Pryors Tours Pty Ltd v Minister for Transport - [2002] WADC 119

JURISDICTION : DISTRICT COURT OF WESTERN AUSTRALIA
IN CIVIL

LOCATION: PERTH

CITATION: PRYORS TOURS PTY LTD -v- MINISTER FOR TRANSPORT [2002] WADC 119

CORAM: WILLIAMS DCJ

HEARD: 29 & 30 APRIL 2002

DELIVERED : 18 JUNE 2002

FILE NO/S: CIV 789 of 2000

BETWEEN: PRYORS TOURS PTY LTD (ACN 009 336 789)
Plaintiff
AND
MINISTER FOR TRANSPORT
Defendant

Catchwords:

Contracts - General contractual principles - Breach of contract - Plaintiff alleging defendant breached implied term that defendant would not do anything to prevent assignment of contract

Legislation:

Nil

Result:

Plaintiff's action dismissed

Representation:

Counsel:

Plaintiff: Mr P G McGowan
Defendant: Mr P M Mitchell

Solicitors:

Plaintiff: Paiker & Overmeire
Defendant: State Crown Solicitor

Case(s) referred to in judgment(s):

Byrne v Australian Airlines Ltd (1995) 185 CLR 410
Codelfa Constructions Pty Ltd v State Rail Authority (NSW) (1982) 149 CLR 337
Commissioner of Taxation v Murray (1998) 193 CLR 605
Devefi v Mateffy Pearl Nagy Pty Ltd (1993) 113 ARL 225
Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41

Case(s) also cited:

BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266

WILLIAMS DCJ: On 23 September 1996 ("the agreement") the defendant executed an instrument with W & D Pryor ("the contractor"). Since on or about 17 September 1997 the defendant has at all times acted as if the plaintiff was party to the agreement in substitution for W & D Pryor.
By cl 1(a) of the agreement W & D Pryor agreed with the defendant:
"To provide for the purpose of this agreement a safe, roadworthy, clean, efficient and suitable motor conveyance (hereinafter referred to as 'the omnibus') complying in all respects with the specifications set out in schedule 3 in such condition as set out in this clause to the satisfaction of the Minister.
By cl 1(c) of the agreement W & D Pryor agreed with the defendant:
"To convey along the route (hereinafter referred to as 'the approved route') as shown on the route lithograph a daily distance of 177.3 kilometres any pupil of the Fitzroy Crossing District High School hereinafter referred to as the Government School, or other school as may be approved by the Minister and make no charge to the conveyance to such pupils on each and every day the said Government School(s) is or are in session for the period commencing on 1 January 1997 and ending on 31 December 2001."
By cl 1(h) of the agreement W & D Pryor agreed with the defendant:
"Not to assign or transfer any of his rights under this agreement without the written consent of the Minister."
By cl 4 of the agreement it was provided that:
"The Minister hereby agrees with the contractor in consideration of the performance by the contractor of the conditions of this agreement and on his part to be performed and observed, to pay to the contractor in accordance with the School Omnibus Tender Form submitted by the contractor for each day upon which pupils are conveyed."
By cl 1 of the School Bus Service Tender Form annexed to the agreement it was provided that W & D Pryor:
"Hereby tender to convey pupils over the route known as the Fitzroy Crossing Gogo bus service on each school day for the sum of $454.62 per day for 84.6 loaded kilometres and 92.7 empty kilometres."
The plaintiff subsequently submitted to the defendant an "Application to Transfer a Contract: Sellers Proposal" in relation to the agreement. This application was dated 29 September 1999 and requested approval to transfer the agreement on 23 September 1999. By its terms the application granted the defendant the authority to divulge relevant information to any prospective purchasers. The plaintiff also submitted to the defendant a document entitled "Confirmation of Transfer" dated 29 September 1999 which stated that the agreement would be transferred to Derby Bus Service Pty Ltd ACN 082 700 829 on 23 September 1999.
Derby Bus Service Pty Ltd submitted to the defendant an "Application to Transfer a Contract: Purchasers Proposal" dated 11 October 1999.
Subsequently Derby Bus Service Pty Ltd requested information from the defendant about the daily rate which would be paid to it if there was a transfer of the agreement to it. Derby Bus Service Pty Ltd requested this information on the basis that the average number of kilometres actually travelled by the school bus operated by the plaintiff was less than the number of kilometres stipulated by the agreement. Derby Bus Service Pty Ltd requested this information by facsimile letter dated 8 December 1999.
The defendant responded to Derby Bus Service Pty Ltd's request for information by providing calculations of daily rates by three different methods. In its response the defendant also advised Derby Bus Service Pty Ltd that the defendant would only approve the transfer of the agreement to it if the daily rate to be paid to it was calculated using a reduced amount for an air-conditioning component included in the daily rate as the defendant had incorrectly calculated the amount of this component under the agreement.
By facsimile letter dated 17 January 2000 the defendant wrote to Derby Bus Service Pty Ltd providing calculations of the daily rate by the following three methods:
1.The existing daily rate as calculated for the plaintiff. The daily rate for this method was $440.04;
2.The daily rate calculated using a reduced number of kilometres. The daily rate using this method was $398.20;
3.The daily rate calculated using a reduced number of kilometres and a reduced amount for the air conditioning component. The daily rate using this method was $369.51.
On or about 11 January 2000 the plaintiff entered into a written agreement for the sale of the bus route business to Derby Bus Service Pty Ltd. The plaintiff requested the approval of the assignment of the agreement to Derby Bus Service in respect of the bus route business. As a result of the advice that it received Derby Bus Service Pty Ltd terminated the contract because the rate stated in the advice would make the purchase of the bus route business an uneconomic proposition.
As a result of the termination of the agreement between the plaintiff and Derby Bus Service Pty Ltd, the plaintiff alleges that it has lost the benefit of the sale of the bus route business to Derby Bus Service Pty Ltd and has thereby suffered loss and damage.
The plaintiff alleges that by reason of cl 1(h) of the contract, the contract was not to be assigned or transferred without the consent of the defendant. It is the plaintiff's case that it was also an implied term of the agreement that the defendant would not do anything to prevent the assignment or transfer of the agreement on the same terms thereof. The implied term is said to be implied in the agreement by implication of law and/or because it gives business efficacy to the agreement.
The plaintiff says that by its conduct in giving the advice to Derby Bus Services Pty Ltd that the rate was purportedly incorrectly calculated the defendant breached the implied term. By reason of the defendant's breach of the implied term Derby Bus Service Pty Ltd terminated the contract by reason of which the plaintiff has suffered loss and damage.
It is the plaintiff's submission that there are four issues to be determined in the case. They are as follows:
1.Whether the implied term alleged by the plaintiff is capable of being implied?
2.If such an implied term is capable of being implied did the defendant's conduct constitute a breach of that implied term?
3.If the defendant's conduct did constitute a breach of the implied term has the plaintiff suffered loss and damage as a consequence of the breach?
4.If the plaintiff has suffered loss and damage as a consequence of the breach what is the quantification of that loss?

