Technology Management and Marketing Pty Ltd v Hydrocool Pty Ltd

[2007] WADC 80

TECHNOLOGY MANAGEMENT AND MARKETING PTY LTD -v- HYDROCOOL PTY LTD [2007] WADC 80

Link to Appeal :

[2008] WASCA 161

Jurisdiction:	DISTRICT COURT OF WESTERN AUSTRALIA	Citation No:	[2007] WADC 80
Case No:	CIV:1268/2005	Heard:	22 JANUARY 2007
Coram:	MCCANN DCJ	Delivered:	25/05/07
Location:	PERTH
No of pages:	18	Judgment Part:	1 of 1
Result:	Action dismissed
PDF Version

Parties:	TECHNOLOGY MANAGEMENT AND MARKETING PTY LTD HYDROCOOL PTY LTD
Catchwords:	Contract Principles of interpretation Success fee payable to consultant- Implication of contractual terms
Legislation:	Nil
Case References:	BP Refinery (Westernport) Pty Ltd v Hastings Shire Council ((1977) 52 ALJR 20 Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337 Con-Stan Industries v Norwich Winterthur Insurance (Aust) Ltd (1986) 160 CLR 226 Darlington Futures Ltd v Delco Australia Pty Ltd (1986) 161 CLR 500 Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896 Lion Nathan Australia Pty Ltd v Coopers Brewery Ltd (2006) 156 FCR 1 Maggbury Pty Ltd v Hafele Australia Pty Ltd (2001) 185 ALR 152 Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451 Secured Income Real Estate (Australia) Ltd v St. Martins Investments Pty Ltd (1979) 144 CLR 596 Nil

JURISDICTION : DISTRICT COURT OF WESTERN AUSTRALIA

IN CIVIL

LOCATION : PERTH CITATION : TECHNOLOGY MANAGEMENT AND MARKETING PTY LTD -v- HYDROCOOL PTY LTD [2007] WADC 80 CORAM : MCCANN DCJ HEARD : 22 JANUARY 2007 DELIVERED : 25 MAY 2007 FILE NO/S : CIV 1268 of 2005 BETWEEN : TECHNOLOGY MANAGEMENT AND MARKETING PTY LTD

Plaintiff

AND

HYDROCOOL PTY LTD
Defendant

Catchwords:

Contract - Principles of interpretation - Success fee payable to consultant- Implication of contractual terms

Legislation:

Nil

Result:

Action dismissed

(Page 2)

Representation:

Counsel:

Plaintiff : Mr P D Quinlan
Defendant : Mr D J Pratt

Solicitors:

Plaintiff : Shaw & Associates
Defendant : Jackson McDonald

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

BP Refinery (Westernport) Pty Ltd v Hastings Shire Council (1977) 52 ALJR 20
Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337
Con-Stan Industries v Norwich Winterthur Insurance (Aust) Ltd (1986) 160 CLR 226
Darlington Futures Ltd v Delco Australia Pty Ltd (1986) 161 CLR 500
Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896
Lion Nathan Australia Pty Ltd v Coopers Brewery Ltd (2006) 156 FCR 1
Maggbury Pty Ltd v Hafele Australia Pty Ltd (2001) 185 ALR 152
Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451
Secured Income Real Estate (Australia) Ltd v St. Martins Investments Pty Ltd (1979) 144 CLR 596

(Page 3)

MCCANN DCJ:

Introduction

1 In this action the plaintiff claims damages from the defendant for breach of contract.

2 The following facts are common ground:

(i) At all material times the plaintiff operated a consultancy business which specialised in assisting clients to obtain monetary grants from the Commonwealth of Australia for industrial research and development projects. In particular, the plaintiff prepared applications for Start Grants from Ausindustry, an agency which is part of the Commonwealth Department of Industry, Tourism and Resources. The plaintiff’s sole director, company secretary and principal consultant is Mr Andrew Whitton.

(ii) The defendant is a corporation which at various times was engaged in research and development into thermo-electric technology. In 2003 the managing director of the defendant was Mr Iain Hepburn. On or about 27 September 2003 a contract ("the Agreement") was entered into between the plaintiff and the defendant whereby the plaintiff agreed to assist the defendant to apply for a Start Grant in respect of a thermo-electric project which the defendant was then developing ("the Project"). The Agreement was negotiated by Mr Whitton on behalf of the plaintiff and Mr Hepburn on behalf of the defendant.

