Sydney Valve & Fittings Pty Limited & Anor v Crawford Fitting Company

[1989] HCATrans 92

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry

Sydney No S221 of 1988

B e t w e e n -

SYDNEY VALVE & FITTING PTY LIMITED

and VICTORIA FITTINGS & VALVES PTY

LIMITED

Applicants

and

CRAWFORD FITTING COMPANY, WHITEY

COMPANY, NUPRO COMPANY, CAJON

COMPANY and SNO TRIK COMPANY

Respondents

Application for special leave to

appeal

Sydney

MASON CJ
BRENNAN J

GAUDRON J

TRANSCRIPT OF PROCEEDINGS

AT SYDNEY ON FRIDAY, 14 APRIL 1989, AT 3. 08 PM

Copyright in the High Court of Australia

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MR J.D. REYDON, QC: If the Court pleases, I appear for the

applicants with MR P.M. JACOBSON.	(instructed by
Blake Dawson Waldron)

MR B.W. WALKER:  May it please Your Honours, I appear for the

respondents. (instructed by Paul Pritchard and Co)

MR REYDON:  Your Honours, there is no decision of this Court

on the legal principles relating to

the tetm:Lnability of contracts which are of no fixed
duration ana have no express provision for termination.

Traditionally, there were thought to be two issues

relevant, one being whether the contract was

perpetual or terminable at all and the other,
if terminable on reasonable notice, what factors went
to "reasonableness". This case concerns the second
issue and has also raised a third question, namely,

are there some contracts which are terminable only

after a reasonable time has passed and thereafter

after the expiry of reasonable notice? Justice McHugh

in delivering the main judgment below identified those

legal issues as being of considerable commercial

importance.

The basis on which we make the application for

special leave turns, essentially, firstly on the

importance of the question; secondly, on the novelty

of the Court of Appeal reasoning; the fact that it was

unsupported by authority and, in fact, against

authority and, finally, that it was wrong in principle.

But before I turn to those questions, I should just

anticipate a possible doubt which may be raised in the

mind of a reader of the Court of Appeal's reasons

for judgment. In a purely formal sense, the distinction

in American law which has been imported into New South

Wales law by this case, came into the case by a side wind in the sense that it was not raised on the

pleadings. That is not surprising because it was not

part of Australian law at the time the pleadings

were drafted.

The distinction was, however, put to

Mr Justice Rogers, the trial judge, and it was placed

at the forefront of the present respondents' submissions
in the Court of Appeal and relied on by the majority

in the Court of Appeal strongly. It was relied upon

by Mr Justice Priestley because he felt a sensation

that the applicants had been treated unfairly by only

being given six months notice of termination. He

overcame that sensation of unfairness by reflecting

that the amount of time or the amount of effort that

they had put in in performing the contract was

relevant to whether notice could be given at all

but was not relevant to the reasonablness of notice.

Mr Justice McHugh who ended up by considering

that six months was a reasonable period of notice

although the case was near the borderline relied on

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the distinction imported from American law in order

to conclude that the trial judge had incorporated

irrelevant principles in reaching the conclusion that

two years was an appropriate period. In short, although

the matter was not raised on the pleadings, it quite

naturally assumed a substantial significance in the

Court of Appeal and the difference between the majority

of the Court of Appeal and the remaining judges is a difference explicable by reference to the principles

that were adopted by the Court of Appeal and not by

reference to factual differences.

Turning firstly to the importance of the case,

I need mention only that the matter is commercially

important. Agreements of the type involved in this

case are common, both in the distribution within

Australia of goods from foreign companies and in

purely domestic trade and the matter is also important

as one of legal principle.

:MASON CJ: When you say you need mention only commercially

importance, you are, as it were, counselling yourself

as a matter of advice and prudence, are you, because

from the Court's point of view it is not enough

to say, perhaps, that the case is commercially important.

One would need to establish as well that it is important

in point of legal principle that the outcome of the

proposed appeal would, if not inevitably, in all
probability result in an elucidation of legal principle

which would give guidance in a wide array of cases.

MR HEYDON:  Yes. Our submission would be that it is within

that category. And I hope to illustrate that at

a slightly later point of the submissions. Can I first

say that in Anglo-Australian law the distinction

drawn by the Court of Appeal is entirely novel. The

distinction drawfewas not, for example, mentioned by

the House of Lords in the WINTERGARDEN THEATRE case
or by the Privy Council in AUSTRALIAN BLUE METAL V
HUGHES or by the English Court of Appeal in the

DACRO-WALL case or, for that matter, by the Full Court

of the Supreme Court of Victoria in BARRO GROOT
V	FRASER, they all being decisions that were discussed

in the Court of Appeal.

