Supreme Court New South Wales Medium Neutral Citation: Stevenson v Regents Park Sporting & Community Club Ltd [2012] NSWSC 424 Hearing dates: 26-27/03/2012 Decision date: 04 May 2012 Before: Fullerton J Decision: 1. Verdict for the defendant. 2. The question of costs is reserved. Catchwords: CONTRACT - company in voluntary administration - termination of contract by voluntary administrator - whether contractual right to terminate justified - repudiation - reasonable standard in delivery of services Cases Cited: Crawford Fitting Co v Sydney Valve & Fittings Pty Ltd (1988) 14 NSWLR 438 Franklins Pty Ltd v Metcash Trading Ltd [2009] NSWCA 407; 76 NSWLR 603 Shepherd v Felt & Textiles of Australia Ltd (1931) 45 CLR 359 Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52; 219 CLR 165 Category: Principal judgment Parties: Garry Stevenson (Plaintiff) Regents Park Sporting & Community Club Ltd (Defendant) Representation: Counsel: R de Meyrick (Plaintiff) C Harris SC (Defendant) Solicitors: Paris J Carr & Associates (Plaintiff) Colin Biggers & Paisley (Defendant) File Number(s): 2010/348324 Publication restriction: No Judgment 1HER HONOUR: Between March 2009 and October 2010 the plaintiff operated a bistro from a licensed club at Regent's Park operated by the defendant company ("the Club"). The plaintiff operated the Bistro pursuant to a written contract entitled "Independent Contractor Agreement" ("the agreement") under which he was obliged to work in conjunction with the Club's trading hours and to "order, prepare and cook in the Club's Bistro". The contract was executed on 30 May 2009 for a term of three years. 2In April 2010 Gregory Russell of Russell Corporate Advisory was appointed as the voluntary administrator of the defendant company and in May 2010 he assumed control of the Club's business under a Deed of Company Arrangement. 3The Club continued to trade while Mr Russell attempted to obtain a better financial outcome for the company's creditors than that which might have been obtained by liquidation. He gave evidence that one of the key elements to operating a successful club is the availability of dining and catering facilities to a given standard during trading hours, not as an independent source of revenue but in to retain existing patrons and attract new patrons in a competitive industry. 4By letter dated 21 October 2010 Mr Russell notified the plaintiff that the agreement was terminated effective from that date. A number of bases were nominated as grounding the exercise of the company's right to terminate referable both to breaches of the plaintiff's obligations under the agreement to deliver the dining services in accordance with specified standards and to previous correspondence where the same or similar breaches were identified as requiring rectification and which the plaintiff is said to have persistently failed to address. 5The plaintiff sues for breach of contract and damages. He submitted that the agreement was terminated without proper cause and even if he was in breach of the agreement, which he refuted, he was entitled to a reasonable notice which was denied him. 6The quantum of the claim falls well short of the jurisdictional limit of this Court being on the final analysis, and on the best view of the evidence, a sum not exceeding $75,000. The fact that the proceedings were properly commenced in this Court by summons when the plaintiff sought, unsuccessfully, to enjoin the defendant from terminating his right to remain on the Club premises, does not adequately explain why the claim in contract was not thereafter transferred to the District Court. Were the plaintiff to have made out a case on liability, any costs order in his favour would need to account for the attitude of the parties to the question of transfer which was raised with the Registrar when the matter was listed for hearing. Since the plaintiff's claim fails and the defendant is entitled to an order for the costs of the proceedings the issue does not arise. 7A number of affidavits were relied upon by the plaintiff at the hearing, large parts of which proved to be either largely irrelevant or repetitious or both. Only the plaintiff was cross-examined. The defendant relied upon an affidavit from Mr Russell in his capacity as Deed Administrator and an affidavit from Mr Willcocks, a consultant engaged by Russell Corporate Advisory involved in the operational management of the Club from April 2010. 8The single issue in the proceedings was whether the defendant company's contractual right to terminate under Clause 8.1.3 was justified. The resolution of that question is determinative of the plaintiff's case on liability. Background 9In February 2009 the plaintiff was approached by the Chairman and the Vice Chairman of the Board of the defendant company with a proposal that he take over the operations of the Bistro from the previous operators. The plaintiff was known to the Board members as a chef of some repute in the industry. 10At a meeting of the Board of Directors in or about late February 2009, which the plaintiff attended by invitation, it was agreed that he would operate the Bistro under the name "The Celtic Bistro" on given terms. He was given an interest free loan of $5000 to enable him to set up the business. 11The plaintiff assumed occupation of the Bistro in about mid March 2009. On 30 May 2009 a written contract entitled "Independent Contractor Agreement" was executed. The contract was expressed to commence on 25 March 2009 at the time when, as the plaintiff acknowledged in cross-examination, the Bistro had already opened for business. 