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  • Unreported Judgment

Velocity Frequent Flyer Pty Ltd v BP Australia Pty Ltd

 

[2017] QSC 293

 

SUPREME COURT OF QUEENSLAND

 

CITATION:

Velocity Frequent Flyer Pty Ltd v BP Australia Pty Ltd [2017] QSC 293

PARTIES:

VELOCITY FREQUENT FLYER PTY LTD (ACN 601 408 824)

(plaintiff)

AND

BP AUSTRALIA PTY LTD (ACN 53 004 085 616)

(defendant)

FILE NO/S:

4336/17

DIVISION:

Trial Division

PROCEEDING:

Trial

DELIVERED ON:

7 December 2017

DELIVERED AT:

Brisbane

HEARING DATE:

5-7 September 2017

JUDGE:

Jackson J

ORDER:

The judgment of the court is that:

  1. The plaintiff’s claim is dismissed.
  2. It is declared that the defendant terminated the Velocity Program Participation Agreement by notice dated 4 May 2017, effective from 1 July 2017.

CATCHWORDS:

CONTRACTS – GENERAL CONTRACTUAL PRINCIPLES – CONSTRUCTION AND INTERPRETATION OF CONTRACTS – INTERPRETATION OF MISCELLANEOUS CONTRACTS AND OTHER MATTERS – where the plaintiff and defendant entered into a contract under which the defendant was a rewards partner in the plaintiff’s  loyalty program – where the contract provided for obligations of exclusivity  as between the plaintiff and defendant – where the plaintiff entered into a contract with another  loyalty program under which customers of the other program are able to convert points earned under that program into points under the plaintiff’s loyalty program – where points under the other program could be earned on purchases made at a fuel retailer – where the defendant alleged that the plaintiff was in breach of the contract and purported to terminate the contract on that basis – whether the plaintiff had breached the contract so as to enable the defendant to terminate the contract under a contractual power to terminate the contract for breach of a material obligation

CONTRACTS – GENERAL CONTRACTUAL PRINCIPLES – CONSTRUCTION AND INTERPRETATION OF CONTRACTS – INTERPRETATION OF MISCELLANEOUS CONTRACTS AND OTHER MATTERS – where the contract provided that the defendant would not enter into a similar arrangement with another loyalty program without first making an offer to the plaintiff to enter into a similar contract after the contract was terminated – whether the defendant was obliged not to enter into such an arrangement in the event the contract was terminated for breach of a material obligation

Adams v Lambert (2006) 228 CLR 409, applied

Antaios Compania Naviera SA v Salen Rederierna AB [1985] AC 191, cited

Australian Broadcasting Commission v Australasian Performing Right Association Ltd (1973) 129 CLR 99, applied

BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266, cited

Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337, cited

Commonwealth Bank of Australia v Barker (2014) 253 CLR 169, cited

Cushman & Wakefield (NSW) Pty Ltd v Farrell [2017] NSWCA 24, cited

Ecosse Property Holdings Pty Ltd v Gee Dee Nominees Pty Ltd (2017) 343 ALR 58, cited

Electricity Generation Corporation v Woodside Energy Limited (2014) 251 CLR 640, cited

Fitzgerald v Masters (1956) 95 CLR 420, applied

Jireh International Pty Ltd v Western Exports Services Inc [2011] NSWCA 137, cited

Maggbury Pty Ltd v Hafele Australia Pty Ltd (2001) 210 CLR 181, cited

Marks and Spencer plc v BNP Paribas Securities Services Trust Company (Jersey) Ltd [2016] AC 742, cited

McCann v Switzerland Insurance Australia Ltd (2000) 203 CLR 579, cited

Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104, cited

Western Export Services Inc v Jireh International Pty Ltd (2011) 282 ALR 604, cited

Zhu v Treasurer of New South Wales (2004) 218 CLR 530, cited

COUNSEL:

A Pomerenke QC and S Cooper for the plaintiff

W Harris QC and S Gory for the defendant

SOLICITORS:

Gilbert + Tobin for the plaintiff

Norton Rose Fulbright Australia for the defendant

 Jackson J

  1. In this contractual dispute, the plaintiff claims declaratory and injunctive relief to enforce a contract. The defendant resists the claim on alternative bases — either the contract has been terminated for breach of contract by the plaintiff or the contract has not been breached by the defendant — and counterclaims for declaratory relief.
  1. The essential facts on which both the claim and counterclaim turn relate to three contracts, as follows.
  1. On 7 November 2014, the plaintiff entered into the first contract with the defendant, called the "Velocity Program Participation Agreement" ("VPPA").
  1. On 20 September 2016, the plaintiff entered into the second contract with Loyalty Pacific Pty Ltd, called the "Program Participation Agreement – Velocity Frequent Flyer and flybuys" ("flybuys Agreement").
  1. On 24 December 2016, the defendant (and BP Australia Group Pty Ltd as guarantor) entered into the third contract with Woolworths Limited, (“BP–Woolworths Option agreement”) in the form of a deed granting put and call options to enter into a business sale agreement.

Loyalty programs

  1. All three contracts relate, at least in part, to arrangements described as loyalty programs. Neither of the parties devoted particular argument to describe the classes of contracts involved in a loyalty program. However, neither seemed to be in doubt or in dispute with the other about their content, in general terms.
  1. A loyalty program may take different forms.
  1. A simple example is a program operated by or for a single supplier, described in some evidence as a “closed loop” program, where a customer who is a program member “earns” points on a qualifying purchase that may be redeemed in exchange for further goods or services or a price discount from the supplier. Examples are Priceline, Country Road and Costco.
  1. A more complex example is a program operated by the program supplier, described in some evidence as a “coalition” program, where the operator enters into relationships or “partnerships” with numerous suppliers across multiple product sectors. A coalition program member may earn points on a qualifying acquisition by purchase from one rewards “partner” that may be “redeemed” by exchange for goods or services or a price discount towards further goods or services from another rewards partner. Examples are Velocity Frequent Flyer (“VFF”), Qantas Frequent Flyer, and flybuys.
  1. The VFF and Qantas Frequent Flyer programs are anchored by the highly desirable selling point of airline flight reward seats.
  1. The VFF and Qantas Frequent Flyer focus their “rewards” partnerships in three areas:
  1. airline and travel associated partnerships, including travel services, hotels, car-hire suppliers and taxi services;
  1. consumer retail partnerships, such as supermarkets, fuel, clothes, cosmetics, telecommunications, gas and electricity;
  1. financial services partnerships, such as banking, credit cards and home loans.
  1. A rewards partner joins a coalition loyalty program to incentivise their customers to stay loyal to the brand, to build brand awareness and to increase sales. For the rewards partner, a coalition program provides:
  1. a rewards mechanism for their customers as program members through points earned that may be redeemed for goods and/or services including those that the rewards partner cannot offer;
  1. a common currency of points which a program member can earn and redeem through a variety of acquisitions in the course of everyday spending; and
  1. access to an established and recognisable loyalty program without the rewards partner having to incur the costs of establishing their own program.

