Woolworths (SA) Pty Ltd v Basetone Pty Ltd

[2006] SASC 225

SUPREME COURT OF SOUTH AUSTRALIA

(Full Court)

WOOLWORTHS (SA) PTY LTD v BASETONE PTY LTD; WOOLWORTHS (SA) PTY LTD v MONTEBELLO & MONTEBELLO

[2006] SASC 225

Judgment of The Full Court

(The Honourable Chief Justice Doyle, The Honourable Justice Duggan and The Honourable Justice Gray)

3 August 2006

PROCEDURE - SUPREME COURT PROCEDURE - SOUTH AUSTRALIA - PROCEDURE UNDER RULES OF COURT - SUMMARY JUDGMENT

CONTRACTS - GENERAL CONTRACTUAL PRINCIPLES - CONSTRUCTION AND INTERPRETATION OF CONTRACTS

Appeals against decisions of a Judge of the District Court made pursuant to rule 25.02 declaring that contracts formed between Woolworths and cartage service providers were of indefinite duration and that Woolworths, by repudiating the contracts, was in breach – appeals brought on grounds that Judge erred in determining the matters summarily pursuant to rule 25.02 and erred in finding that Woolworths was unable to terminate the contract without cause upon reasonable notice – discussion of application of rule 25.02 – consideration of legal principles regarding the construction of commercial contracts – discussion of legal principles regarding the implication of terms into a contract – appeals allowed.

Trade Practices Act 1974 (Cth) s 51 AC; District Court Rules r 25.02, r 75.02; Supreme Court Rules r 95.15, referred to.
PSI @ Mawson Lakes Pty Ltd v Land Management Corporation [2006] SASC 185; Settlement Wine Co Pty Ltd v National and General Insurance Co Ltd (1988) 146 LSJS 150; Wicklow Enterprises Pty Ltd v Doysal Pty Ltd and Registrar-General (1985) 124 LSJS 225 ; Benefit Strategies Group Inc and Another v Prider (2005) 91 SASR 544 ; Kadeh v Gill (2000) 211 LSJS 88; Hardy Wine Company Ltd v Tasman Liquor Traders Pty Ltd (In liq) [2006] SASC 168; Lake v Simmons [1927] AC 487; McCann v Switzerland Insurance (2000) 203 CLR 579; Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451; Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 614; Codelfa Construction Pty Ld v State Rail Authority of NSW (1982) 149 CLR 337 ; Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896; Bank of Credit and Commerce International SA v Ali [2002] 1 AC 251 ; Liverpool City Council v Irwin [1977] AC 239; Reigate v Union Manufacturing Co [1918] 1 KB 592; Crawford Fitting Co v Sydney Valve & Fittings Pty Ltd (1988) 14 NSWLR 438; Queensland v J L Holdings Pty Ltd (1997) 189 CLR 146; Royal Botanic Gardens and Domain Trust v South Sydney City Council (2002) 186 ALR 289; Reardon Smith Line Ltd v Yngvar Hansen-Tangen [1976] 1 WLR 989; Maggbury Pty Ltd v Hafele Australia Pty Ltd (2001) 210 CLR 181; Home Building Society Ltd v Pourzand [2005] WASCA 242, considered.

WOOLWORTHS (SA) PTY LTD v BASETONE PTY LTD; WOOLWORTHS (SA) PTY LTD v MONTEBELLO & MONTEBELLO
[2006] SASC 225

Full Court;  Doyle CJ, Duggan and Gray JJ

1. DOYLE CJ:          I would allow the appeal in each of these matters.

2. I would set aside the orders made by the District Court Judge.  I would direct that for those orders an order be substituted allowing the appeal against the orders made by the Master, setting aside the Master’s order, and dismissing the plaintiff’s application under r 25.02 in each case.  A direction should be made in each action that it proceed to trial.

3. Each appeal can be decided on a relatively narrow basis.

4. It is reasonably arguable that each contract includes an implied term to the effect that the contract is terminable upon Woolworths (SA) Pty Ltd (“Woolworths”) giving reasonable notice to the other party to the contract of Woolworths’ intention to terminate the contract.

5. On that point I agree generally with the reasons of Gray J.

6. It would be preferable, in the interests of the expeditious administration of justice, for this Court to decide whether such a term is in fact to be implied.

7. But, for the reasons given by Gray J, there may be aspects of the circumstances in which each contract was made that are admissible in evidence on the basis that they are relevant to the construction of the contract.  That is, the evidence may be admissible and relevant to the question of whether the term is to be implied.

8. Some of these circumstances are self evident, and are established by the material before the Master and before the District Court Judge.

9. The District Court Judge erred in holding that there was no evidence that was admissible on the construction of the contract.  I agree generally with the reasons of Gray J for so deciding.

