North Sydney Leagues Club Limited v Synergy Protection Agency Pty Limited

North Sydney Leagues Club Limited v Synergy Protection Agency Pty Limited - [2008] NSWSC 413 - NSWSC 2008 case summary — Zoe

[76]

The construction issue 13 Norths contends that the contracts are relatively indistinguishable from common or garden 'supply' contracts. Mr Bromwich appearing for Norths, posited, as an apposite example, contracts to regulate dealings between a supermarket and its suppliers for the provision of particular supplies over a period of time and at a particular rate. There was no evidence of any such terms of any supermarket supply contracts, but nonetheless one is able to understand Mr Bromwich's submission by the example. 14 The proposition is that there may be no particular obligation upon such a supermarket to seek that any supplies from the relevant supplier be provided at all. The proposition is that if and when such a supermarket would place an order for supply, such order would require to be fulfilled in a fashion consonant with the provisions of the relevant contract. The proposition is that there are likely benefits to both parties in that form of contract: in a practical sense, the supplier likely benefits from having such a contract in place because it is likely to in fact be a preferred supplier, and the supermarket benefits from being in a position to call on the supplier to honour its contractual obligations. 15 Mr Forster SC, appearing for Synergy, took issue with this construction. His submission was that upon the true construction of the material contracts, Norths were obliged to look to Synergy for all of their requirements for security services of the type nominated in the services provision [with the potential exception of security services provided in-house by Norths' own staff]. Contractual construction - the principles 16 It is unnecessary to do more than to repeat the general statement of principles concerning proper construction in Masterton Homes Pty Ltd v Palm Assets & Ors [2008] NSWSC 274 [at 26] with most particular emphasis upon the quotation from the recent judgment of Tobias JA in Ryledar Pty Ltd v Euphoric Pty Ltd (2007) Aust Contract R 90-254; [2007] NSWCA 65, affirming the approach taken by Palmer J at first instance:

[79]

ii. Clearly primacy must be given to the actual words used in a written contract. McColl JA in Peppers Hotel Management Pty Ltd v Hotel Capital Partners Ltd [2004] NSWCA 114 at [69] enunciated the following principles: "[69] If the words used [in a written contract] 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': A ustralian Broadcasting Commission v Australasian Performing Right Association Ltd (1973) 129 CLR 99 at 109-110 per Gibbs J (as he then was). However, in construing written contracts it should be presumed that the parties did not intend their terms to operate unreasonably. The more unreasonable the result a party's construction would produce, the more unlikely it is that the parties would have intended it. If the parties did intend an unreasonable result, it is essential that that intention be made "abundantly clear": L Schuler AG v Wickman Machine Tool Sales Ltd [1974] AC 235 at 251 per Lord Reid. [70] Dealing with the circumstances where there are internal inconsistencies in a contract, Gibbs J said "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.": Australian Broadcasting Commission at 109. [71] Gibbs J's statement in Australian Broadcasting Commission at 109 that "the court should construe commercial contracts "fairly and broadly, without being too astute or subtle in finding defects", finds reflection in the statement in International Fina Services AG v Katrina Shipping Ltd ("The Fina Samco") [1995] 2 Lloyd's Rep 344 at 350 per Neill LJ (with whom Roch and Auld LL.J agreed) that the primary focus is the agreement itself which "must speak for itself, but … must do so in situ and not be transported to a laboratory for microscopic analysis".

