New South Wales Rugby League Limited v Australian Rugby League Commission Limited

1. [1]

   These proceedings raise two principal issues. The first is whether the plaintiff, New South Wales Rugby League Limited (NSWRL), is in breach of the terms of an agreement dated 10 February 2012 (the Services Agreement) by which it provides services to the defendant, Australian Rugby League Commission Limited (ARLC). The second is whether ARLC is in breach of the Services Agreement and another agreement between the parties also dated 10 February 2012 known as the New Members Agreement by refusing to provide funding to NSWRL.

Background

1. [2]

   ARLC was reconstituted in February 2012 to be the single controlling body and administrator of rugby league in Australia. Its members are its eight directors for so long as they remain directors, NSWRL, Queensland Rugby Football League Limited (QRL) and each of the 16 clubs that field a team in the National Rugby League (NRL) competitions, the premier rugby league competitions in Australia. As part of its functions, ARLC is entitled to collect most of the revenue generated by the NRL competitions and State of Origin matches played between New South Wales and Queensland, including all media, broadcast, sponsorship, merchandising and venue rights.

2. [3]

   NSWRL is the governing body for rugby league in New South Wales and QRL is the governing body for rugby league in Queensland. NSWRL is responsible for, among other things, the conduct and administration of intrastate rugby league competitions in New South Wales.

3. [4]

   By the Services Agreement, ARLC appointed NSWRL to provide “the Services” during the Term (defined to be an indefinite period which terminates on termination of the agreement in accordance with cl 10). The “Services” are described in the schedule to the agreement in the following terms:

4. [5]

   Clause 3.1 of the Services Agreement provides:

5. [6]

   Clause 4 of the Services Agreement provides:

6. [7]

   “Business Plan” is defined in cl 1.1 to mean “the business plan submitted to and approved by the ARL Commission for the provision of the Services in that Financial Year under clause 4.2”. Plainly, the expression “Business Plan” has been wrongly capitalised on the first two occasions it is used in cl 4.2. The clause is not to be read as requiring NSWRL to submit a business plan, or for ALRC to review a business plan, that has already been approved.

7. [8]

   Clause 10 deals with termination. Clause 10.1 permits one party to terminate the agreement if the other ceases to carry on business or becomes insolvent. Clause 10.2 provides:

8. [9]

   By cl 4.2(a) of the New Members Agreement, ARLC “acknowledges that NSWRL is responsible for both the administration of intrastate rugby league competitions in the State of New South Wales and the selection of teams that represent the State of New South Wales in interstate rugby league competitions including but not limited to State of Origin”.

9. [10]

   Clauses 5.6 and 5.7 of the New Members Agreement provide:

10. [11]

    Under its Constitution, the Board of NSWRL consists of seven directors, four of whom are described as “Appointed Directors”, two of whom are described as “Expert Directors” and one of whom is an independent Chairman. Two of the Appointed Directors are nominated and appointed by “the Metropolitan Members” and two are appointed by “the Regional Members”. The two Expert Directors are appointed by the Appointed Directors and the Chairman is appointed by those six directors.

11. [12]

    Clause 31 of the Constitution relevantly provides:

12. [13]

    Clause 40 of the Constitution provides that a quorum for a meeting of directors is at least three directors.

13. [14]

    The 2021 financial year of NSWRL ended on 31 October 2021. In December 2021, NSWRL gave notice to its members of an annual general meeting to be held on 25 February 2022. One item of business at that meeting was the election of two Appointed Directors to be elected by the Metropolitan Members.

14. [15]

    On 20 January 2022, NSWRL received a nomination form nominating Mr Dino Mezzatesta, the Chief Executive Officer of Cronulla-Sutherland District Rugby League Football Club Limited (Cronulla), a member of NSWRL, as a candidate for election as an Appointed Director by the Metropolitan Members. The only other persons to nominate for those two positions were Mr Geoff Gerard and Mr Nick Politis, who were the then current Appointed Directors elected by Metropolitan Members. Mr Mezzatesta was nominated by Penrith District Rugby League Football Club Limited (Penrith) and seconded by Canterbury-Bankstown Bulldogs Rugby League Club Limited (Canterbury), both of whom are also members of NSWRL.

