Cohen v SPB Developments Pty Ltd
[2006] WADC 186
•24 NOVEMBER 2006
JURISDICTION : DISTRICT COURT OF WESTERN AUSTRALIA
IN CHAMBERS
LOCATION: PERTH
CITATION: COHEN -v- SPB DEVELOPMENTS PTY LTD & ORS [2006] WADC 186
CORAM: COMMISSIONER SCHOOMBEE
HEARD: 25 AUGUST 2006
DELIVERED : 24 NOVEMBER 2006
FILE NO/S: CIV 1251 of 2005
BETWEEN: BRUCE FREDERICK COHEN
Plaintiff
AND
SPB DEVELOPMENTS PTY LTD (ACN 083 060 217)
First DefendantCROSSCUT PTY LTD (ACN 062 078 844)
Second DefendantFERNAN PTY LTD (ACN 009 468 517)
Third DefendantFINI GROUP PTY LTD (ACN 062 720 601)
Fourth Defendant
Catchwords:
Practice and procedure - Hearing of preliminary issues - Interpretation of redevelopment clause in lease - Notice to be given "at any time" - Implied term to restrict meaning of "at any time" - Meaning of implied term of good faith
Legislation:
Rules of the Supreme Court 1971, O 31 r 2, O 32 r 4
District Court Rules 2005
Result:
Application to hear preliminary issues dismissed
Representation:
Counsel:
Plaintiff: In person
First Defendant : Mr M C Hotchkin
Second Defendant : Mr M C Hotchkin
Third Defendant : Mr M C Hotchkin
Fourth Defendant : Mr M C Hotchkin
Solicitors:
Plaintiff: Not applicable
First Defendant : Hotchkin Hanly
Second Defendant : Hotchkin Hanly
Third Defendant : Hotchkin Hanly
Fourth Defendant : Hotchkin Hanly
Case(s) referred to in judgment(s):
Alcatel Australia Ltd v Scarcella (1998) 44 NSWLR 349
Automasters Australia Pty Ltd v Bruness Pty Ltd [2002] WASC 286
Blackler v Felpure Pty Ltd (2000) 9 BPR 17.257
BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266
Burger King Corp v Hungry Jack's Pty Ltd [2001] NSWCA 187
Central Exchange Ltd v Anaconda Nickel Ltd (2002) 26 WAR 33
Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337
Day v William Hill (Park Lane) Ltd [1949] 1 KB 632 at 639
Edwards (Inspector of Taxes) v Bairstow [1956] AC 14
Fancourt v Mercantile Credits Ltd (1983) 154 CLR 87
Garry Rogers Motors (Aust) Pty Ltd v Subaru (Aust) Pty Ltd [1999] ATPR 41-703
Gateway Realty Ltd v Arton Holdings Ltd [No 3] (1991) 106 NSR (2d) 180
General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125
Hughes Aircraft Systems International v Airservices Australia (No 3) (1997) 146 ALR 1
LMI Australasia Pty Ltd v Baulderstone Hornibrook Pty Ltd [2001] NSWSC 886
Mutual Life & Citizens' Assurance Co Ltd v Evatt (1970) 122 CLR 628
Parkinson v Barclays Bank Ltd [1951] 1 KB 368
Peters (WA) Ltd v Petersville Ltd [2001] HCA 45
Renard Constructions (ME) Pty Ltd v Minister for Public Works (1992) 26 NSWLR 234
Rocklea Spinning Mills Pty Ltd v Anti-dumping Authority & Fraser (1995) 56 FCR 406
Royal Botanic Gardens & Domain Trust v South Sydney City Council (2002) 76 ALJR 436
Smith v Maloney (1998) 19 WAR 209
The Republic of Bolivia v The National Bolivian Navigation Co (1876) 24 WR 361
Case(s) also cited:
Esanda Finance Corporation Ltd v Wordplex Information Systems Ltd (1990) 19 NSWLR 146
Kat v Dimat [1950] 2 All ER 657
Lay Alliswell Pty Ltd [2001] VSC 385
Southend-on-Sea Estates Co Ltd v Commissioners of Inland Revenue [1914] 1 KB 515
Tepko Pty Ltd v Water Board (2001) 206 CLR 1
Tilling v Whiteman [1980] AC 1
Walton Stores (Interstate) Ltd v Maher (1988) 164 CLR 387
COMMISSIONER SCHOOMBEE: The first, second, third and fourth defendants ("the defendants"), who are jointly represented by counsel, have brought an application pursuant to O 31 r 2 and O 32 r 4 of the Rules of the Supreme Court1971 for two questions raised on the pleadings to be tried as preliminary issues, for the determination of the preliminary issues to take place at the same time as the hearing of the application and for judgment to be entered for the defendants, with costs, in the event that the preliminary issues are decided in favour of the defendants.
