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

1. [1]

   BELL CJ:

Introduction

1. [2]

   The New South Wales Rugby League Limited (NSWRL) is a member of the ARLC. Clause 6(c) of the ARLC Constitution provides for the ARLC to delegate some of its functions in relation to the administration of rugby league in Australia to state bodies such as the NSWRL. One such function delegated to the NSWRL is the management and administration of one or more matches each year of the high profile annual State of Origin competition between teams representing New South Wales and Queensland. This delegated function is governed by an agreement dated 10 February 2012 between the ARLC and the NSWRL (the Services Agreement).

2. [3]

   By proceedings commenced on 22 April 2022, the NSWRL sought interlocutory and declaratory relief in relation to the Services Agreement in circumstances (described more fully below) where it apprehended that the ARLC would move to terminate the Services Agreement unless certain alleged defaults were rectified. The ARLC had communicated this possibility by letter dated 5 April 2022, the letter purporting to be formal notice pursuant to cl 10.2(c) of the Services Agreement (the Notice). The detail of the letter is also set out further below.

3. [4]

   On 13 May, Ball J (the primary judge) decided that the NSWRL was entitled to a declaration concerning whether it had breached the Services Agreement: New South Wales Rugby League Limited v Australian Rugby League Commission Limited [2022] NSWSC 570 (primary judgment or PJ) at [64]. By order dated 9 June 2022, the primary judge declared that, at the time the ARLC sent the Notice, the NSWRL was not in breach of the Services Agreement on the basis set out in the Notice.

4. [5]

   The ARLC seeks leave to appeal from that decision. Leave is said to be required because the primary judgment does not involve a matter at issue, claim, demand or question of the value of $100,000 or more: s 101(2)(r) Supreme Court Act 1970 (NSW). To the extent that leave is required, it should be granted but, for the reasons set out below, the appeal should be dismissed. The primary judge was correct in his conclusion that the NSWRL was not in breach of the Services Agreement at the time of the Notice.

5. [6]

   The relevant facts as found by the primary judge are not in dispute and, given that fact and that this matter emanates from the Commercial List where it was determined with the customary expedition, it is most convenient and efficient to reproduce the findings below in so far as they remain relevant to the matters sought to be raised on the appeal, supplementing them where necessary by reference to clauses of the various agreements governing the parties’ relationship, clauses of the NSWRL constitution (the Constitution) and correspondence between the parties.

The facts

1. [7]

   The 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, the NSWRL, Queensland Rugby Football League Limited (QRL) and each of the 16 clubs that field a team in the National Rugby League (NRL) competition, the premier rugby league competition in Australia. As part of its functions, ARLC is entitled to collect most of the revenue generated by the NRL competition and State of Origin matches played between New South Wales and Queensland, including all media, broadcast, sponsorship, merchandising and venue rights.

2. [8]

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

3. [9]

   By the Services Agreement, the ARLC appointed the 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).

4. [10]

   The "Services" are described in the schedule to the Services Agreement in the following terms:

5. [11]

   Clause 3.1 of the Services Agreement provides that:

6. [12]

   Clause 10 of the Services Agreement 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:

7. [13]

   Clause 19.3(a) of the Services Agreement provides that that agreement “expresses and incorporates the entire agreement between the Parties in relation to its subject-matter, and all the terms of that agreement”.

8. [14]

   A separate contractual agreement between the parties, also dated 10 February 2012, is what was described as the New Members Agreement.

9. [15]

   By cl 4.2(a) of the New Members Agreement, the 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".

10. [16]

    Clause 5.6 of the New Members Agreement concerns the provision of adequate funding by the ARLC to the NSWRL and QRL, while cl 5.7 requires the NSWRL and QRL to provide annual business plans and budgets to the ARLC, along with other relevant information on request.

11. [17]

    Under its Constitution, the Board of the 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 the 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.

12. [18]

    Clause 31 of the Constitution relevantly provides:

13. [19]

    Appendix C of the Constitution provides detailed rules governing elections.