15. [16]

    On 22 February 2022, Mr David Trodden, the Chief Executive Officer of NSWRL, received an email from Mr Steve Mace, the Chairman of Cronulla, raising the question whether Mr Mezzatesta might have a conflict of interest if he were appointed as a director of NSWRL.

16. [17]

    Following receipt of that email, Mr Trodden arranged to obtain advice from NSWRL’s lawyers, Advocatus, on the matter. The effect of that advice was that Mr Mezzatesta, and for that matter the Chief Executive Officer of any other club member, would have a potential conflicting interest with the interests of NSWRL. The Chief Executive Officers (including Mr Mezzatesta) were said to be in a different position from the directors of club members because they received substantial remuneration from their respective employers. That remuneration was expected to include bonuses linked to the achievement or “exceedance” of specified key performance indicators and other measures, including the club’s commercial and financial performance, sponsorship and other dealmaking and the team’s on‑field performance.

17. [18]

    Following receipt of that advice, the Board of NSWRL, at a meeting on 23 February 2022, resolved to notify Mr Mezzatesta that he was not eligible to stand as a director of NSWRL. The minutes of that meeting relevantly record:

18. [19]

    Following that meeting, Mr Trodden sent an email to Mr Mezzatesta referring to the advice the Board had obtained and stating that:

19. [20]

    There was then correspondence between solicitors retained by Mr Mezzatesta, who took the view that Mr Mezzatesta had been denied procedural fairness and in any event was not ineligible to stand for election, and Advocatus.

20. [21]

    Notwithstanding that correspondence, Mr Mezzatesta did not take any steps in relation to his exclusion and NSWRL proceeded on the basis that he was not entitled to stand. The minutes of the annual general meeting relevantly record:

21. [22]

    After the conclusion of the annual general meeting, a meeting was held by the Appointed Directors of the Metropolitan Members and the Appointed Directors of the Regional Members, which was chaired by the President of NSWRL, Mr Bob Millward OAM. At that meeting, the Appointed Directors resolved to appoint Mr Terry Brady and Mr William Johnstone as Expert Directors. At the conclusion of the meeting, Mr Politis tendered his resignation as a director.

22. [23]

    On 5 April 2022, ARLC sent Advocatus a letter in which ARLC asserted that the election of the two Metropolitan Directors and therefore the election of the two Expert Directors was invalid “with the result that fresh elections must now be held”. The letter continued:

23. [24]

    The reference to cl 4.2 of the New Members Agreement appears to be an error. The clauses of the New Members Agreement governing funding are cls 5.6 and 5.7. Clause 5.7 contemplates that NSWRL would submit to ARLC by 31 July of each year a business plan and budget for the next financial year (commencing on 1 November) and that ARLC would notify NSWRL of the approval of funding by 30 September. For reasons which are not apparent from the evidence, that practice ceased to be followed from about 2017. Instead, ARLC started fixing the level of funding as the amount of funding granted in the previous year plus four percent. That practice itself was changed in 2020 as a result of the COVID-19 pandemic.

24. [25]

    At the time the 5 April 2022 letter was written, ARLC had been making equal monthly payments to NSWRL calculated at the rate applying in the previous year. There had, however, been discussions between NSWRL and ARLC concerning funding and NSWRL’s business plan. On 26 November 2021, Mr Dean Webster, the Head of Finance of NSWRL, sent an email to Mr Richard Gardham, the Chief Financial Officer of ARLC, requesting a meeting to discuss “our projected budget and funding position for next year”, which appears to be a reference to the calendar year. It appears that the parties met on 14 December 2021 and at that meeting the representatives of ARLC asked the representatives of NSWRL for a copy of NSWRL’s business plan. Mr Trodden sent that document to Mr Andrew Abdo, the Chief Executive Officer of ARLC, and Mr Gardham under cover of an email dated 17 December 2021.

25. [26]

    On 10 January 2022, Mr Trodden sent Mr Abdo and Mr Gardham an email asking “[a]re we able to arrange a meeting to pick up discussions regarding our 2022 budget?”.