The two questions to be heard on a preliminary basis concern the interpretation of a lease and whether on the pleaded facts it can be found that the terms of the lease were breached.
On 26 October 1999 the plaintiff and the defendants entered into a lease of a property, being part of 472 Murray Street, Perth, Western Australia ("the property"). The lease was for a term of five years, expiring on 31 October 2004 ("the lease"). The lease contained the following redevelopment clause:
"46. In the event of the lessor at any time during the continuance of the term of this lease or any extension or renewal thereof desiring to redevelop to remodel or demolish the building or any part of the building or the leased premises or any part or the leased premises then the lessor may terminate this lease and the term hereby created and any extension or renewal thereof at any time by giving to the lessee not less than 3 months prior notice in writing and at the expiration of said notice the lessee and the lessee’s sub-tenants and the occupiers of the leased premises shall forthwith vacate possession of the leased premises and each and every part thereof to the lessor in accordance with the covenants in that behalf hereinbefore contained without any right on the part of the lessee to claim or receive compensation or damages for such early determination PROVIDED THAT the lessee shall remain liable for the payment of the annual rental hereby reserved and the performance and observance of the covenants conditions and stipulations in this lease contained or implied and on the part of the lessee to be performed or observed hereunder up to the date of such determination and (in respect of those covenants expressed to survive the determination of this lease) until such covenants shall have been fulfilled".
The plaintiff pleads in par 5(1) of the statement of claim that it was a term of the lease, implied in law, that:
"the defendants must exercise their rights under the redevelopment clause:
(1)no sooner than reasonably necessary for the defendants to regain possession of the property for the purpose of any redevelopment or demolition (the timely notice provision); and
(2)in good faith (good faith provision)."
The defendants deny in their defence that the term pleaded in par 5(1) of the statement of claim ("the timely notice provision") can be implied in law, but admit that the term pleaded in par 5(2) ("the good faith provision") is to be implied in law.
The plaintiff further pleads in par 7 of the statement of claim that the defendants breached the above two implied terms by issuing a notice of redevelopment on 9 October 2002.
The defendants have asked the following further and better particulars with regard to par 7 of the statement of claim:
"As to paragraph 7 of the statement of claim, state each and every fact, matter, thing and circumstance relied upon when pleading that the defendants' notice of 9 October 2002 breached the implied terms pleaded at paragraphs 5(1) and 5(2) of the statement of claim."
Paragraph 3 of the plaintiff's answer to the request for further and better particulars states the following:
"At the time when the defendant (sic) gave the notice of 9 October 2002, they did not need possession of the property or were reasonably likely to need the property on the expiration of the notice period for the purpose of redevelopment."
The two questions which this Court has been asked to consider as preliminary issues are the following:
"1.Is the term pleaded in paragraph 5(1) of the Statement of Claim capable as a matter of law of being implied into the Lease?
2.Assuming the conduct pleaded in paragraph 3 of the Further and Better Particulars (dated 7 October 2005) of paragraph 7 of the Statement of Claim can be proven, is that conduct capable as a matter of law of constituting a breach of the implied term pleaded in paragraph 5(2) of the Statement of Claim."
History of this application
This case was entered for trial on 16, 17 and 18 May 2006. On 16 May 2006 the plaintiff made an application to have the trial adjourned, because on 4 May 2006 the defendants had served on the plaintiff a supplementary list of discovered documents and also, on 16 May 2006, an outline of submissions indicating that an application to have the above two questions heard as preliminary issues would be made on the first day of the trial. The defendants consented to the application to have the trial adjourned.
Mr Andrew Macpherson, an employee of the solicitors for the defendants, states in an affidavit, dated 26 July 2006, that at the hearing on 16 May 2006 before his Honour Judge Martino, counsel for the defendants raised the question of applying for the determination of the preliminary issues referred to in the submissions, dated 11 May 2006, at a time prior to the adjourned trial of the matter. The plaintiff, who was self‑represented, advised the Court that he required an opportunity to consider the submissions and would seek legal advice on them and on whether he needed to amend the statement of claim in light of the submissions. Accordingly, his Honour made orders that any application by the plaintiff to amend the statement of claim be made within six weeks and that any application by the defendants for the hearing of the preliminary issues be made within eight weeks. The matter was adjourned to a directions hearing.
Mr Macpherson further states in his affidavit that at a directions hearing on 25 July 2006 before Registrar Wallace, the plaintiff handed counsel for the defendants his submissions in opposition to the application for the hearing of the preliminary issues and advised Registrar Wallace that he would not be amending his statement of claim other than possibly in respect of a "small amount".
The plaintiff's outline of submissions in opposition to the application to hear the preliminary issues was filed with this Court on 25 July 2006.