12A great deal of evidence was led at trial to prove that the working relationship between the plaintiff as the operator of the Bistro and some members of the Board of Directors of the defendant company was punctuated by conflict at regular intervals from as early as May 2009. The working relationship between the plaintiff and Mr Russell and Mr Willcocks was also unstable which is reflected in the correspondence passing between them and between the plaintiff's solicitors and Mr Russell from at least June 2010 up until the date of termination in October 2010 and in various face-to-face meetings convened to address the Administrator's concerns as to the operations of the Bistro during that time. 13Resolving the cause of the continuing conflict between the plaintiff and the former Board was irrelevant to the question of liability since it was from 1 April 2010 the Club effectively under the control of Mr Russell as Deed Administrator (to whom Mr Willcocks reported) and that the letter of termination issued under Mr Russell's authority. Save only to the extent that the correspondence that passed between the plaintiff and Mr Russell (and the plaintiff's lawyers) between June and October 2010 and the various face-to-face meetings in that period is probative of the question whether the termination was justified, it is also unnecessary to determine the rights and wrongs of many of the claims and counterclaims of the plaintiff (and his solicitor) and Mr Russell and Mr Willcocks. Was the agreement partly in writing and partly oral? 14A question raised by the points of claim, although not pursued with any vigour in final submissions, is whether a concluded oral agreement was reached at the Board meeting in February 2009 (including terms and conditions which should be read as implied terms of the written agreement executed in May 2009 and evidence of what the express terms mean to the extent of any ambiguity), and/or whether what was said at that time constituted pre-contractual representations by which the defendant was otherwise bound. The oral terms are said to have included that the plaintiff would pay for his stock and staff wages and that the defendant would meet the costs of all other expenses associated with the Bistro; that the plaintiff would not be obliged to pay rent or any of the other outgoings incurred in the operation of the Bistro; and that it was for the plaintiff to formulate the menu which would be on offer from Tuesday to Saturday when the Bistro was to be open for the use of the Club's patrons. 15I am satisfied that despite the plaintiff opening the Bistro for business prior to the execution of the written agreement, it was the executed written agreement that the parties intended would regulate their contractual relationship, irrespective of what was said at the February Board meeting. This approach is in accordance with the objective theory of contractual construction which provides that whether a contract has been formed and, if it has, the identification and construction of its terms, is to be assessed objectively, not by reference to what the parties intended to agree to, or what they thought they had agreed to, but what a "reasonable person would understand by the language in which the parties had expressed their agreement" (see Franklins Pty Ltd v Metcash Trading Ltd [2009] NSWCA 407; 76 NSWLR 603 at [4]; Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52; 219 CLR 165 at [40]). Accordingly, to the extent that earlier discussions between the plaintiff and the defendant company through members of the Board might have otherwise created an oral agreement, that agreement is neither relevant nor enforceable in these proceedings. Similarly, the evidence of the plaintiff and the Board members as to the content of their pre-contractual discussions; what they thought they had agreed to; or what they intended to agree to is irrelevant on the question of construction of the written agreement. For present purposes the written agreement contains the contractual terms which fall to be construed objectively for the purpose of determining whether it was properly terminated. 16This approach is reinforced by Clause 9.1 of the agreement which provides: This agreement and any exhibit attached constitute the sole and entire agreement between the parties with regard to the subject matter hereof and the parties waive the right to rely on any alleged express provision not contained herein. 17In addition, to the extent that the meeting in February 2009 and what was then discussed might have constituted an actionable representation, Clause 9.2 of the written contract prevents the plaintiff from being able to rely on it. That clause provides as follows: No party may rely on any representation, which allegedly induced that party to enter into this agreement, unless the representation is recorded herein. The admissibility of the pre-contract discussions and surrounding circumstances 18There is a residual question whether the plaintiff's evidence of the circumstances surrounding the execution of the written agreement, and the context in which it was executed, is admissible to resolve questions bearing upon the construction of the agreement and, if so, what evidence is admissible for that purpose. 19The plaintiff submitted, correctly, that there is no need to find ambiguity in the words of the document before it is permissible to resort to evidence of this kind. In Franklins v Metcash Trading Allsop P said at [14]: The state of the law in this respect is to be ascertained from a number of High Court cases: Maggbury Pty Limited v Hafele Australia Pty Limited [2001] HCA 70; 210 CLR 181 at 188 [11]; Pacific Carriers v BNP Paribas at 461-462 [22]; Zhu v Treasurer of the State of New South Wales [2004] HCA 56; 218 CLR 530 at 559 [82]; Toll (FGCT) v Alphapharm at 179 [40] and International Air Transport Association v Ansett Australia Holdings Limited [2008] HCA 3; 234 CLR 151 at 160 [8] and 174 [53]. These cases are clear. The construction and interpretation of written contracts is to be undertaken by an examination of the text of the document in the context of the surrounding circumstances known to the parties, including the purpose and object of the transaction and by assessing how a reasonable person would have understood the language in that context. There is no place in that structure, so expressed, for a requirement to discern textual, or any other, ambiguity in the words of the document before any resort can be made to such evidence of surrounding circumstances. 