10. Ordinarily, Woolworths’ failure at least to identify the nature and scope of the further evidence on which it wished to rely might be a reason to hold that the Court should determine the question of construction here and now, without regard to such evidence as Woolworths might later be able to produce. 

11. In resisting the application for judgment under r 25.02, by contending that the construction of a contract depends on evidence that it wished to tender, it was for Woolworths to satisfy the Court at least that there was such evidence available, and that there was a good reason for not tendering it on the application under r 25.02.

12. Woolworths does not appear to have done this before the Master.  But the material before the District Court Judge adequately explained Woolworths’ inability at that stage to marshal and to tender the evidence on which it wished to rely.

13. Accordingly, the District Court Judge should have allowed the appeal.  He should have declined to make the declaration sought, on the basis that Woolworths’ contention that a term should be implied was reasonably arguable, and on the further basis that Woolworths should have been given a reasonable time to continue its enquiries before the Court decided whether, in the light of such admissible evidence as might be tendered, the contract was terminable by Woolworths on reasonable notice.  For this purpose the action should have gone to trial in the usual way.  I agree generally with the reasons of Gray J for so deciding.

14. Those, in brief, are my reasons for allowing the appeal.  As I have indicated, I agree generally with Gray J.

15. I emphasise that I do not decide that all of the evidence of the kind foreshadowed by Woolworths will be admissible at trial, assuming it can be found.  My impression is that Woolworths may be casting its net for evidence too wide.  But the admissibility of the evidence should be decided at the trial of the action.

16. I wish to hear the parties as to the question of the costs before the Master, before the District Court Judge and on appeal.

17. DUGGAN J.         In my view, the appeals should be allowed and the actions remitted to the District Court for trial.

18. I am in general agreement with the reasons of Gray J.  The legal issues to which the facts give rise, together with the potential complexity of the facts, rendered it inappropriate to dispose of the matters pursuant to rule 25.02.  Furthermore, I am of the view that a reasonably arguable defence has been identified.

19. There is authority for the view that a contract is to be construed against the background of the knowledge of the parties at the time.  In ICS v West Bromwich Building Society [1998] 1 All ER 98 at 114, Lord Hoffmann set out a series of principles upon which he considered contractual documents should be construed. He summarised his first principle as follows:

    Interpretation is 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.

20. In Maggbury Pty Ltd v Hafele Australia Pty Ltd (2001) 210 CLR 181 at [11], Gleeson CJ, Gummow and Hayne JJ expressly adopted this statement of principle. In Royal Botanic Gardens and Domain Trust v South Sydney City Council (2002) 76 ALJR 436 at [10], Gleeson CJ, Gaudron, McHugh, Gummow and Hayne JJ suggested that such an approach was of particular relevance to the commercial purpose of a contract. Their Honours quoted with approval the statement of Lord Wilberforce in Reardon Smith Line Ltd v Hansen-Tangen [1976] 3 All ER 570 at 574:

    In a commercial contract it is certainly right that the court should know the commercial purpose of the contract and this in turn presupposes knowledge of the genesis of the transaction, the background, the context, the market in which the parties are operating.

    See also Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451 at [22], where the Court noted that this statement of Lord Wilberforce was referred to with evident approval by Mason J in Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337.

21. In his enunciation of further principles applicable to the construction of contracts in ICS v West Bromwich Building Society, Lord Hoffmann suggested an enquiry into the surrounding facts which seems broader than that contemplated by Mason J in Codelfa.  However, in Royal Botanic Gardens & Domain Trust v South Sydney City Council, Gleeson CJ, Gaudron, McHugh, Gummow and Hayne JJ commented at [39]:

    Two further matters should be noticed.  First, reference was made in argument to several decisions of the House of Lords, delivered since Codelfa but without reference to it.  Particular reference was made to passages in the speeches of Lord Hoffmann in Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896 at 912-913; [1998] 1 All ER 98 at 114-115 and of Lord Bingham of Cornhill and Lord Hoffmann in Bank of Credit and Commerce International SA v Ali [2001] 2 WLR 735 at 739, 749; [2001] 1 All ER 961 at 965, 975; cf Melanesian Mission Trust Board v Australian Mutual Provident Society [1997] 1 NZLR 391 at 394-395; Yoshimoto v Canterbury Golf International Ltd [2001] 1 NZLR 523 at 542, in which the principles of contractual construction are discussed. It is unnecessary to determine whether their Lordships there took a broader view of the admissible “background” than was taken in Codelfa or, if so, whether those views should be preferred to those of this Court.  Until that determination is made by this Court, other Australian courts, if they discern any inconsistency with Codelfa, should continue to follow Codelfa.

22. The authorities, as they presently stand, suggest that extrinsic evidence may be relevant for the purposes of identifying the commercial circumstances in which a contract is entered into as well as assisting in the interpretation of the contract where there is ambiguity or the language is susceptible of more than one meaning: cf. Home Building Society Ltd v Pourzand [2005] WASCA 242 at [26]. In the case of the second of the two purposes referred to above, the approach identified by Mason J in Codelfa is to be taken as correctly stating the law.

