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The following Article is from Bruce Gotterson’s regular article in Club Life

Contracting with a catering company

So the Club has decided to contract out its catering operations.  You are about to seek tenders to source the right caterer for your club.

During discussions at a Board meeting one of the directors suggest, “We should ask the club’s solicitor if we need to put any special clauses in the catering contract in case the caterer is a company”.  The Board agrees and instructs the CEO to check this out.

There are a number of issues to consider when contracting with a company.  I want to deal with 2 particularly important ones in this month’s and next month’s column.

The first is whether the club should get the directors of the company to personally guarantee the obligations and promises the caterer is going to make in the Agreement.

A company is a separate legal entity just like an individual.  It can enter into contracts and be legally bound to an agreement just like an individual is when he or she enters into a legally binding agreement.

If the contract is only with the company then if something goes wrong and say the caterer cannot pay the catering fee then the club can only take legal action against the company.  If the company has no money or assets then even if the club sues and gets a judgment it will not be able to get compensated unless of course the company was trading whilst it was insolvent in which case the liquidator of the company may have some claim against the directors personally.  However, in the normal course of events the club cannot take action against the directors.  However, if the directors have personally guaranteed the obligations of the company under the catering agreement then the Club could seek to recover the unpaid catering fee from the individual directors who have given the guarantee.

It is not only unpaid catering fees which the club could seek to recover.  If the contract requires the caterer to replace cooking equipment if it is damaged due to the caterer’s employee’s negligence then the club could seek to recover that against the directors under the guarantee.

The agreement may also require the caterer to take out public liability insurance to cover persons who may be injured in the dining area and to indemnify (which means to cover the cost of) the club if someone is injured.  Take the example where one of the caterer’s employees spills a slippery substance on the floor in the dining area and a member slips and is injured.  The member may require ongoing medical treatment which will put them out of pocket.  They may take legal action against the club.  The club could turn to the caterer and rely on the indemnity.  If the caterer has public liability insurance then the insurance should cover the ongoing cost.  However, if the caterer did not have insurance or had let the cover it had in place lapse then the club would be left with the indemnity from the caterer.  If the caterer had no assets the club could be left defending legal proceedings with no prospect of recovery against the caterer.  Now the club would have its own insurance which it could rely on and at the end of the day, if the club was not negligent then it should be able to successfully defend such a claim but it would be best to be able to avoid this type of scenario by obviously making sure the caterer has current and adequate insurance and the directors of the catering company have given guarantees.

In summary, when a club decides to contract with an outside service provider which is a company, the club can reduce the risks associated with the contract by ensuring that it contains a personal guarantee from the company’s directors.

For advice on catering agreements or other contracts which your Club is considering entering into please contact Bruce Gotterson at b.gotterson@pigott.com.au.

This article is intended to provide general information in summary form on a legal topic, current at the time of publication.  The contents do not constitute legal advice and should not be relied on as such. Formal legal advice should be sought in specific circumstances.