Court of Appeal Considers Proper Construction of a Statement of Engagement to a Road Freight Subcontractor Agreement – Finds No Debt
On Friday 24 May 2024, the New South Wales Court of Appeal delivered a judgment in Western Freight Management Pty Ltd v Toll Transport Pty Ltd [2024] NSWCA 124 unanimously dismissing the appeal with costs in favour of Toll Transport Pty Ltd.
The appeal concerned the proper construction of an agreement between Toll Transport Pty Limited (Toll) and Western Freight Management Pty Ltd (WFM) for the provision of return road freight line haul services between Sydney and Melbourne (the Trips) for a term of 36 months. The Statement of Engagement included a reference to a “minimum quarterly committed volumes” of 120 trips per quarter and stated, “in the event that minimum committed quarterly volumes are not achieved, these will be rolled into the next quarter with agreement from WFM.” WFM contended the effect of the agreement was Toll had agreed to pay a fixed amount (or a “sum certain”) which represented the total “guaranteed” number of trips multiplied by the trip rate, and sought recovery of $140,800 being the difference between the amount paid under the agreement and the amount WFM contended was guaranteed, as a debt. Toll contended there was no guarantee as to a minimum number of trips and that if that was not correct, Toll had in any event offered WFM the opportunity to perform the number of trips WFM alleged were guaranteed under the contract.
At first instance, Montgomery DCJ dismissed WFM's claim on the basis that the proper of construction of the contract meant that any obligation to rollover any unachieved volume of Trips expired in the event that WFM did not agree to the rollover and upheld Toll's Cross-Claim for overpaid Trips: Western Freight Management Pty Ltd v Toll Transport Pty Ltd [2023] NSWDC 176.
The Court of Appeal held that the agreement did not represent a promise by Toll to pay a total amount (being the trip fee multiplied by a guaranteed number of trips). Rather, the agreement created a mechanism whereby any shortfall in trips could be rolled over into the next quarter but only with the agreement of WFM.I If WFM did not agree to rollover the shortfall, there would be no accumulation of trips. There was no action available to WFM in damages and in the event it was proved Toll failed to provide trips that WFM had agreed to rollover, WFM would at most be entitled to damages in contract. In this scenario, the breach was not the failure to pay but the failure to provide trips. However as Toll had made an offer to provide an additional 70 trips, the Court of Appeal held that by failing to take up that offer, WFM had not agreed to the rollover of unachieved quarterly volumes, and therefore any unachieved volumes did not rollover into the final two quarterly periods, resulting in the conclusion that WFM was not entitled to any relief whether in debt or in damages.
The findings of the Court of Appeal are confined to the construction of the particular agreement between Toll and WFM. However the case provides a reminder of the importance of carefully reviewing contract terms to ensure that the terms are clear and that both parties (especially the operational teams performing the contract) understand the terms of the agreement. Where the intention is for a contract to agree to pay a sum certain such that a failure to pay will give rise to a debt, it is critical to ensure that clear and unambiguous words are used to record that arrangement. Encouraging your operational teams to check their understanding of the agreements they are performing with their management and inhouse legal teams should go a long way to protecting against such commercial risks.
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