Velocity Frequent Flyer

  1. The plaintiff operates the VFF. There was no direct evidence brought to my attention of the relationship between the plaintiff and Virgin Australia Airlines Pty Ltd (“Virgin Australia”), or of the relationship between Virgin Australia and Virgin Australia Holdings Ltd, but the emails sent by the plaintiff’s staff state that they were sent by Virgin Australia or its related entities and a presentation by the plaintiff of its program stated that VFF was the “loyalty program of Virgin Australia”. In any event, there was no evidence that the plaintiff supplies goods and services to members apart from doing so in the course of supplying the VFF program services.
  1. A member of the VFF (“Velocity member”) may earn Velocity points by acquiring goods (described in the VPPA as “products”) or services as the customer of a supplier who is a Velocity Rewards partner. The primary Velocity Rewards partner is Virgin Australia Airlines Ltd. The plaintiff enters into contracts with other suppliers of goods or services, such as the defendant, in each case as a Rewards partner.
  1. A Velocity member earns points by presenting their Velocity card at the point of sale on a qualifying transaction at a Velocity Rewards partner who is an “Earn Partner”.
  1. As well as earning Velocity points, a Velocity member may earn “status credits”. When enough status credits are earned, the member’s membership class will be upgraded to a higher tier, which confers additional benefits. The VFF tiers are silver, gold and platinum.
  1. A Velocity member may redeem Velocity points by exchanging them for goods or services from a Velocity Rewards partner who is a “Redemption Partner”.
  1. The VFF’s Rewards partners include:
  1. airlines (Virgin Australia, Etihad and 12 others);
  1. fuel stations (the defendant);
  1. electricity/gas suppliers (Energy Australia);
  1. e-shopping (Apple, Dell, David Jones and others)
  1. holiday businesses (Virgin Australia Holidays and others)
  1. car hire suppliers (Hertz, Thrifty and Europcar);
  1. hotels (over 600,000);
  1. financial services suppliers (Amex, NAB, Virgin Money and others);
  1. wine merchants and restaurants;
  1. Velocity Global wallet prepaid card;
  1. lifestyle and entertainment businesses; and
  1. insurance (BUPA, Covermore).
  1. At 30 June 2017, there were 8,015,000 Velocity members.

BP

  1. The defendant owns and operates approximately 330 service stations across Australia. It also licenses its brand to over 1,000 independently owned service stations or dealers. BP branded sites sell fuel and other goods and services to customers.
  1. As will be mentioned in more detail later, pursuant to the VPPA, the defendant is a Rewards partner under the VFF.

flybuys

  1. The flybuys loyalty program is operated by Loyalty Pacific Pty Ltd. It is a coalition program with a range of participating retailers spanning a number of sectors as partners.
  1. A flybuys member earns points by presenting a flybuys card at the point of sale or by providing their flybuys number in a digital form upon a qualifying acquisition by purchase.
  1. A flybuys member may redeem or use flybuys points in a range of ways, including by exchanging them for a price reduction on an acquisition at a flybuys retailer, through a mechanism described as “flybuys dollars”, or by redeeming the points for items of value on the flybuys website, such as discounts on flybuys travel, technology and household items, gift cards, etc, or by shopping on target.com.au.
  1. Independently of the flybuys program, a Coles supermarket customer who purchases goods or services over $30 receives a docket that can be exchanged for a four cent per litre discount on fuel acquired by purchase at a Coles Express service station. A flybuys member may trade the docket for the right to earn flybuys points on fuel acquired by purchase at Coles Express.
  1. There are approximately 27 participating retailers who are flybuys partners, including Coles Supermarkets, Coles Express, K-Mart, Target, Liquorland, First Choice, flybuys Travel, NAB, Adidas, AGL, Budget Car Hire, Kleenheat, MediBank and OPSM.
  1. As at July 2016, there were approximately 7.6 million flybuys members.
  1. There is no evidence as to what number of flybuys members earned flybuys points or what number of flybuys points were earned by flybuys members through purchases made at Coles Express.

Woolworths and Woolworths Rewards

  1. Woolworths Ltd operates 527 Woolworths service stations or sites across Australia.
  1. Woolworths Rewards is a loyalty program. It offers a member linkage to the Qantas Frequent Flyer program.
  1. A Woolworths Rewards member earns points by presenting a Woolworths Rewards card at the point of sale on a qualifying acquisition by purchase.
  1. A Woolworths Rewards member may redeem Woolworths Rewards points through a number of means. One is described as “automatic savings” where a member who has earned 2,000 points has them automatically converted into a $10 discount at the point of purchase at some Woolworths’ outlets, not including Caltex-Woolworths or Woolworths’ service stations. Second, a member may redeem the points by a mechanism described as “Bank for Christmas” which is similar to automatic savings, but accumulates the points until they are converted into a dollar discount just before Christmas. Third, a member may choose an option to convert the points into Qantas Frequent Flyer points, which occurs automatically at the end of each quarter.
  1. Woolworths supermarket customers who spend over $30 also receive a fuel docket entitling them to a four cent per litre fuel discount for use at any Caltex-Woolworths co-branded petrol station.
  1. A Woolworths Rewards member may earn points for purchases of qualifying products at Woolworths supermarkets, BWS Stores, Woolworths Online and Woolworths service stations.
  1. There are approximately 9.7 million Woolworths Rewards members. In 2016, there were approximately 11.4 million Qantas Frequent Flyer members.

VPPA

  1. Under the VPPA, the defendant is a Rewards Partner, an Earn Partner and a “Redemption Partner”. Because the defendant is an Earn Partner, a Velocity member may earn Velocity points on an acquisition or purchase made at a participating BP site. Because the defendant is also a Redemption Partner, a Velocity member may redeem Velocity points in exchange for goods or services at a participating BP site.
  1. A Velocity member is able to earn Velocity points at a participating BP site on the purchase of fuel products, including petrol, diesel and LPG, or in-store products being convenience store products or cafeteria products, or services such as a car wash.
  1. A Velocity member is able to redeem Velocity points with BP by purchasing a BP gift card at the VFF online rewards store or at a participating BP site by using Velocity points for in-store purchases or fuel.
  1. The plaintiff’s marketing obligations under the VPPA require the plaintiff to provide a mix of marketing options within the Virgin Australia marketing channels with an indicative amount to be spent of $1 million (ex GST), to establish various web pages, to send a minimum number of marketing emails and to provide direct social media postings.
  1. The defendant’s marketing obligations under the VPPA require the defendant to spend a minimum amount of $5 million on above the line advertising, to provide branded signage visible from the street and in stores and to include VFF branding on its website and to send emails to its customer database about the partnership.
  1. By cl 2.4(a), the VPPA commenced on 7 November 2014. On 13 April 2015, the parties agreed, in effect, that the term would expire on 16 April 2018.
  1. By cl 2.1 of the VPPA, the defendant was appointed as a Rewards Partner, with the effect that Velocity members would be able to earn and redeem points at participating BP service stations.
  1. By cl 5.1 and Sch 1, cl 6 of the VPPA, the defendant agreed to pay a “Participation Charge” to the plaintiff being an amount referable to the number of points earned by Velocity members at participating BP service stations.
  1. Clause 14.1 of the VPPA provides:

“During the term and within Australia, the Rewards Partner [the defendant] will:

  1. not enter into a partnership with any other loyalty program where access to an Airline Frequent Flyer reward flight is an element, either directly or indirectly, of its consumer proposition;
  1. work exclusively with Velocity [the plaintiff] in relation to an airline frequent flyer customer loyalty program; and
  1. not engage in, must terminate, and must ensure that its Personnel terminate, any negotiations, discussions with any other loyalty program, regarding a customer loyalty program where access to an Airline Frequent Flyer reward flight is an element, either directly or indirectly, of its consumer proposition and must not enter into discussions with a third party on a possible transaction which would conflict in any material respect with this Agreement.”
  1. Clause 14.2 of the VPPA provides:

“During the Term and within Australia, Velocity will:

  1. not enter into any other partnership with a Fuel Competitor;
  1. work exclusively with the Rewards Partner in relation to customer loyalty program for fuel and service station customers; and
  1. not engage in, must terminate, and must ensure that its Personnel terminate, any negotiations, discussions with any Fuel Competitor, regarding a customer loyalty program or any similar arrangement and must not enter into discussions with a third party on a possible transaction which would conflict in any material respect with this Agreement.
  1. For the avoidance of doubt, this clause 14.2 does not prevent Velocity dealing indirectly with an owner or operator of a Participating Retail Network Site by reason of that Participating Retail Network Site’s participation in the Rewards Partner Program, notwithstanding that they may satisfy the definition of a Fuel Competitor under this Agreement.”

