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Jackson Nominees Pty Ltd v Hanson Building Products Pty Ltd

 

[2006] QCA 126

 

SUPREME COURT OF QUEENSLAND

 

PARTIES:

JACKSON NOMINEES PTY LTD ACN 079 608 834
(plaintiff/respondent)
v
HANSON BUILDING PRODUCTS PTY LTD (FORMERLY KNOWN AS PIONEER BUILDING PRODUCTS (QLD) PTY LTD)
ACN 009 687 521
(defendant/appellant)

FILE NO/S:

DC No 96 of 2000

Court of Appeal

PROCEEDING:

General Civil Appeal

ORIGINATING COURT:

DELIVERED ON:

21 April 2006

DELIVERED AT:

Brisbane

HEARING DATE:

6 March 2006

JUDGES:

Williams and Jerrard JJA and McMurdo J

Separate reasons for judgment of each member of the Court, Jerrard JA and McMurdo J concurring as to the orders made, Williams JA dissenting

ORDERS:

1.  Allow the appeal

2.  Set aside the judgment of the District Court and order the respondent to pay the costs of the appeal and the proceedings in that Court

CATCHWORDS:

CONTRACTS – CONSTRUCTION AND INTERPRETATION OF CONTRACTS – OTHER MATTERS – where the appellant owned a franchise business at Hervey Bay trading under the name PlastaMasta Hervey Bay – where the branch manager of PlastaMasta and his wife (trading as Fraser Coast Plastaboard Transport) provided the necessary transport for PlastaMasta using a tray-body truck – where the branch manager and his wife sold the transport business to the respondent (Hanson Building Products Pty Ltd) – where the appellant entered into a ‘Carrier’s Agreement’ with the respondent – this agreement intended to set out the broad areas of responsibility of the company and the carrier so that a mutually acceptable working relationship could be developed – less than two years later the appellant sold the business trading as PlastaMasta to Manmay Pty Ltd – this sale did not refer to the existence of the ‘Carrier’s Agreement’ and Manmay Pty Ltd declined to use the services of the respondent for the transporting of goods – whether the appellant, by selling the PlastaMasta business to Manmay Pty Ltd on the terms and conditions that it did, breached or repudiated the Carrier’s Agreement

Ansett Transport Industries (Operations) Pty Limited v The Commonwealth of Australia and Ors (1977-78) 139 CLR 54, considered

Australis Media Holdings Pty Ltd and Ors v Telstra Corporation Ltd and Ors (1998) 43 NSWLR 104, consideredv Butt v M’Donald (1896) 7 QLJ 68, considered

Carpentaria Investments Pty Ltd v Airs and Arnold [1972] Qd R 436, considered

Elders IXL Limited v National Employers’ Mutual General Insurance Association Limited (1988-1989) 5 ANZ Insurance Cases 60-847, considered

Hamlyn & Co v Wood & Co [1891] 2 QP 488, considered

Mackay v Dick and Anor (1880-81) 6 App Cas 251, consideredv Prenn v Simmonds [1971] 1 WLR 1381, cited

Thomas W Rhodes v George P Forwood and Walter Paton (1875-76) 1 App Cas 256, considered

Secured Income Real Estate (Australia) Limited v St Martins Investments Proprietary Limited (1979) 144 CLR 596, considered

COUNSEL:

C C Heyworth-Smith for the appellant

S J Keim SC for the respondent

SOLICITORS:

Lewis & McNamara for the appellant

Angelo Cominos & Associates for the respondent

[1]  WILLIAMS JA:  This appeal essentially involves the proper construction of a contract and the question whether, on its proper construction, the contract was breached by the appellant.  However, it is clear that in order to be properly understood and interpreted the contract in question must be considered in the light of "the matrix of facts in which [it was] set"; and as was also said by Lord Wilberforce in Prenn v Simmonds [1971] 1 WLR 1381 at 1385: ". . . evidence of the factual background known to the parties at or before the date of the contract, including evidence of the genesis and objectively the aim of the transaction" may be relevant to its proper construction.  See also Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451 at 462.  In consequence it is necessary to set out the factual background known to the parties before considering the terms of the actual contract.

[2] From 1992 the appellant, then known as Pioneer Building Products (Qld) Pty Ltd, owned a franchised business at Hervey Bay which traded under the name PlastaMasta Hervey Bay.  At all material times R D Daken was the branch manager of that business.  Prior to August 1997 Daken and his wife, trading as Fraser Coast Plastaboard Transport, provided the necessary transport for PlastaMasta Hervey Bay using a tray-body truck registration number 327-CLV.

[3] By contract dated 13 August 1997, Daken and his wife sold that transport business to the respondent for the total price of $100,000. That purchase price was apportioned $55,000 to the truck registration number 327-CLV and $45,000 to goodwill.

[4] Then on 16 September 1997 the appellant, under the hand of Daken, entered into a Carrier's Agreement with the respondent.  It is that agreement which is central to this litigation.

[5] Relevantly the Carrier's Agreement provides:

"The purpose of this document is to formalise an agreement between Pioneer Building Products T/A PlastaMasta Hervey Bay and owner driver Jackson Nominees (Qld) Pty Ltd T/A Fraser Coast Plasterboard Transport for the purpose of delivering Plasterboard and associated products to customers in the Hervey Bay and outer regions as prescribed on cartage rates list.

The agreement is intended to set out the broad areas of responsibility of the company and the carriers so that a mutually acceptable working relationship can be developed to provide the following benefits.

  • A reliable efficient delivery service for customers [at] competitive rates to assist the company to increase sales.

. . .

1.The number of lorry owners (sic) drivers will not be increased unless existing vehicles are unable to meet customer demands. In the event of sales increasing by Pioneer . . . beyond the carriers (sic) capacity, and a second truck is required, the first option would be offered to Jackson . . .  If at a later date Pioneer . . . has a down turn (sic) in sales it will be up to Jackson . . . to decide if to run second truck or sell same with no penalty to PlastaMasta.

. . .

3.Cartage rates will be reviewed in March each year and the increases are to be no more than the CPI figures of that year. 

4.Carriers are to provide and maintain in good working order and clean appearance, suitable trucks with minimum load capacity of eight tonnes.

5.That the company use of the truck for Pioneer Building Products T/A PlastaMasta and Pioneer deliveries will take precedence over all other uses and Jackson . . . agree to deliver Pioneer Building Products T/A PlastaMasta solely for the company, and no other person or manufacturer unless prior written agreement is obtained.  At times when there are limited deliveries available, the company may require the truck be used for other purposes at the hourly rate. 

6.This agreement will be in force for a term of four (4) years with an option to renew at the end of first four (4) years subject to Jackson . . . complying to all clauses of this agreement. 

7.Determination of loading and delivery priorities will be the sole responsibility of the staff at Pioneer . . . and the carrier agrees to take loads regardless of size or location as long as the load is within legal load limit of 8.5 tonnes. Drivers are required to obtain bonafide (sic) delivery receipt, signatures for all deliveries and adhere to strict company confidentiality. 

8.Drivers are required to be dressed in Pioneer Building Products T/A PlastaMasta or similar attire, approved safety boots and safety hats at all times when on the job sites or loading in the yard.  Drivers are expected to be courteous at all times and place product at various locations around job sites. 

9.Truck is to be painted as per Pioneer . . . franchise requirements with Pioneer . . . signage.  Truck owner's name to be placed on panel behind driver's door as per Department of Transport requirements.

. . .

10.Returns of product is not acceptable under normal circumstances and carriers agree not to return product without prior approval from Pioneer. . . .

11.Carriers agrees to take out adequate insurance  . . .

12.Carriers agree to accurately and promptly report all incidents, in writing to the manager relating to deliveries which are likely to adversely affect the company image or good customer and public relations. . . .

13.It is desirable for trucks to be driven and operated by the owner however, in the event of holidays or illness or a second truck was needed, the consent of the company shall be obtained by the owner for another driver to drive the owner's truck, which consent will not be unreasonably withheld.

. . .

15.Active participation in our Quality Program is required by the carriers and procedural instructions re attached tender specifications must be adhered to all times.

16.Cartage rates for all purposes are contained within "Schedule A" attached to this agreement.

17.The company reserves its right to terminate this agreement should the carrier be found to be negligent or if gross misconduct occurs during the term of this agreement.  Furthermore the notice period by either party shall be one month.

It is the carrier's responsibility to maintain and uphold Pioneer . . . professional image at all times and any breaches of these specifications will render this agreement null and void."

[6] The schedule to that agreement named a number of places in the Hervey Bay, Maryborough and Bundaberg regions with specified cartage rates.

[7] It will be immediately obvious that there are a number of grammatical mistakes in the wording of the Carrier’s Agreement but overall the intent of each clause is clear.  Though not without some difficulty, the term "company" throughout the Agreement refers to the appellant.

[8] The second sentence of cl 17 is anomalous.  Senior counsel for the appellant did however, on the hearing of the appeal, eschew any reliance on it. In the circumstances, if relevant, the second sentence of cl 17 should be construed as limited to the period of notice to be given by the appellant if it invoked that clause. 

[9] By agreement dated 9 June 1999 the appellant sold the business trading as PlastaMasta Hervey Bay to Manmay Pty Ltd.  That Agreement did not specifically refer to the Carrier's Agreement of 16 September 1997.  It is sufficient to say that on taking over the business Manmay Pty Ltd declined to use the services of the respondent for transporting goods in the Hervey Bay, Bundaberg and Maryborough regions.

[10]  In the proceeding in the District Court the respondent contended that by selling the PlastaMasta Hervey Bay business to Manmay Pty Ltd on the terms and conditions which it did, the appellant breached or repudiated the Carrier's Agreement.  In consequence the respondent sought to recover damages for breach of contract.

[11]  After a trial it was held that the appellant had repudiated its obligations under the Carrier's Agreement, had thereby breached that contract, and was liable in damages.  Damages were assessed in the sum of $84,837 which, together with interest, resulted in a judgment in favour of the respondent for $131,171.

[12]  The appeal is only concerned with the issue whether or not the appellant was in breach of contract.  If that conclusion is upheld, then there is no contest as to the quantum of the judgment.

[13]  The first question is to determine the benefits which each party derived from the contract and the liabilities thereby imposed.  Although the respondent acquired the business Fraser Coast Plastaboard Transport pursuant to the agreement of 13 August 1997, the Carrier’s Agreement of 16 September 1997 made it clear that the respondent was not entitled to carry on the business of a general carrier.  Clause 5 made it clear that the respondent could not transport goods other than product of PlastaMasta Hervey Bay without the written consent of the appellant.  Further, the respondent was not at liberty to fix cartage rates, and was subject to directions from the appellant with respect to load sizes, driver’s uniform, identity of driver, and signage on the truck.  In substance it could be said that the respondent paid $100,000 for a business which was very specifically limited as provided by the Carrier’s Agreement.  The obligations imposed by the agreement of 16 September 1997 on the respondent were significant and had a major impact on the profitability of its business.  The benefit which the respondent obtained, and which off-set those obligations, was the assurance that it had the prospect of regular deliveries throughout a reasonably wide area; in other words there was security of income over a period of at least four years. 

[14]  There were benefits to the appellant.  The contract itself recognised that it provided the following benefit to the appellant:

“A reliable efficient delivery service for customers at competitive rates to assist [the appellant] to increase sales.”

There were also other benefits for the appellant; cartage rates would increase by no more than the CPI in each year, a truck would be available at all times for the carriage of product, by dress of the driver and signage on the truck the appellant’s business would be advertised and promoted, and generally the appellant had a degree of control over the respondent which it would not have had over a general carrier.  But, in my view, there was also an obligation which went with those benefits.  That was an obligation to do all things necessary on its part to enable the respondent to have the benefit of the contract for the term thereof. 

[15]  The parties, of course, must be understood to have accepted the ordinary commercial risks associated with the contract.  If the respondent’s carrying business failed then the appellant was deprived of the benefits which the agreement of 16 September 1997 conferred on it and no compensation would be recoverable for that loss.  Similarly, if the appellant’s business failed and there was no work for the respondent, then the respondent lost the benefit of the Agreement of 16 September 1997 and no compensation would be recoverable in that circumstance.  But in each instance the loss of any entitlement to compensation would be due to the fact that the failure of the business in question occurred as a result of normal commercial factors without any deliberate conduct on the part of a party putting an end to the contractual relationship.

[16]  In my view the position is different where one party, by its conduct, removes the sub-stratum of the contract so that the other party is denied the benefit of the contract. 

[17]  The relevant principle is long standing.  One of its earliest applications was by Lord Blackburn in Mackay v Dick and Anor (1880-81) 6 App Cas 251 at 263 where he said:

“… as a general rule, … where in a written contract it appears that both parties have agreed that something shall be done, which cannot effectually be done unless both concur in doing it, the construction of the contract is that each agrees to do all that is necessary to be done on his part for the carrying out of that thing, though there may be no express words to that effect.”

[18]  That statement has been cited with approval in Ray v Davies [1909] 9 CLR 160 at 170 per Isaacs J, in Smith and Smith v Wirth (No 2) [1945] St R Qd 59 at 64 per Philp J, and in Carpentaria Investments Pty Ltd v Airs and Arnold [1972] Qd.R 436 at 449 per Wanstall J.  To similar effect is the formulation of the principle by Griffith CJ in Butt v M’Donald (1896) 7 QLJ 68 at 70 – 71;

“It is a general rule applicable to every contract that each party agrees, by implication, to do all such things as are necessary on his part to enable the other party to have the benefit of the contract.”

That passage was also cited with approval in Smith and Smith v Wirth at 64 and Carpentaria Investments Pty Ltd at 449.  The principle was restated by Griffith when Chief Justice of the High Court in W L Marshall v The Colonial Bank of Australasia (1904) 1 CLR 632 where he said at 647:

“Now, all contractual relations impose upon the parties a mutual obligation that neither shall do anything which is calculated to hamper the other in the performance of the contract on his part.”

That echoed the statement by Vaughan-Williams LJ in Barque Quilpe Limited v Brown [1904] 2 KB 264 at 271.  Those authorities were also referred to both at first instance and on appeal in Carpentaria Investments Pty Ltd (See also Luxor (Eastbourne) Limited and Ors v Cooper [1941] AC 108 at 118 and 154).

[19]  Reference should also be made to the judgment of the High Court, delivered by Mason J, in Secured Income Real Estate (Australia) Ltd v St Martins Investments Pty Ltd (1979) 144 CLR 596 especially at 607.  There his Honour said that it was “common ground that the contract imposed an implied obligation on each party to do all that was reasonably necessary to secure performance of the contract”.  After referring to the passage from the judgment of Lord Blackburn in Mackay v Dick he went on to say:

“It is not to be thought that this rule of construction is confined to the imposition of an obligation on one contracting party to co-operate in doing all that is necessary to be done for the performance by the other party of his obligations under the contract.”

Then he quoted the passage from the judgment of Griffith CJ in Butt v M’Donald, and went on:

“It is easy to imply a duty to co-operate in the doing of acts which are necessary to the performance by the parties or by one of the parties of fundamental obligations under the contract.  It is not quite so easy to make the implication when the acts in question are necessary to entitle the other contracting party to a benefit under the contract but are not essential to the performance of that party’s obligations and are not fundamental to the contract. Then the question arises whether the contract imposes a duty to co-operate on the first party or whether it leaves him at liberty to decide for himself whether the acts shall be done, even if the consequence of his decision is to disentitle the other party to a benefit.  In such a case, the correct interpretation of the contract depends, as it seems to me, not so much on the application of the general rule of construction as on the intention of the parties as manifested by the contract itself.”

[20]  In my view the general rule of construction applies in the circumstances of this case given the obligations and benefits imposed and conferred on each party by the terms of the Carrier’s Agreement of 16 September 1997.  But even if the case fell within the second limb of the passage quoted above from the judgment of Mason J, I would hold that the intention of the parties as manifested by the contract itself was such that it was a breach of the Carrier’s Agreement for the appellant to sell the PlastaMasta Hervey Bay business to Manmay Pty Ltd on the terms and conditions which it did. 

[21]  The appellant was not prevented absolutely from selling its business during the subsistence of the Carrier’s Agreement, but if it did it was obliged to take steps to ensure that the purchaser accepted the appellant’s obligations (and succeeded to its benefits) pursuant to the Carrier’s Agreement.  If it did not do so then it was in breach of contract. 

[22]  As the authorities to which I have referred make clear, it is not necessary to introduce any implied term into the Carrier’s Agreement to arrive at that result.  The obligation in question is one which is imposed by law on the appellant given the nature of the contract to which it was a party.

[23]  It follows that in my view the appeal should be dismissed with costs.

[24]  JERRARD JA:  In this appeal I have had the benefit of reading the reasons for judgment and the orders proposed by each of Williams JA and McMurdo J, and agree with those of McMurdo J.  I respectfully adopt their descriptions of the relevant facts in this matter.

[25]  The respondent’s case is supported by what Barwick CJ wrote in Ansett Transport Industries (Operations) Pty Limited v The Commonwealth of Australia and Ors (1977-78) 139 CLR 54 at 61, of:

“...the general rule that a party to a contract made on the footing of the continuance of a state of things may not by any act within its power or control do anything to destroy or relevantly to diminish that situation.”

That statement of a general principle accords with the judgment of Cockburn CJ in Stirling v Maitland (1864) 5 B & S 841; 122 ER 1043 at 1047, where the Chief Justice wrote that: 

“....if a party enters into an arrangement which can only take effect by the continuance of a certain existing state of circumstances, there is an implied engagement on his part that he shall do nothing of his own motion to put an end to that state of circumstances, under which alone the arrangement can be operative.”

[26]  That passage was cited with apparent approval by the New South Wales Court of Appeal in Australis Media Holdings Pty Ltd and Ors v Telstra Corporation Ltd and Ors (1998) 43 NSWLR 104 at 123, as was the statement by Lord Atkin in Southern Foundries (1926) Ltd v Shirlaw [1940] AC 701 at 717, where Lord Atkin quoted Cockburn CJ’s dictum, referred to it as well established law, and added:

“Personally I should not so much base the law on an implied term, as on a positive rule of the law of contract that conduct of either promiser or promisee which can be said to amount to himself ‘of his own motion’ bringing about the impossibility of performance is in itself a breach.”

[27]  The judgment in Telstra Corporation stresses the necessity for identifying the obligations under the contract of a party which are said to have become impossible to perform, because of conduct by that same party; so does the judgment in Elders IXL Limited v National Employers’ Mutual General Insurance Association Limited, cited by McMurdo J.

[28]  The authorities quoted above describe a general or positive rule of law.  In Mackay v Dick and Anor (1880-81) 6 App Cas 251 at 263 the position was expressed as a rule of construction, in the words quoted by Williams JA.  Mason J also referred to a rule of construction in Secured Income Real Estate (Australia) Limited v St Martins Investments Proprietary Limited, as also cited by Williams JA herein; but in Byrne v Australian Airlines Limited,[1] McHugh and Gummow JJ[2] described the rule of construction expressed in Mackay v Dick and Anor (1880-81) 6 App Cas 251 at 263 as not so much a rule of law as a term implied, in the sense of being attributed to the contractual intent of the parties, unless the contrary appears on a proper construction of their bargain.  That view accords with the further description by Mason J in Secured Income Real Estate (Australia) Ltd v St Martins Investments Pty Ltd,[3] that the correct interpretation of a contract depends not so much on the application of the (described) general rule of construction as it does on the intention of the parties, as manifested by the contract itself.  His Honour made clear that is the position when determining whether a contract imposes a duty to co-operate on one party or whether the contract leaves that party at liberty to decide whether acts should be done, even if the consequence of that party’s decision was to disentitle the other party to the contract to a benefit under it.

[29]  It is significant in the construction of this contract that the express terms the parties agreed, quoted by Williams JA, recognised in Clause 5 that the appellant might only be able to provide the respondent at times with a limited quantity of cartage of plasterboard and associated products, and at those times might require the respondent’s truck to be used for other purposes, at whatever was the agreed rate for plasterboard. No minimum number of hours or rates of cartage of either plasterboard or other carrying work was promised.  The agreement also envisaged the appellant would allow the respondent to do cartage work for other principals; that could only be during those times when the appellant could not provide the respondent with cartage. 

[30]  To treat the appellant’s obligation, not to do anything to destroy its capacity to give the respondent its plasterboard cartage, as including that it could not sell that business during the agreed four year term, is to attribute that contractual intent to parties whose contract recognised that the appellant might provide the respondent with only limited work for periods of unspecified duration.  Those could include periods where there was no cartage work available, and where the respondent would want the appellant’s agreement that it could carry for others.  Those periods of limited cartage work could be caused by the appellant’s own business doing very badly.  It is inconsistent with the express agreement recognising periods of limited cartage, and by necessary implication perhaps no cartage at all, to construe the parties’ necessarily objectively inferred intent manifested by the contract as being that the appellant would breach the agreement if the complete absence of plasterboard cartage was because it had sold the business.  That conclusion is harsh on the respondent, but consistent with the authorities cited by McHugh JA in Elders IXL Limited.

[31]  One was the decision of the House of Lords in Thomas W Rhodes v George P Forwood and Walter Paton (1875-76) 1 App Cas 256, where Forwood, a broker, agreed to be the agent of Rhodes, a mine owner, for the sale of coal in Liverpool for a period of seven years.  Rhodes promised that he would not employ any other agent for the sale of coal in that port, and Forwood promised that he would not during the continuance of the agency act as agent for the sale of any other coal, without the written consent of Rhodes.  After four years Rhodes sold the colliery, and no longer had any coal to sell.  Forwood sued him unsuccessfully; the House of Lords refused to imply a term that during the period of the seven year agreement Mr Rhodes would not disable himself from sending coal to Liverpool by selling his mine to someone else.  The decision resulted from a careful examination of what it was to which the parties had agreed, and what was not agreed; it was conceded by the plaintiff that the mine owner might have sold all of his coal at ports other than Liverpool without breaching the contract, that while delivering coal to Liverpool he might have insisted that it remain unsold (until a better price was available) and thus depriving the agent of commission in that year, and also that Mr Rhodes might have chosen to close the mine for a period “by reason of difficulties arising with the workers or otherwise”.[4]  Those concessions led Lord Cairns to observe that if any one of those three courses might have been adopted, then it should not be assumed that there was an implied undertaking against the risk of the colliery owner not selling the colliery itself.

[32]  In this contract the lack of any promise by the appellant to give a minimum quantity of plasterboard cartage work, and the possibility of there being none available because of, for example, a decline in building generally in the area, poses the same problems for the respondent here as were posed for the agent in Rhodes v Forwood.  The respondent’s position requires the finding that the parties had agreed to exclude the risk to the respondent of no work from one cause, but not from another.

[33]  Likewise in Hamlyn & Co v Wood & Co [1891] 2 QP 488 the defendants, who carried on business as brewers, entered into an agreement in writing whereby they agreed to sell to the plaintiffs, and the plaintiffs agreed to buy, all the grain made by the defendants at specified rates each year between 10 July 1885 until September 1895.  In 1890 the Defendants sold their business, and stopped supplying grain to the plaintiffs, who sued them.  The Court of Appeal held that a term could not be implied in the contract to the effect that the defendants would not by any voluntary act of their own prevent themselves from continuing the sale of grain to the plaintiffs for the period mentioned.  Some of the observations of Lord Esher MR[5] are relevant to this case.  His Lordship wrote:

“The stipulation we are asked to imply is, not that the defendants contracted to carry on their business for ten years, but that they contracted that they would not during that period wilfully do anything to prevent their so doing.  If you cannot imply the first of these stipulations as a matter of business, I should think it would be very difficult to imply the second.  The express contract is not that the defendants will sell the plaintiffs’ grain for ten years; it is that the defendants will sell, and the plaintiffs will buy, all grain made by the defendants for ten years.”

[34]  In the contract under consideration here the appellants did not contract to carry on business for four years, nor did they contract that they would provide actual cartage work to the respondent for four years; they promised that they would provide the plasterboard cartage work they had, and perhaps other cartage in substitution therefore, for a four year period.  Accordingly, while sympathetic to the respondent, I agree with the reasons and order proposed by McMurdo J.

[35]  McMURDO J:  From April 1992 until May 1998, at its premises at Hervey Bay, the appellant carried on a business which involved the distribution of plasterboard products to customers in that and surrounding towns.  It employed a manager there who was Mr Daken.  He and Mrs Daken owned a truck which was used to deliver the plasterboard to customers, under some arrangement or agreement with the appellant.  The Dakens’ business was known as “Fraser Coast Plastaboard Transport”. 

[36]  By a contract dated 13 August 1997, Mr and Mrs Daken sold their business to the respondent.  The price was $100,000, of which the contract apportioned $55,000 to the truck and $45,000 to goodwill.  The only work of that business was that done for the appellant.  And all of the appellant’s deliveries had been by the Dakens’ truck. 

[37]  The appellant and the respondent then made a contract under which the respondent became the new carrier.  It is common ground that their contract was wholly in writing.  It was entitled “Carrier’s Agreement”, and dated 16 September 1997.  Mr Daken, who remained the manager of the appellant’s business at Hervey Bay, signed the contract on its behalf.  The appellant thereby knew, through its employee Mr Daken, that the respondent had paid $45,000 purportedly for the opportunity, or perhaps the right, to carry the appellant’s plasterboard.  As appears from its terms, the purpose of this contract was to record the terms upon which the respondent would deliver the appellant’s product. 

[38]  Clause 6 provided that the agreement:

“… will be in force for a term of four (4) years with an option to renew at the end of first four (4) years subject to (the respondent) complying to all clauses of this agreement.”

By clause 1, it was provided, in effect, that if the appellant needed the services of more than one truck during the life of this agreement, the respondent would be given an opportunity to supply those services before the work for a second truck could be offered to someone else.  By Clause 5, the respondent agreed to keep its truck available for deliveries for the appellant, and not to carry goods for any other party without the appellant’s prior written agreement.  Clause 9 required the respondent’s truck to be painted with the name and get-up of the appellant’s business, and clause 8 required the respondent’s drivers to be dressed in a uniform identifying that business.  The agreement then stipulated certain cartage rates.

[39]  Significantly, although the respondent was entitled to all of the work from the appellant’s business at Hervey Bay, the agreement contained no express guarantee of any minimum level of work.

[40]  By clause 17 it was agreed that the appellant could terminate the agreement “should the (respondent) be found to be negligent or if gross misconduct occurs during the term of this agreement”.  In the same clause it was then added “[f]urthermore the notice period by either party shall be one month”.  Read alone, that last provision would indicate that the agreement was terminable on one month’s notice.  But it is common ground that it did not have that effect.  The agreed duration of the contract was therefore a period of four years, with an option to renew (at the respondent’s election), subject to earlier termination by the appellant for some default by the respondent.

[41]  The parties performed this agreement until June 1999.  The appellant then sold its plasterboard business at Hervey Bay.  The buyer was Manmay Pty Ltd, a company unassociated with the appellant.  It preferred to make its own arrangements for deliveries, rather than to use the respondent’s truck.  The respondent thereby suffered a loss of income, which the trial judge assessed at $84,837. 

[42]  The respondents sued the appellant in the District Court, claiming damages for breach of contract.  The learned trial judge upheld the claim and after adding interest to the amount just mentioned, gave judgment for the respondent for $131,171.  His Honour held that by selling the relevant business, the appellant had repudiated its obligations under the contract. He apparently accepted the respondent’s “basic submission … that by the (appellant) disposing of its Plastaboard division of its business in the Hervey Bay area, it put it beyond its power to comply with the carrier’s agreement … thereby breaching its contract …”.[6] 

[43]  Although expressed as a “finding”,[7] this was a conclusion of law from the uncontroverted facts I have outlined.  The question for the trial judge, and that on this appeal, is one of the proper construction of this written contract.  Did the contract require the appellant to provide work for the respondent for its agreed duration (four years plus an option), even if that required the appellant to conduct a business which otherwise it would have ceased to conduct?  Or did this contract simply regulate the carrying of plasterboard from the appellant’s premises at Hervey Bay, within that contract period, if and when there was plasterboard to be delivered?  The appellant argues that the contract should be construed in the latter sense.  It argues that there was no express promise to keep open the plasterboard business.  And it says that an implied term could not be relied upon here, because the respondent had not pleaded such a term and the learned trial judge refused leave to amend the statement of claim when the respondent tried to plead it.  The statement of claim pleaded some of the express terms but it pleaded no implied term.  It simply alleged that by selling the business to Manmay, the appellant repudiated its obligations and put it beyond its power to further perform them. 

[44]  It is necessary to dispose of this pleading argument first.  After the hearing, his Honour received written submissions from each party.  Within the respondent’s submissions, it sought leave to amend its statement of claim.  The proposed amendment was to add an allegation of this contractual term:

“3(e)that the Defendant would continue to supply plasterboard to be carted by the Plaintiff pursuant to the agreement for the term of the agreement.

Particulars

(i)The said term is express and is to be found in the first paragraph of the agreement and clauses 1, 5 and 6 of the agreement.

(ii)In the alternative, if not express, the term is implied on the basis that:

A.it is reasonable and equitable;

B.it is necessary to give business efficacy;

C.it is so obvious that it goes without saying;

D.it is capable of clear expression; and

E.it does not contradict any express term of the contract.”

In his reasons for this judgment, his Honour refused leave to make that amendment. 

[45]  The proposed amendment had particularised the term as either an express term or a term to be implied because it satisfied the criteria for terms which are implied in fact: BP Refinery (Westernport) Pty Ltd v Shire of Hastings.[8]  The appellant argues that by refusing this amendment, the learned trial judge put paid to any reliance upon an implied term, so that this Court is confined to the express terms of the contract.  I do not accept that submission.  The proper construction of this contract requires a consideration of the contract as a whole. In principle there are three possibilities as the source of the obligation which was found to have been breached.  There were the express terms, the terms (if any) to be implied in fact, and, as will be discussed, the term or terms to be implied at law.  But a consideration of each is part of the determination of a legal question, which is the proper construction of the contract.  Even in the case of a term implied in fact, resulting as it does not from a rule of construction but from the express terms and the relevant factual circumstances of the particular contract, the question of whether such a term should be implied is an issue of law: Re Comptoir Commercial Anversois & Power, Son & Co;[9]  Heimann v The Commonwealth.[10]  The relevant factual circumstances are not in doubt, and it is not suggested that there are further facts which were not investigated because of the state of the pleadings.  Accordingly the consideration now of both express and implied terms, whether implied by law or implied in fact, involves only questions of law and would result in no injustice to the appellant. 

[46]  I have mentioned already the express terms relied upon by the respondent, save for what appears at the commencement of the contract document in these terms:

“The purpose of this document is to formalise an agreement between Pioneer Building Products T/A PlastaMasta Hervey Bay and owner driver Jackson Nominees (Qld) Pty Ltd T/A Fraser Coast Plastaboard Transport for the purpose of delivering Plasterboard and associated products to customers in the Hervey Bay and outer regions as prescribed on cartage rates list.

The agreement is intended to set out the broad areas of responsibility of the company and the carriers so that a mutually acceptable working relationship can be developed to provide the following benefits.”

[47]  Other express terms provide for matters such as the carrier’s responsibilities to have adequate insurance, to report all incidents likely to affect the appellant’s commercial reputation and to participate in training and quality assurance programs.  So by the express terms, the parties agreed on how the provision of the respondent’s services would be regulated and remunerated. The contract provided the respondent effectively with the exclusive right to carry plasterboard for the appellant from Hervey Bay, and it bound the respondent to keep its truck available for that work.  On its face, it was a contract to be performed so long as the appellant had plasterboard to be delivered from Hervey Bay until the expiry of the agreed duration of the contract. There was no express promise by the appellant to have any minimum amount of plasterboard to be delivered, or indeed any plasterboard at all.  The express terms did not require the appellant to provide work for the respondent, and in particular to continue this plasterboard business, throughout the agreed period of four years or any extension of it.

[48]  The next question is whether there was a term implied in fact which required the business to be continued.  In my view there was not, at least because such a term was unnecessary to provide business efficacy.  This contract would have been more valuable to the respondent with such a term than without it, and such a term could have been agreed.  But the contract was quite workable without it, as the parties experienced for nearly two years before the sale to Manmay.  The respondent had an exclusive right to carry the products and at certain guaranteed prices, for a period of several years.  The risk that there would be little work for the respondent, or perhaps no work, according to other circumstances which could affect the future of this plasterboard business, was not a risk from which the respondent had to be protected in order for this contract to “work or to avoid an unworkable situation”.[11]

[49]  Accordingly, the source of any obligation to keep the respondent’s truck employed could only have been by the application of a common law rule of construction, which affected the meaning to be otherwise given to the express terms, or (if it be different) by a term implied not in fact but by law.  In every contract, there is implied by law a duty that each party will do all things necessary on its part to enable the other party to have the benefit of the contract.  The statement of that proposition by Griffith CJ in Butt v M’Donald[12] was approved by Mason J (with whom Gibbs, Stephen and Aickin JJ agreed) in Secured Income Real Estate (Australia) Ltd v St Martins Investments Pty Ltd[13] and in the joint judgment of Gleeson CJ, Gummow, Kirby and Hayne JJ in Peters (WA) Ltd v Petersville Ltd.[14] The determination of this appeal turns on what constitutes “the benefit of the contract” in this context.

[50]  In Secured Income Real Estate, Mason J discussed that question by reference to a more specific implied contractual obligation, which is the obligation of co-operation.  As Mason J said, that duty is part of the more general duty as stated in Butt v M’Donald.  Mason J said:[15]

“But it is common ground that the contract imposed an implied obligation on each party to do all that was reasonably necessary to secure performance of the contract.  As Lord Blackburn said in Mackay v Dick:[16]

“as a general rule … where in a written contract it appears that both parties have agreed that something shall be done, which cannot effectually be done unless both concur in doing it, the construction of the contract is that each agrees to do all that is necessary to be done on his part for the carrying out of that thing, though there may be no express words to that effect.”

It is not to be thought that this rule of construction is confined to the imposition of an obligation on one contracting party to co-operate in doing all that is necessary to be done for the performance by the other party of his obligations under the contract.  As Griffith CJ said in Butt v M’Donald:

“It is a general rule applicable to every contract that each party agrees, by implication, to do all such things as are necessary on his part to enable the other party to have the benefit of the contract.”

Immediately after this passage, Mason J described the limits of the implied duty of co-operation in terms which also show the limits of the wider duty:[17]

“It is easy to imply a duty to co-operate in the doing of acts which are necessary to the performance by the parties or by one of the parties of fundamental obligations under the contract.  It is not quite so easy to make the implication when the acts in question are necessary to entitle the other contracting party to a benefit under the contract but are not essential to the performance of that party’s obligations and are not fundamental to the contract.  Then the question arises whether the contract imposes a duty to co-operate on the first party or whether it leaves him at liberty to decide for himself whether the acts shall be done, even if the consequence of his decision is to disentitle the other party to a benefit.  In such a case, the correct interpretation of the contract depends, as it seems to me, not so much on the application of the general rule of construction as on the intention of the parties as manifested by the contract itself.”

Mason J thereby distinguished between acts according to whether they are necessary to the performance of a party’s fundamental obligations under the contract.  There is a duty to co-operate in the doing of acts which are necessary to the performance of such obligations.  But a duty to co-operate in the doing of acts which are not necessary to the performance of fundamental obligations has to be found in “the intention of the parties as manifested by the contract itself”, that is by a term implied in fact. 

[51]  In the same way, the duty to do what is necessary to enable the other party to have the benefit of the contract is limited to acts which are necessary to the performance of obligations under the contract.  To assess the scope of the duty in a particular case, it is first necessary to define the relevant obligations, and in particular, to define the circumstances in which the parties have agreed that a certain obligation must be performed.  It is not a duty upon one party to act so as to enhance the commercial value to the other party of the contract. 

[52]  As appears from the above passage in Mackay v Dick, the duty of co-operation is one which applies to a certain type of contract, which is where the parties have agreed that something shall be done which cannot be done unless both concur in doing it.  It is not a rule applicable to all contracts and in my view it is not applicable to this one.  The type of contract to which the duty of co-operation will apply was discussed by McHugh JA (with whom Samuels and Priestley JJA agreed) in Elders IXL Limited v National Employers Mutual General Insurance Association Limited,[18] a case which has some resemblance to the present one.  Elders had agreed with its insurer that it would receive a rebate according to its claims experience, but which was payable only if the policies were current “for a further period of twelve months”.  The insurer stopped writing workers’ compensation business and for that reason it did not renew the Elders policies, with the result that the rebate could not be claimed.  Elders alleged that by an implied term the insurer was not to “prevent the right to have the rebate form part of the calculation of the premium by its own act in failing or refusing to renew the policies by reason of its commercial decision to leave the field of workers’ compensation insurance”.  The New South Wales Court of Appeal held that there was no such implied term.  One basis which was argued for its implication was the contractual duty to co-operate.  McHugh JA said that this was not a contract to which the duty of co-operation applied:

“In terms (the duty of co-operation) applied only to a case where the parties have agreed to do something which required their joint co-operation.  It does not apply to a case where one party has promised to pay money or confer a benefit in exchange for the other party’s act or forbearance.  Where a person promises that he will pay money or confer a benefit the fulfilment of which is dependent upon the existence of a state of affairs or condition, a term that the promisor will do nothing to put an end to that state of affairs or condition will only be implied where the promisee has already given consideration for the promise and the promisor has a present obligation to fulfil the promise.” [19]

The present case is similar, because the appellant’s promise to give its delivery work to the respondent was dependent upon the existence of a state of affairs (that the appellant had plasterboard to be delivered), and the existence of that circumstance did not depend upon the joint co-operation of the parties.  But had Elders been a case where the duty of co-operation applied, the duty would have been limited by the agreed obligations.  As Samuels JA said:[20]

“[T]he appellant’s argument is, in a sense, back to front.  The cases about co-operation apply that doctrine to the contract as it is ultimately formulated between the parties.  It may be that the condition of co-operation itself arises from an implication, but the co-operative steps to be taken can only be assessed once the full extent of the parties’ mutual obligations has been determined.”

To the same effect is the discussion in the joint judgment of the New South Wales Court of Appeal in Australis Media Holdings Pty Ltd and Ors v Telstra Corporation Ltd and Ors,[21]  where the court said that “leaving aside fiduciary obligations … there cannot be a duty to co-operate in bringing about something which the contract does not require to happen.”[22]

[53]  There are then two reasons, why the duty of co-operation does not assist the respondent’s case.  The first is that the continuation of the appellant’s business was not something which could be achieved only by the joint co-operation of these parties.  The second is that the terms of this contract did not oblige the appellant to continue the business.

[54] That second reason is also why the respondent cannot rely upon the more general duty that a party must do all things necessary to enable the other to have the benefit of the contract.  As the court said in Australis Media Holdings v Telstra:[23]

“Many terms now said to be implied by law in various categories of contract reflect the concern of the courts that, unless such a term be implied, the enjoyment of the rights conferred by the contract would or could be rendered nugatory, worthless, or perhaps, be seriously undermined.  It would be, however, fallacious to elide the purpose of employing such terms with the terms themselves.  To do so would replace necessity with desirability. … A contract may ‘contemplate’ many benefits for the respective parties, but each can only call on the other to provide, or co-operate in the providing of, benefits promised by that party.” (Emphasis added)

[55] The relevant “benefit” of this contract, as defined by its terms, was that the respondent would be given whatever carrying work which the appellant required in the conduct of its business.  The value of the benefit of this contract to the respondent was dependent on many contingencies, some of which were within the appellant’s control.  But a party is not obliged to maximise the other’s return from the contract. That is why the respondent was right to concede that this contract did not require, even by implication, the appellant to provide to the respondent some minimum amount of work.  For the same reason it did not require the appellant to keep its business open in order to provide the respondent with work.  Nor did it require the appellant, if it sold the plasterboard business, to sell on condition that the purchaser made a like agreement with the respondent (which, in any case, would have provided the “benefit” of another contract and not this one).

[56]  In Ansett Transport Industries (Operations) Pty Limited v The Commonwealth of Australia and Ors,[24]Aickin J cited with approval this statement by Lord Atkin in Southern Foundries (1926) Ltd v Shirlaw:[25]

“Personally I should not so much base the law on an implied term, as on a positive rule of the law of contract that conduct of either promisor or promisee which can be said to amount to himself ‘of his own notion’ bringing about the impossibility of performance is in itself a breach.”

But the answer to any argument based on this proposition is essentially the same: the “performance” is of the obligations under the contract. As was said of this proposition in Australis Media Holdings Pty Ltd v Telstra[26] “performance” is no more than the acts required of a party by the contract. What was required here was the carriage of plasterboard, if and when the appellant had any to be carried.

[57]  In Elders IXL, McHugh JA discussed many analogous cases, including Rhodes v Forwood;[27] Hamlyn & Co v Wood & Co;[28] and Luxor (Eastbourne) Ltd & Ors v Cooper,[29] in which similar claims to this one failed.  He also discussed Stirling v Maitland,[30] where the plaintiff was successful.  It had paid the defendant insurer a certain sum to send monies owing to the insurer by one of the insurer’s agents.  The insurer covenanted in favour of the plaintiff that if it displaced the agent, it would repay the sum to the plaintiff.  Some years later the insurer sold its business and the plaintiff claimed repayment.  In upholding the claim, Cockburn CJ stated a proposition which, on its face, is supportive of the respondent’s case here.  Cockburn CJ said:[31]

“… if a party enters into an arrangement which can only take effect by the continuance of a certain existing state of circumstances, there is an implied engagement on his part that he shall do nothing of his own motion to put an end to that state of circumstances, under which alone the arrangement can be operative.”

But as McHugh JA said[32] this dictum “is not an authority on implied terms.  The ratio of the case is that the act of the company in putting an end to its business was a displacement of the employment of the agent within the meaning of the covenant.”

[58]  In my conclusion no term implied by law provided the source of the obligation which the learned trial judge found was repudiated or breached by the appellant, and nor did any other term.  I would allow the appeal, set aside the judgment of the District Court and order the respondent to pay the costs of the appeal and the proceedings in that Court.

Footnotes

[1] (1995-1996) 185 CLR 410.

[2] At 185 CLR 410 at 448-449.

[3] (1979-1980) 144 CLR 596 at 607-608.

[4] (1875-76) 1 App Cas 256 at 266.

[5] At QB 492

[6] Reasons at [11].

[7] Reasons at [35].

[8] (1977) 180 CLR 266 at 292-3.

[9] [1920] 1 KB 868.

[10] (1938) 38 SR (NSW) 691 at 695.

[11] Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41 at 66 per Gibbs CJ.

[12] (1896) 7 QLJ 68 at 70-71.

[13] (1979) 144 CLR 596 at 607.

[14] (2001) 205 CLR 126 at 142.

[15] At 607.

[16] (1881) 6 App Cas 251 at 263.

[17] At 607-608.

[18] (1988-1989) 5 ANZ Insurance Cases 60-847.

[19] At p 75-299.

[20] At p 75-297.

[21] (1998) 43 NSWLR 104 at 123-125.

[22] (1998) 43 NSWLR 104 at 124.

[23](1998) 43 NSWLR 104 at 124-125.

[24] (1977) 139 CLR 54 at 102.

[25] [1940] AC 701 at 717.

[26] (1998) 43 NSWLR 104 at 124.

[27] (1876) 1 AC 256.

[28] (1891) 2 QB 488.

[29] [1941] AC 108.

[30] (1864) 5 B & SA 840; 122 ER 1043.

[31] At 851-852.

[32] 5 ANZ Insurance Cases 60-847 at p 75-300.

Close

Editorial Notes

  • Published Case Name:

    Jackson Nominees P/L v Hanson Building Products P/L

  • Shortened Case Name:

    Jackson Nominees Pty Ltd v Hanson Building Products Pty Ltd

  • MNC:

    [2006] QCA 126

  • Court:

    QCA

  • Judge(s):

    Williams JA, Jerrard JA, McMurdo J

  • Date:

    21 Apr 2006

  • White Star Case:

    Yes

Litigation History

No Litigation History

Appeal Status

No Status