OLIVEPRINCE PTY LTD v CORUM GROUP LIMITED [2011] NSWSC 309 | Case summary

Supreme Court of NSW|2010-12-01|Before: Latham J

Judgment 1By statement of claim filed on 9 November 2009 the plaintiff, Oliveprince Pty Ltd, seeks damages arising from the termination of a consultancy agreement whereby it was agreed that Mr Michael Rowley (a director and shareholder) of the plaintiff would provide consulting services to the defendant, Corum Group Limited. 2The second claim in the statement of claim in relation to breach of an unsecured convertible note subscription agreement was settled by the parties prior to the hearing of the matter.

The Business Relationship 3A consultancy agreement was initially entered in to between the parties on 24 March 2005 at a time when the defendant was in financial difficulties with a debt of approximately $2.6 million to the Australian Taxation Office and approximately $71 million in accumulated losses. The consultancy agreement at this time was therefore a "casual" contract in which the defendant could terminate at any time, without providing reasons and without notice. Under the agreement, Mr Rowley was to receive the sum of $1000 plus GST per day or part-day for his services which included being Director of the Health Services Division and managing human resources issues for the whole of the defendant, as well as operational issues. 4After the defendant's financial position had been stabilised, a further consultancy agreement ("the Agreement") was made on or around 12 September 2005. The Agreement was prepared by Mr Julian Walter (Chief Financial Officer) of the defendant and included the following terms: (a) that the Agreement was to last for four years from 1 September 2005 until 31 August 2009 inclusive, unless terminated earlier in accordance with the Agreement (clause 3.1); (b) the plaintiff was required to make Mr Rowley (or such other person as agreed in writing by the parties) available to provide services to the defendant for up to 5 days each week for a minimum of 220 business days in each year (clause 2.2); (c) the defendant was required to pay to the plaintiff fees calculated on a daily basis, initially at $1200 per day plus GST (clause 6.1); (d) the daily fee would be increased by a minimum of 5% on the first day of July in each year (clause 6.3); (e) the plaintiff and Mr Rowley must not, without the prior written consent of the defendant, directly or indirectly carry on or otherwise be concerned with, or interested in, any activity competitive with the business of the defendant during the term of the Agreement and for a period of 12 months after the date on which the plaintiff ceased to be engaged by the defendant (clause 12.1(b)(i)); (f) in the absence of any express period of notice stipulated in the agreement, the defendant was required to give to the plaintiff not less than 500 business days notice of termination of the Agreement (clause 13.4(b)), and (g) an issue requiring adjudication was to be adjudicated by a specified procedure (clause 14). 5The Agreement was signed by Mr Rowley on behalf of the plaintiff and Mr Shehadie (Chairman) on behalf of the defendant. The defendant also, at that time, entered into separate consultancy agreements with Mr Mark Winnett (Managing Director) and Mr Walter. 6At the defendant's Annual General Meeting in November 2005, Mr Rowley was elected to the board of the defendant as a Director. 7After the Agreement was signed, Mr Rowley's services were as previously provided, but he took on additional responsibilities, including becoming a Director of a start up venture, PharmX Limited. 8Mr Rowley's evidence established that from 1 July 2005 to 30 June 2006 he was paid $287,000 plus GST (which equated roughly to 239 days worked at $1200 plus GST per day) and from 1 July 2006 to 30 June 2007, he was paid $299,880 plus GST (which equated to 238 days worked at $1260 plus GST per day). 9In September 2007 it appears that Mr Winnett informed Mr Rowley that he was to take "gardening leave" on full pay in order for a strategic review of the Health Services Division to be undertaken. Mr Rowley accordingly did not attend work from on or around 3 September 2007 until 23 October 2007. 10On 23 October 2007 Mr Winnett handed to Mr Rowley a letter of the same date which states: "... This letter serves to advise that Corum Group Limited does not anticipate ultilzing the services of Oliveprince in the foreseeable future. As you are aware, Corum Health Services is making numerous changes to reflect the necessity to comply with previously agreed budgets and their fiscal constraints...At a shareholder meeting of Corum Systems Pty Ltd held yesterday, the shareholder chose to remove you as a Director. Today, Corum Systems will be advising PharmX Pty Ltd that it is removing you as the representative Director of Corum Systems on the PharmX board ." 11An email was subsequently sent by Mr Winnett to all staff of the defendant on 24 October 2007 stating that Mr Rowley had been " relieved of his duties ". 12By email also dated 24 October 2007 to Mr Shehadie, Mr Rowley stated that: "...As per Mark Winnetts' letter of 23/10/07 my services through Oliveprince will not longer be required after today. We need to confirm what termination monies are due (if any) under the consultancy agreement between Cosmos (Corum) and Oliveprince ... dated 12/9/05 Clause 14 of the consultancy agreement provides for an adjudication process to determine such issues This has the added benefit of providing a speedy resolution to this matter (compared to the courts) and keeps the issue out of the public glare ... If we can agree on the termination payout I am happy to resign from the board at your convenience ." 13Following email correspondence with Mr Walter about unpaid invoices, Mr Rowley sent him an email on 25 October 2007 which stated that: "... My services via Oliveprince, I have been informed, 'are unlikely to be called upon in the near future'...I am not required to attend the office and have had my last two invoices refused payment...I am being told however that my services are not terminated...In a normal employment contract the above action would be deemed a dismissal. It would appear to me to trigger a similar outcome in our consultancy contract, except that the existence of a minimum 220 business days payment may well allow this limbo approach. This is what needs to be legally defined..." 14By letter dated 21 November 2007 the plaintiff's solicitors, Leon M Ratner & Associates, wrote to Mr Shehadie of the defendant in these terms : " You have written to our client stating your intention not to perform the Contract, and have not paid moneys payable under the Contract. Our client has exercised its election to affirm the contract and requires you to comply with the terms of it ." 15The response from the defendant's solicitors, Michie, Shehadie & Co dated 27 November 2007 denied that any monies were payable to the plaintiff as: " No services were rendered by your client during the weeks purportedly the subject of the invoices ". 16Between 29 November 2007 and 10 October 2008 the plaintiff endeavoured to have the parties' dispute adjudicated by an Expert pursuant to clause 14 of the Agreement. 17Mr Rowley continued to render invoices to the defendant until 21 June 2008. 18On 4 April 2008 an email from Fadi Tabaja of the defendant stated that Mr Rowley's invoices had not been approved for payment because, "... no liability had been recognized and no payment can be made ". 19On 2 July 2008 the plaintiff served its written submissions to the Expert on the defendant. 20On 10 October 2008 the Expert notified the parties that he had completed his Expert Determination but that he would exercise a lien over that determination until the defendant paid its 50% share of the cost of the fees and charges. As the defendant refused to pay its 50% share, the determination was never provided to the parties. 21Mr Rowley resigned as a Director of the defendant in November 2008 and gave evidence that he attended all board meetings until that time apart from a meeting on 22 January 2008 when he was told by Mr Walters that the only item for discussion was his "termination".