Alleged breaches of the VPPA by the plaintiff

  1. The defendant alleges that the plaintiff breached cl 14.2 of the VPPA by entering into the flybuys Agreement. The alleged breaches are:
  1. first, in breach of cl 14.2(a), entering into a partnership with a Fuel Competitor;
  1. second, in breach of cl 14.2(b), not working exclusively with the defendant in relation to a customer loyalty program for fuel and service station customers; and
  1. third, in breach of cl 14.2(c), entering into discussions with a third party on a transaction which would conflict in a material way with the VPPA.

flybuys Agreement

  1. By cl 2.1 of the flybuys Agreement, from 20 October 2016 flybuys was appointed by the plaintiff and accepted its appointment as an Earn Partner under the VFF program on the basis that flybuys is a “direct” Earn Partner in relation to the allocation of Status Credits, and an “indirect” Earn Partner in relation to the exchange of Velocity points for the redemption of flybuys points. That is, a Velocity member who is a flybuys member may redeem flybuys points and thereby earn Velocity points by an exchange of points.
  1. From the same date, the plaintiff was appointed by flybuys and accepted the appointment as a Redemption Partner in the flybuys Program. The terms of the flybuys program in this respect were not the subject of separate consideration in the evidence.
  1. The term of the flybuys Agreement is from the “launch date” of 20 October 2016 to 30 June 2021. Clause 2.3 provides for subsequent terms after expiry of the first term.
  1. Clause 3.1 of the flybuys Agreement provides that, from the launch date, flybuys must provide to the plaintiff, in accordance with the procedures set out in the Business Requirements Documents (or otherwise as agreed), a request for the plaintiff to allocate points to Linked Members for each Earn Transaction by or on behalf of that linked member. The plaintiff must ensure that points are allocated at the agreed points conversion rate to Linked Members. Once flybuys points have been redeemed in exchange for Velocity points they are governed by the “Velocity Terms & Conditions” and not by the “flybuys Terms & Conditions”.
  1. By cl 3.2, flybuys must pay to the plaintiff a Points Participation Charge in respect of the allocation of Velocity points to Linked Members pursuant to flybuys’ participation as an indirect Earn Partner in the VFF program, in accordance with the agreement.
  1. Clause 8.6(a) of the flybuys Agreement provides that the parties acknowledge that the plaintiff has current contractual arrangements with a fuel retailer of consumer fuel products in Australia whereby the fuel retailer is a direct Earn Partner in Velocity Programs. I infer that the reference to the fuel retailer is a reference to the defendant and the reference to the current contractual arrangements is a reference to the VPPA. Following expiry or termination of those existing contractual arrangements with the defendant, the plaintiff must notify flybuys of its wish to appoint a new fuel retailer of consumer fuel products in Australia as an Earn Partner and negotiate with flybuys upon suitable terms by which Coles Express may become a direct Earn Partner in the VFF program, whereby Velocity members would earn status credits directly and/or Velocity points through the purchase of fuel-related products.
  1. Clause 9.2 of the flybuys Agreement provides that the parties must conduct their respective marketing obligations as set out in Sch 6 on the terms set out in that schedule, Sch 10 and the flybuys Agreement. The balance of the clause acknowledges that the existing contractual arrangements of the parties with other Program Partners might prevent some actions, and provides that the relevant party may withhold its consent to particular marketing or a marketing campaign if that would breach the relevant party’s contractual arrangements with the third party Program Partner.

Partnership with a Fuel Competitor

  1. The defendant alleges in the defence that by entering into the flybuys Agreement the plaintiff entered into a partnership with each member of the “Coles group”,[1] including “Coles Express”, which is a Fuel Competitor as defined in the VPPA.
  1. The expression "Fuel Competitor" is defined in cl 1.1 of the VPPA as follows:

"...any third party who as a retailer supplies or sells petrol, diesel or any other fuel products including, [sic] liquid petroleum gas when dispensed from equipment directly for use in motor vehicles."

  1. “Coles Express” is a trading name of Eureka Operations Pty Ltd. There is no dispute that Eureka Operations Pty Ltd is a body corporate that, as a retailer, supplies or sells petrol, diesel or other fuel products. It is a Fuel Competitor, as defined.
  1. Eureka Operations Pty Ltd is a wholly owned subsidiary of Coles Supermarkets Australia Pty Ltd. Coles Supermarkets Australia Pty Ltd is a wholly owned subsidiary of Coles Group Pty Ltd. Coles Group Pty Ltd is a wholly owned subsidiary of Wesfarmers Ltd, a listed company.
  1. The shares in Loyalty Pacific Pty Ltd are equally held by Coles Group Pty Ltd and Wesfarmers Loyalty Management Ltd. Wesfarmers Loyalty Management Ltd is a wholly owned subsidiary (through an intermediary subsidiary) of Wesfarmers Ltd.
  1. There is no evidence that any of the bodies corporate that are Coles Supermarkets Australia Pty Ltd, Loyalty Pacific Pty Ltd, Coles Group Ltd and Wesfarmers Ltd, as a retailer, supplies or sells petrol, diesel or any other fuel products. According to the ordinary meaning of the text, none of them is a “Fuel Competitor” as defined.
  1. The defendant submits that the provisions of cl 14.2(a) of the VPPA are easily avoided if other members of the corporate group of which Loyalty Pacific Pty Ltd is a member are able, as a retailer, to supply or sell petrol, diesel or any other fuel products including liquid petroleum gas. Accordingly, the defendant submits that a purposive construction should be given to cl 14.2(a) to prohibit such avoidance, because its “core commercial object” is to maintain “exclusivity”.
  1. However, the defendant does not submit with any precision how cl 14.2(a) should be read, beyond submitting that the flybuys Agreement was a partnership with the “Coles group”[2] of companies, and that the business organisation of that group of companies should be equated to a single entity that has different business divisions, so that the group, including Eureka Operations Pty Ltd, constitutes the relevant Fuel Competitor.
  1. The defendant’s counsel rely upon Electricity Generation Corporation v Woodside Energy Limited[3] and Codelfa Construction Pty Ltd v State Rail Authority of New South Wales[4] as supporting an approach that the constructional exercise is one which has regard to the objects that the parties were seeking to achieve.  A more recent relevant statement by a plurality of the High Court appears in Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd,[5] as follows:

“The rights and liabilities of parties under a provision of a contract are determined objectively, by reference to its text, context (the entire text of the contract as well as any contract, document or statutory provision referred to in the text of the contract) and purpose.

In determining the meaning of the terms of a commercial contract, it is necessary to ask what a reasonable businessperson would have understood those terms to mean. That enquiry will require consideration of the language used by the parties in the contract, the circumstances addressed by the contract and the commercial purpose or objects to be secured by the contract.

Ordinarily, this process of construction is possible by reference to the contract alone. Indeed, if an expression in a contract is unambiguous or susceptible of only one meaning, evidence of surrounding circumstances (events, circumstances and things external to the contract) cannot be adduced to contradict its plain meaning.