At the hearing of the current application before this Court the plaintiff said from the Bar table that his submissions filed on 25 July 2006 had been prepared with the assistance of his solicitor, Mr R A Zilkens. Zilkens & Co have signed the statement of claim filed in this matter and have prepared an affidavit of discovery sworn to by the plaintiff. However, the name Zilkens & Co does not appear on the plaintiff's outline of submissions in opposition to the application to determine the preliminary issues.
The plaintiff explained from the Bar table that Mr Zilkens was now otherwise engaged but that he had prepared the plaintiff's outline of submissions in opposition to the proposed application to determine the preliminary issues after the plaintiff had served on him the defendants' outline of submissions on 16 May 2006.
The defendants' current application for determination of a preliminary issue was filed on 26 July 2006. This means that the plaintiff's outline of submissions in opposition to the application to determine the preliminary issues was filed prior to the application, but the plaintiff's submissions were based on the defendants' submissions dated 11 May 2006. Prior to the hearing of the defendants' application on 25 August 2006, the defendants filed a further outline of submissions, dated 16 August 2006, in support of their application for determination of the preliminary issues.
At the hearing the plaintiff objected that he had only been served with these submissions some six days earlier and that he did not have enough time to consider them. I am satisfied that the defendants' submissions of 16 August 2006 do not raise any additional points and that the issues arising from the two questions to be determined as preliminary issues were already clearly stated in the submissions served by the defendants on the plaintiff on 16 May 2006. Further, the plaintiff has been served with the defendants' application for determination of a preliminary issue and received the further outline of submissions approximately six days prior to the hearing of the application. Rule 61(4) of the Rules of the District Court 2005 provides that an outline of submissions is to be filed and served at least two clear working days before the date of the hearing.
In light of the above information, I am satisfied that the plaintiff, although unrepresented, has had the opportunity of obtaining legal advice in respect of the application to determine the preliminary issues and has had assistance in drafting the outline of submissions filed in opposition to this application. Further, the plaintiff was given the opportunity of amending his statement of claim or the further and better particulars to his statement of claim and, after taking legal advice on the defendants' proposed application, indicated to Registrar Wallace on 25 July 2006 that he would not be amending his statement of claim. I am therefore satisfied that the issue whether the two questions, the subject of this application, should be heard by way of preliminary issues and how these two questions are to be decided, may be assessed on the pleadings as they currently stand.
The pleadings
The statement of claim pleads that on 26 October 1999 the plaintiff and the defendants entered into the lease, which was for a term of five years, expiring on 31 October 2004. The statement of claim further pleads the redevelopment clause as an express term of the lease.
I have already referred to the fact that the plaintiff alleges in par 5 of the statement of claim that the timely notice provision and the good faith provision are implied terms of the lease.
Paragraph 7 of the statement of claim pleads that on 9 October 2002 and in purported exercise of their right pursuant to the redevelopment clause, the defendants gave the plaintiff notice of their desire to redevelop and demolish the property and that the lease was to terminate on 10 January 2003. The plaintiff says that the notice was in breach of the timely notice provision and the good faith provision.
The plaintiff further pleads that on 21 January 2003 the defendants caused him to be ejected from the property and that he has suffered loss and damage as a result of the wrongful termination of the lease and his ejection from the property. The loss and damage claimed by the plaintiff is in respect of the profit that he would have earned from his business which provided car-parking facilities on the property during the period 15 January 2003 to 31 October 2004 in the amount of $246,673. The plaintiff further claims damages in respect of the loss of use of eight car bays in the amount of $16,706 and the loss of use of 20 motorcycle parking bays in the amount of $29,400. In addition, the plaintiff claims damages for the non‑return of 18 items of property valued at $14,524.
I have already referred to the further and better particulars requested by the defendants in respect of the breach pleaded in par 7 of the statement of claim and the answer supplied by the plaintiff. The answer to the request for further and better particulars was signed by R A Zilkens.
The defendants deny that the timely notice provision can be implied into the lease, but admit that the good faith provision is an implied term of the lease. The defendants further admit in the defence that they gave the plaintiff notice of their intention to redevelop and demolish the property as pleaded in the statement of claim, but deny that this was in breach of the lease or the implied terms pleaded in par 5 of the statement of claim.
The defendants state that between 1 January 2002 and at least 30 June 2003 (being the relevant period in respect of which the plaintiff claims damages) they desired to redevelop the property. The defendants plead a number of steps which they took in this period in accordance with their intention to redevelop the property. It is not necessary for the purposes of this application to list all of the steps pleaded by the defendants. Essentially, it is alleged that the defendants appointed Beck Advisory on or about 10 April 2002 to assist the defendants in coordinating their efforts to obtain tenants for the proposed development and that the defendants received a preliminary submission from C B Richard Ellis for the relocation of the Royal Automobile Club of Western Australia to the proposed development in April 2002.
