Advanced National Services Pty Ltd v Daintree Contractors Pty Ltd

Claim for unpaid invoices

1. During the course of the agreement, Advanced issued invoices to Daintree which totalled approximately $634,000, of which approximately $266,000 was paid and approximately $368,000 was unpaid, despite attempts by Advanced to obtain payment. Whilst finding that the cleaning services, the subject of those unpaid invoices, were in fact provided (Judgment [148], [209]), the primary judge noted that it was common ground that cl 4.5 was substantially breached because Advanced used subcontract labour without Daintree's prior written consent: Judgment [164].
2. On 20 March 2017, Daintree terminated the contract without prior notice. The primary judge found that the termination was valid, although not for the reasons set out in the notice: Judgment [165]-[166]. The primary judge found that Daintree was entitled to terminate the agreement on the basis of a breach of cl 4.5 alone: Judgment [168]. There is no challenge to these findings.

The primary judge's reasons

1. The primary judge rejected Advanced's contention that cl 4.5 of the agreement was amended so as to permit the use of subcontractors, or alternatively, that Daintree acquiesced to Advanced's use of subcontractors: Judgment [150]. There is no challenge to this finding. In this context, his Honour referred to the importance of written, rather than informal, consent to the use of subcontractors, which was required by cl 4.5, and observed that breach of cl 4.5 was taken to be a fundamental breach of the agreement.
2. His Honour also referred to the condition of the engagement in cls 4.1 and 4.2 that Advanced procure workers compensation insurance and that counsel for Advanced accepted that such insurance could only extend to Advanced's employees - not subcontractors. His Honour observed that this important protection for Daintree's benefit could be set at nought if Advanced could substitute subcontracted labour for its employees: Judgment [151].
3. Turning to Advanced's claim in debt, having noted that no claim for a quantum meruit was relied upon, his Honour accepted Daintree's submission that, "subject to contrary agreement, the right to payment under a contract only matures into a debt only if the performance to which the payment relates was in fact given". Accordingly, it was necessary to consider the terms of the contract to ascertain whether performance had been provided in accordance with the contract: Judgment [182].
4. After referring to the statement by Dixon J in McDonald v Dennys Lascelles Ltd (1933) 48 CLR 457; [1933] HCA 25 at 476-7 that the exercise of a right of termination by a party to a simple contract will not operate to divest or discharge rights which have already been "unconditionally" acquired, his Honour said that this principle "is subject to the parties' intention, as revealed by the proper construction of the contract", referring to the joint judgment of Dixon J and Evatt J in Westralian Farmers Ltd v Commonwealth Agricultural Service Engineers Ltd (in liq) (1936) 54 CLR 361 at 379; [1936] HCA 6: Judgment [184].
5. His Honour found that on the proper construction of cl 4.5 of the agreement, Advanced was entitled to payment of only $40,905.05, representing that component of the unpaid invoices which was not referable to work in breach of cl 4.5 of the agreement. The dispositive reasoning at Judgment [185]-[189] is reproduced in full below: [185] In this regard, I agree with DC's submission that the use of the word "compensate" in cl 4.5 should be given a congruent meaning as it appears in the termination clause in cl 12.3. There, as in cl 4.5, from the point where termination becomes effective, it does not make sense to construe the meaning of compensate as relating to prospective labour services; as none would be permitted to be provided. [186] Such rights as ANS acquired to receive payment for services were conditionally acquired on the basis of its use of its employed labour (or subcontracted labour as approved by DC). I do not accept ANS' submission that its right to receive payment under clause 8 was unconditional. [187] On the other hand, I do not consider that, properly construed, the relevant part of clause 4.5 would entitle DC to withhold payment for the entirety of ANS' invoices, even where such work was undertaken by ANS employees. Clause 4.5, by terms, acknowledged that there were a range of sites where ANS was to perform its work, and a provision such as clause 4.5, served the purpose of deterring ANS from concealing the use of subcontracted labour on some or all of those sites. It does not follow that where ANS supplied its services in the proper fashion, with its employees, that it should be deprived of payment for those services even where it had breached the obligation elsewhere, and on other occasions. [188] This construction is consistent, also, with cl 8.3, which set forth certain circumstances in which ANS was entitled to receive payments upon a pro-rata basis. [189] The parties agreed if I was to find that ANS was entitled to receive payment for such portion of its invoices attributable to its employees labour, the evidence (based largely upon the calculations of Mr Putland) indicates that the amount validly invoiced is $40,905.05.

