Sentiel Pty Ltd v THC Global Group Limited

[2022] NSWDC 393

District Court

New South Wales

Medium Neutral Citation:

Sentiel Pty Ltd v THC Global Group Limited [2022] NSWDC 393

Hearing dates:

24 and 25 August 2022; 2 September 2022

Date of orders:

2 September 2022

Decision date:

02 September 2022

Jurisdiction:

Civil

Before:

Weber SC DCJ

Decision:

(1)   That there be judgment and verdict for the plaintiff against the defendant in the sum of $13,200.

(2) Interest thereon at the rates pertaining thereon from time to time pursuant to s 100 of the Civil Procedure Act 2005 (NSW).

Catchwords:

CONTRACTS — Breach of contract — Consequences of breach

CONTRACTS — Construction

CONTRACTS — Terms — Exclusion clauses — Contra proferentem rule

Legislation Cited:

Civil Procedure Act 2005 (NSW)

Cases Cited:

Butt v McDonald (1896) 7 QLJ 68

Marshall v Colonial Bank of Australasia Ltd [1904] HCA 31; (1904) 1 CLR 632

O'Keefe v Williams [1907] HCA 64; (1907) 5 CLR 217

Australian Broadcasting Corporation v Australasian Performing Rights Association [1973] HCA 36; (1973) 129 CLR 99

Forbes v Git [1922] 1 AC 256

The Owners’ Strata Plan No 66375 v King [2018] NSWCA 170

Texts Cited:

The Interpretation of Contracts in Australia (Law Book Co, 1st Edition, 2012)

Heydon on Contract, 1st Edition

Category:

Principal judgment

Parties:

Plaintiff: Sentiel Pty Ltd
Defendant: THC Global Group Limited

Representation:

Counsel:
Plaintiff: Mr D Nagle
Defendant: Ms P Thew

Solicitors:
Plaintiff: CLH Lawyers
Defendant: Piper Alderman

File Number(s):

2021/41074

Publication restriction:

None

Judgment

Introduction

1. Pursuant to a contract dated 1 November 2019 the defendant engaged the plaintiff to provide consultancy services (“the Contract”). The plaintiff says that the defendant terminated the Contract, and that it is contractually entitled to the payment of a sum being the equivalent of six months fees which would otherwise be payable pursuant to the Contract (“the Notice Issue”).

2. The plaintiff also seeks to recover a sum which he says is payable pursuant to the contract, on account of the fact that he had achieved certain key performance indicators in relation to its consultancy (“the KPI issue”).

3. I have used the male pronoun to describe the plaintiff in the previous sentence though this is not strictly correct. The correct description is that the plaintiff is a company who provided the services of Mr Andrew Beehag to the defendant enable it to provide the requisite services to the defendant, in fulfilment of the plaintiff's obligations pursuant to the Contract.

The Contract

4. The Contract in its Clause 1 contains definitions which were part of the operative clauses to the agreement. The following definitions are relevant to the proceedings.

1. Commencement Date means 1^st November 2019

2. Engagement means the engagement of the Consultant under this agreement

3. Termination Date means 31^st October 2020, unless terminated earlier pursuant to clauses 20 or 21

5. Clauses 3, 4, 11 and 20 are in the following terms:

3. Engagement

The Company engages the Consultant to perform the Services on the terms of this agreement.

4. Engagement Term

4.1 The Company engages the Consultant as an independent contractor to perform the Services as and from the Commencement Date for the Term.

4.2 The Consultant accepts the engagement and agrees to perform the Services for the Company for the term.

4.3 To avoid doubt, this agreement will automatically renew for 12 months on the Termination Date without either party being required to provide the other with notice.

…….

11. Remuneration

11.1 In consideration for the Consultant providing the Company with the Services, the Company will pay the Consultant the Fees.

11.2 The Fees are exclusive of GST and the Company will pay to the Consultant an amount equal to any GST payable for anything provided or supplied by the Consultant in connection with this document.

