Redrouge Nominees Pty Ltd v Canberra Institute of Technology
[2024] ACTSC 362
•15 November 2024
SUPREME COURT OF THE AUSTRALIAN CAPITAL TERRITORY
Case Title: | Redrouge Nominees Pty Ltd v Canberra Institute of Technology |
Citation: | [2024] ACTSC 362 |
Hearing Date: | 28 – 29 October 2024 |
Decision Date: | 15 November 2024 |
Before: | Mossop J |
Decision: | See [148] |
Catchwords: | CONTRACTS – CONSTRUCTION AND INTERPRETATION OF CONTRACTS – Contract between tertiary education provider and “industry leader in applied complexity sciences” – whether contractual provisions specifying consequences of termination required payment of the whole of the Contract Price – Contract Price would be payable whichever party breached contract – caution necessary before adopting a lawyer’s assessment of absurdity or uncommerciality when interpreting contract – such a term would be very unusual – alternative interpretation has reasonable operation – whole of Contract Price not payable on termination CONTRACTS – CONSTRUCTION AND INTERPRETATION OF CONTRACTS – Repudiation – whether the exercise of a contractual right to terminate for breach excludes common law right to accept breaching conduct as repudiation and recover loss of bargain damages – in addition to clause specifying liability of consequences of contractual termination, contract contains provisions preserving parties’ rights – where consequences of termination by exercise of contractual right and termination by acceptance of repudiation are not so different as to require an election – termination rights taken to be concurrent – loss of bargain damages recoverable |
Legislation Cited: | Canberra Institute of Technology Act 1987 (ACT), s 5 Court Procedures Rules 2006 (ACT) Financial Management Act 1996 (ACT), s 73 Government Procurement Act 2001 (ACT) |
Cases Cited: | Australian Broadcasting Commission v Australasian Performing Right Association Ltd (1973) 129 CLR 99 Basetec Services Pty Ltd v Leighton Contractors Pty Ltd (No 6) [2016] FCA 1534 Carna Group Pty Ltd v The Griffin Coal Mining Company (No 6) [2021] FCA 1214; 157 ACSR 224 Cherry v Steele-Park [2017] NSWCA 295; 96 NSWLR 548 Cirrus Real Time Processing Systems Pty Ltd v Jet Aviation Australia Pty Ltd [2023] NSWCA 280; 113 NSWLR 80 CSSA Chartering and Shipping Services SA v Mitsui OSK Lines Ltd (The Pacific Voyager) [2017] EWHC 2579 (Comm); Bus LR 2125 CSSA Chartering and Shipping Services SA v Mitsui OSK Lines Ltd (The Pacific Voyager) [2018] EWCA Civ 2413; [2020] Bus LR 192 Concut Pty Ltd v Worrell [2000] HCA 64; 75 ALJR 312 Dalkia Utilities Services plc v Celtech International Ltd [2006] EWHC 63 (Comm); 1 Lloyd’s Rep 599 Downer EDI Ltd v Gillies [2012] NSWCA 333; 92 ACSR 373 Electricity Generation Corporation v Woodside Energy Ltd [2014] HCA 7; 251 CLR 640 Gilbert-Ash (Northern) Ltd v Modern Engineering (Bristol) Ltd [1974] AC 689 McGrath v Sturesteps [2011] NSWCA 315; 81 NSWLR 690 Neptune Hospitality Pty Ltd v Ozmen Entertainment Pty Ltd [2020] FCAFC 47; 375 ALR 489 Ozmen Entertainment Pty Ltd v Neptune Hospitality Pty Ltd [2019] FCA 721; 369 ALR 644 Parbulk II A/S v Heritage Maritime Ltd SA (The Mahakam) [2011] EWHC 2917 (Comm); [2012] 2 All ER (Comm) 418 Phones 4U Ltd v EE Ltd [2018] EWHC 49 (Comm); Bus LR 574 Progressive Mailing House Pty Ltd v Tabali Pty Ltd (1985) 157 CLR 17 Shell Egypt West Manzala GmbH v Dana Gas Egypt Ltd [2010] EWHC 465 (Comm) Shepherd v Felt and Textiles of Australia Ltd (1931) 45 CLR 359 Shevill v Builders Licensing Board (1982) 149 CLR 620 Stocznia Gdynia SA v Gearbulk Holdings Ltd [2009] EWCA Civ 75; [2010] QB 27 Stocznia Gdanska SA v Latvian Shipping Co [1998] 1 WLR 574 Summers v Commonwealth (1918) 25 CLR 144 Summers v Commonwealth (1919) 26 CLR 180 Sunbird Plaza Pty Ltd v Maloney (1988) 166 CLR 245 |
Texts Cited: | JW Carter, Breach of Contract (1984, Law Book Company) JW Carter, Carter’s Breach of Contract (3rd ed, 2024, JW Carter Publishing) JW Carter and Y Goh, “Concurrent and Independent Rights to Terminate for Breach of Contract” (2010) 26 Journal of Contract Law 103 |
Parties: | Redrouge Nominees Pty Ltd trading as Think Garden ( Plaintiff) Canberra Institute of Technology ( Defendant) |
Representation: | Counsel JC Giles SC with BJS Smith ( Plaintiff) A Berger KC with J Cunliffe ( Defendant) |
| Solicitors Bennett Litigation and Commercial Law ( Plaintiff) ACT Government Solicitor ( Defendant) | |
File Number: | SC 39 of 2023 |
MOSSOP J:
Introduction
1․This is a claim for damages for breach of contract. The plaintiff is Redrouge Nominees Pty Ltd, acting as a trustee of a trust and trading under the name Think Garden. The sole director, shareholder and Chief Executive Officer of the plaintiff is Patrick Hollingworth. The defendant is the Canberra Institute of Technology established under s 5 of the Canberra Institute of Technology Act 1987 (ACT). The defendant is a corporation able to sue and be sued: Financial Management Act 1996 (ACT), s 73.
2․The plaintiff had a contract with the defendant (the Agreement). The Agreement was entered into on 28 March 2022. The services to be provided by the plaintiff under the Agreement will be described later in these reasons. The amount payable under the Agreement was $4,999,990 (Contract Price). That was payable in instalments. The amount of $1,666,663 was payable upon execution of the Agreement. In June 2022, the existence of the Agreement became a matter of public controversy. Internal and external investigations commenced in relation to the Agreement. The defendant purported to “pause” the Agreement. Initially, the plaintiff agreed to pause work for a short period; however, the plaintiff did not agree when the defendant stated that the intention was to pause the Agreement indefinitely. The plaintiff treated the defendant’s unilateral indefinite pausing of the Agreement as a breach of the Agreement and gave notice to the defendant of a “material breach”, pursuant to the terms of the Agreement. The plaintiff subsequently terminated the Agreement and sought payment of the balance of the Contract Price, as well as certain additional outlays. Those amounts were:
(a)Balance of the Contract Price: $3,333,327.
(b)Disbursements rendered before the termination date: $9136.95.
(c)Legal costs attributable to the termination: $8250.
3․The total amount claimed was $3,350,713.95.
4․The defendant did not pay the amount claimed. It contended that the balance of the Contract Price was not payable.
5․In these proceedings, the plaintiff contends that it is entitled to the balance of the Contract Price ($3,333,327), as well as the other amounts for disbursements and costs arising directly from the termination of the Agreement. Alternatively, the plaintiff seeks damages which represent the profit that it would have made on the Agreement had it not been terminated, being the amount of $2,167,871. The defendant contended that, under the Agreement and having regard to the payment of $1,663,663 already made, the only additional amounts payable to the plaintiff were disbursements and payments rendered before the date of termination, and reasonable costs incurred that are directly attributable to the termination of the Agreement.
6․The outcome of the case depends largely upon the interpretation of cl 11 of the Agreement. The issues are:
(a)whether, upon termination of the Agreement, the whole of the unpaid balance of the Contract Price became payable or only that proportion of it payable for services rendered up to the date of termination; and
(b)if the whole of the Contract Price is not payable, whether the plaintiff may recover loss of bargain damages or is limited to its entitlements under cl 11.2.
7․For the reasons that follow, the plaintiff is not entitled to payment of the unpaid balance of the Contract Price but is entitled to damages for the loss of its bargain.
The Agreement
8․The Agreement was dated 28 March 2022. It was entitled “Provision of CIT Futures 2025”. It appeared to be based upon a standard ACT Government form of Services Agreement for the provision of services by a consultant, which is then intended to be modified to address the particular circumstances of each case.
9․Clause 1 related to interpretation of the Agreement. It included the definition of the term “Contract Price” as “the amounts specified in, or calculated in accordance with, Item 3 Schedule 1”.
10․What was required to be done under the Agreement were the “Services”. Clause 1 indicated that this meant “the services described in Schedule 2”.
11․Clause 3 provided:
3.Term
This Agreement is for the Term unless terminated under the provisions of this Agreement.
12․The duration of the “Term” was defined by reference to Item 2 Schedule 1, which provided “For a period of two years which may be varied, in accordance with clause 13.7”.
13․Clause 4 relevantly provided:
4.Contract Price
4.1Invoice
CIT must pay the Service Provider the Contract Price following its receipt of an Invoice and otherwise in accordance with Item 3 Schedule 1.
14․Item 3 of Schedule 1 provided:
(1)Contract Price: $4,999,990.00 (GST inclusive).
(2)The Contract Price is payable by instalments. As per the table below.
(3)Each instalment is payable on receipt of an invoice issued by the Service Provider to the CIT Contract Officer. The ACT Government has payment terms of 30 days. For Instalments 2-3, the Service Provider should issue the invoice 30 days prior to the Instalment date. Instalment 1 will be paid on the receipt of the Invoice within the period of the payment terms (ie 30 days).
Instalment
Instalment Date
1
$1,666,663.00 (circa 33.3% of total fee).
March 2022 upon contract execution
2
$1,249,998, (circa 25% of total fee), plus disbursements to date.
November 28 2022
3
$1,249,998, (circa 25% of total fee), plus disbursements to date.
May 28 2023
4
$812,498, (circa 16.25% of total fee), plus disbursements to date.
November 28 2023
5
$20,833 (.45% of total fee), plus all remaining disbursements in arrears.
March 28, 2024,
(4)Travel disbursements from the Service Provider’s places of work in Australia will not include any mark-up and are to be approved by CIT prior to any expense being incurred.
(5)Travel disbursements may include mileage, parking, flexible airfares, taxis, food and accommodation.
(6)CIT may be charged for additional professional services/tools/diagnostic costs. Additional costs will not be incurred without prior approval by CIT.
(7)Except if otherwise stated in this Agreement, the Contract Price is:
(a)payable within 30 days of receipt by CIT of an Invoice;
(b)inclusive of GST and all other taxes, duties and charges; and
(c)inclusive of all disbursements including out-of-pocket expenses incurred by the Service Provider.
