Synergy Group Services Pty Ltd v The Owners Strata Plan No. 90607

[2021] NSWDC 636

District Court

New South Wales

Medium Neutral Citation:

Synergy Group Services Pty Ltd v The Owners Strata Plan No. 90607 & Anor [2021] NSWDC 636

Hearing dates:

17 November 2021

Date of orders:

26 November 2021

Decision date:

26 November 2021

Jurisdiction:

Civil

Before:

Russell SC DCJ

Decision:

(1)   Judgment for the plaintiff against the defendants for $7,552.94.

(2)   Reserve the question of costs of the proceedings, including the costs of the plaintiff’s Notice of Motion filed on 10 September 2021.

Catchwords:

CONTRACT – parties entered into contract for commercial cleaning and maintenance – defendants failed to make payment in accordance with the contract - plaintiff terminated the contract for defendant’s repudiatory conduct – whether defendants’ conduct amounted to common law repudiation – whether plaintiff validly terminated contract by accepting the defendants’ repudiation – whether there was a termination pursuant to a contractual term entitling the plaintiff to payment for the unexpired balance of the term

DAMAGES - expectation damages and loss of profits

Cases Cited:

Burger King Corporation v Hungry Jack’s Pty Ltd [2001] NSWCA 187; (2001) 69 NSWLR 558

Concut Pty Ltd v Worrell [2000] HCA 64; (2000) 176 ALR 693

Galafassi v Kelly [2014] NSWCA 190; (2014) 87 NSWLR 119

Koompahtoo Local Aboriginal Land Council v Sanpine [2007] HCA 61; (2007) 233 CLR 115

Laurinda Pty Ltd v Capalaba Park Shopping Centre Pty Ltd [1989] HCA 23; (1989) 166 CLR 623

McDonald v Dennys Lascelles Ltd [1933] HCA 25; (1933) 48 CLR 457

Rawson v Hobbs [1961] HCA 72; (1961) 107 CLR 466

The Commonwealth of Australia v Amann Aviation Pty Ltd [1991] HCA 54; (1991) 174 CLR 64

Texts Cited:

Radan & Gooley, Principles of Australian Contract Law (4th Edition) LexisNexis

Category:

Principal judgment

Parties:

Synergy Group Services Pty Ltd (Plaintiff)
The Owners - Strata Plan No. 90607 (First Defendant)
The Owners – Strata Plan No. 90582 (Second Defendant)

Representation:

Counsel:
L Robb Vujcic (Plaintiff)
D Elliot (Defendants)

Solicitors:
Kennedys (Plaintiff)
Strata Specialist Lawyers (Defendants)

File Number(s):

2020/00347842

Judgment

Introduction

1. The plaintiff Synergy Group Services Pty Ltd (“Synergy”) is a company which provides building management services, including commercial cleaning and maintenance. The first defendant is a body corporate comprising the owners of the retail stratum of a property at Mascot. The second defendant is a body corporate comprising the owners of the residential stratum of the same premises at Mascot.

2. The first and second defendants were represented by a Building Management Committee (“BMC”).

3. Change Strata Management Pty Ltd (“Change Strata”) was the strata managing agent of the first defendant. StrataOpt Pty Ltd (“StrataOpt”) was the strata managing agent of the second defendant.

4. On 25 July 2018 Synergy Asset Services Pty Ltd (a company in the same group as Synergy) and the first and second defendants entered into a management services agreement. That agreement was later assigned to Synergy.

5. Services were provided to the defendants pursuant to that agreement. The defendants paid for some of the services but not others.

6. Synergy commenced proceedings in this court by a Statement of Claim filed on 8 December 2020. Various invoices which totalled $52,429.30 remained unpaid by the defendants.

7. A Defence was filed on 9 February 2021 by both defendants. Inter alia, the defendants did not admit that they had failed to pay the invoices. However, on the day prior to the trial commencing, the defendants paid a large proportion of the invoices, and made arrangements to pay the balance of the debt due on the day of the trial. Most of the evidence can be found in a Court Book (“CB”) of 957 pages. The eventual late payment of the invoices meant that most of the Court Book did not need to be considered.

