Honner Nominees Pty Ltd v Linke & Anor No. Scciv-01-531

HONNER NOMINEES PTY LTD v LINKE & ANOR
[2001] SASC 288
Full Court: Prior, Lander and Wicks JJ

PRIOR J: I agree with Justice Lander. The appeal should be dismissed.
LANDER J. This is an appeal from a decision of the District Court given on 8 March 2001 in which a District Court Judge dismissed a claim by a plaintiff against the defendants. He allowed the defendants counterclaim and entered judgment for the defendants against the plaintiff in the sum of $2,500. The plaintiff appeals to this Court against the orders dismissing its action and allowing the defendants’ counterclaim.
The plaintiff is a company incorporated under the law of South Australia and the owner of a motel property situated at Stansbury on the Yorke Peninsula and known as Stansbury Holiday Motel.
Sometime between September 1996 and November 1996 the plaintiff and the defendants entered into a joint venture agreement whereby the defendants would operate the motel for a period of twelve months commencing on 1 December 1996.
The plaintiff claimed that by reason of the terms of the agreement the defendants were indebted to the plaintiff in the sum of $46,921.44. The plaintiff accepted that it was indebted to the defendants in the sum of $500 which it accepted ought to be offset against the plaintiff’s claim. The plaintiff claimed the sum of $46,421.44.
The plaintiff was under the direction of Mr Anthony Honner and his wife Sue. Mr Honner was the principal decision maker whilst his wife attended to the clerical matters associated with the business.
Over a number of years the motel had been operated by different parties pursuant to different agreements with the plaintiff.
In May 1995 the plaintiff advertised in “The Advertiser” seeking a couple with marketing experience in tourism to manage the hotel.
The defendants made contact with Mr Honner and negotiations proceeded.
In 1995, when the plaintiff first advertised for managers for the motel, Mr Honner suggested to the defendants that they enter into a standard motel agreement. That agreement was in the following terms:
“MOTEL AGREEMENT
This Share Motel Agreement in respect of Stansbury Holiday Motel between James Honner Nominees Pty Ltd, the owner, and … the share operators of the Motel serves to outline the conditions to be honoured by both parties.
The arrangement shall be terminated if the total proceeds from any one year falls below the equivalent dollar value of 60% occupancy, having allowed for normal CPI annual increases in tariff.
Insurance and Public Risk Policies will be taken out in the name of the owner and the cost reimbursed by the operator. The operator will also take out an insurance policy covering such areas as Public Risk, Loss of Income to themselves and the owner, Worker’s Compensation and Self-Employed Sick and Accident. The operator expressly states that it is not an employee or servant of the owner and hereby indemnifies the owner in respect of any action, in respect of employment, taken by the operator.
The owner shall receive 45% of the gross occupancy proceeds to cover its investment in the Motel and rental on the house. This shall be calculated and paid at the end of each month. An appropriate monthly statement, as well as the daily chart with all details, shall be furnished showing all incomings and outgoings as a clear record to the owner’s satisfaction. The balance shall be apportioned in the following manner:-
1.25% of gross occupancy to the operators out of which Wages, Group Tax, Workcover and other costs incidental to the employees shall be taken.
2.20% towards all running costs, including Council Rates, normal insurance, ETSA., Gas, E&WS., telephone, painting, maintenance, pool, etc.; not less than one-quarter of this amount to be spent annually on replacements. $1000 for car maintenance to come out of the 20% running costs.
3.10% of the 60% occupancy to be spent on new items in each year. This can include such things as steps to the beach, pop-up sprinklers but not replacements which are covered above. Any surplus arising at the end of each year due to a higher occupancy rate to be retained by the operator.
All income and outgoings in respect of the provision of meals and any kitchen replacements and expansion to be a separate account and the responsibility of the operator. Replacements and expansion equipment to be vested in the Motel Inventory.
The owner shall not sell or offer for lease the Motel to any other party without first offering the same to the operator on the same terms and conditions as those to be offered to any other party. The operator to be given reasonable time to consider the purchase of lease of the Motel.
When the share operator vacates the Motel, the Inventory of the Motel contents must match the Inventory signed the time of this Agreement, with the addition of any new items purchased in accordance with 3, above; the operator to compensate the owner for items missing at their current replacement value.
The owner, in no way, takes any responsibility in respect of the taxation liabilities that may arise to the operator as a consequence of this Agreement or any conduct arising from the carrying out of this Agreement.”
In summary, the agreement proceeded upon the basis that the motel would enjoy a 60 per cent occupancy. The agreement provided that the owner (i.e. the plaintiff) wouldreceive 45 per cent of the gross occupancy proceeds to cover its investment in the motel and rental on the house. The balance of the proceeds of occupancy was to be apportioned 25 per cent to the operators (i.e. the defendants), 20 per cent to overheads, including council rates and other utilities, and 10 per cent to be spent on capital items.
The agreement also provided that all incomings and outgoings in respect of the provision of meals in any kitchen, replacements and expansions to be a separate account and the responsibility of the operator.
It was the defendants’ evidence that they refused to agree with that proposal in 1995 because Mr Honner would not provide them with evidence of historical occupancy rates of the motel or its income.
Mr Honner suggested instead that they should approach the then operators to ascertain the occupancy rate. It was the defendants’ undisputed evidence that they approached those operators and obtained some information in relation to the occupancy rate. The information they obtained suggested that the plaintiff’s proposal was not attractive. Negotiations concluded at that time.
The parties resumed negotiations in September 1996 and apparently came to agreement on the terms of the management of the motel. The defendants entered into occupation shortly before 1 December 1996 and commenced to operate the motel on that date.
They vacated the premises in about the middle of November 1997 and ceased to operate the motel in accordance with the terms of the agreement on 30 November 1997.
It was the plaintiff’s case that the plaintiff and defendants entered into an agreement in similar terms to the document which Mr Honner called a standard motel agreement.
It was the defendants’ case that they did not agree to the terms of the standard motel agreement at any time. It was the defendants’ case that the agreement between the parties included the six terms referred to in a letter from the defendants to the plaintiff dated 19 September 1996.
The District Court Judge said that Mr Honner and the female defendant Mrs Linke gave most of the relevant evidence in connection with the negotiations leading up to the agreement. He said Mrs Honner and Mr Linke’s evidence was less significant and I take it to be less relevant in relation to those matters.
He said in a general sense he preferred the evidence of Mr and Mrs Linke to that of Mr and Mrs Honner. I am not sure what he meant by that. I do not know what he means by a general sense. In any event he said he was not impressed by Mr Honner as a witness. He described him as being evasive and a person who tailored his answers to meet the issues in the case and a person who tended to argue his case.
In any event that may not matter much because he specifically preferred the evidence of Mrs Linke to that of Mr Honner.
The defendants, of course, relied upon the Trial Judge’s findings relating to the credibility and reliability of the witnesses. The defendants argued that this Court should not interfere with any findings of fact made by the Trial Judge which depended upon his assessment of the credibility of witnesses: it was submitted that the Trial Judge had not failed to use the advantage which he had. His findings were not consistent with facts incontrovertibly established by the evidence: Devries v Australian National Railways Commission (1993) 177 CLR 472; Daniels v Burfield (1994) 125 ALR 33.
That submission must be accepted. Indeed the plaintiff’s counsel, Mr Whitington QC did not seek to argue otherwise.
He did, however, submit that this Court could rely upon the evidence of Mrs Honner. In respect of her evidence the Trial Judge said:
“Mrs Honner’s evidence on relevant matters was not the product of as much controversy as that of her husband and, by and large, I thought she did her best to recall accurately relevant events.”
I think Mr Whitington’s submission must be accepted. It was only on one aspect of Mrs Honner’s evidence that Mr Whitington relied for this appeal but it is an important aspect and I will deal with that later in these reasons.
The question for determination in this case was the terms of the agreement.
The learned Trial Judge said:
“The issues arising for determination between the parties will be determined by findings as to the terms of the contract. It is unnecessary to make findings as to all the terms of the contract. It is sufficient to make findings about only those terms which are necessary to decide the issues between the parties.”
The appellant has criticised the Trial Judge for that approach. It was submitted on behalf of the appellant that the Trial Judge’s approach was both against principle and logic. It was put that, without knowing all of the terms which had been agreed it was impossible to determine which terms were relevant to the matter in dispute. It was put that the Trial Judge was under a duty to determine all of the terms of the contract because, until all of the terms were found, the contract could not be construed.
I think perhaps that submission is a little wide. There are some cases where it is unnecessary to make findings as to all of the terms of the contract. In a sense it is always only necessary to make findings about those terms which are necessary to decide the issues between the parties.
However, in this case it was necessary to determine when the parties reached agreement, because it was only by making that finding that the Court could make a finding as to the terms of the contract.
There were different points where the parties were still clearly in negotiation. There were other times when it was not so clear whether the parties were negotiating or had concluded an agreement.
It seems to me that the Trial Judge was under an obligation to make a finding as to when the contract was concluded and thereafter determine the terms of the contract.
If the terms of the contract were not as the plaintiff contended, then it was necessary for the Trial Judge to make a determination as to the terms, if only for the reason to consider whether on those terms the plaintiff was entitled to any relief.
When the parties resumed their negotiations on 19 September 1996 and after a discussion between Mr Honner and Mrs Linke, Mrs Linke wrote to Mr and Mrs Honner setting out the basis on which they would be prepared to enter into an agreement to operate the motel.
The letter contained the following:
“As per our discussion earlier today, the following details are to be included in our agreement.
1.Assured income of $34,000 paid weekly.
2.Residence at no cost.
3.All power, phone, rates etc to be paid from business.
4.$1,000 per 1 % increase over 40 % occupancy to be paid at the end of the first 12 month period.
5.Assurance of sufficient funds made available for hire of staff for busy times and for Managers to have annual leave and other recreation time off.
6.The agreement and remuneration to be renegotiated at the end of the first 12 months.
Also as discussed, we would not be available until the beginning of December. We would need to be moving in to the residence 30^th Nov - 1^st Dec.
I look forward to hearing from you soon.”
As I have already said it was the defendants’ case that their letter of 19 September 1996 comprised some of the terms of the contract between the parties. In particular on the defendants’ case it was a term of the contract that the defendants would received an assured income of $34,000 paid weekly.
The Trial Judge found that the defendants were not prepared to operate or manage the motel unless they were assured of an income of $34,000. That finding, of course, is consistent with the contents of the letter of 19 September.
Moreover the finding is consistent with the plaintiff’s own pleading. The plaintiff pleaded that the contract was partly express and partly implied. Insofar as it was express, it was partly written and partly oral. Insofar as it was in writing it included the letter of the defendants dated 19 September 1996. (para 3.3.1 of the Statement of Claim).
The finding was not inconsistent with Mr Honner’s evidence.
Negotiations continued through September 1996 and on 30 September 1996 Ms Honner wrote to the defendants in a letter which she facsimiled to them:
“Following is the motel agreement which does not include your names as they would need to be full Christian names for the formal documents. Could you please add the names? Please post back one copy & retain one.
Our computer has ‘crashed’ and while waiting for repair I am unable to reprint the agreement as I would like. In the interim, we have added your conditions which all four of us can sign. We should each sign each page and initial any changes. We will print the agreement in the near future if everyone is happy.
As you have mentioned annual leave over the phone, to be two to three weeks and bits and pieces here and there, our belief is that when you have settled into Stansbury you will find suitable people capable of managing the motel in your absence. This will be covered in the wages area of the agreement.
The agreement is the one in current use with the deletion of the holiday bookings area and the exception that James Honner Nominees will be financially responsible for provision of the cost of ingredients which should be approximately one third of the charge for the meal. The income from meals will be credited to James Honner Nominees but transferred to you to fulfil the guarantee of $34000 per annum. If there is any shortfall, we are prepared to make up the difference. Any excess above the guarantee can be used at the end of the year for replacements you may require in the kitchen.”
The plaintiff’s common seal and the signature of Mr and Mrs Honner were on that letter, a copy of the letter written by the defendants on 19 September 1996 which contained the six matters they insisted upon, and the standard motel agreement.
On receipt of those documents the defendants also executed them. They executed the standard motel agreement, their own letter of 19 September 1996 and sent those two letters together with a copy of a letter of 30 September 1996 from Mrs Honner to their accountant.
His Honour found that the motel agreement which bore the common seal of the plaintiff and the signatures of the defendants was in the following terms:
“MOTEL AGREEMENT
This Share Motel Agreement in respect of Stansbury Holiday Motel between James Honner Nominees Pty Ltd., the owner, and Jeffrey Brian and Bronwyn Edna Linke, the share operators of the Motel, serves to outline the conditions to be honoured by both parties.
The arrangement shall be terminated if the total proceeds from any one year falls below the equivalent dollar value of 60% occupancy, having allowed for normal CPI annual increases in tariff.
All decisions on tariff, capital expenditure and replacements over $1000 in value to be by mutual agreement.
Insurance and Public Risk Policies will be taken out in the name of the owner and the cost reimbursed by the operator. The operator will also take out an insurance policy covering such areas as Public Risk, Loss of Income to themselves and the owner, Worker’s Compensation and Self-Employed Sickness and Accident. The operator expressly states that it is not an employee or servant of the owner and hereby indemnifies the owner in respect of any action, in respect of employment, taken by the operator.
The owner shall receive 45% of the gross occupancy proceeds to cover its investment in the Motel and rental on the house. This shall be calculated and paid at the end of each month. An appropriate monthly statement, as well as the daily chart with all details, shall be furnished showing all incomings and outgoings as a clear record to the owner’s satisfaction. The balance shall be apportioned in the following manner:-
1.25% of gross occupancy to the operators out of which Wages, Group Tax, Workcover and other costs incidental to the employees shall be taken.
2.20% towards all running costs, including Council Rates, normal insurance, ETSA., Gas, E&WS., telephone, painting, maintenance, pool, etc., not less than one-quarter of this amount to be spent annually on replacements. $1000 for car maintenance to come out of the 20% running costs.
3.10% of the 60% occupancy to be spent on new items in each year. This can include such things as steps to the beach, pop-up sprinklers but not replacements which are covered above. Any surplus arising at the end of each year due to a higher occupancy rate to be retained by the operator.
All income and outgoings in respect of the provision of meals and any kitchen replacements and expansion to be a separate account and the responsibility of the operator. Replacements and expansion equipment to be vested in the Motel Inventory.
The owner shall not sell or offer for lease the Motel to any other party without first offering the same to the operator on the same terms and conditions as those to be offered to any other party. The operator to be given reasonable time to consider the purchase of lease of the Motel.
When the share operator vacates the Motel, the Inventory of the Motel contents must match the Inventory signed at the time of this Agreement, with the addition of any new items purchased in accordance with 3. above; the operator to compensate the owner for items missing at their current replacement value.
The owner, in no way, takes any responsibility in respect of the taxation liabilities that may arise to the operator as a consequence of this Agreement or any conduct arising from the carrying our (sic) of this Agreement.”
The only difference between that motel agreement and the previous motel agreement which had been rejected in 1995 was the addition of the third paragraph of the second document “All decisions on tariff, capital expenditure and replacements over $1000 in value to be by mutual agreement”.
As I say, however the six points which were contained in the defendants’ letter of 19 September 1996 were executed at the same time.
The defendants submitted those documents to their accountant Mr Swan of Swan and Hoklas. Mr Swan wrote to Mr and Mrs Honner on 15 October 1996 in the following terms:
“Re Jeff & Bronny Linke
Stansbury Holiday Motel
Anthony I have suggested to Jeff & Bronny that it would be ideal to see the final agreement after the various changes to:
-        delete the 60% occupancy
-        provide for $34,000 min. net in Yr 1.
-        provide for standard agreement from Yr 2-Yr 4
-        provide for 5% + increase in occupancy per year,
rather than be signing a much amended and initialled original agreement.
Could you please fax a copy of the ‘finalised’ proposed agreement to my office.
Clearly Jeff & Bronny are very keen to finalise arrangements and my office is currently drafting partnership applications (Tax File No etc) for them.
I am ‘in and out’ of my office this week but will contact you within the next day or so.
I propose to visit the motel in late November prior to the 1^st December start date to help Jeff & Bronny with accounting requirements.
We have a place at North Beach Wallaroo and so have an appreciation of the peninsular.
Yours sincerely,
(signed) Barry Swan.”

On 24 October 1996 the plaintiff sent to the defendants a copy of their letter of 30 September 1996 which included a postscript in the following terms:
“While the traditional agreement is the core to the success of the Motel for both parties, we can accommodate your concerns by accepting a 5% improvement in occupancy per year coupled with CPI room rate rises over a four year period.”
Accompanying that letter was a further copy of the motel agreement which was again executed by Mr and Mrs Honner and the common seal of the plaintiff was impressed on the document.
The document was in exactly the same terms as the document which had been executed by the plaintiff and the defendants on or about 30 September 1996 except that there was added to it the following clauses:
“Exceptions to the primary agreement are:
In the first year, the income of $34,000 p.a. is guaranteed, paid weekly by the owner if the income from the 25% column and meals income is insufficient.
For each 1% increase in occupancy over 40% occupancy, $1000 to be paid at the end of the first 12 months.
In bringing the occupancy of the Motel from 40% to 60%, the owners will not invoke the termination arrangement at 60% if the Motel is improving in occupancy at the rate of 5% per annum for 4 years.”
That document was executed by the plaintiff but was not executed by the defendants. They deliberately did not execute the document because they did not consider that it evidenced the agreement between the plaintiff and themselves. The Trial Judge found that Mrs Linke told Mr Honner that in a telephone conversation shortly after receipt of the document.
It was the plaintiff’s contention that the letter of 15 October 1996 from Swan and Hoklas to Mr and Mrs Honner constituted the final offer in the ongoing negotiations, and the Motel Agreement dated 24 October 1996 with the additional terms to which I have referred, constituted the acceptance of that offer.
It was the plaintiff’s case that the Motel Agreement contained all of the written terms of the contract. The plaintiff conceded that there was an oral term. The Trial Judge found that there was a conversation between Mr Honner and Mrs Linke in which Mr Honner told Mrs Linke:
“... that one of the ‘lurks’ of running the motel was that she and her husband would be able to eat out of the motel.”
He found that constituted a term of the contract. The plaintiffs did not argue that in that regard the Trial Judge was wrong. In my opinion the plaintiffs were right to concede that point. The findings on credibility prevented any contrary submission.
During argument it was put to Mr Whitington that exhibit P9, the Motel Agreement of 24 October 1996, did not contain all of the six points in the defendants’ letter of 19 September 1996. In particular it did not include any term consistent with point 5 of that letter:
“Assurance of sufficient funds made available for hire of staff for busy times and for Managers to have annual leave and other recreation time off.”
Mr Whitington argued that there was an implied term to that effect.
In my opinion no such term could be implied. That is not a term that would satisfy the test for implied terms: BP Refinery (Westernport) Pty Ltd v Hastings Shire Council (1977) 180 CLR 266 and Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337.
A meeting took place on 29 November 1996 at which Mr and Mrs Honner and the defendants and their accountant Mr Swan were present.
There was a discussion on a number of topics. The defendants’ accountant had prepared a cash book for use by the defendants which it was agreed would be the financial record of the motel during the time which the defendants were in occupation.