15․Clause 10.4, which was under the heading to cl 10, titled “Insurance and indemnity”, provided:
10.4Limitation on liability and exclusion of Consequential Loss
(1)Subject to clause 10.4(3), to the fullest extent permitted by law, the total aggregate liability of a party to the other party under or in connection with this Agreement in respect of all losses, damages and claims is limited to the total amount of fees for the Services under this Agreement and an additional $1 million.
(2)Subject to clause 10.4(3), neither party is liable to the other for any kind of Consequential Loss arising out of or in connection with this Agreement.
(3)The limitations and exclusions in this clause 10.4 do not apply to a party’s liability for loss suffered or incurred by the other party in respect of:
(a)any unlawful, fraudulent or negligent act or omission;
(b)death or personal injury;
(c)damage to or loss or destruction of real or personal property; or
(d)breach by a party of clause 5.1, 5.2, 5.3, 7 or Item 3, Schedule 3.
16․None of clauses 5.1, 5.2, 5.3, 7 or Item 3, Schedule 3 have any relevance to the present case. Clause 1 provided that “Consequential Loss”:
means the following, however arising and even if it is reasonably contemplated by the parties at [sic] as a likely result of breach of the Agreement:
(1)incidental, special, remote or unforeseeable loss or damage;
(2)loss of, damage to, breach of, or corruption of data;
(3)breach of security;
(4)loss of revenue, profit, income, bargain, opportunity, use, production, business, contract, goodwill, reputation anticipated savings, loss caused by business interruption, or the cost of obtaining new financing or maintaining existing financing, but excluding loss of any amounts that would, but for the act or omission of a party, have otherwise been payable under this Agreement;
(5)costs or expenses incurred to prevent or reduce loss or damage which otherwise may be incurred or suffered by a third party; or
(6)loss or damage of the nature set out above in clauses (1) to (5) (inclusive) that is incurred or suffered by or to a third party.
17․The point of significance about the definition of Consequential Loss is that subcl (4) contained the carve-out that allowed recovery of “profit, income, bargain” if “but for the act or omission of a party, [it would] have otherwise been payable under this Agreement”. It, therefore, does not preclude claims of the type made by the plaintiff in the present case.
18․Clause 11 related to termination and provided:
11.Termination
11.1Default
Either party may terminate this Agreement, at any time by notice to the other party, if the first party:
(1)is the subject of an Insolvency Event (if applicable); or
(2)is in material breach of a provision of this Agreement, where that breach:
(a)if capable of being remedied, is not remedied within the period specified in a notice by the other party; or
(b)is not capable of being remedied.
11.2Termination of Services
If this Agreement is terminated or a reduction of the Services occurs, for a reason outlined above in clause 11.1:
(1)CIT will be liable only for:
(a)the Contract Price, payments and agreed disbursements under this Agreement for Services rendered before the date of termination; and
(b)subject to clauses 11.2(2) and 11.2(3), any reasonable costs incurred by the Service Provider and directly attributable to the termination or reduction of Services, but not in respect of loss of prospective profits;
(2)on receipt of a notice of termination or reduction, the Service Provider must:
(a)stop work as soon as reasonably practicable as specified in the notice;
(b)take all available steps to minimise loss resulting from that termination or reduction of Services; and
(c)continue to perform any part of the Services not affected by the notice; and
(3)in the event of a reduction of the Services, CITs liability to pay the Contract Price will, in the absence of agreement to the contrary, abate proportionately to the reduction in the Services.
11.3No prejudice
Nothing in this clause 11 prejudices any other rights or remedies of each party in respect of any breach of this Agreement.
19․Clause 13.8 provided:
13.8No waiver
Failure or omission by either party at any time to enforce or require strict or timely compliance with any provision of this Agreement will not affect or impair that provision in any way or the rights and remedies that the party may have in respect of that provision.
20․Neither party could explain how the “reduction of Services” elements of the clause operated. It is likely that these elements were remnants of the standard form of the Services Agreement, which remained because of inadequately drafted amendments to that standard form. Neither party contended that the references to reduction of Services were significant for the determination of the case.
21․The Services to be provided under the Agreement were set out in the part of the Agreement headed “SCHEDULE 2 – THE SERVICES”. Schedule 2 has a number of headings:
(a)1.1. Context
(b)1.2. Background
(c)2. Services
(d)2.1. Overview of the Requirements
(e)2.2. Knowledge and Skillset Requirements
(f)2.3. Deliverables
(g)3. Timeframes
(h)4. Methodology
(i)5. Specified Personnel
(j)5.1. Minimum Requirements
(k)5.2. Subcontracting Arrangements
(l)6. Governance and Contract Management
(m)6.2. Contract Management Meetings
(n)7. Reports
(o)7.1. Progress Reports
(p)8. Performance
(q)8.1. Key Performance Indicators.
22․The actual content of the “Services” to be provided is not easy to work out from the words of the Agreement. It appears, instead, that many of the outputs of the Services were not defined in the Agreement but were intended to be subsequently defined as a result of meetings between the plaintiff and staff of the defendant. However, the following parts of Schedule 2 illustrate the subject matter and lack of definition of the contractual obligations:
1.1.Context
1.1.1.CIT has engaged the Service Provider to work in partnership over the term of this Agreement to guide and support CIT through a time of unprecedented change and opportunity. Through this Agreement CIT seeks to further progress the evolution of its complex adaptive systems informed approach to CIT’s transformation, from its initial exploration, designing and testing phases to a wider systemic implementation to enable the intent of the Strategic Compass – CIT Futures 2025 (SC2025). CIT envisions this will occur through the continued acquisition and embedding of knowledge, tools, activities, practices, and structures that will ensure CIT can function as a system that learns.
1.1.2.Example outcomes of CIT being a system that learns include the ability to:
(a)detect early/weak signals and build trends to improve products and services to meet the objectives of the SC2025, the priorities of the government and the needs of industry and the community,
(b)identify multiple users and their needs, and meet these needs using a combination of context specific and generalised practices,
(c)maintain sufficiently tight feedback loops, not only within CIT but also across the broader ACT environment,
(d)establish and self-sustain practices that allow for iterative learning cycles across a range of temporal (weeks, months, years and decades) and spatial (individuals, teams, departments, colleges/divisions) scales, and
(e)over the longer-term, adapt and co-evolve with the changing environment, allowing CIT to remain relevant and sustainable.
…
1.2.Background
1.2.1.In a world and age of increased information and complexity, possession of knowledge is insufficient. The ability to ask the right questions, to discern signal from noise, and to act accordingly is what matters. This is what CIT aims to do – to become a system that learns. As the world becomes increasingly connected and interdependent, organisations that can learn become organisations that can effortlessly, over the longer-term, adapt and co-evolve with the changing environment, allowing them to remain relevant and sustainable.
1.2.2.Rather than undertake a traditional consultancy-led restructure CIT will continue its contemporary complex adaptive systems-based approach to become a system that learns.
1.2.3.This approach underpins the recently released SC2025 which articulates both the CIT Board’s and the ACT Government’s objectives for CIT. The SC2025 is a continuation of the earlier Strategic Compass 2020, and focuses on the reconfiguration of physical, digital and social/cultural structures to ensure CIT can deliver the four SC2025 commitments:
·Leading change – Raising the Institute’s ambitions to meet new expectations,
·Advancing Canberra’s workforce – Adapting the Institute’s courses and means of delivery to provide skills for the future,
·Growing the region’s economy – Supporting jobs, economic resilience, and future prosperity, and
·Transforming CIT’s business – Investing in the Institute’s viability and value.
1.2.4.In addition to meeting these commitments, this approach will enable CIT to enact the ACT Government’s reform objectives which are focused on generational change to the institution and are centred around the following areas:
(a)Course adaptations …
(b)Building an adaptive CIT workforce …
(c)Public provider …
(d)Government relationships …
…
2.Services
2.1.Overview of the Requirements
2.1.1.CIT will work in partnership with the Service Provider over the term of this Agreement to enable it to function as a system that learns (as detailed in clause 1.2.2. and 1.3.6).
2.1.2.To enable this, the Service Provider will be required to guide and codesign with CIT in:
(a)developing system wide capabilities of situational awareness, early/weak signal detection and noise sorting;
(b)developing both context-specific and generalised responses to the multitude of situations it encounters;
(c)developing iterative capacity to cycle through adaptive/renewal processes across multiple spatial and temporal scales;
(d)the utility and application of relevant knowledge, tools, artefacts and approaches in enabling CIT to become a system that learns; and
(e)the utility and application of various organisational structures which promote better adherence to and governance of all the above practices.
2.1.1.Critically, the Service Provider’s partnership with CIT must create an overarching learning context in which the above practices occur in visible, coherent ways to ensure alignment with all SC2025 initiatives and the ACT Government’s reform objectives.
…
2.3.Deliverables
2.3.1.In the adoption of a contemporary complex adaptive systems approach will require the Service Provider must change and respond at different scales and speed as CIT learns and responds. [sic]
2.3.2.Each month contract meetings (as described at clause 6.1) will be held to review and assess the deliverables for the preceding period and set activities and outputs to be delivered and relevant measures for the proceeding period.
2.3.3.The Service Provider must deliver the range of Services described above (in clause 2.1) through a range of mechanisms and approaches including:
2.3.3.1.Design, implementation, feedback and evaluation
(a)a multi-disciplinary and multi-scaled approach to the codesign and implementation of appropriate practices for internal learning and knowledge exchange, for developing improved situational awareness, and for developing both context-specific and generalised responses to the situations CIT encounters;
(b)a multi-disciplinary and multi-scaled approach which is underpinned by a deep understanding of and proven applied experience with sciences relating to complex adaptive systems, networks, socio-technical systems and natural (ecological and evolutionary) and social (human and cognitive) systems;
(c)a multi-disciplinary and multi-scaled approach which is designed and implemented to ensure that all CIT staff involved in this work can learn in a disciplined and coherent way, ultimately ensuring greater coordination of CIT’s analysis and decision-making practices in relation to products, offerings and services;
(d)a multi-disciplinary and multi-scaled approach to the design, construction and activation of digital and physical spaces in which this work is held;
(e)a multi-disciplinary and multi-scaled approach creating an overarching learning context including embedding appropriate constraints; and
(f)for formal and informal learning throughout the period of the contract to develop CIT’s capacity to undertake the strategic initiatives and reform objectives in a coordinated, coherent and timely manner. These will include context appropriate feedback and evaluation methods and practices designed with CIT.
2.3.3.2.Strategic guidance
(a)regular strategic guidance of nominated staff through teleconference, video, face-to-face meetings, and other digital communication platforms; and
(b)representation and facilitation to progress and inform the work at strategic levels, including CIT Board, the Executive Management Committee and other governance structures.