Question 1 "Whether the implied term alleged by the plaintiff is capable of being implied?"

It is the submission of counsel for the plaintiff that it is not contended by the plaintiff that the defendant is not prevented from refusing its consent to the assignment or transfer. It is the plaintiff's submission that if the consent was to be given it would have to be given on the same terms as the existing contract. The defendant should not be allowed to consent other than on the terms of the contract itself. The matter was analogous to that of a landlord seeking to extract a higher rental. It was submitted that the situation was similar to the sale of a business between a lessee as vendor and an assignee as a purchaser. Over that is a lease and without the consent of the landlord the lease cannot be assigned. This was a similar circumstance. The defendant had a realisation that there was a commercial arrangement to assign the school bus contract. In that circumstance it was necessary to imply the term. Nothing in the contract enabled the defendant to improve its position. It was behaving as a minor bully which was not permissible. It was said that I should give business efficacy to cl 1(h) and imply the necessary term.
It is the submission of counsel for the defendant that:
1.In this case the formal written contract between the plaintiff and the defendant is complete on its face. It is not suggested that there is any non-written express term forming any part of the contract, or that the written terms do not reflect the agreement reached between the plaintiff and the defendant. In that context, the only term which the plaintiff contends, and the defendant denies, should be implied is that:
"the defendant would not do anything to prevent the assignment or transfer of the agreement on the same terms thereof".
2.The only basis pleaded for the implication of the implied term is "by implication of law and/or because it gives business efficacy to the agreement." (See Statement of Claim par 8).
3.The present contract is not within any particular class of contract for which any set of implied terms is a normal legal incident. Even if the agreement did fall into such a class, the term usually implied in such a case will be excluded if it is inconsistent with the terms of the contract: Codelfa Constructions Pty Ltd v State Rail Authority (NSW) (1982) 149 CLR 337 at 345-6; Byrne v Australian Airlines Ltd (1995) 185 CLR 410 at 449-50; Devefi v Mateffy Pearl Nagy Pty Ltd (1993) 113 ARL 225 at 240-1.
4.In that context, in order to justify the implication of the term which the parties have not thought fit to express, the following conditions (which may overlap) must be satisfied:
(a)The term to be implied must be reasonable and equitable;
(b)The term to be implied must be necessary to give business efficacy to the contract so that no term will be implied if the contract is effective without it;
(c)The term to be implied must be so obvious that "it goes without saying";
(d)The term to be implied must be capable of clear expression; and
(e)The term to be implied must not contradict any express terms of the contract.
(Byrne v Australian Airlines Ltd (1995) 185 CLR 410 at 422, 441-2, 446; Codelfa Construction Pty Ltd v State Rail Authority (NSW) (1982) 149 CLR 337 at 346-7, 401-4).
5.The implied term contended for by the plaintiff fails to satisfy any of these criteria. In particular, it is inconsistent with the express terms of the contract in the following respects:
(a)By cl 1(h) of the agreement the plaintiff agreed not to assign or transfer any of its rights under the agreement without the written consent of the defendant.
This clause expressly contemplates that the defendant may prevent the assignment of the agreement by refusing to give its consent to the assignment.
(b)Clause 3(b) of the agreement enables the defendant to terminate the agreement without cause on one month's notice (compare cl 5(e) of the agreement).
The defendant could give notice or signal its intention to give notice terminating the agreement even if that would have the result that the assignment of rights under the agreement would be less attractive to the assignee.
(c)Clause 5(d), cl 6(a) and cl 6(b) authorise the defendant to change the bus route in a manner that could have the result that the assignment of rights under the agreement would be less attractive to the assignee.
6.Whether the alleged implied term is said by the plaintiff to arise as an implication at law or to give business efficacy to the agreement it must be excluded by these inconsistent express terms.
7.Further the term said to be implied is neither reasonable nor equitable. That term would unreasonably constrain the defendant in its management of the school bus services to ensure that the value of the contract on assignment not be diminished in a manner that might operate to dissuade a potential purchaser. It would require the defendant to subvert its own commercial interest to those of the plaintiff and those who may in future seek to obtain an assignment of the plaintiff's rights under the agreement. It cannot be presumed that the defendant would have agreed to such a term. Even if this criterion of reasonableness was satisfied, it is not enough that it is reasonable to imply a term; it must be necessary to do so to give business efficacy to the contract: Codelfa Construction Pty Ltd v State Rail Authority (NSW) (supra) at 346.
8.Nor is it the case that the agreement requires the implied term to enable it to operate. Indeed, the alleged implied term does not affect any of the terms by which the parties act or gain a benefit under the agreement. Rather, the alleged implied term deals only with the plaintiff's capacity to assign its express rights under the agreement. Particularly in the context where the agreement is terminable without cause on one month's notice, there can be no requirement to ensure that the plaintiff can assign its rights under the agreement in order to give business efficacy to the contract. Rather than the parties giving a common response of "of course, its obvious" to the enquiry by an officious bystander prior to the completion of the contract, reasonable parties in that position might well give contradictory responses as to whether such a term would go too far: Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41 at 66-7.
9.Difficulties in drawing an implication as to the terms of the contract are heightened where, as here, the contract is not a negotiated contract but a contract the terms of which were set by the defendant: Codelfa Constructions Pty Ltd v State Rail Authority (NSW) (1982) 149 CLR 337 at 356.
In my view these submissions are unanswerable and I accept them in full.

