Contractual requirement to act efficiently and in accordance with directions: comments from ARLC v NSWRL

By Martin Ross and Mark Lebbon

The dispute between the Australian Rugby League Commission Limited (ARLC) and New South Wales Rugby League Limited (NSWRL) in ARLC v NSWRL^[1] relating to the election of directors for NSWRL’s board of directors at the 2022 annual general meeting centred around the nomination of a particular person and concerns about whether that person had a material conflict of interest that would disqualify them from an appointment to the board.

However, one of the questions considered by both the New South Wales Supreme Court and the Court of Appeal was the extent of the powers afforded to ARLC pursuant to a clause under a services agreement it had entered with NSWRL (Services Agreement).

The dispute

The ARLC is the controlling body and administrator of the game of rugby league in Australia and delegates certain functions to state bodies such as the NSWRL. Under the terms of a Services Agreement, the NSWRL was delegated the management and administration of the high-profile State of Origin competition between teams representing New South Wales and Queensland.

Clause 3.1 of the Services Agreement provided, in part, that:

‘the Contractor agrees to provide the Services:

…….;

(b)        efficiently, with due care and skill and to the best of its knowledge and expertise;

(c)        in accordance with all reasonable and lawful instructions and directions given to the Contractor by the ARL Commission from time to time……’’

A dispute arose following NSWRL’s determination that a person nominated for appointment to the board of directors of NSWRL was not eligible due to a potential conflict of interest. The relevant individual did not take any legal steps in relation to his exclusion and the NSWRL proceeded on the basis that he was not entitled to stand. No election was therefore required to determine the two remaining Board positions, and two other persons were declared elected to the positions. Following the election, ARLC exchanged correspondence with NSWRL requesting certain information and documentation to allow it to undertake a review of the corporate governance practices relating to the election of the NSWRL board members.

The NSWRL refused the ARLC’s request and asserted that the ARLC had no power to conduct an investigation.

The ARLC alleged that the NSWRL was in breach of its obligations under clause 3.1(b) of the Services Agreement because the NSWRL board had not been validly appointed. The ARLC also asserted that NSWRL had breached clause 3.1(c) of the Services Agreement because it had refused to comply with instructions from the ARLC to provide information and documents concerning the election.

The decision

On appeal the New South Wales Court of Appeal unanimously held that the primary judge had been correct in concluding that NSWRL was not in breach of either of its obligations in clause 3.1 of the Services Agreement.

Clause 3.1(b): efficiently, with due care and skill and to the best of its knowledge and expertise

A breach of the obligation in clause 3.1(b) of the Services Agreement would have required the identification of some aspect of the provision of the Services by the NSWRL that did not comply with or satisfy the requirements of clause 3.1(b).^[2]

The ARLC did not provide or point to any instance of the provision of the Services which it contended had been or were in the course of being provided deficiently.^[3] Any issue as to the validity of the appointment of the NSWRL board of directors, its existence, composition and performance did not bear on the NSWRL’s discharge of its obligations under the Services Agreement.^[4]

To show a breach of clause 3.1(b) of the Services Agreement the ARLC needed to point to an actual failure to perform a provision of the Services Agreement, not whether, as a consequence of how the NSWRL board has been constituted, the risk of failure has been increased.^[5]

Clause 3.1(c): in accordance with all reasonable and lawful instructions and directions

The Court of Appeal held that the NSWRL’s obligation under clause 3.1(c) of the Services Agreement to comply with ‘all reasonable and lawful instructions and directions’ of the ARLC is an obligation owed in connection with the provision of the Services, rather than a general obligation.

The NSWRL submitted that the words ‘management’ and ‘administration’ in the definition of Services in the Services Agreement could not be abstracted from the whole of the definition of Services and could not be untethered from their specific subject matter, being the management, administration and staging of one or more State of Origin matches.^[6]

The ‘directions’ or ‘instructions’ purportedly given by the ARLC were not in relation to the subject matter of the Services Agreement, being the conduct of the State of Origin matches.^[7] The ARLC’s argument, both at first instance and on appeal, that clause 3.1(c) of the Services Agreement required the NSWRL to comply with the ARLC’s directions and instructions at large and was subject to a general supervisory control by the ARLC, was not successful.