14. [20]

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

15. [21]

    Clause 47 of the Constitution provides:

16. [22]

    The 2021 financial year of the NSWRL ended on 31 October 2021. In December 2021, the 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.

17. [23]

    On 20 January 2022, the 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 the 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 and seconded by Canterbury-Bankstown Bulldogs Rugby League Club Limited, both of whom are also members of the NSWRL.

18. [24]

    On 22 February 2022, Mr David Trodden, the Chief Executive Officer of the 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 the NSWRL.

19. [25]

    Following receipt of that email, Mr Trodden arranged to obtain advice from the NSWRL's lawyers, Advocatus. 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 the 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.

20. [26]

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

21. [27]

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

22. [28]

    There was then correspondence between the NSWRL’s solicitors and 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.

23. [29]

    Notwithstanding that correspondence, Mr Mezzatesta did not take any legal steps in relation to his exclusion (nor, on the evidence, did the Clubs which nominated him) and the NSWRL proceeded on the basis that he was not entitled to stand.

24. [30]

    The minutes of the annual general meeting held on 25 February 2022 relevantly record:

25. [31]

    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 the NSWRL, Mr Bob Millward OAM, who was entitled to attend the meeting, although not a director and not entitled to vote. 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.

26. [32]

    Between 4 March 2022 and 23 March 2022, the ARLC and the NSWRL exchanged correspondence which was summarised in the ARLC’s written submissions on appeal as follows (footnotes omitted):

27. [33]

    On 5 April 2022, the ARLC sent Advocatus a letter in which it 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:

28. [34]

    The reference to cl 4.2 of the New Members Agreement appears to be an error. As noted above, the clauses of the New Members Agreement governing funding are cll 5.6 and 5.7.

29. [35]

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

30. [36]

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

31. [37]

    The matter could not be resolved by the parties and, on 22 April 2022, the NSWRL commenced the proceedings seeking interlocutory and declaratory relief.

The primary judgment

1. [38]

   The primary judge identified three issues. First, was Mr Mezzatesta improperly excluded from the election of Appointed Directors? Second, if he was, did that mean that the appointment of all directors other than the two Appointed Directors elected by Regional Members was invalid? And third, even if Mr Mezzatesta's exclusion did have that consequence, was the NSWRL in breach of cl 3.1 of the Services Agreement in the way asserted in the Notice?

2. [39]

   The primary judge held, in a finding that was not challenged by the NSWRL, that Mr Mezzatesta was not disqualified from nominating for the position of a director of the NSWRL because he was the chief executive officer of a member club. His Honour was of the view that Mr Mezzatesta did not have the disqualifying characteristic referred to in cl 31(m) of the NSWRL Constitution, that is to say, he did not have a "potential material conflicting interest with the interests of the Company".

3. [40]

   The primary judge also rejected the NSWRL’s submission 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 met the requirements of cl 31(m) of the Constitution, at least if it acted honestly and reasonably in doing so. Again, there is no challenge to this finding.

4. [41]

   His Honour, however, observed that there was no question but that the NSWRL had acted in good faith in excluding Mr Mezzatesta for election, seeking and acting as it did on the advice of its lawyers.

5. [42]

   His Honour then noted but rejected the contention of the ARLC 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 (which involved the participation of Mr Gerard and Mr Politis) was also invalid, leaving only the two Appointed Directors eligible for election by Regional Members. Consequently, the ARLC contended, the Board of the NSWRL could not operate because there was no quorum.

6. [43]

   The primary judge held that an irregularity in the process by which the directors were chosen to fill vacant positions on the Board did not necessarily mean that those persons were not validly appointed to fill those positions: PJ [42]. After a discussion of various authorities, his Honour also noted at PJ [47] that:

7. [44]

   His Honour then referred to paragraph (b)(i) of the definition of “director” in s 9 of the Corporations Act 2001 (Cth), which 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 …”, and said that “[o]ne consequence of this definition is that a person who acts as a director owes the duties imposed by the Act.”

