Synergy Protection Agency Pty Ltd v North Sydney Leagues' Club Limited

[2009] NSWCA 140

New South Wales

Court of Appeal

CITATION:	Synergy Protection Agency Pty Ltd v North Sydney Leagues' Club Limited [2009] NSWCA 140 This decision has been amended. Please see the end of the judgment for a list of the amendments.
HEARING DATE(S):	23 April 2009
JUDGMENT DATE:	9 June 2009
JUDGMENT OF:	Allsop P at 1; Tobias JA at 42; Basten JA at 43
DECISION:	1. Appeal allowed. 2. Set aside the orders made by the Court on 14 May 2008 and, in lieu thereof, order that the summons dated 8 December 2006 be dismissed. 3. Remit the matter for hearing to the Commercial List of the Equity Division for the assessment of damages payable to the appellant in respect of the respondent's breach of contract. 4. The respondent pay the appellant’s costs of the appeal. 5. The costs of the hearing at first instance be determined by the trial judge on the remitter. 6. The respondent to have a certificate under the Suitors Fund Act 1951 (NSW), if not disentitled under s 6(7).
CATCHWORDS:	CONTRACTS - general contractual principles - construction and interpretation of contracts – text and structure of contracts – background material available to be looked at in the absence of ambiguity - what reasonable person in the position of the parties would have understood the agreements to mean – terms and structure of contract not consistent with operation as a standing offer – entitlement to provide services as set out in contractual obligations
LEGISLATION CITED:	Gaming Machines Act 2001 (NSW) Liquor Act 1982 (NSW) Liquor Act 2007 (NSW) Registered Clubs Act 1976 (NSW) Security Industry Act 1997 (NSW) Suitors Fund Act 1951 (NSW)
CATEGORY:	Principal judgment
CASES CITED:	Gardiner v Agricultural and Rural Finance Pty Ltd [2007] NSWCA 235 K & S Lake City Freighters Pty Ltd v Gordon & Gotch Ltd [1985] HCA 48; 15 CLR 309 Kooee Communications Pty Ltd v Primus Telecommunications Pty Ltd [2008] NSWCA 5 Lion Nathan Australia Pty Ltd v Coopers Brewery Ltd [2005] FCA 1812; 223 ALR 560 Pacific Carriers Ltd v BNP Paribas [2004] HCA 35; 218 CLR 451 Ryledar Pty Ltd v Euphoric Pty Ltd [2007] NSWCA 65 Wallace-Smith v Thiess Infraco (Swanston) Pty Ltd [2005] FCAFC 49; 218 ALR 1
PARTIES:	Synergy Protection Agency Pty Ltd North Sydney Leagues' Club Limited
FILE NUMBER(S):	CA 40246/2008
COUNSEL:	K S Smark SC (Appellant) R J Bromwich (Respondent)
SOLICITORS:	Carroll & O'Dea (Appellant) Thomson Playford Cutlers (Respondent)
LOWER COURT JURISDICTION:	Supreme Court - Equity Division
LOWER COURT FILE NUMBER(S):	50195/2006
LOWER COURT JUDICIAL OFFICER:	Einstein J
LOWER COURT DATE OF DECISION:	9 May 2008

CA 40246/2008

ALLSOP P
TOBIAS JA
BASTEN JA

9 June 2009

SYNERGY PROTECTION AGENCY PTY LTD v NORTH SYDNEY LEAGUES’ CLUB LIMITED

Judgment

This is an appeal from orders and declarations made by a Judge of the Court in the Commercial List (Einstein J) as to the proper construction of a contract between the parties. (See North Sydney Leagues Club Limited v Synergy Protection Agency Pty Limited [2008] NSWSC 413.)

The facts

2 North Sydney Leagues’ Club Limited (“Norths”) entered into five contracts with Synergy Protection Agency Pty Ltd (“Synergy”) in respect of the provision of security services by Synergy to Norths at club premises in Sydney (the North Sydney Leagues Club and the North Sydney Bowling Club) and Tweed Heads (the Seagulls Leagues Club) in 2002, 2003 and 2004. Two contracts concerned the Norths Leagues Club and Bowling Club and were entered into on 11 November 2002 and 11 November 2004, respectively. Three contracts concerned the Seagulls Leagues Club and were entered into on 27 July 2002, 1 July 2003 and 15 October 2004. A dispute arose between the parties in 2005 and 2006 during the term of the second contract concerning the Norths Leagues Club and the third contract concerning the Seagulls Leagues Club.

3 The primary judge made the following findings of background facts at [3]-[6] of his reasons:

“[3] In or about 2002, Synergy commenced providing certain security services to Norths at each of the three locations referred to above. The relationship between the parties was formalized in 2002, which saw the execution of a series of formal written agreements between the parties.