26. [27]

    On 28 January 2022, Mr Trodden sent an updated business plan to Mr Abdo and Mr Gardham following a meeting they had had earlier that week.

27. [28]

    On 21 February 2022, Mr Webster sent an email to Mr Gardham asking “where we are at with our funding position?” Mr Gardham replied on 24 February 2022 stating “[a] meeting is being arranged for early next week to finalise with the board sub-committee”, after which he would call Mr Webster.

28. [29]

    On 14 March 2022, Mr Webster requested an update from Mr Gardham. On the following day, Mr Gardham stated that there was no further update to give at that stage.

29. [30]

    On 15 March 2022, Mr Webster again requested an update from Mr Gardham. Mr Gardham replied the following day that he was waiting on confirmation from the meeting with the subcommittee.

30. [31]

    Consequently, at the time the 5 April 2022 letter was written, no business plan or budget had been approved by ARLC for the financial year commencing 1 November 2021 and it appears that ARLC was delaying the process of approval pending a decision on what it would do in the face of Mr Mezzatesta’s exclusion from the election of Appointed Directors of NSWRL.

31. [32]

    Advocatus responded to ARLC’s letter dated 5 April 2022 on 8 April 2022. They denied that NSWRL was in breach of the Services Agreement and invited ARLC to withdraw its letter insofar as it purported to be a notice under cl 10.2(c) of the Services Agreement.

32. [33]

    ARLC responded on 11 April 2022. That response relevantly said:

33. [34]

    The matter could not be resolved by the parties and on 22 April 2022 NSWRL commenced these proceedings.

Is NSWRL in breach of the Services Agreement?

1. [35]

   This question raises three issues. The first is whether Mr Mezzatesta was improperly excluded from the election of Appointed Directors. The second is whether, if he was, that meant that the appointment of all directors other than the two Appointed Directors elected by Regional Members was invalid. The third is whether, if Mr Mezzatesta’s exclusion did have that consequence, NSWRL was in breach of cl 3.1 of the Services Agreement.

2. [36]

   In my opinion, Mr Mezzatesta was not disqualified from nominating for the position of a director of NSWRL because he was the chief executive officer of a member club. The disqualifying characteristic contained in the Constitution (having a “potential material conflicting interest with the interests of the Company”) must be understood in the context of the Constitution as a whole, which includes membership of the board of a member club as one of a limited number of qualifying characteristics to be eligible to stand for election as an Appointed Director elected by Metropolitan Members. That characteristic could hardly also be a disqualifying factor. It is common ground that Mr Mezzatesta satisfied the requirement of being a director of a member club (that is, Cronulla).

3. [37]

   The question is whether the fact that Mr Mezzatesta also held an executive position with Cronulla made a difference. It is difficult to see how it could. Any possible conflict arose because of the duties Mr Mezzatesta owed to Cronulla. But he owed those duties as a director. It is unclear how the nature and scope of those duties relevantly differed because he was also an employee of the club.

4. [38]

   The suggestion appears to be that the remuneration to which Mr Mezzatesta was entitled and the likely basis of its calculation gave him a financial incentive to act in the interests of Cronulla. But even accepting that that is the case, the existence of that additional incentive did not affect the potentiality or materiality of any conflict. Any conflict arose from the duties that Mr Mezzatesta owed to Cronulla and the scope and nature of those duties did not depend on Mr Mezzatesta’s remuneration. Moreover, the remuneration paid to a chief executive officer was only one incentive. In the present context, it might be thought that for many of those eligible to nominate for the position of an Appointed Director, team loyalty is likely to provide an incentive to act in the interests of a club which is at least as strong as remuneration.

5. [39]

   NSWRL submits that the Constitution should be interpreted as conferring on the board that was responsible for conducting the election the right to determine whether a person is eligible to stand for election and, in particular, whether the person meets the requirements of cl 31(m), at least if it acts honestly and reasonably in doing so. Any other interpretation is said to be unworkable, since it would lead to countless applications to the Court.