8. Synergy was entitled to interest under the agreement in respect of unpaid amounts. There was no dispute that the interest owing as at 17 November 2021 was the amount of $7,552.94.

9. In the Statement of Claim the plaintiff alleged that the defendants had repudiated the agreement and that such repudiation had been accepted, thus terminating the agreement. Such acceptance was said to have been communicated by letters dated 30 October 2020 from Kennedys solicitors to the strata managing agents for the defendants.

10. The issue for determination, after the debt had been paid and the right to interest conceded, concerned the consequential damages (if any) to which the plaintiff was entitled arising from the termination of the agreement.

The Agreement

11. Synergy’s predecessor presented a proposal to the strata managing agents dated 8 May 2018 – CB 278-323 (“the Proposal”). Within the Proposal was a section entitled “Scope of Works” (CB 299-306) and a section headed “Fee Summary” (CB 307-311).

12. The agreement between the parties is contained in an executed document headed “Terms” (CB 324-341). The “Terms” document contains a Schedule (CB 338-339). Various items in the Schedule refer back to the “Scope of Works” and the “Fee Summary”. I will refer to the Terms document, incorporating as it does the Scope of Works and the Fee Summary, as “the Agreement”.

13. By cl 3.1 of the Agreement the defendants appointed Synergy to exclusively perform the “Services at the Premises during the Term”. These capitalised words were defined in the Schedule. The Premises were identified as the property in Mascot. The Initial Term was to be 36 months with a Successive Term of one month. The Agreement commenced on 25 July 2018.

14. The Schedule defined “Services” as follows:

“Fixed Services: As per the attachment so marked in the proposal ‘Scope of Works’ and ‘Fee Summary’ sections of this document.

Variable Services: Anything not listed as per attachment so marked in the proposal ‘Scope of Works’ and ‘Fee Summary’ sections of this document.”

15. The Scope of Works commenced with a sub-heading “Fixed Services” (CB 299). There followed a list under sub-headings of the various kinds of services which would be provided by Synergy, including building inspections, maintenance, cleaning, landscaping and reporting. The Scope of Works set out how often such services were to be provided. For example, Synergy was obliged to perform a visual inspection of the accessible common areas a minimum of five times per week (CB 300). Synergy was obliged to provide dusting and vacuuming services twice per week, but mopping services five times per week (CB 303). Bathrooms were to be cleaned twice weekly, and lighting was to be replaced as required (CB 303).

16. The Scope of Works also contained a sub-heading “Specialist Service”. Below this heading were a number of services which were obviously to be performed by contractors. These included hard surface cleaning, mechanical car park cleaning, carpet steam cleaning, building soft wash, external window cleaning, anchor point certification and security patrol services (CB 304).

17. One of the submissions made by counsel for the defendant was that these specialist services did not fall within the definition of “Fixed Services” in the Schedule, but rather were “Variable Services”. I reject that submission. All of the services listed in the Scope of Works were included in the “Fixed Services”. Anything not so listed, but required to be done from time to time by the strata managing agents or the Owners Corporations, would fall within the definition of “Variable Services” in the Schedule. This is because anything not listed in the Scope of Works document, but required to be done, was defined as a variable service rather than a fixed service. It is not to the point that there would have been a need for Synergy to employ contractors to do some of the services. It was still Synergy’s obligation to provide the fixed services, because they were listed in the Scope of Works document. This included a building soft wash (a large expense for which the defendants did not pay until the day before the hearing).

18. By cl 5.1 of the Agreement the Owners Corporations were obliged to pay Synergy for the services provided, at the time specified in the Schedule. The time specified in the Schedule was an invoice on the first day of each month due for payment within 14 days (CB 338). Clause 6.1 of the Agreement was in slightly different terms. It required payment of the fees to be made by the Owners Corporations to Synergy within 30 days of Synergy's invoice.

19. Clause 6.4 of the Agreement provided that if the Owners Corporations did not make a payment by the due date then Synergy was entitled to charge interest on the outstanding amount “at the rate of 3% a year above the base lending rate of the Bank of Queensland, accruing daily”.