Disposition of the appeal

1. As indicated, the appeal raises two questions of contractual construction. The second question only arises if the first is answered favourably to Advanced.

First issue: whether Advanced had earned the contract price

Advanced's submissions

1. Advanced submitted that the agreement is not a personal contract as that expression is understood in the authorities; rather, it is a contract to produce a result, namely, to provide cleaning services at certain sites of a certain nature. The submission continued that there was no "element of personal skill or an element of personal confidence" required on a true construction of the agreement, referring to the remarks of Barton J in Bruce v Tyley (1916) 21 CLR 277 at 284.
2. In oral argument, Advanced initially submitted that the unauthorised subcontractors it used were agents of Advanced, referring to the extended definition of "Contractor", and thus, fell within the meaning of the expression "any person engaged by the Contractor" in cl 3.1. However, later in argument, counsel for Advanced acknowledged that there was no dispute that the unauthorised subcontractors were persons to whom a portion of the contract had been subcontracted in breach of cl 4.5. Counsel accepted that there was no contention by Advanced and no finding below that the unauthorised subcontractors were agents of Advanced. Counsel also accepted that evidence as to agency might have been adduced at trial had such an argument been raised. Given those concessions, which were properly made, no occasion arises to consider this argument: Metwally v University of Wollongong [1985] HCA 28; (1985) 60 ALR 68 at 71.
3. Advanced further submitted that Daintree's construction of the agreement is uncommercial, effectively amounting to a penalty, arbitrary and approaching capricious in that, among others, it allows for a windfall to Daintree who may receive benefit for services without paying for them, while having adequate protection from cls 3.3, 5.4, 7.1, 7.2, 7.3, 8.4 and 12.3 of the agreement. The submission continued that there is nothing in the agreement or relevant circumstances that require the cleaning services to be provided to be personal to Advanced such that, if performed in breach of cl 4.5, no payment is due.

Daintree's submissions

1. Daintree submitted that the agreement was not simply a contract to produce a result, and that the parties were not indifferent to who performed the cleaning services. Reference was made to Davies v Collins [1945] 1 All ER 247, Bruce v Tyley at 284 and 288 and Australis Media Holdings Pty Ltd v Telstra Corporation Ltd; Australis Media Holdings Pty Ltd v News Corporation Ltd (1998) 43 NSWLR 104 (Australis Media) at 118-120.
2. Daintree submitted that the contract could not be performed vicariously. Rather, in the absence of its prior written approval for the use of subcontracted labour, personal performance was required of Advanced in order for Advanced to 'earn' the agreed fee for the performance of cleaning services.
3. Daintree pointed to various provisions in the agreement as supporting its preferred construction including: the use of the verb "perform" in cls 2.1 and 2.2; that Daintree's payment obligation in cl 8.2 was dependent on Advanced having "performed" the cleaning services; and Advanced's obligations under cls 4.1 and 4.2 to procure workers compensation insurance and public liability insurance, and comply with all applicable work health and safety legislation, and under cl 8.4 to complete and submit the monthly Subcontractor form, which included a declaration as to payment of wages, employees' police clearances, currency of workers compensation insurance and public liability insurance, payment of payroll tax (if applicable), and whether injuries had been sustained by employees.
4. To the extent that the primary judge's reasoning did not entirely accord with these contentions, Daintree filed a notice of contention seeking to uphold the judgment on this ground.