23. In the present case, I am of the view that the evidence which is proposed to be called by the defendant is relevant to provide the appropriate commercial background in which the contracts were entered into.  I am also of the view that it is arguable that there is some ambiguity in the wording of the contracts such as to justify the calling of extrinsic evidence as authorised by Codelfa.  I do not wish to be taken as agreeing that all the matters referred to by the appellant in the course of argument are relevant for these purposes.

24. I would hear the parties on the question of costs.

    GRAY J:

    Introduction

25. These are appeals against decisions of a Judge of the District Court, which were heard and determined concurrently. 

26. On 14 February 2006, the Judge dismissed the appeals of the appellant, Woolworths (SA) Pty Ltd, (“Woolworths”) against decisions of a Master of the District Court.  On 27 February 2006, a Judge of this Court granted Woolworths leave to appeal to the Full Court against the decisions of the Judge.

27. These appeals raise a question concerning the construction of relevantly identical commercial contracts.  The question is whether the contracts are perpetual or whether they are terminable without cause on reasonable notice.  A particular issue under consideration is whether the Judge erred in upholding the decisions of the Master to proceed pursuant to rule 25.02 to determine the respondents’ claims summarily.  Similar questions of construction await determination in other District Court actions.

    Background

28. Prior to 1982, Domenico Angelo Petraccaro and John Joseph Peter Montebello worked as contractor owner-drivers to Woolworths performing cartage services pursuant to informal oral agreements.  It appears that Mr Petraccaro and Mr Montebello were two of some twelve owner-drivers operating as contractors to Woolworths.  In 1978, Woolworths encouraged all of the owner-drivers to join the Transport Workers Union.

29. During 1981, it appears that a number of the owner-drivers became concerned about the security of their verbal contracts with Woolworths.  Their concern was exacerbated by Woolworths’ requirement that all owner-drivers upgrade their vehicles.  In April 1981, with the assistance of the Union, the owner-drivers attempted to negotiate written contracts with Woolworths.  The Union, at the request of the owner-drivers, made a further unsuccessful attempt to negotiate a written contract during June 1981.  Subsequent to this failure, the owner-drivers held a meeting at which they decided to strike.  In late June 1981, all owner-drivers declined to perform work for one day, during the hours of 8am to 12 noon.  The cessation of work was terminated when Woolworths agreed to enter into negotiations.  Negotiations proceeded in good faith.  In November 1981, Woolworths’ Distribution Manager advised the owner-drivers that contracts were being drafted by Woolworths’ legal advisers.

30. In early 1982, Woolworths provided a proposed contract to the owner-drivers.  Substantial discussions about the proposed terms ensued, however no changes were made to the terms as proposed by Woolworths.  According to Mr Petraccaro’s diary, on 14 April 1982, all owner-drivers accepted the terms of the contract.  Much of this background information was supplied in an affidavit of Mr Petraccaro, sworn 16 March 2004. 

31. Pursuant to the contract, Woolworths was to provide cartage work to the owner-drivers for which Woolworths would pay them an hourly rate.  The owner-drivers were responsible for fuelling and maintaining their vehicles.  Aside from clause 10, which will be discussed in depth below, the contract did not expressly address termination.  In his affidavit, Mr Petraccaro described himself and the other owner-drivers who contracted with Woolworths in 1982, as “lifetime” contractors.

32. The precise factual circumstances in respect of the two appeals differ slightly.  It is therefore convenient to set out the respective facts separately before proceeding to determine the substantive legal issues raised by the appeals.

    Basetone

33. In 1985, Mr Petraccaro, with the consent of Woolworths pursuant to clause 13 of the contract, incorporated his business.  From then on, Basetone Pty Ltd (“Basetone”), in the capacity of trustee for the Petraccaro Family Trust, operated a transport delivery business and performed the obligations pursuant to the contract. 

34. In order to meet its obligation of “maintaining” its vehicle, Basetone twice replaced its vehicle, once in 1985 and again in February 2000.  

35. On 1 April 2003, Woolworths delivered to Basetone a letter dated 31 March 2003 in which Woolworths advised Basetone, inter alia, that:

    -individual driver cartage contracts would not form the basis of Woolworths’ future transport arrangements in South Australia;

    -Woolworths would be terminating the existing arrangements in due course;

    -the successful tenderer would commence providing the services theretofore provided by individual service providers, and as such the services of the individual service providers, such as Basetone, would no longer be required;

    -with that letter, Woolworths notified Basetone that, with effect from 28 February 2004, the current contract between Basetone and Woolworths would be brought to an end;

    -Woolworths believed the notice period of 12 months to be reasonable, taking into account all of the circumstances.