20. Clause 16 of the Agreement was headed “Termination and Suspension” (CB 331-333). Clause 16.1 provides that the Agreement continues in force until it is terminated or suspended in accordance with Clause 16. Clause 16.2 provides that the Agreement may be terminated at any time with the mutual agreement of the parties. Clauses 16.3 and 16.4 give the Owners Corporations the right to terminate the Agreement in certain circumstances. None are relevant to the present dispute.

21. Clause 16.5 of the Agreement deals with the right of Synergy to terminate or suspend the Agreement. That clause provided as follows:

“16.5.1   The Service Provider may terminate or suspend this Agreement:

a.   If the Owners Corporation fails to pay the Service Provider any amount owing under the Agreement 28 days after notice in writing has been served on the Owners Corporation by the Service Provider. Any such notice must specify the details of the outstanding amount. Such right of termination or suspension is additional to the Service Provider’s entitlement to the payment of interest pursuant to clause 6 which entitlement shall subsist until the payment in full of all amounts due Including interest.

16.5.2   During the period of any suspension of this Agreement by the Service Provider:-

(i)    The Service Provider shall not be required to carry out or provide any of the Services; and

(ii)   May at any time by further notice immediately terminate this Agreement.

b.   (i)   Upon giving 14 days written notice during the Trial Term;

(ii)   At any time by giving 90 days notice to the Owners Corporation during the Initial Term of any of the Successive Terms.

(iii)   The Owners Corporation must continue to pay all monies as provided for in this Agreement, notwithstanding the Services are not being provided.

16.5.3   It is expressly acknowledged and agreed that in the event of a valid termination of this Agreement by the Service Provider, the Owners Corporation must pay the Owners Corporation [sic] all amounts in respect of the Services described in the Schedule as Fixed Services (including, if applicable, any variations and/or interest) for the full period of the unexpired Term during which this Agreement is terminated, notwithstanding that such Services are not provided.”

Failure to pay invoices

22. By July 2020 Synergy alleged that it was owed for unpaid invoices totalling $61,786.15. An email was sent by Synergy to the managing agents dated 22 July 2020 (CB 733-735). The email listed the unpaid invoices, the number of days they were overdue and the number of times that reminders had been sent concerning payment. The email described itself as a “Final Letter of Demand”. The email concluded as follows:

“Should payment in full be not received by Synergy into its bank account by 3.00pm, Friday, 24 July 2020, this will be passed to our debt recovery team who will be taking steps to enforce payment under the terms of the Contract including but not limited to applying Interest and charging legal costs to the BMC to recover the monies owed.”

23. Kennedys, the solicitors for Synergy, sent letters dated 20 August 2020 to the strata managing agents (CB 737-742). The letters recited that Synergy was providing the services under the Agreement and that the defendants were obliged to pay for such services in accordance with the Agreement. The letters asserted that 16 invoices remained unpaid and that Synergy was then owed $61,776.15 plus interest.

24. The letters said:

“Continued non-payment of the Debt constitutes repudiation of the Agreement. Our client is entitled to accept your client’s repudiation and bring the Agreement to an end and claim damages.”

25. The letters required the defendants to pay $75,000 by 4.00pm on 25 August 2020. There was no explanation how this amount was made up. The defendants were put on notice that Kennedys had been instructed to commence proceedings for repayment of the debt and breach of contract “including unlawful repudiation of the Agreement prior to the expiration of the Initial Term”.

26. The letters concluded as follows:

“We estimate our client’s loss in unearned fees arising from the inability to provide Services pursuant to the Agreement to be in excess of $220,000. Our client is entitled to recover this loss (in addition to legal fees unnecessarily incurred).

Our client reserves its rights and will rely on this letter for indemnity costs.”

27. Kennedys sent letters dated 28 August 2020 to the strata managing agents (CB 749-752). The letters asserted that “non-payment is a material breach of the Agreement”. The letters asserted that if the defendants did not perform the Agreement, including full repayment of the debt, by 4.00pm on 1 September 2020 “our client will have no recourse than to accept your repudiation of the Agreement and take Court action for loss and damage (which is not insignificant)”.