However, sometimes, recourse to events, circumstances and things external to the contract is necessary. It may be necessary in identifying the commercial purpose or objects of the contract where that task is facilitated by an understanding ‘of the genesis of the transaction, the background, the context [and] the market in which the parties are operating’. It may be necessary in determining the proper construction where there is a constructional choice. The question whether events, circumstances and things external to the contract may be resorted to, in order to identify the existence of a constructional choice, does not arise in these appeals.”[6] (footnotes omitted)

  1. While it may be accepted that the commercial object of cl 14.2, including cl 14.2(a), is to provide for “exclusivity”,[7] meaning that cl 14.2 operates in restraint of trade for the plaintiff, the point remains that the suggested “core commercial object” of “exclusivity” is not a free-standing principle, or guide, to the proper construction of the clause.  The meaning of the clause, in all its parts, cannot be approached without close attention to the inclusive and exclusive operation of the text, or the context of the other provisions of the contract.
  1. The well-known words of Gibbs J in Australian Broadcasting Commission v Australasian Performing Right Association Ltd[8] are apt here:

“…If the words used are unambiguous the court must give effect to them, notwithstanding that the result may appear capricious or unreasonable, and notwithstanding that it may be guessed or suspected that the parties intended something different. The court has no power to remake or amend a contract for the purpose of avoiding a result which is considered to be inconvenient or unjust. On the other hand, if the language is open to two constructions, that will be preferred which will avoid consequences which appear to be capricious, unreasonable, inconvenient or unjust, ‘even though the construction adopted is not the most obvious, or the most grammatically accurate’, to use the words from earlier authority… Further, it will be permissible to depart from the ordinary meaning of the words of one provision so far as is necessary to avoid an inconsistency between that provision and the rest of the instrument. Finally, the statement…, that the court should construe commercial contracts ‘fairly and broadly, without being too astute or subtle in finding defects’, should not, in my opinion, be understood as limited to documents drawn by businessmen for themselves and without legal assistance.”[9]

  1. It cannot be overlooked that the VPPA is a complex, detailed and lengthy written contract. In general, it is a reasonably drafted document, although there is a glaring exception relevant to this case in cl 16 that I must consider later in these reasons.
  1. The parties made various submissions directed to what would constitute “any other partnership with a Fuel Competitor” within the meaning of cl 14.2(a). There are a number of points that may be made about the meaning of that phrase.
  1. First, in my view, the word “other” in cl 14.2(a) is used inexactly. Literally, it connotes that there may be one or more partnerships with a Fuel Competitor that are excepted from the plaintiff’s promise not to enter into a relevant partnership under cl 14.2(a). A possibility of that kind is an indirect dealing with an owner or operator of a Participating Retail Network Site (other than the defendant) who sells petrol, diesel or other fuel products. Such an owner or operator might be a Fuel Competitor, as defined. Their participation in the Rewards Partner program under the VPPA is expressly excepted from the operation of cl 14.2 by cl 14.2(d). However, “any other partnership” may be intended to operate more broadly, so as to mean any partnership other than under the VPPA.
  1. Second, in my view, the word “partnership” in cl 14.2(a) is also used inexactly. The ordinary meaning of the word “partnership” is wider than the legal meaning. A dictionary defines it as: “the state or condition of being a partner; participation; association; joint interest.”[10]  A working legal definition of “partnership”, taken from the context of partnership statutes, is a relation which subsists between persons carrying on a business in common with a view to profit.[11]
  1. Neither of the parties suggests that the “partnership” between the plaintiff and the defendant, either as an Earn Partner or a Redemption Partner, or otherwise as a Rewards Partner under the VPPA, is a partnership of the legal kind. Any such possibility is expressly excluded by cl 2.6(a) of the VPPA that provides, in part:

“Nothing in this agreement is intended or will be construed to create or establish any… partnership or joint venture relationship between [the plaintiff] and [the defendant] nor is either party authorised to incur any obligation on behalf of the other.”

  1. The meaning of “partnership” in cl 14.2(a) is informed by the forms of partnership provided for under the VPPA, as context, being the relationships of an Earn Partner and a Redemption Partner with the plaintiff. However, it is not necessary to go further in the analysis of those relationships to decide in the present case whether relationships of those and other kinds constitute a “partnership” within the meaning of cl 14.2(a).
  1. That is because, assuming that the flybuys Agreement constitutes a “partnership” within the meaning of cl 14.2(a), there is no rational basis on which it can be concluded that Loyalty Pacific Pty Ltd is a Fuel Competitor, within the meaning of that clause.
  1. First, there is no reason that emerges either from the text of cl 14.2(a) or its context, to consider that the term “Fuel Competitor” is not used in the defined sense. Interpolating the text of that definition into cl 14.2(a), it provides as follows:

“During the Term and within Australia [the plaintiff] will… not enter into any partnership with any third party who as a retailer supplies or sells petrol, diesel or any other fuel products including liquid petroleum gas when dispensed from equipment directly for use in motor vehicles.”

  1. The expression “third party” which is used in the definition of “Fuel Competitor” is used in a number of other places in the VPPA. For example, cl 9.3(a) refers to the defendant appointing a third party to undertake particular services and cl 10.3 refers in several places to a third party who is appointed to examine an Audited Party’s records. The expression is used in each place to distinguish the object of the description from a “party” or the “parties” which are words used extensively throughout the VPPA to describe either or both of the plaintiff and the defendant as the contracting parties to the VPPA. In each place where “third party” is used, there is no textual or contextual indication that it is used to identify anything other than an individual or a body corporate.
  1. The defendant relies on the provision in cl 1.2(f) of the VPPA that “a word importing the singular includes the plural”. However, if Loyalty Pacific Pty Ltd does not, as a retailer, supply or sell fuel products, a plural interpretation provision will not change that fact. Clause 1.2 is not relevant one way or the other.
  1. In specific instances, the VPPA recognises that a company may be part of a group structure and deliberately defines a group structure where that is relevant. In cl 1.1 of the VPPA, there are specific definitions of:
  1. “Virgin Australia Group” that includes any body corporate in which Virgin Australia Holdings Limited holds a direct or indirect interest;
  1. “Velocity Group” that means the plaintiff and each of its Subsidiaries, where “Subsidiary” has the meaning given in the Corporations Act 2001 (Cth);
  1. “BP Group Members”, that means any Related Body Corporate of the defendant or BP plc;
  1. Further, cl 1.1 defines:
  1. “Related Body Corporate” to have the meaning given to that term in the Corporations Act 2001 (Cth); and
  1. “Control” to have the meaning given to that expression in s 50AA of the Corporations Act 2001 (Cth).
  1. Bearing in mind those existing definitions, there is no reason why cl 14.2(a) could not have been drafted as a promise by the plaintiff not to enter into a partnership with a “Fuel Competitor or a Related Body Corporate of a Fuel Competitor” or a “Fuel Competitor or body corporate that is a Subsidiary of a body corporate that Controls a Fuel Competitor”, or some other corporate group definition, if that was the intention of the parties. But it does not do so.
  1. As context, the plaintiff also relies on cl 14.1(a) which is a promise by the defendant not to enter into a partnership with any other loyalty program where access to an Airline Frequent Flyer Program is an element, directly or indirectly, of its consumer proposition. The plaintiff submits that, in contrast, the plaintiff’s promise in cl 14.2(a) does not extend to indirectly entering into any partnership with a Fuel Competitor. In my view, it is unnecessary to decide this point.
  1. In my view, the foregoing is enough to show that on the proper construction of cl 14.2(a) the plaintiff did not breach cl 14.2(a) of the VPPA by entering into the flybuys Agreement.

Not working exclusively with the defendant

  1. The defendant alleges in the defence that by entering into the flybuys Agreement the plaintiff breached the promise, in cl 14.2(b) of the VPPA, during the Term and within Australia to:

“work exclusively with [the defendant] in relation to [sic] customer loyalty program for fuel and service station customers.”

  1. The defendant alleges that it did so because under the flybuys Agreement the plaintiff agreed that Velocity members can convert flybuys points earned in making purchases at Coles Express fuel and service stations into Velocity points.[12]
  1. The logical steps in that contention are that:
  1. flybuys is a customer loyalty program;
  1. flybuys is a customer loyalty program for fuel and service station customers; and
  1. entering into the flybuys Agreement constituted working, in relation to the flybuys Program for fuel and service station customers, with someone other than the defendant.
  1. It is not in contest that flybuys is a customer loyalty program, or that flybuys members earn flybuys points for acquisitions of goods or services as customers of Coles Express.
  1. The plaintiff submits that the flybuys program is not a loyalty program for fuel and service station customers, notwithstanding that flybuys members earn flybuys points on qualifying acquisitions or purchases of fuel at Coles Express service stations. The plaintiff submits that is but one aspect of the flybuys program, because a flybuys member may earn flybuys points at more than 27 retailers across diverse sectors such as supermarkets, sporting goods, banking, car hire, health and optometry.
  1. In substance, this is a submission that not enough of the transactions upon which flybuys members may earn flybuys points are for qualifying acquisitions at Coles Express sites to constitute flybuys as a loyalty program “for” fuel and service station customers. The preposition “for” is a word that may have many meanings, depending on the context, but in the phrase “loyalty program for fuel and services station customers” it has the ordinary meaning that a relevant “loyalty program” is one “to be received by, to belong to, to be used by, with or in connection with”[13] the class of “fuel and service station customers”. 
  1. The scope of the plaintiff’s promise to work exclusively with the defendant in cl 14.2(b) is marked out by two connections. The first connection requires the plaintiff to work exclusively “in relation to” a loyalty program of the identified category. The second connection defines the category of loyalty programs as those “for” fuel and service station customers. Nothing in the ordinary meaning of the text of cl 14.2(b) requires that the category be narrowed to loyalty programs that are wholly, mostly, substantially or to a significant degree, for fuel and service station customers. The plaintiff’s submission about the extent of the receipt or use of the flybuys program rewards by Coles Express customers begs the question: by what standard is the reader to measure what would be enough receipt or use to constitute a coalition program like flybuys as one “for” fuel and service station customers?
  1. In my view, the plaintiff’s submission that flybuys is not a loyalty program for fuel and service station customers within the meaning of cl 14.2(b) must be rejected.
  1. The remaining question is whether by entering into the flybuys Agreement, the plaintiff worked with someone other than the defendant in relation to the flybuys customer loyalty program for fuel and service station customers.
  1. The plaintiff characterises the flybuys Agreement, at least in the relevant part, as an “indirect earn” agreement. That is because the flybuys Agreement does not provide for any reward in the form of Velocity points or status credits earned by a flybuys member who is a Velocity member on the acquisition by purchase of goods or services from a flybuys rewards partner, including Coles Express, described as a “direct earn”.
  1. Instead, a flybuys member earns flybuys points on such an acquisition. The flybuys Agreement provides that flybuys points may be redeemed by a flybuys member who is a Velocity member by exchanging them for Velocity points, described by the plaintiff as an “indirect earn”.
  1. The plaintiff submits that it did not work with someone other than the defendant in relation to a loyalty program for fuel and service station customers by entering into the flybuys Agreement providing for the redemption of flybuys points in exchange for Velocity points in that way. The hinge on which this submission turns is that an indirect earn agreement does not breach cl 14.2(b).
  1. As previously mentioned, a flybuys member may directly earn flybuys points by purchasing goods or services from a number of different suppliers. They include Coles Express. But the range of goods and services that a flybuys member may acquire and thereby earn flybuys points is not central to this part of the plaintiff’s argument. The point of distinction, on the plaintiff’s argument about the indirect earning nature of Velocity points under the flybuys Agreement, is that the only relevant use that a Velocity member who is also a flybuys member may make of flybuys points earned on an acquisition of goods or services from Coles Express is by exchanging flybuys points for Velocity points.
  1. The plaintiff also relies on the provisions in cl 14.1(a) and 14.1(c) of the VPPA, that prohibit the defendant from entering into a partnership with a loyalty program or negotiating with a loyalty program of which access to a Frequent Flyer reward flight is an element of its consumer proposition, either directly or indirectly, as significant because the promise to work exclusively with the defendant in cl 14.2(b) does not refer to doing so “directly or indirectly”. In my view, this argument is not persuasive.
  1. First, it may be accepted that there are cognate underlying purposes as between cl 14.1 and cl 14.2. Clause 14.1 contains promises in restraint of trade by the defendant. Clause 14.2 contains such promises by the plaintiff. The scope of the restraint is in some ways similarly structured as between cl 14.1 and cl 14.2. In each case, par (a) prohibits the relevant party from entering into a partnership with a third party. Under cl 14.1(a) the third party is a loyalty program (presumably the operator of the loyalty program) where access to a reward flight is an element, either directly or indirectly. Under cl 14.2(a) the third party is a Fuel Competitor. Also in each case, par (c) prohibits negotiations or discussions with a third party regarding identified subject matters. Under cl 14.1(c) that subject matter is a customer loyalty program where access to a reward flight is an element, whether directly or indirectly. Under cl 14.2(c), where the third party is a Fuel Competitor, that subject matter is any customer loyalty program or similar arrangement.
  1. Second, cl 14.1(b) contains a promise by the defendant to work exclusively with the plaintiff in relation to an airline frequent flyer customer loyalty program. It does not contain any reference to a loyalty program where access to a reward flight is an element of its consumer proposition, either directly or indirectly. And cl 14.2(b) contains a promise by the plaintiff to work exclusively with the defendant in relation to a customer loyalty program for fuel and service station customers.
  1. Third, in any event, flybuys is a program where access to rewards points for fuel and service station customers is directly offered as an element of its consumer proposition.
  1. In effect, the plaintiff submits that cl 14.2(b) does not capture working with a third party in relation to another program for fuel and service station customers, provided that the working with the third party in relation to those customers is by an exchange of Velocity points for the points earned under the other program, characterised as an “indirect earn”. In my view, paying close attention to cls 14.1(a) and 14.1(c) of the VPPA, as context, does not support that argument.
  1. The plaintiff’s “indirect earn” argument may be tested further by a hypothetical example. Assume that a competitor of the defendant for fuel and service station customers had a “closed loop” loyalty program, under which the only points available to a member of the competitor’s loyalty program were points directly earned on an acquisition of fuel. Assume also that the plaintiff and that competitor entered into an agreement providing for a member of the competitor’s loyalty program who is a Velocity member to be able to exchange their points under the other program for Velocity points. On the plaintiff’s argument, because the only Velocity points available to the other loyalty program member who acquires fuel from the competitor would be the “indirect earn” of exchange of Velocity points for the other loyalty program points, an agreement between the plaintiff and the operator of the other loyalty program providing for that exchange of points would not constitute working with someone other than the defendant in relation to a loyalty program for fuel and service station customers.
  1. In my view, that conclusion and the plaintiff’s submission that an agreement that provides for an “indirect earn” of Velocity points for members of another loyalty program for fuel and service station customers does not breach cl 14.2(b) should be rejected, having regard to the text, context and structure of cl 14.2(b).
  1. In my view, the plaintiff breached cl 14.2(b) by entering into the flybuys Agreement, because that constituted working with a third party, namely Loyalty Pacific Pty Ltd in relation to a customer loyalty program for fuel and service station customers, namely flybuys.

Entering into discussions with a third party on a transaction which would conflict in a material way with the VPPA.

  1. The defendant also alleges in the defence that by reason of the discussions and negotiations between the plaintiff and unidentified persons for the flybuys Agreement and implementation of the flybuys Agreement the plaintiff engaged in discussions with a third party on a possible transaction which would conflict in a material respect with the agreement.
  1. The defendant submits that the conflict is that the arrangement with flybuys incentivises customers to shop for fuel and convenience items at the defendant’s direct competitor, namely Coles Express, because the commercial object of the VPPA was to increase the likelihood that fuel customers would shop at BP rather than a competitor organisation.
  1. The discussions comprising the negotiations for the flybuys Agreement were held between the plaintiff and representatives of Eureka Operations Pty Ltd. The plaintiff submits that the (then possible) transaction comprised in the flybuys Agreement did not involve any direct dealings or any direct relationship between the plaintiff and Coles Express. Those facts may be accepted, but they are not a direct answer to the alleged breach of contract, namely that the discussions were upon a possible transaction that would conflict with the VPPA in a material respect because the flybuys Agreement had the commercial object of incentivising flybuys members to shop at, inter alia, Coles Express.
  1. In my view, the plaintiff’s contention on this point must be rejected. The prohibition in cl 14.2(c) is not against discussions on a transaction that would conflict in a material respect with the commercial object of the VPPA. It is against discussions on a transaction that would conflict in a material respect with the VPPA itself. The VPPA creates rights and obligations between the contracting parties. I do not accept that it is correct to construe cl 14.2(c) of the VPPA by abstracting the commercial object of the VPPA so as to determine what is a transaction that conflicts in a material way with the VPPA, and thereby to mark out the area of the prohibited discussions and negotiations. The process of construction should begin with the contractual text in its context, having regard to the ordinary meaning of the words.
  1. However, in my view, the discussions and negotiations between the plaintiff and the representatives of Loyalty Pacific Pty Ltd on the proposed flybuys Agreement were on a possible transaction that would conflict with the VPPA, because the flybuys Agreement, when made, was a transaction that would conflict with cl 14.2(b) of the VPPA, as previously discussed.
  1. Accordingly, in my view, the defendant has established a breach of cl 14.2(c), although as a matter of substance it depends upon and adds little to the breach of cl 14.2(b) previously found, except that the discussions will have antedated entering into the flybuys Agreement.

Termination of the VPPA

  1. By cl 17(a)(ii) of the VPPA, a party to the VPPA is entitled to terminate it by notice to the other party if, inter alia, the other party breaches a Material Obligation and the breach, if capable of remedy, remains unremedied 30 days after written notice has been given by the terminating party to the other party, specifying the breach.
  1. On 1 March 2017,[14] the defendant gave notice to the plaintiff under cl 17(a)(ii) that by reason of the plaintiff’s entry in to the flybuys Agreement the plaintiff was (relevantly) in breach of cls 14.2(a) and 14.2(b)[15] and required the plaintiff to remedy the breach by terminating its partnership with flybuys and ceasing to allow the conversion of flybuys points earned at Coles Express into Velocity points.
  1. On 1 March 2017, the defendant agreed to extend the time to remedy that default to until 29 April 2017.
  1. The defendant failed to terminate its agreement with flybuys and failed to cease to allow the conversion of flybuys points earned at Coles Express into Velocity points within 30 days of the notice.
  1. On 4 May 2017, the defendant gave notice to the plaintiff terminating the VPPA with effect from 1 July 2017, pursuant to cl 17(a)(ii) of the VPPA.[16]
  1. It follows that the defendant terminated the VPPA in accordance with its terms on that date.

Consequence of the termination for the plaintiff’s claim

  1. The subject of the BP-Woolworths Option agreement is the acquisition by the defendant of Woolworth’s existing and development fuel and convenience sites across Australia.
  1. Part of the proposal involves the defendant becoming a partner under the Woolworths Rewards program by the execution of a proposed Loyalty Scheme Participation Agreement under which Woolworths Rewards members will be entitled to earn and redeem Woolworths Rewards points on an eligible spend at relevant BP fuel sites.
  1. Woolworths Rewards members are eligible to convert Woolworths Rewards points into Qantas Frequent Flyer points.
  1. The plaintiff alleges that these arrangements involved breaches of cl 14.1 of the VPPA by the defendant.
  1. In particular, the plaintiff alleges that:
  1. in breach of cl 14.1(a), the defendant entered into a partnership with another loyalty program, being the Woolworths Rewards program, where access to an Airline Frequent Flyer reward program is an element, either directly or indirectly;
  1. in breach of cl 14.1(b), the defendant worked with Woolworths Group in relation to the Qantas Frequent Flyer program through the partnership with the Woolworths Rewards  program; and
  1. in breach of cl 14.1(c), the defendant engaged in negotiations or discussions with another loyalty program being the Woolworths Rewards program where access to an Airline Frequent Flyer reward flight is an element, either directly or indirectly, of its consumer proposition; and
  1. in breach of cl 14.1(c), the defendant entered into discussions with a third party, being the Woolworths Group on a possible transaction which would conflict in a material respect with the VPPA.
  1. The relief sought is declaratory and for specific performance of the VPPA, or equivalent injunctive relief. No damages are claimed for breach of contract.
  1. Given the conclusions I have reached on the defendant’s defence (and counterclaim) that the VPPA was terminated on 1 July 2017, it is unnecessary to consider these aspects of the plaintiff’s claim in order to dispose of the claim and counterclaim in this proceeding, with one exception discussed below.
  1. Further, there are no contested evidentiary facts that would need to be resolved in the event of a successful appeal against the conclusions I have reached thus far, in order to decide the questions raised upon the plaintiff’s claim for relief on these disputed breaches of contract.
  1. In the circumstances, it is unnecessary and would be inappropriate to decide those questions.

Clause 16 and the alleged implied term

  1. However, one question of importance raised upon the plaintiff’s claim remains to be decided.
  1. Clause 16 of the VPPA provides:

“(a) On or after termination or expiry of this Agreement and until 3 months thereafter:

  1. Velocity will not make an offer to a Fuel Competitor to join the Velocity Program or arrangement similar thereto unless Velocity has first made an offer to the Rewards Partner to renew the terms of this Agreement on the same terms contained herein except that Velocity may increase the Participate Rate and/or reduce the Rewards Price by no more than ten percent (10%); and
  1. The Rewards Partner will not make an offer to partner with another loyalty program where access to an Airline Frequent Flyer reward flight is an element, either directly or indirectly, of its consumer proposition unless the Rewards Partner has first made an offer to Velocity to renew the terms of this Agreement on the same terms contained herein except that Velocity may increase the Participation Rate and/or reduce the Rewards Price by no more than ten percent (10%),

and any offer made by either party to the other under this clause 15(a), is open for acceptance by the receiving party for at least 30 days from the date of the offer

  1. On or after termination or expiry of this Agreement and until 6 Months thereafter
  1. Velocity will not make an offer to a Fuel Competitor to join the Velocity Program or arrangement similar thereto unless Velocity has first made an Offer on terms that are at least equal to or no less than favourable than those offered to the other Fuel Competitor; and
  1. The Rewards Partner will not make an offer to partner with another loyalty program where access to an Airline Frequent Flyer reward flight is an element, either directly or indirectly, of its consumer proposition unless the Rewards Partner has first made an Offer on terms that are at least equal to or no less than favourable than those offered to the other airline loyalty program,

and any offer made by either party to the other under this clause 16(b), is open for acceptance by the receiving party for at least 30 days from the date of the offer

  1. Should the Rewards Partner or Velocity, as is applicable, not accept an Offer submitted to them under this clause 16 and that Offer is subsequently accepted by a Fuel Competitor or another loyalty program where access to an Airline Frequent Flyer reward flight is an element either directly or indirectly, of its consumer proposition, then that Offer and subsequent arrangement with the Fuel Competitor or loyalty program where access to an Airline Frequent Flyer reward flight is an element, either directly or indirectly, of its consumer proposition may not launch prior to 3 months after the expiry or termination of this Agreement.”
  1. Clauses 17(a) and (b) of the VPPA provide:

“(a) Either party (“Terminating Party”) may terminate this Agreement by notice to the other if:

  1. (Insolvency): The other party becomes unable to pay its debts as they fall due, or enters or takes any steps towards entering any form of insolvency administration;
  1. (Material Breach): The other party breaches a Material Obligation which breach is either not capable of being remedies or, if so capable, remains unremedied 30 days after written notice has been given by the Terminating Party to the other party specifying the breach.
  1. (Material Change): the other party causes or initiates one of the following material changes to the Velocity Program or the Rewards Partner Program,;
  1. VAA ceases to be a Partner of the Velocity Program;
  2. More than 30% of Program Partners cease to be partners of the Velocity Program;
  3. Velocity increases the number of Points required by a Member to redeem for rewards by more than 50%, on average across all rewards, of that rate that applies at Commencement Date;
  4. a reduction in the number of Points that a Member may earn on Virgin flights to less than half the number of points, on average across all Virgin flights, a Member may earn on equivalent Virgin flights as at the Commencement Date;
  5. the percentage of Participating Retail Network Sites within the Metro Region falls below 50% of the total Rewards Partner retail sites located in the Metro Region;
  6. the ability to use and receive a Temporary Card at Participating Reseller sites during the Term,

without the prior agreement of the other party and the initiating party fails to reverse or adjust the material change within 30 days of written notice by the Terminating Party to the other party specifying the material change and the action required;

  1. (Damage to Reputation)

Terminating Party reasonably determines that the other party or any Related Body Corporate of the other party has committed an act or made an unlawful or negligent omission which has had, or will have, a material adverse effect on the reputation of the Terminating Party or any Related Body Corporate of the Terminating Party;

  1. (Cessation of the Velocity Program): Velocity provides the Rewards Partner with at least 90 days written notice that it will cease operating the Velocity Program or any other Eligible Loyalty Program that has VAA as principal or not; or
  1. (Cessation of the Rewards Partner Program): Rewards Partner intends to cease operating the Rewards Partner Program and has given Velocity notice of such intention at least 90 days before publicly announcing or notifying its members of such intention.
  1. Where the Rewards Partner terminates this Agreement under clauses 17(a)(i) to (v) during the Fixed Term of this Agreement Velocity agrees to pay to the Rewards Partner on demand $3m and Velocity releases the Rewards Partner from any obligation to satisfy the Points Volume Commitment and other obligations as identified in this Agreement.
  1. Where Velocity terminates this Agreement under clauses 17(a)(i) to (iv) and (vi) during the Fixed Term of this Agreement, the Rewards Partner agrees to pay to Velocity on demand the outstanding Points Volume Commitment calculated at Schedule 4 item 6.
  1. Either party may terminate this Agreement by providing 90 days written notice to the other party if the party is adversely affected by breach of clauses 6.4 to 6.7 by the other party and such breach is not rectified to the reasonable satisfaction of the affected party within 30 days of written notice to the offending party.”
  1. The plaintiff alleges that it is an implied term or negative stipulation of the VPPA that the defendant would not render the right or rights of first refusal in cls 16(a)(ii) and 16(b)(ii) nugatory by means of an offer made prior to the termination or expiry of the VPPA which, if accepted, would result in an agreement pursuant to which the defendant would partner with another loyalty program at a time not more than 3 or 6 months after termination or expiry of the VPPA (as the case may be).
  1. The plaintiff alleges that the defendant has breached that implied term or intends to breach that implied term by making an offer to partner with the Woolworths Rewards program.
  1. As to whether the alleged term should be implied, cl 12.1(b) of the VPPA provides that to the fullest extent permitted by Law, all express and implied warranties and conditions, statutory or otherwise, are expressly excluded, although that provision was not pleaded or referred to in submissions.
  1. Second, the defendant submits that the alleged implied term also does not meet the requirements of BP Refinery (Westernport) Pty Ltd v Shire of Hastings[17] and Codelfa Construction Pty Ltd v State Rail Authority of NSW.[18]  Another recent statement of authority in the High Court as to the requirements for an implied term is found in Commonwealth Bank of Australia v Barker.[19]
  1. In my view, it is unnecessary to decide whether the alleged term was implied, or not. Although the parties did not address specific submissions to the question, in my view, if the defendant is threatening a breach of cls 16(a)(ii) or 16(b)(ii), the question whether the court can grant relief does not turn on the existence of any implied term, or breach of that term. A threatened breach of cls 16(a)(ii) or 16(b)(ii) would be enough.
  1. The plaintiff alleges that the defendant has made or intends during the period to make an offer to partner with another loyalty program being the Woolworths Rewards program where access to an Airline Frequent Flyer reward flight is an element, either directly or indirectly, of its consumer proposition; and has not made and has no apparent intention of making, an offer to the plaintiff in accordance with the obligations under cls 16(a)(ii) and 16(b)(ii).
  1. The plaintiff submits that such an offer to Woolworths Rewards will breach cls 16(a)(ii) and 16(b)(ii), whether or not the defendant has terminated the VPPA under cl 17(a)(ii) for Material Breach, as I have found above.
  1. The defendant’s response is that cls 16(a)(ii) and 16(b)(ii) do not operate where the VPPA has been terminated for Material Breach by the plaintiff under cl 17(a)(ii) of the VPPA.
  1. The plaintiff replies that cl 18.6 provides that the rights conferred by cls 16(a)(ii) and 16(b)(ii) shall not be affected or prejudiced by the termination of the VPPA howsoever brought about.
  1. Clauses 18.5 and 18.6 of the VPPA provide:

18.5 Termination does not affect accrued rights

Termination of this Agreement does not prejudice any rights or remedies available or accrued to any party in respect of any breach of this Agreement.

18.6 Clauses survive termination

Expiry of the Agreement or its termination, howsoever brought about, shall not affect or prejudice any terms of, or rights conferred by, the Agreement which are either expressly or by implication intended to come into effect or continue in effect after such expiry or termination, including, but not limited to, this clause 18, the parties’ respective privacy, confidentiality and indemnity obligations under this Agreement clause 13 (Goods and Services Tax), clause 10.1 (Records), clause 7.2(e), clause 7.3(c) and (d), clause 16 (First Right of Refusal), clause 20 (Dispute Resolution) and the Points Volume commitment at Item 6 of Schedule 4 survive termination of this Agreement.”