11.3 Subject to any statutory or regulatory approval that may be required, within 21 days of notification of achievement of KPIs, the Company will issue to the Consultant or its nominee the securities described in Item 4 of the schedule under the Company’s employee share plan.

11.4 The Company will pay, within 7 days of invoice being presented, the Short Term cash incentives as listed in Item 5 of the schedule.

11.5 The Company may at its sole discretion pay to the Consultant during the Term further performance-based bonuses, taking into consideration any key performance indicators that may be set for the Consultant by the time from time to time, paid in the form of cash or securities as the Company in its sole discretion deems appropriate. A formal review as to payment of such bonus will be conducted at the sole discretion of the Company.

20. Termination by notice

Either party may terminate the Engagement with 6 Months written notice to the other party. The Company must pay to the Consultant an amount equivalent to the Fees that would be payable to the Consultant in a 6 Month period.

6. Item 4 referred to in clause 11.3 is in the following terms:

Consultant Staff Shares KPI Incentive Plan

75,000 shares to be issued when 3 of the 5 items in Item 5 have been delivered.

It shall be noted that KPI Incentives do not roll over automatically at 31 December each year. The KPI Incentives noted in Item 4 and Item 5 will be reviewed annually no later than by 31 December 2019 with new annual targets and incentives agreed for the following 12 months. All annual KPI incentives are guaranteed. Incentives are paid at CEO and Company discretion.

It contract is terminated, no pro-forma KPI shares or cash incentives associated with the KPI incentive shall be calculated as due and payable at the time of contract termination.

The Applicable Principles as to Contractual Interpretation

7. The parties were in agreement as to the principles applicable to the task of contractual interpretation. These are well known, and I will not re-canvassed them here.

The Notice Issue

8. At the heart of the Notice Issue is clause 4, and more particularly the tension between clauses 4.1 and 4.2 on the one hand (together with the definitions of Term and Termination Date), and clause 4.3 on the other.

9. In conformity with the principles to which I have referred, the plaintiff urged upon me the need to consider each the clauses of the Contract in conjunction with each of the other clauses in the Contract, and to attempt to achieve harmony in the construction to be placed on the various contractual terms. I was also urged to avoid finding that a clause had no work to perform in the Contract.

10. It was submitted that I should consider clause 4.3 to be ambiguous, and thus to construe the clause to avoid capricious or unreasonable consequences. This of course is the correct approach to dealing with issues of contractual ambiguity.

11. These principles permit the court to adopt a construction of a clause which is not necessarily the most obvious or the most grammatically accurate (Australian Broadcasting Corporation v Australasian Performing Rights Association (1973) 129 CLR 99 at [3]).

12. In my view the difficulty with the plaintiff's contentions in relation to ambiguity is a fundamental one. I do not consider clause 4.3 to be ambiguous. In my view the same can be said of clauses 4.1 and 4.2. The problem to my mind is not one of ambiguity, rather it is a problem with inconsistency. In my view clause 4.3 is flatly inconsistent with clause 4.1 and 4.2.

13. In attempting to confront this problem the plaintiff submitted that there was in fact no inconsistency between the clauses. The plaintiff said that I should construe Cl 4.3 as a clause which qualifies clauses 4.2 and 4.2. (Forbes v Git [1922] 1 AC 256 at 259).

14. Mr Nagle of Counsel, who appeared for the plaintiff battled valiantly in attempts to construe clause 4.3 as merely qualifying clauses 4.1 and 4.2. At the end of the day each attempt at the qualification argument founded on the fact that each of the submissions, in reality, sought to overcome the problem of inconsistency, by effectively ignoring clauses 4.1 and 4.2

15. The plaintiff also submitted that clause 4.3 should be read as qualifying the definition of “Termination Date” in the Contract. I do not believe that this is a construction available to me. In my view to adopt this construction would again be to “blue pencil” clauses 4.1 and 4.2, and in so doing deny the definitions of “Term” and “Termination Date” of all meaning. This, in my view, would be inappropriate.

