Basetone P/L v Woolworths (SA) P/L - [2006] SADC 8

DISTRICT COURT OF SOUTH AUSTRALIA
(Civil: Appeal Against a Master's Decision)
BASETONE P/L v WOOLWORTHS (SA) P/L
Judgment of His Honour Judge Herriman
14 February 2006
PROCEDURE - COURTS AND JUDGES GENERALLY - COURTS - RULES OF COURT
Discussion of principles for application of DCR 25.02 - application for immediate relief.
Settlement Wine v National & General (1988) 146 LSJS 150; Kadeh v Gill [2000] SASC 367; General Steel Industries Inc. v Commissioner of Railways (NSW) (1964) 112 CLR 125; Royal Australia Finance Ltd v Xenophou Corporation Pty Ltd (unreported, SA Supreme Court Jud. No. S3526, 22.7.92); Benefit Strategies Group Inc & Anor v Prider (2005) 91 SASR 544; Wicklow Enterprises Pty Ltd v Doysal Pty Ltd (1985) 124 LSJS 225; Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896; Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337; Leasefin Corporation Ltd v Clarke & Ors (unreported, SA Supreme Court Jud. No. S3660, 16.10.92); Transeast Pty Ltd v Commonwealth Bank of Australia (1990) 157 LSJS 447, applied.

CONTRACTS - GENERAL CONTRACTUAL PRINCIPLES - CONSTRUCTION AND INTERPRETATION OF CONTRACTS - IMPLIED TERMS - DURATION OF CONTRACT
Appeal against declarations of Master made pursuant to DCR 25.02 as to subsistence and termination of contract for cartage services. Principles of construction of written contracts discussed. Appeal dismissed.
Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337; Crawford Fitting Co. v Sydney Valve & Fittings Pty Ltd (1988) 14 NSWLR 438; Re Berker Sportscraft Ltd's Agreement (1947) 177 LT 420; Prints for Pleasure Ltd v Oswald-Sealy (Overseas) Ltd [1968] 3 NSWR 761; State Bank of NSW v Commonwealth Savings Bank of Australia (1985) 6 FCR 524; BP Refinery (Westernport) Pty Ltd v Hastings Shire Council (1978) 52 ALJR 20, applied.
Bobux Marketing Ltd v Raynor Marketing Ltd [2002] 1 NZLR 506, not followed.
Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896; Martin-Baker Aircraft Co. Ltd v Canadian Flight Equipment Ltd [1955] 2 QB 556; Australian Blue Metal Ltd v Hughes [1963] AC 74; Winter Garden Theatre (London) Ltd v Millenium Productions Ltd [1948] AC 173; Re Spenborough Urban District Council's Agreement [1968] 1 Ch 139; Barro Group Pty Ltd v Fraser [1985] VR 577; Coulter v Readhead (1931) 31 SR NSW 432, considered.

BASETONE P/L v WOOLWORTHS (SA) P/L
[2006] SADC 8

This is an appeal from a decision of a Master of this Court wherein, upon the respondent’s application made pursuant to DCR 25.02, he made declarations as to the privity and continued existence of a contract between the appellant and the respondent, which had the effect of determining the liability issue raised on the pleadings.
The appellant (the defendant in the action) contends, inter alia, that the Master erred in finding that the matter was one appropriate for determination under DCR 25.02 and, in any event, in making the declarations.
I shall deal with some preliminary matters first:
(1)The appellant contended the appeal was one brought against an interlocutory order as opposed to a final judgment and should hence be by way of rehearing; that I might receive further evidence and exercise my discretion afresh without regard to the manner in which it was originally exercised by the Master.
That contention was not disputed by the respondent and it was in that context that the appellant sought leave to file two affidavits by way of further evidence on the appeal, being the affidavits of Gerard Damien Rohl and Richard John Flitcroft, both sworn on 6 December 2005.
The respondent objected to the tender of each of those documents, but as they formed an integral part of the appellant’s submission, I then determined to receive them de bene esse. I will return to this matter.
(2)This appeal was run in tandem with an appeal by the same appellant against a similar declaration of that Master in Action No. 890 of 2004, wherein the respondents are named Montebello. Although the factual backgrounds in each appeal differ slightly, each asserts that the Master should not have dealt with the matter under DCR 25.02 and each disputes the findings he made as to the appellant’s capacity to determine what were identical contracts between the appellant and each party.
I will deal with the appeals separately but, in the Montebello matter, will adopt many of the findings I make in this matter.
(3)The Notice of Appeal here (Ground 3) appears to raise the issue of whether the Master was correct in finding that the respondent became a contractor to the appellant in the respondent’s own right or by virtue of the assignment of an earlier contractor’s rights under an agreement previously made between the appellant and that earlier contractor, it being a party related to the respondent.
The significance of that issue may relate to the question of what was the contract that then subsisted between the appellant and respondent.
Perhaps I misapprehend that, and the ground may simply challenge the Master’s declaration as to the year of that assignment (1985 not 1984).
