Lien & Anor v Clontarf Residential Pty Ltd & Anor

This recent decision is of particular interest because of its consideration of whether a joint venture agreement to develop five lots of land contained an implied term of good faith. Noting the significant academic and judicial discussion on this topic, Jackson J found a number of factors in this case supported the implication of the term, including, the parties were in a fiduciary relationship, the powers of the first defendant to manage the project left the plaintiffs vulnerable to excessive expenditure, there were significant express and implied residual powers on the parties in respect of which their cooperative decision making was critical.

Jackson J

4 May 2018

The dispute in this matter arose out of a joint venture agreement made between the plaintiffs and the first defendant to develop five lots of land owned by the plaintiffs at Kangaroo Point. [1]–[2]. The plaintiffs sought a declaration that they terminated the contract following a repudiation or breaches of contract by the first defendant, along with damages, any necessary account, and other relief. [1]. The first defendant counterclaimed a declaration that the contract was still on foot, seeking consequential relief. [1].

The plaintiffs alleged various breaches of the contract. The plaintiffs also alleged that the contract contained implied terms (i) to act in good faith towards each other and in the performance of the contract and exercise of powers thereunder, and (ii) that the first defendant’s authority to incur or pay for costs and expenses for the project was restricted to costs or expenses properly incurred for goods or services that were reasonably necessary for the progress of the project. [97], [169]. The plaintiffs alleged that the first defendant breached these implied terms and that the breaches amounted to a repudiation of the contract. [96]. The plaintiffs also alleged that the first defendant was in a fiduciary relationship and owed the plaintiff’s fiduciary duties. [99].

Dealing with the first implied term, Jackson J noted that since 1993, “there has been a significant jurisprudence and a large amount of academic discussion” about whether there is an implied term of good faith in the performance of a contract at common law. [170]. His Honour noted that, “[a]s far as the High Court is concerned, the question has not been decided”. [171]. His Honour also added that the cases propounding an implied term of good faith have largely arisen in the Court of Appeal in New South Wales and the Full Court of the Federal Court of Australia. [172].

Jackson J considered it was “unnecessary to scrutinise the cases more closely in order to decide the question whether there is an implied term of good faith in the performance of the contract in the present case”. [173]. This was because a number of factors supported the implication, including: (i) in his Honour’s view, the parties were in a fiduciary relationship; (ii) the powers of the first defendant to manage the project left the plaintiffs vulnerable to excessive expenditure by the first defendant; and (iii) there were significant express and implied residual powers conferred on the parties where their cooperative decision making was vital to the success of the project. [175]. Accordingly, his Honour held that there was an implied term of the contract that the parties act in good faith towards each other. [176]–[178]. His Honour also held that this term had been breached. [179]–[182].

Jackson J next considered whether the contract had been repudiated by the first defendant. His Honour cited from Laurinda Pty Ltd v Capalaba Park Shopping Centre Pty Ltd (1989) 166 CLR 623 and stated that repudiation occurs where there is an “intention to fulfil the contract only in a manner substantially inconsistent with his obligations and not in any other way”. [185]. His Honour also noted that repudiation is not found lightly, particularly where, as here, the alleged repudiation is based on a misconstruction of the contract. [186]. As for the latter point, Jackson J stated that “[t]he question is whether insisting on an erroneous construction amounts to a fixed intention not to be bound by the contract’s provisions in the future”. [188].

In the result, his Honour was of the view that the inference of a repudiation should be drawn in the present case, based on the cumulative effect of a number of the breaches and asserted intentions of the first defendant. [191], [197]. Of particular prominence were the facts as found that not only did the first respondent intend to apply funds contrary to the contract terms, it had made arrangements to do so and to keep the true facts from the plaintiffs. [191].

His Honour ultimately held that the plaintiffs were entitled damages on the basis established in Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64. [210]. However, his Honour did not give final judgment on this issue, allowing the parties an opportunity to deal with a factual matter. [213]–[216]. His Honour dismissed the first defendant’s counterclaim. [220].

J English