The defendants also plead that on 30 May 2002 they received a fee proposal from architects Jones Coulter Young and appointed them in early June 2002 to design the proposed development. The defendants further appointed C B Richard Ellis in May 2002 as leasing agents for the proposed development. The defendants say that they lodged a development application with the City of Perth on 18 September 2002 and approval was granted on 14 November 2002. The defendants further consulted and corresponded with various architects, engineers, the Heritage Council, the Department of Transport and construction companies. On 15 October 2002 the defendants received a budget price proposal for the proposed development from Board Construction Services and on 13 November 2002 a draft memorandum of understanding to guide negotiations for a construction agreement for the proposed development. The defendants plead that they incurred substantial consultancy fees in respect of the proposed development.
The defendants further plead that at the time that they issued the notice of their desire to redevelop and demolish the property on 9 October 2002, they required vacant possession as soon as possible by reason of a number of matters. Firstly, the holding costs for the property were so substantial that the development had to be undertaken as soon as reasonably practicable. Secondly, the obligation to permit the plaintiff quiet enjoyment of the leased premises precluded consultants from obtaining convenient and regular access to the site for the purpose of preparing reports on matters such as structural design, asbestos content and heritage issues. Thirdly, it was necessary to give prospective tenants reasonable certainty of the completion date of the proposed development in order to compete with owners of alternative premises. Prospective tenants, such as the Department of Veteran Affairs, required assurance that the premises would be available to commence fit‑out by a specified date. In order to give such assurances the defendants required vacant possession so that they had certainty that there would not be any problems with the vacation of the premises by the plaintiff.
The essence of the defendants' defence appears to be that the defendants needed vacant possession as soon as possible so that the planning for the demolition and redevelopment of the premises could take place unhindered and with immediate effect.
No reply was filed by the plaintiff. This means that the plaintiff has put in issue the defendants' allegations regarding the steps that they took in planning and preparing for the demolition and redevelopment of the premises and the reasons for their requirement of vacant possession.
Principles applying to a hearing of preliminary issues
The defendants' application was made pursuant to O 31 r 2 and O 32 r 4 of the Rules of the Supreme Court. At the hearing of this application, the defendants submitted that the two questions to be heard on a preliminary basis arose from the pleadings and could be determined on the basis of the pleadings and the applicable law without any evidence being necessary. Counsel for the defendants submitted that there were substantial disadvantages in allowing the matter to proceed to trial, as the time and costs required to prove the steps that the defendants had taken in preparation for the redevelopment and the reasons why vacant possession was urgently needed as well as to challenge the plaintiff's claim for damages were substantial.
Counsel for the defendants submitted that all of this evidence was unnecessary if the Court would in any event find that the lease did not contain the timely notice provision relied upon by the plaintiff as a term implied in law. Further, if the Court would find that the facts provided by the plaintiff as particulars of the defendants' breach of the good faith provision could not constitute a breach of this provision, the outcome of any trial would in any event be in favour of the defendants. Counsel for the defendants argued that the hearing of these two questions as preliminary issues had the advantage of potentially saving the time and expense of a three day trial and that the only disadvantage was that a finding by this Court in favour of the defendants might lead to an appeal and that this would delay the trial of the remaining issues in this matter if the appeal was successful. The advantages therefore outweighed the disadvantages in this particular case.
The plaintiff, who was unrepresented, submitted that the matter should proceed to trial. The plaintiff said that he intended to lead evidence to the effect that the defendants did not have development approval until one month after the redevelopment notice had been issued to him, that the development approval was subject to a number of conditions and that the defendant "did not address any of the conditions" in the development approval. The plaintiff indicated that he wished to lead evidence that the defendant subsequently sold the property and negotiated with a third party to take a lease of the parking area which the plaintiff had earlier leased from the defendants. The plaintiff said that this established an ulterior motive by the defendants.
The defendants' application is made purely on the basis of the existing pleadings and no additional facts were agreed upon between the parties or put to this Court as a stated case. It seemed to be common cause that this Court was entitled to rely on the provisions of the lease and, more particularly, the redevelopment clause. The redevelopment clause is pleaded as an express term of the lease in par 4 of the statement of claim. Further, documents referred to in a pleading become part of the pleading and it is open to a court to read them: Day v William Hill (Park Lane) Ltd [1949] 1 KB 632 at 639.
Although the application was made pursuant to O 31 r 2 and O 32 r 4 of the Rules of the Supreme Court, in my view it is in essence not much different to an application to strike out a pleading pursuant to O 20 r 19(1)(a) of the Rules of the Supreme Court on the basis that it does not disclose a proper cause of action. This is because this Court has in essence been asked to determine whether on the case as pleaded, the plaintiff can prove a proper cause of action.