20His Honour went on to say at [24]: The High Court authorities to which I have referred and in particular Pacific Carriers v BNP Paribas and Toll, and the recognition of the significance of the objective theory assist in appreciating the scope of the evidence that is admissible. The evidence, to be admissible, must be relevant to a fact in issue, probative of the surrounding circumstances known to the parties or of the purpose or object of the transaction, including its genesis, background, context and market in which the parties are operating. What is impermissible is evidence, whether of negotiations, drafts or otherwise, which is probative of, or led so as to understand, the actual intentions of the parties. Such evidence might be legitimate, however, if directed to one of the legitimate aspects of surrounding circumstances. The distinction can be subtle in any particular case. As Macfarlan JA and I said in Kimberley Securities Limited v Esber [2008] NSWCA 301 at [5]: "The possible subtlety of the distinction can be seen in Lord Wilberforce's reasons in Prenn v Simmonds ... at 1384-1485, and the recognition that the objective commercial aim may, possibly, be ascertained from some aspect of what has passed between the parties. The distinction can also be seen in what Mason J said in Codelfa at 352 about prior negotiations and their legitimate use 'to establish objective background facts which were known to both parties and the subject matter of the contract', and their inadmissibility 'in so far as they consist of statements and actions of the parties which are reflective of their actual intentions or expectations'. ..." 21The extent to which it is necessary in this case to refer to evidence in this category depends upon that evidence being relevant to a fact in issue, probative of the surrounding circumstances known to the parties concerning the purpose or object of the transaction, including the genesis of the agreement, and the background, context and market in which the parties were operating. 22The ultimate fact in issue in this case is whether the defendant company was justified in terminating the agreement for what it contended was the plaintiff's failure to achieve and adhere to the standards in the delivery of dining services from the Club's Bistro, despite repeated requests from Mr Russell over preceding months that he modify and improve those services and the manner in which they were delivered. The question of "standards" 23Clause 2.1 of the agreement provides that the plaintiff is to have full control of how he will deliver services from the Bistro subject only to meeting "the standards required by the Company". Under Clause 2.3 the plaintiff is obliged to correct any breach of standards identified by the company with the company being obliged to afford him one opportunity to re-perform the service within a specified time limit. Clause 8.1.3 provides that the failure by the contractor to meet deadlines for performance of services, or failing to meet the standards required by the company in the performing of services, grounds an entitlement in the company to terminate by written notice. 24The standards according to which the plaintiff was obliged to deliver the dining services are neither defined nor described in the written agreement. It was common ground in the proceedings that when Clauses 2.1, 2.3 and 8.1.3 are read together the defendant company was contractually entitled to set reasonable standards for the plaintiff's delivery of the dining services in the Bistro. It had not, however, done so in a formal way before the appointment of the Deed Administrator in April 2010. By letter dated 15 June 2010 various standards were set by the Deed Administrator which the plaintiff was required to meet or rectify. His failure to do so was relied upon as entitling the defendant company to terminate the agreement. 25While it was also the agreed position at trial that the plaintiff was required to adhere to and abide by reasonable standards in the discharge of his contractual obligations, what remained in dispute was what was comprehended by the concept of reasonable standards in the delivery of services, and whether any of the breaches upon which the defendant relied in terminating the contract in fact constituted a breach of reasonable standards as distinct from the Deed Administrator unilaterally imposing a set of conditions outside the terms of the agreement as submitted by the plaintiff. 26The plaintiff relied upon the circumstances in which the agreement with the former Board of Directors was reached, including the circumstances in which he was approached to take over the operations of the Bistro, as probative of the content of his contractual obligation to perform services in accordance with the defendant company's standards. 27As the issues crystallised in final submissions, this became a focused inquiry into whether the plaintiff was obliged to extend the trading hours of the Bistro from five days a week to include Mondays and Sundays when the Club was otherwise open and offering its gaming and other facilities; whether he was obliged to expand the menu in accordance with a menu designed by Mr Russell; and whether he was obliged to make a contribution to the expenses incurred by the Club in the operation of the Bistro, including the removal of trade waste, cleaning and garbage removal and the payment of $200 per week representing a notional rental of the kitchen to cover the costs of the Bistro's use of water, electricity and gas. 28The defendant submitted that the construction of Clause 2.1 of the contract is to be assessed objectively and that the mere silence in the agreement as to the content of the standards by which the dining services were to be delivered, did not preclude a sensible construction being given to its right to require that those services meet reasonable standards when read in the context of the agreement as a whole, in particular that the trading hours of the Bistro conform with the trading hours of the Club and the menu items on offer are of a range and quality to attract patronage. The defendant also submitted that the fact that the contract was silent on the question of who was to bear the expense of operating the Bistro (including whether the plaintiff was obliged to contribute to the cost of utilities) was also capable of being resolved objectively without recourse to other evidence. 