2.3.3.3.Artefacts, resources and communication
(a)a multi-disciplinary and multi-scaled approach to the design and implementation of artefacts, resources and communication collateral that CIT can use to articulate the purpose of the work and its associated benefits to all CIT stakeholders and the broader ACT community.
…
8.Performance
8.1.Key Performance Indicators
8.1.1.CIT will monitor and track the Service Provider’s performance in the delivery of the Services in the form of the Key Performance Indicators (KPIs) detailed at Table 2.
8.1.2.The KPIs included in Table 2 may change through the term of this Agreement with written agreement between CIT and the Service Provider.
8.1.3.The KPI’s are as follows:
Key Performance Indicators
Calculation
Performance Indicator
Performance Measure
Minimum standard
Calculation
Data Source
Frequency
Meetings
The Service Provider attends the contract meetings held monthly as detailed in clause 6.
90% of the meetings are attended.
No. of meetings attended / meetings to be held.
Documented contract meetings
Monthly
Reporting
The reporting detailed in clause 7 is provided to CIT within the timeframes specified.
90% of reports provided within specified timeframes.
Percentage of reports delivered on time/reports to be delivered.
Service Provider’s reports
6 Monthly
Outputs
Defined outputs or measures of performance and activities agreed to at each contract meeting for the previous month have been delivered.
90% achieved, excluding any changes agreed to by CIT.
Percentage of agreed activities assessed and measured at each contract meeting.
Documented contract meetings
Monthly
The events leading up to the termination of the Agreement
23․The circumstances leading up to the termination of the Agreement were not the subject of dispute. They can be summarised as follows.
Emails between parties
24․On Thursday, 16 June 2022, Cheryl Steff, the Acting Executive Director Corporate Services for the defendant, wrote to Mr Hollingworth via email, saying:
As per our telephone conversation late yesterday, this email is to confirm that CIT is requesting that work currently being conducted by Think Garden at CIT be paused until we provide further advice.
I will make contact with James on Monday to provide an update.
25․The reference to “James” was a reference to [redacted], an employee of the plaintiff described in the Agreement as “Chief Settler for Organisations”.
26․Mr Hollingworth responded to Ms Steff’s email later that day, saying:
Thank you for your email below and your call yesterday.
I note your request to pause the services provided by Think Garden to CIT under the Services Agreement. I note the Services Agreement does not contain any allowance for a stand down or pause as such, and therefore we remain willing, able and committed to continue to deliver the Services in accordance with the Services Agreement throughout this time.
Whilst we will pause in line with your request until Monday (or earlier if advised) we do so in reliance on the Good Faith provisions in the Agreement only and we otherwise reserve all of our rights in relation to the Agreement and both [parties’] obligations under it.
Please contact me any time to discuss and I look forward to hearing from you on Monday in relation to next steps.
27․On Monday, 20 June 2022, Ms Steff sent a further email to Mr Hollingworth and [James], including the following:
This email is to inform you that CIT is advising that the work being performed by Think Garden at CIT will continue to be paused until further notice. We will keep you updated of any progress in relation to this.
If there are no updates throughout the week, I will give you a call by close of business on Friday just to check in with you.
28․[James] responded:
Thank you for your email and the update that the Services provided by Think Garden to CIT under the Services Agreement continue to be paused until further notice, and that you will contact us by close of business on Friday to provide an update.
In line with Patrick’s response to your first email, we will pause the services until advised otherwise in reliance [on] the Good Faith provisions in the Services Agreement and otherwise reserve all of our rights in relation to the Agreement and both parties’ obligations under it.
We remain willing, able and committed to continue to deliver the Services in accordance with the Services Agreement throughout this time.
29․On 24 June 2022, Mr Hollingworth had a telephone conversation with Craig Sloan and Kate Lundy, who were, at the relevant time, the defendant’s Board Chair and Deputy Chair, respectively.
30․On 27 June 2022, Mr Sloan emailed Mr Hollingworth, saying:
As per our conversation at the end of last week, this email is to confirm CIT’s and Think Garden’s agreement to pause work under the current contract until further notice, pending the completion of reviews both internal and external to CIT.
The time required for the completion of these reviews is presently unknown. In these circumstances, I trust that Think Garden is taking all reasonable steps to mitigate any losses it may suffer as a result of the agreement to pause work.
As we have done to date, we will continue to keep you informed of any relevant developments.
31․This provoked a firm response from Mr Hollingworth later that day. His email in reply said:
Further to your email below, I note that in our telephone call last week I did not agree to pause the contract indefinitely.
Think Garden has been and remains willing, able and committed to delivering upon the contract as entered into between it and CIT.
Due to what you have outlined below—which is incorrect and was not agreed, as suggested in your correspondence—Think Garden is seeking independent legal advice and will revert back to you.
We reserve all of our rights in the interim.
Letters between solicitors
32․On 7 July 2022, solicitors acting for the plaintiff sent a letter to the defendant via email as an additional response to Mr Sloan’s email. That letter indicated that there was “no contractual or legal basis on which CIT can simply unilaterally “pause” work and the operation of the Services Agreement at all, and certainly not indefinitely”. It invited any such contractual or legal basis for the pause to be identified. Then, under the heading “Notice of material breach”, it indicated that the defendant’s staff were not engaging with the plaintiff, and that it appeared that the defendant had informed its staff that no work was to be done under the Agreement, even though the fact that no pause had been agreed to had been identified a week earlier. It said, “the only conclusion our client can draw is that CIT intends to impose a unilateral indefinite “pause” of the Services Agreement upon our client”. The letter then continued:
Pursuant to the terms of the Services Agreement our client hereby provides notice to CIT that it is in material breach of the Services Agreement and that Think Garden requires such material breach is to be remedied by no later than 9:00am on Monday 12 July 2022 (AEST). For the avoidance of doubt, the material breach can only be remedied by confirming in writing that CIT understands there is no agreement about “pausing” the Services Agreement indefinitely and by instructing its staff to reach out to our client to continue the work already commenced under the terms of the Services Agreement.
If CIT fails to remedy the material breach outlined above by 9:00am on 12 July 2022, CIT will be in default of the Services Agreement pursuant to clause 11.1(2)(a) of the Services Agreement and it will be open to our client to terminate the Services Agreement.
If CIT fails to take any steps in response to this letter, it will be relied upon with respect to the issue of costs, if CIT later seeks to argue that there was no material breach of the Services Agreement by CIT and, assuming a failure to remedy the material breach by the time required, CIT is not in default of the Services Agreement.
33․The letter then referred to another aspect of Mr Sloan’s email, which is not necessary to set out, and concerns about recent media coverage. The letter concluded:
Failure to remedy material breach
Our client reserves its rights with respect to:
1.the continued operation of the Services Agreement;
2.the misrepresentations made about its alleged agreement to indefinitely pause work under the Services Agreement;
3.CIT’s ongoing material breach of the Services Agreement by unilaterally “pausing” the Services Agreement;
4.our client’s various claims for loss and damage occasioned by the conduct of CIT, its officers, staff and agents including leaking information to the press; and
5.our client’s rights against any third parties inducing or procuring CIT to breach its contractual obligations including a claim for loss and damage suffered as a result of that third parties’ contractual interference.
We urge CIT to obtain urgent independent legal advice with respect to its obligations under the Services Agreement.
34․The ACT Government Solicitor, acting for the defendant, responded to the letter from the plaintiff’s solicitors by letter sent on 8 July 2022. That letter said that:
(a)there may have been a misunderstanding in that the defendant had understood that a pause had been agreed between the parties, but that the letter sent by the plaintiff’s solicitors indicated that the plaintiff did not agree that that was what was decided;
(b)because of the very substantial payment to the plaintiff in advance, the defendant had formed the view that the plaintiff would not suffer any loss as a result of a short pause in the provision of the Services;
(c)the defendant was not responsible for the extensive media attention; and
(d)the terms of the Agreement not considered confidential had been made publicly available pursuant to the Government Procurement Act 2001 (ACT).
35․The letter concluded:
7.CIT recognises this is a difficult and complex situation for both parties. In these circumstances, it would appear that it is in the interests of both parties to meet to formally discuss the performance and management of the Contract while the current investigations are ongoing, in particular to assist your client to minimise any impact on its operations.
8.Could you please confirm when you and your client are available for these discussions.
36․On 12 July 2022, the solicitors for the plaintiff provided a further letter in response. That letter:
(a)made the point that despite the misunderstanding between the parties having been corrected two weeks earlier, the defendant had not taken any steps to address that misunderstanding, which, it asserted, demonstrated the defendant’s intention to unilaterally “pause” the Agreement;
(b)contested the proposition that the plaintiff would not suffer any loss as a result of a “short pause” in the provision of the Services, and pointed out that “[t]he outcome of any internal and external reviews does not have any impact on [the defendant’s] contractual obligations under the Services Agreement”; and
(c)indicated that the plaintiff would not meet with the defendant as suggested in the earlier letter because the suggestion implied that the defendant was committed to the “pause”, and because the telephone conversation between Mr Hollingworth and Mr Sloan and Ms Lundy on 24 June 2022 had been recorded without Mr Hollingworth’s knowledge.
37․The letter then concluded:
Right to terminate
Again, there is no legal basis on which your client can “pause” the operation of a valid contract. Your letter fails entirely to deal with your client’s obvious and ongoing material breach of the Services Agreement.
Our letter dated 7 July 2022, was notice of your client’s material breach pursuant to the terms of the Services Agreement (Notice). Your client has failed to remedy the material breach within the time provided for in the Notice. Our client is therefore entitled to terminate the Services Agreement pursuant to clause 11.1 of the Services Agreement.
If your client is of the view that our client cannot terminate the Services Agreement pursuant to clause 11.1, please set out why in correspondence to us no later than 4:00pm on 14 July 2022.
Reservation of rights
Our client reserves all its rights including those set out in our letter dated 7 July 2022 and its right to terminate the Services Agreement given your client’s failure to remedy a material breach in the time provided in the Notice.
If we do not receive a response addressing the matters set out above within the time requested, our client will rely on this letter with respect to various matters including any issue of costs and in response to any suggestion made at a future time that our client was not able to properly terminate the Services Agreement.
38․On 14 July 2022, the ACT Government Solicitor replied to this letter. The reply letter indicated that:
(a)it was a matter for the plaintiff to determine whether it was able to terminate the Agreement under cl 11.1 or at all;
(b)it was disappointing that the plaintiff was not willing to endeavour to reach a mutually acceptable resolution;
(c)it appeared from the plaintiff’s solicitor’s letter that there had been a loss of trust between the parties;
(d)the defendant remained of the view that it was in the best interests of both parties for the parties to engage to address the circumstances that had arisen; and
(e)the defendant was hopeful that the issues could be worked through and, therefore, remained open to discussing the matters between the defendant and the plaintiff.