Construction of the Agreement 22The plaintiff submits that the terms of the Agreement are clear and unambiguous; that it was the objective intention of the parties that Mr Rowley would supply a minimum of 220 business days of services to the defendant each year for four years with provision for the plaintiff to be paid on a per diem basis for additional days. Further, the Agreement could only be terminated by giving not less than 500 business days notice (pursuant to clause 13.4(b)) or, at the defendant's option, paying the plaintiff's anticipated earnings in lieu of that notice. If fewer than 500 days remained then the right of the defendant to terminate for convenience was no longer available. 23The plaintiff submits that the defendant's letter of 23 October 2007 was a purported termination of the Agreement by the defendant. However, as fewer than 500 business days remained, it was not possible to give notice and the defendant did not therefore have the right to terminate. Further, clause 13.4(e) obliged the defendant to make payment required by clause 13.4(a) on the date of termination which it failed to do. Accordingly, the defendant's actions on or around 23 October 2007 were not a valid termination of the Agreement pursuant to a contractual right, but instead a repudiation by the defendant of its contractual obligations. 24The fact that the plaintiff affirmed the Agreement (by letter dated 21 November 2007) therefore meant that the contract remained on foot after 23 October 2007. The plaintiff asserts that the defendant further repudiated the Agreement by its email of 4 April 2008. This was accepted by the plaintiff on 2 July 2008, when it served its written submissions to the Expert on the defendant (or alternatively, the plaintiff was entitled to terminate for the defendant's breach in not having paid any of the plaintiff's invoices). 25The defendant denies that the letter dated 23 October 2007 repudiated or terminated the agreement. Rather the defendant maintains that it simply advised the plaintiff that there were no duties to be assigned for the foreseeable future, and that, in the absence of the assignment and performance of duties, there was no obligation to pay the plaintiff. 26In support of this argument the defendant relies on clause 5.1 of the Agreement which provides: "In providing the Consultancy Services the Consultant and Rowley must (a) devote such time, attention and skill during normal business hours, and at other times as reasonably necessary, to the duties assigned...", and in particular, relies on the words "to the duties assigned". Further, it is said that the plaintiff did not have an entitlement to be assigned any duties and the defendant always retained the right to determine what those duties were. 27This argument was amplified by the oral evidence of Mr Shehadie, who contended that the plaintiff's agreement did not have "minimum utilisation" paragraphs, contrary to the agreements with Mr Winnet and Mr Walters. Accordingly, the company's view was that it could simply advise Mr Rowley that it could no longer in the foreseeable future use his services and that such advice did not constitute repudiation or termination. Relevantly, Mr Shehadie acknowledged that termination "would have triggered a very large payment." 28Mr Shehadie further stated that the defendant, "...would have had no problem re-activating the consultancy agreement had the company needed advice in relation to termination of staff, in other words in [the] Human Resources area again." This evidence was, in effect, an attempt to demonstrate that the defendant remained willing to perform its obligations under the Agreement. 29The plaintiff submits in response that clause 5.1 does not provide for the assignment of duties but rather deals with how the consulting services were to be provided to the duties that were assigned, and that some of those obligations were expressed to apply globally (by the words " at all times ") not just to the " duties assigned ". 30Alternatively, the defendant asserts that if the Agreement was repudiated (by the letter dated 23 October 2007), it would not constitute termination unless accepted by the plaintiff. It is submitted that as the plaintiff elected to affirm the Agreement, it remained on foot until the term of the Agreement ended on 31 August 2009. 31Finally, the defendant submits that non-payment of invoices issued by the plaintiff after October 2007 did not amount to a repudiation of the Agreement because the plaintiff did not perform any services under the Agreement in the periods covered by those invoices. 32The ambit of the dispute between the parties is therefore how clauses 5.1 and 13.4 should be construed, whether the Agreement was terminated and if so, when.