29Despite the very considerable deficiencies in the terms in which the written agreement was drafted, I am not persuaded that it is necessary to refer to the plaintiff's evidence concerning the context and surrounding circumstances in which he contracted to operate the Bistro in order to determine whether the particular standards of service imposed by Mr Russell were reasonable. I am also not persuaded that it is necessary to refer to that evidence in determining whether by stipulating that the trading hours and the menu selection on offer in the Bistro be extended the company was exercising its contractual right to require the plaintiff to meet the standards required under Clauses 2.1 and 2.3. Consistent with the objective theory of contractual construction, that question can be resolved by what I am satisfied a reasonable person would understand by the language in which the parties expressed their agreement. 30The same cannot be said of whether the company was entitled to require the plaintiff to contribute to the expenses involved in the operation of the Bistro in requiring him to meet reasonable standards in the performance of his contractual obligations. I have found it necessary to refer to evidence of the surrounding circumstances and the context in which the contract was entered into with the defendant company's former Board of Directors in addressing that question. 31By reference to the written agreement the plaintiff contracted to order, prepare and cook in the Club's Bistro in conjunction with the Club's trading hours and, subject only to meeting the standards required by the company, he was to have full control on how those services would be performed and delivered. The contract also contemplated that the plaintiff may employ staff to assist in the performance of those services. Clause 6.3 of the contract obligates the company to supply "all equipment or tools or instruments" needed by the plaintiff to perform the services under the contract. On any reasonable reading this must oblige the company to provide a fully equipped and functioning kitchen and dining room. While it may be correct, as submitted by the defendant company's counsel, that since there was no contractual obligation on the Club to pay for the cost of servicing the kitchen and dining room (including, in particular, the expenses incurred in providing gas, electricity and cleaning services), it was not unreasonable for the plaintiff to pay for his share of those costs. However, the fact that the written agreement does not make this obligation express under the subheading "Obligations of the Contractor" also leaves open the conclusion that the parties did not contemplate that the operator would bear any part of that costs burden. 32When regard is had to the plaintiff's evidence of his dealings with the company prior to contract, and the circumstances in which he was approached to take over the operations of the Bistro, and the evidence of the former chairman of the Board of Directors and a director who was also an employee of the Bistro of the circumstances in which the contract was entered into, I am satisfied that the latter construction is to be preferred. It is significant, in my view, that the Club was very keen to attract the plaintiff as an operator of the Bistro, to the extent of offering him an interest free loan for capital setup costs, and that in its dealings with previous operators the Club did not require a contribution to the running costs of the Bistro. For these reasons I am well satisfied that it was never intended that the operator of the Bistro contracted to provide dining or catering services would be obligated to absorb any of those costs. Accordingly, I am not satisfied that the plaintiff's persistent refusal to contribute to these expenses constitutes a breach of his contractual obligations. 33Were the company to have relied solely upon the plaintiff's continued refusal to make a financial contribution to the cost of providing utilities and expenses of various kinds as grounding its entitlement to terminate the agreement, the plaintiff's claim for damages would likely have been the only remaining fact in issue in the proceedings. However, both the letter of termination and the course of correspondence which preceded it is not so limited. Additional grounds were relied upon as constituting a breach of reasonable standards which, as I have earlier observed, crystallised in final submissions to the plaintiff's persistent refusal to extend the opening hours of the Bistro and to extend the menu despite being afforded an extended timetable within which to address the company's requirements that he do so. 34In the plaintiff's submission a proper interpretation of Clause 2.1 of the agreement does not grant the defendant company an unfettered right to dictate the hours and days of operation of the Bistro and the food which must be offered to patrons. That clause gives the plaintiff as contractor full control of how these dining services will be performed, fettered only by the requirement that the dining services (and the way they are performed) meet company standards. The plaintiff submitted that the nomination of extended opening hours and an extended menu selection over 12 months after the contract commenced as a "standard" by which the dining services were to be delivered in the future does not make it "a standard", breach of which entitled the company to terminate the contract under Clause 8.1.3. 