39․That letter was met with a letter from the solicitors for the plaintiff on 21 July 2022, terminating the Agreement. Some aspects of the tone of this subsequent letter reflect poorly on the lawyers who wrote it. The letter included:
Your client has never presented any option to our client other than our client permitting your client to maintain a material breach of the Services Agreement for certain periods and since 27 June 2022, indefinitely.
40․It then addressed various contentions, repeating that it was not open to the defendant to “pause” the Agreement. The letter then continued in relation to termination:
Termination
Please see attached Notice of Termination which will also be sent to the Contract Officer in accordance with the notice provisions of the Services Agreement.
As you would be aware, upon termination of the Services Agreement, your client is liable to pay our client the following:
1. The Contract Price of $4,999,990, payment; and
2. disbursements under the Services Agreements rendered before the date of termination which we are instructed were approved prior to being incurred and rendered to your client on 20 July 2022 in the amount of $9,136.95; and
3. Subject to clauses 11.2(2) and 11.2(3) any reasonable costs incurred by our client and directly attributable to the termination but not in respect of loss of prospective profits.
Our client has already received $1,666,663.00 of the Contract Price leaving the sum of $3,333,327.00 remaining. Our client has incurred legal fees in the sum of approximately $8,250.00 and requires payment of its legal fees as reasonable costs directly attributable to the termination. Therefore, the amount due to our client is $3,350,713.95, calculated as follows:
Detail
Amount
Balance of the Contract price
$3,333,327.00
Disbursements rendered before the termination date
$9,136.95
Legal costs attributable to the termination
$8,250.00
Total
$3,350,713.95
(the Termination Amount).
Our client demands that you pay the Termination Amount, by way of direct deposit into the following bank account no later than 4:00pm on 28 July 2022:
[Details of bank account set out]
If our client receives payment of the Termination Amount in clear funds by 4:00pm on 28 July 2022, our client will abandon the making of any claims for loss and damage occasioned by your client’s material breach of the Services Agreement. For the avoidance of doubt, our client reserves its rights with respect to claims against persons and entities other than CIT itself.
If your client does not make the above payment within the time demanded, it is our client’s intention to commence proceedings to recover the amounts clearly due to our client under the terms of the Services Agreement, including all loss and damage suffered by it as a result of your client’s material breach of the Services Agreement. Our client will rely on this letter and all of our recent correspondence with your office in seeking to recover the costs of those proceedings from your client.
41․The Notice of Termination was addressed to the Contract Officer identified under the Agreement, being Ms Steff. The Notice included the following:
On various dates on and around 27 June 2022, CIT committed a material breach of the provision of the Services Agreement by unilaterally insisting that the operation of the Services Agreement was “paused” indefinitely pending the outcome of unspecified internal and external reviews, by cancelling meetings due to take place and required under the terms of the Services Agreement and by staff of the CIT failing to engage with the Supplier to undertake work required under the Services Agreement (collectively, the Material Breach).
On 7 July 2022, the Supplier gave CIT notice that it required CIT to remedy the Material Breach by 9:00am on 12 July 2022 (Notice of Breach).
CIT failed to remedy the Material Breach within the time provided by the Notice of Breach or at all.
The Supplier, hereby terminates the Services Agreement and demands payment of all amounts due to the Supplier by CIT as a result of the termination being the balance of the Contract Price payable, being $3,350,713.95, calculated as follows:
[table showing calculations set out]
by no later than 4:00pm on 28 July 2022.
42․By letter dated 28 July 2022, the ACT Government Solicitor replied to the termination letter and Notice of Termination. It recited that the defendant had invited the plaintiff to discuss the issues in correspondence and identified that the relationship between the parties appeared to have broken down. It pointed out that the defendant had not indicated that the Services under the Agreement would not be resumed. The letter then continued:
Even if it is open to your client to validly terminate the Contract under clause 11.1, it is difficult to understand how your client has suffered any loss, noting that it has been paid $1,663,663 [sic] for the period from 28 March 2022 to 28 November 2022 and yet only provided services until 16 June 2022. If your client has a different view, could you please identify with precision each of the costs it claims to have incurred that are directly attributable to the purported termination and all steps it has taken to minimise loss. We understand the compensation sought by your client is claimed pursuant to clause 11.2 of the Contract but if our understanding is incorrect please let us know.
43․This was then responded to by the lawyers for the plaintiff by way of a final letter, dated 3 August 2022. This letter included the following:
5.Our client is not required to suffer any loss and damage in order to be entitled to the entirety of the Contract Price as clearly set out in the Services Agreement. The only loss and damage our client has claimed to date, is its legal fees which are now claimed in the sum of $10,000 plus GST. If your client considers these legal costs unreasonable, please set out why in correspondence.
6.Our client has validly terminated the Services Agreement and is entitled to immediate payment of
a. pursuant to clause 11.2(1)(a), the balance [of the] Contract Price and agreed disbursements incurred and submitted for payment prior to termination; and
b. pursuant to clause 11.2(1)(b), its legal costs in the sum of $10,000 plus GST, being reasonable costs incurred by the Service Provider and directly attributable to the reduction of Services by your client and the termination.
For the avoidance of doubt, clause 11.2(3) does not apply as there has been no reduction of Services by our client and clause 11.2(1)(a) is not expressed to be subject to clause 11.2(3) in any event.
Our client appreciates that your client may need some time to review the disbursements and notes that your client has already had over a week to do so.
In the meantime, without prejudice to your client’s position with respect to the disbursements or the legal fees, please have your client pay our client the sum of $3,333,327.00, being the balance of the Contract Price no later than 4:00pm on Monday 8 August 2022.
If payment of $3,333,327.00, being the balance of the Contract Price is not received by 4:00pm on Monday 8 August 2022, our client does not intend to engage in further circular correspondence about payment of the balance of the Contract Price but intends to commence proceedings to recover, inter alia, the balance of the Contract Price without further notice to your client.
This letter will be relied upon with respect to the issue of costs if your client raises matters in the proceeding which your client could have raised in correspondence prior to the issue of the proceedings.
44․There was also a without prejudice letter from the solicitors for the plaintiff, which was admitted into evidence without objection. Its terms did not relevantly add to what appears from the open correspondence.
45․The terms of the correspondence from the solicitors for the plaintiff clearly indicated that the Agreement was intended to be terminated pursuant to clause 11.1 for a “material breach”. That is made clear by the consistent references to “material breach” in the correspondence, and the references to the provisions of cl 11 of the Agreement. Although it is correct to say that neither the termination letter nor the Notice of Termination expressly said that the Agreement was being terminated pursuant to cl 11.1, the correspondence prior to the termination letter indicated that this is what was intended: see, for example, the letter of 12 July 2022 above. Further, the subsequent letter of 3 August 2022 also makes it clear that this was what was intended. The subjective intention of the plaintiff was to terminate the Agreement pursuant to cl 11.1. Considered objectively, the communications between the parties taken as a whole indicate that that is what occurred.
General principles
46․The general principles to be applied to the interpretation of contractual provisions were not in dispute.
47․The meaning of a contract is to be determined objectively by considering what a reasonable businessperson would have understood its terms to mean. This requires consideration of the language used by the parties, the surrounding circumstances known to them, and the commercial purpose or object to be secured by the contract. The court is entitled to approach the task of giving a commercial contract a businesslike interpretation on the assumption that the parties intended to produce a commercial result and, hence, a commercial contract is to be construed so as to avoid making commercial nonsense or working commercial inconvenience: Electricity Generation Corporation v Woodside Energy Ltd [2014] HCA 7; 251 CLR 640 at [35].
48․The primary duty of a court in construing a written contract is to endeavour to discover the intention of the parties from the words of the instrument in which the contract is embodied: Australian Broadcasting Commission v Australasian Performing Right Association Ltd (1973) 129 CLR 99 at 109. The contract must be construed as a whole, and the words of every clause must, if possible, be construed to render them harmonious with each other.
49․The starting and ending point of the construction of a written commercial contract is the language chosen by the parties to record their bargain. There is limited scope for the surrounding circumstances to detract from the contractual text. While it is open to the court to take into account context and the surrounding circumstances known to both parties even where there is an absence of apparent ambiguity, that does not permit the court to depart from the ordinary meaning of the words used merely because the result may be inconvenient or unjust: McGrath v Sturesteps [2011] NSWCA 315; 81 NSWLR 690 at [17]; Cherry v Steele-Park [2017] NSWCA 295; 96 NSWLR 548 at [72]-[73].
50․On the other hand, where language is open to more than one construction, the court should prefer a construction which avoids consequences which are capricious, unreasonable, inconvenient, or unjust: Electricity Generation at [35].
51․When assessing whether a construction should be avoided because it makes “commercial nonsense” or works “commercial inconvenience”, care must be taken by the court not to impose a lawyer’s understanding of the world upon the bargain reached between the commercial parties: Cirrus Real Time Processing Systems Pty Ltd v Jet Aviation Australia Pty Ltd [2023] NSWCA 280; 113 NSWLR 80 at [65]-[66].
Interpretation of clause 11
Submissions of the plaintiff
52․The plaintiff submitted that, pursuant to cl 11.2 of the Agreement, upon termination for material breach by the defendant, the defendant was liable for the whole of the Contract Price, namely $4,999,990.
53․Counsel for the plaintiff submitted that the Contract Price was defined in Schedule 1 Item 3 cl (1) as “Contract Price: $4,999,990.00 (GST inclusive)”. This was a single fixed sum, even if the balance of the terms of Item 3 permitted it to be paid in instalments.
54․Counsel also submitted that, at cl 11.2(1)(a), the words “for Services rendered before the date of termination” attached to the words “agreed disbursements” or to both “payments” and “agreed disbursements” and acted to qualify those amounts, but did not attach to the words “Contract Price” and, therefore, did not act to qualify that amount. This was because any instalments of the Contract Price were not referable to Services provided. He submitted that, having regard to the definition of Services and the content of Schedule 2, the skills and intellectual property that were provided under the Agreement were not referable to any point in time. They were defined not by particular actions, but by particular outcomes. In other words, the Services were not time-based services and, hence, it was not apt to refer to them as having been “rendered before the date of termination”. Further, in assessing whether the outcome that would arise from the plaintiff’s preferred interpretation was an uncommercial one:
(a)Care should be taken by lawyers in assessing whether outcomes were uncommercial: see Cirrus at [65]-[66].
(b)Because Services were not time based, it was not possible to say that there would only be overcompensation if the whole of the Contract Price was payable. Rather, counsel contended that there would also be a risk of undercompensation. It was, therefore, a “fraught process of reasoning” to decide that the outcome contended for by the plaintiff would be an uncommercial one.
55․As indicated above, counsel could not give any meaning to the references to “a reduction of the Services” in the clause, but submitted that, in the circumstances of this case, the difficulty in giving any meaning to those words did not matter.
Submissions of the defendant
56․The defendant made the following submissions about cl 11.2.