6. [40]

   I do not accept that submission. There is nothing in the Constitution which confers on the board the right to determine whether the requirements of the Constitution have been satisfied. Absent some specific provision to that effect, it is natural to read the Constitution as setting out the requirements of eligibility. If there is a dispute concerning those requirements, there is no reason why that dispute should not be resolved in the same way as any other dispute concerning the correct interpretation and application of a company’s constitution — that is, by the Court. There is nothing unworkable in that conclusion. It was open to Mr Mezzatesta to seek urgent relief from the Court when he was told that the board had concluded that he was ineligible to stand. The fact that he chose not to do so does not demonstrate that the available remedy is unworkable.

7. [41]

   ALRC contends that because Mr Mezzatesta was wrongly excluded from participating in the election, the election or appointment of Mr Gerard and Mr Politis itself was invalid, with the result that the appointment of the two Expert Directors and the Chairman was also invalid, leaving only the two Appointed Directors eligible for election by Regional Members. Consequently, it is said, the board of NSWRL cannot operate because there is no quorum.

8. [42]

   In my opinion, that submission must be rejected. An irregularity in the process by which the directors who were chosen to fill vacant positions on the board does not necessarily mean that those persons were not validly chosen to fill those positions.

9. [43]

   Courts have frequently had to consider the position where a body has not strictly followed the procedure for holding an election: see, for example, University of Technology Sydney v Gerrard [2001] NSWSC 368; Singh v Singh [2008] NSWSC 386; Ahmed v Chowdhury [2012] NSWSC 1452; Re Islamic Association Western Suburbs Inc [2015] NSWSC 638; Re Sri Guru Singh Sabah, Sydney Inc (The Sikh Association of Sydney) [2017] NSWSC 1092; Cambodian Buddhist Society of NSW v Meng Eang Thai [2017] NSWSC 1433. In that context, courts draw a distinction between provisions classified as mandatory and those classified as directory. As Kirby P explained in Rivers v Bondi Junction-Waverly RSL Sub-Branch Ltd (1986) 5 NSWLR 362 at 369:

10. [44]

    Of course, in the present case, there was not a failure to follow the required procedure for an election. Rather, a candidate was excluded from the election process. According to ARLC, that is significant because the result was that there was no election at all. In addition, ARLC points to the decisions in John v Korean Senior Citizens’ Society, 2021 BCSC 1637 and Andrews v Queensland Racing Ltd [2009] QSC 338, two cases where exclusion of one or more candidates resulted in the court holding the election invalid.

11. [45]

    However, no particular significance can be attached to the fact that the result was that there was no election. That simply followed from the fact that only three candidates were nominated for two positions, and one was thought to be ineligible to stand. Nor are the cases relied on by ARLC of much assistance. In both, multiple candidates were excluded in breach of the relevant constitution. In John v Korean Senior Citizens’ Society, in addition to the improper exclusions, there were a number of other procedural irregularities adopted, perhaps in bad faith, to manipulate the number of eligible candidates. In Andrews v Queensland Racing Ltd, the election depended on the preparation of a shortlist of at least four candidates selected by an independent consultant. However, the consultant proceeded on the basis that he could only nominate a maximum of four candidates, which involved a clear misreading of the constitutional provisions, a matter that was brought to the attention of the company but ignored. In the present case, only one candidate was excluded on a ground provided for in the Constitution and on the basis of legal advice obtained by the company. Although that resulted in no election, it is unclear what, if any, effect it had on the composition of the board.

12. [46]

    More fundamentally, the cases demonstrate that failure to comply with an election process does not lead to automatic invalidity of the results. Rather, the election is treated as valid unless a court determines otherwise. That determination must be made in proceedings brought by a person with standing to contest the outcome of the election, not a third party who simply claims that the invalidity of an election has contractual consequences.