35The plaintiff submitted that the ordinary meaning of "a standard" in both Clauses 2.1 and 8.1.3 would be reasonably interpreted as referable to a level or standard of quality in the food offered to patrons; the way it is prepared (including acceptable levels of hygiene) and the way it is offered or presented to patrons for their consumption on Club premises. This, counsel submitted, is supported by a reasonable reading of Clause 2.3 which gives the contractor a contractual entitlement to "re-perform" services not meeting the standards within a specified time limit. 36The question is whether the plaintiff has satisfied me that that construction is to be preferred and that the defendant company had no right to terminate the contract in October 2010 for his failure (or refusal) to provide dining services seven days a week and/or his failure (or refusal) to do so in accordance with a menu set by the company. The relationship between the plaintiff and the Deed Administrator from 1 April 2010 leading up to the date of termination 37Mr Russell has considerable experience as a liquidator and administrator in the registered club industry having investigated the financial position and business models of hundreds of clubs including, where necessary, their restructuring. His experience has been augmented by advice from various members of his staff also with significant experience in the club industry. He nominated Mr Willcocks to take control of the business as and from 1 April 2010 and to meet with the directors, staff and contractors to discuss the voluntary administration of the business and his role in it. Mr Willcocks first met with the plaintiff on the afternoon of 1 April to discuss the operations of the Bistro, including the existing menu, and to address what he had identified as a breakdown in communication between the plaintiff and management resulting in what he considered to be the poor performance of the Bistro. That meeting was the subject of a detailed file note as was a follow-up meeting on 8 April. In that meeting Mr Willcocks informed the plaintiff that Mr Russell was, as he described it, "not happy" with the terms of the existing agreement and proposed that the Club enter into a more commercial arrangement including payment of rent for the Bistro and a contribution to expenses and other outgoings. The plaintiff rejected that suggestion. Although it was Mr Willcocks' stated intention at that time to provide the plaintiff with a new agreement in draft to enable him to obtain legal advice, this did not eventuate. It would appear that the Administrator determined to approach his concerns with the operation of the Bistro by requiring the plaintiff to meet certain "standards" under the existing agreement. (The fact that at one time it was Mr Russell's view that a new agreement needed to be drawn under which the contractor would be obliged to pay rent tends against the construction of the agreement which the defendant's counsel urged upon me, namely that the imposition of a rental component or contribution to running costs of the Bistro was a "standard" by which the dining services would be performed, which I have rejected for other reasons.) 38The relationship between the plaintiff and Mr Willcocks, from as early as the first meeting in April 2010, was marked by disagreements concerning the operations of the Bistro which ultimately culminated in the plaintiff refusing to discuss Mr Willcocks' concerns without the intervention of his solicitor. It would appear that the plaintiff adopted a defensive and inflexible position from the outset of his dealings with Mr Willcocks and that Mr Willcocks' efforts to mediate a resolution of various operational issues were not fruitful for this reason. 39On 7 June 2010 the meeting was convened at the Deed Administrator's city offices for the express purpose of the plaintiff meeting Mr Russell with a view to improving their working relationship. Lawyers were in attendance. The meeting was unproductive. 40By letter dated 15 June 2010 Mr Russell informed the plaintiff of the minimum standards according to which he was required to perform his contractual obligations. This was referred to in the proceedings as the "Standards Letter". He was also advised that Mr Willcocks would make contact with him to arrange a meeting to solicit his views in order to achieve an improved performance in the operations of the Bistro but that he was required to attend to each of the nominated matters immediately and to abide by those standards for the balance of the contractual term. 41In summary, the Standards Letter required the plaintiff to deal directly with Mr Willcocks (as no other officer or executive had authority to deal with him) and to conduct himself appropriately in his dealings with patrons and staff. He was also required to meet the full cost of removal of trade waste from the kitchen, equipment repair and maintenance, and linen and laundry costs. In addition, he was required to meet certain nominated costs on presentation of an invoice from the Club, including 50 per cent of the Club's general garbage pickup costs; 95 per cent of the Club's gas bill and 25 per cent each of the Club's water and electricity costs and to pay for his own telephone calls. Cleaning the kitchen and service and presentation of food were to comply with Food Authority New South Wales standards. He was required to provide evidence of adequate public liability, product liability insurance and workers compensation insurance. Insofar as trading hours and menu selection were concerned the following was required: Trading hours The minimum standard trading hours from Monday 21 June 2010 during which Bistro Catering is to be available are as follows: Lunch Seven Days 12 noon: 2.00pm Evening meal - Sun to Wed 5:30pm: 8.00pm Thurs to Sat 5.30pm: 9.30pm The Club is prepared to discuss arrangements for special occasions as the need arises. Menu selection The minimum requirement for Menu offering and presentation is as follows: Lunch and Salads and Entrees Chicken Salad Evening Meal Caesar Salad Menu Chicken Wings Nachos Roast meat rolls Fresh oysters Prawn cutlets Soups Soup of the Day with Bread Roll Mains Fish and Chips Hamburgers Steak Sandwiches Chicken & Beef Schnitzels BBQ Chicken Seafood Basket Pasta dish of the day Selection of three Chinese and Vietnamese stir fry specialties Roast Specialty of the day Sweets Selection of three cold and three heated sweets of the day It is emphasised that it is a minimum standard to provide a high degree of quality, freshness and presentation at all times. 