57․The defendant relied upon the fact that, although Schedule 1 Item 3 cl (1) provided that the Contract Price was $4,999,990, the balance of the terms of that item provided a scheme for the payment of instalments upon the receipt of an invoice issued by the plaintiff and, by virtue of cl 4(3), payment of the invoice constituted “acceptance by [the defendant] of the Services”.
58․The right of termination in cl 11.1 is mutual and, as a consequence, cl 11.2 operates regardless of which party terminates the Agreement. Counsel for the defendant submitted that the interpretation contended for by the plaintiff would mean that even in circumstances where the defendant terminated the Agreement because the plaintiff was in “material breach”, the defendant would still have to pay to the plaintiff the whole of the Contract Price, and that that would be the case no matter how far the Agreement had progressed. Such an interpretation would render the defendant’s right to terminate meaningless. The defendant submitted that such an interpretation would amount to “commercial nonsense” and that it was not an interpretation which a reasonable person would have understood to apply.
59․Counsel for the defendant submitted that upon termination (by either party), the plaintiff was only entitled to retain any instalments of the Contract Price that had already been paid or were payable prior to termination.
60․Counsel placed emphasis on the existence of the word “only” in the opening line of subcl (1), and the express exclusion of “prospective profits” in para (b).
61․He also placed emphasis on the fact that the instalment payment timetable at Schedule 1 Item 3 cl (3) required payment of significant amounts in advance of work being done, and that this scheme for advance payment removed any unfairness that might have arisen if termination occurred halfway between the payment of an instalment and the due date for the next.
62․Some additional submissions were made based upon the terms of the pre-contractual correspondence between the parties to the effect that the regime for payment in advance was negotiated as a protection against the risk of termination. It is not necessary to refer to this argument further.
Decision
63․Clause 11.2 should be interpreted substantially in the manner contended for by the defendant, that is, not requiring payment of the whole of the Contract Price but, instead, only that part of the Contract Price to which the plaintiff became entitled before the date of termination. A variety of features of the language of cl 11, read in the context of the Agreement as a whole, lead to that conclusion.
64․First, cl 11.1 allows termination by either party. The plaintiff’s interpretation would require the payment of the whole of the Contract Price even if the defendant terminated the Agreement because of the plaintiff’s breach. Notwithstanding the caution that should be applied by lawyers in assessing questions of absurdity or non-commerciality, such an outcome would be a very unusual one. Even with appropriate caution to avoid imposing a lawyer’s assessment upon commercial agreements, the unusual nature of such an agreement tends against interpreting the Agreement in that way.
65․Second, the use of the word “only” in the expression “liable only for” in cl 11.2(1) is suggestive of the clause being one of limitation upon the liability of the defendant. The plaintiff’s interpretation would not have the effect that cl 11.2(1) involved a limitation consistent with the use of the word “only”, because the plaintiff would obtain the whole of the Contract Price in any event.
66․Third, cl 11.2(1)(b) is inconsistent with the recovery of the whole of the Contract Price. The terms of cl 11.2(1)(b) are not particularly clearly drafted and combine the concepts of “reasonable costs” and “loss of prospective profits” into a single clause, as if prospective profits were a subset of reasonable costs. However, the language is consistent with an intention to exclude the defendant from any liability in respect of loss of prospective profits arising from the termination of the Agreement. I do not accept the submission made on behalf of the plaintiff that the reference to “loss of prospective profits” is intended as a reference to a loss of prospective profits that might be a component of a reasonable cost incurred which is directly attributable to the termination or reduction of Services, those costs not being costs incurred pursuant to the Agreement but costs subsequent to its termination. The expression “but not in respect of loss of prospective profits” appears to be intended to ensure that the reference to “costs incurred … directly attributable to the termination or reduction of Services” is not read in any expansive manner so as to include a loss of profit. The language used is not consistent with an intention to merely ensure that a profit component was not included in the reasonable costs incurred. The use of the expression “prospective profits” indicates that the subject matter is not limited to any profit component of a reasonable cost incurred by the plaintiff but is instead targeting profits that would have been made had the termination of the Agreement not occurred.
67․Fourth, the terms of cl 11.2(2) are more consistent with an interpretation of cl 11.2(1) that makes the defendant liable only for a proportion of the Contract Price. That is because it contains an obligation on the plaintiff to stop work and take steps to minimise loss resulting from the termination. That is more consistent with an intention to limit the costs directly attributable to the termination. Whilst it could also be consistent with an obligation on the defendant to pay the whole of the Contract Price, if that were the obligation then it is less likely that the plaintiff’s minimisation of loss resulting from the termination would be an issue of concern.
68․Fifth, in contrast to the unusual operation that would be involved in the provision if it operated as contended for by the plaintiff, the defendant’s interpretation of cl 11.2 gives it a reasonable operation. The payment timetable at Schedule 1 Item 3 cl (3) provides for very substantial upfront payments to be made to the plaintiff. Having regard to the nature of the obligations under the Agreement – a subject to which I will return below – those payments provide very significant income in advance to the plaintiff and, having regard to that income, the plaintiff is not exposed to so adverse an outcome as a result of the defendant’s interpretation of the operation of cl 11.2 as would indicate that the operation was commercially unreasonable.
69․Sixth, for the purposes of the fifth point, I do not accept the submission made on behalf of the plaintiff that the services to be provided under the Agreement are so disconnected from the time spent by the employees of the plaintiff that the significance of the substantial payments should be discounted when interpreting the commercial operation of cl 11.2. That requires some elaboration. The Services to be provided by the plaintiff are outlined in Schedule 2 of the Agreement, parts of which are set out earlier in these reasons. Those Services are described in language which makes the actual content of the Services to be provided rather obscure from a contractual point of view. Having regard to the content of cl 2.3 of Schedule 2, the timeframes set out in cl 3.1.1, the deferral until after the Agreement had commenced of “a finalised outline of [the] methodology” in cl 4.1, and the “key performance indicators” at cl 8.1.3 that measure “Meetings” and “Reporting” and “Outputs” to be defined in the future as a result of the monthly meetings, what appears to be intended to be provided is management or change management consultancy services over a two-year period. The terms of Schedule 2, which refer to a “deep partnership” with monthly meetings, six-monthly reports, and a series of outputs to be subsequently decided upon at the monthly meetings, operating over a two-year period, are not consistent with there being a divorce between the making of payments and the provision of services during the period which was the subject of a payment in advance. Although Mr Hollingworth identified himself in his affidavits as being a “scientist”, and reference was made to the plaintiff as an “industry leader in applied complexity sciences” and to the provision of “intellectual property”, the evidence points to a conclusion that the service to be provided was simply an iterative management consultancy service to be provided over time based upon the knowledge and experience of the service provider. The evidence, therefore, does not support the submission that the services provided were so complex as to render them unable to be measured against time spent.
70․Given this interpretation of cl 11.2, the plaintiff’s claim for $3,333,327 must be rejected.
Availability of damages for repudiation
Submissions of the plaintiff
71․The plaintiff submitted that, as a matter of fact, the correspondence leading up to the termination of the Agreement did not indicate that the termination was pursuant to cl 11.1. It submitted that there were no words of confinement in relation to the grounds of termination in the correspondence leading up to termination.
72․In the event that it was found as a fact that the termination was in the exercise of a contractual right, the plaintiff submitted that this did not matter. That is because the authorities allow such a contractual termination to be characterised as an acceptance of a repudiation and, hence, allow for a claim for damages based upon that repudiation, even though the termination was said to be under a contractual provision. In support of that submission, it relied upon three cases, being Progressive Mailing House Pty Ltd v Tabali Pty Ltd (1985) 157 CLR 17, Concut Pty Ltd v Worrell [2000] HCA 64; 75 ALJR 312, and Downer EDI Ltd v Gillies [2012] NSWCA 333; 92 ACSR 373.
73․The plaintiff placed significant emphasis upon the terms of cl 11.3 of the Agreement, submitting that the effect of cl 11.3 was that the plaintiff’s common law entitlement to claim damages for repudiation of the Agreement remained unaffected by the operation of clauses 11.1 and 11.2.
74․It submitted that cl 11.1 did not purport to be a code governing the circumstances in which the Agreement could be terminated.
75․It contrasted the terms of cl 11.3, which expressly preserved other rights or remedies, with those of cl 10.4, which were clearly intended to limit liabilities of the parties, pursuant to claims made under the Agreement and outside it.
Submissions of the defendant
76․The defendant submitted that the terms of the correspondence leading up to the termination of the Agreement made it clear that the plaintiff was relying upon the contractual provisions to achieve a termination. There was no reference to repudiation or an acceptance of a repudiation.
77․The defendant did not contend that there was any waiver or election that prevented the plaintiff from obtaining common law damages. It accepted the correctness of the authorities referred to by the plaintiff. It did not contend that the Agreement could only be terminated in accordance with cl 11.1. It did, however, submit that cl 11.2 covered the field if the Agreement was terminated pursuant to cl 11.1. So far as cl 11.3 was concerned, the defendant accepted that the clause had significant work to do. However, counsel submitted that the word “other” was significant because it indicated that the preservation of rights by cl 11.3 only operated where cl 11.1 had not been invoked.
78․In circumstances where, as a matter of fact, termination had occurred pursuant to cl 11.1, the defendant contended that the Agreement could provide for the damages consequences that followed. Counsel submitted that the exercise of the entitlement to terminate pursuant to cl 11.1 provided a certain and ascertainable outcome which could be invoked by a party not in breach. That contrasted with the situation that would exist if the party chose to act upon rights outside of cl 11.1, which were preserved by operation of cl 11.3. In such a situation, the plaintiff did not have the benefit of the defined consequences. It would take its chances of succeeding on whatever cause of action was available to it.
79․The defendant pointed to two cases as illustrating the proposition that parties to contracts may specify the damages consequences that flow from particular circumstances in which a contract is terminated. Those were Carna Group Pty Ltd v The Griffin Coal Mining Company (No 6) [2021] FCA 1214; 157 ACSR 224 and Basetec Services Pty Ltd v Leighton Contractors Pty Ltd (No 6) [2016] FCA 1534.
Decision
Plaintiff’s authorities
80․The first of the plaintiff’s three cases upon which it relied was Concut at [23], [27], and [29]. There, the majority of the court (Gleeson CJ, Gaudron and Gummow JJ) referred favourably to “the familiar principle of construction that clear words are needed to rebut the presumption that a contracting party does not intend to abandon any remedies for breach of the contract arising by operation of law” which was stated in Stocznia Gdanska SA v Latvian Shipping Co [1998] 1 WLR 574 at 585 and Gilbert-Ash (Northern) Ltd v Modern Engineering (Bristol) Ltd [1974] AC 689 at 717. At [27] and [29], the judgment continued: “Thus, an express provision for termination for breach in certain circumstances may be regarded as designed to augment rather than to restrict or remove the rights at common law which a party otherwise would have had on breach”. The judgment confirmed the proposition of the law arising from Shepherd v Felt and Textiles of Australia Ltd (1931) 45 CLR 359 at 377-378, where Dixon J identified the rule that dismissal of an employee may be justified on grounds on which the employer did not act and of which the employer was unaware when the employee was discharged, was a rule of general application with respect to the discharge of contract by breach.