36. On 17 February 2004, Woolworths delivered to Basetone two documents.  The first, entitled, “Woolworths Adelaide Metropolitan Transport Owner/Driver Update 10 February 2004”, informed Basetone of some changes to the arrangements regarding the new cartage service provider.  The second, entitled, “Operational Handover – Change Management Activities”, provided instructions to Basetone regarding the practical arrangements associated with the handover to the new cartage service provider.

37. On 1 March 2004, Basetone filed a summons and statement of claim in the District Court. Basetone claimed that Woolworths had breached the contract by refusing to provide cartage work beyond 28 February 2004, as agreed, thereby terminating the contract otherwise than as provided for in the contract. Basetone claimed that the appellant’s repudiation of the contract constituted a breach of section 51AC of the Trade Practices Act 1974 (Cth).

38. Basetone sought a declaration that the purported termination of the contract by Woolworths was void and that the contract continued to have full force and effect.  In the alternative, Basetone sought damages for the loss and damage incurred as a consequence of the breach of the contract and the unconscionable conduct pleaded.

39. In its defence, Woolworths claimed that it had given Basetone reasonable notice, some 11 months, of the termination of the contract.  Woolworths claimed that in January 2002, it had advised Basetone that it would be changing its transport arrangements from about March 2003 and that Basetone would be given a minimum of six months’ notice of the termination of the contract.  It further claimed that Basetone was kept informed by Woolworths of the progress of changes in relation to Woolworths’ transport arrangements.  Woolworths claimed that in terminating the contract, it had complied with its obligations.

40. On 18 May 2004, Basetone applied to have its claim dealt with summarily pursuant to District Court Rule 25.02.[1]  Basetone sought the following declarations:

    1.The cartage contract between [Woolworths] and Domenico Petraccaro dated 11 May 1982 was assigned to [Basetone] in or about November 1984.

    2.The said assigned cartage contract remains on foot and in full force and effect between [Basetone] and [Woolworths].

    [1] District Court Rule 25.02 is in the same terms as Supreme Court Rule 25.02 and provides:

    (1)In the alternative to Rule 25.01 the plaintiff may after the time of issuing his summons take out an application for immediate relief.

    (2)The application shall be supported by an affidavit verifying the plaintiff's claim and exhibiting all relevant documents.

    (3)The application shall be returnable not less than two days after service.

    Montebello

41. In accordance with their obligations under the contract, John Joseph Peter Montebello and Kaye Francis Montebello, who at relevant times carried on the business of a cartage contractor trading under the name JJP & KF Montebello, at all times ensured that they maintained their vehicle pursuant to their obligations under the contract.

42. On or about 31 March 2003, Mr and Mrs Montebello received a letter from the appellant, providing notice of a proposed purported termination of the contract.  That letter was in similar terms to that which had been received by Basetone on or about the same date.

43. On 22 April 2003, Mr and Mrs Montebello, through their solicitors, wrote to the appellant informing that they did not accept Woolworths’ purported termination of the contract and affirming that they were ready, willing and able to perform their obligations pursuant to the contract and would continue to do so.

1. On 28 May 2003, Woolworths’ solicitors replied to Mr and Mrs Montebello’s solicitors in the following terms:

   We refer to Woolworths’ letter dated 31 March 2003, and your letter dated 22 April 2003.

   We have considered the matters raised in your correspondence, and Woolworths’ position remains as previously advised.  Woolworths’ position is that it has a right to terminate the contract and has properly given adequate notice of that termination.  Woolworths’ offer of the Termination Benefits remains available to your clients.

   …

   We confirm that after Saturday, 28 February 2004, Woolworths will no longer require the services of your client, Mr John and Mrs Kaye Montebello, to be provided under the existing arrangement.

2. On or about 10 February 2004, Mr and Mrs Montebello received two documents from Woolworths, entitled, “Woolworths Adelaide Metropolitan Transport Owner/Driver Update 10 February 2004”.  The first, sub-titled “Transitional Activity – Service Continuity Management”, informed Mr and Mrs Montebello of some changes to the arrangements regarding the new cartage service provider.  The second, entitled, “Operational Handover – Change Management Activities”, provided instructions regarding the practical arrangements associated with the handover to the new cartage service provider.

3. On 31 May 2004, Mr and Mrs Montebello provided notice to Woolworths that they accepted Woolworths’ repudiation of the contract and that they had terminated the contract pursuant to Woolworths’ repudiation.  In this respect, the factual matrix differs significantly from that in the Basetone matter, where there was no acceptance on the part of Basetone of Woolworths’ alleged repudiation.

4. On 2 June 2004, Mr and Mrs Montebello filed a summons and statement of claim in the District Court.  They subsequently filed an amended statement of claim on 2 August 2004.  Mr and Mrs Montebello claimed that Woolworths had wrongfully breached and repudiated the contract by refusing to provide cartage work beyond 28 February 2004 and by purporting to terminate the contract for reasons or in circumstances otherwise than as provided for by the contract. 

