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A recent decision in the Supreme Court of NSW Court of Appeal
has crystallised the law in NSW on how to treat overhead expenses
when calculating expectation damages where a fixed term contract
for services has been wrongfully terminated. See the North Sydney
Leagues' Club Limited v Synergy Protection Agency Pty Limited
[2012] NSWCA 168 (
link here).
Synergy Protection Agency Pty Limited (Synergy) was responsible
for the provision of security services to North Sydney Leagues'
Club Limited (Norths) and the Court of Appeal had previously,
unanimously found that Norths had wrongfully terminated two
contracts which required Norths to use only Synergy's services
at Norths' premises in North Sydney and Tweed Heads for the
full contract term of three years (see Synergy Protection Agency
Pty Ltd v North Sydney Leagues' Club Limited [2009] NSWCA 140
link here).
Synergy claimed damages by reason of the wrongful repudiation
and the question before the Court of Appeal was in relation to the
amount of Synergy's expenses that needed to be deducted from
its estimated future revenue (which would have been earned had the
contracts been allowed to run for the full three year term) in
order to arrive at a fair value for expectation damages.
The Court of Appeal affirmed the correct approach in this case
was to deduct from forecast revenue those expenses which would have
increased when the contract was being performed, and would have
diminished when it ended. Therefore outgoings such as rent and
wages for the Chief Executive Office, Operations Manager and Office
Manager should not be taken into account because they did not
decrease as a result of the termination of the contract.
This Court of Appeal judgment provides an extremely useful guide
to parties (and their lawyers and expert accountants) who find
themselves in a similar dispute when a fixed term contract for
exclusive services has been prematurely and wrongfully
terminated.
Carroll and O'Dea's Commercial Litigation & Dispute
Resolution team acted for Synergy and are pleased to have achieved
a favourable outcome for their client in what was a long and hard
fought legal dispute.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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