Australian Hotels Association (NSW) v Tab Limited - [2006] NSWSC 293

No judgment structure available for this case.

CITATION: Australian Hotels Association (NSW) v TAB Limited [2006] NSWSC 293
This decision has been amended. Please see the end of the judgment for a list of the amendments.

HEARING DATE(S): 20, 21 and 22 February 2006

JUDGMENT DATE :
19 April 2006

JUDGMENT OF: Bergin J

DECISION: Specific Performance refused. Summons dismissed.

CATCHWORDS: [COMMERCIAL CONTRACTS] - Application for specific performance of "Support Agreement" between plaintiff and defendant - whether plaintiff's entry into an exclusive agency agreement with a competitor of the defendant amounted to repudiatory conduct in respect of "Support Agreement" between plaintiff and defendant - duty of co-operation conceded - whether implied obligation of good faith - whether defendant entitled to terminate "Support Agreement".

CASES CITED: Alcatel Australia Ltd v Scarcella (1998) 44 NSWLR 349
Australis Media Holdings Pty Limited v Telstra Corporation Ltd (1998) 43 NSWLR 104
Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337
Esso Australia Resources Pty Ltd v Southern Pacific Petroleum NL [2005] VSCA 228
Metropolitan Life Insurance Co v RJR Nabisco Inc 716 F Supp. 1504 (S.D.N.Y., 1989)
Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451
Progressive Mailing House Pty Ltd v Tabali Pty Ltd (1985) 157 CLR 17
Reardon Smith Line Ltd v Hansen-Tangen [1976] 1 WLR 989
Secured Income Real Estate (Australia) Limited v St Martins Investments Pty Limited (1979) 144 CLR 596
Stirling v Maitland (1864) 5 B & S 840; (1864) 122 ER 1043
Toll (FGCT) Pty Limited v Alphapharm Pty Limited & Ors (2004) 219 CLR 165
Vodafone Pacific Ltd v Mobile Innovations Ltd [2004] NSWCA 15

PARTIES: Australian Hotels Association (NSW) (Plaintiff)
TAB Limited (ACN 081 765 308) (Defendant)

FILE NUMBER(S): SC 50073/05

COUNSEL: R J Darke SC; E Raper (Plaintiff)
W T Houghton QC; A I Tonking (Defendant)

SOLICITORS: Baker & McKenzie (Plaintiff)
Allens Arthur Robinson (Defendant)

LOWER COURT DATE OF DECISION: 02/20/2006

- 1 -

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION
COMMERCIAL LIST

BERGIN J

19 APRIL 2006

50073/05 AUSTRALIAN HOTELS ASSOCIATION (NSW) v TAB LIMITED

JUDGMENT

1 In recent years the arrangements for the broadcasting of racing in New South Wales (thoroughbred horse racing, harness racing and greyhound racing) (the industry) has undergone and is undergoing change. That process has at times been, and apparently continues to be, controversial and difficult as each of the commercial players manoeuvre for market share. A catalyst for the change was the entry into the industry of the company ThoroughVisioN Pty Limited (TVN) with the plan to establish a separate channel for the broadcasting of thoroughbred racing that until then had been broadcast by SKY Channel Pty Limited (SKY Channel) together with the broadcasting of the harness and greyhound racing. It was in this environment that the plaintiff, the Australian Hotels Association (NSW), and the defendant, TAB Limited, entered into an agreement entitled “Support Agreement” on 22 December 2004.

2 The defendant purported to terminate the Support Agreement on 21 March 2005 on the basis of the plaintiff’s entry into an agreement with TVN (the TVN Agreement) in February 2005. The plaintiff seeks declarations that: (1) the purported termination of the Support Agreement by the defendant by letter dated 21 March 2005 is invalid and of no effect; and (2) that the Support Agreement remains on foot and continues to be legally binding. The plaintiff seeks an order for specific performance of the Support Agreement.

The plaintiff

3 The plaintiff is an association incorporated under the Industrial Relations Act 1996 that represents the interests of hoteliers and the hotel industry in New South Wales.

The defendant

4 The Totalizator Agency Board (the Board) was established in 1964 as a statutory body to conduct off-course totalizator wagering in New South Wales. On 25 February 1998, the Board became TAB Limited pursuant to the provisions of Totalizator Agency Board Privatisation Act 1997. On 6 March 1998 TAB Limited was granted an off-course totalizator licence and an on-course totalizator licence for 99 years with an exclusivity period for 15 years from 22 June 1998. On 15 April 1998 TAB Limited purchased SKY Channel. In June 1998 TAB Limited was privatised and listed on the Australian Stock Exchange (ASX). Tabcorp Holdings Limited (Tabcorp) was listed on the ASX in August 1994.

5 In late 2003 and early 2004 TAB Limited was the subject of competing takeover proposals by UNiTAB Limited and Tabcorp. The UNiTAb offer lapsed in April 2004 and Tabcorp completed the takeover of TAB Limited in September 2004, at which time the defendant became a wholly owned subsidiary of Tabcorp. The defendant provides wagering services to hotels and clubs which offer TAB agencies, known as PubTABs and ClubTABs respectively, on their premises. The hotels enter into individual agency agreements with the defendant (the PubTAB and ClubTAB Agreements) that allow the hotels to operate PubTAB and ClubTAB agencies. Pursuant to the PubTAB and ClubTAB Agreements the defendant pays the hotels and clubs a commission based on the turnover of their respective wagering operations.

SKY Channel

6 SKY Channel’s business is predominantly concerned with the creation and sale of subscription television services that focus on broadcasting throughout Australia and internationally thoroughbred, harness and greyhound race meetings. SKY Channel’s program rights with the major Australian race clubs fall into three broad categories: (1) commercial rights which cover the rights to transmit the racing schedule from Australian race clubs to commercial locations – TAB agencies, clubs and hotels; (2) international rights which cover the rights to broadcast outside Australia the signal from the majority of Australian racing clubs to overseas customers; and (3) pay television rights which cover broadcasting rights to the racing signal of certain Australian race clubs distributed as a basic TV subscription package through the major TV carriers.

7 In return for the commercial rights, SKY Channel pays the race clubs various rights fees. Its primary function is to support and enhance TAB wagering turnover. More than 90% of the hotels and clubs in New South Wales that have wagering facilities subscribe to SKY Channel. The defendant is a customer of SKY Channel to the extent that it subscribes to SKY Channel services for display in 310 TAB agencies in New South Wales. Tabcorp is also a customer of SKY Channel to the extent that it subscribes to the service for display in some 95 TAB agencies in Victoria.

TVN

8 In 2002 the Victorian Race Clubs aggregated their broadcast rights in TVN, a company formed by Racing Victoria Limited (RVL). After the expiry of the existing agreement in 2002, SKY Channel negotiated with TVN for a new rights agreement. TVN granted to SKY Channel the Victorian rights for two years with two six month options exercisable by SKY Channel. In September 2004 RVL transferred some of the shares it held in TVN to Sydney and Victorian race clubs so that TVN was 50% owned by the Victorian Thoroughbred Racing Industry, 25% by the Australian Jockey Club (AJC) and 25% by the Sydney Turf Club (STC). Racing clubs are licensed to conduct on-course totalizators on racing events at their racecourses.

Blackout

9 On 4 March 2004 the rights held by SKY Channel to broadcast the AJC and STC meetings expired. Negotiations broke down and the AJC and the STC decided not to renew their contracts with SKY Channel. In March 2004 to early August 2004 the AJC and STC race meetings were no longer broadcast on SKY Channel. This has been referred to as the “blackout”. After Tabcorp assumed management control of the defendant and SKY Channel, it entered into negotiations with a view to a joint venture between SKY Channel and TVN. Heads of Agreement were signed on 6 August 2004 and the blackout ceased from 7 August 2004. The joint venture negotiations broke down, apparently in early 2005, however, agreement was reached for SKY Channel to continue broadcasting the AJC and STC race meetings until May 2005.

The facts

10 It is apparent that from as early as 2003 the relationship between the plaintiff and the defendant was not amicable. On 17 October 2003, Brian Ross, the CEO of the plaintiff, wrote to the then managing director of the defendant, Warren Wilson, and referred to a meeting on 2 October 2003 at which the defendant had emphatically refused to engage in collective bargaining or deal with the plaintiff’s members’ contracts through the plaintiff. Mr Ross advised that the plaintiff had established an advisory group and that it proposed to establish a dispute resolution committee to set up a dispute resolution procedure. Mr Ross referred to alleged anomalies between TAB commissions and SKY Channel costs and SKY Channel fees. Mr Ross stated that the plaintiff wished to move towards a more “mutually beneficial and workable relationship of benefit” to the plaintiff, the defendant and the public.

11 On 19 March 2004 the National President of the plaintiff, John Thorpe, wrote to Mr Wilson in terms that included the following:

The Association has several thousand member hotels who are subscribers to your Sky Channel Service under the standard Sky Transmission Agreement. Under those agreements you contract to provide satellite transmission of sporting events, principally horseracing.

Sky Channel broadcasts have been known to be synonymous with horseracing; indeed “Sky is racing” to most people, including our members. The Sydney Autumn Carnival is of course a major event in the Australian racing calendar.

Over the last weeks it has become apparent that you did not have the right to take the signal of race meetings conducted by the AJC and STC beyond 4 March. Yesterday you announced that you would not continue broadcasting Sydney thoroughbred race meetings. The inability on the part of Sky Channel to ensure broadcasting of AJC and STC race meetings beyond 4 Mach 2004 was not made known to our members, many of whom have agreed to subscribe to Sky Channel for periods well beyond that date. These members are now likely to suffer loss or damage as a consequence.

12 Mr Thorpe went on to claim that the defendant had contravened s 52 of the Trade Practices Act 1974 and threatened a class action by hoteliers in the Federal Court of Australia unless the defendant continued to provide satellite transmission coverage of the AJC and STC race meetings.

13 On 23 March 2004 a meeting took place between representatives of the defendant and SKY Channel and the plaintiff. It is apparent Mr Thorpe made a number of derogatory comments about the defendant and SKY Channel and indicated that there were 3,500 PubTABs in Australia with SKY and that they all “wanted out… they’ve had it”. Mr Thorpe said that the hotels were determined to obtain lower rates from SKY Channel and that he was going to pursue this goal. He claimed that publicans were enduring spiralling costs and that country and regional hoteliers were hurting the most.

14 Prior to this meeting the defendant had apparently been a sponsor of the plaintiff and had not renewed its sponsorship in 2004. Mr Thorpe was very critical of the defendant for not renewing that sponsorship and the following statements are attributed to Mr Thorpe at that meeting:

Ø You’ve played hardball with us, now we’re playing hardball with you.

Ø We knew what the race clubs were doing well before you.

Ø I tossed my lot in with people who’ll work with us to get a better deal for the (hotel) industry.

Ø We have talked to the AJC, STC and Graham Duff … He talked as Racing Victoria … he talks to our people in Victoria.