The principles applicable in determining whether a question or issue should be tried separately from the remainder of the issues in dispute pursuant to O 31 r 2 or O 32 r 4 of the Rules of the Supreme Court have been succinctly summarised by Ipp J in Smith v Maloney (1998) 19 WAR 209 at 222-223 as follows:
"The usual course is to deal with all questions of law and fact before a judge, alone, at the trial of an action: see Independent Automatic Sales Ltd v Knowles & Foster [1962] 1 WLR 974 at 981; [1962] 3 All ER 27 at 30. The preliminary determination of a point of law is an exceptional way of proceeding and should be reserved for the exceptional case and the question should be formulated in the order with precision: see Wilsmore v Court [1983] WAR 190 at 194. Preliminary questions of law should generally only be isolated for separate decision in circumstances where there will be no need for the matter to go back to the primary court whichever way the point of law is decided: see Rocklea Spinning Mills Pty Ltd v Anti-Dumping Authority (1995) 56 FCR 406 at 423. This is not such a case.
Similar considerations apply to the making of an order that any question or issue arising in a cause or matter whether of law or fact or partly law and fact be tried separately from any other question or issue under O 32, r 4. The power to order the trial of a preliminary issue of fact will generally only be appropriate when its outcome will put an end to the action, or where there is a clear line of demarcation between the issues and the determination of one issue in isolation from the others is likely to save inconvenience and expense: cf Dunston v Simmie & Co Pt Ltd [1978] VR 669. It has also been held that the separate trial of issues is only appropriate in clear and simple cases where a single question could be isolated from other questions in the proceedings and its decision may finally determine the proceedings as a whole or where facts can be agreed and the sole question is one of law: see Allen v Gulf Oil Refining Ltd [1981] AC 1001. It has been commented that it is a procedure which frequently adds to the difficulties of courts of appeals and tends to increase the cost and time of legal proceedings and is not an appropriate procedure when the findings of fact could only be made after trial: see Tilling v Whiteman [1980] AC 1. It should be noted that all of these cases were decided before the advent of case management, which commenced in the civil jurisdiction on a pilot basis in this Court in 1990 and which has been in full operation since 1 November 1996. Experience has shown that the existence of a significant possibility that the determination of one or more issues tried separately may lead to a settlement is a practical consideration which should also be taken into account".
One of the important principles referred to in Rocklea Spinning Mills Pty Ltd v Anti-dumping Authority & Fraser (1995) 56 FCR 406 at 423 (also reported in (1995) 129 ALR 401 at 416) is that a particular question should not generally be heard as a preliminary issue where a decision on this question will not put an end to the proceedings. The hearing of a preliminary issue is intended for cases where the court sees it as a way to the final determination of the action: The Republic of Bolivia v The National Bolivian Navigation Co (1876) 24 WR 361 at 362.
Further, where the court is asked to take into account certain facts as part of the determination of a preliminary issue, those facts need to be agreed between the parties and need to comprise all of the facts to be tried by evidence on this particular issue: The Republic of Bolivia v The National Bolivian Navigation Co (supra) at 362.
I accept that the first question which this Court has been asked to determine on a preliminary basis is a question of law and could be decided purely on the pleadings and the lease. However, the second question posed for this Court requires the court to determine whether a certain set of material facts, as pleaded in par 3 of the plaintiff's further and better particulars, could possibly constitute a breach of the implied term of good faith. I accept that the question whether a particular set of facts constitutes a breach of a contractual obligation is a question of law: Edwards (Inspector of Taxes) v Bairstow [1956] AC 14 at 36. My concern in this matter is that the total set of facts which may constitute a breach of the good faith provision may go much further than the material facts pleaded in par 3 of the further and better particulars.
Order 20 r 8(1) of the Rules of the Supreme Court only requires a party to plead the material facts on which the party relies for his/her statement of claim. Seaman Civil Procedure Western Australia, vol 1 at [20.19.6] states the following in respect of an application to strike out a pleading:
"Under the modern system of pleading, the question is not whether the facts pleaded are themselves sufficient to give rise to a cause of action. Rather, ‘the question is whether it would be open to the applicant upon the pleadings to prove facts at the trial which would constitute a cause of action’: Pan Continental Mining v Pogold Investments Pty Ltd (1994) 121 ALR 405 at 414; 13 ACSR 117 at 127".
This principle was already formulated in Mutual Life & Citizens' Assurance Co Ltd v Evatt (1970) 122 CLR 628 at 631.
