Australian Coarse Grains Pool Pty Ltd v The Barley Marketing Board

[1988] HCATrans 290

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry

Brisbane No B48 of 1988

B e t w e e n -

THE AUSTRALIAN COARSE GRAINS

POOL PTY LTD

Applicant

and

THE BARLEY MARKETING BOARD

Respondent

Application for special leave

to appeal

WILSON J

DEANE J

DAWSON J

Grains

TRANSCRIPT OF PROCEEDINGS

FROM BRISBANE BY VIDEO LINK TO CANBERRA ON FRIDAY, 25 NOVEMBER 1988, AT 11.16 AM

Copyright in the High Court of Australia

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}1R G.L. DAVIES, 9£:  May it please the Court, I appear with

my learned friend, }1R P.A. KEANE, for the applicant.

(instructed by Chambers McNab Tully & Wilson)

}1R N.M. COOKE± QC:  May it please the Court, I appear with

my earned friend, }1R J.C. BELL, for the respondent.

(instructed by Dowling & Dowling).

}1R DAVIES:  May it please the Court, a convenient starting

point for our submissions may well be, unless

Your Honours wish us to go through all of the

facts relevant to this matter - - -

WILSON J:  We are familiar with the materials in the appeal

book, Mr Davies.

}1R DAVIES:  Thank you, Your Honour - is the substituted

contract which the learned trial judge and, indeed,
the Full Court held to come into existence by

novation in substitution for the original contract

between the applicant and the respondent.

Your Honours will recall that the original

contract between the applicant and the respondent
was one for the sale and purchase of grain but the

contract which the Court held came into existence

in substitution for that was a contract which provided

that, on completion of the loading of a vessel.which

Mofarrij, a third party, had agreed with the respondent to provide, the applicant and the

~espondent would exchange currencies .

. That finding is important in view of the

background facts to which we will refer in a moment

so, can I take Your Honours very briefly to that

finding as it appears in the judgment of the trial

judge and I do that because what His Honour the
trial judge said was adopted by Mr Justice Connolly

and, in effect, by Mr Justice Ryan.in the Full Court.

(Continued on page 3)

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MR DAVIES (continuing): His Honour the trial judge stated

the new contrac~ at the bottom of page 23 of the

application book, in these terms:

There was also a contract between the plaintiff and the defendant under which on completion

of the loading of a vessel with the subject

grain, that is, shipment by the defendant

to Mofarrig under tis contract with him, the
defendant would pay $US112.00 per metric tonne
to the plaintiff and the plaintiff would pay

$Al40.75 per metric tonne to the defendant.

And Mr Justice Connolly cited that paragraph and

the paragraph which precedes it with approval in

his judgment at page 56. After stating his own

view, he says at the bottom of page 56:

Essentially this is the view which commended

itself to the learned trial judge who said -

and I will not read it, Your Honours, but that

paragraph is the paragraph which preceded the one

I read and the paragraph which appears fully on

page 57 is the paragraph which I have just read.

And His Honour Mr Justice Ryan, though not

citing that specifically, said words to similar

effect on page 42 of the application book.

His Honour said, in the first full paragraph .on

that page:

In my op1n1on, the result of the exchange

of telexes was that agreement was reached

between the plaintiff and the defendant that

the defendant would sell the barley direct

to Mofarrij; that the obligations of the

plaintiff under the agreement of 24th September,

1984 would be discharged -

and this is the important part -	and in lieu thereof that upon completion of	the loading of the barley on board a vessel
in Brisbane the defendant would·remit to the
plaintiff the value of the barely calculated
at $US112.00 per metric tonne and the plaintiff would simultaneously remit to the defendant the value of the barley calculated at $Al40.75 per metric tonne.
That new contract, Your Honours, was made

against a background in which none of the contracts

which were novated were contingent upon acceptance of shipment under any other contract and in which

the applicant had never at any time been in a

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contractual relationship with Moffarij. And they

were two, in our respectful submission, very important

background facts to which we will return a little

later. Against those two important background

facts, Your Honours, in our respectful submission,

there were two critical questions. The first was

whether under a contract - I am stating it in general

terms - where a contract provides for performance

of an obligation on the happening of a future event

that can ever be in the absence of an implied term

on the MOORCOCK principle, a promise to bring that

event about.

Now, Their Honours in the Full Court held,

not that it was not in this case, but that it cannot

ever be as a matter of law and it is our submission

that it can and whether it is or not is a question

of construction in the light of the background

facts. And a conclusion that in the present case

there was such a promise was consistent with each

of the background facts which I have just mentioned.

It was consistent with the background fact that

none of the contracts for which this contract was

substituted were contingent upon performance of

a contract by a third party thus making it unlikely

that the parties would have contemplated that as

a co~t~ngent condition rather than as a promissory

provision.

(Continued on page 5)

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MR DAVIES (continuing): It is consistent with the background

fact that th~ applicant had never been in

contractual relationship with Mofarrij, again

making it unlikely that the parties would have

contemplated that the applicant, not being

in contractual relationship with him now -
the respondent being the only one in contractual

relationship with him - would accept the risk

that he would not perform. That was the first

question.

The second question, which only arose if

that question was decided against us, as it

was by the Full Court, was that if that could
not be, or in fact was not,the proper construction
of the contract, what was the content of the

general implied term stated in cases such as

BUTT V McDONALD? The term which is generally

stated, and is stated in BUTT V McDONALD

in these terms -· to do all such things as
necessary on one party's part to enable

the other to have the benefit of the contract -

andin particular may it require one party to

enforce performance of its contract with a

third party, because again the Full Court held

not that it did not in this case but that it

could never do so as a matter of law.

Now each of those is an important question

of law, in our respectful submission, because

by deciding the case in which they have on each

of those respective questions: on the first

of them they really narrowed the content of

promissory terms in a contract; and in the second

they artificially narrowed the content of the

universally implied term of the BUTT V McDONALD

kind. If the Full Court had decided either

of those points in our favour, then the applicant

would have succeeded in the appeal.

The first of those propositions, Your Honours,

was rejected by the Full Court because it

considered that the question was one of implication

of a term of the MOORCOCK kind 'and that necessity

did not require it. Can I take Your Honours to

the judgments of the Full Court in that respect?

Mr Justice Ryan, at page 45, dealing with this - the first proposition - said, in the last full paragraph on that

page:  ~ ,

was made on behalf of the plaintiff that the Before the learned trial judge a submission

existence of a contract between the· defendant

and Mofarrij was inconsistent with any other

conclusion than that ae -b-e-t-ween the plaintiff

and the defendant the defendant accepted the

risk of non-acceptance by Mofarrij.

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I will not read it all, Your Honours, but you

will see that.they say:

His Honour treated that as involving the implication of a term -

and,9n the following page, it is.said that we .

put it as a matter of construction, not as a question
of the implication of a term and set out fairly
the argument which we advanced. At the bottom

of the next paragraph, after a reference to

CODELFA, His Honour said:

I agree with His Honour's refusal to imply

a term in the later contract that the

defendant accepted the risk of non-acceptance

by Mofarrij.

So the Full Court, again, treat it as necessarily

involving the implication of a term and saying

that that term was not implied.

Mr Justice Connolly similarl~ at pages 66 and

over, the paragraph that commences in the middle

of page 66, said:

(Continued on page 7)

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MR DAVIES (continuing):

It must be rememberd that the

implication of a term is founded upon

the presumed intention of the parties -

and then he refers to the MOORCOCK - I will not

read it all, Your Honours. He then finishes it

by saying, after the quotation from the MOORCOCK:

The effect of the manner in which the

learned trial judge has formulated the

obligation of the appellant, a formulation

upon which he has faithfully acted, is to

cast upon the appellant all of the perils

of this contract. ·

And he said:

I must respectfully disagree.

In our respectful submission, Their Honours

should have approached the question not as one of

implied term on the MOORCOCK principle but should,

first, have looked to the question of whether, as

a matter of construction, in the light of those

important background facts, that question can be

decided in our favour.

Their Honours then passed to the second.

proposition and rejected a proposition that the

general implied term stated in BUTT V McDONALD

and other cases could ever include an obligation

on one party to a contract to require, by taking

steps to enforce, a contract which that party

had with a third party. Mr Justice Ryan, again

on this point at page 47, stated the tests in a
number of cases and it is convenient, perhaps, to

look at the statement because it is shortest in BUTT V McDONALD which he cites about two-thirds

of the way down page 47:

"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."

And then, if I can go down to the last sentence on

that page, His Honour said:

It is however suggested in the judgment that

it was necessary for the defendant to do other

things to enable the plaintiff to have the

benefit of the contract. It was said that the

defendant continued to extend time for delivery

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and never called upon Mofarrij to accept

delivery in accordance with his contractual

obligations, and did not call him into

default even though it appeared that

from time to time it was holding large

sums of money on his behalf.

What this implies is that there was an

obligation on the part of the defendant which

it owed to the plaintiff to do all that was

necessary to ensure that Mofarrij complied

with his obligations to the defendant to

take delivery of and pay for the barley. I

am unable to agree that the defendant had such

an obligation to the plaintiff. In my opinion,
the defendant had no obligation to the plaintiff
to ensure performance by Mofarrij of his

obligations to the defendant or to take

measures to secure such performance.

And then, I will not read the next sentence, although

it follows sequentially and then His Honour in the

last sentence which I will read:

But it seems to me to be an extension

unwarranted by anything that was stated

in the SECURED INCOME REAL ESTATE case

to say that a contracting party must

positively take steps to enforce
performance by a third party of its

obligations to him however uncertain

of succeBs they may be.

DAWSON J: Well, now, do you get from that a general statement

rather than a statement just confined to the facts of

this case?

MR DAVIES:  I, perhaps, should have cited Mr Justice Connolly

first with whom the Chief Justice agreed because his

is much more clearly a general statement, Your Honour,

tha,, that but I accept the implied criticism

Your Honour makes that that could be construed either
way.	The statement of Mr Justice Connolly, in

our respectful submission, could not and can I take

Your Honours then to pages 60 and 61, commencing

at the middle of page 60. His Honour said:

The respondent however was not satisfied

to bring the contract of December 1984 to an

end but sought damages for breach of an

implied term that the appellant would indemnify

the respondent against damage it might sustain

if Mofarrij failed to perform his contract.

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MR DAVIES (continuing):

The learned Judge rejected the proposition

that a term to this effect should be implied

but concluded that the appellant was in breach

of the implied agreement, applicable to all

contracts, that each party will do all such

things as are necessary on his part to enable

the other to have the benefit of the contract.

The principle is stated in those terms.,., ...

in BUTT V McDONALD -

and he refers to that and then SECURED INCOME REAL

ESTATE and MACKAY V DICK.	Then on the following page,
His Honour said:

As will appear it is essential for the purposes of this case

ta identify the precise content of the

obligation of contracting parties under this

implied term. The learned trial Judge considered

that as the fundamental obligation of both the

appellant and the respondent was to pay on the

happening of a specified event which involved

performance by Mofarrij, the implied obligation

of the appellant to the respondent was to do all

that was necessary to ensure that Mofarrij complied
with his obligation. This appeal therefore
raises a question of principle of great importance,

for we were referred to no authority in which it

has been held that the implied obligation of a
contracting party to do what is necessary on his

part to enable the other party to have the

benefit of the contract, extends to enforcing

compliance by a third party with his obligations.

So he is stating that there is a general question of

principle, in our respectful submission, that that
that gener~l implied term cannot include that

obligation. And His Honour then decides·the point at

pages 64 and 65, where he says - on page 64 the

first full paragraph, he says:

This brings me back to what is, in

my opinion, the critical question, namely,

the content of the implied obligation.

Then he again cites from the authorities and I will not

read Your Honours what he says there. But then after

referring to SECURED INCOME REAL ESTATE, on the following

page, page 65, can I just read Your Honours the last

sentence before the reference to ELECTRONIC INDUSTRIES.

He says:

In none of them was there any suggestion of an

implied obligation to ensure performance by a

third party.

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WILSON J: Where are you reading now, Mr Davies?

MR DAVIES:	On page 65, Your Honour, the last sentence before the reference to ELECTRONIC INDUSTRIES, thus making
it clear that His Honour is treating it as a
proposition of law. And that was, in effect, the majority judgment of the court, although it was a
3:0 decision against us in that respect. Yet, in our respectful submission, the way in which the test
is stated in BUTT V McDONALD, really, in effect,
requires this - that is an obligation to do things that are necessary on his part to enable the other party to have the benefit of the contract, really requires
this. So, in our respectful submission, what the
Full Court really did was say that these are
questions of law. First, that unless you can imply a term on the MOORCOCK principle, where there is a
statement in a contract that obligations are to take effe~t- upon the happening of a future event, that future event can never be p;i;orn:Ls_i;;qry·· unless you can
imply a term on the MOORCOCK principle. Now that is
the first thing they said, and we say that cannot be
right as a principle of law. In the end, we say, it is
a question of construction and in this case, the
important facts for construction were the background
facts we have mentioned. That is that why would we have
entered into a contract which was contingent upon
acceptance of delivery by a third party in substitution
for a contract which was not. And why would we accept
the risk of non-delivery by Mofarrij when the only person who had the contract with Mofarrij for delivery
was the respondent.

WILSON J: But do you face the difficulty that the entire

parties, the applicant and the respondent? And surely

context of the discussion and the reasons of the

what Their Honours say, by allusion to some more general

principle and so on bears down on what this contract

means in the view of the Court?

(Continued on page 11)

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MR DAVIES:  It does, indeed, Your Honour, but they are stating

the principle, each of these principles, in a way in

which, in our-respectful submission, is too narrow,

and then applying it in that narrow. way. Our criticism

on this application is of the way in which the

principle is stated in· each case.

DAWSON J:	Are they not really saying that this case does not
suggest any such principle as you would be contending
for?

MR DAVIES: Yes, they are saying that, but they are saying

that there is no principle, and we say that that is

the proper inference to draw from their judgment and
that is wrong because, in our respectful submission,
that is another way of stating what Your Honour has

said. It is really, perhaps,, just putting it in

reverse. but, in our respectful submission, certainly

at the very least, implicit in the judgment of

Mr Justice Ryan there is that and, explicitly in the judgment of Mr Justice Connolly, with whom the

Chief Justice ~eed, there is also that. That is - I am

talking now of the second proposition - that

the content of the BUTT V McDONALD term could never

oblige :·a party to a contract, to enforce performance

of a contract which he has with a third party. In

our respectful submission, that just cannot be right.

They say, "Wel], look at these cases. In none of these cases has it been suggested that the implied

term - the BUTT V McDONALD implied term - could

extend to that, therefore, at the very least by

implication.and we say expressly - it cannot."

And so, in our respectful submission, Their Honours

went wrong in law and, in doing so, did two things,

really: artificially narrowed the ambit of promissory

terms and, artificially narrowed the content of that

general BUTT V McDONALD implied term.	They are our
submissions, may it please the Court.

WILSON J: Thank you, Mr Davies. The Court does not require to

hear you, Mr Cooke. The Court is not persuaded that

sufficient doubt attends the decision of the

Full Court to warrant the grant of special leave.

MR COOKE:	Your Honourr we ask for costs of the application.
'WILSON J:	I do not suppose you can contest that, Mr Davies.
MR DAVIES:	No, we cannot, Your Honour.
WILSON J:	Special leave will be refused with costs.

AT 11.37 THE MATTER WAS ADJOURNED SINE DIE

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