5. Mr and Mrs Montebello sought, inter alia, the following relief:

   -A declaration that the purported termination of the contract by Woolworths was in breach of contract and constituted an unlawful repudiation of the contract.  In the alternative, Mr and Mrs Montebello sought damages for the loss and damage incurred as a consequence of the breach of the contract and the unconscionable conduct pleaded.

   -A declaration that Mr and Mrs Montebello had lawfully terminated the contract consequent upon Woolworths’ wrongful breach and repudiation thereof.

   -An order that Woolworths pay Mr and Mrs Montebello damages for loss and damage suffered as a consequence of Woolworths’ breach and Mr and Mrs Montebello’s termination of the contract and Woolworths’ unconscionable conduct.

6. In its amended defence filed on 30 November 2004, Woolworths claimed that it had given reasonable notice, some 11 months, of the termination of the contract.  Woolworths claimed that in January 2002, it advised Mr and Mrs Montebello that it would be changing its transport arrangements from about March 2003 and that Mr and Mrs Montebello would be given a minimum of six months’ notice of the termination of the contract.  It further claimed that Mr and Mrs Montebello were kept informed by Woolworths of the progress of changes in relation to its transport arrangements.  Woolworths claimed that in terminating the contract, it had complied with its terms.

7. On 26 October 2004, Mr and Mrs Montebello applied to have their claim dealt with summarily pursuant to District Court Rule 25.02. 

   Master’s decision

8. The Basetone and the Montebello applications were heard and determined concurrently by a Master of the District Court. 

9. Woolworths contended before the Master that these were not appropriate matters for determination pursuant to rule 25.02 as there was not, at that time, proper evidence of the factual background of the formation of the contracts known to all parties.  Woolworths argued that there was a triable issue in respect of both matters, however, according to the Master, Woolworths failed to define what that issue was.

10. On 21 July 2005, the Master provided detailed reasons for his decisions.  He provided separate reasons in relation to each matter, but designated the reasons in relation to the Basetone matter for the more in depth treatment of the issues and of the relevant legal principles.  For the sake of convenience, I will refer to and treat the Master’s reasons in respect of the Basetone matter as being the reasons in respect of both matters, except where it is necessary to refer directly to the Montebello reasons. 

11. The Master recited the facts and summarised the nature and content of the affidavit material before him.  He then discussed the well-settled principles in respect of dealing with matters summarily pursuant to rule 25.02, namely that a plaintiff seeking summary judgment must show first, that the defendant’s case cannot succeed on any possible view of the facts or the law and second, that there is no real question to be tried.  The Master correctly identified that complex issues of fact and law are not capable of being dealt with summarily.  The Master then concluded that it was appropriate to proceed pursuant to rule 25.02:

    In the case at bar we are concerned with the proper construction of the contract at the time that it was entered into and not at the date of termination.

    I have read through the material on a number of occasions.  Whilst I accept that there could be more flesh on the bones dealing with the background to the agreement and how the contract was performed I do not believe it would have any bearing on the construction of the agreement at the date that it was discussed and signed in 1982.

    …

    [Woolworths] have not chosen to put any material before me, which would go to the construction of the agreement, and how the parties understood it in it 1982.  In my view it is not appropriate to dismiss the applications on the basis contended for by the defendants.  It may be ultimately on a proper consideration of all of the issues that it is not appropriate to make the order but I do not accept [Woolworths’] submissions that that conclusion should be reached prior to any further consideration of the merits of the matter.

12. Having decided it appropriate to proceed to determine the matter summarily, the Master defined the issues for his consideration to be:

    1.Does the Contract allow [Woolworths] to terminate it at will upon reasonable notice?  This involves a consideration of the construction of the contract and possibly whether there is a term to be implied into the contract to this effect.

    2.     If no did [Woolworths] unlawfully bring the contract to an end?

13. The Master summarised the submissions put by counsel and then concluded that in his view, on its proper construction, the contract was of indefinite duration:

    In my view the construction of the contract is such that it does not permit [Woolworths] to terminate the contract save for the defined instances in Clause 10, upon reasonable notice.  I accept that there can be instances where a contract, taking into account the subject matter and the nature of the contract, may still allow as some cases suggest a right to terminate at will.  In my view that does not arise in this case.

14. The Master then went on to consider, in case he was wrong as to the construction of the circumstances in which the contract could be terminated, whether or not it was an implied term of the contract that Woolworths could terminate it without cause upon reasonable notice to the owner-drivers.  The Master concluded that the indicia for an implied term were not made out:

    One could hardly say that the term “goes without saying”.