(iii) Pursuant to the Agreement the plaintiff prepared an application on behalf of the defendant for a Start Grant which was lodged with AusIndustry on or about 30 January 2004. On or about 23 March 2004 Ausindustry approved a Start Grant of $1,943,037. In May 2004 the defendant received the first instalment of the Grant from AusIndustry, namely $283,429.30.

(iv) The defendant paid $32,256.40 to the plaintiff pursuant to the Agreement, comprising an "up-front" fee of $11,000 (inclusive of GST) and a further sum of $21,256.40 by way of part-payment of a success fee. Subsequently,

(Page 4)

the defendant ceased work on the Project and received no further payments of the Start Grant.

3 The contractual ramifications of the cessation of the Project are in issue in this matter. The plaintiff contends that, on the true construction of the Agreement, the defendant is obliged to pay the balance of the success fee, namely $139,043.60. The defendant denies this. The plaintiff claims damages for breach of contract in the sum of $139,043.60 and interest pursuant to s 32 of the Supreme Court Act1935, as amended. The plaintiff has elected to sue the defendant for damages, rather than for a debt.

The pleadings and issues

4 In its statement of claim the plaintiff alleges that it was an express term of the Agreement, inter alia, that the defendant would pay an up-front fee of $11,000 (inclusive of GST) and a success fee of 7.5 per cent of the amount of any Start Grant that was approved, plus GST ("the success fee"). It is further pleaded that upon the proper construction of the Agreement the defendant was obliged to pay the success fee to the plaintiff in full upon the approval of the Grant, save that the plaintiff would accept payment of the success fee from the defendant in instalments on a pro rata basis as instalments of the Grant were paid by the Commonwealth of Australia to the defendant.

5 The plaintiff further pleads that there were implied terms of the Agreement that:

(a) In the event that the defendant failed, for any reason attributable to the conduct of the defendant, to receive any further Grant payment instalments, the balance of the success fee outstanding at the time would be paid in full by the defendant to the plaintiff within a reasonable period after that time.

(b) Further, or in the alternative, that in the event that the defendant failed, for any reason not attributable to the conduct of the defendant, to receive any further payments or instalments of the Grant, then the balance of the success fee would be waived.

6 The plaintiff then pleads that on or after 19 October 2004 the defendant resolved to transfer its development work in relation to the Project to another location, ceased work in relation to the Project and
(Page 5)

requested the Commonwealth of Australia to suspend the implementation of the Grant. The plaintiff pleads that the defendant received no further payments of the Grant because it ceased work in relation to the Project.

7 The defendant pleads that it was a term of the Agreement that the success fee would not become due and payable by the defendant to the plaintiff unless and until payments of the Grant were received by the defendant. The defendant further pleads that the Start Grant was approved by AusIndustry subject to conditions. After making certain admissions the defendant pleads that it only ever became liable to pay $21,256.40 of the total success fee because it did not receive any payments of the Start Grant from the Commonwealth other than the sum of $283,429.30 referred to above.

The Evidence

8 The following uncontested evidence was adduced by the plaintiff and I accept it. No evidence was called on behalf of the defendant.

9 Mr Whitton testified that he holds a Bachelor of Science, a Doctorate of Philosophy and a Master of Business Administration. He has worked in the area of research and development funding since 1985. Initially he was employed by the Commonwealth of Australia. Later he resigned and worked as a private consultant, first for a firm of accountants and subsequently for himself under the auspices of the plaintiff.

10 Mr Whitton testified that the Commonwealth’s system of research and development grants is a discretionary programme administered by the Industry Research and Development Board. The Board assesses applications and has the authority to approve Grants, almost invariably in a sum equal to 50 per cent of the proposed research budget. The Board’s funding guidelines limit the duration of funding for approved projects to a maximum of three years. The system has operated in this way continuously almost without change since 1976.

11 Mr Whitton testified that in September 2003 he was approached by the defendant’s researcher, Mr Peter Clarke. Mr Clarke informed him that the defendant was interested in obtaining a research and development grant from the Commonwealth in respect of the Project. After some initial discussions with Mr Clarke he met with the defendant’s research team and Mr Hepburn. They informed him that the defendant had previously obtained a Start Grant from the Commonwealth in respect of the Project. Mr Whitton testified that the defendant's people "were well aware of the process" and had prepared their first grant application

(Page 6)

themselves. He said that for a number of reasons they were uncertain as to whether a second grant was obtainable. Mr Whitton and Mr Hepburn discussed those reasons at a meeting at which Mr Whitton received "a lot of background over what the company had done in the past, where it was and where it wanted to go".