28. Kennedys sent letters to the strata managing agents dated 15 September 2020 (CB 767-772). The letters asserted that a debt of $51,844.67 was still outstanding and that fees for services for September 2020 were due that day. The letters required the defendants to advise by 5.00pm on 18 September 2020 whether they intended to be bound by the terms of the Agreement. If payment did not occur and the defendants did not agree to be bound by the Agreement, “our client will have no other than recourse than to accept your repudiation of the Agreement and claim damages (including costs)”.

29. Kennedys sent letters to the strata managing agents dated 2 October 2020 (CB 774-777). Reference was made to the previous letters dated 15 September 2020. The letters required payment of the outstanding debt by 5.00pm on 7 October 2020 and again indicated that Synergy would have no other recourse than to elect to accept a repudiation of the Agreement by the defendants.

30. Kennedys sent letters to the strata managing agents dated 21 October 2020 (CB 781-784). Those letters referred to the previous letters dated 2 October 2020 and asserted that: (1) the defendants had not agreed to be bound by the Agreement; (2) had continued to obstruct Synergy in the performance of the Services and; (3) had not paid the outstanding debt. The letters said:

“The fundamental terms of the Agreement are the payment for the Services and the ability to perform the Services. You have been on notice that your conduct constitutes a repudiation of the Agreement, but this has been to no avail.

Accordingly, and as a consequence of items 1 to 3 above, our client has no other recourse than to elect to accept your repudiation of the Agreement which will take effect from 9.00am on 30 October 2020 and (without further notice to you) commence Court action for loss and damage.”

31. Kennedys sent letters dated 30 October 2020 to the strata managing agents (CB 785-786). Those letters said:

“We refer to our letter dated 21 October 2020 (to which we have received no response), previous correspondence (adopting earlier abbreviations) and confirm that our client has elected to accept your repudiation of the Agreement which will take effect at 9.00am today. Please advise as to your preferred arrangements for the return of keys and any records.”

Repudiation

32. A failure to exactly perform a contractual obligation is a breach of contract which may entitle the other party to terminate the contract. One way such a termination may be brought about is for the innocent party to treat the behaviour of the other party to the contract as a repudiation of its obligations, which is accepted by the innocent party.

33. In Koompahtoo Local Aboriginal Land Council v Sanpine [2007] HCA 61; (2007) 233 CLR 115 the High Court said at [44]:

“In its letter of termination, Koompahtoo claimed that the conduct of Sanpine amounted to repudiatory breach of contract. The term repudiation is used in different senses. First, it may refer to conduct which evinces an unwillingness or an inability to render substantial performance of the contract. This is sometimes described as conduct of a party which evinces an intention no longer to be bound by the contract or to fulfil it only in a manner substantially inconsistent with the party's obligations. It may be termed renunciation. The test is whether the conduct of one party is such as to convey to a reasonable person, in the situation of the other party, renunciation either of the contract as a whole or of a fundamental obligation under it. (In this case, we are not concerned with the issues that arise where the alleged repudiation takes the form of asserting an erroneous interpretation of the contract. Nor are we concerned with questions of inability as distinct from unwillingness.) Secondly, it may refer to any breach of contract which justifies termination by the other party. It will be necessary to return to the matter of classifying such breaches. Campbell J said this was the sense in which he would use the word "repudiation" in his reasons. There may be cases where a failure to perform, even if not a breach of an essential term (as to which more will be said), manifests unwillingness or inability to perform in such circumstances that the other party is entitled to conclude that the contract will not be performed substantially according to its requirements. This overlapping between renunciation and failure of performance may appear conceptually untidy, but unwillingness or inability to perform a contract often is manifested most clearly by the conduct of a party when the time for performance arrives. In contractual renunciation, actions may speak louder than words.”

34. The High Court has said that repudiation of a contract is a serious matter, not to be lightly found or inferred: Laurinda Pty Ltd v Capalaba Park Shopping Centre Pty Ltd [1989] HCA 23; (1989) 166 CLR 623 at 643, 657. In that case the High Court said that conduct demonstrating that a party does not intend to be bound by its contract arises where the facts are such that “a reasonable man could hardly draw any other inference than that the building owner does not intend to take the contract seriously, that he is prepared to carry out his part of the contract only if and when it suits him”.