    Further one only has to ask the question (which was stated clearly by the majority in the BP Refinery case namely) if the parties were asked at the time whether they accepted the proposition that there was an implied term in this contract that either party could terminate without cause on reasonable notice, the response would have been a resounding “no”.  The same argument applies with the regard [sic] to the construction of the agreement.  Why would anyone conclude that the contract could be construed in this way when such a term is not defined.

    …

    The next issue is whether it is necessary to imply such term to give business efficacy to the contract.  Again it is unclear why this aspect of an implied term could arise.  Not only has the contract been performed for a long time but the parties had defined the basis of termination.  It is not clear why it would be needed when [Basetone] has expended periodically large sums of money on new vehicles. 

    …

    The final factor to consider is whether the implied term would contradict any express term of the contract.  In my view the term tends to contradict Clause 10(a) in that the contractor can terminate on one weeks notice yet it may not be considered to be reasonable.  [Basetone] could be found to have terminated the contract unlawfully.  There would be a conflict between Clause 10(a) and a period of notice which a court might conclude should have been longer than seven days.

    Likewise the period of reasonable notice under Clause 10(b)(i) might be in conflict than a supposed period of reasonable notice given by [Woolworths].  It may be argued that these points are not appropriate as the specific terms of the contract will override general provisions.  I accept is [sic] not entirely clear. 

    In any event in my view a number of the indicia of implied terms are not made out.  Therefore in my opinion [Woolworths] is not entitled to terminate the contract on reasonable notice.

    The Master made declarations in the following terms in the matter of Basetone:

    -The cartage contract between Woolworths and Mr Petraccaro of 11 May 1982 was assigned to Basetone in or about November 1985.

    -The assigned cartage contract remains on foot and in full force and effect between Basetone and Woolworths.

    In the matter of Montebello, the following declarations were made:

    -Woolworths has unlawfully and wrongly terminated the cartage contract with Mr and Mrs Monetebello.

    -Mr and Mrs Montebello have lawfully accepted Woolworths’ repudiation and termination of the contract.

    District Court Judge’s decision

15. Woolworths appealed against the decisions of the Master to a Judge of the District Court.  Once again, both matters were heard and determined concurrently.  The Judge provided separate reasons in respect of each matter and, similarly to the Master, the Basetone reasons are the primary judgment.  For that reason, except where necessary, the Basetone reasons will be referred to.

16. The issues for determination by the Judge were whether it was appropriate for the Master to make declarations under rule 25.02 and, if it was appropriate to make such declarations, whether Woolworths was, on a true construction of the contracts, entitled to terminate them without other cause but upon giving reasonable notice. 

17. Having reminded himself of the principles applicable to an application made pursuant to rule 25.02, the Judge summarised the arguments put by the parties:

    [Basetone’s] application before the Master did not rely on circumstances of urgency, but upon an asserted lack of any credible defence.  It said that the proper construction of the contract fell to be determined on its own terms, that [Woolworths] had not demonstrated any need for an enquiry into the circumstances surrounding its formation, that it should be concluded it was one of indefinite duration, and that, the provisions of clause 10(b) aside, it was not able to be determined by [Woolworths] upon giving reasonable notice.

    [Woolworths] argued that the type of relief sought before the Master necessarily involved the receipt of evidence and the making of factual findings and was more akin to an application for the determination of a preliminary question of fact or law pursuant to DCR 75.02.  There was a serious question of law to be tried, it said, namely, whether the contract contained an implied term that it was terminable on reasonable notice, but that question could not be determined simply on the face of the document, it required evidence as to the “factual matrix” in which it came into being.

    It contended, and it was not disputed, that [Basetone] had carried the general onus of showing, on the balance of probabilities, that it was entitled to that form of relief, but it then argued that, in approaching the question of whether that onus had been discharged, the Master should have afforded it the chance to challenge [Basetone’s] allegations as to the circumstances in which the contract was formed and, in any event, to, itself, advance evidence on that topic. (original emphasis)

18. The Judge concluded that the Master was correct to proceed pursuant to rule 25.02 to determine the matters summarily. 

19. As the Judge considered the appeals to him to be by way of rehearing, His Honour received further affidavit material tendered by Woolworths, over objection from Basetone and Mr and Mrs Montebello.  Woolworths contended that this material went to show that there was a triable issue to be resolved by way of trial.  Basetone and Mr and Mrs Montebello disputed that the material identified any evidentiary matters relating to the circumstances of the formation of the contract that were likely to assist its proper interpretation. 

20. The Judge considered the argument advanced that, had Woolworths been permitted more time in order to compile information regarding the background to the formation of the contracts, it would have been able to satisfy the court that these were not matters fit for summary judgment.  As to this contention, the Judge reasoned:

    [Woolworths] has thus had a very substantial period of time indeed within which it could have identified, if not adduced, evidence as to those matters or, at the least, some of them, which go to the factual matrix of the disputed contract and which, it could then say, would assist in properly construing it and yet, as of December 2005, the only evidence put before me was of continuing, but so far unfruitful, investigations and searches.