If the validity of the assignment and the nature of the contract here under consideration are in issue, then I should say that that question was not argued before me, nor is it squarely raised on the pleadings. In that respect, I note the terms of clauses 13 and 14 of the original contract, the respondent’s pleas in paragraphs 3.5 and 4 of its Statement of Claim and the appellant’s responses in paragraphs 4 and 9 of its Amended Defence. Those provisions and pleadings, along with correspondence which immediately preceded the purported termination of the contract, strongly favour the position that the appellant knew of the purported assignment and that it thereafter treated the respondent as the party to the “Cartage Contract” it identifies in its Amended Defence, it being the contract now under review.
Furthermore, the argument it addressed to the court was as to the proper interpretation or means of interpretation of that same contract.
Accordingly, except in so far as it merely purports to seek a correction of the assignment date – a correction which is appropriate – I dismiss this ground of appeal.
The real focus of the appeal was upon:
(1)whether it was appropriate for the Master and is appropriate for this court to make declarations under DCR 25.02 in the particular circumstances of this case; and
(2)if that was or is an appropriate exercise of power, whether the appellant was, on a true construction of the contract, entitled to terminate it without other cause but upon giving reasonable notice.
It is convenient at this stage to refer to the contract itself. I will not set out all its terms here, as they have already been the subject of much discussion. It is enough to note that the parties agreed that the respondent would, for reward, provide cartage services to the appellant and that, the provisions of clause 10 aside, the contract did not contain any express provision fixing or limiting its period of operation.
Clause 10 provided:
Termination:
(a) Unless otherwise specifically agreed between the parties, the Contractor shall give seven (7) days’ notice of termination of the contract during which period the Contractor shall, if required by the Company so to do, travel another contractor for familiarization purposes. At the expiration of the notice referred to the Contractor shall be paid all monies due under this contract provided that the Company may deduct from any such payment any monies owed to it by the Contractor.
(b) Unless otherwise specifically agreed by the parties the Company shall give notice of termination of the Contract in accordance with the following:
(i)If the company intends to cease trading – four (4) weeks or to change company owned vehicles – six (6) weeks. In addition, in the event of the Company changing to company owned vehicles the Contractor shall be given first right of refusal of employment as a company driver.
(ii)If the contractor himself or his servants or agents:
- falsify documents to the company – 1 day
- do not perform their part of the contract satisfactorily – seven (7) days, provided, that such notice shall not be given unless a warning has been given on this ground at least seven (7) days prior to the giving of notice and the warning has not been heeded.
- engage in conduct which could cause harm to the company’s servants – seven (7) days
- are dishonest or consume or are affected by intoxicating liquor prior to the completion of duty on any day – immediate and without notice
For its part, the respondent argued before the Master that the contract was thus one of indefinite duration and, except for any fundamental breach justifying termination, it could only be terminated under clause 10; that as the appellant was not seeking to terminate under clause 10(b)(i) or (ii), it was otherwise prevented from terminating upon notice, whether reasonable or otherwise, as it had purported to do, and that the contract remained afoot. It sought a declaration to this effect and said that it was a proper matter for determination under DCR 25.02.
The appellant’s response to that application was that declarations as to the proper construction and termination of the contract were not, in the circumstances, summary questions, that it should have the opportunity to adduce and test evidence, in the normal way, as to the factual background of the contract, that this required a trial process and that it was thus inappropriate for the Master to have proceeded under DCR 25.02.
In any event, the appellant contended that in its nature and on its true construction, the contract contained an implied term that it was terminable on reasonable notice, that it had given the respondent such notice and that it had therefore validly terminated the contract.
I will deal with those matters in turn.
DCR 25.02
DCR 25.02 provides as follows:
25.02(1) In the alternative to Rule 25.01 the plaintiff may after the time of issuing his summons take out an application for immediate relief.
(2)The application shall be supported by an affidavit verifying the plaintiff’s claim and exhibiting all relevant documents.
(3)The application shall be returnable not less than two days after service.
I do not intend to traverse all the authorities referred to by the parties and dealing with that Rule, but I keep in mind here that the powers conferred by it should be exercised with considerable care and that the plaintiff must show either that the matter is urgent or that the defendant’s case cannot succeed on any available view of the law or the facts and that there is no real question to be tried. I adopt the remarks of King CJ in Settlement Wine v National & General (1988) 146 LSJS 150 at 153:
Immediate Relief may be justified not only by circumstances of urgency requiring speedy decision of issues which are capable of resolution without lengthy trial, but also by the lack of any credible defence in the sense of real issue to be tried, irrespective of the existence of circumstances of urgency.
and per Doyle CJ in Kadeh v Gill [2000] SASC 367 at para. 29:
Unless there are circumstances of urgency, the only basis for making an order can be that the case is, as a matter of law and as a matter of fact, bound to fail. There has to be some good reason to deal with a claim or defence in this summary fashion.
As to the level of care that should attend any determination, I note and follow the authority of General Steel Industries Inc. v Commissioner of Railways (NSW) (1964) 112 CLR 125 and Royal Australia Finance Ltd v Xenophou Corporation Pty Ltd (unreported, SA Supreme Court Jud. No. S3526, 22.7.92).
The relief available under that Rule is not to be regarded as a vehicle for obtaining an early trial (Benefit Strategies Group Inc & Anor v Prider (2005) 91 SASR 544), nor should it seek to determine “issues of fact and law requiring substantial hearing time” as that is likely to give rise to the series of mischiefs identified in Wicklow Enterprises Pty Ltd v Doysal Pty Ltd (1985) 124 LSJS 225.
The above principles are not contentious.
The plaintiff’s application before the Master did not rely on circumstances of urgency, but upon an asserted lack of any credible defence. It said that the proper construction of the contract fell to be determined on its own terms, that the appellant had not demonstrated any need for an enquiry into the circumstances surrounding its formation, that it should be concluded it was one of indefinite duration, and that, the provisions of clause 10(b) aside, it was not able to be determined by the appellant upon giving reasonable notice.
The appellant argued that the type of relief sought before the Master necessarily involved the receipt of evidence and the making of factual findings and was more akin to an application for the determination of a preliminary question of fact or law pursuant to DCR 75.02. There was a serious question of law to be tried, it said, namely, whether the contract contained an implied term that it was terminable on reasonable notice, but that question could not be determined simply on the face of the document, it required evidence as to the “factual matrix” in which it came into being.
It contended, and it was not disputed, that the plaintiff had carried the general onus of showing, on the balance of probabilities, that it was entitled to that form of relief, but it then argued that, in approaching the question of whether that onus had been discharged, the Master should have afforded it the chance to challenge the plaintiff’s allegations as to the circumstances in which the contract was formed and, in any event, to, itself, advance evidence on that topic.
On those last matters, it had put to the Master that the respondent had failed to prove all the relevant factual background to the formation of the contract, anyway, and that it should have been able to test what the plaintiff was putting.
It was critical of the limited factual material provided in the supporting affidavit of Mr Petraccaro and, before me as well, it pointed to portions of that affidavit which, it said, were hearsay. Plainly, some parts of that affidavit are hearsay and I will disregard them, but otherwise I note that Mr Petraccaro outlines some of the circumstances which led to his becoming a party to his own contract with the appellant and then to his assignment to the respondent of his rights under it and, finally, as to the circumstances which led to the purported termination.
It appears to me that the appellant’s then complaint about its lack of opportunity to test the plaintiff’s assertions as to the contractual background, misapprehended the question of onus. Indeed, I am not persuaded that there was any need for Mr Petraccaro to then say as much as he did about the matters of background: prima facie, the contract spoke for itself and if the appellant wished to rely upon evidence relating to its formation and which it contended was relevant to its proper construction, it carried the onus, at the least, of showing there was a proper legal basis for going behind its written terms, of formally disputing those of Mr Petraccaro’s contentions which went to the question (and which were admissible) and of then of adducing some evidence or, at the least, identifying some facts tending to show that an investigation, by way of trial or preliminary hearing, into the factual matrix was justified. It did not do any of that. It appears to me that, apart from submissions at the bar table, the appellant relied only upon the affidavit of a Michael Cartwright sworn on 19 November 2004. That affidavit did not, however, purport to set out any factual matrix, nor to challenge the plaintiff’s brief account of the contractual background; rather, it dealt with events leading to the purported termination of the contract. Otherwise, the appellant did not put before the Master, any evidence of the “factual background known to the parties” or as to the “aim and ‘or object’ or ‘commercial purpose’ of the transaction”, they being matters referred to in its outline of argument.
In the event, the Master found, inter alia, that the defendant had not identified any triable issue which made it inappropriate to determine the issue under DCR 25.02. I am satisfied the Master was, in all the circumstances and having regard to what was then before him, entitled to reach that conclusion.
Before me, however, the appellant sought to adduce evidence of additional matters or enquiries which, it said, went “to construe the commerciality of (the) contract in the light of the ‘factual matrix’ in which the contract was made, that is, all of the surrounding circumstances – absolutely anything (at least by way of objective fact) which would have affected the way in which the language of the contract would be understood by a reasonable person” (appellant’s outline, paragraph 21).
The matters to which the appellant referred were those searches or enquiries for documents and witnesses relating to particular topics and outlined in the affidavits of Gerard Damien Rohl and Richard John Flitcroft which were put before me.
I should say, at this stage, that I have determined to receive and take account of those affidavits as some evidence which may be considered by me on the hearing of this appeal. In doing so, I am conscious of the fact that they are poorly drawn and do not distinguish between facts personally known or otherwise asserted on the basis of information and belief. For the purposes of this appeal, however, I will treat those affidavits as documents stating that:
(1)each deponent has commissioned certain people to make enquiries as to the specific topics outlined in each document and as to the existence and location of documents relevant to them, so that the results can be considered by counsel;
(2)as of the date of each affidavit, those enquiries are presenting difficulties and are incomplete but they are continuing. They have not, so far, been fruitful in terms of producing any evidence upon which the appellant wishes to rely.
In taking this approach, I am mindful of the respondent’s criticisms that the appellant did not seek to place any of those materials before the Master, that it has otherwise had close to two years’ notice of this intended claim and that it has only now sought to obtain relevant material.
Even so, the appeal is by way of rehearing, I am at liberty to receive further evidence should I choose to do so and I have determined to receive those affidavits and deal with them on the above terms.
The appellant then contended that, on the basis of all the materials before me, including those affidavits, I should now be satisfied that this was not a matter in which the grant of immediate relief was appropriate, because the evidence now showed that the proper construction of the contract could only be resolved by an enquiry into its factual matrix, and that such an enquiry must necessarily proceed by way of trial. It relied upon Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896 and Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337.
In response, the respondent says that accepting, for the moment, the additional matters deposed to and allowing, for the purposes of argument, that, on the face of the contract, an enquiry into its factual matrix is justified, the appellant has still not identified any evidentiary matters relating to the circumstances of the formation of the contract which are likely to assist in its proper interpretation; that in the circumstances the contract can and should be construed on its own terms; finally, that a careful consideration of those terms, in particular clause 10, leads to the irresistible inference that the parties gave attention to all the circumstances in which it might be terminated.

I turn, then, to discuss these contentions.
In Codelfa (supra) at page 352, Mason J observed:
The true rule is that evidence of surrounding circumstances is admissible to assist in the interpretation of the contract if the language is ambiguous or susceptible of more than one meaning. But it is not admissible to contradict the language of the contract when it has a plain meaning. Generally speaking facts existing when the contract was made will not be receivable as part of the surrounding circumstances as an aid to construction, unless they were known to both parties, although, as we have seen, if the facts are notorious knowledge of them will be presumed.
It is here that a difficulty arises with respect to the evidence of prior negotiations. Obviously the prior negotiations will tend to establish objective background facts which were known to both parties and the subject matter of the contract. To the extent to which they have this tendency they are admissible. But in so far as they consist of statements and actions of the parties which are reflective of their actual intentions and expectations they are not receivable. The point is that such statements and actions reveal the terms of the contract which the parties intended or hoped to make. They are superseded by, and merged in, the contract itself. The object of the parol evidence rule is to exclude them, the prior oral agreement of the parties being inadmissible in aid of construction, though admissible in an action for rectification. (my emphasis)
The following observations are then pertinent:
1.For reasons elsewhere expressed, I am not satisfied that the wording of the contract is ambiguous or susceptible of more than one meaning, hence I am not persuaded there is any basis for enquiring into the circumstances of its formation.
2.If I am wrong as to that, then, even so:
2.1   no claim is made in either of the new affidavits tendered that the material identified as being sought was then known to both parties or was “notorious”;
2.2   on their face, most of the enquiries listed, with the possible exception of those identified in paragraph 3, subparagraphs (d) and (f) of the Rohl affidavit, are as to matters likely to have been within the knowledge of the appellant only. And then, as to (d) and (f), evidence as to those matters was put forward in the Petraccaro affidavit and not disputed by the appellant;
2.3   indeed, the entire flavour of the desired lines of enquiry goes really to what were the “actual intentions and expectations” of the appellant in its then negotiations, and evidence as to such matters could never be admissible;
2.4   the affidavits do no more than assert that the appellant has, since July of 2005, embarked upon a search for documents and/or witnesses which might assist it in examining particular circumstances which obtained at the time of the formation of the contract. They do not go so far as to assert that there are any particular facts or circumstances in existence which support the construction of the contract for which the appellant argues. They merely list lines of enquiry.
3.Hence neither the terms of the contract itself nor the materials advanced by the appellant support its claim that an enquiry into the factual matrix of the document is justified.
In essence, it appears to me that the appellant opposes DCR 25.02 relief because it wants to explore whether background matters exist which might assist a claim that they are relevant to the construction of the contract.
Ordinarily, if such an application had come before me at first instance, the affidavit material put forward by the appellant might have resulted in it being granted an adjournment to complete that exploration, perhaps even a substantial adjournment, and even after then, it would not have been required to set out all the matters upon which it sought to rely, only so much as to show its intended defence was not “spurious” – see Leasefin Corporation v Clarke & Ors (unreported, SA Supreme Court Jud. No. S3660, 16.10.92). But I cannot here ignore the facts that:
(a)the appellant appears to have been on notice, since April 2003, of the respondent’s claim that this was a contract of indefinite duration;
(b)the respondent’s Statement of Claim, asserting as much, was filed in March 2004, the appellant filed its Defence in May 2004 and its Amended Defence in November 2004;
(c)the respondent’s DCR 25.02 application for immediate relief was filed in May 2004;
(d)it was argued before the Master in November 2004;
(e)the Master’s Reasons for Decision were published in July 2005;
(f)this appeal was heard by me in December 2005.
The appellant has thus had a very substantial period of time indeed within which it could have identified, if not adduced, evidence as to those matters or, at the least, some of them, which go to the factual matrix of the disputed contract and which, it could then say, would assist in properly construing it and yet, as of December 2005, the only evidence put before me was of continuing, but so far unfruitful, investigations and searches.
I am not persuaded that the respondent’s DCR 25.02 application should be defeated on the ground, alone, that the deployment of the subrule is inappropriate because the appellant might, at some future time, be in a position to identify and then adduce evidence which would enable it to argue that the factual matrix in which the contract was formed supports its contention that it was terminable on reasonable notice.
It seems to me the appellant has had all the opportunity it is entitled to, to identify and advance some evidence as to that, and the respondent should not be denied relief simply because something might emerge, at a later time, which will assist the appellant: cf Transeast Pty Ltd v Commonwealth Bank of Australia (1990) 157 LSJS 447 per Perry J.
In summary, I am satisfied that the language of the contract has a plain meaning, so there is no basis for enquiring into the circumstances surrounding its formation. If I am wrong in that, then even so, I find that the appellant has had ample opportunity to identify circumstances, or at least one of them, justifying such an enquiry and that it has failed to do that.
These findings mean that I reject the appellant’s contention that this is not a matter appropriate for determination under DCR 25.02. Accordingly, that ground of appeal fails and, as this is by way of rehearing, I will now proceed to determine the matter under that Rule.
The Declaration
Even so, there remains the dispute as to the correctness of the declaration, sought and obtained by the plaintiff, that the subject contract has not been determined by the appellant and remains on foot.
As to that matter, the appellant argued:
(1)that the cartage contract was one involving elements of trust, that it was analogous to an employment contract and that such contracts are generally considered to be determinable on reasonable notice: Martin-Baker Aircraft Co. Ltd v Canadian Flight Equipment Ltd [1955] 2 QB 556;
(2)that the contract was one of an obvious commercial nature and that ordinarily such contracts are terminable on reasonable notice: Australian Blue Metal Ltd v Hughes [1963] AC 74, Winter Garden Theatre (London) Ltd v Millenium Productions Ltd [1948] AC 173 and Crawford Fitting Co. v Sydney Valve & Fittings Pty Ltd (1988) 14 NSWLR 438 – further, that clause 10 of the instant contract is merely a notice provision;
(3)that on its true construction, the relevant contract was not one of indefinite duration and that it contained an implied term that it was terminable by it upon reasonable notice.
As to the first of those contentions, in arguing that there is a presumption against the permanence of contracts involving trust, confidence, delegation of authority and the like, the appellant relied upon Martin-Baker Aircraft Co. Ltd v Canadian Flight Equipment Ltd (supra) and the observations of McNair J, at 577:
The common law, in applying the law merchant to commercial transactions, has always proceeded more on the basis of reasonableness in filling up the gaps in a contract which the parties have made on the basis of what is reasonable, so far as that does not conflict with the express terms of the contract, rather than on the basis of rigidity …
It is, of course, true that this kind of consideration can in many cases be excluded by express provision; but where the contract leaves the matter open, I think that the common law approach would be to provide a solution which is reasonable. At the same time, of course, I hope I bear in mind that it is not the function of the court to make a reasonable contract between the parties; and in so far as the matter is one of implying terms one can only imply terms which are necessary to give business efficacy to the contract. But to my mind the question whether a contract such as this is permanent or revocable does not depend upon the insertion of an implied term, but depends upon the true construction of the language used. (my emphasis)
His Honour was there considering what was, in effect, a licensing agreement and he concluded that it was not one that the parties likely intended to be permanent and that it was determinable on reasonable notice.
I do not find I am particularly assisted by those observations as they beg the questions of whether the contract under consideration here was, in any special way, one of trust and whether it left the matter of termination “open”. I will return to these matters later.
It seems to me that Crawford Fitting (supra) better focuses upon the matters which should be considered in this context, and I will discuss it in the context of the next contention.
The appellant’s second argument was that commercial contracts can be presumed to be terminable on reasonable notice, and in this respect it referred, inter alia, to Crawford Fitting.
That was a case concerning an agreement for an exclusive distributorship for particular industrial fittings, conferred upon respondents in Australia by an American manufacturer. The agreement contained no provision fixing its duration and, indeed, it remained operative for about 15 years before the manufacturer purported to determine it upon six months’ notice.
At 443, McHugh JA discussed the proper approach to construction of a contract and identified four matters of enquiry:
When the question arises whether a commercial agreement for an indefinite period may be terminated, the answer depends upon whether the agreement contains an implied term to that effect … The existence of the term is a matter of construction. But the question of construction does not depend only upon a textual examination of the words or writings of the parties. It also involves consideration of the subject matter of the agreement, the circumstances in which it was made, and the provisions to which the parties have or have not agreed … the weight of twentieth century authority makes it difficult to hold that there is any presumption of perpetuity in the case of commercial agreements … (my emphasis)
And at 444:
In principle, the better view would seem to be that, although there is a presumption against implying a term that an agreement is terminable, ordinarily the nature of a commercial agreement will lead to the conclusion that the parties must have intended it to be terminable on notice …
Whether a contract is terminable on reasonable notice instead of at will also depends upon the existence of an implied term … That question is determined by the circumstances existing at the date of the contract … However, the reasonableness of the period of notice depends upon the circumstances existing when the notice is given. (my emphasis)
From there, His Honour went on to discuss the question of what was reasonable notice.