13. [47]

    Moreover, even assuming that Mr Gerard and Mr Politis were not validly elected to the positions they assumed following the annual general meeting, it does not follow that NSWRL does not currently have a functioning board that is able to form a quorum and otherwise fulfil the duties and functions of a board of directors. Paragraph (b)(i) of the definition of “director” in s 9 of the Corporations Act 2001 (Cth) states that, unless the contrary intention appears, a “director” includes, “a person who is not validly appointed as a director if … they act in the position of a director …”. One consequence of this definition is that a person who acts as a director owes the duties imposed by the Act. Similarly, s 201M of the Corporations Act provides:

14. [48]

    It is unclear from the evidence whether Mr Politis has been replaced. However, it seems to be accepted that the other six directors (including the Chairman) continue to act (unchallenged by any person with standing to do so) as directors of NSWRL. Consequently, they are treated as directors for the purposes of the Corporations Act and acts they take as members of the board are effective notwithstanding any invalidity in their appointment. Consequently, it is not correct to say that NSWRL does not have a functioning board or a board that is incapable of acting.

15. [49]

    ARLC submits that as a consequence of what has happened, NSWRL cannot fulfil its functions under the Services Agreement. But why that is so is unclear. ARLC has not attempted to identify the particular Services set out in the schedule to the agreement that cannot or have not been performed to the standards set out in cl 3.1 of the agreement. It is not suggested that the persons who occupy the positions as directors of NSWRL lack the necessary qualifications or experience to supervise the provision of those services by the company.

16. [50]

    ARLC submits that NSWRL’s failure to comply with its own Constitution and the standards of proper corporate governance itself amounts to a breach of cl 3.1. Mr Walker SC, who appeared for the ARLC, summed the point up in oral submissions in this way:

17. [51]

    In this context, Mr Walker pointed particularly to the keeping of books and the making of appropriate prudential provisions with respect to liquidity and proper record keeping, all of which were said to be very relevant to whether a board is duly appointed.

18. [52]

    In making that submission, Mr Walker also called in aid what was said to be the relationship between ARLC and NSWRL. ARLC was the paramount body which, following the agreements in 2012, was entrusted with the proper administration and the promotion and success of Rugby League in Australia. In that position, it was to be understood as having a supervisory role, largely through its control of funding over subordinate bodies, including the NSWRL.

19. [53]

    Three points may be made about these submissions. First, whatever may be said about the supervisory role of the ARLC, the question in this case is whether NSWRL is in breach of cl 3.1 of the Services Agreement. No doubt, the Services Agreement is to be interpreted “by reference to its text, context (the entire text of the contract as well as any contract, document or statutory provision referred to in the text of the contract) and purpose” as well as “the circumstances addressed by the contract and the commercial purpose or objects to be secured by the contract”: Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104; [2015] HCA 37 at [46]–[47] per French CJ, Nettle and Gordon JJ. But that does not mean that the ARLC has some general right of supervision in relation to provision of the Services leading to a right of termination beyond what is conferred by the agreement.

20. [54]

    Second, the question that cl 10.2 relevantly requires to be addressed is whether there has been 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 a failure has been increased. In the present context, that required ARLC to identify at the time it served its notice how the provision of the Services fell short of the requirements of cl 3.1. It does not do that by identifying risks or possibilities arising from the way in which the board of NSWRL was constituted that could have that result.

21. [55]

    Third, it is not difficult to conceive of cases where the corporate governance of NSWRL has failed to an extent which means that it is unable to comply with its obligations under cl 3.1 of the Services Agreement. But that is not this case. The question was raised with the board whether Mr Mezzatesta was eligible to stand for election. The question having been raised, the board quite properly sought legal advice on it. The board acted on that advice. There is no suggestion that the advice was not sought or given in good faith. The board properly concluded that no election was necessary in circumstances where only two candidates remained. No challenge has been made to any of the persons who currently act as directors of NSWRL by any person with standing to do so. And, as I have said, no attempt has been made to identify particular conduct engaged in by those who occupy the position of director which means that NSWRL falls short of its obligations under cl 3.1 of the Services Agreement.

22. [56]

    It follows that the NSWRL was not in breach of the Services Agreement at the time ARLC sent its notice dated 5 April 2022 and, to the extent that that notice purports to be a notice for the purposes of cl 10.2(c) of the Services Agreement, it is ineffective.