35. In Galafassi v Kelly [2014] NSWCA 190; (2014) 87 NSWLR 119, Justice Gleeson said at [62]-[63]:

“For the conduct of a party to constitute a renunciation of its contractual obligations it must be shown that the party is either unwilling or unable to perform its contractual obligations, that is, it has evinced an intention to no longer be bound by the contract or stated that it intends to fulfil the contract only in a manner substantially inconsistent with its obligations and in no other way. Where inability to perform is declared the conduct amounts to a refusal to reform and the innocent party need not prove that the other party was actually unable to perform as a matter of fact.

A renunciation can be made either by words or conduct, provided it is clearly made. The test is whether the conduct of one party is such as to convey to a reasonable person, in the situation of the other party, renunciation either of the contract as a whole or of a fundamental obligation under it.”

36. Termination of a contract at common law for a failure by a party to perform his or her contractual obligations requires an election by some unequivocal words or conduct to terminate the contract. In most cases this is done by means of service of a notice of termination upon the party in breach – Radan & Gooley, Principles of Australian Contract Law (4^th Edition) LexisNexis, par 24.88.

36. The effect of a termination is that it discharges both parties from their future obligations under the contract. Obligations that were to be performed prior to the terminating breach are enforceable – McDonald v Dennys Lascelles Ltd [1933] HCA 25; (1933) 48 CLR 457.

Repudiation: Submissions of the Parties

38. In the Statement of Claim Synergy pleaded particulars of the invoices which were issued, the fact that they remained unpaid, and the attempts made by Synergy to recover those amounts by correspondence.

39. Under the heading “Repudiation” Synergy pleaded in pars 27-30 of the Statement of Claim that by their conduct the defendants had repudiated the Agreement which entitled Synergy to accept such repudiation. Paragraph 31 of the Statement of Claim pleaded that Synergy accepted the defendants’ repudiation by the letters dated 30 October 2020 and by Synergy ceasing to perform the Services under the Agreement.

40. Counsel for the plaintiff submitted that by their conduct the defendants had repudiated the Agreement and that such repudiation was accepted by the letters dated 30 October 2020. Counsel submitted that as a result of the continued non-payment of the invoices, the court should find that the defendants evinced an intention not to be bound to the Agreement. It was submitted that this was a repudiation of contract which Synergy was entitled to, and did, accept.

41. Counsel for the defendants submitted that there was no repudiation. The defendants had made requests for mediation regarding the unpaid invoices, which were ignored. Thus there was no unequivocal unwillingness to perform the contractual terms.

42. Clause 19 of the Agreement is headed “Dispute Resolution”. Clause 19.1 provides that except in case of an emergency, the parties agree that in the event of a dispute between them, the matter will be referred to mediation before any proceedings in any court or tribunal are commenced. By cl 19.2, a party asserting that there is a dispute must give written notice to the other party setting out the matter in dispute and the proposal for resolving the dispute.

43. By cl 19.4 of the Agreement if the dispute is not resolved within seven days of receipt of such a notice of dispute, either party may require the appointment of a mediator by the Australian Commercial Dispute Centre.

44. In support of that submission the defendants relied upon assertions in correspondence from the strata managing agents to the effect that the defendants wished to attend a mediation regarding the outstanding invoices. These suggestions were firmly declined by Synergy, and later by Kennedys on its behalf. For example, there were emails from the managing agents dated 26 August 2020 (CB 743-744), 1 September 2020 (CB 753), 2 September 2020 (CB 756) and 11 September 2020 (CB 759).

Repudiation: Consideration

45. I reject the submission that the defendants were ever seriously interested in conducting a mediation. No notice setting out the matter in dispute and the proposal for resolving the dispute, as required by cl 19.2 of the Agreement, was ever sent by the defendants. Neither defendant required the appointment of a mediator, pursuant to cl 19.4 of the Agreement. When proceedings were commenced in the District Court of NSW, the defendants did not seek to restrain those proceedings because there had been no mediation, as they would have been entitled to argue under cl 19.1 of the Agreement.