42By letter dated 18 June 2010, the plaintiff's solicitors accepted that the agreement allowed the company to require that the contractor meet minimum standards in the delivery of dining and catering services but disputed that the company had the right to impose any of the "standards" nominated in the Standards Letter, save for the contractor's obligation to provide evidence of adequate insurance and to comply with hygiene and cleaning standards required by law. The solicitors proposed what was described as a "cooperative approach to reasonable trading hours that takes into account the patronage of the Club". He went on to say that opening the Bistro on Sunday was recognised by the former Board to be unprofitable and that it was unreasonable for the Deed Administrator to reverse that decision. His solicitor also indicated the plaintiff's willingness to discuss menu selections but refuted the company's right to dictate the menu. 43By letter dated 20 August 2010, Mr Russell confirmed and reiterated that the plaintiff was required to comply with each of the matters specified in the Standards Letter. Insofar as trading hours and menu selection he said as follows: Trading Hours. You have still not adopted the stipulated minimum standard trading hours and in particular, that you are offering no service on Sundays or Mondays and short evening service on Fridays and Saturdays. This is a matter of vital concern to the Club and has a material adverse impact on the ability of the Club to attract and retain patronage around those times. That is not acceptable and that is the more so because you have not even made any attempt to address those issues or to discuss any concerns you might have or to put forward any alternatives. Menu selection. The Standards Letter reasonably stipulated for a minimum menu offering in line with standard basic bistro fare. You have made absolutely no change towards expanding your offering to meet that minimum standard nor have you made any attempt to discuss any concern or put forward any alternative proposal. The Club requires you to provide at least the stipulated minimum menu offering. 44The letter concluded as follows: In relation generally to the above requests for you to attend to the stipulated standards, as I am advised, those times and dates are reasonable and indeed more than reasonable, in order for you to attend to the performance of your obligations. This letter is formal notice to you that the Club requires your requested compliance in each respect requested and in each case by the time and date specified and thereafter. That time and date are now essential for each of those requirements. If you fail to do so in any material respect that failure will be a fundamental breach by you of your obligations under the Contract and also will be further repudiation by you of the Contract and your obligations under the Contract. Any such fundamental breach or repudiation by you will entitle the Club to terminate the Contract on that account and to claim damages. I note that neither you nor your Lawyer's Response have suggested that in any respect the Club has not fully honoured its obligations concerning anything to be done by the Club under and in respect of the Contract. Further, I note and confirm that the Club is and remains ready and willing to honour its obligations under the Contract and I record that the Club is not in breach of the Contract. 45By letter dated 23 August 2010, the plaintiff's solicitor maintained his client's opposition to the Administrator's imposition of standards (including extended trading hours and an expanded menu) and forecast the plaintiff's intention to pursue his contractual entitlements in this Court. 46By letter dated 25 August 2010, Mr Russell advised the plaintiff's solicitors that the Club's position remained unchanged and that it was essential that his client attend immediately to each of the matters raised in the Standards Letter in order to bring himself into conformity with his contractual obligations. 47By letter dated 6 September 2010, Mr Russell extended the time for the plaintiff to fully comply with the requirements specified in the Standards Letter to 19 September 2010 without prejudice to the company's right to terminate in the event that the plaintiff failed to perform to the specified standards by that date. 48By letter dated 21 September 2010, Mr Russell acknowledged a change in the plaintiff's attitude and a measure of cooperation in his dealings with Mr Willcocks, and that he had taken steps to bring himself into compliance with the Standards Letter. This would appear to be a reference to some helpful menu suggestions that the plaintiff had put forward to improve patronage of the Bistro in a meeting with Mr Willcocks. On that basis an extension of time to 20 October 2010 was granted to allow the plaintiff to bring himself into full compliance. Mr Russell went on to say: Whilst it is pleasing for all concerned to see the recent change of attitude and developments, I cannot stress enough that by that date, the Club requires your client to bring himself into full compliance in all respects. You will appreciate that it is my duty to pursue these matters in the interests of the Club and that whilst the recent developments are gratifying, they cannot take away from the importance of the lack of resolution of the other matters that have been raised. The Club has gone out of its way now to grant your client every courtesy and indulgence. That further extension is granted without prejudice to the Club's rights. Failure to perform within the extended period, in any respect, may and is likely to lead to termination. The Club would let your client down not to put these matters plainly and by this letter I have done so as is my duty. 49On the same day he forwarded a letter to the plaintiff confirming the matters raised with his solicitor, and reminding him that full compliance with the Standards Letter remained outstanding and that he welcomed working with the plaintiff to ensure his full compliance to their mutual benefit. 