Rugby Fractures

Western Australian Rugby Union v Australian Rugby Union Ltd [2017] NSWSC 1174

Such is the level of fracture amongst various members of the Australian rugby fraternity, even Hammerschlag J opined in dismissing the appeal by Western Australian Rugby Union against the decision of an independent arbitrator to uphold their axing by the Australian Rugby Union that both parties “were supposed to be allies, but they were not friends”.

Background

The Australian Rugby Union (ARU) is the governing body for Rugby in Australia and is a member of SANZAAR, an international joint venture between the national rugby unions of South Africa, New Zealand, Australia, and Argentina. SANZAAR is responsible for operating the Rugby Championship (International) and the Super Rugby Competition, a professional competition between franchises or unions of SANZAAR members licensed by their respective national rugby unions. SANZAAR’s commercial responsibilities include the negotiation, and renegotiation, of existing and future broadcast agreements and their terms.

In 2017, SANZAAR decided that the 18 teams competing in the Super Rugby Championship would be culled to 15 and that at least one team from Australia would be cut.

Facts

On 2 June 2016 and under a cloud of financial uncertainty, WARU and the ARU entered into an Asset Sale Agreement whereby the ARU bought the Western Force from the WARU. Subsequently, the ARU and WARU entered into an Alliance Agreement to govern the operation, funding, and development of Rugby in Western Australia.

It was agreed between WARU and the ARU that the Alliance Agreement, pursuant to clause 1.1, would end:

  1. ‘on the expiry date of the last of the SANZAAR Broadcast Agreements (being 31 December 2020); or
  2. subject to clause 2.4, if the last of the SANZAAR Broadcast Agreements is terminated or renegotiated earlier as a result of the renegotiation of the commercial terms of a broadcast arrangement, such earlier date.’

Following the decision by SANZAAR to cut the Super Rugby Competition to 15 teams, in July 2017 members of SANZAAR (including ARU) commenced a process of renegotiating the SANZAAR Broadcast Agreements. These renegotiations were completed on 19 July 2017, though the period of the SANZAAR Broadcasting remained unchanged with an expiry date of 31 December 2020.

The ARU, construing the Alliance Agreement with WARU at an end because “the last of the SANZAR Broadcast Agreements” had been “renegotiated earlier as a result of the renegotiation of the commercial terms of a broadcast arrangement,” decided to cut the Western Force from the Super Rugby Competition.

In arbitration, the WARU argued that where the definition of ‘Term’ pursuant to clause 1.1 of the Alliance Agreement refers to the last of the SANZAAR Broadcast Agreements being “renegotiated earlier” and to the term ending on “such earlier date”, the renegotiation must have the effect of bringing forward the expiry date of the SANZAAR Broadcast Agreements. As the expiry date of the SANZAAR Broadcast Agreements was unaffected, the WARU argued that the term of Alliance Agreement remained on foot and that the ARU had no authority to cut them from the Super Rugby Competition.

The arbitrator rejected WARU’s contention that “renegotiated earlier” actually meant “renegotiated to end earlier” and instead held that the words “such earlier date” as they appear in clause 1.1. refer to the time when the earlier renegotiation of the last of the SANZAR Broadcast Agreements happened, as they did on 20 July 2017. As such, the arbitrator declared that the Alliance Agreement ceased to be in effect and terminated no later than 20 July 2017.

WARU Appeal to NSWSC

An appeal by WARU against the decision of an independent arbitrator to uphold the ARU’s axing of the Western Force was granted and brought to the NSW Supreme Court on a question of law.

Judgment

Hammerschlag J offered that the case was a simple matter of contractual interpretation and that the Alliance Agreement should be construed through applying the objective theory of contract.

Hammerschlag J also offered that in some complex commercial arrangements the background context and intentions of the parties can be considered. In this case, however, evidence of surrounding circumstances “is not admissible to contradict the language of the contract when it has plain meaning”[1] and interpreting the definition of Term in the Alliance Agreement was not open to objective extraneous material given the contract itself created the necessary context.

For Hammerschlag J, the words “such earlier date” in the definition of the Term were to be read in context of the default position that the Alliance Agreement would end on the expiry date of the last SANZAAR Broadcast Agreements (31 December 2020), and that this default position would only be displaced if the SANZAAR Broadcast Agreement was renegotiated earlier. According to Hammerschlag J, the words “such earlier date” can’t be read as meaning anything other than an earlier date of termination or renegotiation, and that if the parties intended for the Term to end only upon expiry or early termination of the last of the SANZAR Broadcast Agreements, rather than the renegotiation of the commercial terms of a broadcast agreement, they could have easily said so.

Hammerschlag J declared that it is not for the court to weigh the importance of conditions which parties choose to put into their contract.[2]The application of the words as written in the agreement meant the arbitrator’s finding that the Alliance Agreement ended with the renegotiation of the SANZAAR Broadcast Agreements, was legally correct. Consequently, the ARU, as unconditional owners of the Western Force and acting within their rights pursuant to the Alliance Agreement, had the right to cut the team from the Super Competition.

Summary

Hammerschlag J proffered that in construing contractual terms, recourse to background material is permissible where it is necessary to resolve the meaning of the words which parties choose to express their agreement. However, where the terms of the instrument unambiguously disclose the context, purpose, and objects of the contractual arrangement, the court is to determine objectively what a reasonable person would have understood the term, clause or condition in question to mean.

[1] Codelfa Construction v State Rail Authority (NSW) (1982) 149 CLR 337 at 350-352

[2] Bowes v Chaleyer (1923) 32 CLR 159 at 191

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