule II contained the statement: "The Contractor and the Director acknowledge and accept that SITA does not recognise or assist in the recognition of any form of goodwill or additional payments associated with the Vehicle and/or its sale by the Contractor." 26 Thus, the terms of the current agreement are more favourable to a contractor than the terms of SITA's proposed national agreement to which reference was made in SITA's response of March 2008. 27 But the protection and proposed lack of protection of contractor goodwill does not assist the interpretation of cl 7.2, the object of which was different. It was to provide a contractor with the provision of waste collection services for an additional period of three years if a new vehicle was purchased and its contract was renewed. 28 G&JM submitted that the addition of the last sentence of cl 7.2 was to recognise and protect a contractor's investment in a new vehicle and this was done by the addition of earnings over three years. 29 So much may be accepted. But G&JM goes further and submits that the last sentence of cl 7.2 must have been intended to recognise and protect a valuable property right in a contractor and the recognition and protection afforded by the provision could not have been intended to operate only with the agreement of SITA. Thus cl 7.2 should be construed as a whole as not dependent on the agreement of SITA. To achieve this end, it was submitted that cl 7.2 should be interpreted as an entitlement in a contractor to apply for a renewal of its agreement on the terms of the current agreement or to apply for a new agreement on the terms of the current agreement for five years or eight years respectively, to which SITA may not unreasonably withhold its consent. 30 G&JM treat cl 7.2 as an option in its favour to elect to renew the current agreement in which event SITA may not unreasonably withhold its consent. 31 I do not read the clause in that way. What is to be negotiated is a renewal or a further contract and which one transpires is a matter for negotiation. This interpretation is enforced by the word "if" in the final sentence of cl 7.2. It connotes that a renewal is not a foregone conclusion. In other words, the process of negotiation may lead to entry into a further contract rather than a renewal of the current agreement. 32 It was submitted that the parties intended that the alternatives of a renewal of the current agreement, and the entry into a further contract, were different things. A renewal signified a contract on the same terms as the current agreement. Reference was made to Lewis v Stephenson (1898) 67 LJQB 296 in which specific performance was granted of an option of renewal by a decree for a renewed agreement for a lease of the same period on the same terms except as to renewal. 33 So much can be accepted. In Price v Asheton (1834) 4 LJ Ex Eq 3, correspondence regarding the granting of a new lease spoke of the renewal of the old lease and was held sufficient evidence of such an agreement to warrant continuance of an injunction to restrain the lessor from proceeding with his action of ejectment. Lord Lyndhurst CB said at 6 there was evidence to show that the lease agreed to be given was intended to be a renewed lease, that is, a renewal of the old lease, and therefore, in point of duration, coextensive with the former lease. 34 But the contrast between renewal and a further contract that G&JM seeks to draw is that renewal means immediate entry into a new contract with identical terms to the current agreement whereas entering into a further contract means a new contract after the expiry of the current agreement on identical terms to the current agreement. 35 Counsel for G&JM acknowledged that this left little room for the negotiation to which reference is made in the cl 7.2. It was submitted that the word could not be read literally for to do so would render cl 7.2 unenforceable. 36 An agreement to agree is unenforceable. In Booker Industries Pty Ltd v Wilson Parking (Qld) Pty Ltd (1982) 149 CLR 600 at 604, Gibbs CJ, Murphy and Wilson JJ said: "It is established by authority, both ancient and modern, that the courts will not lend their aid to the enforcement of an incomplete agreement, being no more than an agreement of the parties to agree at some time in the future." 37 That passage was cited with approval by the Court of Appeal in Australis Media Holdings Pty Ltd v Telstra Corporation Ltd (1998) 43 NSWLR 104 at 126-127. 38 The position with respect to contracts to negotiate, however, is not so clear-cut. In Coal Cliff Collieries Pty Ltd v Sijehama Pty Ltd (1991) 24 NSWLR 1, Kirby P reviewed the authorities and concluded that a promise to negotiate in good faith may, in particular circumstances, be enforced, the enforceability depending on the precise terms as construed in the particular contract. 39 English authority favours the unenforceability of agreements to negotiate as lacking necessary certainty. (Courtney & Fairbairn Ltd v Tolaini Brothers (Hotels) Ltd [1975] 1 WLR 297 at 301; Mallozzi v Carapelli SPA [1976] 1 Lloyd's Rep 407 at 413, 415; Walford v Miles [1992] 2 AC 128 at 138). 40 The Court of Appeal in Australis was not asked to reconsider Coal Cliff Collieries and proceeded using the approach of Kirby P in that case. His Honour had said at 26 that the proper approach in each case depended upon the construction of the particular contract. In many contracts his Honour said it would be plain that the promise to negotiate was intended to be a binding legal obligation to which the parties should then be held. But, in such cases the court might regard the failure to reach agreement on a particular term as classifying the agreement as illusory or unacceptably uncertain. 41 Since hearing this case, the Court of Appeal has conducted an exhaustive review of the authorities in United Group Rail Services Limited v Rail Corporation New South Wales [2009] NSWCA 177 and concluded that an agreement to meet and undertake genuine and good faith negotiations with a view to resolving a dispute or difference was enforceable. Allsop P, with whom Ipp and Macfarlan JJA agreed, concluded at [63] that Kirby P's reasoning in Coal Cliff Collieries was more persuasive than the competing authority. 