50On 23 September 2010 the plaintiff's solicitors asked for an itemised list of what was said to be the plaintiff's continuing failure to comply with the Club's demands. 51By letter dated 7 October 2010, Mr Russell again reiterated the necessity of the plaintiff's strict compliance with the Standards Letter which, in his view, were plainly stated such that further itemisation of the extent of the plaintiff's non-compliance was unnecessary. He went on to say: The standards required of your client were stated plainly in my letter of 15 June 2010. It is unhelpful for you to call for further itemisation when the extent of Mr Stevenson's non-compliance can be plainly judged against the matters raised. Without in any way resiling from anything said in earlier correspondence, plain and important examples are - your client's continuing refusal to heed the request to observe reasonable trading hours, which in my view is substantially hurting the Club and thus of a material significance to the Club; your client's continuing refusal to attend to offering a reasonable menu, which likewise in my view is continuing to materially hurt the Club; and your client's failure to pay for his own utility and similar costs that have been invoiced to him. 52In that same correspondence Mr Russell also drew attention to the plaintiff's obligation to conduct himself with civility in his dealings with the Club and to a particular occasion in recent days when he engaged in loud and abusive exchange with the Club supervisor when he was advised that a booking from a social group for a function within the Club was to be countermanded because it would have entailed a breach of s 23 of the Registered Clubs Act 1976 as notified by the licensing police. Mr Russell again made clear his view that, taken together with the plaintiff's persistent refusal to comply fully with the Standards Letter, and in particular the issue of the hours of operation of the Bistro, this conduct amounted to repudiation. 53By letter dated 13 October 2010, the plaintiff's solicitor notified Mr Russell of his client's intention to pursue in this Court what he claimed as his contractual entitlements (including seeking the declaratory and injunctive relief) what the solicitor described as his failure to perform to "an invented set of contractual obligations". 54On 21 October 2010 Mr Willcocks served the plaintiff personally with the letter of termination which was stated to take immediate effect in which he itemised a number of requirements referable to the Standards Letter which the plaintiff had not complied with. Again, so far as the present proceedings are concerned, the letter made particular mention of the fact that the plaintiff had made "no attempt to extend trading to Mondays and Sundays" and, as regards menu selection, that he had not expanded the menu as requested, nor made any attempt reasonable or otherwise to do so, or to discuss any alternative to extending the basic menu. Mr Russell noted that the plaintiff had implemented a "specials board" but he did not consider that that constituted sufficient compliance with the requirement that he expand the regular menu to include specified items. Was the defendant company entitled to terminate the agreement? 55After giving weight to the unchallenged evidence of Mr Russell as a person with 20 years experience as an administrator of registered clubs, and in particular his evidence that the availability of food services are fundamental to the success of a club's business, I am satisfied it was reasonable for the defendant company, through the Administrator, to require the plaintiff to operate the Bistro in conjunction with the trading hours stipulated in the Standards Letter even if the Bistro traded at a loss on Sunday and/or Monday. Quite apart from whether this was a reasonable standard against which the food services were to be delivered in accordance with Clause 2.1, the plaintiff was contractually obligated to operate the Bistro in conjunction with the trading hours of the Club and the Administrator was entitled to require him to meet his contractual obligations in that respect irrespective of the arrangements that were in place at the time of contract with the former Board of Directors. 56Even if that were not an express contractual obligation, I do not consider that applying an objective assessment of the terms of the written agreement it was unreasonable for the Administrator to require that the Bistro be open for lunch and dinner seven days a week, both as a service to its existing patrons and to attract patronage to improve the Club's revenue during the period of administration. To the extent that the Sunday and Monday trade was not immediately profitable, and that to open the Bistro on both days necessitated that the plaintiff restructure his operations, perhaps by a modest increase in the price of some food items, that was an option open to him under the contract. Clause 2.1 provided that he was to have full control over the delivery of services (subject only to meeting reasonable standards) which must be taken to include the price of meals at the plaintiff's discretion. 