The above statements appear to me to best summarise the approach in this country to questions of construction.
The appellant adopts them and argues:
(a)that a textual examination of the contract reveals that clause 10 is simply a notice clause – that is to say, that its primary purpose is to establish periods of notice for those particular methods of termination discussed in it. It is not, says the appellant, a clause which sets out to exhaustively delineate the circumstances in which termination may occur;
(b)as to the subject-matter, that, plainly, this is a commercial contract and that it is one involving trust and confidence, delegation and “the need for the parties to be satisfied with each other’s conduct and/or personal relations” (see outline, paragraph 18).
Whilst the contract is plainly a commercial one, apart from the trite observation that the notion of good faith attends all such arrangements, I am not persuaded as to the existence of the other aspects mentioned. It seems to me that the contract, as assigned, is no more than an ordinary commercial arrangement between two corporate entities: I cannot read into it any special relationship of trust, confidence or delegation;
(c)next, says the appellant, the true construction of the agreement must turn upon the circumstances in which it was made – I have already dealt with that topic and have found that the language of the contract is plain in its terms and, if I am wrong in that, that the appellant has not identified or adduced any evidence tending to show that its proper construction of the contract will, here, be aided by any enquiry into its factual matrix;
(d)otherwise, as to the provisions which the parties have or have not agreed, I was invited to consider the whole of the contract and to find that its proper construction had necessarily to be assisted by those further enquiries it is seeking to complete.
I have dealt with arguments (b) and (c), but will further consider (a) and (d).
As to (a), the textual construction of the contract, I am unable to find any merit in the appellant’s assertion that clause 10 is simply a provision governing the notice to be given for particular forms of termination. I so conclude for these reasons:
(i)it is headed “Termination”;
(ii)there is no other provision in the document relating to termination or means by which it might be terminated;
(iii)subclause (a) provides that the respondent may terminate the contract without cause and upon giving seven days’ notice. It seems to me that that provision focuses upon a critical and substantive right and not simply on the notice required for its exercise. If it were otherwise to be construed as a “notice” provision and if, as the appellant contends, there is an implied term that it, the “Company”, can also terminate without cause, one would have expected a period of notice for such a determination to also be specified, yet there is none;
(iv)subclause (b) certainly sets out periods of notice, but I am satisfied that its real purpose is to describe the circumstances in which the company might terminate and the separate periods of notice required in each circumstance. It is not to be doubted that there would be other circumstances of fundamental breach which might give rise to a right to terminate at common law, so, in that respect, the subclause can hardly be said to be exhaustive, but nor can it be expected that the parties to a contract could ever hope to enumerate all the circumstances in which a right to terminate for fundamental breach might arise;
(v)more significantly, subclause (b)(i) purports to describe what might be called the commercial bases upon which the appellant might terminate. As to subclause (a), such rights could not be regarded as assumed and the purpose of the subclause only to limit the notice required for their exercise. They are limited and specific and only incidentally, if necessarily, have attendant and separate notice periods.
As to (d), a consideration of the provisions in the contract which the parties have or have not agreed, that invites consideration of the entire document.
Succinctly, the contract provides that the respondent is responsible for the provision of a vehicle for carting the appellant’s goods, for fuelling and maintaining that vehicle, for prompt and efficient loading, cartage and delivery of goods, and for rendering accounts for that service. It foregoes any ordinary employee rights and agrees to an hourly rate of payment adjusted according to Consumer Price Index movements. It further provides for deductions from contract payments in circumstances where the contractor is unable to perform its duties.
So much for clauses 1 to 9 inclusive and clause 11.
Clauses 12 to 15 simply deal with applicable law, incorporation, assignment of contracts and authorised drivers.
Clause 10 aside, therefore, the contract contains no provision dealing with its duration. Even so, there can be little doubt that the parties likely intended it to be a contract of some substantial length, particularly having regard to the mention and exclusion of long service leave claims and the need for the contractor to incur the substantial capital cost of procuring and maintaining an appropriate cartage vehicle.
As I have observed, clause 10 does not purport to cover the circumstances in which either party might terminate for fundamental breach. The following matters do, however, appear to me to be pertinent:
(a)the fact that clause 10(a) specifically provides for unilateral termination of the contract by the contractor upon seven days’ notice clearly indicates that the parties considered the circumstances in which the contract might be terminated without cause and agreed that only the contractor might have that right – if it had been intended that there be a reciprocal right in the appellant to terminate without cause (with whatever notice period), it can be assumed that such would have been included in the document – it was not;
(b)clause 10(b)(i) contemplates that the appellant might wish to cease trading or revert to company-owned vehicles and it provides that in such circumstances and on certain conditions, it might terminate, albeit with differing notice periods for either option.
What is significant about this subclause is that it identifies particular circumstances whereby the appellant might, for its own commercial reasons, validly terminate the contract. To the extent that it limits those circumstances to the two instances identified, I find it reasonable to infer that the contract did not contemplate there being other commercial circumstances (such as those obtaining in the present situation) which might afford it a right to terminate.
Put another way, arrogating to itself the right, upon some period of notice, to terminate and contract and engage with another external carrier, was a commercial circumstance which the appellant would very likely have considered at the time the contract was entered into – yet it chose not to provide for it.
In Re Berker Sportscraft Ltd’s Agreement (1947) 177 LT 420 at 424, Jenkins J observed:
It seems almost inconceivable that a business agreement of this kind should be entered into with an express provision for determination in certain events, but with an intention, beyond and behind that, that in addition to determination in those events there should be an over-riding power on either side to determine on a particular notice … The very fact that the parties define with meticulous care the events in which either of them can determine the agreements shows that their minds were directed to the question of determination, and that they decided that the best thing to do was to give only these limited and contingent powers of determination. If they had meant the agreements to be determinable at the end of any year by six months’ notice, or any other notice, they would almost inevitably have said so. (my emphasis)
But the appellant pointed to Re Spenborough Urban District Council’s Agreement [1968] 1 Ch 139 and argued that “commercial sensibilities point to” a likelihood that the parties intended that the appellant should have a corresponding right to terminate without cause upon reasonable notice. In Spenborough Buckley J observed, at 152:
If at this point I pause to ask myself whether in the light of these circumstances it is commercially sensible to suppose either that the corporation, when it entered into the 1951 agreement, intended to assume obligations to which it would have no power to put an end except on a breach by the defendant, or that the defendant, when it entered into the agreement, thought that the corporation intended to assume such obligations, I think that the answer should be “No.” The most cogent indication of this is, I think, the capacity of the defendant unilaterally and at any moment to suspend or put an end to the operation of the agreement. (my emphasis)

The suspension or ending to which His Honour referred did not emanate from the wording of the contract: it was a de facto capacity – it could opt to cease discharging its effluent into the corporation’s sewer.
The appellant argued that the present situation is a comparable one, that the respondent has the power to terminate without cause upon seven days’ notice and, on that authority, the appellant should have a similar right.
I am not persuaded that one follows from the other. It seems to me that there is a marked difference between the commercial sensibilities attending a circumstance where a party has a practical ability to end a contractual relationship and those subsisting where that party has an agreed, albeit unilateral, legal capacity to end it. Indeed, as I have earlier observed, the presence of a specific provision affording the respondent a right to terminate upon notice and the absence of any provision conferring a similar right upon the appellant (with whatever period of notice) indicates to me that the parties considered that very question and deliberately agreed that the appellant should not have a similar opportunity.
Whilst recognising that the cases of Crawford Fittings, Martin-Baker, Spenborough and Winter Garden (supra) support the general proposition that it is in the nature of a commercial contract that it must be terminable by either party without cause but upon some period of notice, counsel for the respondent directed my attention to an important distinction between at least some of these cases, or cases following them, and the present matter – that is, the distinction between the implications which might attend contracts containing no rights of termination, or no express references to them, on the one hand, and what might be implied in those cases where the contract provides limited rights to terminate for particular breaches or for commercial reasons, on the other. He argued that, in a commercial context, it is much easier to imply a term inferring a right of termination upon reasonable notice in the former circumstance than in the latter, that where the terms of the contract disclose that commercial parties have considered and given expression to particular rights of termination, one should be less ready to infer or imply such a right based upon commercial reasons.
It is indeed clear that in a number of those cases relied upon by the appellant, there was either no term at all dealing with termination or merely a de facto capacity in one party to bring the operation of the contract to an end: cf Australian Blue Metal (supra), Spenborough (supra), Barro Group Pty Ltd v Fraser [1985] VR 577.
