Entitlement to payment when an unauthorised subcontractor performed a cleaning obligation
In this case, the New South Wales Court of Appeal considered whether a cleaning services provider, Advanced National Services Pty Ltd, which had breached the terms of its contract with Daintree Contractors Pty Ltd by using unauthorised subcontracted labour, was entitled to the contract price for cleaning services those subcontractors had undertaken.
The court held that, on the proper construction of the contract, Advanced could not discharge its performance obligations other than by undertaking the cleaning services personally or by use of an authorised subcontractor. It followed that Advanced had not 'earned' the whole contract price because it had not performed the services itself (or through an authorised subcontractor).
This case affirms the principle that the question whether personal performance of a contract is required is one of construction of the contract, and that personal performance may be required even in circumstances where performance of the contract requires no specific personal skill. To avoid the risk of non-payment or termination of the contract, close attention should always be paid to the terms of the contract dealing with performance obligations and conditions on which work is to be performed.
Facts
Advanced entered into an agreement with Daintree to 'perform' commercial cleaning services in relation to various client premises for an agreed monthly fee. In breach of the terms of the agreement, Advanced engaged subcontractors to perform about 90% of the cleaning services on its behalf, without obtaining prior written approval from Daintree. Specifically, clause 4.5 of the contract:
- prohibited any part of the contract being assigned or subcontracted to any other person or entity without Daintree’s prior written approval; and
- entitled Daintree to terminate the contract immediately without notice for breach, with no obligation to compensate the contractor from that date.
While there was no issue with the quality of the cleaning services provided, Advanced had not obtained Daintree's prior written consent to use subcontractors to perform the cleaning services. On this basis, Daintree had not paid all the invoices Advance issued and later terminated the contract without prior notice.
Advanced commenced proceedings in the District Court for $368,876.90 plus interest, or damages for breach of contract in the alternative, for unpaid cleaning services, on the basis that Daintree had received the benefit of those services irrespective of who had performed the cleaning services. No claim was made in restitution based on a quantum meruit. The court at first instance held that Advance had breached clause 4.5 and was only entitled to judgment against Daintree for $47,660 including interest for unpaid cleaning services (about 10% of the sum Advanced had claimed).
Advanced appealed the decision. The primary question on appeal was whether Advanced had ‘earned’ the whole of the sum it claimed at the date Daintree terminated the agreement. This question turned on whether, as a matter of construction of the contract, the performance obligations were personal to Advanced and therefore could not be performed vicariously through unauthorised subcontractors.
Judgment
The court dismissed the appeal with costs. It held that by using unauthorised subcontractors in breach of clause 4.5, Advanced had not 'performed' cleaning services according to the contract and that it had not earned the contract price for the cleaning services provided using subcontractors.
The court found that even though the performance of cleaning services did not require specific personal skill, the contract required the performance of cleaning services by Advanced 'in a particular manner, and on certain conditions'. Therefore, on the proper construction of the agreement, Advanced could not discharge its performance obligations other than by undertaking the cleaning services personally or by use of an authorised subcontractor. It followed that Advanced had not earned the contract price for the cleaning services provided by the use of unauthorised subcontracted labour.
The court pointed to various provisions in the agreement as supporting the construction of the contract that Daintree contended, including:
- clause 4.5 expressly prohibited assignment or subcontracting without Daintree's prior written consent;
- clause 2.1 required Advance to 'perform' the cleaning services (rather than to 'provide' or 'supply' cleaning services), and Daintree's payment obligation was dependent on Advanced having 'performed' the cleaning services; and
- the performance obligation could be discharged 'either by Advanced itself, or by Advanced using an authorised assignee or subcontractor'.
Other terms of the contract made it clear that Daintree placed great significance on the manner and conditions of performance of the cleaning services, with the intention that Advanced would perform them. These terms would be nugatory if Advanced could discharge its obligations through an unauthorised subcontractor.