12 Mr Whitton testified that prior to entering into the Agreement he and Mr Hepburn discussed that the Project would take between two and three years and would require a grant in the order of 2 million dollars.

13 Mr Whitton testified that they discussed the defendant's "ability to pay [the success fee] in instalments rather than … in one instalment". It follows in my opinion from this evidence that the fact that any Start Grant would be received in instalments was discussed as well.

14 Mr Whitton testified that the preparation of an application involves a considerable quantity of work in which the whole structure of the client’s business is analysed.

15 Mr Whitton testified that it was very important for him to make an assessment as to the likelihood of success of the application before agreeing to work on it since he worked "almost exclusively on a success fee basis". He said that as a rule of thumb the amount of work involved in preparing an application reflects the size of the grant that is applied for and accordingly the success fee is based on the latter. He said that generally the process of preparing an application takes between three and six months and in the defendant’s case it took four months. The work was done jointly by he and his wife, Jennifer Whitton. Mr Whitton identified the defendant's application which was received in evidence (Exhibit 4).

16 Mr Whitton testified that he became aware that the defendant intended to cease work on the Project, or had done so, in late 2004. Therefore he issued an invoice for the unpaid balance of the success fee, ie $139,043.30, on 13 December 2004. Correspondence between Mr Whitton and the defendant was tendered in evidence which I shall refer to in due course.

17 In cross-examination Mr Whitton agreed that Start Grants are always made by the Board conditionally in the sense that they are subject to general conditions and particular conditions. Pursuant to those conditions grants are always paid in instalments and are always conditional upon certain performance (ie research and development) milestones being met by the grantee.

(Page 7)

18 Mr Whitton testified that the general and particular conditions in the defendant's case (see par 28 below) were different from the standard conditions because special arrangements were allowed in respect of the first milestone.

19 Mr Hepburn testified that he became the managing director of the defendant in August 2000. The Project had been underway for approximately 6-12 months at that time. He described the Project as follows (T32):

"Thermo electrics is a phenomenon whereby a semi conductor material, a specific type of material, if it has a DC current applied across it one side of that material heats up and the other side cools down. Hydrocool was involved in trying to capture the cold effect and use that cooling effect while rejecting the heat from the hot side."

He testified that the main object of the Project was to "try and discover a new material, a new thermo-electric material that had a greater cooling effect than the best available material" (T33).

20 Mr Hepburn testified that prior to entering into the Agreement he understood how the grant system worked. He testified as follows (T33):

"… I'd previously looked at the feasibility of applying for a grant for some time, and I'd talked to other people. So I was aware of the nature of the process and how it worked; but I'd never applied for a grant myself before."

21 He said that he was aware that if a Start Grant was approved the defendant would be required to contribute to the cost of the Project on a dollar for dollar basis with the Commonwealth, and was aware that it would be necessary to meet performance milestones.

22 Mr Hepburn testified that he ceased working for the defendant on 19 October 2004 and that at that time the Project was continuing.

23 In cross-examination Mr Hepburn accepted that Start Grant funding was conditional upon the defendant meeting stipulated performance milestones. He testified that the milestones were determined by the defendant and set out in the application on the basis that the defendant was confident that the same could be achieved. He said that it was his understanding that AusIndustry sometimes agreed to vary performance milestones "because research is never a very predictable process". (He was not asked to clarify whether this was his understanding before

(Page 8)

entering into the Agreement but I infer from the context of the evidence that it was his understanding). He also agreed that the nature of scientific research was such that a particular milestone might not be achieved despite best endeavours, but said that the milestones for the Project were "based on our confidence of being able to achieve them".

24 I turn now to the documentary evidence.

25 The Agreement (Exhibit 2) is comprised in a letter from the plaintiff to the defendant dated 27 September 2003 which is divided into three sections. The first section sets out the services which the plaintiff offered to the defendant under nine sub-headings as follows:

· "Strategic review of your company."

· "Exploring options to maximise the benefits of potential grant assistance."

· "Package the R & D project into a grant project."

· "Collect information using our streamlined procedures."

· "Write the application and project business plan."

· "Attend the AusIndustry assessment interview."

· "Edit the application to address the assessor’s comments."