Ø You made a mistake, you should have come to us first to get support to face the race clubs … We’ll support the best proposition we can get, and we thought that was what we were going to get from you today.

Ø You will lose out if you don’t have the magical position … and we’re the magical position.

15 At the conclusion of the meeting the parties agreed that they each had a desire to improve the current relationship and would meet again in the near future. It is clear from the discussion at this meeting that the plaintiff claimed to know what the AJC and the STC were doing in respect of the broadcast rights that SKY Channel had, at that stage, lost. It was on this premise that the plaintiff claimed that it had the “magical position”. Although that expression was not explained in the evidence, it is reasonably clear that the plaintiff was suggesting that it had the upper hand in respect of knowing what was going on in the industry and that if the defendant did not join forces with the plaintiff it would “lose out”. What that meant commercially, it seems to me, was that the defendant would remain in the position of having no contractual rights to broadcast the AJC and STC races unless it did a “deal” with the plaintiff.

16 On 26 March 2004 the plaintiff published a media release in the following terms:

AHA WELCOMES NEW RACING CHANNEL FOR PUB PUNTERS

The Australian Hotels Association today welcomed the joint venture between the Australian Jockey Club, Sydney Turf Club and ThoroughVisioN to establish a new racing channel.

Australian Hotels Association president John Thorpe said this move heralds a new era for the industry.

“Hotels are an integral part of the racing industry, providing retail services to the community and it is important that any service provider recognises the role we play, “ said Mr Thorpe.

Hoteliers across Australia believe the Sky Channel/TAB monopoly has continually failed to address their concerns including the issue of highly inflated and unrealistic fees.

Last week the TAB Ltd blacked out Sydney race meetings and disadvantaged the Australian punter, not withstanding the offer from the race clubs to make those broadcasts available to TAB Ltd at no cost.

17 On 31 March 2004 Mr Wilson wrote to Mr Thorpe referring to a meeting that occurred on 30 March 2004 “to discuss the ongoing business relationship” between the plaintiff, the defendant and SKY Channel. Mr Wilson’s letter included the following:

The current situation is not in the best interests of any of us, and leads to the exchange of hostile correspondence and public criticism which is repeated in the media. This is not a healthy way of doing business, and is not the way we prefer to operate. Hotels who are members of the AHA include customers of Sky Channel and agents of TAB Limited, and in our view it is important to maintain a good relationship between our organisations.

18 Mr Wilson then set out a series of proposals together with a suggestion of a rebate based on weekly turnover. The proposal included a suggested rebate to hotels across New South Wales based on current turnover figures totalling $2.57 million. The letter included the following:

I note that the proposals set out above would provide an increase of approximately 54% in the net cash surplus received by NSW Hotels and Clubs from TAB Limited and SKY Channel.

The 12 May 2004 letter

19 After further negotiations in respect of the proposals, Mr Wilson wrote again to Mr Thorpe on 12 May 2004 and Mr Thorpe signed that letter as “Agreed and Accepted”. That letter was in the following terms:

I refer to our recent discussions concerning operations of hotels, TAB and Sky Channel and, as requested, set out our agreement in principle for your confirmation.

1. Sky Channel is prepared to offer a fee reduction of 9.75% to its hotel customers in New South Wales. This fee reduction will be backdated to 20 March 2004 and remain in place while Sky Channel does not hold the rights to broadcast meetings from the AJC and STC.

In addition, we will enter good faith discussions in January to March 2006 to assess whether we can hold the fee increases to CPI or less for the period 30 June 2008.

3. Sky Channel and the AHA will enter a formal agreement expiring 30 June 2006 in relation to Sky Channel’s sponsorship of AHA, which takes the form of $180,000 worth of hosted airtime at ($15,000 per half hour) for the AHA to broadcast material to its members. Naturally Sky Channel would expect to receive the normal benefits provided to sponsors contributing this amount to the AHA.

4. Tab Limited will enter into a new sponsorship with the AHA at a fee of $350,000 per annum indexed to CPI increases, and will receive the normal benefits provided to sponsors contributing this amount to the AHA.

As discussed, the rebate will be based on the following turnover bands:

Range	Weekly turnover	Rebate of SKY fee
1	$1 - $9,999	42.5%
2	$10,000 - $14,999	22.5%
3	$15,000 - $24,999	10%
4	$25,000 - $74,999	7.5%
5	$75,000 and above	5%
InfoBet sites	60%

This promotion fee will remain in place for three years (from 1 July 2004 to 30 June 2007), or for the balance of any existing Sky Channel contract held by an individual hotel, whichever is longer.

Please note that the total promotion fee payable is $3 million per annum maximum payable in the first year. Accordingly, if there is an increase in the number of PubTAB outlets in NSW, then there may need to be some adjustment to the discount bands, so that the total fee fits within this maximum amount.

We further agree to good faith negotiations in 12 months to discuss the $3 million based upon movements in PubTAB numbers at the time.

6. Sky agrees to alter all hotel contracts to reflect a three (3) months notice of cancellation for its contracts instead of the existing six (6) months clause.

As part of these proposals, we would like to discuss further a number of ideas for improving and developing the business relationship between our organisations. These ideas include quarterly meetings to discuss marketing, promotion, and other industry issues, which might take the form of a formal advisory committee. Such a committee could include representatives of Tab Limited, Sky Channel, hotels and registered clubs. Tab Limited suggests that Michael Cleary might be a good choice as the initial chairman.

The AHA will endorse, and assist Tab Limited to market and sell, a Statewide Linked Jackpot product offered by Tab Limited’s maxgaming division to AHA members. In return, maxgaming will pay the AHA 8% of the fixed daily fees received by maxgaming from hotels in respect of machines connected to the link. A joint working group of the AHA and maxgaming will agree details of the Statewide Linked Jackpot product.

Tab Limited anticipates that these initiatives will provide benefits to our Wagering and Gaming divisions, by promoting revenue growth through those divisions, and improving our relationship with our hotel customers. As discussed, these committees and other marketing initiatives will also provide benefits to the AHA, such as those set out above.

The final issue that we need to discuss in order to make this proposal binding is to agree on the working of a joint press release. We will send you a draft release shortly.

Please sign this letter and fax it back to me to confirm our agreement.

20 On 31 May 2004 Mr Ross wrote to Mr Wilson in the following terms:

OUR AGREEMENT ON SKY AND RELATIONSHIP ISSUES

I refer to the letter of agreement of 12 May 2004 and can only emphasise how well it has been received throughout the hotel industry.

While I appreciate that you have been very busy lately, parts of our agreement require immediate implementation. For example, the Sky fee reduction which affects current fees. Our agreement also has many parts and needs to be implemented at a number of organisational levels. There are also sponsorship arrangements, that require formal documentation.

21 Mr Ross then suggested a meeting later that week to discuss the other matters including the establishment of the various committees referred to in the 12 May 2004 letter.

22 In July 2004 the rebate was adjusted in the following way:

Weekly wagering turnover	Rebate of SKY Channel fee
$1 - $9,999	40.0%
$10,000 - $14,999	20.0%
$15,000 - $24,999	7.5%
$25,000 - $74,999	5.0%
$75,000 or more	2.5%
InfoBET only outlets	55.0%

23 During July 2004 the parties were also discussing the sponsorship proposals for the purpose of progressing them to a stage where agreement could be reached on the detail.

24 On 27 August 2004 SKY Channel wrote to the plaintiff advising that an agreement had been reached between Tabcorp (as SKY Channel’s new owner) and TVN whereby Sydney’s thoroughbred racing was going to be part of SKY Channel’s coverage. SKY Channel advised the plaintiff that the reduction in subscription fees of 9.75% would no longer apply from 7 August 2004. It also confirmed its commitment to hold its subscription fees at the present level until 30 June 2006.

25 On 29 October 2004 the General Manager of Retail Sales, Wagering, of the defendant, Mr John Ballenger, wrote by email to the plaintiff in relation to the attempts to finalise the sponsorship agreements between the plaintiff and the defendant. That letter advised that the defendant had agreed to pay $350,000 per annum as a sponsorship fee but that there were some concerns over the proposed benefits. The email included the following:

The problem from our point of view is that the benefits offered by the AHA (NSW) to date, in return for our $350,000 fee, have been virtually identical to the benefits offered by the AHA (NSW) in February in return for a proposed $50,000 fee. We have been given very little additional value for the additional $300,000 and also have concerns as the benefits offered compare unfavourably with those benefits we receive under similar sponsorship deals with other industry bodies.

In order to ensure that Tab receives full and proper value for its additional $300,000 fee, we suggest that the following provisions be added to the sponsorship agreement:

26 The email went on to suggest the additional sponsorship benefits that would be provided to the defendant to provide “true value for our $350,000 investment” including the introduction of a development course, endorsement for the defendant’s attendance at sub-branch meetings, co-sponsorship, a certain number of advertisements and attendances at various functions.

27 On 24 November 2004 Mr Piggott, the Chief Executive of the Wagering Division of Tabcorp, attended a meeting in the defendant’s boardroom with Mr Ross and a solicitor then acting for the plaintiff, John Miller, to discuss the proposed agreement between the parties. During the meeting Mr Piggott advised Mr Miller and Mr Ross that he was looking for more in the way of ensuring the plaintiff’s “support and protection” for the defendant in the proposed agreement. He said he would like to specify that the plaintiff “not do anything to damage us in the industry”. He suggested that such could be achieved by including a clause in relation to “disparagement”. This suggestion was rejected at this meeting however the position changed later in the day. On the afternoon of 24 November 2004 Mr Miller forwarded to the defendant a copy of a draft Support Agreement and advised in the covering letter that the proposed draft was designed to include items agreed and reflected in the 12 May 2004 letter other than those dealt with by way of sponsorship agreement. The covering letter also included the following:

The terms of the Support Agreement were settled between us in July and August and submitted to TAB for execution on 20 August. There were, however, several problems with the TAB Sponsorship Agreement though not the Support Agreement. That remains the current position.

Notwithstanding, my instructions are the AHA has no difficulty with amending the Support Agreement reflecting the sentiments expressed by Michael Piggott this morning or do so by way of a letter. A letter would have the benefit of keeping the Support Agreement intact.

28 On 10 December 2004 Mr Ballenger responded to Mr Miller’s letter in terms that included the following:

The objective of our meeting on 24 November was to ensure that any formal agreements between TabCorp and the AHA (NSW) included commentary to further represent the intended positive sentiment of the business relationship going forward.

That the AHA (NSW), its employees and executive members will:

1. Actively support the initiatives of Tabcorp where these do not directly conflict with those of the AHA (NSW). This may include such actions as lobbying government, the media or other such relevant bodies.

2. Not disparage Tabcorp or any of its subsidiaries in any way in any internal and/or external written or verbal communications.

29 On 13 December 2004 the plaintiff advised that the “non-disparagement provisions” were acceptable.

The Support Agreement – 22 December 2004

30 On 22 December 2004 the plaintiff and the defendant executed the Support Agreement. Its terms (excluding the terms of the Sponsorship Agreements) were as follows:

BACKGROUND:

A. The AHA represents the interests of member hotels in New South Wales.

B. TAB conducts wagering and gaming operations including from hotels and, in conjunction with Sky Channel Pty Limited, broadcasts racing and sporting events into hotels.

C. The AHA and TAB acknowledge the mutual benefits of promoting wagering and gaming in hotels and to secure those benefits, they are entering into this Agreement.

NOW THIS WITNESSES as follows:

1. INTERPRETATION

“hotel”

PubTab Agency Agreement”

“PubTab Facility”

“Sky” m

“Sky Agreement”

Sky fees”

1.2 AHA enters into this Agreement on behalf of hotels in New South Wales and each party agrees that subject nevertheless to the express terms of this Agreement, the obligations, covenants and agreements between TAB and AHA under this Agreement are intended to be contractually binding on AHA and may be enforced by or against AHA, notwithstanding that a hotel and not the AHA may benefit therefrom.

1.3 A reference to a singular number includes a reference to a plural number and vice versa.

1.4 A reference to a party to this document includes in the case of a natural person a reference to his personal representatives, successors in title and assigns and in the case of a corporation a reference to its successors and assigns.

2. SKY

2.1 Sky Fees

(a) TAB will procure that Sky reduces by 9.75 percentum per annum the Sky fees payable by a hotel in relation to the racing coverage provided by Sky under a Sky Agreement during any period after 20 March 2004 while Sky does not transmit race meetings conducted by Australian Jockey Club and Sydney Turf Club.

(b) TAB will procure that Sky will not increase Sky fees until 1 July 2006, whether they are payable under an existing Sky Agreement or a successor Sky Agreement. This agreement not to increase Sky fees does not extend to a new Sky Agreement. In this clause:

“existing Sky Agreement”

“successor Sky Agreement”

“new Sky Agreement”

2.2 During the period January to March 2006, the parties will hold discussions in good faith in relation to Sky fees to be charged for the period from 1 July 2006 to 30 June 2008, it being the intention of TAB to assess whether it can hold any increase in Sky fees to no more than the percentage increase in the Consumer Price Index (All Groups – Sydney) between the December quarter 2004 and the December quarter 2005 for the annual periods to 30 June 2007 and 2008.

2.3 Promotional Rebate on Sky Fees

(a) TAB will pay a promotional rebate (“the rebate”) against Sky fees to each qualifying hotel. To be a qualifying hotel, a hotel must:

(i) be a party to an operating PubTab Agency Agreement for a minimum period of three months; and

(b) The promotional rebate will be paid to all qualifying hotels for each of the 3 years commencing 1 July 2004, 1 July 2005 and 1 July 2006 (“the promotional period”) provided however that a hotel that has a Sky Agreement on the date of this Agreement the term of which does not expire until after 30 June 2007, will remain entitled to receive the rebate until the expiration of the term of its Sky Agreement.

(i) the rebate will initially be calculated in accordance with the Schedule;

(ii) turnover will be adjusted each month on a rolling annual basis and the turnover so calculated for the purposes of the rebate will be the rolling monthly average;

(iii) when a hotel is first paid the rebate after the initial period of three months, the rebate will be calculated using a minimum period of 13 weeks’ average sales;

(iv) the rebate will be paid monthly in arrears and included in the normal PubTab sales commission statement and payment; and

(v) the total annual promotional rebate will be capped at a maximum of $3 million, regardless of the number of qualifying hotels (and accordingly the calculations in the Schedule may be adjusted by TAB to ensure that the total rebate paid is $3 million), not more or less.

(d) Within 2 months of the end of each financial year TAB will provide the AHA with a certification prepared by its Auditors of the total amount of the rebate allowed to hotels for the financial year.

2.4 Sponsorship

(a) In order to promote Sky and its products to hotels and enhance the reputation of Sky in the hotel industry, AHA has proposed to Sky that it be an AHA diamond sponsor in terms of the proposal which is Attachment A. TAB will procure Sky’s acceptance of the proposal after this Agreement is signed. Upon acceptance Attachment “A” will be the Sky Sponsorship Agreement.

(b) At no charge Sky will provide AHA with one half hour of hosted air time on Sky Channel each month at times to be agreed to enable AHA to broadcast to its members. (The agreed cost of air time is $15,000 per one half hour, making the value of $180,000 over 12 months.)

(c) In each of 2005 and 2006 the parties will co-operate in good faith to ensure that the entitlements and opportunities to be afforded Sky in these years under the Sky Sponsorship Agreement are not inferior to those afforded Sky in 2004.

(d) The AHA agrees to comply and TAB agrees to procure that Sky complies with the Sky Sponsorship Agreement to maximise the mutual benefits of it.

(e) The AHA will ensure that Sky receives at last an equivalent level of benefits to those received by other sponsors paying $180,000 per annum to the AHA.

Cancellation Notice

TAB will procure that each new Sky Agreement provides for a 3 months’ notice period for cancellation (rather than the existing 6 months’ notice period for cancellation) and that each existing Sky Agreement is deemed to contain a 3 months’ notice period for cancellation.

3. TAB

Sponsorship

(a) In order to promote TAB and its products to hotels and enhance the reputation of TAB in the hotel industry, AHA has made a proposal to TAB that it be a diamond Sponsor in terms of the proposal that is Attachment B. TAB accepts the proposal and will execute the acceptance immediately after this Agreement is signed. Upon acceptance the Attachment will be the TAB Sponsorship Agreement.

(b) TAB agrees to pay AHA $350,000 per annum for the next 3 years, indexed to CPI annual increases, by way of sponsorship in accordance with the TAB Sponsorship Agreement, the payments to be as follows:

(i) for calendar year 2004, on the date of this Agreement; and

(ii) for the calendar years 2005 and 2006, by four quarterly instalments in arrears (the first payment to be made on or about 31 March in each year, notwithstanding any provision in a TAB Sponsorship Agreement to the contrary).

(c) In each of 2005 and 2006 the parties will negotiate the benefits and entitlements of TAB’s sponsorship for that calendar year based on AHA events and arrangements proposed for that year and do so in good faith to ensure that the entitlements and opportunities to be afforded TAB in these years under the TAB Sponsorship Agreement are not inferior to those afforded TAB in 2004.

(d) The AHA will ensure that TAB receives at least an equivalent level of benefits to those received by other sponsors paying $350,000 per annum to the AHA.

3.2 The parties agree to comply with the TAB Sponsorship Agreement to maximise the mutual benefits of it.

4. ADVISORY COMMITTEE

4.1 The parties are committed to improving their relationship and the relationship between hotels and TAB. To assist in achieving this objective, the parties agree to form an advisory committee (“the Advisory Committee”) which are comprised representatives of AHA and TAB (including Sky) and a Chairman. Each party will be entitled to nominate the same number of members to the Committee which will comprise not less than 4 nor more than 8 nominees of the parties.

4.2 The Chairman will be a person with extensive experience in the hotel, wagering and gaming industries and be acceptable to both parties. The Chairman may be replaced by agreement between the parties from time to time.

4.3 The Advisory Committee shall meet each 3 months and may meet more frequently if a party gives 14 days’ written notice to the other and to the Chairman that it wishes the Advisory Committee to meet. Such a notice must state the reason for calling a meeting.

(a) alternating year by year, a party shall provide secretarial services for the Advisory Committee. For the first year AHA shall provide those services. The services will include:

(i) preparation of an Agenda;

(iii) keeping and distributing Minutes of Meetings;

(b) if the Advisory Committee deems it appropriate, an issue may be put to a vote and, if so, the Chairman shall have a casting vote (but such vote is only binding on a party with its agreement).

RESOLUTION OF DISPUTES

Should there be any dispute between the parties on any issue concerning this Agreement (which may be signified by a party stating in writing to the other party that it is in dispute and identifying the matter the subject of the dispute) resolution of the dispute may be referred by the Chairman of the Advisory Committee (or by a party if at the time of the dispute there is on Chairman) to the President of the Institute of Chartered Accountants who will be asked to nominate a member of the Institute to mediate the dispute. That person’s determination will not bind the parties.

TERMINATION

TAB may terminate this Agreement immediately by notice to AHA:

(a) if in TAB’s reasonable opinion (and excluding any commercial considerations) the continuation of this Agreement will adversely affect TAB’s ability to obtain or maintain any material licence or permit from any relevant Government Agency, including the Licences; or

(b) TAB is directed to terminate this agreement by the Minister or a relevant Government Agency,

Totalizator Act

7. MISCELLANEOUS

Relationship of the Parties

Nothing in this Agreement shall constitute the parties as partners.

7.2 Notice of Provision

A notice given under this Agreement shall be given:

General Counsel
at 495 Harris Street
ULTIMO NSW 2007

(b) if to the AHA, to:

the Chief Executive from time to time

at Level 5, Prince Centre
8 Quay Street
SYDNEY NSW 2000

7.3 Non Disparagement

7.3.1 The AHA agrees that it, its Executive Members and staff will support the initiatives of TAB Limited (including to government and in the media) where those initiatives do not conflict with the interests of the AHA and its members and are not inconsistent with AHA policy.

31 The sponsorship proposals referred to in clause 2.4(a) for SKY Channel and in clause 3.1(a) for the defendant were respectively Attachments A and B to the Support Agreement.

Meeting with TVN – 22 December 2004

32 On 22 December 2004, after the Support Agreement had been executed, Mr Thorpe and Mr Ross met in Sydney with representatives of TVN including Mr Sweeney, the Managing Director of TVN and a representative of Merrill Lynch. By this stage Mr Wilson had left the employment of the defendant and had become a consultant to the plaintiff. He attended the meeting in that capacity. At that meeting Mr Ross, or one of his colleagues, said that the racing industry’s objectives in taking a stand against SKY Channel was to secure better pricing of the broadcast material. Mr Wilson said that SKY Channel earned around $40 million pre-tax that could be split between the clubs and the plaintiff in the form of lower SKY fees. Mr Wilson put forward a thesis that TVN could establish a separate channel for Victorian and Sydney thoroughbred races and “SKY would be devastated” because it would lose coverage of 50% to 60% of Australian races. Mr Wilson also said that such a move, that is the establishment of a separate channel, would prompt a renegotiation of other rights agreements and if that were to happen it would effectively transfer the SKY Channel business to TVN within one, two or three years, or a little longer, depending upon the duration of the existing rights.

33 The TVN representatives pointed out that the new channel would have considerable costs and risks associated with it. In response Mr Wilson said that the plaintiff could assist in that regard, firstly by recommending that its members subscribe to TVN and secondly by recommending the maximum subscription fee to be paid for the residual SKY Channel services. Mr Wilson also suggested that the plaintiff could assist by becoming an agent for TVN and that the plaintiff had identified that the success of any new channel was dependent upon subscription revenue from the plaintiff’s members. There was also discussion about the plaintiff having board seats on the board of TVN. Mr Ross gave the following evidence in relation to the meeting (tr 42):

That was the purpose of the meeting, to see where the AHA would be coming from because bearing in mind as I have said a couple of times, my members were going to lose the pictures of Sydney metropolitan races and all of the Victorian thoroughbred racing which generates a considerable amount of the wagering turnover in the TAB, I don’t know the exact figures, they are probably 60-70 per cent and we had to do this to protect our members’ interest.

34 Mr Ross claimed in evidence that at the time of the meeting on 22 December 2004, he had a concern that the plaintiff’s members might lose access to the broadcast of the thoroughbred races if SKY Channel was unable to obtain a continuation of contractual broadcasting rights. Mr Ross accepted that TVN was assessing whether it could get the plaintiff’s exclusive and/or tangible support if it decided to go it alone with the new channel for the thoroughbred races. At the conclusion of the meeting it was agreed that TVN and the plaintiff would continue to meet to try to finalise agreement to establish a stand-alone channel. It was also agreed that the plaintiff and TVN would develop a draft proposal to be negotiated in January to cover issues such as pricing, formalising exclusive support of the plaintiff, possible board representation and equity participation. The possibility of the purchase of SKY Channel by TVN was also discussed as well as TVN’s desire to lock in the plaintiff’s support to give comfort to the existing TVN shareholders.

35 Mr Ross gave evidence that by 9 January 2005 the plaintiff had indicated to TVN that it was prepared to assist it to establish a separate channel in return for a discount on the current SKY Channel service (tr 46). By late January 2005 the proposal between TVN and the plaintiff was that: (a) the plaintiff would recommend to all its members that they immediately subscribe to the new TVN service; (b) the plaintiff would encourage its members to pay only 20% of the existing SKY Channel rate for the residual SKY Channel service; (c) there would be free coverage by TVN of the Sydney metropolitan thoroughbred races between February and May 2005 (in the hope that the new channel would commence broadcasting in February 2005); (d) that the rates thereafter for the Sydney and Victorian races on the TVN channel would be at 40% of the existing SKY Channel rate; and (e) the TVN rates would increase to 60% to 70% of the existing SKY Channel rate once TVN acquired the rights to all of the residual SKY Channel rights (tr 46-47).

The TVN Agreement – 15 February 2005

36 TVN and the plaintiff continued negotiations during January and early February 2005. On 4 February 2005 the plaintiff’s solicitor, Mr Miller, wrote to the solicitors for TVN in relation to the proposed agreement with TVN. That letter included the following:

Making this Agreement with TVN will have an impact on the only other industry supplier. In a sense, our client “crosses the Rubicon” when it makes this Agreement with your client.

37 On 15 February 2005 TVN and the plaintiff entered into a “Sales Agency Agreement” in the form of a letter dated 15 February 2005. The Initial Term of the Agreement was from 15 February 2005 to 30 June 2009 (the Initial Term) with the option for AHA to extend the term by a further four years to 30 June 2013 (the Further Term) (cl 6.1). The Agreement included the following:

1. Background

"AHA"

"TVN"

(a) up to and including 3 May 2005, has the right to transmit STC Coverage and AJC Coverage to various non-residential premises including Pubs and Clubs;

(b) with effect on and from the Effective Date, has the right to transmit TVN Coverage to various non-residential premises including Pubs and Clubs;

(c) is the agent of STC for the purpose of negotiating and entering into agreements with various non-residential premises including Pubs and Clubs for the transmission of STC Coverage by STC on and from the Effective Date; and

(d) is the agent of AJC for the purpose of negotiating and entering into agreements with various non-residential premises including Pubs and Clubs for the transmission of AJC Coverage by AJC on and from the Effective Date.

Agreement

By signing this letter, AHA and TVN agree to be bound by the terms of this Agreement.

38 “TVN Coverage” was defined as coverage of thoroughbred races and race meetings:

(a) conducted by the Victorian thoroughbred racing clubs; and

(b) conducted by other thoroughbred racing clubs the transmission rights to which TVN may in the future hold or enjoy,

produced by or on behalf of TVN.

39 “AJC Coverage” was defined as coverage of thoroughbred races and race meetings conducted by AJC produced by or on behalf of AJC. “STC Coverage” was defined as coverage of thoroughbred races and race meetings conducted by STC produced by or on behalf of STC. The Effective Date was defined as 4 May 2005.

40 The Agreement also included the following:

3. Appointment of agent

3.1 Subject to clause 3.3 and clause 3.7(b), TVN appoints AHA as TVN’s:

(b) sub-agent, in the case of AJC Coverage and STC Coverage,

Service Agreement

(a) appoint any other person as its agent or sub-agent of the AJC or the STC for the negotiation and entry into Service Agreements with any Pubs or Clubs; or

(b) itself negotiate or enter into Service Agreements with any Pubs or Clubs,

and the appointment of AHA will extend to all discussions relating to the administration, the enforcement or variation of any such Service Agreements.

3.3 AHA's appointment under clause 3.1 does not extend to negotiating and entering into agreements with Pubs or Clubs for the transmission of any coverage by broadcast on free to air television or, for the avoidance of doubt, mobile telephony, and TVN, AJC and STC make no warranty that such transmissions will not occur. Notwithstanding the foregoing, TVN has not and will not during the term of this Agreement:

(a) appoint any other person as its agent (or as the sub-agent of AJC or STC) for the negotiation and entry into agreements with Pubs and Clubs; or

3.4 AHA will bear all expenses and disbursements incurred by AHA in exercising its rights and performing its obligations under this Agreement, including expenses relating to sales representatives, the invoicing of Pubs and Clubs and debt collection.

41 If TVN, AJC or STC were unable to transmit the race meetings as envisaged (defined as an Intervening Event), then either party was able to give seven days' notice in writing to terminate the Agreement (cl 3.6). AHA's appointment was subject to TVN notifying AHA within seven days of the Agreement that TVN had concluded agency arrangements referred to in clause 1.2 (c) and (d) and arrangements with Victorian thoroughbred metropolitan and country racing clubs (cl 3.7 (b)).

42 The plaintiff was obliged to make sure that each of the Service Agreements with the Pubs and Clubs was on the terms and executed in the manner specified by TVN from time to time (cl 4.2). The plaintiff was prohibited from refusing to enter into a Service Agreement with any Pub or Club except with the prior approval of TVN (cl 4.2(c)). AHA was responsible for the day-to-day administration and dealings with the Pubs and Clubs in relation to the service agreements and was obliged to keep TVN informed of any "issues" that arose in relation to the service agreements (cl 4.4). The plaintiff also agreed to invoice and collect on behalf of TVN, AJC and STC all fees payable by a Pub or a Club under a Service Agreement (cl 5.1).

43 Clause 7 provided as follows:

7. Other

7.1 Upon request by AHA, TVN will make available (as soon as reasonably possible, having regard to equipment and other requirements) transmissions of AJC Coverage and STC Coverage free of charge to Pubs and Clubs during the period up to and including 3 May 2005.

7.2 The AHA will be offered the right to appoint a total of 2 persons approved by TVN to the board of directors of TVN. For the avoidance of doubt, the persons appointed as TVN’s directors will have an overriding fiduciary obligation to act in the best interests of all TVN shareholders.

7.3 AHA agrees to work with TVN to discourage and prosecute piracy of any of the TVN Coverage, AJC Coverage and STC Coverage signals.

7.4 An advisory committee will be established consisting of representatives of TVN, AHA and the Club Associations. The advisory committee will meet regularly to discuss content and operational issues.

44 The Annexures to the Agreement set out the fees payable for transmission under the Service Agreements. Annexure “C” headed “Sky Rate Card” after provided:

The rates charged as at the date of this Agreement by the provider to Pubs and Clubs of coverage similar to the proposed TVN Coverage, STC coverage or AJC coverage.

45 Annnexure "A", "Prices under the Service Agreements" included the following:

Fees payable for transmission under Service Agreements are to vary from those in Annexure "C" as follows:

1. at commencement of transmission 60% of the fees in Annexure "C";

2. on the addition to coverage of (a), (b), or (c) 70% of the fees in Annexure "C";

3. on the addition to coverage of the second of (a), (b) and (c) of the fees in Annexure "C";

4. on the addition to coverage of the last of (a), (b) and (c) 100% of the fees in Annexure "C".

Where:

(a) is Greyhound Racing;

(b) is Harness Racing; and

(c) is Thoroughbred Racing not provided at commencement.

The Side Letter – 15 February 2005

46 On the same day, the plaintiff and TVN signed a “Side Letter to Sales Agency Agreement”. That Side Letter provided:

1. TVN will pay to AHA $1M on each anniversary of the Effective Date during the Initial Term and the Further Term, subject to the earlier termination of the Sales Agency Agreement, in consideration for the performance of its obligations under this Side Letter.

2. AHA must, in consideration for the payment set out in paragraph 1, comply with all applicable laws in exercising its rights and performing its obligations under this Side Letter and will:

(i) the involvement of the Clubs Associations in promoting the TVN Coverage, AJC Coverage and STC Coverage to Clubs; and

(ii) Service Agreements are signed with Pubs and Clubs;

3. TVN agrees to be an AHA sponsor and will enter into a sponsorship agreement that commits it to sponsorship support of $400,000 annually (increasing in line with annual movements in the Consumer Price Index (All Groups)) and AHA agrees to give to TVN sponsorship benefits commensurate with a major sponsor providing this level of support.

Press release – 15 February 2005

47 The plaintiff issued a joint press release with TVN on about 15 February 2005, in the following terms.

AHA AND TVN SIGN BREAKTHROUGH RACING BROADCAST AGREEMENT

An historic agreement, guaranteeing the broadcast of Victorian and Sydney metropolitan thoroughbred racing into pubs and clubs Australia wide, was completed today by the Australian Hotels Association (AHA) and ThoroughVisioN P/L (TVN).

TVN has appointed the Australian Hotels Association as its exclusive sales agent for the provision of the TVN Channel into Australian pubs and clubs.

The TVN Channel, to be formally launched in May 2005, will initially include broadcasts of all AJC, STC and Victorian thoroughbred races. Over time, TVN intends to acquire the rights to, or provide broadcasts from, other Australian racing clubs.

Under the groundbreaking agreement, the AHA will be responsible for promoting and selling the Channel to Australian pubs and clubs, and will be recommending its members to take up the service as soon as possible.

Australian pubs and clubs will enjoy significant financial benefit from the deal, which will offer a substantial reduction on fees charged by current broadcaster Sky. The agreement is for an initial term of four years with an option of a further four years.

TVN Chairman, Mr Harold Mitchell, AO, said:

“The historic agreement with the AHA represents an endorsement of the TVN Channel and is expected to maximise the penetration of the Channel into Australian pubs and clubs, a key distribution channel for the sport and its wagering.

“ThoroughVisioN is delighted to work in partnership with the AHA to provide pubs, clubs and their customers with optimum access to the world’s best racing. We join with the AHA in recognising the importance of providing the highest quality thoroughbred racing broadcasts.

”Lowering the costs of broadcasts and partnering with the AHA achieves our objective of enabling the largest possible audience to enjoy thoroughbred racing,” Mitchell said.

AHA President, Mr John Thorpe, said:

“This momentous partnership with TVN is of the utmost significance to our membership, associated clubs and most importantly, their customers.

“Our member state’s associations and their constituents are very excited about this breakthrough” Thorpe said.

The AHA will work in consultation with the various club’s associations to provide the TVN channel. In recognition of the partnership, the AHA and Club’s Associations will be offered two TVN board seats.

48 On 22 February 2005 the President of the plaintiff wrote to the plaintiff’s constituents advising that the plaintiff had successfully contracted with TVN for the supply of Sydney metropolitan racing to the individual hotels. The letter advised the hoteliers that to access the pictures they would need a dish and decoder installed at the venue. The letter also gave details of how to reactivate the service if they already had it in the hotel or to install the service on an interim free of charge basis. The letter concluded:

We will be in contact with you very soon to give you a full briefing of this new AHA initiative, including pricing, content and other racing broadcast services.

49 On 8 March 2005 the President of the plaintiff notified the Chairman of TVN of the two nominees for directorships of the TVN Board. Those nominees were Mr Miller, the plaintiff’s solicitor, and a Mr Crawford. That letter also included the following:

On another issue which may occur down the track, if TVN ever acquire Sky Channel we would ask that the Company that the AHA established for the sole purpose of the TVN project be allowed to occupy spaces in Sky channel premises located at French's Forest. This will of course assist in the efficient operation of the business.

Termination Letter – 21 March 2005

50 On 21 March 2005 Tabcorp wrote to the plaintiff in the following terms:

AHA/Tab Limited Support Agreement

‘AHA”

“Tab”

“Agreement”

“Sky

Clause 2.4(a)

in order to promote Sky and its products to hotels and enhance Sky in the hotel industry”.

clause 3.1(a)

clause 7.3

Further, the nature of the arrangements set out in the Agreement clearly support the implication of an implied term of the Agreement to the effect that the AHA will act in good faith towards Tab and Sky.

“TVN

The announcement is a breach of important conditions and the implied term referred to above. This amounts to a repudiation of the Agreement by the AHA, the consequence of which is that TAB is entitled to accept that repudiation and to treat the Agreement as being at end. Tab accepts AHA’s repudiation of the Agreement and hereby terminates the Agreement.

51 By letter dated the same day Mr Piggott wrote to Mr Thorpe on a without prejudice basis, although the letter is in evidence without objection, indicating that, notwithstanding the termination of the Support Agreement the defendant proposed to pay an amount equal to the SKY Channel rebate to hotels until 30 April 2005 at which time that rebate was to cease. Sponsorship payments were to cease immediately. The letter included the following:

Tab is very disappointed in the manner in which the AHA has conducted itself in respect of the Agreement and that it has to end in the way that it has. Nevertheless, Tab is prepared to cooperate with the AHA, with a view to re-establishing a level of future sponsorship that would naturally have to be on terms that are of real benefits to both parties and acceptable to Tab.

52 In March 2005 Mr Ross wrote to the plaintiff’s members in terms that included the following:

As you are no doubt aware, the AHA (NSW) has successfully contracted with TVN Pty Ltd for the supply of Sydney and Victorian racing (AJC, STC) to your hotel. One of TVN's objectives is to broaden their broadcast services over time.

53 On 13 April 2005 Mr Miller, on behalf of the plaintiff, wrote to Mr Piggott denying any repudiation of the Support Agreement or any breach of the Agreement. That letter stated:

The AHA denies that its arrangements with ThoroughVision Pty Ltd constitute a breach of the Support Agreement or any repudiation of it. In particular, it denies any breach of clauses 2.4(a), 3.1(a) or 7.3 and, even if a term to act in good faith was implied (about which there is some doubt) our client denies any breach of such term.

The AHA’s involvement with ThoroughVisioN Pty Ltd in no way prevents or hinders the AHA from continuing to carry out its obligations under the Support Agreement, including its obligations under the TAB and Sky sponsorship agreements to provide the benefits bargained for. The provision of those benefits will continue to enable both your client and Sky Channel to promote themselves and their products to the hotel industry as envisaged by the agreement.

Accordingly, your client's purported termination of the Support Agreement is ineffective. The agreement remains on foot and both parties remain bound to perform it in accordance with its terms.

The AHA remains ready, willing and able to perform its obligations under the agreement and, notwithstanding the terms of your letter of 21 March 2005, calls upon TAB Ltd to perform its contractual obligations.

54 During the trial the plaintiff attempted to proceed without relying upon any affidavit evidence or statements from any of the plaintiff’s officers. It had obtained from the defendant a concession in relation to the tender of the documents in the Tender Bundle and then announced that it did not intend to read the affidavit of Mr Ross. After various skirmishes and, it seems to me, quite properly, having regard to the exchanges between the parties pre-trial, Mr Darke SC decided to call Mr Ross. In respect of the matter of the acquisition of the residual SKY Channel business by TVN, Mr Ross gave the following evidence in cross-examination (tr 47-48):

55 This evidence was somewhat curious when Mr Ross had been involved in the meeting with TVN on the afternoon of 22 December 2004 when Mr Wilson, acting as the plaintiff’s consultant, suggested that very strategy. Mr Ross seemed somewhat reticent in accepting the suggestion that he was aware of TVN’s strategy to acquire the business of SKY Channel but Mr Houghton QC’s persistence in cross-examination elicited the following evidence:

(tr 55)

(tr 56)

(tr 59)

56 It is clear beyond any doubt that the plaintiff was well aware that TVN wished to acquire SKY Channel’s business and it is also clear that at least on 22 December 2004 the plaintiff was positively promoting such a strategy. I can understand the reticence in calling Mr Ross. I was not impressed by his suggestion that the proposed acquisition of SKY Channel was really “not anything definite”. It seems to me that the AHA saw a real opportunity to be involved in the proposed new channel and possible acquisition of the SKY Channel business, evidenced by its keenness to have membership of the TVN board and a possible equity participation.

57 It is clear from the plaintiff’s solicitor’s letter to TVN dated 4 February 2005 that the plaintiff recognised that the TVN Agreement would have an adverse impact on SKY Channel. That is the irresistible conclusion to be reached from the words used in the letter and the fact that the plaintiff had instructed Mr Miller to act on its behalf. It is little wonder that the plaintiff’s solicitor described his client’s actions in entering into the TVN agreement as “crossing the Rubicon”. (Reaching a point of no return: The New Oxford Dictionary of English 1998; or taking a decisive and irrevocable step: The Macquarie Dictionary Federation Edition 2001). I have little doubt that the plaintiff understood that its support for the defendant’s initiatives was no longer a viable option once it signed the TVN Agreement. However the fact that it so understood its obligations is not a factor that I have taken into account in reaching my conclusions on the extent of the plaintiff’s obligations under the Support Agreement. Rather it was a matter taken into account when reviewing Mr Ross’ evidence.

Proceedings commenced

58 These proceedings were commenced on 16 May 2005. They were heard on 20, 21 and 22 February 2006 when Mr RJ Darke SC, leading Ms E Raper, of counsel, appeared for the plaintiff and Mr WT Houghton QC leading Mr AI Tonking, of counsel, appeared for the defendant.

59 The defendant claimed that by its entry into the TVN Agreement, the plaintiff evinced an intention not to be bound by or to perform some or all of its fundamental or essential obligations under the Support Agreement. Alternatively, it was claimed that by its entry into the TVN Agreement the plaintiff became unable to fulfil its fundamental or essential obligations under the Support Agreement or was only able to fulfil them in a manner that was substantially inconsistent with their tenor. It was submitted that in those circumstances the defendant was entitled to terminate the Support Agreement.

Construing the Support Agreement

60 In construing terms of a commercial contract the court should know the commercial purpose of the contract which “presupposes knowledge of the genesis of the transaction, the background, the context” and “the market in which the parties are operating”: Reardon Smith Line Ltd v Hansen-Tangen [1976] 1 WLR 989 per Lord Wilberforce at 995-996 approved in Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337 per Mason J at 350. The meaning of commercial documents is to be determined objectively by what a reasonable person in the position of the contracting party would have understood them to mean: Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451 at 461-462 par [22]; Toll (FGCT) Pty Limited v Alphapharm Pty Limited & Ors (2004) 219 CLR 165 at 179.

61 The plaintiff and the defendant acknowledged that there were “mutual benefits” in “promoting wagering and gaming in hotels” (Recital C). That acknowledgement did not specify particular benefits in such “promotion” but it is consistent with the terms of the Support Agreement as a whole, and with commercial commonsense, that the parties were seeking to conduct themselves so that each could enhance their earnings or profit from the defendant’s gaming and wagering operations in the hotels. Recitals A and B set the background in which such mutual benefits were to be achieved. On the one hand the benefits were to flow to the hotelier members of the plaintiff, and on the other the benefits were to flow to the defendant in its conduct of the wagering and gaming operations from those hotels with the express recognition that those operations included broadcasting racing and sporting events into hotels in conjunction with SKY Channel. Recital C also records that the reason the parties were entering into the Support Agreement was to secure the “mutual benefits of promoting wagering and gaming in hotels”. In this setting the title of “Support Agreement” is properly understood to be an agreement for mutual benefit or mutual support.

62 The benefits for the plaintiff and its members from the Support Agreement included: (1) the 9.75% per annum reduction in SKY Channel fees if SKY Channel could not broadcast the thoroughbred races (cl 2.1(a)); (2) the freezing of the level of SKY Channel fees until 1 July 2006 (cl 2.1(b)); (3) the opportunity to negotiate SKY Channel fees to be charged for the period 1 July 2006 to 30 June 2008 from the premise that the defendant intended to assess whether it could hold the increases to no more than the CPI for the December 2004 and December 2005 quarters (cl 2.2); (4) a “promotional rebate” for 3 years (totalling $3 million per year - $9 million over 3 years) for the plaintiff’s members throughout New South Wales (cl 2.3); (5) the receipt by the plaintiff of $180,000 in sponsorship fees from SKY Channel (cl 2.4); (6) the receipt by the plaintiff of $350,000 per annum (totalling at least $1.05 million over 3 years) in sponsorship fees from the defendant (cl 3.1(b)); (7) one half hour of hosted air time on SKY Channel each month for the plaintiff to broadcast to its members (cl 2.4(b)); (8) the capacity to terminate Sky Channel Agreements on 3 months, rather than 6 months, notice (cl 2.5); and (9) the improvement in the relationship between the plaintiff and the defendant and the defendant and the plaintiff’s members (cl 4).

63 The benefits for the defendant under the Support Agreement were: (1) the promotion of SKY Channel and its products and the defendant and its products to hotels pursuant to the SKY Channel Sponsorship Agreement and the TAB Sponsorship Agreement respectively (cl 2.4(a) and 3.1(a)); (2) the improvement in the relationship between the plaintiff and the defendant and the defendant and the plaintiff’s members (cl 4); (3) the capacity to terminate the Support Agreement immediately if the defendant’s capacity to obtain or maintain licences or permits was adversely affected by its continuation (cl 6(a)); (4) the support (including to government and in the media) of its initiatives by the plaintiff and its Executive Members and staff (cl 7.3.1); and (5) the absence of any disparagement by the plaintiff of Tabcorp Limited and its subsidiaries, including the defendant and SKY Channel (cl 7.3.2).

64 The general benefits and entitlements stipulated in each of the Sponsorship Agreements included exclusive sponsorship of one award; representation at the plaintiff’s events by logo presence; complimentary tickets; acknowledgement on the plaintiff’s web site as an Official Gold Partner (notwithstanding that the proposal was for a Diamond partnership) and various other publicity opportunities at “networking” events such as corporate dinners, golf tournaments and the like.

Implied duty to co-operate

65 It is common ground (tr 138) that under the Support Agreement the parties were obliged do all that was necessary to enable each other to have the benefits of the Support Agreement. This obligation is in the nature of a duty to co-operate. In Secured Income Real Estate (Australia) Limited v St Martins Investments Pty Limited (1979) 144 CLR 596 (a case in which it was common ground that the contract in question imposed an implied obligation on each party to do all that was reasonably necessary to secure performance of the contract) Mason J said at 607-8:

Mackay v Dick

“as a general rule … where in a written contract it appears that both parties have agreed that something shall be done, which cannot effectually be done unless both concur in doing it, the construction of the contract is that each agrees to do all that is necessary to be done on his part for the carrying out of that thing, though there may be no express words to that effect.”

Butt v M’Donald

“It is a general rule applicable to every contract that each party agrees, by implication, to do all such things as are necessary on his part to enable the other party to have the benefit of the contract.”

It is easy to imply a duty to co-operate in the doing of acts which are necessary to the performance by the parties or by one of the parties of fundamental obligations under the contract. It is not quite so easy to make the implication when the acts in question are necessary to entitle the other contracting party to a benefit under the contract but are not essential to the performance of the party’s obligations and are not fundamental to the contract. Then the question arises whether the contract imposes a duty to co-operate on the first party or whether it leaves him at liberty to decide for himself whether the acts shall be done, even if the consequence of his decision is to disentitle the other party to a benefit. In such a case, the correct interpretation of the contract depends, as it seems to me, not so much on the application of the general rule of construction has on the intention of the parties as manifested by the contract itself.

66 In Australis Media Holdings Pty Limited v Telstra Corporation Ltd (1998) 43 NSWLR 104 the Court (Mason P, Beazley & Stein JJA) reviewed the relevant authorities in dealing with the nature and content of duties of co-operation (at 123-125). The Court referred to Cockburn CJ’s statement in Stirling v Maitland (1864) 5 B & S 840; 122 ER 1043 (at 1047) that where a party enters into an arrangement that can only take effect by the continuance of a certain existing state of circumstances, “there is an implied engagement on his part that he shall do nothing of his own motion to put an end to that state of circumstances, under which alone the arrangement can be operative”. The Court then said at 123:

De Medina v Norman

Foran v Wight

67 The Court contrasted benefits that may be “contemplated” to those that may be promised, saying at 125:

A contract may “contemplate” many benefits for the respective parties, but each can only call on the other to provide, or co-operate in the providing of, benefits promised by that party.

68 This is a recognition that the duty to co-operate does not rise above the promises made by the parties to the contract or, put another way, it “cannot over-ride the express provisions of the contract”: Alcatel Australia Ltd v Scarcella (1998) 44 NSWLR 349 per Sheller JA (with whom Powell and Beazley JJA agreed) at 368C.

Implied obligation of good faith

69 The defendant contended for a number of implied terms in its Defence, however Mr Houghton QC, in final submissions, indicated that the defendant’s position in this regard was contained in paragraph 12 of its written outline as follows:

magical position”.

70 From these submissions and from the exchange with Mr Houghton QC in final submissions (tr 162) it seems that the only implied terms that the defendant pressed were, (a) the duty of co-operation (conceded by the plaintiff) and (b) the implied obligation of good faith. The content of the other alleged implied terms were taken up in the submission that on the proper construction of the Support Agreement as a whole and in context, the plaintiff had an obligation to support and promote the defendant and SKY Channel and/or not to undermine the position of the defendant and SKY Channel during the currency of the Support Agreement.

71 The Support Agreement referred expressly to the concept of “good faith” in three areas. The first area was the requirement for discussions relating to the SKY Channel’s fees to be charged for the period 2006 to 2008 (cl 2.2). The second area was the requirement for co-operation between the parties in the years 2005 and 2006 in relation to SKY Channel’s Sponsorship Agreement (cl 2.4 (c)). The third area was the requirement for negotiation of the benefits and entitlements of the defendant’s Sponsorship Agreement in 2005 and 2006 (cl 3.1(c)). The parties were obliged to discuss, co-operate and negotiate these matters respectively in “good faith”.

72 In Vodafone Pacific Ltd v Mobile Innovations Ltd [2004] NSWCA 15 Giles JA (with whom Sheller and Ipp JJA agreed) said:

Alcatel Australia Ltd v Scarcella

Burger King Corporation v Hungry Jack’s Pty Ltd

Burger

King Corporation v Hungry Jack’s Pty Ltd

Burger

King Corporation v Hungry Jack’s Pty Ltd

Castlemaine Tooheys Ltd v Carlton & United Breweries Ltd

Byrne v Australian Airlines Ltd

Burger

King Corporation v Hungry Jack’s Pty Ltd

191 The ASP Agreement was no doubt a commercial contract. It was not suggested that it fell within some other class of contract already carrying the implied term as a legal incident or which it should now be found to have that status. I do not think the law has yet gone so far as to say that commercial contracts are a class of contracts carrying the implied terms as a legal incident, and the width and indeterminancy of the class of contracts would make it a large step. However, I am content to assume, expressly without deciding, that unless excluded by express provision or because inconsistent with the terms of the contract, Vodafone was under an implied obligation to act in good faith and reasonably in exercising its powers under the ASP Agreement, specifically the power of determining target levels in cl 18.4. Whether the assumption might be justified by commercial contracts already carrying the implied term or now being found to have that status does not matter. I consider that the present case can be decided by addressing whether the implication of the term as a matter of law, as to the power conferred by cl 18.4 of the ASP Agreement, is precluded by expression of a contrary intent.

73 Esso Australia Resources Pty Ltd v Southern Pacific Petroleum NL [2005] VSCA 228 was a case in which the parties, the appellant Esso, the first respondent SPP and Central Pacific Minerals (CPM) formed a joint venture to exploit mineral tenements near Gladstone in Queensland to produce shale oil. The written joint venture agreement dated 15 March 1985 included a clause (article 27) requiring each of the participants in the joint venture to use their best endeavours to ensure that their actions did not give rise to the existence of conditions “prejudicial to or in conflict with the best interests” of the other participants. That clause also required each participant to take “all necessary and proper precautions” to prevent its employees, agents and the like from receiving from or giving any substantial gift, entertainment, loan or other consideration to any person who could or might be in a position to influence the other participants with respect to the project.

74 World oil prices fell and SPP and CPM experienced financial difficulties. In 2004 the creditors of SPP and CPM approved two draft deeds of company arrangement (DCA), one of which provided for the liquidation of SPP after certain conditions were met and the assignment of SPP’s interests in the joint venture to another company, SPV. Esso brought proceedings to restrain SPP and the administrators from assigning those rights on the basis that it was in breach of article 27. The trial judge held that the assignment was not in breach of article 27.

75 On appeal the Court (Warren CJ, Buchanan JA & Osborn AJA) allowed Esso to propound a new contention that SPP was in breach of an implied obligation of good faith as a consequence of the provision in the DCA that SPP be wound up. Buchanan JA (with whom Warren CJ (expressing additional views) and Osborn AJA agreed) referred to Judge Walker’s statement in Metropolitan Life Insurance Co v RJR Nabisco Inc 716 F Supp. 1504, 1517 (S.D.N.Y., 1989) that “the implied covenant [of good faith] will only aid and further the explicit terms of the agreement and will never impose an obligation which would be inconsistent with other terms of the contractual relationship” and later said (footnotes omitted):

BP Refinery (Westernport) Pty. Ltd. v. Shire of Hastings

76 In dismissing Esso’s appeal, Buchanan JA held that it was not necessary to determine whether a term requiring the exercise of good faith was implied because even if such an obligation was imposed it had not been breached because the provision in the DCA was “not unreasonable, capricious or the pursuit of an ulterior purpose and did not prevent the performance of the contract or deny Esso its benefits” [27]-[28].

77 Warren CJ referred to the history of the development of the law on the implication of a duty of good faith and the “judicial reticence” and hesitation of the courts to become involved in “contractual performance” [2]-[3]. The Chief Justice described the standard of contractual conduct in circumstances where such a duty is imposed as “nebulous” and said (footnotes omitted):

3. … Therefore, the current reticence attending the application and recognition of a duty of good faith probably lies as much with the vagueness and imprecision inherent in defining commercial morality. The modern law of contract has developed on the premise of achieving certainty in commerce. If good faith is not readily capable of definition then that certainty is undermined. It might be that a duty of good faith is no more than a duty to act reasonably in performance and enforcement, a long established duty. Of course, some commentators have regarded the duty to act reasonably as properly subsumed within the duty of good faith.

78 As yet commercial contracts are not a class of contracts that, as a legal incident, have an implied obligation of good faith. As to whether such an obligation is implied otherwise will depend upon the terms of the particular contract, and the other matters to which it is permissible to have regard.

79 The terms of the Support Agreement are redolent of the development of trust between the parties with the express statement that the agreement was entered into to secure mutual benefits. It seems that the parties recognised that the terms were suggestive of the development of mutual trust because they specifically provided that nothing in the Support Agreement would constitute them as “partners” (cl 7.1). The fact that the parties dealt with the way in which any future discussions, negotiations or co-operation had to occur is of significance, in particular that they would proceed “in good faith”. Those provisions might suggest that the obligations and rights that had already been settled by the terms of the Support Agreement, that is, that did not need any future discussions, negotiations or co-operation, were to be performed and/or exercised in good faith. Alternatively the express provision for good faith conduct in the future with no provision for such in the performance of the obligations already settled in the Agreement might militate against an implication of such an obligation.

80 Even if there were to be an implication of an obligation of good faith it is difficult in this case to define what the obligations of the respective parties to the Support Agreement might be over and above the express provisions and the implied term to co-operate. It is probably reasonable to describe these parties as “leviathans”. Warren CJ’s observation in Esso that it is difficult to see that a duty of good faith will arise where leviathans are contractually engaged seems to me to be apt in this case. The express terms of the Support Agreement and the respective duties to co-operate seem to me to be ample for the parties to have the benefits of the performance of the contract. There does not seem to me to be the necessity (although it may appear to be reasonable) to overlay that duty with an implied duty of good faith, notwithstanding that this is a “Support Agreement” to secure the mutual benefits to the parties. I am not satisfied that there is an implied obligation of good faith. In those circumstances I do not need to consider whether the approach of the Victorian Court of Appeal that “vulnerability” or “disadvantage” needs to be present before an obligation of good faith may be implied into a commercial contract is one that should be adopted in this case.

Clause 2.4(a) and clause 3.1(a) - Sponsorship

81 In the letter purporting to terminate the Support Agreement the defendant referred to clauses 2.4(a) and 3.1(a) in relation to its claim that by its entry into the TVN Agreement the plaintiff had repudiated the Support Agreement. Clause 2.4(a) provided that “in order to promote SKY and its products to hotels and enhance the reputation of SKY in the hotel industry”, the plaintiff had proposed to SKY Channel that it become a diamond sponsor. The clause imposed an obligation on the defendant to procure SKY Channel’s acceptance of the proposal in Attachment A to the Support Agreement (the SKY Sponsorship Agreement). Clause 3.1(a) was a similar provision relating to the Sponsorship Agreement with the defendant “in order to promote” the defendant and its products to hotels and to “enhance the reputation” of the defendant in the hotel industry. The plaintiff submitted that these introductory words in clauses 2.4(a) and 3.1(a) are in the nature of statements of general object and are not promissory.

82 The plaintiff was obliged pursuant to clause 2.4(e), in respect of SKY Channel, and clause 3.1(d), in respect of the defendant, to “ensure” that SKY Channel and the defendant received “at least an equivalent level of benefits to those received by other sponsors” paying the same amount per annum that SKY Channel and the defendant were to pay to the plaintiff. Mr Darke SC submitted that the parties must have contemplated that there would be other sponsors. That seems beyond doubt and Mr Houghton QC did not suggest otherwise. However the plaintiff submitted that clauses 2.4(a) and 3.1(a) are mere acknowledgements that the relevant Sponsorship Agreements were seen as a means by which promotion might occur.

83 It was also submitted that an examination of the Sponsorship Agreements reveals that the obligations of the plaintiff were overwhelmingly in the nature of providing opportunities for the defendant and SKY Channel to promote themselves to their hotelier customers and that the plaintiff was not bound by those agreements to itself carry out any promotion of SKY Channel and/or its products or the defendant. That submission may be technically accurate but the General Benefits & Entitlements section of the Sponsorship Agreements included the following:

assist

84 It seems to me that the plaintiff had an obligation to assist in promoting SKY Channel and the defendant. The nature of that assistance does not seem to me to be limited to advice. The “Benefit” or “Entitlement” was that SKY Channel and the defendant would not only have the advice on how best to promote themselves to the hotel industry, by way of discussions, but would also obtain the assistance of the plaintiff’s executives, expert in marketing and communications, in promoting Sky Channel and the defendant to the industry.

85 The fact that the parties contemplated that there would be other sponsors is an important matter in determining whether the plaintiff’s entry into the TVN Agreement was inconsistent with the Sponsorship Agreements. If it is assumed for the moment that TVN entered into a Sponsorship Agreement with the plaintiff, all that was required of the plaintiff vis-à-vis SKY Channel and the defendant was that they were to receive benefits equivalent to those offered to TVN if TVN were to pay the same amount for its Sponsorship Agreement. I am not satisfied that the discussions with TVN and the TVN Agreement were inconsistent with the Sponsorship Agreements with the defendant and SKY Channel. However the impugned conduct of the plaintiff is more complex than the offer of a sponsorship agreement.

86 Another clause referred to in the letter purporting to terminate the Support Agreement was clause 7.3, the non-disparagement clause. That clause is extracted earlier in this judgment and for ease of reference is extracted below:

7.3 Non Disparagement

7.3.1 The AHA agrees that it, its Executive Members and staff will support the initiatives of TAB Limited (including to government and in the media) where those initiatives do not conflict with the interests of the AHA and its members and are not inconsistent with AHA policy.

“Disparage”

87 The defendant submitted that the genesis of the Support Agreement lay in the desire of both parties, objectively ascertained, to improve their relationship, with the defendant obtaining the support of the plaintiff in the context of an emerging competitor to its subsidiary's, SKY Channel's, services, namely TVN. It is obvious from the terms of the Support Agreement that both parties were claiming to be committed to the improvement of the relationship (cl 4.1). Indeed, so committed was the plaintiff, that it was willing to fetter its very valuable right of free speech in respect of what it could say or write about the defendant and/or SKY Channel. It promised that it would not "disparage" the defendant and/or SKY Channel in "any written or oral communication" (cl 7.3.2). The breadth of that promise is significant. It prohibited the plaintiff from making disparaging statements not only in public but also in private. It also prohibited such statements not only to third parties but also within the plaintiff’s operations.

88 The ordinary meanings of the word “disparage” include: “1. to bring reproach or discredit upon; lower the estimation of; 2. to speak of or treat slightingly; depreciate; belittle”: The Macquarie Dictionary (Federation Edition 2001; “try to lessen the importance or value of”: The World Book Dictionary 1969; “regard or represent as being of little worth”: The New Oxford Dictionary of English 1998. This word has to be understood in context. This was an agreement whereby the parties were not only seeking to achieve an improvement in their commercial relationship that had hitherto been plagued by the plaintiff making critical and negative public statements about the defendant and SKY Channel, but were also working together, although not in partnership, to achieve the “mutual benefit” of the defendant, in conjunction with SKY Channel, conducting its wagering and gaming operation in the plaintiff’s members’ hotels. In the context in which the term “disparage” appears in the Support Agreement, it seems to me that the parties agreed that the plaintiff would not make public or private statements orally or in writing that would have an adverse effect upon the defendant’s business reputation in the industry, that it would not be critical of the defendant in a way that would bring discredit upon it or lessen its value.

“Initiatives”

89 The defendant submitted that the commercial purpose of the contract was that, in exchange for an annual $3 million rebate for the plaintiff’s members across New South Wales and a sponsorship fee of at least $350,000, the plaintiff was to provide "support" for the defendant’s “initiatives”, rather than a mere promotion of the defendant in a non-exclusive environment with other sponsors.

90 The plaintiff submitted that the plaintiff’s obligations pursuant to cl 7.3.1 were very limited. It was submitted that the word “initiatives” in the clause encompasses things such as new “products”, for instance the Statewide Linked Jackpot product, and does not impose the broader obligation to promote the defendant generally.

91 The reference to “Statewide Linked Jackpot products” comes from the 12 May 2004 letter. That is where the word “initiatives” first appeared. The context in which it appeared in that letter included the defendant’s stated desire that as part of the “proposals” made in the letter, it wished to discuss a number of ideas for “improving and developing the business relationship”. Those “ideas” included: (a) the establishment of a formal advisory committee to discuss marketing, promotion and other industry issues; (b) the establishment of a gaming advisory committee to discuss “issues” relating to defendant’s linked jackpot products and methods of advancing the marketing and distribution of those products; (c) the endorsement by the plaintiff and its assistance in marketing and selling the defendant’s Statewide Linked Jackpot product; and (d) the setting up of a working group to settle on the details of the Statewide Linked Jackpot product. The letter then concluded:

Tab Limited anticipates that these initiatives will provide benefits to our Wagering and Gaming divisions, by promoting revenue growth through those divisions, and improving our relationship with our hotel customers. As discussed, these committees and other marketing initiatives will also provide benefits to the AHA, such as those set out above.

92 The “non disparagement” clause was included in the Support Agreement after Mr Piggott had requested that the plaintiff provide to the defendant something by way off “support and protection” for the defendant with a request that the plaintiff “not do anything to damage us in the industry”. When the word “initiatives” was used in the 12 May 2004 letter there was no express provision or statement about the plaintiff not criticising or damaging the defendant in the industry. Its use in the letter was linked to the establishment of committees with jurisdiction over marketing, promotion, and “other industry issues”. That last item would cover a range of matters that no doubt would have been discussed in due course. The word “initiatives” as used in the letter encompassed not only the Statewide Linked Jackpot product but also the establishment of the various committees for the purpose of promoting revenue growth, improving the relationship with the hotel customers and providing benefits to the AHA.

93 The ordinary meanings of the word “initiative” include: “an introductory act or step; leading action”: The Macquarie Dictionary (Federation Edition) 2001; “the active part in taking the first steps in any undertaking; lead”: The World Book Dictionary 1969; “an act or strategy intended to resolve a difficulty or improve a situation: The New Oxford Dictionary of English 1998.

94 The word is used in the plural in the Support Agreement and is included in the non-disparagement clause. On the one hand clause 7.3.1 refers to the positive action of “support” whilst on the other clause 7.3.2 refers to the prohibition on the negative action of disparagement of the defendant and SKY Channel. I do not agree that the expression “initiatives” in clause 7.3.1 of the Support Agreement means or is limited to the “products” of the defendant. That expression in this agreement seems to me to have much wider import. I am of the view that the term “initiatives” in the context of the Support Agreement as a whole, means the defendant’s “actions” or “strategies” in relation to the gaming and wagering operations in the hotels, including its actions or strategies in conjunction with SKY Channel for the broadcasting of racing and sporting events in hotels for the purpose of increasing revenue and securing the mutual benefits of that operation. Ironically, perhaps, but not relevant to this construction process, the plaintiff itself used the term “initiative” in its letter to its members dated 22 February 2005 to describe its contract with TVN.

95 In seeking to restrict the obligations of the plaintiff under clause 7.3 of the Support Agreement Mr Darke SC relied upon the email from Mr Ballenger to Mr Ross on 29 October 2004. As set out earlier, that email referred to the $350,000 “fee” payable under the Sponsorship Agreement. Mr Ballenger proposed that additional clauses be included in the Sponsorship Agreement to ensure that the defendant received “full and proper value” for its fee. One of those clauses was in the following terms:

The AHA undertakes to support, and will not disparage, Tab Limited and its wagering business. This includes (without limitation) supporting Tab in making representations to Government and regulatory agencies, assisting Tab in dealing with the racing industry, and assisting Tab to work with hoteliers to maximise the profitability and success of Tab’s wagering business.

96 Mr Darke SC submitted that this proposed clause was in far broader terms than that which found its way into the Support Agreement in clause 7.3.1. Reliance was also placed on the very general words of Mr Ballenger’s letter of 10 December 2004 in which he referred to the “business relationship going forward” to suggest that the plaintiff was not restricted in the way in which it could deal with TVN. That letter sought amendment to both the Support Agreement and the Sponsorship Agreement by the inclusion of clauses that “confirm the following”:

That the AHA (NSW), its employees and executive members will:

1. Actively support the initiatives of Tabcorp where these do not directly conflict with those of the AHA (NSW). This may include such actions as lobbying government, the media or other such relevant bodies.

2. Not disparage Tabcorp or any of its subsidiaries in any way in any internal and/or external written or verbal communications.

97 Mr Darke SC submitted that it is of significance that when the parties decided to execute the Support Agreement there was no mention of TVN in either their discussions during the negotiations in relation to the wording of the Support Agreement or in the Support Agreement itself. Mr Darke submitted that the words used in the 10 December 2004 letter are of the broadest character and not promissory in flavour in an environment in which TVN was emerging as a competitor of Sky Channel. It was submitted that the defendant did not raise the “TVN issue” directly with the plaintiff nor did it state that the plaintiff was positively obliged to do anything in relation to TVN. It was submitted that there was certainly no indication that the plaintiff was restricted in its ability to act in any particular fashion with regard to TVN. Finally it was submitted that when the parties executed the Support Agreement there was no mention of TVN and that the only restriction on the plaintiff’s ability to act is to be found in the very general words of clause 7.3.

98 Although TVN is not expressly referred to in either the 12 May 2004 letter or the Support Agreement, its existence and emergence was clearly known to the parties at the time they executed the Support Agreement. There was express reference to TVN in the letter from SKY Channel to the plaintiff dated 27 August 2004 in which TVN was referred to as “the media rights company which owns the AJC and STC media rights”. Indeed the history of the "blackout" and reinstatement of the broadcasts of the AJC and STC races were matters pivotal to the terms agreed between the parties both in the 12 May 2004 letter and the Support Agreement. In particular the defendant promised that it would procure from SKY Channel a 9.75% per annum reduction in SKY fees for the plaintiff's members during any period after 20 March 2004 while SKY Channel did not transmit the thoroughbred race meetings conducted by the AJC and the STC (cl 2.1 (a)). At the time the promise to secure a 9.75% per annum reduction appeared in the 12 May 2004 letter, the "blackout" had occurred and was continuing to occur. By the time the Support Agreement was executed the blackout had ceased whilst joint venture negotiations continued. Clause 2.1(a) clearly accommodated the possibility of the blackout returning or, in other words, clearly accommodated TVN broadcasting the AJC and STC races meetings to the exclusion of SKY Channel. It seems to me that the parties were cognizant of the existence of TVN and the prospect of its entry into the marketplace in competition with SKY Channel and the reduction was agreed to on that basis.

99 The plaintiff was obliged to “support the initiatives of the defendant” unless those initiatives conflicted with the interests of the plaintiff and its members and/or the initiatives were not consistent with the plaintiff’s policy. Mr Houghton QC submitted that by reason of the plaintiff’s nominee directors on TVN’s board having an overriding fiduciary obligation to act in the best interests of TVN’s shareholders, the plaintiff had compromised its position irrevocably from being able to support any of the defendant’s initiatives that were in competition with TVN.

100 It is clear from the terms of the Support Agreement that the defendant was concerned about its business or enterprise being damaged by the plaintiff criticizing it publicly and/or privately. The importance of that concern can be measured in the response of the plaintiff in agreeing to give up its right of free speech in relation to the defendant and SKY Channel and in its promise to support the defendant’s actions in relation to its operations both publicly and privately. These were most important matters and in my view were fundamental and essential obligations under the Support Agreement. It is clear from the terms of the Support Agreement that the purpose of clause 7.3 was to: (a) cocoon the defendant, and its subsidiary SKY Channel, from any detrimental affect on its business by the public and/or private adverse utterances of the plaintiff; and (b) to give to the defendant the plaintiff’s public and private support for its initiatives to enhance its business opportunities in the operations referred to in Recital B of the Support Agreement, which included the broadcasting of races by SKY Channel into hotels.

101 The outcome of the meeting with TVN on 22 December 2004 was that the plaintiff, with TVN, would pursue further discussions to put in place a formal agreement reflecting some of the matters that were discussed at the meeting and conduct further negotiations in respect of those matters. One of those matters was for the plaintiff to assist TVN to obtain the business that was at that time part of SKY Channel’s business. The TVN agreement took matters even further. The plaintiff did not stand back and let commercial market forces operate between SKY Channel and TVN to determine the manner in which thoroughbred races would be broadcast. What the plaintiff did was to lock itself in to a 4 year agreement (with a 4 year option) with TVN in which it was obliged to not only promote TVN to its members, the Clubs Association and clubs, but also to act on behalf of TVN when dealing with its own members to ensure that they signed Service Agreements with TVN. The TVN agreement did not give to the plaintiff the discretion to refuse to so act if to do so may not have been in the best interests of its members. Indeed the TVN agreement obliged the plaintiff “not to refuse to enter into a Service Agreement with any Pub or Club” without the prior approval of TVN.

102 Mr Ross attempted to suggest in his evidence that TVN was not going to be "in competition" with SKY Channel because they were not providing the same product (tr 43). It seems to me that such suggestion was quite unrealistic when, as he admitted a little later in his evidence, there was a plan for TVN to acquire SKY Channel's business . The plaintiff agreed not only to become the "exclusive" sales agent for all TVN's existing rights but also for any future rights. Mr Ross also sought to explain the meeting with TVN on 22 December 2004 as something he had to do to protect the interests of the plaintiff’s members. Protecting the interests of the members of an industrial association is one thing, but this meeting went much further than that. It promoted a plot for the takeover of the very business enterprise, the related initiatives of which, the plaintiff had that day signed an agreement to support in exchange for the millions of dollars of rebate it had secured from the defendant. The plaintiff did not “have to” become TVN’s agent to protect its members. The plaintiff became a TVN agent to protect TVN, that is, to assist it in its plan to acquire the SKY Channel business and to try to obtain an interest in that acquisition.

103 The plaintiff’s role at the time it took on the obligation to support the defendant’s initiatives or actions and not disparage it or SKY Channel was, as described in Recital A of the Support Agreement, that it represented the “interests of member hotels in New South Wales”. That role was accommodated by the limitation on the obligation in clause 7.3.1. The plaintiff took on a very different role, at least as at 15 February 2005, of representing the interests of the defendant’s and SKY Channel’s competitor, TVN. Indeed I am satisfied that the plaintiff knew that it intended to change its role at the time that it executed the Support Agreement. That knowledge is demonstrated by the conversation that it had with TVN that afternoon in which it promoted the agency relationship, or at least acquiesced in such a suggestion, and promoted the acquisition by TVN of SKY Channel’s business.

104 The plaintiff was obliged to do whatever was necessary to enable the defendant to have the benefits of the Support Agreement. That obligation did not rise above the express terms of the Support Agreement, but I am satisfied that the plaintiff's conduct in meeting with TVN to assist it in the plot to acquire the business of the defendant's subsidiary and in entering into the TVN agreement in pursuance of the plot, was conduct that precluded the plaintiff from supporting the defendant’s actions and strategies in relation to its operations. The plaintiff’s submissions that such a relationship did not preclude it from supporting the defendant’s initiatives are rejected. The plaintiff could not whilst it acted for its principal, TVN, in pursuing and signing up its members to contracts with TVN and promoting TVN to its members, support any of the defendant’s initiatives that were in competition with TVN. The plaintiff had now entered into an agreement with TVN that it described in its press release as a “momentous partnership”. It was obliged as an agent to be loyal to its principal, TVN, a company which it knew was seeking to acquire SKY Channel’s business, and it was no longer in a position to support the initiatives of its competitor, the defendant and/or SKY Channel.

105 The commercial relationship between the plaintiff and the defendant was inextricably linked to SKY Channel’s capacity to broadcast the racing and sporting events to hotels to enable the plaintiff’s members (and the defendant) to have the benefits of the defendant’s wagering and gaming operations in the hotels which included enhancing the defendant’s earning capacity from such operations. The entry into the TVN Agreement placed the plaintiff in a position where it was no longer able to perform the essential and fundamental obligation of supporting the defendant’s initiatives or alternatively where it would only perform those obligations in a manner inconsistent with the tenor of the terms of Support Agreement: Progressive Mailing House Pty Ltd v Tabali Pty Ltd (1985) 157 CLR 17 at 33 and 40.

106 I am satisfied the defendant was entitled to terminate the Support Agreement. The plaintiff’s Summons is dismissed. If the parties are unable to agree on a costs order I will hear argument on a date to be fixed by arrangement with my Associate by no later than 27 April 2006.

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20/04/2006 - Amendment to file number - Paragraph(s) Cover sheet

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Citations

Australian Hotels Association (NSW) v Tab Limited [2006] NSWSC 293

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CITATION:	Australian Hotels Association (NSW) v TAB Limited [2006] NSWSC 293 This decision has been amended. Please see the end of the judgment for a list of the amendments.
HEARING DATE(S):	20, 21 and 22 February 2006
JUDGMENT DATE :	19 April 2006
JUDGMENT OF:	Bergin J
DECISION:	Specific Performance refused. Summons dismissed.
CATCHWORDS:	[COMMERCIAL CONTRACTS] - Application for specific performance of "Support Agreement" between plaintiff and defendant - whether plaintiff's entry into an exclusive agency agreement with a competitor of the defendant amounted to repudiatory conduct in respect of "Support Agreement" between plaintiff and defendant - duty of co-operation conceded - whether implied obligation of good faith - whether defendant entitled to terminate "Support Agreement".
CASES CITED:	Alcatel Australia Ltd v Scarcella (1998) 44 NSWLR 349 Australis Media Holdings Pty Limited v Telstra Corporation Ltd (1998) 43 NSWLR 104 Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337 Esso Australia Resources Pty Ltd v Southern Pacific Petroleum NL [2005] VSCA 228 Metropolitan Life Insurance Co v RJR Nabisco Inc 716 F Supp. 1504 (S.D.N.Y., 1989) Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451 Progressive Mailing House Pty Ltd v Tabali Pty Ltd (1985) 157 CLR 17 Reardon Smith Line Ltd v Hansen-Tangen [1976] 1 WLR 989 Secured Income Real Estate (Australia) Limited v St Martins Investments Pty Limited (1979) 144 CLR 596 Stirling v Maitland (1864) 5 B & S 840; (1864) 122 ER 1043 Toll (FGCT) Pty Limited v Alphapharm Pty Limited & Ors (2004) 219 CLR 165 Vodafone Pacific Ltd v Mobile Innovations Ltd [2004] NSWCA 15
PARTIES:	Australian Hotels Association (NSW) (Plaintiff) TAB Limited (ACN 081 765 308) (Defendant)
FILE NUMBER(S):	SC 50073/05
COUNSEL:	R J Darke SC; E Raper (Plaintiff) W T Houghton QC; A I Tonking (Defendant)
SOLICITORS:	Baker & McKenzie (Plaintiff) Allens Arthur Robinson (Defendant)
LOWER COURT DATE OF DECISION:	02/20/2006