[90]

ii. but also, earlier contracts entered into between Synergy and other parties. 19 In my view the earlier contracts entered into between Synergy and other parties were clearly inadmissible. Those contracts cannot affect the proper construction of the final contracts with which this litigation is concerned. There is no evidence of the circumstances leading up to the negotiation of those, as it were, 'outside contracts'. And even if they had been admissible, they would have been rejected by reference to their probative value being substantially outweighed by the danger that the evidence might be unfairly prejudicial to Synergy and/or be misleading or confusing and/or would amount to a waste of time. 20 The objection concerning the admissibility of the earlier contracts between the same parties raises some interesting questions which are not altogether easy of resolution. Commonly where the same parties have, over a number of years, participated by medium of a number of relevantly consecutive contracts, it might seem surprising that those contracts should not be before the court as part of the matrix of fact in terms of which the last of the contracts being litigated are appropriate to be considered. On the other hand, there is some force in the contention that, insofar as the litigation concerns the entry into of the last of the contracts, it is only the factual situation as to the work which was being carried out shortly prior to the entry into of the last of the contracts that may be accepted as part of the relevant matrix of fact: in which case the Court should not have before it the detail of all of the earlier contracts. 21 I tend to the view that it cannot be said that the earlier contracts are outside the range of 'relevance' as defined in the Evidence Act 1995. Having said that, it seems to me that whether or not any reference to the manner in which the parties saw fit to administer those earlier contracts may cast light on the proper construction of the final contracts is appropriately dealt with as no more than a question of weight. Hence the earlier contracts will be admitted [a decision on the admissibility issue having by a consensus been reserved into the final judgment]. The material background covering provision of services anterior to the entry into the final two contracts 22 As already indicated, there was considerable attention given to the material background covering provision of services anterior to the entry into of the final contracts. 23 Mr Forster put that material forward as an important indicator that the anterior contracts, with only certain exceptions, showed that for many years before the entry into of the final contracts, the practice of both parties had been that only one service provider would exclusively provide particular services for the club at any particular point in time. Hence it was suggested that upon the entry into of the latest contracts, both parties must be taken to have had precisely that notion and intent in mind, which would be the meaning which the final contracts would convey to a reasonable person having all the background knowledge of the parties in the situation in which they were at the time of the final contracts. 24 Mr Bromwich contended to the contrary that a close analysis of what had occurred in the years prior to the entry into of the final contracts showed that from time to time Synergy acquiesced in some of its services being provided by the club 'in house' or by other service providers, and indeed that this was the position at the very time when the final contracts were entered into. 25 In consequence it becomes necessary to travel into this evidence in order to unravel the position. I repeat that I find real difficulty in accepting that any of this material can assist on the construction issue. The reason is that there was no evidence as to the particular circumstances in play at such times when, for whatever reason, the club elected to use its own in-house services or to permit some other service provider to provide services. 26 As an example of the problems which surrounded this evidence, it was not clearly established whether the provision of 'dog patrol' and 'lock up' services by Synergy [as described in the facts below] occurred pursuant to the Norths Contract, or whether it was the result of some more informal arrangement. The provision of each of these services involved "(t)he provision of appropriately licensed, experienced and uniformed Security Operatives to the Club" [as required by Annexure 1 of the agreement], however 'dog patrol' and 'lock up' are not specifically named on the list of dot-point services contained within that annexure. The plaintiff contended that the word 'includes' is, by definition, non-exhaustive, and does not cut back the scope of the contracts in relation to security guard services. The plaintiff pointed to the fact that the dog patrol security hours were included as part of the invoice issued by Synergy to Norths for crowd and patron control, and the fact that such services were provided at a 'rate as per the contract', to evidence the fact that both parties treated these services as being part of the relevant agreement. 27 Absent detailed adjectival information to explain what had happened and why during the pendency of prior ongoing contracts, there is simply no assistance given to the Court in the fact that from time to time the club or other service providers were retained to work with or to replace Synergy in particular tasks allocated to it. As Giles JA observed in Kooee v Primus [2008] NSWCA 5 [at 30]:

[107]

iii. Reliance is placed upon the principle that the Court is not able to disregard clear words, nor under the guise of interpreting the contract, to rewrite it: a principle most recently expressed in: a) Kooee Communications v Primus [2008] NSWCA 5 per Giles JA at 38 citing Lewison, The Interpretation of Contracts , third edition (2004) Sweet & Maxwell at 7.15 and the authorities there referred to; b) Ryledar supra by Tobias JA [at 108]. [notably Synergy's contention was that the word 'requirements' meant 'all requirements'] Decision 35 Ultimately the decision as to the proper construction of the agreement rests solely on the words of the agreement. I accept as correct the Club's submission that upon its proper construction the agreement did not confer upon Synergy an entitlement to be the exclusive provider to Norths of the dot point security services. In truth the parties' previous dealings during the years anterior to the entry into the final contracts do not assist on the construction issue. But to the extent that such evidence may be resorted to, it does not bear out Synergies contention. This is because Norths own in-house security service shared dot point services with Synergy - cf the letter from Mr Merhi to Norths of 11 December 2002 [PX TAB 5 at pages 23 - 24]. 36 The task of the court is to construe the contracts. There simply is no part of the contracts which yields to the construction requiring exclusivity. Had it been intended for an exclusivity provision to be included it would have had to be made express. To the extent, if at all, that the cross contentions threw up an ambiguity, the factual matrix in which the final contracts were set seemed to me, if anything, to favour the club's construction, but in all probability is simply neutral. 37 Further, properly construed, the words "the provision… of Operatives in accordance with the Club's requirements…" simply mean 'as and when required by the Club'. 38 Mr Forster sought to pray in aide what he suggested were the authorities which stood for the following propositions:

[110]

"In support of [the trial judge's approach in finding that a particular construction presented a strong aura of commercial unreality], Giles JA referred to the principle articulated by Lord Diplock in Antaios [1985] AC 191 at 201 to the effect that "if detailed semantic and syntactical analysis of words in a commercial contract is going to lead to a conclusion that flouts business commonsense, it must be made to yield to business commonsense". Although this principle has often been repeated, it should not be seen as permission for judicial rewriting of contractual provisions to accord with the result said by one party to accord with "commercial reality", namely its financial interests. Thus in restating Lord Diplock's principal, the joint judgment in Maggbury 210 CLR 181 at [43] (Gleeson CJ, Gummow and Hayne JJ) remarked : "Of course, what in respect of a particular contract comprises 'business commonsense', as an apparently objectively ascertained matter, may itself be a topic upon which minds may differ and in respect of which an imputed consensus is impossible…. Here the difficulty arises not from the need for detailed semantic and syntactical analysis of the language used in the agreements, but from the use therein of simple terms such as 'at any time hereafter' and 'for ever'. 40 For these reasons it is extraordinary difficult to be certain of what is or is not commonsense in any particular business dealing which has been reduced to writing in the form of a contract. The court requires to be very wary before applying the so-called ' business commonsense' test. 41 I am certainly not satisfied that a reasonable objective bystander in the position of the parties at the time they entered into their contract [and being aware of the background circumstances in which they came to contract] would necessarily form the view that the parties intended that Synergy was to have an exclusive right to provide the so-called dot point services. 42 During the final tranche of written submissions, Mr Forster put an alternative construction argument to the effect that the relevant contract merely prohibited the club from using the security services of other external providers of such services, and that, upon the true construction of the contracts, the club itself was entitled to use its own internal resources to provide its own services of the kind referred to in the dot point service provisions. This construction is also rejected in favour of the clear words used in the contracts. 43 It may be observed that amongst Synergy's sets of alternative submissions it appeared to be submitting that properly construed, the dot point services provisions were clearly intended by both parties:

[150]