57The correspondence passing between the parties summarised above satisfies me that the plaintiff was given adequate notice of the defendant's intention to terminate the agreement in the event that he refused to extend the trading hours of the Bistro. While it would not be in every case that the failure to rectify a breach within a timeframe (even an extended timeframe) would amount to reasonable notice, the question of what is reasonable when the contract is otherwise silent on the notice period depends upon the circumstances existing when the notice was given: see Crawford Fitting Co v Sydney Valve & Fittings Pty Ltd (1988) 14 NSWLR 438 at 444 (McHugh JA with whom Priestley JA agreed), 454 (Clarke JA). Given the strained relationship between the parties as at October 2010, and the company's repeated insistence over the preceding months that the plaintiff address the issue of trading hours, the plaintiff could have been in no doubt that by refusing to accept Mr Russell's assessment of the need for catering services from the Bistro to be extended from five days a week to seven days a week, he was putting his right to continue operate the Bistro under the agreement at immediate risk. 58Although the plaintiff's refusal to extend the menu selection was also cited in the termination letter as grounding the company's right to terminate, I have not found it necessary to deal with that aspect of the case in any detail having determined that the company was entitled to terminate the agreement because of the plaintiff's refusal to operate the Bistro in accordance with the Club's trading hours (see Shepherd v Felt & Textiles of Australia Ltd (1931) 45 CLR 359 at 377). Suffice to note that it was the plaintiff's evidence that well knowing that it was Mr Russell's view that the menu needed to be expanded to improve the quality of service for Club patrons, he did not do so because he took the view that the Club was simply not entitled to dictate the menu (in particular to require him to offer a choice of salads and a choice of dessert, or to offer chicken wings, nachos, fresh oysters and a seafood basket and a roast special of the day as part of the minimum menu) when the way he had styled his menu was, more than adequate and that the balance of the food items on the minimum menu in the Standards Letter were already on offer in the Bistro and servicing patrons needs. 59On the appeal it was submitted that the plaintiff had a taken a conciliatory position on the menu issue, and had taken some steps to include some items from the Standards Letter whilst maintaining in his discussions with Mr Willcocks and others that there was a rational and sensible reason not to include others. Whilst there is some evidence to suggest that the plaintiff had moderated his position between June 2010 and October prior to the issue of the termination letter, on the available evidence I am unable to come to any settled view as to whether or not it was nonetheless reasonable to require the plaintiff to expand the menu to strictly comply with the content of the menu in the Standards Letter, or whether the plaintiff was acting reasonably in refusing to include some items either because there was no demand for the particular item or because it was unprofitable to offer a menu with a wider range of choice. However, since the plaintiff has failed to persuade me that it was unreasonable to require him to open the Bistro seven days a week whether as a standard against which he was to deliver the services under the agreement or in meeting his contractual obligations, and having failed to satisfy me that he was not given reasonable notice before the company terminated the agreement for that reason, it is not necessary for me to consider the question further. 60For the same reason I do not propose to deal with the further submission advanced by the defendant at the hearing, also in reliance upon the principle in Shepherd, that Clause 8.1.5 of the agreement, which provided a right to terminate where there was a change in the ownership of the business, entitled the defendant company to terminate the agreement when the Club amalgamated with another entity effective as and from 29 October 2010. I do note that while the existence of that state of affairs may not be contentious there was no evidence in the defendant's case of the factual circumstances surrounding the amalgamation (to the extent that they were relevant) or the legal effect of the amalgamation. Conclusion 61In the result, the plaintiff has not proved that the company was in breach of contract in issuing and acting upon the letter of termination and accordingly he has no entitlement to damages for breach of contract 62Even were I satisfied that it was unreasonable for the defendant company to require the plaintiff to operate the Bistro in conjunction with the Club's trading hours, and that termination of the agreement on the basis of his refusal to do so was unjustified, the defendant submitted that the plaintiff has suffered no loss from which he would be entitled to an award of damages, having fully mitigated any loss that he suffered by returning to paid employment and. 63In advancing that submission the defendant relied upon the plaintiff's 2009/2010 tax return which shows a net profit from the Bistro for that financial year of $25,928. This, it was argued, is less than he earned when he returned to paid employment after the termination of the contract where his 2010/2011 tax return shows an income of $26,289. 64The plaintiff's oral evidence concerning the periods of employment and unemployment over the 18 months comprising the balance of the term of the agreement was most unsatisfactory. That said it would appear from his taxation returns that his net profit in operating the Bistro from March 2009 until October 2010 amounted to $51,270. Assuming a consistent net profit from the operations of the Bistro over the balance of the contractual term, and after deducting the amount $26,289 earned since termination his damages would be in the order of $24,981. I am not persuaded that any other basis of calculating damages is appropriate. Orders 651. Verdict for the defendant. 2. The question of costs is reserved. ********** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 12 July 2012