42 The instant circumstances may also be a case of sufficient certainty to warrant the conclusion that cl 7.2 constituted an enforceable agreement to negotiate. If the negotiation leads to an agreement to renew the current contract, its terms would not lack certainty. The renewed contract would, on the authorities and in G&JM's submission, contain the terms of the current agreement save for the substitution of an eight-year period for its five-year period if a new vehicle were purchased. 43 Furthermore, if cl 7.2 is unenforceable as an agreement to negotiate, that does not entitle the Court to save the provision by striking out the requirement to negotiate. 44 It was submitted that since a provision that consent would not be unreasonably withheld was usually associated with making, varying or assigning legal rights and obligations, its use in cl 7.2 rendered the clause a provision with respect to entering into an agreement to create legal rights and obligations rather than being merely a consent to an agreement to negotiate. 45 It does not seem to me, however, that one can supplant the provision as to not unreasonably withholding consent in cl 7.2 by analogy to some other context. 46 It was submitted that the intended operation of the last sentence of cl 7.2 to recognise and protect the plaintiff's investment in a new vehicle would not be implemented merely by giving G&JM a right to negotiate. But in my view that consideration does not justify a departure from the words of cl 7.2 viewed in the context to which I have referred. 47 G&JM seek to rely upon the contra proferentem rule. I do not regard that rule as applicable in the instant circumstances. The wording of cl 7.2 was negotiated by parties who were legally represented. In those circumstances, G&JM cannot contend that the current agreement was produced by SITA. 48 The contrast that G&JM seeks to draw is in my view erroneous for two reasons. First, a renewal is not constituted by an immediate entry into a new agreement. A renewal takes place at the expiry of an agreement by entry into a new agreement with coextensive terms to the earlier agreement. So there is no contrast between the timing of a renewal and the timing of a further contract. 49 Secondly, there is no justification, in my view, for interpreting a negotiation to enter into a further contract as being restricted to the same terms as the current agreement. That would render the concept of a negotiation nugatory. 50 In my view, cl 7.2 will be enlivened at least six months before the current agreement comes to an end when the parties are to negotiate to renew the current agreement or enter into a further contract for a further term. If the current contract is to be renewed, the new contract will be on the terms of the current contract save that if G&JM purchases a new truck, the term will be eight years. If a further contract is to be entered into, there is nothing in cl 7.2 that confines the negotiation of its terms. 51 I do not accept the plaintiff's construction of cl 7.2 in so far as it regards a renewal as taking place before the expiry of the term of the current agreement. Nor do I accept its construction that a further agreement is to be on the terms of the current agreement. 52 The construction propounded by G&JM would produce the unreasonable result that SITA would be obliged to agree to the terms of the current agreement so long as G&JM chose to renew at the end of the term of the current agreement and at the end of the term of each subsequent agreement. Rather, cl 7.2 gives G&JM the opportunity to continue to work for SITA and requires SITA not unreasonably to refuse to negotiate a renewed agreement or a further contract. 53 SITA submitted that no declarations should be made, as they would lack utility. In Ainsworth v Criminal Justice Commission (1991-1992) 175 CLR 564 at 581-582 Mason CJ, Dawson, Toohey and Gaudron JJ said that it was now accepted that superior Courts had inherent power to grant declaratory relief but as a discretionary power confined by considerations that mark out the boundaries of judicial power, declaratory relief must be directed to the determination of legal controversies and not to answering abstract or hypothetical questions. 54 In Auspac Corporate Managers Pty Ltd v J Noble Pty Ltd [2003] NSWSC 548 at [25] I said: "Hence, declaratory relief must be directed to the determination of legal controversies and not to answering abstract or hypothetical questions ( Re Judiciary and Navigation Acts (1921) 29 CLR 257). The person seeking relief must have a real interest ( Forster v Jododex Aust Pty Ltd (1972) 127 CLR 421 at 437-438). Relief will not be granted if the question is purely hypothetical, or relief is claimed in relation to circumstances that have not occurred and might never happen ( University of New South Wales v Moorhouse (1975) 133 CLR 1 at 10). Relief will not be granted if the Court's declaration will produce no foreseeable consequences for the parties ( Gardner v Dairy Industry Authority (NSW) (1977) 52 ALJR 180 at 188)." 55 It was submitted that since a renewal or the entry into a further contract would not take place until the expiry of the current agreement on 30 June 2012, declarations made now would be abstract or hypothetical. 56 It seems to me, however, that there is a real interest in G&JM obtaining declarations as to the proper construction of cl 7.2 as the proper construction of that provision is necessary to an informed decision whether or not to purchase a new vehicle. 57 I will hear the parties on the terms of appropriate declarations and orders. I will hear the parties on costs. I direct the parties to bring in short minutes of order reflecting these reasons. ********** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.