[4] Those agreements were as follows:

A. Agreement relating to the Seagulls Club for the period 27 July 2002 – 27 January 2003;
B. Agreement relating to the Leagues Club and the Bowling Club for the period 11 November 2002 – 11 November 2004;
C. Agreement relating to the Seagulls Club for the period 1 July 2003 – 30 June 2004;
D. Agreement relating to the Seagulls Club for the period 15 October 2004 – 15 October 2007 (“the Seagulls Contract”); and
E. Agreement relating to the Leagues Club and the Bowling Club for the period 11 November 2004 – 11 November 2007 (“the Norths Contract”).

[As a matter of convenience the final two contracts are often together referred to as "the final contracts"]

[5] Other than in respect of the respective dates and the rates of remuneration provided, the said five agreements are relevantly in identical terms.

[6] Norths required the provision of various types of security services at each of its premises.”

4 At [28] of his reasons the primary judge made a body of factual findings dealing with the background to the contracts and concerning the Leagues Club, the Bowling Club and the Seagulls Club as follows:

“The Leagues Club and Bowling Club
i. From about early September 2000 to late June 2002 [which is prior to the commencement date of the earliest written agreements] Kalantzis Merhi Holdings Pty Ltd [trading as Quantum Security] provided security services to Norths at the Leagues Club and Bowling Club. Mr Merhi [the chief executive officer of Synergy] was the Managing Director of Quantum Security during that period.
ii. Synergy’s first agreement to provide security services to the Leagues Club and Bowling Club commenced in November 2002. For the first few months of this agreement, Norths was also providing its own in-house security guards for crowd and patron control at the Leagues Club. Thus crowd and patron control at the Leagues Club were being partially provided in-house and partly outsourced to Synergy for this period.
iii. On 11 December 2002, Synergy wrote to Norths proposing that the component of the services done in-house be outsourced [TB vo1. 1, tab 5, p.23 – 28]. This proposal was accepted, and Synergy took over these services in January 2003.

iv. Until 7 January 2003, a dog patrol security was provided by MPS; but after that date, and until 12 June 2005, all of the dog patrol services were provided by Synergy.

v. From January 2003, Synergy was responsible for lock-up services on those nights when the dog patrol officer was present at closing time [four nights a week], while MPS [another service provider] remained responsible for lock-up on the other three nights. This continued to be the case in November 2004, at which time the parties entered into the final Leagues contract.

vi. Other security services were provided at the Leagues Club by other firms during the period of the Synergy contracts, including:

1) Cash in Transit Security;
2) CCTV Security;
3) Alarm Monitoring Security;
4) Access Control; and
5) Two Way Radios.

Of these, only the first involved the use of security guards. Synergy was at no stage involved in providing these services at the Club.

The Seagulls Club

vii. The following security services were required at the Seagulls Club:

1) Crowd and Patrol Control;
2) Tweed City Voucher Collections;
3) Cash in Transit Security;
4) CCTV Security; and
5) Alarm Monitoring Security.

Of these, the first three involved the use of security guards.

viii. The Cash Collections Security and Tweed City Voucher Collections Security services were at all times provided by security companies other than Synergy, including prior to any contract between Norths and Synergy, and throughout all of the Seagulls contracts with Synergy.

ix. The Crowd and Patrol Control services at Seagulls were at all times provided by Synergy, and no other firm was involved in providing these services at Seagulls.”

5 The circumstances which brought the parties to Court occurred from about May 2005, but in particular from November 2005 to January 2006. The primary judge set these circumstances out in detail at [49] of his reasons over some six pages. Based on the evidence of Mr Merhi, which the primary judge accepted as reliable, his Honour concluded that there had been a repudiation of the contracts. However, given the primary judge’s view as to the meaning of the relevantly operative provisions of the contracts, this conclusion of repudiation was not productive of any damage. It is unnecessary for the disposition of the appeal to consider the circumstances of the breaches or the six pages of factual findings of the primary judge.

The dispute

6 The core of the dispute which brought the parties to Court was the extent to which the contracts in question (the two final contracts) required Norths to use Synergy to supply security services at the clubs. Norths’ position was that it had freedom to call on Synergy as much, or as little, as it liked, using others, if it chose, to supply such services. Synergy, on the other hand, contended that the contract required Norths to use it exclusively to provide the services.

