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.