"He was asking for an extra dollar an hour to pay the guards because he was having problems sourcing the guards and we could not continue to have the club under resourced in security personnel when we needed them. So I agreed that I would put the matter out to tender on the understanding that he if his was the best quote, then he would retain the business." 51 In terms of the scant contemporaneous material which is available, the letter from Mr Merhi which Mr Kendrigan received on about 30 November 2005, did not include anything about any agreement having been reached with Mr Kendrigan of the type for which Mr Kendrigan contends. There was nothing in the letter to suggest that Synergy was seeking to compete with some other tenderer for the work. 52 Under cross-examination Mr Kendrigan was asked whether or not he had told Mr Merhi on 7 December that another company had come in at a more competitive price. His evidence was that he had said that this had been the case. He was asked whether or not he told Mr Merhi the name of the other company and gave evidence that he thought that Mr Merhi had asked that very question either later that day or the following day and that he had mentioned Barringtons as the other company at that time. His evidence was that in that conversation, Mr Merhi had asked whether the matter could be reconsidered and who had won the bid and been awarded the contract and that he had replied, that the matter 'could not be reconsidered as the decision had been made'. 53 It is clear that there is no reference to any such conversation in his affidavit. Mr Kendrigan could give no good reason as to why that conversation was not referred to in his affidavit. That casts some doubt on the reliability of his evidence. Likewise the fact that there is no reference in the letter of 7 December 2005 to any agreement of the type which Mr Kendrigan contended had been reached in October 2005 suggests that there had been no such agreement. 54 Likewise in my view the evidence adduced from Ms Lampier cannot be regarded as reliable. Her presence at the conference telephone discussion occurred in a situation in which she did not know very much at all about what was happening, did not take notes of what was said in the conversation and was simply going on her own recollection, never having discussed the subject of the conversation with Mr Kendrigan. The events in respect of which she had given evidence occurred in December 2005 being approximately 2 years before she made her affidavit, and the first time that she was asked to reflect back on what had occurred during the course of the conference telephone conversation was some time after she had read the affidavit of Mr Merhi. 55 Mr Merhi presented as a quiet and careful witness who had a reasonable recollection of the events which had occurred. Whilst of course he had a very partisan interest in the result of these proceedings, I formed the clear impression that he had endeavoured to accurately recall the events of the time, which would of course have been difficult for him to forget. Whilst it is only a small matter, the balance of probabilities did not favour his having meekly said on receipt of the bad news that the Club would be changing over to a competitor: "Oh, I am sorry to hear that, I have enjoyed our working relationship". 56 Mr Bromwich heavily emphasised the evidence given by Mr Merhi under cross-examination when he conceded that at a particular point in time one of the Synergy employees was recorded as having carried out work which was in fact done by another. Mr Merhi explained he had gone along with this arrangement at the request of both employees. He recalled the two men in question telling him that the reason for their request was that the one owed the other some money. Mr Bromwich submitted that the resultant incorrect entries in the books of accounts and incorrect made clear that Mr Merhi could not be regarded as a reliable person of integrity such that his otherwise evidence before the court could not be regarded as reliable. 57 In my view this attack on the credit of Mr Merhi was considerably overdone. Even taking the whole of the incident into account it shows no more and no less than that Mr Merhi likely should never have gone along with this arrangement. However no aspect of the arrangement favoured the interests of Mr Merhi, who is seen to have simply erred in having permitted the arrangement. Decision on repudiation 58 Plainly enough the termination provisions of the contracts were not engaged in the manner in which the contracts were summarily brought to an end. Plainly enough, the only answer able to be put forward by Norths to the allegation of repudiation concerns the agreement for which Mr Kendrigan contends and Mr Merhi denies. The evidence given by Mr Kendrigan of the agreement with Mr Merhi to be bound by the result of an outside tender is rejected. The finding is that in all of the circumstances the Club repudiated the agreement. Loss and damage 59 It will be plain from the above reasons that the defendant's loss and damage claim does not require to be dealt with. Notwithstanding the extensive treatment given by both parties to the loss and damage claim it is simply inappropriate in the circumstances for the court to deal with that claim. 60 It would however be wrong for the Court not to indicate that in major litigation of this type the Court is usually assisted by some form of expert evidence. A simple inspection of the vast number of charts and documents which the parties put forward from the bar table in an attempt to analyse the extensive materials adduced concerning loss and damage makes it very plain that this was a case where the court was entitled to the parties' assistance in terms of the mobilisation of expert evidence.

At a glance

Court

Decision date

Before

Source

Judgment (152 paragraphs)

Parties

Legislation Cited (1)

Cases Cited (13)