23. [57]

    There is a question of what relief, if any, NSWRL is entitled to. By an Amended Summons filed on 2 May 2022, the only relevant relief sought by NSWRL is a declaration that “in the events that have transpired as set out in the Commercial List Statement, the Plaintiff has not breached the Services Agreement”.

24. [58]

    It may be that the declaration would be better framed as a declaration concerning ARLC’s right to terminate the Service Agreement in the events that have happened. That point aside, ARLC submits that there is no utility in granting a declaration. It may or may not serve a notice terminating the agreement. If it does not, no issue arises. If it does, NSWRL has a choice. It could accept the notice as a wrongful repudiation of the contract, terminate the contract and sue for damages. Alternatively, it could affirm the contract and seek whatever other relief it is entitled to. In either event, a declaration would serve no purpose.

25. [59]

    In my view, a declaration would serve some utility. As things stand, the Services Agreement remains on foot. I have concluded that ARLC is not entitled to terminate it. That conclusion affects the legal rights and obligations of the parties and may affect the future course of the relationship between them. It is appropriate, therefore, that the conclusions of the Court are expressed in the form of a formal declaration.

Is ARLC in breach of the Services Agreement or New Members Agreement?

1. [60]

   Originally, it was NSWRL’s position that ARLC had impliedly approved the budget for the current financial year at the level of the budget for the previous year by continuing to fund NSWRL notwithstanding that no formal approval had been given. On that basis, it claimed to be entitled to receive and to continue to receive monthly payments from ARLC equivalent to the monthly payments that it had received up until ARLC’s letter dated 5 April 2022. By its Amended Summons, it sought a declaration to the effect that ARLC was in breach of the Services Agreement and New Members Agreement by failing to make those payments together with orders requiring ARLC to continue to make monthly payments to it in an amount equal to the Approved Funding for the Financial Year ended 31 October 2021.

2. [61]

   During the course of the hearing, Mr Newlinds SC, who appeared for NSWRL, all but conceded that NSWRL could not maintain a claim for that relief in light of the evidence. The fact that ARLC has provided funding to NSWRL since October 2021 could not amount to an implied approval of a business plan and budget when no business plan and budget had been submitted before 17 December 2021 and the parties were in discussions concerning that business plan up until the end of February 2022. The proper characterisation of the payments up until that time is that they were interim payments pending approval of the business plan which were made at the discretion of ARLC. It was not suggested that ARLC did not have the right to make payments of that type.

3. [62]

   That leaves the question whether ARLC is in breach of the Services Agreement or the New Members Agreement by refusing to provide further funding and whether, if it is, the Court should make a declaration to that effect.

4. [63]

   Absent a failure to provide funding in accordance with an approved business plan, no breach on the part of ARLC was clearly articulated by NSWRL. It may be that it is an implied term of the New Members Agreement and Services Agreement that ARLC act in good faith or reasonably in considering and approving NSWRL’s business plan and budget; and it may be arguable that it would be a breach of that duty if the sole or dominant reason ARLC had for refusing its approval was NSWRL’s failure to hold a new election or if ARLC delayed unreasonably in making a decision in relation to funding. But none of that is pleaded and such a case may depend on events which are yet to occur. Moreover, as Mr Walker correctly pointed out, such a case could only ever sound in damages. It would not be possible for the Court to order specific performance of an obligation to act in good faith or reasonably; and any declaration would serve no utility when NSWRL’s remedy sounds in damages.

Orders

1. [64]

   It follows that NSWRL is entitled to a declaration in its favour concerning the question whether it has breached the Services Agreement. It is not entitled to any other relief.

2. [65]

   It is appropriate to give the parties a period of time to see whether they can agree on a form of declaration that gives effect to these reasons for judgment and on the questions of costs.

3. [66]

   Accordingly, the Court makes the following orders:

   1. (1)

      Direct that within 21 days of the date of these reasons for judgment, the parties bring in short minutes of order that give effect to these reasons for judgment and, if costs can be agreed, deal with the question of costs;

   2. (2)

      If the parties cannot agree on the form of orders to be made by the Court (including in relation to costs), direct that: