Driveforce Pty Ltd v Gunns Ltd (No 2)

[2010] TASSC 23

[2010] TASSC 23

COURT:  SUPREME COURT OF TASMANIA

CITATION:                 Driveforce Pty Ltd v Gunns Ltd (No 2) [2010] TASSC 23

PARTIES:  DRIVEFORCE PTY LTD
  v
  GUNNS LTD

FILE NO/S:  96/2007
DELIVERED ON:  20 May 2010
DELIVERED AT:  Hobart
HEARING DATE:  6 May 2010
JUDGMENT OF:  Holt AsJ

CATCHWORDS:

Procedure – Supreme Court procedure – Tasmania – Practice under Rules of Court – Amendments – Statement of Claim – Whether allowing amendment would be futile.

Aust Dig Procedure [276]

REPRESENTATION:

Counsel:
             Plaintiff:  R A Browne
             Defendant:  S B McElwaine
Solicitors:
             Plaintiffs:  Fitzgerald & Browne
             Defendant:  Shaun McElwaine & Associates

Judgment Number:  [2010] TASSC 23
Number of paragraphs:  17

Serial No 23/2010

File No 96/2007

DRIVEFORCE PTY LTD v GUNNS LTD

REASONS FOR JUDGMENT  HOLT AsJ

20 May 2010

1. The plaintiff has applied for an order granting leave to amend the statement of claim.  It is a contract case and the plaintiff wishes to introduce allegations including the assertion of the existence and breach of implied terms.  Counsel for the defendant confined his opposition to the application to the plea concerning implied terms, submitting that it is clear from the plea itself that the terms alleged will not be implied.  This was the sole ground of opposition.

1. Obviously, in the face of objection, leave to introduce an amendment which is liable to be struck out would not be given.  The Supreme Court Rules 2000, r259, provides that if a pleading "shows that the cause of action or defence is frivolous or vexatious, the Court or a judge may order … that … the pleading be struck out". "Frivolous and vexatious claims are ones which cannot possibly succeed." Gunns Ltd v Alishah [2009] TASSC 45 per Porter J at par23. The position is as stated by Dawson J in Commonwealth of Australia v Verwayen (1990) 170 CLR 394 at 456, namely:

"Of course, an amendment which is futile because it is obviously bad in law will not be allowed. But it is no ground for refusing an amendment that it raises a claim or defence which ought not to succeed. That will be an issue upon trial."

1. Here, the plaintiff alleges that by a written contract dated 1 May 2001, the company, North Forest Products Pty Ltd, engaged it to harvest and deliver wood.  The defendant took over the rights and obligations of North under the contract.  It is alleged that the agreement required the defendant to make available to the plaintiff for harvesting and delivery weekly quotas of pulpwood sufficient to permit the harvesting of the annual base quota of 65,000 tonnes of pulpwood per year.  It is alleged that between 2004 and 2006 there was a shortfall in the amount of pulpwood made available to the plaintiff by the defendant. The plaintiff claims to have suffered loss as a result.

1. By the proposed amendments at par21 the plaintiff wishes to allege that upon a proper construction of a clause in the agreement the defendant was required "to determine the weekly quota by reference to approximately 1/50^th of the base quota, subject to any variations reflective of seasonal conditions, coupe logistics and other like constraints".  There follows an allegation of breach of this clause.  These amendments are not opposed. 

1. The proposed plea continues:

"24Further or alternatively to paragraph 21, there were implied terms of the agreement:

(a)that the defendant would determine the weekly quota by reference to 1/50^th of the base quota;  and further or alternatively

(b)that each party would perform their obligations under the agreement in good faith.

25In the circumstances, good faith required the defendant to calculate the weekly quota at approximately 1/50^th of the base quota subject to any variations reflective of seasonal conditions, coupe logistics and other like constraints …"

1. The plaintiff has selected 1/50^th rather than 1/52^nd of the annual quota as being the required weekly quota because it says that at the time of formation of the contract the production year was 50 weeks. 

1. The primary submission for the defendant is that these terms cannot possibly be implied because they are inconsistent with the express terms of the contract.  Inconsistent terms cannot be implied in fact (BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977)180 CLR 266 at 282 – 283) nor in law (Helicopter Sales (Australia) Pty Ltd v Rotor-Work Pty Ltd (1974) 132 CLR 1).

1. The pleadings incorporate documents referred to therein and so such documents form part of the pleading and may be read on a pleading application.  (Hong Kong Bank of Australia Ltd v BPTC (In Liq) (1995) Aust Torts Reports 81-358 at 62,634).

1. The clauses relied upon by the defendant as giving rise to the inconsistency are as follows.  Clause 1.1 which defines "Weekly quota" as "the quantity of wood to be provided each week as advised by the Company from time to time".  Clause 4.9 by which it is provided that the plaintiff "has had regard to the period of this agreement and the minimum level of activity to which it relates".  Clause 6.1 which provides that the plaintiff is to "harvest and deliver the weekly quota as advised by the Company from time to time".  Clauses 6.2 to 6.4 which respectively make provision for the company to authorise the plaintiff to catch up in subsequent weeks if through unforeseen and unavoidable circumstances the plaintiff is unable to harvest the weekly quota;  make provision to allow the company to vary the weekly quota and provide that the company will not be liable for loss suffered by the plaintiff if the weekly quota is varied downwards in specified circumstances.  Clause 16.1(a) which provides:  "This agreement is the entire agreement between the parties".  Finally, cl 16.2 which contains an acknowledgement by the parties that the agreement is fair. 

1. I shall deal with the "entire agreement" clause first.  It is not clear or obvious that it operates to exclude the implication of terms.  Counsel for the defendant relied upon Hope v RCA (1937) 59 CLR 348. But, there, the clause under consideration expressly stated that there was no other agreement "express or implied". The clause here does not say this. It is similar to that considered in Hart v MacDonald (1910) 10 CLR 417 where Isaacs J said at 430:

"The agreement contains this provision: 'It is to be understood that there is no agreement or understanding between us not embodied in this tender and your acceptance thereof.' It was urged that this provision excluded implications. But that is not so. It excludes what is extraneous to the written contract: but it does not in terms exclude implications arising on a fair construction of the agreement itself, and in the absence of definite exclusion, an implication is as much a part of a contract as any term couched in express words."

1. However, the term alleged in par24(a) is plainly inconsistent with other terms of the contract.  The contract contemplates the issue of weekly quota advices from time to time.   The issue of such advices would be unnecessary and hence inconsistent if the contract contains an implied term that each and every weekly quota is to be 1/50^th of the base quota.  Accordingly, this term cannot be implied and the proposed plea in par24(a) will not be allowed.

1. On the other hand, the implication of a good faith term obliging the party with the power to set the weekly quotas to exercise that power fairly, honestly and reasonably by "requiring the defendant to calculate the weekly quota at approximately 1/50^th of the base quota subject to any variations reflective of seasonal conditions, coupe logistics and other like constraints" is not obviously inconsistent with the obligation to issue weekly quota advices.  Nor is it obviously inconsistent with the other terms referred to by counsel for the defendant.  In particular, it is not obviously inconsistent with the contract providing for a minimum level of activity as referred to in cl 4.9 or with the ability to vary the weekly quota, once set, as referred to in cl 6 or with the acknowledgment of fairness as referred to in cl 16.2.

1. Next, it was submitted that the proposed plea is bad because many of the facts asserted in support of the implication ignore the principle of objectivity which applies to the construction of contracts.  Counsel referred to the fact that the proposed plea contains allegations of matters within the knowledge of the contracting parties at the time of the formation of the contract.  In support of the proposition that such matters are irrelevant counsel referred to Toll (FGCT) Pty Limited v Alphapharm Pty Limited (2004) 219 CLR 165 at par40, where the Court said:

"This Court, in Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451, has recently reaffirmed the principle of objectivity by which the rights and liabilities of the parties to a contract are determined. It is not the subjective beliefs or understandings of the parties about their rights and liabilities that govern their contractual relations. What matters is what each party by words and conduct would have led a reasonable person in the position of the other party to believe. References to the common intention of the parties to a contract are to be understood as referring to what a reasonable person would understand by the language in which the parties have expressed their agreement. The meaning of the terms of a contractual document is to be determined by what a reasonable person would have understood them to mean. That, normally, requires consideration not only of the text, but also of the surrounding circumstances known to the parties, and the purpose and object of the transaction."

1. Toll is not authority for the proposition that evidence of matters within the knowledge of the contracting parties will always be inadmissible.  Evidence of matters in the common contemplation of the parties can be used for the implication of terms.  This was made clear by Mason J in Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337 where his Honour said at 354:

"The first question is whether, in the light of the principles as I have explained them, it was legitimate to look to this material on the issue of implication of a term. I think it was. The discussions which generated these findings were not negotiations about the terms of the contract. The terms of the contract documents had been determined in advance by the Authority. By lodging its tender Codelfa accepted the Authority's contract documents. The relevant discussions were therefore directed to the question of price. Their object was to enable Codelfa to inform itself of what was involved in the work and to cost it so as to arrive at a price for inclusion in its tender. The consequence is that the discussions did not have the character of negotiations in the course of which the parties gradually evolved the terms of a bargain ultimately embodied in written form. Had the discussions been of that kind then, as we have seen, recourse to them would have been prohibited for the purpose of interpreting the contract by reference to the parties' actual intentions as expressed before entry into the contract. As it was, the relevant discussions reflect neither the preliminary consensus that merged into the written contract, nor statements made during the course of negotiations indicative of the unilateral intentions of each party. Instead the evidence revealed a matter which was in the common contemplation of the parties yet was not a contractual provision actually agreed upon for the simple reason that it was a matter of common assumption."

1. As the impugned allegations concerning the negotiations do not relate to the construction of express terms in the contract, but are concerned with the implication of terms, it is not clear or obvious that the facts alleged, if made out, could not be considered.

1. It is for the plaintiff to persuade the Court that it ought have a favourable exercise of the discretion to grant leave to amend.  There was no opposition to the amendments other than the assertion that to allow the plea relating to implied terms would be futile.  I am satisfied that the proposed amendments relating to implied terms, other than the plea in par24(a), are not obviously bad in law.  The allegations should be heard and determined in the usual way, that is at trial.

1. There will be an order granting to the plaintiff leave to amend its statement of claim in the manner proposed, but with the excision of par24(a) and with the inclusion of consequential grammatical and like alterations.