8. [45]

   As reflected in the declaration that he ultimately made, in relation to the third of the issues noted at [38] above, namely whether the NSWRL was in breach of cl 3.1 of the Services Agreement as at the date of the Notice (being 5 April 2022), the primary judge observed that the ARLC had not attempted to identify the particular services set out in the schedule to the Agreement that could not or had not been performed in breach of cl 3.1. His Honour pointed out that it was not suggested that the persons who in fact occupied the positions of directors of the NSWRL lacked the necessary qualifications or experience to supervise the provision of those services by the NSWRL (whether validly appointed or not).

9. [46]

   The primary judge observed that the ARLC did not have some general right of supervision in relation to the provision of the Services under the Services Agreement giving rise to a right of termination beyond that which was conferred by that agreement: PJ [53]. He continued:

Grounds of appeal

1. [47]

   The ARLC seeks leave to appeal from the decision of the primary judge on the following four grounds:

   1. (1)

      The trial judge erred in holding (at PJ [41]-[45]) that the wrongful exclusion of Dino Mezzatesta from the election of the Appointed Directors of the Metropolitan Members for the Board of the respondent held on 25 February 2022 did not have the result that the purported election of the Appointed Directors of the Metropolitan Members, and the subsequent appointment of the Expert Directors, was invalid.

   2. (2)

      The trial judge erred in holding (at PJ [46]) that the election was not invalid unless declared by the Court as such following a challenge by a person with standing to contest the outcome of the election.

   3. (3)

      The trial judge erred in holding (at PJ [47]-[48]) that the acts of any of the Directors were valid despite any invalidity in their appointment by reason of s 201M of the Corporations Act.

   4. (4)

      The trial judge erred in holding (at PJ [49]-[59]) that the invalidity of the elections of the Appointed Directors for the Metropolitan Members and/or the appointment of the Expert Directors and/or the absence of a quorum for the Board of the NSWRL and/or the failure of the NSWRL to follow the ARLC’s reasonable and lawful instructions did not have the result that the NSWRL was in breach of the Services Agreement.

Consideration

1. [48]

   It was properly and candidly accepted by Mr Walker SC, who appeared with Mr Oliver Jones for the ARLC, that unless he could succeed on the fourth ground of appeal, any appeal must fail and that, if this were so, it was not necessary to deal with the other grounds of appeal. That is to say, even if the Court were to accept for the sake of argument that the ARLC should succeed on grounds 1-3, if a consequence of there being no validly elected board of the NSWRL was not to put the NSWRL in breach of its obligations under cl 3.1(b) of the Services Agreement, and if the failure to satisfy the ARLC’s demands for the provision of information as set out in the correspondence digested at [32] did not amount to a breach of cl 3.1(c), the appeal could not succeed. If this were the case, it was not necessary to deal with appeal grounds 1-3.

2. [49]

   In my opinion, the primary judge was correct in concluding that the NSWRL was not in breach of either of these obligations under cl 3.1 of the Services Agreement as at the date of the Notice and that this was so whether or not the NSWRL Board, which was undoubtedly functioning, had been validly appointed.

3. [50]

   Clause 3.1(b), set out above, required the NSWRL to provide the Services efficiently, with due care and skill and to the best of its knowledge and ability.

4. [51]

   A breach of this obligation would require the identification of some aspect of the provision of the Services by the NSWRL that did not comply with or satisfy the requirements of cl 3.1(b).

5. [52]

   As the primary judge pointed out, the ARLC did not provide or point to any instance of the provision of Services which it contended had been or were in the course of being provided deficiently (to express the matter compendiously). As the primary judge observed, it was not submitted that the actual composition of the Board was such as to adversely affect the quality or competence of the provision of the Services by the NSWRL. In short, at least on the evidence led before the primary judge as to the actual provision by the NSWRL of the Services, any issue as to the validity of the appointment of the Board, its composition and performance and indeed its very existence (Mr Walker contending that there was in fact no validly appointed Board) did not bear upon the NSWRL’s discharge of its contractual obligations.