The principles asserted in the Court of Appeal

are not supported by authority and the Court of Appeal

made no attempt to suggest that they were save in one

respect. Reliance was placed on something that

Sir Owen Dixon said in REID V MORELAND which was a case

that turned on the question of whether a right to cut
timber was exclusive or non-exclusive. At the very

end of his judgment he said that the right in question

was a right which was only to last for a reasonable

period of time. Justice McHugh adopted that statement

as the basis for reasoning by analogy in support of the

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two-fold distinction that he put. It is difficult

to see how that can support the approach of the Court

of Appeal because Sir Owen Dixon did not say it was

a contract terminable by notice which notice could

only be given only the lapse of a reasonable period

of time, he simply said it ended after a "reasonable

period of time." In any event, it was the briefest

of obiter dicta.

Nextly, the Court of Appeal's approach, right

or wrong in principle, is concededly out of line with

authority. That is conceded by the Court of Appeal
at three places to which I can take the Court

if necessary but at pages 24, 26 and 27 it is

explicitly conceded - 24, for example, that the

submission of the respondent here which succeeded

below - at the very bottom of the page there is an

attempt to explain the DACRO-WALL case and the

MARTIN-BAKER case by reference to the proposition

that the recipient of the notice there had not had

sufficient opportunity to obtain its rewards for

expenditure and effort. Over the page it says·

that was not the way, however, that the judges who

heard the cases decided them. And that is repeated

on the following page and the page after.

Whether or not though the principles stated

by the Court of Appeal are in accord with authority

we would submit they are, in any event, wrong

and wrong in respect of the fundamental questions of

principle. As a matter of background, of those

submissions, can I first draw attention to this

circumstance? The Court of Appeal in general

uses the language of "implied terms" in talking

about the two periods of time involved. They say

that in certain cases you imply a term that notice

is not to be given until a reasonable time has passed

and you imply another term about the reasonableness

of notice thereafter. In other places, however,
they suggest that the matter is one of construction.

Now, if the matter is one of implied terms, what

sort of implied terms are they? They cannot be

terms implied by custom because that does not seem
to fit the standards necessary for implying such

terms. It may be that they are to be implied by

reason of the nature of the legal relationships

involved, a LIVERPOOL CITY COUNCIL V IRWIN-type of

implied term, or it may be that they are CODELFA

or MOORCOCK-type of implied term to give business

efficacy. Now, in the first place - - -

GAUDRON J: But there was no dispute in this case, was there,

Mr Reydon, between the parties that there should be an implied term at least that the agreement was

terminable on reasonable notice?

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MR REYDON:	That is so, Your Honour.
GAUDRON J:	And that latter question, "What is reasonable notice?" is essentially a question of fact to be
determined in all the circumstances?
MR REYDON:	Yes.
GAUDRON J:	Now, it seems to me it does not make much difference,

really, whether you say you determine that having

regard to the length of time the contract has run

or you determine it having regard to the length of

time it would be fair for the contract to run if

there is no reason to think that it has not already

run for a fair period?

MR REYDON: Well, the Court of Appeal do say that - - -

GAUDRON J:  I know they have drawn the distinction but I domt

know that it makes any difference to the actual

answer to the question, ''.What is reasonable in the

circumstances?"

MRHEYOON: They assert a difference in principle and it appears

to be assumed, for example, in Justice McHugh's

reasons for judgment, that if he had accepted the approach in principle of the trial judge he would

have adopted a longer period of notice. In other

words, the question of what efforts and what

expenditure had been put in if permitted to be taken

into account at all which, on Justice McHugh's

approach they are not, would have led to a longer

period of time. The trial judge did take those

efforts into account and accordingly arrived at a

longer period of time so it may, in one sense, be a

questioh of fact or a question to be decided by

reference to the detailed circumstances but

depending on which approach one adopted, the

courts below arrived at different conclusions.

There is a kind of bar imposed by the majority

reasoning on what can be taken into account.	Only
extraordinary efforts and expenditure, whatever they

are, can be taken into account in determining the

reasonableness of notice. In other words, one cannot

brush the case aside by saying whichever approach you

adopt, it is all ultimately a question of

circumstance and fact because there are different

principles involved.

If I can take up the point that Justice Gaudron commenced her question with, namely, the issue of

whether it is an implied term or a matter of construction

or something else. If the terms in question are

CODELFA-type implied terms or, for that matter,

terms that arise from the construction of the agreement, the precise details of the terms would vary from case to

case. It would be a matter, in effect, for the parties

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or for what the court imputed to the parties as an

appropriate int2ntion as to whether ordinary or

extraordinary efforts were to be taken into account

in determining notice. If, on the other hand, the

terms are implied because of the type of legal

relationship that exist between the parties as if

it was an employer/employee case or a landlord/tenant

case or a sales of goods case, there is much

less scope for the parties to mould the rights that

exist between them for themselves, it is more a matter

of a general doctrine of law being imposed upon them.