I therefore need to consider whether it is appropriate to decide as a preliminary issue whether the plaintiff will be able to prove a breach of the good faith provision on the basis of evidence that he may be able to produce at trial to support the material allegations pleaded in par 3 of the further and better particulars. This question firstly requires some investigation into the meaning of an implied term of "good faith" and into what constitutes a breach of such a term.
Meaning of implied term of "good faith"
In the relatively recent decision of Royal Botanic Gardens & Domain Trust v South Sydney City Council (2002) 76 ALJR 436 at [40], [88] and [155] the High Court left open the issue of the content and meaning of an implied obligation of good faith in the exercise of contractual rights and powers. In Central Exchange Ltd v Anaconda Nickel Ltd (2002) 26 WAR 33 at [54] – [64] Steytler J gave an overview of how an implied term of good faith has been interpreted in recent court decisions. It is apparent from his Honour's summary of the case law and authorities on this subject that there is no agreement as to the meaning of an implied term of good faith. Steytler J referred (at [58]) to the propositions by Sir Anthony Mason in A F Mason, "Contract, Good Faith and Equitable Standards in Fair Dealing" (2000) 116 LQR 66 at 69 that the concept of "good faith" embraced no less than the three following notions:
(1)an obligation on the parties to co-operate in achieving the contractual objects (loyalty to the promise itself);
(2)compliance with honest standards of conduct; and
(3)compliance with standards of conduct which are reasonable having regard to the interests of the parties.
The propositions of Sir Anthony Mason regarding the meaning of "good faith" have been cited with approval in other cases such as: Burger King Corp v Hungry Jack's Pty Ltd [2001] NSWCA 187, 21 June 2001, [171]; Alcatel Australia Ltd v Scarcella (1998) 44 NSWLR 349 at 367 and Hughes Aircraft Systems International v Airservices Australia (No 3) (1997) 146 ALR 1 at 37.
In Central Exchange v Anaconda (supra) at [59] and [60] Steytler J also referred to Renard Constructions (ME) Pty Ltd v Minister for Public Works(1992) 26 NSWLR 234 at 263 and Alcatel Australia Ltd v Scarcella (supra) at 363-369 in which cases the NSW Court of Appeal held that there was a close association of ideas between the terms "reasonableness" and "good faith". On the other hand Steytler J cited Garry Rogers Motors (Aust) Pty Ltd v Subaru (Aust) Pty Ltd [1999] ATPR 41-703 at 43,014, where Finkelstein J held that an implied term of good faith imposed an obligation on a party "not to act capriciously", although it did not restrict a party acting so as to promote its own "legitimate interests". Lastly, Steytler J referred to Gateway Realty Ltd v Arton Holdings Ltd [No 3] (1991) 106 NSR (2d) 180 at [60] in which case Kelly J held as follows:
"What will constitute bad faith or breach of the conduct described above will depend on the terms of the contract and the circumstances of each case. In most cases, bad faith can be said to occur when one party, without reasonable justification, acts in relation to the contracts in a manner where the result would be to substantially nullify the bargained objective or benefit contracted for by the other, or cause significant harm to the other, contrary to the original purpose and expectation of the parties".
The review of the above authorities led Steytler J to make the following summary of the current state of the law regarding the meaning of an implied term of good faith at [63]:
"While the content of the phrase 'good faith', in this context, remains still to be worked out, it seems, from the a foregoing review of the case law, that it is, as yet, questionable just how much an implied term of that kind would add to the well-established doctrines referred to by Gummon J in Berg Bennett, taken together with the implied term that each party will do what is necessary on its part to enable the other to have the benefit of the contract, accepted in such cases as Butt v M'Donald (1896) 7 QLJ 68 at 70-71 and Secured Income (at 607). That said, an implied term of that kind would undoubtedly bring with it a degree of flexibility, because of its general nature, that is not present in what Sir Anthony Mason, above (at 94) has described, perhaps a little unfairly, as 'rigid rules'. That degree of flexibility may well result in further development and growth of the concept, if it should gain general acceptance".
The fact that the law implies an obligation by a party to a contract conferring a benefit on another party to do all such things as are necessary on its part to enable the other party to have that benefit was confirmed by the High Court in Peters (WA) Ltd v Petersville Ltd [2001] HCA 45. It was also discussed by Malcolm, CJ in Central Exchange v Anaconda (supra) at [14] - [18].
On the present state of the law it may therefore be accepted that an implied term of "good faith" at least requires each party to act reasonably in doing what is necessary to enable the other party to have the benefit of the contract and that it would be a breach of such a term if a party, without reasonable justification, acted in a manner which substantially nullified the bargained for benefits of the other party.