7 These contending positions were reflected in the form of the Summons and Cross Summons filed in the Commercial List by Norths and Synergy, respectively. The Summons filed by Norths sought six declarations about the final contracts as follows:

“1. A declaration that, on its proper construction, the contract between the plaintiff and the defendant dated 15 October 2004 (the Seagulls Contract) did not and does not compel the plaintiff to use the services of the defendant to the exclusion of any other provider of the same or similar services.
2. A declaration that, on its proper construction, the Seagulls Contract did not and does not compel the plaintiff to use the services able to be provided by the defendant to any fixed or minimum extent.
3. A declaration that, on the proper construction of the Seagulls Contract, the use by the plaintiff, to any extent, of the services of any other provider of the same or similar services to that described in that contract during the period covered by that contract did not and does not constitute a breach of that contract.
4. A declaration that, on its proper construction, the contract between the plaintiff and the defendant dated 11 November 2004 (the Norths Contract) did not and does not compel the plaintiff to use the services of the defendant to the exclusion of any other provider of the same or similar services.
5. A declaration that, on its proper construction, the Norths Contract did not and does not compel the plaintiff to use the services able to be provided by the defendant to any fixed or minimum extent.
6. A declaration that, on the proper construction of the Norths Contract, the use by the plaintiff, to any extent, of the services of any other provider of the same or similar services to that described in that contract during the period covered by that contract did not and does not constitute a breach of that contract.”

8 The Amended Cross Summons filed by Synergy sought five declarations and damages concerning the final contracts as follows:

“1. A declaration that the Cross Defendant wrongly repudiated the written agreement entered into between the Cross-Claimant and the Cross-Defendant dated 15 October 2004 (First Contractor’s Agreement) and the written agreement entered into between the Cross-Claimant and the Cross-Defendant dated 11 November 2004 (Second Contractor’s Agreement).
2. A declaration that the Cross Claimant has accepted the repudiation of the First Contractor’s Agreement as it was entitled to do and has validly terminated the said agreement which is at an end.
3. A declaration that the Cross Claimant has accepted the repudiation of the Second Contractor’s Agreement as it was entitled to do and has validly terminated the said Agreement which is at an end.
4. A declaration that upon the true construction of the First Contractor’s Agreement and the Second Contractor’s Agreement and in the event and circumstances which have happened, the said Agreements compelled the Cross Defendant to use the security services of the Cross Claimant referred to in the said Agreements to the exclusion of any other provider of the same or similar services.
5. Further and/or in the alternative a declaration that in the event and circumstances which have happened, it was an implied term of each of the said Agreements that the Cross Defendant would use the said security services of the Cross Claimant to the exclusion of any other provider of the same or similar services.
6. Damages for breach of the First Contractor’s Agreement and Second Contractor’s Agreement.”
The contracts

9 The material terms of the two final contracts were the same. Neither party submitted that there was any consideration relevant only to one of the two final contracts and not to the other.

10 Clause 1 entitled “Definitions” contained the following three definitions:

“ 1. DEFINITIONS
‘Agreement’ means this document including all schedules and annexures.
‘ Fee’ means the fee described in clause 5.
‘ Service’ means the service described in Annexure 1.”

Annexure 1 referred to in the definition of “Service” was as follows:

“The Security Services under this agreement are as follows:
The provision of appropriately licensed, experienced and uniformed Security Operatives to the Club in accordance with the Club’s requirements on a weekly basis.
The operatives’ duties are to include:

Ensure that only person over the age of 18 are admitted to the restricted areas of the Club;

Greeting patrons on their way in and out of the Club;

Monitoring the levels of intoxication within the Club;

Keeping the peace within the Club’s grounds;

Escorting patrons that are evicted off the premises in an orderly manner;

Enforcing Dress regulations;

The recording of incidents that occur pertaining to Security matters in an incident report book;

Communicating with the Club’s Staff and Management on a regular basis;

Keeping the Club Management informed of incidents that arise from time to time.”

11 The balance of the terms of the agreements were as follows (taken largely from [12] of the primary judge’s reasons):

“2. ENGAGEMENT

THE CLUB engages the Contractor to provide the Service in accordance with this Agreement for the duration of the term specified in the Schedule.
3. CONTRACTOR’S OBLIGATIONS
3.1 Professional standard of care
The Contractor must perform the Service in a diligent manner and to the standard of skill and care expected of a Contractor experienced in the provision of the type of service required by THE CLUB in accordance with this Agreement.
3.2 Knowledge of THE CLUB’S requirements
The Contractor must use all reasonable efforts to inform itself of the requirements of THE CLUB and must regularly consult with THE CLUB during the performance of the Service.
3.3 Personal (sic)
(a) The Contractor must ensure that all personal (sic) engaged by it in connection with the Service are appropriately qualified, competent and experienced in the provision of the type of services required by THE CLUB.
(c) The Contractor’s responsibility for the performance of the Service and for the work and performance of its personnel is not altered in any way by this clause 3.3 or by anything done in accordance with this clause 3.3…

3.4 Discrepancies in information
If the Contractor considers that information, documents and other particulars made available to it are inadequate or contain errors or ambiguities, the Contractor must give written notice as soon as practicable to THE CLUB detailing the errors or ambiguities.

