Can your contractual obligations be assigned or subcontracted?
The Supreme Court of New South Wales recently handed down its decision in Advanced National Services Pty Ltd v Daintree Contractors Pty Ltd  NSWCA 270, which considered when a party is required to perform contractual obligations personally and when it can subcontract or assign these obligations to others.
Advanced National Services Pty Ltd (Advanced) brought proceedings in the District Court against Daintree Contractors Pty Ltd (Daintree), claiming money owing under a contract or, in the alternative, damages for breach of contract. Under the relevant contract, Advanced was to provide cleaning services for Daintree.
At trial, both parties agreed that around 90 per cent of the cleaning services had in fact been performed by subcontractors engaged by Advanced. The primary judge, Abadee DCJ, found that this was a breach of an express clause of the contract, which prohibited Advanced from assigning or subcontracting any part of the contract without Daintree’s written consent. His Honour rejected Advanced’s contention that the relevant clause had been amended, or that Daintree had acquiesced in Advanced hiring subcontractors. He also referred to other clauses of the contract which required Advanced to obtain workers compensation insurance. Such insurance would only cover employees of Advanced and accordingly, the engagement of subcontractors denied Daintree the protections contemplated by the contract.
Abadee DCJ found that Advanced was only entitled to around 10 per cent of the sum it claimed, representing the cleaning services Advanced itself had performed. Advanced appealed the trial decision to the Supreme Court, seeking the balance of its claim.
Gleeson JA (with whom White JA and Barrett AJA agreed) identified the key question in the appeal as being whether Advanced had “earned” the sum it claimed by the date that the contract was terminated.
Advanced argued it was entitled to payment, as it had substantively performed its contractual obligations. Despite having hiring subcontractors, it argued that it had nevertheless “performed all of the Cleaning Services” as the contract required it to do.
On reviewing the authorities, Gleeson JA noted that “in appropriate circumstances, recognition will be given that the relationship between contracting parties must be personal”. This may be because the contract involves an element of personal confidence, or because performance requires a particular personal skill. His Honour noted in particular the statement by Isaacs J in Bruce v Tyley (1916) 21 CLR 277, that a party may insert into a contract “a distinct intimation…that no sub-letting or substitution be permitted”.
The contract between the parties included an explicit clause to this effect. Advanced was not to subcontract or assign any part of the contract without the consent of Daintree. Several other clauses in the contract also contemplated that Advanced would itself perform the services: Advanced was required to submit to audits by Daintree, provide monthly reports on the services and obtain workers compensation insurance covering its employees.
The appeal was dismissed.
The case provides a useful illustration of the factors relevant in determining whether contracts for services forbid subcontracting or assignment, either expressly or implicitly.
The full decision can be found here.