Was the defendant entitled to refuse to assign duties to the plaintiff under the terms of the Agreement ? 33Clause 5 of the Agreement is headed "Obligations of the Consultant". Clause 5.1 is headed "Provision of Services". In addition to 5.1(a), set out at [26] above, the plaintiff is to "faithfully and diligently perform the duties assigned", "provide their services in a proper, efficient, diligent and competent manner ..", "act at all times with the utmost good faith to promote the welfare and interests of the Company ...", "at all times comply with the current business plan .." and "comply with any workplace regulations ..". 34The clause on its face is directed to the manner in which the plaintiff is to provide its services. It regulates the performance of the plaintiff for the duration of the Agreement. It says nothing at all on the subject of how, if or when the duties are to be assigned to the plaintiff. It is not suggested that there is an entitlement elsewhere in the Agreement to refuse to assign duties to the plaintiff, other than by way of repudiation or termination. In the absence of such an express term, the question remains whether an implied term to that effect arises from the Agreement. 35When one has regard to clause 2.2, it is clear that the plaintiff was required to make Mr Rowley available to serve the defendant for a minimum of 220 business days per year. The purpose of that clause was to ensure that the defendant received the benefit of Mr Rowley's services on a full-time basis for a year. Termination by the defendant required the equivalent of about 2 years notice or payment in lieu. 36This clause and others in the Agreement must be understood against the background of the business relationship between the parties, referred to above. The plaintiff moved from engagement on a day by day basis to a more stable and secure arrangement, which reflected the value the defendant placed upon the plaintiff's services to the company and its operations. In these circumstances, it can hardly have been within the contemplation of the parties that the defendant could refuse to assign duties indefinitely and that Mr Rowley would be obliged nonetheless to make himself available for work for the duration of the Agreement, without pay, and unable to earn other income in his area of expertise. 37In relation to clause 13.4, the following factors are relevant to its construction:- (a) no such clause existed in the previous consultancy agreement and if the intention of the parties had been to continue a "casual" day-to-day contract with a "no reason for termination" provision then there would have been no need for the parties to enter into the second Agreement; (b) there is nothing in the Agreement to suggest that if duties were withheld by the defendant there could be a reduction in the minimum number of business days (namely 220 days) the plaintiff was required to render services; (c) the Agreement was drafted by the defendant to contain clause 13 (termination) and it therefore follows that that clause represented the parties' agreement as to the only circumstances in which the contract could be terminated, and 38If the defendant's argument is accepted, the defendant could avoid the clear intention of clause 13.4 (namely payment in lieu of notice) by withholding assigned duties. That would achieve an unreasonable result which I do not accept was intended by the parties ( TCN Channel 9 Pty Ltd v Hayden Enterprises Pty Ltd (1989) 16 NSWLR 130 at 146). There is no basis for implying a term in the Agreement to the effect contended for by the defendant.