81․The second case was Downer EDI at [129]-[139]. In that case, Allsop P (with whom Macfarlan and Meagher JJA agreed) rejected a submission that the principle in Shepherd only operated where the act purportedly taken under the contract required other justification to be valid. His Honour said that there was no reason to confine the principle in Shepherd to supporting actions which would not otherwise be valid without further justification. Rather, it extended to adding a further basis for justification if that had separate relevance. That, he said, accorded with the approach to the availability of damages for loss of bargain even if the contract was terminated in the exercise of a contractual power, referring to Progressive Mailing House at 31. He said (at [136]), “Of course, whether or not the two contractual bases can operate concurrently or severally will be affected by the terms of the contract.” His Honour identified that there may be a difference between the principle articulated by Mason CJ in Sunbird Plaza Pty Ltd v Maloney (1988) 166 CLR 245 at 262 and the decision of the Court of Appeal of England and Wales in Stocznia Gdynia SA v Gearbulk Holdings Ltd [2009] EWCA Civ 75; [2010] QB 27 at [44], referred to below. However, in such circumstances, his Honour said that he was bound to adopt the approach in Sunbird.
82․The third case to which reference was made was Progressive Mailing House, in particular, the judgments of Mason J at 31-33 and of Deane J at 55-56. Those passages addressed the availability of damages for loss of a contractual bargain. Mason J said that it is essential to an award of damages for loss of bargain that the defendant can no longer be required to perform the contractual obligations in specie. That essential foundation may be established either by a common law termination for breach by the innocent party (referred to in the reasons as a “common law rescission”) or by a termination of the contract in the exercise of a contractual power to do so. His Honour continued (at 31):
The well-recognized distinction between common law rescission and termination pursuant to a contractual power supplies no reason in principle why such damages are recoverable by the innocent party in one case and not in the other, provided of course that the exercise of the power is consequent upon a breach or default by the defendant which would attract an award for such damages.
Termination in the exercise of a contractual power is not an affirmation of the contract which debars the innocent party from suing for damages for breach on the ground of repudiation or fundamental breach. This is because the termination, so far from insisting on performance by the party at fault, brings to an end his obligation to perform his promise in specie.
Nor can it be said in the case of repudiation or fundamental breach, that loss of the bargain is attributable to the innocent party’s exercise of his contractual power to terminate. It is different in the case of termination for non-essential breach, as Shevill [v Builders Licensing Board (1982) 149 CLR 620] demonstrates, because, by terminating pursuant to the contract at that stage, the innocent party puts it beyond his power to insist on performance, thereby bringing to an end any possibility of repudiation or fundamental breach with consequential damages for loss of bargain.
83․Justices Wilson (at 38) and Dawson (at 56) agreed with this analysis. Deane J agreed, generally, but had more to say (at 55-56):
A party entitled to terminate a contract for repudiation or fundamental breach may rely upon both a specific contractual right to terminate the contract and the common law right to terminate unless, as a matter of construction, the former excludes the latter … More specifically, where a contractual right to terminate for past breach and the common law right to terminate for repudiation or fundamental breach exist concurrently, the reliance upon the contract involved in the exercise of the contractual right to terminate will not preclude the recovery of damages for loss of the future benefit of the contract by reason of repudiation or fundamental breach unless the contract expressly or impliedly so provides …
(References omitted)
84․Amongst the references cited with approval was the 1984 edition of JW Carter, Breach of Contract (1984, Law Book Company), the equivalent passage from a subsequent version of which is referred to below.
Defendant’s authorities
85․Two authorities were relied upon by the defendant. The first was Basetec, which involved a contractual power which allowed termination of a works contract for convenience (cl 43). At [349], Besanko J, in describing the operation of the clause and its consequences for payments following termination, stated that its purpose was to indicate that, in those circumstances, the head contractor “is not liable for loss of bargain damages and to identify the amounts which may be recovered by the Contractor”. The decision was relied upon by the defendant simply as an example of a case in which a contractual provision defined the damages consequences of a termination. This example involved a termination for convenience where the contract did not require the existence of a breach of contract and it was, therefore, a little easier to control the damages consequences than in a case of termination for breach. It may be accepted, as a matter of general principle, that it is clearly open to parties to contractually define the damages consequences of a termination of the contract for whatever reason.
86․The second case is Carna, in which the court found that an “Insolvency Default” breach of the contract had occurred. In assessing damages, both parties agreed that Sch 15 to the contract between the applicant and the respondent “provided an exhaustive code for the calculation of damages”: [260], and that it operated as “a comprehensive code that governs Carna’s entitlement to damages”: [268]. The relevant clause provided that the entitlements of Carna were to be calculated as if the termination was one for Griffin’s convenience and required payment of certain amounts, as well as the sum of $4,500,000 to compensate Carna for the premature termination. The court held that, in deeming Carna’s entitlement to be as if the termination was for Griffin’s convenience and “enumerating an exhaustive list of categories under which amounts are payable”, it was clear that “the parties intended to eschew any recourse to general loss of bargain damages in the instances where Sch 15 applies”: [264]. As a consequence, no issues of causation and remoteness arose in relation to any expectation loss. Rather, the only question was whether the amounts claimed fell within the entitlements under Sch 15: [267]. The requirement to make a payment of $4,500,000 was provided for by Sch 15, and the court said (at [378]):
Obviously, the parties contemplated when they entered into the Contract that there would be a substantial lump sum payment on termination in lieu of general losses that fall outside the ambit of Sch 15.
87․This case is another one which provides an example that illustrates the general proposition that it is open to parties to define the exclusive consequences of a contractual termination. Because of the proposition that Sch 15 constituted a code for the consequences of the relevant breach, it was unnecessary for the court to engage in any detailed analysis of the contractual terms. However, two features of the contract appear to have made it easy to reach the conclusion that the parties and the court did:
(a)First, the invocation of the regime for termination for convenience, which provided a specified sum for the loss of the value of the contract, was clearly intended to be a substitute for any entitlement to common law damages for loss of the bargain.
(b)Second, there was no reference to any contractual provision which, either expressly or by necessary implication, preserved claims for damages outside the regime provided for in Sch 15.
Other authorities
88․There are a number of other cases, not referred to in the submissions of the parties, which address circumstances where there are concurrent entitlements to terminate and claims for loss of bargain damages. Because they were not addressed in the parties’ submissions, they are described in these reasons in greater detail than might otherwise have been the case.
89․Summers v Commonwealth (1918) 25 CLR 144 (affirmed by Summers v Commonwealth (1919) 26 CLR 180) was a case relating to a contract for the supply of marble for the purposes of constructing Australia House in London. One of the general conditions of the contract provided that if the contractor neglected or omitted to carry out the instructions of the Works Director or assigned the contract without consent, the Minister could call on the contractor to show cause and, if the contractor failed to do so, “may take the works out of the contractor’s hands, and may complete them, and deduct the cost from any money coming to the contractor”. The contract was for the supply of blocks from which pillars of particular dimensions could be made. Contrary to the contract, the contractor insisted on supplying blocks from which two pillars could be cut and refused to carry out the contract in the way required. Notice was given stating that the contractor should proceed with the contract as required, or steps would be taken to determine the contract under condition 28. The contractor did not proceed with the contract as required, and the Department gave notice of cancellation, purporting to be under condition 28, and referred to the issue of security provided under the contract. Isaacs J said of the show cause letter (at 150):
Reading that letter, the contractor, being referred to condition 28, would or might naturally think that the contract, though it might be terminated as to his performing it, would remain for other purposes.
90․His Honour rejected a submission that the second letter, which also referred to condition 28, should be read as an acceptance of the contractor’s repudiation, saying (at 151):
Now, I cannot regard the letter of 9th June as a lawful cancellation of the contract. It purports to be given under condition 28. That condition, however, does not provide for a complete annulment of the contract, and, having regard to the nature and consequences of such a notice, I am bound to read it strictly. I cannot, as invited, read it as a rescission under the implied common law power of accepting the plaintiff’s repudiation of the contract in his letter of 21st May; first, because it purports to be under the terms of the contract itself, and next because it maintains a hold over the security. But the security was lodged on the express stipulations of the contract as to the conditions on which the defendant could forfeit it. The letter of 9th June, as I read it, asserts a right under the contract to determine whether the security should or should not be forfeited, and so the letter rests, and would be understood by the recipient to rest, on the contract and not on the general common law power.
91․The significance of the decision is that the contractual power exercised was not one which clearly terminated the contract. Rather, it permitted the work to be taken out of the contractor’s hands. His Honour was, therefore, not prepared to read the letter invoking the power in condition 28 as also amounting to an acceptance of a repudiation.
92․Dalkia Utilities Services plc v Celtech International Ltd [2006] EWHC 63 (Comm); 1 Lloyd’s Rep 599 involved a contractual termination which was argued to also amount to an acceptance of repudiation. The contract in question related to a boiler, a gas turbine driven generator set, a waste heat boiler, and a standby boiler, as well as associated equipment. Clause 14 of the contract provided for termination of the contract where the other party was in “material breach” of its obligations and had failed to remedy that breach. Clause 14.2 provided that “the NON DEFAULTING PARTY shall have the right to terminate this Agreement forthwith by notice in writing to the DEFAULTING PARTY”. Of significance for the outcome of the case was the fact that, where the termination occurred pursuant to cl 14, the consequences of that termination were specified in cl 15. Those consequences depended upon which party terminated the contract. In either event, a “termination sum” was payable by the client and, upon that payment, the client would get to keep the plant. Clause 15.7 provided that “The consequences of termination set out in this clause represent the full extent of the parties’ respective rights and remedies arising out of any termination save for those rights [and] remedies and liabilities which arise prior to termination”.
93․One of the matters in contention was whether cl 15.7 amounted to a complete code as to the rights and remedies of either side in the event that there was any form of termination or whether it only applied to a termination under cl 14. On that issue, Clarke J found that cl 15.7 should not be construed as a complete code, saying (at [21]):
In my judgment clause 15.7 should not be so construed. First, although the word "any" is a word of wide import, the clause must be looked at in its context. Clause 14 contains 9 separate categories of circumstances in which one party or the other may terminate the agreement. In all of these categories the right to terminate would or could arise in circumstances which did not give rise to a right of termination at common law. Clause 15 deals with the consequences that will follow according to which ground for termination has been invoked. The natural reading of clause 15.7, in that context, is that the only rights or remedies that will arise in respect of a termination on any of the bases provided for by clause 14 will be those specified in clause 15. Secondly, clause 15.7 does not seem to me sufficiently clear, as it would need to be, to exclude the parties’ common law right to accept a repudiatory breach of contract (e.g. an outright refusal to perform) as discharging the innocent party from further liability and to claim damages for the loss of the contract. The presumption is that it does not unless there are clear express words to that effect: Modern Engineering (Bristol) Ltd v Gilbert Ash (Northern) [1974] A.C. 689,717.