The defendants’ agreed at that meeting to supply the plaintiff with monthly financial statements. The motel’s computer was programmed to provide a statement in a form which was agreeable to the parties. More importantly the program accorded with the percentage amounts contained in the standard motel agreement. Over the period during which the defendants operated the motel the female defendant transferred the information contained in the cash book to the computer each month for the purpose of supplying those monthly statements.
I think it is implicit from His Honour’s findings that there were no further communications between the plaintiff and the defendants relating to the terms of the contract for the operation of the motel.
It was on the information to which I have referred that His Honour was obliged to consider the terms which had been agreed on between the parties.
The Trial Judge found that the terms contained in the standard motel agreement did not become part of the contract between the parties. He found that the defendants had made it clear to the plaintiff at the outset and from time to time thereafter that they would not agree to entering into a contract which contained such terms. He found that the basis of the contract was the six points set out in the defendants’ letter of 19 September 1996.
He accepted that the plaintiff was eager to have the terms of the standard motel agreement included as terms of the contract between it and the defendants but the defendants resisted the plaintiff’s attempts to do so.
Particular attention was paid during the trial to the question of the defendants’ meals. His Honour found that prior to the defendants going into operation there was a conversation between Mr Honner and Mrs Linke in which Mr Honner told Mrs Linke that she and her husband would be able “to eat out of the motel”. I think it is implicit in His Honour’s findings that His Honour found that it was an agreed term of the contract between the plaintiff and the defendants that the defendants could take their meals at the expense of the motel’s business.
The plaintiff complains that His Honour did not determine the terms of the contract between the plaintiff and the defendants and by failing to do so failed to address the plaintiff’s claims. The plaintiff also complains that the learned Trial Judge approached the question of terms inappropriately. It was said that the Trial Judge erred by unduly focusing on the subjective intentions of the parties rather than the objective intention of the parties as discerned by inference from the manner in which they dealt with each other including the provision of documentation.
It was submitted that at no stage did the learned Trial Judge embark on an analysis of the parties conversations, conduct and provision of documents for the purpose of determining when the contract was formed and the terms of the contract.
It was said that His Honour’s approach was in error. Mr Whitington QC submitted that His Honour was bound to determine the issues before him by reference to the objective theory of formation of a contract: Taylor v Johnson (1983) 151 CLR 422.
The question before the Trial Judge was when those contractual arrangements were entered into and the terms.
In my opinion the Trial Judge had to approach the matter by a consideration of the factual matrix, and thereby have regard to what was said by the parties to each other, and what was done by the parties, to objectively determine the terms of that contract.
It is beyond question, in my opinion, that no contract had been entered into before the defendants’ communication of 19 September 1996.
It is also beyond question that the parties intended in the objective sense to be bound by the terms identified in that letter of 19 September 1996. Those terms, in my opinion, form the basis of the contract which was entered into.
I do not believe that the parties agreed to enter into the remaining standard terms of the Motel Agreement.
The evidence that the Trial Judge accepted leads to the conclusion that at no stage were those terms agreed.
I think the evidence of the defendants’ accountant makes it clear that, whatever the defendants’ state of mind was on 30 September 1996 when they received the letter and enclosures from the plaintiff and executed those documents, thereafter their state of mind changed. That was as a result of speaking to him.
I believe that the defendants did not intend to be bound as at 15 October 1996 with the provisions of the Motel Agreement.
I think, as at 15 October 1996, the parties had negotiated to a position whereby the defendants would enter into an agreement which contained the six points in their letter of 19 September 1996 and the standard Motel Agreement but only if amended in accordance with the proposals put by Mr Swan on 15 October 1996.
Of course, as I have already said, on 24 October 1996 a revised Motel Agreement was submitted to the defendants which picked up some but not all of the defendants and the defendants’ accountants’ points. I have already noted, for example, the fifth point in the defendants’ letter of 19 September 1996 was not included.
The Trial Judge found that the defendants refused to execute that agreement because they did not wish to commit themselves to that standard agreement.