· "Lodge the final application and copies."

· "Grant management session."

The proposed services are explained under each heading (except for the fourth). It is my impression that the tenor of the document is self-promotional in some respects. So, for instance the following is said in relation to the writing of the application and project business plan:

"Applications must be submitted using a standard form. We optimise the use of this standard form by using it as much as possible to reinforce the strengths of the project."

26 The second section of the Agreement sets out two alternative fee options and is worded (relevantly) as follows:
(Page 9)

"Fees

We offer two fee options that consist of two components, an up-front fee and a success fee.

Option 1

The up-front fee is $11,000 (GST incl) payable in two instalments. The first instalment of $2,200 is payable when you accept our proposal. The second instalment of $8,800 is payable on lodgement of the application.

If grant funding is approved, the success fee is 7.5 per cent of the amount approved (+ GST). This success fee may be paid in instalments as grant payments are received."

Option 2 was in similar terms to option 1 save that the up-front fee was $5,500 and the success fee was 10 per cent of the approved grant. The defendant accepted option 1.

27 The defendant's application (Exhibit 4) is a bulky document comprising a 29 page "application form" and numerous supporting documents and appendices. The duration of the project was said to be from 19 January 2004 to 31 December 2006 with an estimated project cost of $3,886,074. The application sought a Start Grant of 50 per cent of that sum, namely $1,943,037. The application set out four "major milestones" for the Project which were expressed in technical language which described the Project moving through four stages of research and development. The date for each proposed milestone, and the "milestone eligible expenditure", were as follows:

· 30 June 2004 $ 515,326

· 30 June 2005 $1,447,099

· 31 March 2006 $ 965,824

· 31 December 2006 $ 912,826

Total $3,841,074

28 A contract described as an "R & D Start Programme Grant Agreement" was entered into between the defendant and the Commonwealth of Australia ("the Grant Agreement"). It comprises General Conditions (Exhibit 3A) and Particular Conditions (Exhibit 3B). The Particular Conditions are in effect the schedule to the General
(Page 10)

Conditions. Pursuant to the Grant Agreement the Commonwealth agreed to provide the defendant with a Start Grant to a maximum of $1,943,037, being 50 per cent of the "eligible expenditure" of $3,841,074. The eligible expenditure was broken down into a number of categories spanning the financial years 2003/04 to 2006/07, namely salaries, outsourced contract work, plant and equipment, prototype expenditure and other expenditure. Pursuant to the General Conditions, read with the Particular Conditions, the defendant's Grant was payable in instalments as and when performance milestones were completed. Those performance milestones were the same as those set out in the application and referred to in par 27 above. The Commonwealth's obligation to make payments was subject to numerous conditions precedent, including that the Commonwealth first receive a progress report relating to each payment which was "satisfactory to the Commonwealth in its absolute discretion". A further condition precedent was that the Commonwealth had sufficient funding made available to it by the Parliament of the Commonwealth of Australia to pay the particular instalment.

29 It followed from the structure of the Grant scheme and the terms of the Grant Agreement that the instalment of the Grant which was payable upon the attainment of each performance milestone was in effect supposed to be a payment in arrears of half of the expenditure associated with achieving that milestone, that is to say, the scheme contemplated that the Commonwealth would refund 50 per cent of the eligible expenditure in respect of that milestone.

30 Correspondence between the parties relating to the cessation of the Project and the plaintiff's demand for payment of the balance of the success fee was tendered in evidence, together with a deed between the defendant and the Commonwealth of Australia entered into on 26 July 2006 whereby the Grant Agreement was terminated by mutual consent. It appears from those documents that the defendant did not complete milestone 1 (it was paid the first instalment of the Start Grant notwithstanding) and sought the termination of the Grant Agreement "because of changes to its operational environment" (see recital D of the deed). In an email from Mr David Teplitzky (the Executive Chairman of the defendant) to Mr Whitton dated 3 January 2005 (Exhibit 7) Mr Teplitzky stated that at that time the defendant was having discussions with the Commonwealth with a view to suspending the implementation of the Grant for up to one year, but that in the meantime the defendant did not propose to apply for any further funds pursuant to the Grant. In an email from Mr S H Murphy, a director of the defendant, to Mr Whitton dated 12 April 2005 (Exhibit 8) Mr Murphy said that, having spoken to

(Page 11)

AusIndustry, he could state that no further payments of the Grant would be received by the defendant.

31 Based on the evidence I find that the defendant failed to receive Grant payment instalments for a reason attributable to its conduct, in so far as the defendant ceased work and ultimately terminated the Grant agreement because of changes to its operational environment. The evidence did not disclose what those changes were or why they caused the defendant to terminate the Project, and I make no finding about it.

The construction of the Agreement

32 It has been held by the High Court of Australia that the interpretation of a written contract is an objective exercise directed towards the ascertainment of the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract. This requires consideration of the text of the contract, the surrounding circumstances known to the parties and the purpose and object of the transaction. (See Maggbury Pty Ltd v Hafele Australia Pty Ltd (2001) 185 ALR 152 per Gleeson CJ, Gummow and Hayne JJ at [11] adopting the opinion of Lord Hoffman in InvestorsCompensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896 at 912 and Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451 at [22]).

33 It is not necessary that there be some ambiguity in the language of the contract before these principles come into play: see Lion Nathan Australia Pty Ltd v Coopers Brewery Ltd (2006) 156 FCR 1 per Weinberg J at [46] and [51], Kenny J at [100] and Lander J at [238].

34 Based on the uncontradicted evidence of Mr Whitton and Mr Hepburn I find that when the Agreement was entered into the plaintiff and the defendant were aware of the facts and matters set out in pars 2(i),(ii), 10, 11, 12, 13, 17, 19, 20, 21 and 23 hereof. I make that finding because both parties were well aware of the operation of the Start Grant scheme, they had pre-contractual discussions with each other about what would be involved in both the application and the Project, and in particular both were aware that any grant would only be payable by instalments as and when performance milestones were achieved.

(Page 12)

35 I turn now to address the construction of the remuneration provisions of the Agreement in its express terms and in particular the second paragraph which deals with the success fee ("the success fee clause").

36 The plaintiff submitted that the first sentence of the success fee clause created an entitlement to a single success fee which was identifiable and, in effect, vested upon the approval of Start Grant funding. The plaintiff submitted that the second sentence provided a "permissive regime" allowing for payment by way of instalments, but it did not operate so that the success fee only became due and payable as and when instalments of the Grant were received by the defendant. The plaintiff advanced a number of textual reasons in support of this construction:

The clause refers to a single success fee rather than to a succession of success fees.

The second sentence was "permissive" in nature and was subordinate to a single obligation to pay a single success fee which was identifiable at the time of approval. This construction was supported (it was submitted) by the absence of any reference in the second sentence to the means by which the "instalments" could be quantified, ie pro rata or otherwise.

Almost all of the services to be rendered by the plaintiff were required to be performed up to and including the time of the application was lodged.

37 The defendant submitted that the first and second sentences of the success fee clause should be read together and, in their terms, made it clear that the expression "success fee" was a composite term meaning a fee payable by the defendant to the plaintiff each time the Commonwealth paid an instalment of the Start Grant to the defendant. It was submitted that the phrase "amount approved" in the first sentence meant, in effect, the amount approved for payment by the Commonwealth from time to time in accordance with the conditions and legislation attaching to the Start Grant. Alternatively, the defendant submitted that the term "amount approved" is ambiguous and should be construed contra proferentum and relied on Darlington Futures Ltd v Delco Australia Pty Ltd (1986) 161 CLR 500.

(Page 13)

38 In my opinion the two sentences of the success fee clause should be read together and construed on the basis that the success fee was only payable by the defendant to the plaintiff in instalments as and when instalments of the Start Grant were paid by the Commonwealth for the following reasons.

39 First, I am unable to see what purpose the second sentence would serve if it did not confer the right to pay by instalments on the defendant. On the plaintiff's construction the defendant was given an option to either pay the full success fee immediately upon approval, or in instalments, without any provision for a discount or premium as the case may be. In my view, that arrangement lacks commercial sense. As I have said above, the Agreement is written in a style which tends to extol the benefits of dealing with the plaintiff. It appears to me that the second sentence of the success fee clause was offered as a positive benefit to the defendant if it employed the plaintiff's services. Given the mutually understood factual background, namely that the defendant's Start Grant (and hence approximately half of its Project cash-flow) would be paid in instalments which were each conditional on factors both within and without the defendant's control (including the outcomes of research and development which could potentially affect the achievement of performance milestones), I cannot see the purpose of the plaintiff offering the defendant the advantage of paying the success fee in instalments if such was not intended to be contractually binding.