6. [53]

   The persons acting as directors of the NSWRL, whether validly elected or appointed or not, were, by virtue of s 9 of the Corporations Act, subject to the duties of due skill and diligence imposed by s 180 and 181 of that Act. Moreover, it is reasonably arguable (and in any event not necessary to decide in light of my conclusions as to breach) that cl 47 of the NSWRL’s Constitution, which in terms applies in circumstances where it is afterwards discovered that there was some defect in the appointment of a director, would also apply in the circumstances of the present case to validate the acts of Mr Politis and Mr Gerard following their election to the Board of the NSWRL. These acts included participation in the appointment of the Expert Directors and the appointment of the Chairman, thus resulting in a Board that would be quorate and able to function.

7. [54]

   In short, there was no evidence or basis for submitting that the NSWRL was unable to perform the Services as at the date of the Notice because of a question raised by the ARLC (which was not a member of the NSWRL) as to the validity of its recent election.

8. [55]

   As the NSWRL submitted, it would be a strange and uncommercial approach to the construction of commercial contractual obligations were a company to be held in breach of contract if some directors were to resign, such that it could not convene a quorum of directors, notwithstanding that its contractual obligations continued to be performed by its other employees, servants or agents. In this context, attention was drawn to cl 3.2 of the Services Agreement which expressly contemplates that the NSWRL would engage “personnel” who possess the “skill, competence and experience necessary” to perform the Services, and to the fact that there is no suggestion that this provision has been breached.

9. [56]

   I agree with the primary judge’s conclusion that 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 a failure has been increased”: PJ [54].

10. [57]

    Turning to the alleged breach of cl 3.1(c), it will be recalled that by that clause the NSWRL agreed to provide the Services “in accordance with all reasonable and lawful instructions and directions given to the Contractor by the ARL Commission from time to time”.

11. [58]

    The ARLC submitted that the essence of the correspondence that has been summarised at [32] above was that the ARLC instructed the NSWRL:

    1. (1)

       to cooperate with the ARLC’s investigation into the NSWRL Board elections;

    2. (2)

       to provide documents and information relevant to that investigation; and

    3. (3)

       to conduct fresh elections for the NSWRL Board

12. [59]

    It was submitted that these instructions were reasonable and lawful in a context where the ARLC, as the single controlling body and administrator of rugby league in Australia, was an appropriate person to conduct that investigation and “there was no justification at all for the NSWRL refusing to cooperate with the ARLC in carrying out a review of the election process.” The ARLC emphasised that the words “management” and “administration” in the definition of Services in the schedule to the Services Agreement were of wide import.

13. [60]

    The short point in response is that the NSWRL’s obligation under cl 3.1(c) of the Services Agreement to comply with “all reasonable and lawful instructions and directions” of the ARLC is not at large or in the abstract but is in connection with the provision of the Services. 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. That subject matter was the management, administration and staging of “one or more State of Origin matches”.

14. [61]

    The “directions” or “instructions” purportedly given by the ARLC in the suite of correspondence between the parties summarised at [32] above were not in relation to that subject matter.

15. [62]

    The ARLC’s correspondence with the NSWRL and its subsequent arguments on this issue, both at first instance and on appeal, appear to have been predicated on a view that the NSWRL was obliged to comply with the ARLC’s directions and instructions at large and was subject to a general supervisory control by the ARLC. This view of the world is not sustained by the terms of the Services Agreement. This is in essence what the primary judge held and he was, in my opinion, absolutely correct in so doing.

16. [63]

    For the above reasons, it is not necessary to address grounds 1-3. In the circumstances, it is also appropriate not to do so in light of the fact that the ARLC is not a member of the NSWRL. The fact that the NSWRL is a member of the ARLC does not mean that the ARLC has standing to challenge the validity of the election of the NSWRL Board of directors. The question whether it was still open in the proceedings (which had been commenced by the NSWRL) for the ARLC to challenge the validity of the election by way of its defence to the claim for declaratory relief is not necessary to decide.

17. [64]

    I would grant leave to appeal, but dismiss the appeal with costs.

18. [65]

    MEAGHER JA: I agree with Bell CJ.

19. [66]

    SIMPSON AJA: I agree with Bell CJ.