Reasoning

1. The failure to pay a contract debt has never been regarded as a simple breach of contract. As the joint judgment of Dixon CJ, McTiernan and Taylor JJ in Young v Queensland Trustees Ltd (1956) 99 CLR 560; [1956] HCA 51 observed at 567: The common law does not and never did conceive of indebtedness in a sum certain for an executed consideration as a mere breach of contract; it is rather the detention of a sum of money and that was so whether the creditor enforced his demand by an action of debt or by indebitatus assumpsit. …
2. The important difference between a claim in debt and a claim for damages for breach of contract is that a claim in debt is a claim to enforce a primary obligation. Hence "[t]he question is whether the sum has been 'earned', not whether the contract has been breached": J W Carter and M J Tilbury, Remedial Choice and Contract Drafting (1998) 13 JCL 5 at 21.
3. The primary judge's reasoning was based on the classic statement of Dixon J, with whom Rich J and McTiernan J agreed, in McDonald v Dennys Lascelles at 476-7: When a party to a simple contract, upon a breach by the other contracting party of a condition of the contract, elects to treat the contract as no longer binding upon him, the contract is not rescinded as from the beginning. Both parties are discharged from the further performance of the contract, but rights are not divested or discharged which have already been unconditionally acquired. Rights and obligations which arise from the partial execution of the contract and causes of action which have accrued from its breach alike continue unaffected… when a contract, which is not void or voidable at law, or liable to be set aside in equity, is dissolved at the election of one party because the other has not observed an essential condition or has committed a breach going to its root, the contract is determined so far as it is executory only and the party in default is liable for damages for its breach. [Emphasis added]
4. The important point made by Dixon J in this passage in McDonald v Dennys Lascelles is that the accrued right to payment is a right accruing from the "partial execution of the contract". It has been said "[t]hat concept requires an identification of the agreed return for a payment. Unless the parties have agreed otherwise, the payment is recoverable only if its agreed return has been provided": J W Carter and G J Tolhurst, Recovery of contract debt following termination for breach (2009) 25 JCL 191 at 201.
5. As the primary judge correctly observed, the passage set out above from McDonald v Dennys Lascelles is to be read together with Westralian Farmers v Commonwealth Agricultural Service Engineers, where the joint judgment of Dixon J and Evatt J stated at 379: It is a rule of law that when a simple contract is discharged by the election of one party to treat himself as no longer bound after the other has committed a breach of the contract, rights and obligations which have already arisen from the partial execution of the contract shall remain unaffected (see McDonald v. Dennys Lascelles Ltd). No doubt it is open to the parties to provide in advance for such an event and by a stipulation to the contrary to produce some other effect. When the parties themselves have provided for the determination of the contract on a given contingency, the consequences flow altogether from their contractual stipulation and are governed by their intention, either actual or imputed. [Emphasis added.]
6. The important point made by Dixon J and Evatt J in the passage in Westralian Farmers v Commonwealth Agricultural Service Engineers is that the parties may agree that rights arising from the partial execution of the contract are divested or discharged upon termination of the contract by the innocent party.
7. The primary judge correctly recognised at Judgment [182] that "subject to contrary agreement, the right to payment under a contract only matures into a debt only if the performance to which the payment relates was in fact given". However, as Daintree submitted, his Honour does not appear to have directly addressed the question of performance, other than implicitly at Judgment [186], where his Honour referred to "[s]uch rights as [Advanced] acquired to receive payment for services were conditionally acquired on the basis of its use of its employed labour (or subcontracted labour as approved by [Daintree]".
8. It is not clear whether his Honour intended by this latter statement that the contract price was earned only if Advanced performed cleaning services itself using employed labour, or using subcontracted labour approved in writing by Daintree. The reasons at Judgment [187] could be read that way. Daintree submitted that if that is not what his Honour held, then he should have done so, and this is the argument raised by its notice of contention. Advanced joined issue and submitted that compliance with cl 4.5 is not a precondition to payment.
9. The question whether the contract price had been earned by Advanced where it used unauthorised subcontracted labour directs attention to its performance obligation in the agreement. That is, what is meant by the phrases "[t]he Contractor will perform the Cleaning Services …" in cl 2.2 and "… the Contractor has performed all of the Cleaning Services" in cl 8.2. This is a question of construction which is to be determined "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 of the agreement": Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104; [2015] HCA 37 at [46] (French CJ, Nettle and Gordon JJ). See also Electricity Generation Corporation t/a Verve Energy v Woodside Energy Ltd (2014) 251 CLR 640; [2014] HCA 7 at [35]; Rinehart v Hancock Prospecting Pty Ltd [2019] HCA 13; (2019) 93 ALJR 582 at [44].
10. The essential question in this case is whether the performance obligation was personal and could not be performed vicariously unless Daintree gave its approval in writing to the use of subcontracted labour.

Contracts requiring personal performance

1. It is well established that, in appropriate circumstances, recognition will be given that the relationship between contracting parties must be personal. The authorities were reviewed by this Court in Australis Media at 118-120 (Mason P, Beazley and Stein JJA). Those authorities include the remarks of Lord MacNaghten in Tolhurst v Associated Portland Cement Manufacturers [1903] AC 414 (Tolhurst) at 417: There are contracts, of course, which are not to be performed vicariously …. There may be an element of personal skill or an element of personal confidence to which, for the purposes of the contract, a stranger cannot make any pretentions.
2. This passage in Tolhurst was referred to with approval in Bruce v Tyley by Barton J at 284 and Isaacs J at 288.
3. Bruce v Tyley involved an agreement between Mr Bruce and Mr Tyley, who were pig farmers, made in anticipation of an expected contract between Mr Bruce and the Commonwealth for the collection and removal of kitchen refuse from a military camp. Mr Bruce obtained that contract with the Commonwealth and later Mr Tyley assigned his rights under his agreement with Mr Bruce to his wife. Mr Tyley and his men collected material from the camp until the Camp Commandant excluded him having discovered that two of Mr Tyley's employees had stolen food from the camp. In a dispute between Mr Bruce and Mrs Tyley, as assignee of Mr Tyley's rights under the Bruce/Tyley agreement, the question which arose was whether performance of the government contract could be vicariously performed by Mr Tyley; that is, was the government contract a personal contract and could the Commonwealth insist upon Mr Bruce not introducing any other person to perform it instead of Mr Bruce himself.
4. Barton J held at 285 that there was an element of personal confidence because the Commonwealth might and did entrust the person whose tender it preferred to accept with a choice of servants responsible to him. That did not permit Mr Bruce to assign or delegate the whole of his duties in respect of any particular part of the contract, or to part with his control over its execution.
5. Isaacs J said at 289: A personal agreement is one which entitles one party to an actual performance of it by the other party personally, and, in the absence of express provision, the right may be inferred from the terms of the contract applied to the subject matter and the circumstances of the parties. [Emphasis added.]
6. Isaacs J found at 289 that the government contract was personal to Mr Bruce and said that it would have been a mere ostensible adherence to his obligations to the Commonwealth, a mere pretence, if Mr Bruce had abdicated his duty and delegated or deputed another to the care and supervision which he was paid to exercise himself. Isaacs J accepted at 291 that removal of garbage per se is not a matter involving personal confidence, but said that the subject matter of the main contract was not garbage per se. His Honour continued at 291: The real subject matter is the cleansing of the military camp during the time of war, with all that such an establishment connotes, and among other things, all the notorious attempts of the enemy to damage military property and to probe into secrets.
7. Davies v Collins involved a limitation clause in a contract for the drycleaning of garments. The contract contained a limitation clause for damage etc caused in the cleaning and dyeing of garments. The dry cleaner sent a customer's uniform to be cleaned by a subcontractor but it was never returned. The question which arose was whether the dry cleaner could rely upon the limitation clause. Lord Greene MR referred at 249 to the well-known division between contracts for work and labour in these terms: One class is where the work and labour can, on the true construction of the contract, only be performed by the contracting party himself or by some staff that he employs. The other class is where, from all the circumstances of the case, including of course the true construction of the contract, it is to be inferred that it is a matter of indifference whether the work should be performed by the contracting party or by some subcontractor whom he employs. In many cases, all that is stipulated for is that the work should be done and the actual hand to do it need not be that of the contracting party himself; the other party will be bound to accept performance carried out by somebody else. The contracting party, of course, is the only party who remains liable.
8. Lord Greene MR continued at 250: Whether or not in any given contract performance can properly be carried out by the employment of a subcontractor must depend on the proper inference to be drawn from the contract itself, the subject-matter of it, and other material surrounding circumstances. The contract here, as in so many cases, has to be collected partly from the language used and partly from the acts of the parties. The nature of the work to be performed is, of course, always material. The county court judge appears to have thought that the nature of the work by itself was sufficient to exclude the right on the part of the cleaner to have it carried out by a subcontractor, but as I have said I do not think I should agree that that by itself was sufficient. But there are other matters to which we must look …. But there is another matter which I think is conclusive, and it is this: it is quite obvious that the risk which a customer runs under a limitation clause of this character is entirely different according as the work is to be carried out by the person with whom he contracts or by a subcontractor. Let me expand that. If subcontracting is not permissible, the risk that the customer runs in respect of loss is a very limited one because the opportunity of loss is restricted; if, on the other hand, it is permissible to farm out the contract to a subcontractor, the area within which loss may occur is quite clearly very largely extended; …

Application of principles to the facts

1. It is common ground in this case that the performance of cleaning services did not require any particular skill. However, it does not follow that the parties were indifferent to the persons Advanced engaged to perform the work and on what conditions. The answer to that question requires close attention to the terms of the agreement dealing with the performance obligation and the conditions on which Advanced was to perform the work.
2. As to the performance obligation, there are a number of textual indications that support Daintree's preferred construction.
3. First, and most importantly, cl 4.5 of the agreement prohibited the assigning or subcontracting of any portion of the contract without Daintree's prior written approval. Adopting the language of Isaacs J in Bruce v Tyley at 292, that provision in the agreement is a "distinct intimation … that no sub-letting or substitution be permitted" without Daintree's approval in writing. A breach of this prohibition was a "fundamental breach of the Contract" permitting immediate termination, without notice, or any opportunity to remedy the breach. Plainly, the intention of the parties as reflected in cl 4.5 was that Advanced was to perform the cleaning services itself unless, relevantly, Daintree gave its approval in writing to the use of subcontracted labour.
4. Second, the use of the verb "perform" in cls 2.1, 2.2 and 6.1 to describe the performance obligation rather than a more general expression, such as "provide" or supply" cleaning services, serves to emphasise that the performance obligation is personal to Advanced and not to be discharged vicariously unless other provisions in the agreement revealed a contrary intention.
5. Third, the agreement distinguishes between two modes by which the performance obligation may be discharged; either by Advanced itself or by Advanced using an authorised assignee or subcontractor. That distinction can be seen most clearly in the chapeau to Sch 2 by which Advanced agrees to ensure that "any person engaged by the Contractor" or "any person or entity to whom the Contractor assigns or subcontracts all or part of this Contract" abides by the terms and conditions in Sch 2. The first mode of performance is encompassed by the use of the phrase "any person engaged by the Contractor" in cls 3.1 and 5.3, in addition to Sch 2. In context, this phrase is a reference to the employees or agents of Advanced. The second mode of performance, by the assignment or subcontracting of all or part of the contract, is dealt with in cl 4.5, 4.6, 4.7, 7.1, in addition to Sch 2. In context, these terms are a reference to authorised assignees or subcontractors.
6. As to the conditions on which Advanced was to perform the work, the significance attached to compliance by Advanced with the obligations in cls 4.1 and 4.2 is reinforced by three matters. The first two matters are the mechanisms provided in the agreement for Daintree to verify compliance with those requirements, namely: (a) the right given to Daintree to audit Advanced under cl 4.7; and (b) the provision by Advanced of the monthly Subcontractor form under cl 8.4 declaring, in effect, ongoing compliance with the requirements in cl 4.2. The third matter is cl 4.3 where breach of cls 4.1 or 4.2 permitted immediate termination, without notice, or any opportunity to remedy the breach.
7. The rights given to Daintree by cl 4.3 (immediate termination for breach of conditions of engagement), cl 4.7 (right to audit) and cl 8.4 (provision of monthly Subcontractor form) underscored the importance attached by the agreement to Daintree having an assurance that the conditions specified in cls 4.1 and 4.2 were satisfied with respect to "any person engaged by the Contractor" to perform the work on its behalf.
8. That such an assurance was also given in respect of any authorised assignees and subcontractors, can be seen from cl 4.6 which provided that the terms of the agreement applied equally to any authorised assignee or subcontractor and that Advanced was responsible to ensure that any authorised assignee or subcontractor was aware of and complied with those obligations. The effect of cl 4.6 is that it dictates to the Contractor, in the position of Advanced, the terms on which any assignment or subcontract of part of the contract is to be made.
9. That includes, relevantly, compliance by the assignee or subcontractor with the Contractor's obligations in cls 4.1 and 4.2 to procure workers compensation insurance and public liability insurance for the assignees or subcontractor's employees or agents, the Contractor obligations in the performance of cleaning services in Sch 2, in particular cls 9 and 10, and the Contractor's obligation to provide the monthly Subcontractor form. It is not in dispute that the cleaning services provided by an authorised assignee or subcontractor answer the description of cleaning services "performed" by Advanced for the purposes of cl 8.2 and that Advanced, not the authorised assignee or subcontractor, is entitled to receive the contract price.
10. Given that Advanced accepted below that the workers compensation insurance could only extend to Advanced's employees and not subcontractors, the primary judge was correct to observe that this important protection for Daintree's benefit could be set at naught if Advanced used subcontracted labour, without Daintree's approval in writing. This is another indicator that the contract price was not earned by using unauthorised subcontracted labour.
11. The evident purpose of the provisions dealing with the conditions on which Advanced was to perform the work is, as Daintree submitted, that Daintree have an assurance that the persons who were in the "Client's" premises mopping the floors etc, were covered by workers compensation insurance and public liability insurance, had satisfactory police clearances (and at least for Dan Murphy stores, also had immigration clearances), had appropriate occupational health and safety training, and were paid wages in accordance with their award entitlements. As explained above, that is so whether such persons were engaged by Advanced to perform the work, or were engaged by an authorised assignee or subcontractor to perform the work.
12. In submitting that the cleaning services could also be performed by Advanced through use of unauthorised assignees or subcontractors, Advanced sought to characterise the agreement as simply a contract to produce a result. I do not agree. The subject matter of the agreement is not cleaning services per se. The subject matter is the performance of cleaning services by Advanced in a particular manner, and on certain conditions, namely, by Advanced itself using its employees or agents, or through authorised assignees or subcontractors. It was not a matter of indifference to the parties whether the work should be performed by Advanced itself or by an unauthorised subcontractor.
13. It remains necessary to deal with a number of separate submissions by Advanced. One is the argument that the agreement gave adequate protection to Daintree, such that compliance with cl 4.5 is not required to earn the contract price. This submission should be rejected.
14. First, it poses the wrong question. The question is whether Advanced had earned the contract price, not whether Daintree had adequate protection for breach of cl 4.5.
15. Second, none of the provisions referred to by Advanced (see [41] above) are directed to whether Advanced had earned the contract price by use of unauthorised subcontracted labour.
16. Third, there are provisions in the agreement which fortify the personal nature of the contract. For example, the warranty in cl 6.1 is given in terms that the Contractor itself warrants that it has the necessary skills, expertise and qualifications to provide the cleaning services. Insofar as the warranty addresses the circumstance where the Contractor engages other people to perform the cleaning services "on behalf of the Contractor", that is to be understood as a reference to employees or agents of Advanced, given that the warranty only relates to "any person that it engages". The concept of "engagement" of persons to perform work on behalf of the Contractor is to be distinguished from the concept of the Contractor assigning or subcontracting all or part of the contract.
17. However, even if it be assumed that the words "on behalf of the Contractor" in cl 6.1 extend to assignees or subcontractors, given the prohibition in cl 4.5 of the agreement, those words in the warranty could only be taken as referring to an authorised assignee or subcontractor of all or part of the contract under cl 4.5.
18. Fourth, it is not difficult to envisage commercial reasons why reasonable persons in the position of the parties would have intended that, in addition Daintree's rights of termination and to claim damages for breach of cl 4.5, that the contract price would not be earned by Advanced if it used unauthorised subcontract labour. One is the potential exposure of Daintree or Mastercare to claims arising from underpayment of award wages to persons engaged by unauthorised subcontractors, and the reputational damage to Daintree and Mastercare if reported as underpaying any persons engaged by its subcontractors.
19. Next, it is the contention of Advanced that Daintree's preferred construction of the performance obligation gives rise to an uncommercial result and Daintree obtains a windfall. It is well established that the Court is to have regard to the parties' aim, objectively ascertained even if there is little extrinsic evidence about the surrounding circumstance apart from the document itself. As Arden LJ said in Re Golden Key Ltd [2009] EWCA Civ 636 at [28]: …, unless the contrary appears, the court must assume that the parties to a commercial document intended to produce a commercial result, and the court must thus take into account the commerciality of the rival constructions, if that commerciality can be identified. The commerciality of a particular construction may be a crystallising factor in its favour where it is implausible that parties would have intended any other result.
20. Similarly, in the joint judgment in Zhu v Treasurer of New South Wales (2004) 218 CLR 530: [2004] HCA 56 at [82], Gleeson CJ, Gummow, Kirby, Callinan and Heydon JJ said that it was necessary to construe the document in issue in that case, a Deed Poll, so as to avoid it making commercial nonsense or working commercial inconvenience. The joint judgment emphasised that the commercial purpose of the document, being the commercial purpose of reasonable persons in the position of the parties, was relevant and that required attention to "the genesis of the transaction, the background, the context, the market" in which the parties were operating, as known to both parties, citing Codelfa Construction Pty Ltd v State Rail Authority (NSW) (1982) 149 CLR 337; [1982] HCA 24 at 350 per Mason J quoting Lord Wilberforce in Reardon Smith Line v Hansen-Tangen [1976] 1 WLR 989 at 995-996.
21. In this case, neither party made reference to the surrounding circumstances. The commercial purpose of the agreement, as ascertained from the document itself, is that Advanced itself perform the cleaning services unless Daintree gave its approval in writing to the assignment or subcontracting of all or part of the contract. The notion that Advanced could perform the contract vicariously was expressly rejected in the terms of the agreement, save for relevantly approved subcontracting.
22. One further matter should be mentioned concerning the windfall complaint. It is arguable that there may be other answers to the assertion of an uncommercial result but these were not addressed by the issues raised at trial. One answer might be that Advanced has a claim in restitution based on a quantum meruit. However, as indicated, no such claim was made by Advanced at trial. Another possible answer might be that on Daintree's preferred construction, cl 4.5 or cl 8 or both of them in combination amount to an unenforceable penalty. That was referred to in passing in this Court but again that issue was not raised by Advanced at trial.
23. It is not necessary to say anything further about these matters. Advanced has not demonstrated that the commercial purpose of the agreement included that it could perform the contract vicariously using unauthorised subcontracted labour.

Conclusion

1. On the proper construction of the agreement, the performance obligation of Advanced could not be discharged by using subcontracted labour without Daintree's approval in writing. It follows that Advanced had not earned the contract price for the cleaning services provided by the use of unauthorised subcontracted labour. There was no error by the primary judge in dismissing this part of Advanced's liquidated claim.

Second issue: whether cl 4.5 excludes any accrued right of Advanced after termination of the agreement by Daintree

1. I have considered in accordance with Kuru v New South Wales (2008) 236 CLR 1; [2008] HCA 26 at [12] whether the second question should be resolved, although it cannot affect the outcome of the appeal. Given Advanced's failure on the question raised in Daintree's notice of contention, I am satisfied that good reason exists not to deal with the second question.
2. First, bound up in the second question is the potential issue already mentioned concerning whether cl 4.5 or cl 8 or both of them in combination amount to an unenforceable penalty. It is not necessary, nor appropriate, to address this issue since it was not raised at trial by Advanced.
3. Second, the resources of the Court should not be taken up in dealing with an additional argument which cannot overcome the fundamental flaw in Advanced's claim for the contract price for cleaning services by providing unauthorised subcontracted labour. The question of whether cl 4.5 is a stipulation that divests or discharges accrued rights upon termination by the innocent party is, in the circumstances, entirely hypothetical.

Conclusion and Orders

1. The appeal has failed. There is no reason why costs should not follow the event: Uniform Civil Procedure Rules 2005 (NSW), r 42.1.
2. I propose the following orders: 1. Appeal dismissed. 2. Appellant to pay the respondent's costs of the appeal.
3. WHITE JA: I agree with Gleeson JA.
4. BARRETT AJA: I agree with Gleeson JA. Any superficial impression that it was of no moment who mopped floors or performed other cleaning tasks is dispelled when regard is had to the provisions of the contract discussed at [65]-[75] of his Honour's 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. Decision last updated: 05 November 2019