    I am not persuaded that [Basetone’s] DCR 25.02 application should be defeated on the ground, alone, that the deployment of the subrule is inappropriate because [Woolworths] might, at some future time, be in a position to identify and then adduce evidence which would enable it to argue that the factual matrix in which the contract was formed supports its contention that it was terminable on reasonable notice.

    It seems to me [Woolworths] has had all the opportunity it is entitled to, to identify and advance some evidence as to that, and [Basetone] should not be denied relief simply because something might emerge, at a later time, which will assist [Woolworths]: cf Transeast Pty Ltd v Commonwealth Bank of Australia (1990) 157 LSJS 447 per Perry J.

    In summary, I am satisfied that the language of the contract has a plain meaning, so there is not basis for enquiring into the circumstances surrounding its formation.  If I am wrong in that, then even so, I find that [Woolworths] has had ample opportunity to identify circumstances, or at least one of them, justifying such an enquiry and that it has failed to do that. 

    These findings mean that I reject [Woolworths’] contention that this is not a matter appropriate for determination under DCR 25.02.  Accordingly, that ground of appeal fails and, as this is by way of rehearing, I will now proceed to determine the matter under that Rule. 

21. The Judge then proceeded to consider and determine the matters pursuant to rule 25.02.  With respect to the construction of the contract regarding termination, the Judge observed:

    Clause 10 aside, therefore, the contract contains no provision dealing with its duration.  Even so, there can be little doubt that the parties likely intended it to be a contract of some substantial length, particularly having regard to the mention and exclusion of long service leave claims and the need for the contractor to incur the substantial capital lost of procuring and maintaining an appropriate cartage vehicle.

    As I have observed, clause 10 does not purport to cover the circumstances in which either party might terminate for fundamental breach.  The following matters do, however, appear to me to be pertinent.

    (a)     the fact that clause 10(a) specifically provides for unilateral termination of the contract by the contractor upon seven days’ notice clearly indicates that the parties considered the circumstances in which the contract might be terminated without cause and agreed that only the contractor might have that right – if it had been intended that there be a reciprocal right in [Woolworths] to terminate without cause (with whatever notice period), it can be assumed that such would have been included in the document – it was not;

    (b)     clause 10(b)(i) contemplates that [Woolworths] might wish to cease trading or revert to company-owned vehicles and it provides that in such circumstances and on certain conditions, it might terminate, albeit with differing notice periods for either option.

    What is significant about this subclause is that it identifies particular circumstances whereby [Woolworths] might, for its own commercial reasons, validly terminate the contract.  To the extent that it limits those circumstances to the two instances identified, I find it reasonable to infer that the contract did not contemplate there being other commercial circumstances (such as those obtaining in the present situation) which might afforded it a right to terminate.

    Put another way, arrogating to itself the right, upon some period of notice, to terminate and contract and engage with another external carrier, was a commercial circumstance which [Woolworths] would very likely have considered at the time the contract was entered into – yet it chose not to provide for it.

22. The Judge rejected Woolworths’ contention that as the contract conferred upon the owner-drivers power to terminate without cause upon seven days’ notice, Woolworths should have a similar right.  He reasoned:

    I am not persuaded that one follows from the other.  It seems to me that there is a marked difference between the commercial sensibilities attending a circumstance where a party has a practical ability to end a contractual relationship and those subsisting where that party has an agreed, albeit unilateral, legal capacity to end it.  Indeed, as I have earlier observed, the presence of a specific provision affording [Basetone] a right to terminate upon notice and the absence of any provision conferring a similar right upon [Woolworths] (with whatever period of notice) indicates to me that the parties considered that very question and deliberately agreed that [Woolworths] should not have a similar opportunity. 

    The Judge then considered the relevant case law, before continuing:

    All in all, I am satisfied that, if indeed it is accepted that commercial contracts are ordinarily terminable upon reasonable notice, then, even so, the overriding consideration must be as to the terms of the particular contract under consideration.  If, on its terms, it may be inferred that the parties intended otherwise and that it should be determinable only in specified circumstances, then it seems to me that such an intention should prevail.

23. The Judge then turned his attention to the question of whether he ought to imply a term into the contracts that Woolworths had power to terminate without cause upon reasonable notice:

    I am unable, in this contract, to find language that is ambiguous or susceptible of more than one meaning: to me its meaning is plain.  If I am wrong in that, there is no claim or evidence before me of facts existing at the time the contract was made which were known to both parties or notorious and which will aid in its construction.  I am not, therefore, greatly assisted by consideration of the bases outlined in Codelfa for implication of terms.  Even so, I add the following observations:

    (1)I am not satisfied it would be reasonable and equitable for the suggested term to be implied in the contract, particularly in the context of [Basetone’s]capital commitment to the venture, its obvious need for security, and the more so given that [Woolworths] inferentially sought to and did protect its own commercial position through clause 10(b)(i).