Termination or Repudiation ? 39The letter of 23 October 2007 is, on its face, a letter dismissing Mr Rowley from providing any further services during the term of the contract. This is consistent with the evidence of Mr Shehadie (transcript of 1 December 2010 at p 63) who said that his, "... recollection was that whilst Mr Rowley was away, there was a determination that he could not be usefully used by the group ..." and it is consistent with the email sent by Mr Winnett on 24 October 2007. 40There being less than 500 days remaining under the Agreement as at 23 October 2007, clause 13.4(a) required the defendant to pay the plaintiff in lieu of notice, if the defendant wished to terminate. It did not do so. Rather, the defendant, by its actions, demonstrated its unwillingness to perform its obligations under the Agreement. 41Accordingly, I have concluded that the letter dated 23 October 2007 was not a valid termination of the Agreement, but a repudiation by the defendant. 42It is clear that the plaintiff by its solicitor's letter dated 21 November 2007 chose not to accept that repudiation. The authorities establish that a repudiation does not, of itself, automatically terminate a contract; a contract continues unless and until the repudiation is accepted ( Automatic Fire Sprinklers Pty Limited v Watson (1946) 72 CLR 435 ; Visscher v Guidice [2009] HCA 34, 239 CLR 361). 43Ultimately, the plaintiff did accept that repudiation. The plaintiff's submissions to the arbitrator dated 1 July 2008, served on the defendant the following day, proceeded on the basis that the Agreement was terminated, without proper notice to the plaintiff and without payment in lieu. 44Accordingly, I do not accept the defendant's submission that the Agreement remained on foot until it ended on 31 August 2009. Relevantly, the defendant in its defence at paragraph 15 pleads that, " The Defendant denies that there was a Consultancy Agreement in force as at 4 th April 2008 as pleaded in paragraph 15 of the Statement of Claim ". Similarly, paragraph 16 of the Defence denies that " the written submissions to the expert constituted an acceptance of the repudiation of an agreement that was not in force as at 2 July 2008. " 45Although Mr Shehadie sought to provide an explanation for these pleadings, they cannot be reconciled with the argument pressed by the defendant during the hearing of the matter. The Defence plainly asserts that the Agreement was at an end before 4 April 2008, although the Defence is silent on the date of termination. 46It follows from the above that the defendant breached its contract with the plaintiff and the plaintiff is entitled to damages.

