Delaware North v AAPC Australia [2003] NSWSC 223

New South Wales Supreme Court

CITATION : Delaware North v AAPC Australia [2003] NSWSC 223 HEARING DATE(S) : 24/03/03, 25/03/03 JUDGMENT DATE : 31 March 2003

JURISDICTION: Equity Division Commercial List JUDGMENT OF : Barrett J DECISION : Short minutes to be brought in

CATCHWORDS : CONTRACTS - construction and interpretation of contracts - no question of principle CASES CITED : Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337 Re Rotherham Alum and Chemical Company (1883) 25 ChD 103 Delaware North (Australia) Pty Limited - First Plaintiff AVS Catering Pty Limited - Second Plaintiff PARTIES : AAPC Australia Pty Limited - First Defendant Michael Issenberg - Second Defendant Kim John Mooney - Third Defendant AAPC Limited - Fourth Defendant FILE NUMBER(S) : SC 50113/01 COUNSEL : Mr N C Hutley SC/Mr J R J Lockhart - Plaintiffs Mr A J L Bannon SC/Mr J Stoljar/Mr J A C Potts - Defendants SOLICITORS : Blake Dawson Waldron - Plaintiffs Gilbert & Tobin - Defendants

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

BARRETT J

MONDAY, 31 MARCH 2003

50113/01 – DELAWARE NORTH (AUSTRALIA) PTY LIMITED & ANOR v AAPC AUSTRALIA PTY LIMITED & 3 ORS JUDGMENT 1 The controversy in these proceedings arises from a formal agreement entitled "Unit Holders Agreement" dated 24 March 1993 to which there are five parties. The first party is AAPC Australia Pty Limited (formerly Accor Australia Pty Limited), the first defendant. It is referred to in these reasons as "AAPCAust". The second party is Delaware North (Australia) Pty Limited ("Delaware"), the first plaintiff. The third party is AVS Catering Pty Limited ("AVS"), the second plaintiff and a wholly owned subsidiary of Delaware. The fourth and fifth parties are respectively Australian Convention & Exhibition Services Pty Limited ("ACES") and Darling Harbour Convention & Exhibition Pty Limited ("DHCE"), the latter being a wholly owned subsidiary of the former. The first three parties – AAPCAust, Delaware and AVS – are designated "the Unit Holders" since they were the holders of all of the units in two unit trusts, one known as the "ACES Trust" constituted by a trust deed dated 23 October 1992 under which ACES was trustee and the other known as the "DHCE Trust" constituted by a trust deed of the same date under which DHCE was trustee. The three unit holders – AAPCAust, Delaware and AVS – also held all the shares in ACES which, as I have said, in turn held all the shares in DHCE. 2 As its title and parties imply, the Unit Holders Agreement recorded a compact among the trustees of the two unit trusts and the holders of the totality of the units of those unit trusts regulating the affairs and operations of the trusts. It is relevant to note that the units in each unit trust were held as to 51% by AAPCAust and 49% by Delaware and its subsidiary AVS (with each holding 24.5%), these being also the percentages in which the same parties held the shares making up the whole of the issued capital of ACES. Although dated 24 March 1993, the Unit Holders Agreement was expressed to take effect from an earlier date, being 26 October 1992. As will be seen, that is the date on which certain contractual commitments had been accepted by ACES and DHCE. 3 In substance, ACES and its wholly owned subsidiary DHCE, together with the two trusts of which they were the trustees, were the elements of a composite business structure owned as to 51% by AAPCAust (itself a wholly owned member of a corporate group of which the ultimate holding company was the French hotel and hospitality corporation, Accor SA) and as to 49% by Delaware and its wholly owned subsidiary (which were Australian subsidiaries of the United States food services and catering corporation, Delaware North). The 51%/49% ownership on the part of AAPCAust and Delaware caused the structure to have features of a joint enterprise and no doubt gave rise to a perceived need for the relationship to be regulated by a contract such as the Unit Holders Agreement. 4 The enterprise in which the Accor party (being AAPCAust) and the Delaware parties became associated through this structure had as its immediate purpose the operation and management of the Sydney Convention and Exhibition Centre which I shall call the "Sydney Centre", that being the description given to it by the Unit Holders Agreement. The agreement also contemplated the possibility of the parties becoming involved together in other centres of a similar kind. Its provisions, while dealing specifically with the Sydney Centre, were also designed to accommodate extension of the enterprise to other centres. 