3.5 Delay

As soon as practicable after becoming aware of any matter which is likely to change or which has changed the scope or timing of the Service, the Contractor must give notice to THE CLUB detailing the circumstances and extent or likely extent of the change or delay.
3.6 Co-operation by the Contractor
The Contractor must liaise, co-operate and confer with others as directed by THE CLUB…
3.7 Obtain all necessary approvals
The Contractor must obtain all approvals, authorities, licenses and permits which are required from governmental, municipal or other responsible authorities for the lawful implementation and completion of the Service.”
3.13 Security of premises
The Contractor must comply with all directions, procedures and policies relating to occupational health, safety and security of THE CLUB premises and facilities, when using them.
3.14 Insurances
The Contractor must upon request provide THE CLUB with proof of all insurance policies required to be maintained by the Contractor under this Agreement.
4. THE CLUB’S OBLIGATIONS
4.1 Provide information
THE CLUB will as soon as practicable, or as required by this Agreement:
(a) make available to the Contractor all relevant instructions, information, documents, specifications, plans, drawings and any other material and particulars; and
(b) answer queries made by the Contractor,
relating to THE CLUB’s requirements in connection with this Agreement…
5. PAYMENT
5.1 Payment
In consideration of the provision of the Service , THE CLUB will pay the Contractor the Fee as calculated using the rates shown in Annexure 2, subject to the conditions of this Agreement.
5.2 Timing of payment
(a) At the times specified in item 4 of the Schedule, the Contractor must lodge with THE CLUB a payment claim for the Services preformed (and for approved reimbursable expenses, if any, incurred) during that period.
(b) THE CLUB will make a payment within the time specified in item 5 of the Schedule following the lodgement of the payment claim.
6. VARIATIONS
6.1 Instruction
THE CLUB may, on the recommendation of the Contractor or otherwise, instruct the Contractor in writing to vary the Service, so long as the variation is within the general scope of the Services.
6.2 Consequences of variation or proposed variation
(a) Before instructing a variation, THE CLUB may request the Contractor to provide a written estimate of the time, cost and programming effects of the proposed variation. A written estimate so requested must be provided by the Contractor within a reasonable time nominated by THE CLUB.
(b) If:

(1) a variation is instructed;
(2) no request has been made by THE CLUB under clause 6.2(a); and
(3) the Contractor considers that the variation will affect the timing or cost of the Service.

the Contractor must, as soon as practicable after the variation is instructed, provide THE CLUB with a written estimate of the time and cost of the variation.

6.3 Variation instruction binding

The Contractor must comply with a written direction issued under clause 6.1 except where clause 6.2(b) applies.
Where clause 6.2(b) applies, the direction is not binding until THE CLUB has received the Contractor’s written estimate and given written approval for the Contractor to proceed with varied Services.

6.4 Valuation
Unless otherwise agreed, the value of a variation will be determined using the hourly rates set out in Annexure 2. If Annexure 2 does not include hourly rates relevant to the variation, reasonable rates and prices apply…
10. TERMINATION
10.1 Termination by THE CLUB for default by the Contractor
If the Contractor :-
(a) becomes bankrupt, or insolvent, or enters into a scheme or arrangement with its creditors;
(b) fails to carry out the Service with due diligence and competence;
(c) without reasonable cause suspends the carrying out of the Service ; or
(d) commits a substantial breach of this Agreement.
THE CLUB may:
(a) in the case of the default specified in clause 10.1 (a), forthwith terminate this Agreement by written notice addressed to the Contractor; and
(b) in the case of any other specified default, terminate this Agreement by written notice addressed to the Contractor fails [sic] to remedy the default within 14 days from the date of service of a notice by THE CLUB on the Contractor specifying the relevant default.
10.2 Termination by the Contractor
If THE CLUB :-
(a) becomes involved or enters into a scheme of arrangement with its creditors.
(b) fails to pay the Contractor in accordance with the Agreement ; or
(c) commits a substantial breach of this Agreement,
the Contractor may:
(d) in the case of the default specified in clause 10.2(a), forthwith terminate this Agreement by writing [sic] notice addressed to THE CLUB ; and
(e) in the case of any other specified default, terminate this Agreement by written notice addressed to THE CLUB if THE CLUB fails to remedy the default within 14 days from the date of service of a notice by the Contractor on THE CLUB specifying the relevant defaults.
10.3 Effect of termination
Termination of this Agreement by either party is without prejudice to any accrued rights or remedies of each party.
10.4 Adjustment of the Fee on termination
(b) Upon termination of this Agreement pursuant to clause 10.1, THE CLUB will pay the Contractor for the Services performed by the Contractor as at the date of termination.
(c) Upon termination of this Agreement pursuant to clause 10.2, THE CLUB will pay the Contractor for the Services performed by the Contractor as at the date of termination.
11. DISPUTE RESOLUTION
11.1 Negotiation and expert appraisal
The Contractor and THE CLUB will endeavour to resolve any dispute speedily by negotiation. If a dispute between the Contractor and THE CLUB is not resolved by negotiation, then before either party has recourse to litigation, the party must submit the dispute to expert appraisal. If the Contractor and THE CLUB do not agree upon an independent expert, either may request the Secretary General of the Australian Commercial Disputes Centre to nominate an expert.
11.2 Continuing performance
Each party must continue to perform its obligations under this Agreement , notwithstanding the existence of a dispute.
12. GENERAL
12.1 Notices
(a) Any notice given under this Agreement:

(1) must be in writing addressed to the intended recipient at the address shown in the Item 8 of the Schedule or address last notified by the intended recipient to the sender.
(2) must be signed by an authorised officer of the sender; and
(3) will be taken to have been given or made (in the case of delivery in person or by fax, cable or post) when delivered, received or left at the specified address.
(b) If delivery or receipt of a notice occurs on a day on which business is not generally carried on in the place to which the communication is sent or later than 5.00pm (local time), it will be taken to have occurred at the commencement of business on the next business day in that place.”

The central question of meaning

12 The essence of the debate between the parties was the content of the engagement clause, cl 2. Under this clause, Norths engaged Synergy to provide the Service for the duration of the term. Interpolating Annexure 1 into cl 2 and adjusting for syntax difficulties Norths engaged Synergy to provide appropriately licensed, experienced and uniformed security operatives to Norths in accordance with the Club’s requirements on a weekly basis.

13 Norths submitted at the trial and on appeal that “requirements” were the chosen and communicated requests of Norths to Synergy, which might vary in any given week from no requested staff, to all necessary operatives. Thus, on this submission, the contract operated as a standing offer.

14 The primary judge recorded Synergy’s primary submission at [15] of his reasons, as follows:

“… that upon the true construction of the material contracts, Norths were obliged to look to Synergy for all of their requirements for security services of the type nominated in the services provision [with the potential exception of security services provided in-house by Norths’ own staff].”

15 On appeal, Synergy varied its submissions slightly. Rather than looking to notions of exclusivity, Synergy emphasised the objective characteristics of the relevant phrase, “the Club’s requirements”. The phrase referred to, it was submitted, an objectively determined business need, affected by the obligations faced by the Club under its licence and any relevant legislation and the legitimate choices of the Club as to how it would organise and run its business in the light of such regulatory background.

The primary judge’s decision

16 After setting out the relevant principles concerning contractual interpretation, about which there was no real debate on appeal, the primary judge admitted, as background material, the earlier contracts between the parties. His Honour then discussed the background to the entry into the final two contracts. It is of some utility to understand how the parties used that background material before the primary judge. At [22]-[24] of his reasons, the primary judge said the following:

“[22]. As already indicated, there was considerable attention given to the material background covering provision of services anterior to the entry into of the final contracts.

[23]. Mr Forster [senior counsel for Synergy] put that material forward as an important indicator that the anterior contracts, with only certain exceptions, showed that for many years before the entry into of the final contracts, the practice of both parties had been that only one service provider would exclusively provide particular services for the club at any particular point in time. Hence it was suggested that upon the entry into of the latest contracts, both parties must be taken to have had precisely that notion and intent in mind, which would be the meaning which the final contracts would convey to a reasonable person having all the background knowledge of the parties in the situation in which they were at the time of the final contracts.

[24]. Mr Bromwich [counsel for Norths] contended to the contrary that a close analysis of what had occurred in the years prior to the entry into of the final contracts showed that from time to time Synergy acquiesced in some of its services being provided by the club ‘in house’ or by other service providers, and indeed that this was the position at the very time when the final contracts were entered into.”

17 At [25]-[27] of his reasons, the primary judge expressed some of his difficulties in finding the background of utililty, saying:

“[25] In consequence it becomes necessary to travel into this evidence in order to unravel the position. I repeat that I find real difficulty in accepting that any of this material can assist on the construction issue. The reason is that there was no evidence as to the particular circumstances in play at such times when, for whatever reason, the club elected to use its own in-house services or to permit some other service provider to provide services.

[26] As an example of the problems which surrounded this evidence, it was not clearly established whether the provision of ‘dog patrol’ and ‘lock up’ services by Synergy [as described in the facts below] occurred pursuant to the Norths Contract, or whether it was the result of some more informal arrangement. The provision of each of these services involved ‘(t)he provision of appropriately licensed, experienced and uniformed Security Operatives to the Club’ [as required by Annexure 1 of the agreement], however ‘dog patrol’ and ‘lock up’ are not specifically named on the list of dot-point services contained within that annexure. The plaintiff contended that the word ‘includes’ is, by definition, non-exhaustive, and does not cut back the scope of the contracts in relation to security guard services. The plaintiff pointed to the fact that the dog patrol security hours were included as part of the invoice issued by Synergy to Norths for crowd and patron control, and the fact that such services were provided at a ‘rate as per the contract’, to evidence the fact that both parties treated these services as being part of the relevant agreement.

[27] Absent detailed adjectival information to explain what had happened and why during the pendency of prior ongoing contracts, there is simply no assistance given to the Court in the fact that from time to time the club or other service providers were retained to work with or to replace Synergy in particular tasks allocated to it.”

18 In deference to the emphasis placed by the parties on the background material his Honour set out at [28] the detailed findings that I have set out at [4] above.

19 The primary judge then concluded his use of the background material, saying at [29]-[31], as follows:

“[29] Synergy seeks to suggest that the final contracts were entered into in an environment in which, up to that point in time, there was an established practice that at any one time, only one group of service providers would provide particular services: the proposition being put by Synergy being that this constituted a contextual matter able to be taken into account by the Court in construing the final contracts.

[30] The difficulty for Synergy is that, during the period that it was providing dog control services, it was locking up the club at night for four nights a week and MPS was doing that job on the other three nights [when there was no dog present and no representative of Synergy was there]. Thus, over this period, there were clearly two groups, MPS and Synergy, performing the same service. Even if these services are ignored [as, arguably, outside the terms of the dot point services provision], the first Norths Contract was entered into at a time when Synergy was not the exclusive provider of even the dot point services, which were shared with Norths’ in-house security operatives.
[31] The Court’s ruling regarding the admissibility and weight to be accorded to the contextual factors has already been set out. However, even if the context were to be taken into account, it does not effectively demonstrate the defendant’s contention that the Norths contracts were exclusive.”

20 The primary judge’s decision rested upon his analysis of the words of the contract. He said at [35]-[37] of his reasons:

“[35] … I accept as correct the Club's submission that upon its proper construction the agreement did not confer upon Synergy an entitlement to be the exclusive provider to Norths of the dot point security services. In truth the parties’ previous dealings during the years anterior to the entry into the final contracts do not assist on the construction issue. But to the extent that such evidence may be resorted to, it does not bear out Synergies contention. This is because Norths own in-house security service shared dot point services with Synergy.
[36] The task of the court is to construe the contracts. There simply is no part of the contracts which yields to the construction requiring exclusivity. Had it been intended for an exclusivity provision to be included it would have had to be made express. To the extent, if at all, that the cross contentions threw up an ambiguity, the factual matrix in which the final contracts were set seemed to me, if anything, to favour the club's construction, but in all probability is simply neutral.

[37] Further, properly construed, the words ‘the provision… of Operatives in accordance with the Club’s requirements…’ simply mean ‘as and when required by the Club’.”

21 In answer to the submission of Synergy that such a construction was unreasonable and commercial commonsense dictated to the contrary, the primary judge referred to what Basten JA had said in Kooee Communications Pty Ltd v Primus Telecommunications Pty Ltd [2008] NSWCA 5 as to the caution necessary to be exercised in that task.

Resolution of the appeal

22 The resolution of the appeal does not, subject to one matter, require any examination of principle as to the construction of commercial contracts. The primary judge, in his recital of principle at [16] of his reasons, appeared to adopt a principle that background or extrinsic material can only be examined once some textual ambiguity in the contract is revealed. This is not so: Lion Nathan Australia Pty Ltd v Coopers Brewery Ltd [2005] FCA 1812; 223 ALR 560 at 573-574 [78] (Finn J), approved in Ryledar Pty Ltd v Euphoric Pty Ltd [2007] NSWCA 65; Aust. Contract Reports 90-254 at 89,868 [107] (per Tobias JA, with whom Mason P and Campbell JA agreed at 89,851 [1] and 89,892 [257] respectively); see also K & S Lake City Freighters Pty Ltd v Gordon & Gotch Ltd [1985] HCA 48; 157 CLR 309 at 315 (per Mason J); and Pacific Carriers Ltd v BNP Paribas [2004] HCA 35; 218 CLR 451 at 461-426 [22] (per Gleeson CJ, Gummow, Hayne, Callinan and Heydon JJ); and, with respect, the succinct but comprehensive identification of relevant authority by the Chief Justice in Gardiner v Agricultural and Rural Finance Pty Ltd [2007] NSWCA 235 at [7]-[13].

23 Like the primary judge, I think the resolution of the problem at hand is to be found in the text and structure of the written agreements. The background material permits one to conclude that at different times certain services were provided by other security providers which could be seen to be services falling within the purview of the annexure to the contract and thus the terms of the engagement of Synergy. The state of affairs in respect of such matters varied between the times of entry into the various contracts. Taking the two final contracts, they are to be understood as taking effect against a background of operations taking place in October and November 2004. These matters were set out by the primary judge at [28] of his reasons, see [4] above.

24 One aspect of background, which was not given any prominence by the primary judge in his reasons, was the statutory background against which security services of the kind provided by Synergy were provided. Under the Security Industry Act 1997 (NSW) (the “SI Act”) licences are required in accordance with Part 2. A master licence is required by anyone employing or providing persons to carry on security activities: s 7(1). A person is not to carry on a “security activity” (widely defined in s 4(1)) unless he or she has a relevant licence: s 7(2). The various licence classifications are set out in the SI Act, Part 2, Division 2. It can be accepted that the ability of Synergy to organise its affairs in order to comply with the contracts required it to have at its ready disposal suitably qualified and licensed persons in sufficient numbers to be able to fulfil its contractual obligations to Norths.

25 Norths also referred in its submissions on appeal to the Registered Clubs Act 1976 (NSW) (the “RC Act”), the Liquor Act 1982 (NSW), the Liquor Act 2007 (NSW) and the Gaming Machines Act 2001 (NSW) (the “GM Act”). Provisions of these Acts which placed responsibility on Norths not to sell liquor to minors and not to permit gaming machines to be used by minors (the RC Act, ss 30(2)(g) and (h) and 50(1), the Liquor Act 2007, ss 117(2) and 124 and the GM Act, ss 50-52), and not to permit intoxication or indecent, violent or quarrelsome conduct on club premises (the RC Act, s 44A(1) and the Liquor Act 2007, s 73) were relied upon by Norths to support a submission that Synergy could not be seen as entitled to supply all Norths’ requirements since to do so might place Norths in breach of the law if Synergy was unable to meet those requirements. I will deal with this submission in due course.

26 Recognising this background, it is necessary to examine the text and structure of the contracts and to ascertain (to paraphrase Pacific Carriers Ltd v BNP Paribas at 462 [22]) what a reasonable person in the position of Norths and Synergy would have understood the agreements to mean.

27 The first matter to note in relation to the structure of the agreement is that it was a formal document and apparently intended to govern the affairs of the parties for three years. It was submitted that the text was proffered by Synergy; but there was no suggestion that its negotiation was in any way inhibited or that the contract can be viewed as one of adhesion. Nor was there any argument that the contract should be read against Synergy, contra proferentem, as its propounder.

28 The essential task is the ascertainment of the content of the engagement in cl 2 and the annexure. The “Club’s requirements on a weekly basis” is a phrase apt to connote the objective needs of the Club: what they will require, as a matter of fact. Clause 2 and the annexure do not say that Synergy will supply whatever is required of it by the Club; rather it will provide the requirements of the Club.

29 The task is not one of implying a term as to exclusivity in the contract, as submitted by Norths; rather the task is to give content to the terms of the engagement.

30 By cl 3.2 Synergy is required to “inform itself of the requirements” of the Club. Such an obligation tends to indicate that the “requirements” are, in substance, objectively ascertainable. The obligation tends to be inconsistent with the notion that the “requirements” are simply what Synergy is told week by week. There would be little need to inform oneself of the requirements of X, if those requirements were simply what X wanted and communicated from time to time. The consultative process envisaged by the second clause in cl 3.2 reflects the necessary degree of co-operation between the parties in the operation and performance of the contract. The “requirements” of the Club will be affected by decisions of Norths as to how it wishes to conduct its business which might affect its needs or requirements in any given week. That, however, does not negate the essentially objective character of the notion of “requirements of the Club”.

31 Whilst not determinative on their own, cll 3.4, 3.5, 3.6 and 3.7 conform more conveniently to circumstances where Synergy is obliged to provided the objectively ascertained needs of the Club.

32 Clause 4 is important. Under this clause Norths is to provide, as soon as practicable, the information there identified “relating to [the Club’s] requirements in connection with this Agreement.” This is less than apt language for a contract merely to provide operatives when, or if, they are required.

33 Clause 5, read with item 4 of the Schedule, requires weekly payment claims. This is more consistent with a continuous, rather than an ad hoc engagement.