40 Next, in my view there is no ambiguity or uncertainty in the success fee clause. The factual background in which the Agreement was entered into was such that the parties knew that the instalments of any Start Grant would be clearly identifiable both in the application (which they would collaborate on) and the Grant agreement and that the instalments of the success fee would be easily calculated when they fell due, namely 7.5 per cent of each instalment of the Grant paid by the Commonwealth. In my view, if there is any uncertainty it lies in the construction contended for by the plaintiff, which predicated a vested right which was somehow subject to a permissive payment regime. In my view the success fee clause simply means what it says when it is read as a whole. It follows that it is not necessary to deal with the defendant's contra proferentum submission.

41 Therefore, in my view, on the true construction of the success fee clause the defendant was obliged to pay the plaintiff a success fee calculated at the rate of 7.5 per cent of the maximum amount of the Start Grant approved by the Commonwealth and such success fee was

(Page 14)

payable by the defendant to the plaintiff in instalments calculated at the rate of 7.5 per cent of each instalment of the Start Grant as and when the same was paid by the Commonwealth to the defendant. There was some concern on the plaintiff's part at the trial as to whether this construction was adequately pleaded in the defence. In my view it was, but in any event the case was clearly contested on this basis.

42 I turn now to the plaintiff's case based upon the implication of terms in the Agreement. In Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337 Mason J explained (at p 346-7) the rationale for implying a term in a contract in order to give it business efficacy (as opposed to a term which is implied as a legal incident of a particular class of contract). His Honour said that the implication of such a term deals with a deficiency in the express terms of the agreement by incorporating a term "which it is presumed … the parties would have agreed upon had they turned their minds to it …". His Honour said:

"For obvious reasons the courts are slow to imply a term. In many cases, what the parties have actually agreed upon represents the totality of their willingness to agree; each may be prepared to take his chance in relation to an eventuality for which no provision is made. The more detailed and comprehensive the contract the less ground there is for supposing that the parties have failed to address their minds to the question at issue. And then there is the difficulty of identifying with any degree of certainty the term which the parties would have settled upon had they considered the question."

43 His Honour stated that, accordingly, the Courts have been:

"at pains to emphasise that 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".

44 His Honour continued as follows:

"The basis on which the courts imply a term was expressed Mc Kinnon LJ in Shirlaw v Sutherland Foundries(1926) Ltd ([1939] 2 KB 206 at p 227) in terms that have been universally accepted: 'prima facie that which in any contract is left to be implied and need not be expressed is something so obvious that it goes without saying …'."

(Page 15)

45 His Honour then referred to the decision of the Judicial Committee of the Privy Council in BP Refinery (Westernport) Pty Ltd v Hastings Shire Council (1977) 52 ALJR 20 at 26) and summarised the conditions necessary for the implication of a term:

(i) it must be reasonable and equitable;

(ii) 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;

(ii) it must be so obvious that it goes without saying;

(iv) it must be capable of clear expression;

(v) it must not contradict any express term of the contract.

46 It has long been recognised that there is an implied term in every contract that each party will do all things as are necessary on its part to enable the other party to have the benefit of the contract: see Secured Income Real Estate (Australia) Ltd v St. Martins Investments Pty Ltd (1979) 144 CLR 596 per Mason J at p 607. (It could be said, by way qualification, that the implied term is to do all that is reasonably necessary in the circumstances: see Mason J at 607-8). The present case involves the extent to which a term should be implied in the Agreement relating to the defendant’s performance of another contract with a third party (namely the Commonwealth) rather than the performance of the Agreement itself. In Secured Income Real Estate Mason J said the following in relation to that issue (at p 607-8):

"It is easy to imply a duty to cooperate in the doing of acts which are necessary to the performance by the parties or by one of the parties of fundamental obligations under the contract. It is not quite so easy to make the implication when the acts in question are necessary to entitle the other contracting party to a benefit under the contract but are not essential to the performance of that party’s obligations and are not fundamental to the contract. Then the question arises whether the contract imposes a duty to cooperate on the first party or whether it leaves him at liberty to decide for himself whether the acts shall be done, even if the consequence of his decision is to disentitle the other party to a benefit. In such a case, the correct interpretation of the contract depends, as it seems to me not so much on the application of the general rule of construction as on the intention of the parties as manifested by the contract itself." (Emphasis added)

(Page 16)

47 The plaintiff submitted that having regard to the nature of the success fee, namely a payment for services which had been wholly rendered by the plaintiff to the defendant, it was reasonable and necessary to imply a term which prevented the defendant from denying the plaintiff the full benefit of its fee. It was submitted that upon the approval of the Start Grant the plaintiff's entitlement to payment of the whole success fee vested on the basis that payment would only be postponed, but would not be wholly conditional and that, accordingly, one of the two alternative terms pleaded in the statement of claim should be implied in the agreement. The defendant submitted that it was neither reasonable nor necessary to imply a term of that kind, nor was it so obvious that it went without saying, nor could it be given clear expression.