In Automasters Australia Pty Ltd v Bruness Pty Ltd [2002] WASC 286, Hasluck J also reviewed the case law dealing with the meaning of an implied term of "good faith" and came to the following conclusion at [353]:
"What constitutes good faith will depend on the circumstances of the case and upon the context of the whole of the contract. The courts will allow normal and reasonable business behaviour, with the result that the parties are not obliged to put aside their own self-interest or proprietary rights. A court considering such a provision is entitled to have regard to the reasonableness of the conduct and whether a party has acted unconscionably or capriciously. This may require the court to give some consideration to the motivation underlying the relevant events".
In Blackler v FelpurePty Ltd (2000) 9 BPR 17.257 at [32] Bryson J held that it would not be in good faith if a lessor delivered a redevelopment notice asserting an intention to redevelop if in fact the lessor did not have such an intention. His Honour further stated the following:
"Other principles which also support this conclusion are the principle requiring the exercise of contractual powers which may affect the rights of others to be undertaken in good faith for the purposes for which the power was conferred and at a more basic level the principle which vitiates fraud would deprive a notice asserting that there was an intention to demolish premises from any effect if in fact there was no such intention." (Emphasis added)
On the basis of the above authorities it seems to me that there is considerable scope for the plaintiff to argue that if the defendants did not reasonably require vacant possession of the property at the time that the redevelopment notice was issued or at the time when it expired that the defendants acted in breach of the implied term of good faith. It is of course possible that the defendants are able to prove, as pleaded in their defence, that they reasonably required vacant possession of the property at the time that the redevelopment notice was issued or expired. However, this involves evidence which is currently not before this Court. What this Court has to consider at this stage is whether the material facts pleaded in par 3 of the further and better particulars allow for evidence to be led which could possibly prove that the defendants did not act in good faith. The implied obligation that each party will do what is necessary to enable the other party to have the benefit of the contract may also lead to a finding that the issue of a redevelopment notice by the defendants at a time when they did not reasonably require vacant possession (if this is proven) is in breach of the obligation to do what is necessary to enable the plaintiff to have the benefit of the contract.
The plaintiff's list of authorities in opposition to the defendants' application for the hearing of the two questions on a preliminary basis refers to Parkinson v Barclays Bank Ltd [1951] 1 KB 368. In this case the court held that pursuant to the terms of a lease the lessor had to issue a redevelopment notice at the expiration of the first term of the lease, if at all. Because the lessor did not have the opportunity to issue a redevelopment notice during the course of the second term, the lessor was entitled to issue the notice at the end of the first term when it knew that it would require the leased property for redevelopment at a future time, even though it did not require immediate vacant possession. However, the court also said that if the lease had allowed for the redevelopment notice to be issued at any time, there may have been great force in interpreting the redevelopment clause to restricting the right to give notice to a time when vacant occupation was required by the lessor (at 373). Although the court was not concerned with an implied term of good faith, it indicated, obiter, that if the lease had allowed for a redevelopment notice to be issued at any time, a proper construction of the redevelopment clause may have allowed for a restriction of the right to give a redevelopment notice.
Appropriateness of deciding second question on a preliminary basis
In light of the meaning that has been given to an implied term of good faith and the fact that the plaintiff will be entitled to lead further evidence in support of the material facts pleaded in par 3 of the further and better particulars at the trial, I am of the view that the second question posed to this Court is not an issue which should be decided on a preliminary basis. All relevant facts concerning the issue whether there was a breach of the good faith provision are not before this Court and it cannot be said that whatever evidence the plaintiff leads in support of the allegation that the defendants did not require vacant possession of the property at the time of issue of the notice or its expiration, he will not be able to prove a breach of the implied term of good faith.
It has been repeatedly held in the context of a strike out application or summary judgment application that great care must be exercised by a court to ensure that a plaintiff is not improperly deprived of his or her opportunity for the trial of his or her case by the appointed tribunal: General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125 at 130 and Fancourt v Mercantile Credits Ltd (1983) 154 CLR 87 at 99. In my view the same considerations apply when a court determines whether a particular issue should be heard on a preliminary basis. In this case all relevant facts are not before the court at this stage and it would be inappropriate to decide the second question posed to this Court without giving the plaintiff the opportunity to lead all relevant evidence in this regard.
I have also considered the principle that an implied term of good faith can never "rise above the express terms". In LMI Australasia Pty Ltd v Baulderstone Hornibrook Pty Ltd [2001] NSWSC 886 at [75], Barrett J held as follows at [75]:
"It is important to recall, however, that the implied terms mentioned are, of their nature, incapable of rising above express terms. In Burger King, the Court of Appeal quoted the following passage from Metropolitan Life Insurance Co v RJR Nabisco Inc 716 F. Supp. 1504 (1989):
In other words, the implied covenant will only aid and further the explicit terms of the agreement and will never impose an obligation 'which would be inconsistent with other terms of the contractual relationship' .. Viewed another way, the implied covenant of good faith is breached only when one party seeks to prevent the contract's performance or to withhold its benefits. As a result, it thus ensures that parties to a contract perform the substantive, bargained-for terms of their agreement".