5 The Sydney Centre is an extensive complex consisting of an exhibition centre, a convention centre, a link building, a car park and a service area situated on the foreshores of Darling Harbour. At the time the joint enterprise was formed, the Sydney Centre was owned by the Darling Harbour Authority, a statutory body which has now been superseded by the Sydney Harbour Foreshore Authority. As there is no need to distinguish between the two and nothing turns on the process of succession, they will be referred to together as "the Authority". 6 The functions of operating and managing the Sydney Centre were regulated by a document entitled "Management Deed" entered into on 26 October 1992. The parties to that deed were the Authority, ACES, DHCE, Delaware, AAPCAust and AVS. Under the deed, the task of operating and managing the Sydney Centre was undertaken by ACES and DHCE which were together appointed by the Authority as "the sole operators and managers of the Centre on the terms of this Deed". The deed designated ACES "the Contractor" and DHCE "the Manager" and, while both were the subject of the appointment, certain provisions imposed particular obligations on one or the other of them specifically. The appointment was expressed to be for a term commencing on 1 May 1993 and ending on 1 May 1998, subject to the possibility of earlier termination in accordance with the deed itself. The term was later extended. 7 The appointment of ACES and DHCE as contractor and manager in relation to the Sydney Centre expired on 31 December 2001. The Authority appointed as manager of the centre, as from 1 January 2002, a consortium made up of Eurest (Australia) Support Services Pty Limited ("Eurest"), AAPC Limited ("AAPC") (which is the fourth defendant) and Centre and Exhibition Services Pty Limited ("CCM"), a company owned by Eurest and AAPC. AAPC is the immediate holding company of AAPCAust and another wholly owned member of the group of which Accor SA of France is the ultimate holding company. Eurest is an Australian subsidiary of Compass Group PLC, a United Kingdom food services company. 8 As of 1 January 2002, therefore, an AAPC/Eurest consortium replaced the AAPCAust/Delaware consortium as manager of the Sydney Centre. The appointment of the AAPC/Eurest consortium resulted from a tender conducted by the Authority. The closing date for bids was 31 July 2001. The AAPC/Eurest consortium was the successful bidder. ACES and DHCE, being the companies owned by AAPCAust and Delaware, did not submit a bid. Delaware (and its wholly owned subsidiary, AVS) attempted to put in train steps to have the matter of formulation and submission of a bid considered by the decision making organs of ACES and DHCE but, in the end, inaction or opposition by AAPC and AAPCAust meant that the matter was not considered and no decision was made. In fact, at a meeting of the members of ACES requisitioned by the Delaware parties, AAPCAust used its majority voting power to defeat resolutions proposed by the Delaware parties with a view to compelling ACES and DHCE to proceed with the formulation of a bid. AAPC was, at the same time, active in formulating and progressing with Eurest the joint bid that was eventually successful. AAPC and AAPCAust were open with Delaware in expressing a wish not to be involved with it in attempts to obtain renewal of the pre-existing joint management arrangement. AAPC wrote to Delaware on 4 June 2001 saying that it intended to proceed alone. 9 Delaware and its wholly owned subsidiary AVS contend, as plaintiffs, that the conduct of AAPCAust in not joining and co-operating with them to seek a further appointment of ACES and DHCE as operator and manager of the Sydney Centre entailed breach by AAPCAust of the Unit Holders Agreement. They sue for breach of contract accordingly. By their amended summons, Delaware and AVS also asserted, as plaintiffs, claims on a number of other bases. Before the hearing began, however, they indicated (and Mr Hutley SC confirmed in his opening) that they no longer maintained any of their other claims against AAPCAust as first defendant and that only two of the claims in the amended summons were pursued, namely, the breach of contract claim against AAPCAust alone and a claim against AAPC based on alleged interference by it with contractual relations between the plaintiffs and AAPCAust. 10 In the course of the hearing, a further narrowing occurred. The defendants sought to tender new evidence going to quantum of damages. The plaintiffs submitted (and the defendants accepted) that time would be needed to consider the new evidence and possibly to seek to answer it. Upon my indicating that I would not reject the new evidence on the ground of its lateness and was prepared to entertain an adjournment application to give the plaintiffs the time they required, I was asked to make by consent (and did make) an order under Part 31 rule 2(a) of the Supreme Court Rules that certain of the issues raised in the amended summons and the defence be determined separately from and before the determination of any other issue in the proceedings. Those issues are liability issues only, confined to the question whether the first defendant (AAPCAust) has been guilty of breach of contract. This judgment deals solely with those issues and reflects my decision on the question the subject of the order for separate determination. 11 The plaintiffs' breach of contract claim against AAPCAust is based wholly on express terms of the Unit Holders Agreement. The plaintiffs expressly disavowed resort to any implied term. The provisions on which the plaintiffs focus are clauses 2.1, 6.1, 6.2, 13.1(b), 13.6(e) and 13.7. Those clauses are as follows: "2.1 The Unit Holders agree that they will participate in any Project as the holders of Units in the ACES Trust and as a party to this agreement. The obligations of the Unit Holders in relation to any Project or under this agreement shall be several, and not joint or joint and several." "6.1 The Unit Holders agree to use their best endeavours to procure ACES and DHCE to implement and carry out each Project." "6.2 The Unit Holders agree that where practicable, all contracts which are to be entered into by the Unit Holders relating to any Project shall be entered into by ACES or DHCE or as determined by the Unit Holders." "13.1 Each Unit Holder, ACES and DHCE must: … (b) be just and faithful to each other and at all times promptly and fully give to the other Unit Holders all information and truthful explanations of all matters relating to the affairs of any Project, and afford every assistance in its power in carrying on the Project;" "13.6 Notwithstanding any other provisions herein contained no Unit Holder can, without the consent of all Unit Holders (except as may be expressly authorised or required by this agreement): … (e) enter into any contract or incur any liability in connection with any Project except as agreed by all Unit Holders from time to time." "13.7 The provisions of this agreement shall in no way restrict or prohibit a Unit Holder from carrying on business which it may do in the normal course of such business PROVIDED THAT in doing so that it duly and punctually observes and complies and at all times continues to observe and comply with its obligations under this agreement." 12 The term "Project" plays a key role in these provisions. It is defined by clause 1.1 as follows: "'Project' means the operation and maintenance of such Centres pursuant to a Centre Management Agreement as the Unit Holders agree from time to time, including the Sydney Centre pursuant to the DHA Management Deed." 13 The terms "Centre", "Centre Management Agreement", "Sydney Centre" and "DHA Management Deed", each of which appears in the definition of "Project", are also defined by clause 1.1. The definitions are: "'Centre' means the Sydney Centre, and any other exhibition and convention centre which the Unit Holders agree will be a 'Centre' for the purposes of this agreement." "'Centre Management Agreement' means the DHA Management Deed and any other deed or agreement in relation to the management and operation of a Centre. "'Sydney Centre' means the Sydney Convention & Exhibition Centre as referred to in the DHA Management Deed. "'DHA Management Deed' means the deed so entitled dated 26 October 1992 between DHA, the Unit Holders, ACES and DHCE as varied by an amending deed dated 1 March 1993."