16. The plaintiff also contended that I should apply the contra proferentem rule to the Contract. I do not consider that this is the answer to the conundrum created by the Contract’s poor drafting. The only manner in which the plaintiff contends that the rule should be applied to the Contract in fact is again by ignoring clauses 4.1 and 4.2.

17. I should also add that the plaintiff appeared to accept that it was far from certain who the proferens is in the Contract.

18. In my view there are indeed even more fundamental reasons why the contra proferentem rule can have no application here. The first that it is a rule of application to ambiguous clauses. As I have indicated, I am of the view that the problem here is not one of ambiguity; rather the problem is one of inconsistency.

19. The second fundamental reason dictating against the application of the contra proferentem rule is that it is a rule that applies after all other maximums of construction have failed to resolve the ambiguity (see Heydon on Contract, 1^st Edition at [8.850]).

20. In my view here there is a rule of construction, long recognised by the law which can be used to solve the problem. The principle is that where a clause in the contract is followed by a later clause which destroys the effect of the first clause, the latter clause is rejected as repugnant and the earlier clause prevails (see Lewison and Hughes, The Interpretation of Contracts in Australia (Law Book Co, 1^st Edition, 2012) at [9.08]). (“The Inconsistency Principle”)

21. The Inconsistency Principle was applied recently in The Owners’ Strata Plan No 66375 v King [2018] NSWCA 170 at [407] White JA observed that:

“The order of provisions is sometimes relevant in the construction of deeds or contracts. Where a contract or deed contains conflicting provisions such that a later provision “destroys altogether the obligation created by the earlier clause” (Forbes v Git [1922] 1 AC 256 at 259) the later provision will be rejected as repugnant to the former. This is a principle of last resort to which recourse may be had only when every other avenue of resolving inconsistencies has been exhausted (Hume Steel Ltd v Attorney-General (Vic) [1927] HCA 24; (1927) 39 CLR 455 at 465; Durbin v Perpetual Trustee Co Ltd (1995) NSW ConvR 55-725 at 55,603-4). Generally, inconsistencies in a contract can be resolved by ascertaining the parties’ intentions from the language they have used, considering the document as a whole, and endeavouring to harmonise the conflicting parts so as to give effect to each of them. If the later clause can be read as qualifying rather than destroying the effect of the earlier clause, the two will be read together (Australian Guarantee Corporation Ltd v Balding [1930] HCA 10; (1930) 43 CLR 140 at 151; Re Media Entertainment & Arts Alliance; Ex parte Hoyts Corp Pty Ltd (No 1) [1993] HCA 40; (1993) 178 CLR 379 at 386-7; Lewison and Hughes, The Interpretation of Contracts in Australia (2012, Law Book Co) [9.08], [9.13]).” [407]

22. I believe that the application of this principle of statutory construction is the appropriate way in which to approach the issue of construction at the heart of the Notice Issue, as no other approach, in my view, can provide harmony to the conflicting elements of the contract.

23. The plaintiff also relied upon Items 4 and 5 of the Schedule of the Contract, pointing to the fact that Item 4 appears to contemplate KPI targets extending beyond the Termination Date, Item 5 contains similar inconsistencies.

24. Item 4 and 5 provide yet further examples of the poor drafting of the Contract. They do not however, produce a solution to the Notice Issue. To my mind, to the extent to which Items 4 and 5 contain matters inconsistent with Clauses 4.1 and 4.2 they should be regarded as repugnant to those clauses by application of the Inconsistency Principle.

Conclusion on the Notice Issue

25. It follows in my view that the Contract terminated in accordance with its terms on 31 October 2020, and that the plaintiff has no entitlement to notice, as he claims.

26. The plaintiff advanced a fallback argument namely; that the letter of 28 October 2020 which the defendant notified the plaintiff that the agreement would come to an end in accordance with its terms on the Termination Date, itself constituted notice which enlivened the right to 6 months notice pursuant to clause 20.