46. The defendants never put forward any reason why the debt of over $50,000 arising from unpaid invoices was in dispute or should not be paid. Indeed the payment of the full amount on the day before the trial and the day of the trial leads to the only available inference being that there was never any valid reason for failing to pay the invoices. While the defendants made vague overtures regarding mediation, these were no more than an attempt to put off the evil day.

47. I accept the submission made by counsel for the plaintiff that through continual non-payment of invoices, without any good reason, the defendants manifested an unwillingness to perform a fundamental term of the Agreement, being payment for services rendered. The conduct of the defendants amounted to a repudiation, which was clearly accepted by the letters dated 30 October 2020.

48. As a result of the acceptance of the repudiation, the Agreement was terminated.

49. Not only did Synergy plead that there was a repudiation and an acceptance of the repudiation which terminated the Agreement, but the letters from Kennedys were always cast in terms of asserting that the defendants had repudiated the Agreement and warning that Synergy was entitled to accept the repudiation, thus terminating the contract. Eventually it came to the point where Synergy lost patience and did accept the repudiation.

50. I find that the Agreement was terminated on 30 October 2020 by Synergy accepting the repudiation of the Agreement by the defendants.

Contractual Right to Terminate

51. A right to terminate may exist where the contract itself provides for termination in the event of a breach of any of its terms. Where a contract provides for a right to terminate on a breach, it is presumed that such a clause operates concurrently with any other right given by law to terminate – Concut Pty Ltd v Worrell [2000] HCA 64; (2000) 176 ALR 693 at 699.

52. A contractual right to terminate usually requires notice of termination to be given. Any such notice requirement must be complied with, or the termination will be invalid – Burger King Corporation v Hungry Jack’s Pty Ltd [2001] NSWCA 187; (2001) 69 NSWLR 558.

53. The provisions of cl 16.5 of the Agreement have been set out above.

Contractual Right to Terminate: Submissions

54. Counsel for the plaintiff submitted as follows (MFI 1, par 57):

“If the Plaintiff does not succeed on the repudiation claim, it relies on the right to terminate under Clause 16.5.1 of the Agreement. On 30 October 2020, this was an alternative available basis for termination: Rawson v Hobbs (1961) 107 CLR 466.”

55. This submission correctly recognises that there was more than one way to terminate this contract. Of course the key issue is not whether Synergy can rely on a contractual right to terminate, but whether it did so.

56. Counsel for the plaintiff submitted that the email dated 22 July 2020 sent a notice itemising unpaid invoices which constituted a formal written demand for payment (CB 733). It was submitted that this Notice satisfied the requirements of cl 16.5.1 and the plaintiff became entitled to terminate the agreement 28 days later (MFI 1, par 59).

57. Counsel for the plaintiff also referred to the Kennedys’ letters summarised above (MFI 1, par 60).

58. Counsel for the defendant submitted that Synergy could not argue that it terminated pursuant to cl 16.5 of the Agreement, as such a termination had not been pleaded in the Statement of Claim. Further, it was submitted that as a matter of construction, a termination pursuant to cl 16.5 would have to expressly refer to the contractual right to terminate. Instead, the letters from Kennedys specifically referred to repudiation and acceptance, which are common law rights, and made no reference to cl 16.5 of the Agreement. It was submitted that those letters did not operate to terminate the Agreement pursuant to cl 16.5.

59. Counsel for the defendant pointed out that pleading the basis for termination of the Agreement was important, as if the termination was under cl 16.5, Synergy would arguably be entitled to claim damages for the notional invoice value of the services which would have been provided for the unexpired balance of the term of the Agreement – cl 16.5.3. Had such a matter been pleaded, the defendants would have pleaded as a defence that such a provision would have been void as a penalty.

Contractual Right to Terminate: Consideration

60. I have already found that, in accordance with the submissions for Synergy, the defendants repudiated the Agreement by their continuing non-payment of invoices, and that repudiation was accepted by Synergy in the letters dated 30 October 2020. At that point the Agreement was terminated by the acceptance of the repudiation.

61. I reject the submission by counsel for the plaintiff that Synergy exercised its contractual right to terminate the Agreement under cl 16.5 for the following reasons.