  1. The defendant submits that it would not be commercially sensible to construe cls 16(a)(ii) and 16(b)(ii) so that they operate where the VPPA has been terminated for Material breach by the plaintiff under cl 17(a)(ii) of the VPPA. The defendant relies on a positive principle of construction, that a commercial contract should be given a “commercially sensible” and “business-like” construction, relying on a number of cases.[20]  The defendant also relies upon a negative principle of construction that “absurdity” is to be avoided.[21]
  1. In my view, the problem in this case is one of absurdity. For my part, a leading statement of the relevant principle, in a contractual context, is still to be found in Fitzgerald v Masters[22] where Dixon and Fullagar JJ said:

“Words may generally be supplied, omitted or corrected, in an instrument, where it is clearly necessary in order to avoid absurdity or inconsistency. Here it would be indeed absurd to suppose that the parties, having expressed their agreement on a number of special and essential matters, should intend to incorporate by reference terms inconsistent with what they had specially agreed upon..”

  1. There would be numerous difficulties with the literal operation of cls 16(a)(ii) and 16(b)(ii) if a “termination” under those provisions includes a “termination, howsoever brought about” as the plaintiff submits. For example:
  1. clause 17(a)(i) provides that if the plaintiff goes into insolvency the defendant is entitled to terminate;
  1. clause 17(a)(v) provides for a termination where the plaintiff ceases the VFF program altogether, by 90 days notice of that event;
  1. clauses 17(a)(ii) and (iii) might be engaged by a range of material and continuing breaches or changes by the plaintiff;
  1. clause 17(c) provides for termination when any necessary ACCC Authorisation expires or is revoked; and
  1. an outright repudiation, where the plaintiff renounced all of its obligations under the VPPA, would operate to entitle the defendant to elect to terminate the VPPA at common law.
  1. It seems absurd to say that the parties intended that after a termination made in any of those circumstances the defendant would be obliged to offer to renew the terms of the VPPA or make an equivalent offer to any other offer.
  1. Focussing more specifically on a termination for an un-remedied breach of a Material Obligation under cl 17(a)(ii), if the defendant is required to make an offer to renew the VPPA or an equivalent offer to any other offer, and that offer were accepted by the plaintiff, the defendant would in many circumstances be entitled to terminate again for the same reason or reasons as authorised the first termination, and so on. It seems absurd to say that the parties intended that such a circular result could follow.
  1. In my view, having regard to the operation of cl 16 in the context of cl 17, the plaintiff’s general submission that the operation of cls 16(a)(ii) and 16(b)(ii) extends to any termination “howsoever occurring”, by reference to cl 18.6, must be rejected as absurd.
  1. However, the specific question for decision is more limited. It is whether cls 16(a)(ii) and 16(b)(ii) apply to a termination under cl 17(a)(ii) for an un-remedied breach of a Material Obligation.
  1. In my view, once it is accepted that the word “termination” in the first line of cl 16 cannot operate in relation to all terminations, howsoever occurring, there is no reason, consistent with a commercially sensible or business-like construction of cls 16(a)(ii) and 16(b)(ii), in context, to preserve their operation for a termination for an un-remedied breach of an obligation agreed between the parties to be a Material Obligation, justifying termination where there is un-remedied breach, under cl 17(a)(ii).
  1. In my view, the word “termination” in the first line of cl 16 should be construed and read as not including a termination for Material Breach under cl 17(a)(ii) of the VPPA. It is unnecessary to go further to decide this case.

Conclusion

  1. The result is that the plaintiff’s claim must be dismissed, because the VPPA was terminated upon 1 July 2017.
  1. Also, in my view, the court should grant the relief sought, in effect, by par B of the relief claimed by the counterclaim and declare that the defendant terminated the VPPA by notice dated 4 May 2017, effective from 1 July 2017.
  1. I will hear the parties on the question of costs.

Footnotes

[1]  Sometimes the defendant called the group the “Wesfarmers group”.

[2]  Or “Wesfarmers group” of companies.

[3]  (2014) 251 CLR 640, 656-657 [35].

[4]  (1982) 149 CLR 337, 352-353.

[5]  (2015) 256 CLR 104.

[6]  (2015) 256 CLR 104, 117 [46]-[49].

[7]  I note that by cl 1.2(a) of the VPPA headings are for convenience only and do not affect interpretation.

[8]  (1973) 129 CLR 99.

[9]  (1973) 129 CLR 99, 109-110; see also Jireh International Pty Ltd v Western Exports Services Inc [2011] NSWCA 137, [55]; affd Western Export Services Inc v Jireh International Pty Ltd (2011) 282 ALR 604, 605-606 [6] and Cushman & Wakefield (NSW) Pty Ltd v Farrell [2017] NSWCA 24, [71].

[10] Macquarie Online Dictionary, definition “partnership”, 2017.

[11] Partnership Act 1891 (Qld), s 5.

[12]  I note that the defendant did not allege in the defence that any other fact constituted not working exclusively with the defendant in relation to customer loyalty programs for fuel and service station customers.

[13] Shorter Oxford English Dictionary, 6 ed, Vol 1, p 1010, definition “for”; See also Macquarie Dictionary Online, 2017, definition “for”.

[14]  By a notice dated 28 February 2017.

[15]  I note that the notice did not allege a breach of cl 14.2(c) of the VPPA.

[16]  I note that the plaintiff did not allege that the defendant was precluded from exercising the power to determine the VPPA under cl 17(a)(ii) of the VPPA by its own breach of contract, if any, or because it was unready or unwilling to perform its obligations under the VPPA.

[17]  (1977) 180 CLR 266, 282-283. I note also that the Supreme Court of the United Kingdom recently reiterated the vitality of the Westernport calculus in that jurisdiction: Marks and Spencer plc v BNP Paribas Securities Services Trust Company (Jersey) Ltd [2016] AC 742.

[18]  (1982) 149 CLR 337, 347.

[19]  (2014) 253 CLR 169, 185-189 [19]-[29].

[20] Ecosse Property Holdings Pty Ltd v Gee Dee Nominees Pty Ltd (2017) 343 ALR 58, 63 [17]; McCann v Switzerland Insurance Australia Ltd (2000) 203 CLR 579, 589 [22].  I would add other cases for the proposition, particularly Maggbury Pty Ltd and anor v Hafele Australia Pty Ltd (2002) 210 CLR 181, 198 [43], which recognises that the source of “business common sense” as an expression in this context is in Lord Diplock’s speech in Antaios Compania Naviera SA v Salen Rederierna AB [1985] AC 191, 201 and that it is a topic on which minds may differ.  Other cognate statements of principle refer to “commercial inconvenience”, for example: Zhu v Treasurer of New South Wales (2004) 218 CLR 530, 559 [82] and Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104, 117 [51].

[21] Maggbury Pty Ltd v Hafele Australia Pty Ltd (2001) 210 CLR 181, 198 [43].

[22]  (1956) 95 CLR 420, 426-427; This passage was referred to with approval in Adams v Lambert (2006) 228 CLR 409, 417 [21].

Close

Editorial Notes

  • Published Case Name:

    Velocity Frequent Flyer Pty Ltd v BP Australia Pty Ltd

  • Shortened Case Name:

    Velocity Frequent Flyer Pty Ltd v BP Australia Pty Ltd

  • MNC:

    [2017] QSC 293

  • Court:

    QSC

  • Judge(s):

    Jackson J

  • Date:

    07 Dec 2017

Litigation History

Event Citation or File Date Notes
Primary Judgment [2017] QSC 293 07 Dec 2017 -

Appeal Status

No Status