BRENNAN J:  I do not follow that, Mr Heyden. Why is it, if

the relationship arises out of contract, you say

that it is the relationship rather than the contract

that you look to?

MR REYDON:  If you have a relationship like employer and employee,

or landlord and tenant, or seller and purchaser of

goods, while the precise source of these terms is not

clear over time there are obligations that arise

between parties of that character that will always

be found to exist unless they have been very plainly

excluded such as the duty of a seller to provide goods

of merchantable quality,that existed before the

SALE OF GOODS ACT.

BRENNAN J: That may be so but in the present context, I

understood you to say that in some way the terms of

the contract were muted once you found the

relationship to which the contract had given rise

in determining what is a reasonable notice or what

is required by reasonable notice.

MR REYDON:  If the terms we are talking about here arise because

of some special relationship of manufacturer and

distributor, perhaps, then it is understandable that

one might say only extraordinary efforts will be taken

into account but not other efforts. If that is the

approach - and most of the language in the court below

is not compatible with it but rather with a different

type of implied term approach, if that is the approach

one would then have to inquire, "Well, what precise

relationship are we talking about? Why do we impose this particular obligation between the parties? Why distinguish between 'extraordinary' and 'ordinary'

efforts and expenditures?" None of those questions are

matter of legal principle, it is appropriate that this	dealt with by the Court of Appeal and accordingly, as a accept the results of that reasoning, to endeavour to
work out what the correct course of reasoning is that
leads to those results.

BRENNAN J:  But in a case like this where it is an agency

relationship and it is an agency of a kind that requires

a "best efforts" term to be implied and that involves

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the agent in promoting to his best efforts the goods
of the manufacturer: we might get a solution for this

case but the next one might be one of the sale of

bull's-eye lollies, something different.

MR REYDON:  But an investigation of this case would at least

enable one to work out whether it is a CODELFA-implied

term or some other implied term or some general

doctrine of law and it would enable one to work out

whether there is, in truth, a distinction between

ordinary efforts and extraordinary efforts and, if so,

why.

If I can just take up the assumptions on which Your Honour posed the question.	No doubt, in a sense,
it is an agency case but in a very loose sense.	The

"best efforts" clause was an express term rather than

any other sort of term. One has to develop the

relevant principles against some sort of factual

background. This case happens to contain a factual

background which was, in the Court of Appeal, almost

entirely not in contest between the parties and

furthermore, one which, if the issues of principle

are decided as the trial judge decided them, a certain

conclusion almost inevitably follows. If they are

decided the way the Court of Appeal decided them

another conclusion follows, namely, six months only.

The mystery of the universe cannot be solved, admittedly,

in one case, not least this case, but it is, in our

submission, an appropriate vehicle to determine

certain questions of principle which it does throw up

which are important questions of legal principle that

have never been determined by this Court in any

context,, that have been dealt with to some extent

rather vaguely by the highest courts overseas and

which are of sufficiently common commercial occurrence

to make a legal resolution of them of importance.

Perhaps I can -move just to one additimrral point:

if the term in question is a CODELFA or MO0RC0CK-type

of implied term it must, of course, be so obvious

as to go without saying and it is difficult to see how

that particular test is satisfied by the Court of Appeal's

reasoning and they must also be capable of clear

expression and that, we would submit, is not satisfied

either. I think I have already made the point that the

distinction between "extraordinary" and "ordinary"
expenditure or effort is not really supported at all.

The final submission we would make in terms of

the criticisms of the principle stated is this:
there may be evils involved in early termination of

this or any other type of contract. If there are evils

they can be overcome by an appropriate lengthening

of the period of notice. What the Court of Appeal has

done is, in a sense, to bring in two legal concepts

where one would do, namely, an implied term that notice

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cannot be given before a certain and another implied

term about how long it is to be. That is to multiply

legal conceptual entities beyond necessity, in our

submission, and that approach merits review. They

would be our submissions.

MASON CJ:  The Court need not trouble you, Mr Walker.

The applicant contends that the Court of Appeal

judgments in this case give rise to important questions

of principle governing the termination by reasonable

nocice of corttracts unlimited in time. Granted that

these questions of principle may be relevant in this

case, we are not persuaded that it would be necessary

to resolve them in a way that will give guidance in

a wide range of situations because, as it seems to us, what was reasonable notice in this case was very much,

if not wholly, an issue of fact depending upon the

particular circumstances of the case.

The application for special leave to appeal

is therefore refused.

MR WALKER:  We would seek costs, if the Court pleases.

MASON CJ: You cannot oppose that, Mr Reydon? The application

is refused with costs.

AT 3.29 PM THE MATTER WAS ADJOURNED SINE DIE

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