Adjudication Costs 47Clause 14 of the Consultancy Agreement provides: "An issue which requires adjudication under this Agreement is adjudicated if the following procedures are followed: (a) The parties must, within two Business Days after the receipt of notice from a party requiring adjudication, appoint an Expert agreed to by both parties to determine which of the Company's or the Consultant's position is the more reasonable having regard to the law and the facts. (b) If the parties fail to agree on the appointment of an Expert under clause 14(a) then the parties must request the Australian Commercial Disputes Centre (or a similar body if the Australian Commercial Disputes Centre has ceased to perform such functions) to appoint an Expert to determine the dispute. (c) If the Expert appointed under clause 14(a) or clause 14(b) is unable to carry out the determination, another Expert must be appointed in accordance with clause 14(a) or 14(b) to determine the dispute. (d) The Expert appointed under this clause acts as an expert and not an arbitrator. (e) Each party must make a written submission to the Expert in support of its position. The submission must be delivered to the Expert within 15 days after his appointment and must request he [stit] Expert's determination on an urgent basis. (f) The parties must co-operate fully with the Expert and make available to the Expert all relevant information and documents. (g) The Expert's determination is final and binding on all the parties. (h) The cost of the Expert shall be borne by the party whose position was not determined to be the more reasonable by the Expert. (i) Failure by a party to do any thing required of it under this clause 14 shall be deemed a refusal to co-operate fully and the matter shall be deemed adjudicated in favour of the other party, which shall entitle the other party to act on the basis that the Expert has adjudicated in its favour. (j) Until the dispute has been decided by the Expert, the status quo shall prevail." 48As the defendant refused to pay its 50% share of the Expert's fees and charges, the determination was never provided to the parties and the plaintiff therefore seeks the legal costs it incurred in attempting to have the dispute adjudicated. 49There appear to be various reasons for the defendant's refusal to take part in the adjudication process. 50In a letter from Michie, Shehadie & Co to the plaintiff's solicitors dated 29 August 2008 it requested the plaintiff, "... withdraw its Notice of Dispute and its submissions ..." as "... Oliveprince has improperly invoked the adjudication process and, accordingly, Mr Minus has no jurisdiction to determine this matter ." The letter states that the only issues requiring adjudication under the Agreement were clauses 13.1 and 13.2. 51This was expanded upon in the defendant's submissions (served on the plaintiff by letter dated 5 September 2008) which state, " The clause [14] imposes no general obligation on the parties to resolve any disputes by way of referral to determination by an expert. The clause is not in the nature of a general alternative dispute resolution clause. The only issues requiring adjudication under the contract are set out specifically in clauses 13.1 and 13.2 of the Contract ." 52Clauses 13.1 and 13.2 dealt with termination because of illness and the circumstances justifying immediate termination by the defendant. Both clauses began with the words " the company may terminate this agreement ... if it is adjudicated under part 14 " that Mr Rowley met specified criteria. It is submitted that these words operate to confine the application of clause 14 to disputes or issues coming within the ambit of those two clauses. 53That is a rather strained construction on my reading of the Agreement. It is true that clauses 13.1 and 13.2 are expressed in terms that require adjudication for the purposes of immediate termination, and that clause 14 opens with the words " an issue which requires adjudication under this Agreement" . However, if that was the intention, it could have been unambiguously achieved by substituting the words " an issue arising under clause 13.1 or 13.2 of this Agreement " for the opening words in clause 14. 54I can see no reason to confine clause 14 in that way. It does not conform to sensible and realistic commercial practice, particularly in circumstances where a lengthy and detailed consultancy agreement potentially gives rise to many disputes of a varied and complex nature. 55Moreover, the defendant's evidence did not bear out the construction contended for. In his oral evidence Mr Shehadie (transcript of 1 December 2010 at p 67) stated that the defendant did not consider the adjudication clause came into play because, "... we just had the view that because we weren't terminating it, it didn't trigger the clause ." 56He subsequently gave evidence that the defendant did not engage in the adjudication process initially because the claim was for $36,000 and subsequently for an amount of $650,000, which meant that the process had not been correctly invoked. Further, he thought the "dispute" referred to in paragraph 13 of the Statement of Claim meant " everything in the Statement of Claim " (transcript of 1 December 2010 at p 86) rather than the dispute being referred to the adjudicator at that time. 57This aspect of Mr Shehadie's evidence was particularly unsatisfactory. He acknowledged that there was a dispute between the plaintiff and the company, including a dispute about the construction of the Agreement and the amount, if any, owing to the plaintiff. At no stage did the defendant attempt to engage in the adjudication process and seek to clarify the ambit of the dispute. It appears that the defendant was content to risk the much greater expense inherent in proceedings in this Court. 58Accordingly, the plaintiff is entitled to its costs in attempting to have the dispute adjudicated, in compliance with clause 14.