94․The point being made by Clarke J was that, having regard to the wide variety of circumstances in which termination could be achieved under cl 14 and the need for clear language to exclude the common law right to accept repudiatory conduct, the clause (cl 15.7) should not be treated as a code.
108․The summary of the authorities in Shell Egypt was adopted and applied by Popplewell J in CSSA Chartering and Shipping Services SA v Mitsui OSK Lines Ltd (The Pacific Voyager) [2017] EWHC 2579 (Comm); Bus LR 2125 at [32], where the exercise of a contractual right of termination was held to be sufficient to amount to acceptance of repudiation (had there in fact been a repudiation, which the court held that there had not) because “it evinced an unequivocal intention to terminate the charterparty; and the contractual right to terminate under clause 11 was not inconsistent with, and did not exclude resort to, common law remedies for breach of the charterparty”. (An appeal on other grounds was dismissed: CSSA Chartering and Shipping Services SA v Mitsui OSK Lines Ltd (The Pacific Voyager) [2018] EWCA Civ 2413; [2020] Bus LR 192.)
109․Phones 4U Ltd v EE Ltd [2018] EWHC 49 (Comm); Bus LR 574 involved a retailer of mobile phone contracts (Phones 4U) and a mobile network operator (EE). The contract between them allowed termination if the other party took steps to appoint an administrator. The claimant, Phones 4U, appointed administrators. The defendant, EE, terminated the contract pursuant to the contractual provision. The notice of termination did not identify any breach of contract. However, the defendant reserved its rights under the contract. The notice of termination was expressly pursuant to cl 14.1.2. It was common ground that the appointment of administrators was not a breach of the contract, but that it did entitle the defendant to terminate under cl 14.1.2.
110․The claimant claimed against the defendant for amounts owed to it pursuant to contractual provisions which survived termination. The defendant counterclaimed for damages for loss of the bargain, contending that, by ceasing trading, the claimant was in breach of its obligations and that the breach was repudiatory. The claimant sought summary judgment on the defendant’s counterclaim, raising whether or not it was legally arguable. The outcome of the case is usefully summarised in the Business Law Reports headnote:
… that for a party successfully to make a common law claim for damages for loss of bargain, it had to show that its termination of the contract creating the loss of bargain resulted from repudiatory breach or renunciation and was made by its exercise of its common law right to terminate for that breach or renunciation; that even where conduct later alleged to be a repudiation at common law was cited as the factual basis for a termination based on a contractual provision, it might be that the innocent party could not rely on the repudiation at common law as having led to its decision to terminate; that the defendant had communicated unequivocally that it was terminating in exercise of, and only of, its contractual right to do so, which was independent of any breach; that, while the defendant had made it clear that it was not waiving any breach which might exist, all rights in respect of which were reserved, it had not purported to exercise those rights; and that, accordingly, the defendant’s claim for loss of bargain damages premised on a repudiatory breach was unsustainable in law …
111․Baker J undertook a careful and detailed analysis of the authorities, including, but extending beyond, the cases referred to earlier in these reasons. He thought that there was room for an argument that in Shell Egypt, the differences between the consequences that flowed from termination pursuant to the contract and those that flowed from acceptance of repudiation at common law were not sufficiently inconsistent to drive the interpretation of Shell’s termination letter that was adopted by Tomlinson J in that case. He articulated the principle to be applied in relation to termination letters expressed as being based upon contractual rights as follows (at [121]):
To my mind, none of that affects the correctness in principle of the proposition that if a termination letter communicates clearly a decision to terminate only under an express contractual right to terminate that has arisen irrespective of any breach, then it cannot be said that the contract was terminated for breach and so a claim for damages for loss of bargain at common law cannot run.
112․Baker J found that the claimant could not say that it terminated for the repudiation which it wished to prove at trial because it “expressly, and lawfully, terminated in exercise of a contractual right that arose independently of the repudiation now alleged”: [130]. His Honour construed the termination letter as indicating that the claimant had not purported to exercise a common law right to terminate for repudiatory breach. The mere existence of such a right at the time of termination did not mean that such a right was, in fact, exercised: [131]-[132]. It was not open for the claimant to recharacterise the events after the fact. The decision is consistent with the decision in Summers.
113․In Neptune Hospitality Pty Ltd v Ozmen Entertainment Pty Ltd [2020] FCAFC 47; 375 ALR 489, the dispute related to the termination of a joint venture agreement governing the operation of a vessel intended to undertake cruises on Sydney Harbour. One of the parties, Kanki Sea Tourism Hospitality & Entertainment Pty Ltd (Kanki), which was the second respondent in the appeal, served a breach notice pursuant to the contract, alleging various breaches. The recipient of the breach notice (Neptune) understood the terms of the breach notice, but expressly denied any such breach. The court found that Neptune’s conduct was sufficiently repudiatory so as to constitute a basis upon which a reasonable person in the position of the issuer of the notice would have understood that, at the time of serving the breach notice, the recipient evinced an intention not to be bound by the joint venture agreement.
114․The Full Court said (at [107]):
The Breach Notice made plain that, if Neptune failed to remedy the breaches alleged, Kanki would treat the JVA as at an end. Even though the Breach Notice expressly relied on cl 13 of the JVA, it also sufficed as a notice to remedy one or more breaches at common law to entitle Kanki to treat the JVA as terminated once Neptune did nothing to remedy any of its breaches and persisted in its denial of Kanki’s right to make important decisions jointly.
115․At the end of the court’s reasons, there was also some reference to the relationship between the exercise of a contractual right to terminate and the acceptance of conduct amounting to a repudiation. The court said that the primary judge’s finding that there was a valid termination at common law amounted to a finding of acceptance of the repudiation. The giving of the notice under the contract requiring rectification of the breaches with an automatic contractual consequence of termination amounted to acceptance at common law of the repudiation either expressly or impliedly: [173].
116․Relying on many of the authorities discussed above, Carter in Carter’sBreach of Contract (3rd ed, 2024, JW Carter Publishing) says (at [10-08]):
Concurrent rights of termination arise if two or more rights of termination arise from the same event, as where a promisor breaches a term classified as a condition and also refuses to perform the contract. In practice, the most common situation is where a promisee enjoys both an express right of termination and a common law right. For example, the conduct which activates the express right may also amount to a repudiation of obligation or breach of condition. If the promisee has satisfied the requirements for exercise of each right, the promisee’s election is the simultaneous exercise of both.
Except in two situations, the fact that the promisee gives a particular justification for its election to terminate does not prevent reliance on any other available right. First, express reference to one such right may evidence an election against the exercise of any other right. Of course, it would be inconsistent with the facility to invoke alternative grounds for termination to treat specification as in itself such an election, even if a notice of termination refers unequivocally to only one such right. Moreover, since the usual case is a promisee who is unaware of a common law right to terminate, it is also difficult to see how an election against exercise of that right can be inferred merely from specification of some other ground for termination. However, a contract cannot be terminated twice. Therefore, if a promisee who validly exercises an express right to terminate, not activated by breach of contract, subsequently discovers that a common law right to terminate for breach was also available, the latter cannot be invoked if the consequences of discharge have already been worked out under the former.…
The second situation arises if the promisee is estopped from relying on the alternative right.
(Footnotes omitted)
117․In their article in the Journal of Contract Law, Carter and Goh provide a framework for analysing concurrent rights to terminate for breach of contract: JW Carter and Y Goh, “Concurrent and Independent Rights to Terminate for Breach of Contract” (2010) 26 Journal of Contract Law 103 at 105. That involves a three-step process:
(a)determining whether the rights are concurrent or independent;
(b)determining whether the rights are co-ordinate or discordant; and
(c)if the rights are discordant, in what respect that is the case.
118․In relation to the third step, the authors explained that it is important to distinguish between inconsistency of exercise of the right to terminate and inconsistency of the consequences of the exercise of those rights to terminate.
119․This framework helps in understanding the nature of the problem that arises in the present case but does not determine how it is to be resolved.
What are the principles that emerge?
120․It is open for a contract to expressly and exclusively define the circumstances in which the contract may be terminated and the consequences of such termination.
121․However, clear words are needed to rebut the presumption that a contracting party does not intend to abandon any remedies for breach of a contract arising by operation of law: Concut at [23]. Therefore, an express provision for termination for breach may, in certain circumstances, be regarded as designed to augment, rather than restrict or remove, the rights at common law which a party otherwise would have had on breach: Concut at [23].
122․The termination of a contract may be justified upon other grounds than those relied upon at the time of the termination: Shepherd at 377-378. This principle is not confined to circumstances where the termination was otherwise invalid but includes circumstances where the other grounds provide an additional justification for the termination if that further basis has separate relevance: Downer EDI at [136]. It has been understood as permitting reliance upon both a contractual right of termination and a common law entitlement to terminate for repudiation or fundamental breach: Progressive Mailing House at 55-56.
123․Even where both contractual and common law grounds for termination are available and relied upon, the terms of the contract may affect whether or not damages for loss of bargain are recoverable. The contract may provide expressly that the regime it provides is exclusive of, or applies limits to, any common law entitlement to damages arising from the termination. Basetec and Carna provide examples of the latter, albeit in the context of termination for convenience.
124․Where the exercise of a contractual power:
(a)does not involve the termination of the contract: Summers; or
(b)involves the termination of the contract under a contractual provision that does not involve a breach of contract which would give rise to a common law entitlement to terminate: Phones 4U,
then loss of bargain damages will not be recoverable.
125․The judicial recognition of the potential for a termination to be supported on alternative grounds is inconsistent with treating the specification in a notice of termination of a contractual right to terminate for breach, without reference to an acceptance of repudiation, as, in itself, an election to rely only upon the former: Carter’s Breach of Contract at [10-08].
126․Where a contract is terminated pursuant to a contractual entitlement and the communication of the termination does not make reference to termination for repudiation, whether or not there exists an entitlement to recover damages at common law for loss of the bargain will depend on two matters.
127․First, whether there in fact existed grounds for termination on the basis of repudiation. This would be significant where the contractual power permitted termination of the contract for breach which would not entitle termination at common law. For example, in this case, an “Event of Default” or breach which triggered the operation of cl 11, but which was not sufficient to justify termination at common law. In such a situation, the contractual entitlement to terminate would arise, but that would not carry with it a common law entitlement to terminate for breach or accept a repudiation and, hence, end the contract pursuant to the innocent party’s common law rights.
128․Second, whether the consequences of termination upon the contractual basis are not so different from the consequences of termination by reason of repudiation as to be treated as an election to rely only upon the contractual consequences of the termination. This is illustrated by the Dalkia line of authority: Dalkia at [144] and Gearbulk at [44] and is consistent with the approach adopted by Tomlinson J in Shell Egypt at [32]. These cases discuss the issue as if it was simply a question of fact, rather than election. They appear to characterise the question as being whether the relevant notice of termination would be objectively interpreted as only invoking the contractual, as distinct from common law rights. I have articulated it, rather, as involving an election, consistent with the approach expressed by Carter (see [116] above).
129․The factual analysis is a possible one. It may be accepted that a party could specify reliance only upon contractual rights in a notice of termination, if it wished to do so. However, unless compelled to do so by the contract, it is not clear why it would wish to so confine itself by unnecessarily abandoning an alternative source of rights.
130․A contract may compel such a choice where the consequences of termination under the contract are so different that a reference to reliance upon contractual rights should be treated (unless the contrary is stated) as an election not to invoke inconsistent common law rights. Dalkia is an example of a case in which the rights following termination under the contract and at common law were sufficiently different – “discordant”, in Carter’s language – so as to require reliance upon those rights under the contract as a choice not to rely upon the inconsistent alternative rights at common law. It is for these reasons that the issue arising where only contractual rights are mentioned has been described earlier as one involving consideration of whether an election is required.
131․The effect of the common law is, subject to sufficiently clear terms of the contract to the contrary, to favour substance over form in the termination of the contract. It does that by allowing additional or alternative grounds to be relied upon by the innocent party, even where this means the defaulting party is not told of the reason ultimately relied upon for the termination at the time when it occurs. It treats a causal connection between breach and termination sufficient to warrant the imposition of liability for damages for loss of bargain to be established where the actual termination arose from a repudiatory breach, even though a contractual provision was purportedly relied upon. However, it does not adopt this approach:
(a)where the contractual provision did not result in termination: Summers;
(b)where there was a contractual right to terminate but not for breach: Phones 4U; or
(c)where the breach was not sufficient to justify termination at common law: Shevill v Builders Licensing Board (1982) 149 CLR 620.
In those situations, the loss of bargain should be treated as attributable to the actions of the innocent party rather than the defaulting party.
The present case
132․In the present case, the termination was for conduct which fell within the scope of the termination clause and also satisfied the requirements for a repudiation. The termination clause covered a broader range of circumstances than those in which there was a repudiation. It extended to a “material breach” which was not serious enough to give rise to a common law entitlement to terminate the Agreement, as well as to circumstances in which one or other of the parties was the subject of an “Insolvency Event”. However, in the present case, unlike the situation in Phones 4U, the facts were sufficient to give rise to a contractual as well as common law entitlement to terminate the Agreement.
133․The Notice of Termination that was given by the plaintiff on 21 July 2022 was confined to the exercise of the contractual right. The plaintiff was under the mistaken belief that this would entitle it to payment of the whole of the balance of the Contract Price, in addition to other amounts, and that claim was reflected in the demand made in the accompanying termination letter.
134․The conduct of the plaintiff was inconsistent with the Agreement remaining on foot. Therefore, even if there was no express acceptance of repudiation, there was certainly no affirmation of the Agreement despite the breaches by the defendant. The plaintiff’s communication was an unequivocal act inconsistent with the Agreement remaining on foot.
135․In those circumstances, subject to any constraint to be drawn from the terms of the Agreement, the plaintiff is entitled to claim on the basis that, by its communication on 21 July 2022, it accepted the repudiation of the Agreement by the defendant. Therefore, subject to the terms of the Agreement, damages for the loss of bargain are available.
136․The question, then, is: Do the terms of the Agreement mean that it excludes damages for loss of bargain or requires an election at the time of termination?
137․Clause 11.2 is stated to be a limitation. Although the expression “for a reason outlined … in clause 11.1” does not necessarily confine cl 11.2 to terminations under cl 11.1, that is the better interpretation of the chapeau to cl 11.2. From a high-level perspective, cl 11.2 provides that the defendant’s liability will be proportionate to the amount of work done on the Agreement, and costs incurred as a result of the termination. That approach is inconsistent with permitting a claim for loss of bargain damages because such damages relate not to the work done up until termination but to the loss of profit available for work not done. Therefore, if cl 11.2 is all that is considered, there is clearly a basis for an implication that loss of bargain damages may not be recovered.
138․Clause 11.3, however, is a broad statement that other rights and remedies available in relation to any breach of the Agreement are not prejudiced by the terms of cl 11. That statement means that it is not possible to draw from cl 11.2 any contractual intention to impliedly limit the scope of damages available to an innocent party for a breach of the Agreement. In light of the terms of cl 11.3, it could not be said that the parties had sufficiently clearly expressed an intention to contractually limit the consequences of a breach of the Agreement to only those set out in the Agreement. On the contrary, they had clearly expressed an intention which was the complete opposite.
139․The submission of the defendant was that cl 11.3 should be read with an emphasis on the word “other”. The chain of reasoning was as follows:
(a)Clause 11.3 only operates in relation to rights and remedies “other” than those in 11.2, that is, in circumstances where cl 11.2 is not applicable.
(b)Clause 11.2 governs the scope of the remedies where a termination occurs under cl 11.1.
(c)Once there is a termination under cl 11.1, then cl 11.2 operates and impliedly exhausts the rights and remedies of the parties.
(d)That implication arises because if cl 11.2 means what it says (“CIT will be liable only for”), then it must, therefore, exclude the potential for damages to be recoverable for loss of bargain arising from a repudiation.
140․The validity of this submission depends upon whether the intention to confine the remedies available to the innocent party where cl 11.2 is invoked is sufficiently clearly articulated so as to exclude any common law entitlement to damages arising from a breach of contract.
141․In my view, the contractual provisions are not sufficiently clear to exclude any common law entitlements.
142․Clause 11 does not exclude the principle that a termination may be justified on other, additionally available grounds.
143․If examined in light of the general principle in Shepherd, the clause does not sufficiently clearly, either expressly or impliedly, exclude the principle in that case. Rather, the existence of clause 11.3 is sufficient to indicate that the balance of cl 11 is insufficient to exclude it the principle in Shepherd. Because of that, it remains open to rely upon the termination for breach as an acceptance of the defendant’s repudiation of the contract and claim the loss of bargain damages that flow from that repudiation.
144․If examined by asking, consistently with the Dalkia line of authority, whether the difference between the remedies available is such as to require an election between them so that reliance upon a contractual termination necessarily excludes loss of bargain damages, the terms of cl 11.2 are not so different as to require that outcome. Clause 11.2, upon its proper construction, certainly involves a lesser liability upon the defendant than one imposed by the common law for loss of bargain. However, it does not impose a liability that is so “markedly different” from, or “diametrically opposing”, that available at common law, that the making of a claim under the contract should be treated as an election to rely only upon that remedy.
145․Given that cl 11 does not displace the principle that termination may be justified on additional grounds, there is insufficient reason to read cl 11.3 as qualified in a manner so that it did not also preserve the right to obtain damages for a repudiation of the Agreement.
146․As a result, the plaintiff is entitled to recover damages for loss of its bargain.
Assessment of damages and interest
147․The damages that would flow from a repudiation of the Agreement were calculated in an expert report prepared by a chartered accountant, Adam Giliberti. He calculated damages by comparing the circumstances that would have existed from 21 July 2022 up until the conclusion of the Agreement (the “But For Scenario”) with the situation that actually existed after 21 July 2022 (the “Actual Scenario”). In the But For Scenario, the calculations showed a profit that would have been generated in that period of $2,118,981 out of a total revenue of $3,030,297. In the Actual Scenario (which is what actually occurred in the period following the breach), the plaintiff made a loss of $48,800, being the labour costs that incurred in that period. No revenue was earned. The difference between the two scenarios was the sum of the loss of profit and the losses incurred, namely $2,167,781.
148․In cross-examination, questions were put to Mr Giliberti to suggest that the labour costs totalling $48,800 should not have been added to the overall figure because they had already been paid for as a result of the $1,666,663 payment made at the commencement of the Agreement. He disagreed with that contention, indicating that it was inconsistent with the methodology that he had adopted to ignore the incurring of those costs as part of the Actual Scenario.
149․It is significant to note that the exercise that Mr Giliberti engaged in was one based upon assessing only what occurred following the breach and thereby assessing the two different scenarios relating to the period following the breach. As a consequence, the fact that, prior to the breach, a very substantial payment had been made to the plaintiff, which might have been expected to cover its costs well beyond the date of the termination, was not taken into account in comparing the two scenarios. The approach that he adopted appears to have been a product, at least in part, of the instructions that he received which asked him: “If the Agreement had not been terminated on 21 July 2022, what is the amount of profit that the plaintiff would have earned from performing the Agreement to the end of the Term?”.
150․Had the defendant wished to contend that, for the scenarios to have been appropriate, they should have taken into account the whole of the payments made pursuant to the Agreement, then that would have required some evidence of an alternative calculation based upon that alternative approach, and some questions of Mr Giliberti in order to confirm that the approach that he adopted was as a result of the instructions that he received, rather than being a product of the application of his expertise. It would then have been necessary to make submissions addressing these alternatives and which of the alternative methods of calculation was the most appropriate in the circumstances. None of this occurred. In those circumstances, I accept that Mr Giliberti accurately calculated the losses based upon the methodology that he adopted and, using that methodology, it is not appropriate to make any further adjustment so as to remove from the calculations those labour costs incurred following the termination.
151․For those reasons I conclude that the damages arising from the repudiation of the Agreement are $2,167,781.
152․The parties agreed that if the repudiation claim was successful, then interest could be calculated on the whole of the damages from 28 July 2023, being the midpoint between when the second payment (28 November 2022) and final payment (28 March 2024) were due. Having regard to the agreement of the parties that this would be an appropriate method for the calculation of interest, and the very minor differences that would result from alternative, yet no more accurate, methods, this is the method which I will adopt. This gives a figure for interest of $234,221.
153․The sum of the principal and interest amounts is $2,402,002.
Orders
154․For the reasons above, the orders of the Court are:
1.Judgment for the plaintiff in the sum of $2,402,002.
2.The defendant is to pay the plaintiff’s costs.
3.Order 2 does not take effect for 7 days and, if any party notifies the associate to Mossop J by email, copied to the other party, that it seeks a different order in relation to costs, it does not take effect until further order of the Court.
| I certify that the preceding one hundred and fifty-four [154] numbered paragraphs are a true copy of the Reasons for Judgment of his Honour Justice Mossop. Associate: Date: |
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Amendments
18 September 2025 At paragraph [25], replace the name of the employee of the Plaintiff with “[redacted]”.
At paragraphs [27] and [28], replace the name of the employee of the Plaintiff with “[James]”.
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