In Prints for Pleasure Ltd v Oswald‑Sealy (Overseas) Ltd [1968] 3 NSWR 761, MacFarlan J discussed Spenborough, Martin-Baker and Re Berker Sportscraft Ltd’s Agreement (supra), amongst other authorities. He commented, at 767:
I am of the opinion that the provisions of the instant agreement show that at the time it was made the parties had considered the period of time during which it was to continue. In my opinion, this appears form (sic) cl. 2 and in the sense that so long as the “Australian Orders” were “not less than 10,000 prints per annum” the agreement was to be “a continuing one” … I do not conclude that the parties have said that the agreement is to continue for an indefinite period of time which is not determinable except by breach. In my opinion, the true construction is that they have agreed that it will continue until and when the “Australian orders” are “less than 10,000 prints per annum”. There are two important consequences which follow from this construction. The first is that it is not material that the contractual right to bring the agreement to an end is conferred upon one party only. In my opinion, Buckley, J., inferentially makes this plain in the first sentence of the passage I have cited from his judgment in Re Spenborough Urban District Council’s Agreement, supra. In the present case it is the respondent that is given the right which it can exercise by failing to place the minimum number of orders. The second consequence to which I refer is that when the agreement expresses some provision with respect to its termination, albeit in limited terms only, it evidences that at the time the agreement was made, the parties must be taken to have considered that point, and decided that what they had agreed sufficiently expressed their mutual desires. (my emphasis)
His Honour, in referring to Spenborough, was citing Buckley J at 146, where he observed:
Authority establishes that, where an agreement does not in terms confer on the parties or one of them a power to determine the agreement, whether such a power should be inferred is a question of construction of the agreement … (my emphasis)
Further, MacFarlan J pointed out that in Martin-Baker, the agreement under review contained no provision whatsoever for its determination and that that was a factor which McNair J used to distinguish it from Re Berker (supra). Indeed, he went on to quote from Jenkins J in Re Berker at 422:
If the construction of the agreements, considered as they stand, is sufficiently clear, it matters not that one or other of the parties is now dissatisfied with the bargain which he has made, and while no doubt the surrounding circumstances which the parties are likely to have taken into account may be resorted to to resolve an ambiguity, those circumstances or speculations about them cannot be used to override the provisions of the agreements themselves …
In State Bank of New South Wales v Commonwealth Savings Bank of Australia (1985) 6 FCR 524, Lockhart J observed that he was not much assisted by reported cases dealing with rights of determination, as they all fell to be decided on their particular facts, and he found it impossible to read into the subject agreement any implied or constructive right to terminate what he described as “the indefinitely continuing obligations” ( at 557).
In Coulter v Readhead (1931) 31 SR NSW 432, the court noted that it was apparent from the subject contract that the parties had given consideration to the question of termination of the agreement and had expressly provided for it to be ended at the option of either party on the happening of particular events. It thus found no reason for construing the contract as containing an implied term that it might be terminated upon notice.
Bobux Marketing Ltd v Raynor Marketing Ltd [2002] 1 NZLR 506, however, went the other way. There, the court reviewed the authorities and concluded that the fact that the relevant contract contained express provisions enabling termination in defined circumstances, did not preclude a finding of an implied right to terminate on reasonable notice. Even so, it was then persuaded that in the particular circumstances before it and having regard to the terms of the contract, there was no room for the implication of a right to terminate without cause.
All in all, I am satisfied that, if indeed it is accepted that commercial contracts are ordinarily terminable upon reasonable notice, then, even so, the overriding consideration must be as to the terms of the particular contract under consideration. If, on its terms, it may be inferred that the parties intended otherwise and that it should be determinable only in specified circumstances, then it seems to me that such an intention should prevail.
I turn then to the appellant’s argument as to the existence of an implied term. I have already discussed the contractual provisions at length and will not repeat myself, but the accepted authority is Codelfa (supra) and the authorities which preceded it, in particular BP Refinery (Westernport) Pty Ltd v Hastings Shire Council (1978) 52 ALJR 20.
I have already quoted from Mason J at page 352. I am unable, in this contract, to find language that is ambiguous or susceptible of more than one meaning: to me its meaning is plain. If I am wrong in that, there is no claim or evidence before me of facts existing at the time the contract was made which were known to both parties or notorious and which will aid in its construction. I am not, therefore, greatly assisted by consideration of the bases outlined in Codelfa for implication of terms. Even so, I add the following observations:
(1)I am not satisfied it would be reasonable and equitable for the suggested term to be implied in the contract, particularly in the context of the respondent’s capital commitment to the venture, its obvious need for security, and the more so given that the appellant inferentially sought to and did protect its own commercial position through clause 10(b)(i).
(2)An implied right of determination without cause in favour of the appellant would not necessarily give business efficacy to the contract and, indeed, it appears to have continued effectively for a considerable period of time without such a right. Furthermore, the appellant remained at liberty to have recourse to clause 10(b)(i).
(3)I am not satisfied that the need for inclusion of such a provision is so obvious that it goes without saying, particularly in circumstances where it is apparent that the parties have specifically turned their minds to the question of termination without notice.
(4)Plainly, such a term would be capable of clear expression.
(5)Such a term would not contradict any express term in the contract.
In the end, it seems to me that the question I must consider is one of construction, unaided in this particular circumstance by any evidence, or promise of it, as to the circumstances in which the contract was formed and which might assist that task. In so approaching the document, I find I am not satisfied it confers any implied right upon the appellant to terminate other than for fundamental breach or in the manner provided for in clause 10(b).
I conclude that the contract here was intended to be one of indefinite duration, terminable, otherwise than for fundamental breach, only in the circumstances outlined in clause 10, they being the circumstances which, I am satisfied, the parties treated as comprehensively delineating their rights to terminate without cause or for commercial reasons.
I am persuaded that the declarations sought in the respondent’s application under DCR 25.02 should be made and, as this is by way of rehearing, I so declare.
The appeal is dismissed.