Question 2 "If such an implied term is capable of being implied did the defendant's conduct constitute a breach of that implied term?"

It is the defendant's submission that:
1.Even if the alleged term is to be implied, the defendant did not breach it in this case. The defendant did no more than provide information as to the rates payable pursuant to the agreement under certain scenarios which were the subject of enquiry by the proposed assignee. The plaintiff had authorised the giving of information of that kind. The fact that the defendant would require an error it had made in the allowance for the air-conditioner on the bus when calculating daily rates to be corrected before authorising a transfer was not unreasonable. Even if the changes in rates made the acquisition of the plaintiff's rights under the agreement less commercially attractive, it did not prevent the transfer of those rights.
2.The contract of sale of the plaintiff's business and the transfer documents submitted by the plaintiff and the purchaser to the defendant make it clear that what was contemplated was a transfer of both the plaintiff's rights and obligations under the agreement with the defendant. As contractual obligations (as opposed to rights) are not assignable, what was contemplated by the contract of sale of the plaintiff's business can only be regarded as a novation rather than an assignment: see the discussion in J Bailey Novation (1999) 14 Journal of Contract Law 189 at 201-3.
3.It follows that the alleged implied term could not have been breached, as what was involved in the proposed sale of the plaintiff's business was not an assignment (so that the defendant could not be taken to have done anything to prevent an assignment that was never proposed).
This is a submission which I also accept.

Question 3 "If the defendant's conduct did constitute a breach of the implied term has the plaintiff suffered loss and damages as a consequence of the breach?"

It is the defendant's submission that:
1.The plaintiff pleads and the defendant admits that the plaintiff and Derby Bus Service Pty Ltd had entered into a completed contract for the sale of the plaintiff's business. (Statement of Claim par 4, defence par 5).
2.There was nothing in the terms of the contract between the plaintiff and the purchaser to entitle the purchaser to unilaterally terminate that contract. Further, the sale was of the "goodwill" of the business rather than a sale of the particular contract of the defendant. As to the nature of goodwill see Commissioner of Taxation v Murray (1998) 193 CLR 605.
3.The loss which the plaintiff has suffered as a consequence of the termination of that contract is a result of the plaintiff's acceptance of that termination rather than any conduct of the defendant.
Again this is a submission which I accept.

Question 4 "If the plaintiff has suffered loss and damages as a consequence of the breach what is the quantification of those damages?"

In view of the answers to questions 1, 2 and 3, it is not appropriate to answer this question.

Conclusion

It follows in my view that the plaintiff claims should be dismissed.