In my opinion, in those circumstances it cannot be said, as the plaintiff asserted, that there was ever an agreement in the terms of exhibit P9, the revised Motel Agreement of 24 October 1996.
There is no doubt that a contract was entered into. The plaintiffs and defendants intended to enter into contractual arrangements and, in my opinion, did so. The defendants conducted the business and operated the motel after 1 December 1996.
The contract was partly in writing and partly oral. There were also implied terms. The terms of those contractual arrangements included the points in the defendants’ letter of 1996 and the matters raised by Mr Swan in his letter of 15 October 1996. There was also a further oral term, which the learned Trial Judge found, whereby the plaintiff agreed with the defendants that the defendants could take their meals out of the motel at no cost to the defendants. There were at least two implied terms. In my opinion it is necessary only to find two implied terms. There was an implied term that the defendants would hire or engage labour only as was reasonably necessary to conduct the motel business. There was a further implied term that they would act reasonably in the purchase of the cost of goods necessary for the provision of meals within the business.
Those terms are necessary to make the agreement commercially efficacious. There needed commercially to be some restraint on the defendants’ entitlement to engage labour or purchase food. An obligation to act reasonably in those two circumstances should be implied: The Moorcock (1889) 5 TLR 316.
Mr Hoile, who appeared for the defendants, rightly conceded that those two terms should be implied.
It is the plaintiff’s contention on this appeal that the defendants breached both of those implied terms. There is no suggestion that any of the express terms either written or oral which I have found to exist were breached.
However, the plaintiff’s difficulty in its contention on this appeal, is that it cannot point to evidence which would support its claims of breach.
In respect of the contention that there was a breach by the defendants in the hire or engagement of labour, the only evidence presented to the Trial Judge was that of the male plaintiff who gave oral evidence of what he believed was the necessary labour for the cleaning of the motel. The plaintiff tendered through him a document which showed a calculation of these labour costs. None of that was ever put to the defendants. It was not suggested to the defendants in cross examination that they had been unreasonable in any way in the hire or engagement of labour. In my opinion the evidence simply does not bear out the claim of breach in respect of that implied term.
Similar difficulties confront the plaintiff in relation to its claim of breach by the defendants of the implied term relating to the reasonable cost of purchases for the provision of meals. The plaintiff called evidence from a Mr Opie of the usual costs associated with the provision of meals in the restaurant industry. He said that the costs of goods for the provision of meals would ordinarily be in the region of one third or 35 per cent of the selling price of the meal.
In this case he said that the cost was near 60 per cent. That, it was suggested, was evidence of waste. There was no other reason advanced to account for the high cost of purchases. However, this motel did not have a restaurant. It did not have a dining room. Meals were provided as a service. They were provided to the guests in their rooms. This aspect of the business was very small. It did not have the advantages associated with the size of a restaurant’s turnover. Moreover the express oral term of the agreement allowed the defendants to eat out of the motel at no cost. The cost of their meals had to be included.
Mr Opie agreed that if the defendants had eaten out of the motel themselves that would be reflected in a higher than usual cost. It was not put to him precisely what effect the defendants eating out of the motel would have on the percentage costs.
However there is a more fundamental problem from the plaintiff’s point of view. Again, none of this was put to the defendants in cross examination. It was not put to the defendants, for example, that there had not been a discussion between Mr Honner and Mrs Linke relating to the cost of eating out of the motel. It was put to Mrs Linke that the conversation occurred in 1995 rather than 1996 but she denied that. More specifically it was not put to the defendants that they had been in any way unreasonable about their purchase of provisions for meals. They were not challenged in any way in regard to that.
As I have already said the only reason advanced for the higher than normal costs was waste. However the defendants were not cross examined about that. They were not confronted at all by the alleged breach.
There was not sufficient evidence to make out any breach.
In the end result, in my opinion, the plaintiff’s claim fails because the plaintiffs failed to prove any breach of contract.
I would dismiss the appeal.
WICKS J I agree that this appeal should be dismissed for the reasons given by Lander J.

[2001] SASC 288

12 October 2001