27. I do not consider that this to be correct approach to the issue. The letter of 28 October 2020, on any view of it, did not constitute the provision of notice pursuant to clause 20. On the contrary the letter goes out of its way to make clear that it was merely advising the defendant of the fact that the Contract was coming to an end in accordance with its terms at the contractual date of termination.

The KPI Issue

28. This issue concerns the relatively small sum of $13,200, inclusive of GST, and as such I will attempt to deal with it as briefly as possible.

29. On 29 October 2020, that is to say the day before the Contract was to expire at its Termination Date, the plaintiff sent an invoice to the defendant seeking the sum of $13,200 (inclusive of GST) in respect of two quarterly KPI targets which had been met.

30. Mr Beehag gave evidence that these incentive targets had been met, and he was not cross-examined to contrary effect. It was common ground that this was the case.

31. The defendant’s case in regard to the KPI issue was that:

1. there was no obligation on the defendant to pay the bonus, rather any bonus payment was entirely at its discretion (see clause 11.5); and

2. that the board had not authorised the company's CEO to negotiate bonuses and pay them; and

3. that the obligation to pay only arose during the term of the contract (clause 11.5) and that notwithstanding the invoice was rendered during the term of the contract, the bonus was not payable till after that date.

32. I do not consider any of those arguments has merit.

33. As to the first, I have little doubt that there is to be implied into the Contract, an obligation on the defendant to exercise its discretion under clause 11.5 in accordance with the dictates of good faith and fair dealing. As it is common ground in the proceedings that the claimed contractual KPI targets had in fact been achieved, there was no reason advanced by the defendant consistent with such an implied term, as to why it was not appropriate to make the bonus payment.

34. As to the second contention this argument to my mind is untenable. I take this view as it breaches one of the defendant’s implied obligations of mutual contractual co-operation.

35. In Butt v McDonald (1896) 7 QLJ 68 at 70 – 71, Griffiths CJ said the following:

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

36. If it is the case that the chief executive required express authorisation from the board to negotiate KPI indicators, and make bonus payments accordingly (itself a doubtful proposition) then; given the express terms of the Contract prescribing the payment of such incentives (See Item 4), for the board not to provide such authority to the CEO in my view, would inevitably constitute a breach of the defendant’s implied obligation of contractual cooperation, to which I have referred.

37. I also find no merit in the third argument. As I have indicated that argument relies on clause 11.5 of the contract and more specifically the words “during the term” where this appears in the first line of that clause.

38. The invoice for the KPI payment was rendered “during the term”, the defendant did not pay during the term and there was no suggestion that it could not do so. In these circumstances, in my view, the defendant cannot now be heard to say that because of its failure to pay during the term, the plaintiff's entitlement to the KPI bonus is lost. To do so in my opinion would be a breach of another term of contractual co-operation.

39. In Marshall v Colonial Bank of Australasia Ltd (1904) 1 CLR 632 at 647, Griffiths CJ said the following:

“All contractual relations impose upon the parties a mutual obligation that neither shall do anything which is calculated to hamper the other in the performance of the contract on his part.”

40. To similar effect in O'Keefe v Williams (1907) 5 CLR 217 at 230 Isaacs J expressed the rule as follows:

“In every contract there is an obligation, implied where not expressed, that neither party shall do anything to destroy the efficacy of the bargain he has entered into.”

41. It follows, in my view, from the application, of this implied term that by allowing the contract to come to an end the defendant cannot now be heard to say that the entitlement to a sum which was legally payable prior to that date has been lost.

Conclusion

42. For these reasons I would dismiss the claim insofar as it relates to the Notice Issue, but uphold the plaintiff's claim in relation to the KPI Issue.

43. My present inclination is that there should be no order as to costs though I will hear the parties, if necessary, on that issue.

Orders

1. That there be judgment and verdict for the plaintiff against the defendant in the sum of $13,200.

2. Interest thereon at the rates pertaining thereon from time to time pursuant to s 100 of the Civil Procedure Act 2005 (NSW).

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Decision last updated: 02 September 2022