This principle was also referred to by Steytler J in Central Exchange v Anaconda (supra) at [64] as follows:
"One thing that is clear, however, is that principles of good faith 'do not block use of terms that actually appear in the contract' (Kham & Nate’s Shoes No 2 Inc v First Bank of Whiting (1990) 908 F 2d 1351 at 1357, referred to in Burger King (at [173]).
It could be argued by the defendants that the reference in the redevelopment clause to the defendants' right to issue the redevelopment notice "at any time" means that an implied term of good faith cannot place a restriction upon that right without "rising above" the express term. However, this raises the question what the proper construction is of the words "at any time" where they appear in the redevelopment clause in relation to the defendants' right to issue a redevelopment notice. As indicated in Parkinson v Barclays Bank Ltd (supra) it is not inconceivable that a court may hold that upon a proper construction of the words "at any time" the defendants' right to issue a redevelopment notice is limited to a time when they reasonable require vacant possession of the property at the expiration of the notice period. A court could come to this conclusion on the basis that it could not have been the intention of the parties to the lease that the defendants would be entitled to issue a redevelopment notice at a time after they had formed the desire to redevelop the property even though the redevelopment was only intended to take place in a couple of years.
Appropriateness of deciding first question on a preliminary basis
This brings me to the question whether it would be appropriate for this Court to decide the first question posed on a preliminary basis, even though I have come to the conclusion that the second question is not suitable to be decided on this basis. Whereas the first question is a matter which only involves the interpretation of the lease and is therefore a matter of law, I am not persuaded that in the context of the issues raised by the second question it is appropriate to decide the first question as a preliminary issue. As indicated earlier, in determining what the meaning is of the implied term of good faith and what obligations this places on the defendants, a court will have to give a proper construction to the words "at any time" where they are referred to in relation to the issue of a redevelopment notice.
In interpreting the words "at any time" a court may wish to have regard to the surrounding circumstances at the time that the lease was entered into to aid its interpretation. Evidence of surrounding circumstances is admissible to assist in the interpretation of a contract if the language is ambiguous or susceptible of more than one meaning: Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337 at 352. This raises the question whether the words "at any time" have a plain meaning or whether they are susceptible of more than one meaning. Whether the words "at any time" are ambiguous and what their proper construction should be, was not argued before me on this application. I was only asked to decide as a preliminary issue whether the timely notice provision could be implied as a matter of law. However, before deciding whether a term restricting the express right to give a redevelopment notice "at any time" can be implied, it first has to be decided what the proper interpretation is of the words "at any time". In my view the questions regarding the proper interpretation of the words "at any time", the implication of the timely notice provision and the breach of the good faith provision are all interlinked, and it would not be appropriate for this Court to decide one without deciding the others.
I should say in this context that I do not consider the plaintiff's argument that the redevelopment clause contained an implied term restricting the issue of a redevelopment notice "at any time" to a time when vacant possession was reasonably required by the defendants to be without merit. The requirements for the implication of a term in a formal contract have been formulated in BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266 at 283 as follows:
"(1) it must be reasonable and equitable;
(2)it must be necessary to give business efficacy to the contract, so that no term will be implied if the contract is effective without it;
(3) it must be so obvious that "it goes without saying";
(4) it must be capable of clear expression;
(5) it must not contradict any express term of the contract".
As indicated earlier, the implication of the timely notice provision raises the question whether a lease which allows the lessor to give a redevelopment notice days after he or she has made a decision to redevelop the property even if it is intended to only commence the redevelopment years later can be said to have business efficacy. There is at least a valid argument that an implied term such as the timely notice provision is required to give the lease business efficacy.
As this matter cannot be determined finally because the second question posed to this Court does not allow for a final determination, I do not consider it appropriate that I decide the first question at this stage where the issues under consideration in respect of both questions are interlinked. The fact that a particular question of law is capable of being decided on a preliminary basis, does not mean that a court is bound to do so. As this matter will have to progress to trial in any event, there is no saving of expense or inconvenience in this Court deciding the first question at this stage. There is also the consideration that any evidence led in support of the alleged breach of the good faith provision may be relevant as surrounding circumstances in assessing the proper construction of the words "at any time".
As regards the practical consideration raised in Smith v Maloney(supra) that it may be helpful to decide a particular legal question on a preliminary basis so as to encourage a settlement between the parties, the discussion of the issues in this judgment should give the parties sufficient indication of the complexity of the issues raised by the two questions and the matters that should be taken into consideration when assessing the prospects of success of the respective parties.
I accordingly dismiss the application to have the two question posed to this Court heard as preliminary issues.
0
19
2