34 Clause 6.1 permits Norths to vary the service, as long as the variation is within the general scope of the service. If the agreement operated as a standing order or supply contract little work would remain for the clause. Norths submitted that the clause was not directed to its “requirements”, but to varying the service descriptions. I do not think that the clause is so limited. In any event, the point is that it is curious to have an entitlement to insist on a change to a standing order; it makes more sense for Norths to have a power of variation within the scope of mutual obligations.

35 Most telling is cl 10 dealing with termination. Norths and Synergy were given rights to terminate the contract in certain circumstances. The clause is appropriate for a contractual relationship of a continuing nature of a more substantial character than a standing offer. In particular, the 14 day period under paragraph (b) (where it second appears in cl 10.1) is inconsistent with a simple standing order called on for seven day periods. Also, it is difficult to see what a substantial breach of the agreement would be for cl 10.2(c) if this were merely a standing order.

36 Norths, on the other hand, submitted that cl 10.1 revealed a commercial difficulty, if the contract were to be seen as other than as a standing offer. If Synergy did not produce staff when requested, leaving the clubs without security staff, Norths’ only remedy, it was submitted, was to demand the remedying of the default within 14 days, thereby potentially putting it in breach of provisions of its regulatory regime unless it closed the clubs in question. I do not agree with this submission. Clause 10 deals with termination of the agreement. The obligation of Synergy in cl 2 was to provide the service, that is to provide security operatives in accordance with the Club’s weekly requirements. It was not an obligation confined to best endeavours. If Synergy could not, on any occasion, provide the services due, say, to a lack of qualified personnel, it would be in no position to complain if Norths, mitigating its loss, provided substitute staff. Any such steps by Norths, consequent on such a failure of Synergy to perform, would be a legitimate protection of its own position brought about by Synergy’s breach. Clause 10 deals with termination of the contract under its terms, it does not foreclose steps in mitigation. It is unnecessary to discuss how the agreement would or might operate in the light of cl 10.1(d) and 10.2(c) in the context of repudiatory conduct or a sufficiently serious breach as would otherwise give rise at common law to a right to terminate: cf Wallace-Smith v Thiess Infraco (Swanston) Pty Ltd [2005] FCAFC 49; 218 ALR 1 at 15-19 [52]-[68] and 62-69 [289]-[315].

37 Taken as a whole, and the above clauses considered in particular, the engagement of Synergy in cl 2 and the annexure was for the objective requirements of the respective club for security operatives performing duties of the character in the annexure. That objective requirement is to be understood against the background at the time of the entry into the relevant contracts. If the context is that some services were supplied by others at the time of entry into the contract in question and the circumstances did not point to any intended change in those circumstances by entry into the contract, the contract can be seen not to apply to such services. Further, the objective requirements of Norths in respect of either club might be affected by bona fide commercial decisions as to how the clubs are to operate. Such decisions may have an effect on the overall requirements for security operatives. Whether any such decision had the aim or the effect of denying Synergy the contractual benefits to which it was entitled would be a matter for analysis based on a specific factual circumstance.

38 Some discussion on appeal was directed at Norths withdrawing some of its outsourced services from Synergy and using in-house security operatives instead. Whilst it is not appropriate to hypothesise too generally, it is appropriate to say that while it can be recognised that decisions by Norths as to how to run the clubs may affect the level of requirements for cl 2 of the contract, the use of in-house security operatives in place of those supplied by Synergy would not be a reduction of requirements, but an alternative method of satisfying those requirements and in all likelihood a breach of contract.

39 It is sufficient for present purposes to conclude that the primary judge was in error in his construction of the engagement of Synergy. Synergy was obliged and entitled to provide the requirements of the clubs (in the sense that I have set out) for the terms of the two contracts.

40 The primary judge found that the contracts had been repudiated, but on a different understanding of the contractual obligations, which resulted in no loss to Synergy. The matter should be remitted to him for the assessment of damages. Any attendant application relevant to that remitter will be a matter for the primary judge.

41 For the above reasons the following orders should be made:

1. Appeal allowed.

2. Set aside the orders made by the Court on 14 May 2008 and, in lieu thereof, order that the summons dated 8 December 2006 be dismissed.

3. Remit the matter for hearing to the Commercial List of the Equity Division for the assessment of damages payable to the appellant in respect of the respondent’s breach of contract.

4. The respondent pay the appellant’s costs of the appeal.

5. The costs of the hearing at first instance be determined by the trial judge on the remitter.

6. The respondent to have a certificate under the Suitors Fund Act 1951 (NSW), if not disentitled under s 6(7).

42 TOBIAS JA:

I agree with Allsop P.

I agree with the orders proposed by Allsop P and with his Honour's reasons.

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23/07/2009 - Incorrect spelling of case name - Paragraph(s) Coversheet & [22]