48 I propose to firstly consider the objects or purpose of the Agreement and the intention of the parties as manifested by the Agreement. The purpose of the Agreement was for the plaintiff to provide substantial and valuable services to the defendant with the object of procuring a Grant agreement and which services would be wholly performed before the Grant agreement was entered into. Next, by the express terms of the Agreement the plaintiff's entitlement to instalments of the success fee was effectively dependent on a chain of events, namely, the performance of the Grant agreement, which in turn depended on the progress of the Project and in particular the attainment of performance milestones which were in turn subject to the progress of research and development. In my view it follows that the purpose of the instalment payment provision of the success fee clause was to enable the defendant to tie the payments of the success fee to its cash flow in accordance with the progress of the Project and the flow of funding from the Commonwealth. It was not intended to give the defendant unfettered freedom to choose whether it took up an approval, or embarked on the Project and/or performed the Grant agreement. However, it does not follow that one of the two alternative terms pleaded by the plaintiff ("the proposed term") needs to be implied the Agreement.

49 In my opinion there are a number of reasons (which tend to overlap) why the criteria for the implication of the proposed term are not fulfilled:

(i) I am not satisfied that the proposed term is so obvious that it goes without saying, and further, I am not satisfied that it is capable of clear expression in the sense that, in my opinion, it is not capable of clear application. In my view the proposed term would introduce difficult issues relating to causation, and a degree of uncertainty, that would have

(Page 17)

been most unattractive from the defendant's point of view had it been proposed as an express term. It was conceivable, in my view, that the Project could be suspended, or terminated, at the instigation of the defendant for a reason which arose from, or was caused by, or necessitated by, a very wide range of circumstances beyond the control of the defendant, which in the defendant's judgment made the Project unviable for financial or scientific reasons (or both). Yet, it could still be said in those circumstances that the suspension or termination of the Project was in some measure "attributable" to the conduct of the defendant because it made and implemented the decision to do so. In other words, the phrase "attributable to the conduct of the defendant" is very broad, is arguably not fault-based and lacks clarity. Once it is accepted, as I have found, that the defendant's obligation to pay the success fee was conditional upon the progress of the Project and the payment of instalments of the Start Grant by the Commonwealth, rather than a wholly vested one,it is difficult to accept that the proposed term would have been regarded as so clear and obvious as to go without saying in the sense that the "both [the plaintiff and defendant] … would clearly have agreed to its inclusion in the contract … had they directed their minds to it at the time they concluded their bargain" (see Gibbs CJ, Mason, Wilson, Brennan and Dawson JJ in Con-Stan Industries v Norwich Winterthur Insurance (Aust) Ltd (1986) 160 CLR 226 at p 241).

(ii) I am not satisfied that the proposed term is necessary in order to give business efficacy to the agreement. In my view it was only necessary to imply a term that required the defendant to take all reasonably necessary steps to carry out the Project and perform the Grant agreement. This conclusion predicates that the plaintiff accepted (ie the parties intended) that its entitlement to receive the instalments of the success fee was to some extent tied to the success of the Project, and not only the success of the application for a Start Grant.

(iii) It is debatable whether the proposed term is reasonable or equitable. Having regard to the nature and time-frame of

(Page 18)

the Project, and the amount of the success fee (7.5 per cent of the Grant and therefore 3.75 per cent of the estimated Project cost) it could be said to be reasonable for the plaintiff to have accepted a measure of risk as to whether or not the Project proceeded successfully.

50 For these reasons I am not satisfied that the proposed term should in fact be implied in the agreement. The plaintiff has not sought to rely on a term which operates by reference to the defendant having breached the Grant agreement, or having failed to use reasonable and/or necessary endeavours to advance the Project or to comply with the Grant agreement.

51 In conclusion, the plaintiff has failed to prove its claim, which should be dismissed.