62. Firstly, Synergy did not plead that it did so.

63. Secondly, the correspondence from its solicitors did not assert that the contract was being terminated pursuant to a contractual right. That correspondence consistently referred to the common law right to terminate the Agreement by acceptance of a repudiation.

64. Thirdly, the reference to “a valid termination” in cl 16.5.3 is a reference back to the right to terminate given by cl 16.5.1. The clause must be read in its entirety. The right given by cl 16.5.3 could not apply to any form of termination other than pursuant to cl 16.5.1. For example, at common law the doctrine of frustration of contract operates to terminate a contract. It would be absurd if Synergy was still entitled to payment for the unexpired balance of the term. I reject the submission of counsel for the plaintiff that the reference to “the event of a valid termination” in cl 16.5.3 refers to “any termination”, including a termination by the acceptance of a repudiation.

Damages

65. Those findings affect the damages which Synergy can recover for consequential loss. If Synergy had been able to claim the notional invoice value of the services for the balance of the term, pursuant to cl 16.5.3 of the Agreement (without any obligation to provide the services), then the evidence which it presented about the value of those services would have established, at a prima facie level, the measure of its damages. Of course such an approach would have then been subject to consideration of whether the clause was void as a penalty.

66. Counsel for the defendant submitted that “expectation damages are awarded so as to place a party, who has sustained loss by reason of a breach of contract, in the same situation with respect to damages, as if the contract had been performed” (MFI 2, par 11).

67. Counsel for the defendant referred to the decision of the High Court in The Commonwealth of Australia v Amann Aviation Pty Ltd [1991] HCA 54; (1991) 174 CLR 64 where Chief Justice Mason and Justice Dawson said at [81]:

“In the ordinary course of commercial dealings, a party supplying goods or rendering services will enter into a contract with a view to securing a profit, that is to say, that party will expect a certain margin of gain to be achieved in addition to the recouping of any expenses reasonably incurred by it in the discharge of its contractual obligations. It is for this reason that expectation damages are often described as damages for loss of profits. Damages recoverable as lost profits are constituted by the combination of expenses justifiably incurred by a plaintiff in the discharge of contractual obligations and any amount by which gross receipts would have exceeded those expenses. This second amount is the net profit.”

68. Counsel for the defendant submitted that “no attempt has been made by the Plaintiff to quantify its expectation damages i.e. loss of profits” (MFI 1, par 14).

69. Mr Castillo, the Managing Director of Synergy was cross-examined. He acknowledged that Synergy employed workers to provide some of the services pursuant to the Agreement, but other services were sub-contracted out, particularly the large or unique jobs. There was no attempt by Synergy to take into account any expenses saved by not performing the services for the balance of the term. There was no attempt by Synergy to explain whether or not its resources were diverted elsewhere, to other contracts, which may have meant that there was little or no loss of profits on its part. Instead, Synergy took the deliberate forensic decision to simply claim the notional invoice value of the services which would have been provided for the balance of the term.

70. I have already held that Synergy cannot make such a claim. In the absence of any attempt to prove expectation damages, or loss of profits, Synergy has failed to establish any claim for consequential loss.

Conclusion

71. The debt arising from the unpaid invoices has been paid. Synergy is entitled to interest pursuant to the Agreement in the amount of $7,552.94. There will be judgment for that amount.

72. At the conclusion of oral submissions, counsel for the plaintiff flagged that she wished to put a submission that Synergy should have indemnity costs for these proceedings, given that the debt was paid so close to the hearing. There is a further costs issue to be agitated, arising from a Notice of Motion filed by the plaintiff on 10 September 2021, some months after these proceedings had been set down for hearing.

73. I indicated to counsel at the conclusion of oral submissions that I would deliver a judgment on damages, then give the parties the opportunity to consider the judgment and return at a later date to argue all costs issues.

Orders

74. My orders are:

1. Judgment for the plaintiff against the defendants for $7,552.94.

2. Reserve the question of costs of the proceedings, including the costs of the plaintiff’s Notice of Motion filed on 10 September 2021.

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Decision last updated: 26 November 2021