Damages 59The defendant submits in relation to the plaintiff's claim for damages that: (a) There was no entitlement to any payment by way of retainer in the Agreement; (b) There was no minimum payment guarantee under the Agreement; (c) The payment clause (clause 6.1) provided that fees were to be paid on a daily basis or part thereof; (d) During the Agreement the plaintiff was not entitled to be paid otherwise than for services it provided; (e) The only services alleged to have been performed by the plaintiff after 23 October 2007 were Mr Rowley's activities as Director of the defendant, and (f) If the Court accepts that Mr Rowley's mere continued role as Director amounted to the provision of consulting services then such services were only provided up to November 2008. 60Paragraph 1.1 of the Agreement defines "Consulting Services" to include "providing the services of Rowley as Human Resource Manager and a director of the Company..." and "providing advice to the Board as may be required from time to time". Therefore, in circumstances where Mr Rowley continued to perform the Agreement by remaining a Director of the defendant and attending all (but one) of the board meetings until 26 November 2008, I consider that the plaintiff is entitled to continue to be paid Mr Rowley's daily fee from 23 October 2007 until 2 July 2008 in accordance with clause 6.1 of the Agreement. Taking into account the minimum annual increase of 5% in the daily rate as provided for by clause 6.3(c), I calculate the total as being $252,004.64 (including GST) plus interest. 61The plaintiff is also entitled to be paid for its unpaid invoices for the period 8 to 23 October 2007 which total $17,463.60 (including GST), plus interest. The defendant does not appear to dispute that these invoices are payable. 62In relation to damages payable after the Agreement was terminated on 2 July 2008, as set out above, the defendant contends that Mr Rowley only provided services as a Director until November 2008. The defendant also submits that calculation of damages should be "... by reference to performance of the Agreement which is least onerous to the defendant ." The defendant submits that this should not be done by reference to clause 13.4 but to " ... the provision of 220 days of consultancy services per calendar year. This was the minimum annual staff requirement pursuant to clause 2.2 ... " 63Notwithstanding the plaintiff's submission that damages should be assessed on the basis of how the contract would have turned out had the plaintiff not accepted the repudiation, I am persuaded that the appropriate course is to award damages on the basis of what was within the contemplation of the parties in the event of breach, namely, that the plaintiff would be entitled to receive what the defendant had promised according to the terms of the Agreement. Accordingly, I accept that damages should be awarded from 3 July 2008 until the contract would otherwise have expired on 31 August 2009 on the basis of 220 business days per year. I calculate this sum, including the minimum guaranteed increase of 5% as and from the review date, as $358,188.26, plus interest. 64Although the defendant raised the issue of mitigation during cross-examination of Mr Rowley, I need not consider this issue in circumstances where it was not pleaded in the defence. 65Accordingly, the plaintiff is entitled to the sum of $627,656.50 plus interest, plus the costs incurred in respect of the attempt at arbitration, for breach of contract. 66Judgment is entered for the plaintiff in the sum of $766,327.44

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: 19 April 2011

OLIVEPRINCE PTY LTD v CORUM GROUP LIMITED

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