    (2)An implied right of determination without cause in favour of [Woolworths] would not necessarily give business efficacy to the contract and, indeed, it appears to have continued effectively for a considerable period of time without such a right.  Furthermore, [Woolworths] remained at liberty to have recourse to clause  10(b)(i).

    (3)I am not satisfied that the need for inclusion of such a provision is so obvious that it goes without saying, particularly in circumstances where it is apparent that the parties have specifically turned their minds to the question of termination without notice.

    (4)Plainly, such a term would be capable of clear expression.

    (5)Such a term would not contradict any express term in the contract.

1. The Judge then came to the following conclusions regarding Woolworths’ appeals:

   In the end, it seems to me that the question I must consider is one of construction, unaided in this particular circumstance by any evidence, or promise of it, as to the circumstances in which the contract was formed and which might assist that task.  In so approaching the document, I find I am not satisfied it confers any implied right upon the appellant to terminate other than for fundamental breach or in the manner provided for in clause 10(b).

   I conclude that the contract here was intended to be one of indefinite duration, terminable, otherwise than for fundamental breach, only in the circumstances outlined in clause 10, they being the circumstances which, I am satisfied, the parties treated as comprehensively delineating their rights to terminate without cause or for commercial reasons.

   The Judge therefore dismissed the appeals and made declarations in similar terms as those made by the Master.

   The Appeals to the Full Court

2. These appeals raise two issues: whether these actions were capable of being dealt with summarily pursuant to rule 25.02 and whether it was reasonably arguable that it was a term of the contracts that Woolworths had the power to terminate without cause upon reasonable notice. 

3. Woolworths appealed to this Court against the decisions of the Judge on the following grounds:

   1.That on the whole of the evidence, the Learned Judge should have found that District Court Rule 25.02 was not an appropriate procedure in the circumstances to determine issues of liability between the parties.

   2.In failing to so find, the Learned Judge further erred in failing to distinguish between evidence which “might emerge at a later time” and evidence which was known by [Woolworths] to exist, but which had not yet been located.

   3.The Learned Judge erred in concluding that extrinsic evidence of known context was only admissible where the terms of clause 10 were “ambiguous”, and that clause 10 was not in [sic], in the relevant sense, ambiguous.

   The Learned Judge ought to have held that the first issue in the interpretation of clause 10 was whether it was, by implication, exhaustive of rights of termination, in the resolution of which extrinsic evidence of known context is admissible.

   Further, the Learned Judge ought to have next held that in determining whether there was an implied right of termination by [Woolworths] on reasonable notice, extrinsic evidence of known context is admissible.

   4.The Learned Judge erred in finding that the contract could only be terminated pursuant to clause 10 thereof.

   5.The Learned Judge erred in failing to find that, as a matter of proper construction, the contract was terminable by [Woolworths] upon reasonable notice.

   6.     The Learned Judge erred in refusing to imply a term in the contract to this effect.

4. Woolworths contended that the Judge should have concluded that there were factual matters to be tried therefore rendering the matter incapable of being dealt with pursuant to rule 25.02.  Woolworths submitted that it should be allowed the opportunity to adduce the evidence it sees fit after all necessary pre-trial steps, including discovery, have been completed. 

5. Woolworths further contended that even if, contrary to its submission, the Judge was correct to determine the application summarily, the Judge should have found that a clause to the effect that the contract was terminable by Woolworths upon reasonable notice should have been implied into the contract and that, as a matter of reasonable construction, the contract was terminable by Woolworths upon reasonable notice. 

   Relevant legal principles

6. Having established the factual background that gave rise to these appeals, it is necessary to discuss the relevant legal principles by way of further background before coming to consider directly the particular issues raised on these appeals.

   Rule 25.02

7. Rule 25.02 of the District Court Rules provides:

   (1)     In the alternative to Rule 25.01 the plaintiff may after the time of issuing his summons take out an application for immediate relief.

   (2)     The application shall be supported by an affidavit verifying the plaintiff's claim and exhibiting all relevant documents.

   (3)     The application shall be returnable not less than two days after service.

8. The principles with respect to the application of rule 25.02 are well settled.  The Supreme Court Rules, in identical terms, were considered recently by this Court in PSI @ Mawson Lakes Pty Ltd v Land Management Corporation:[2]

   [2] PSI @ Mawson Lakes Pty Ltd v Land Management Corporation [2006] SASC 185.

   Rule 25.02 permits a plaintiff to apply to have a claim for relief disposed of urgently in circumstances where the plaintiff can show sufficient grounds for urgency and that there is no serious question to be tried.[3]  In Settlement Wine Co Pty Ltd v National and General Insurance Co Ltd,[4] King CJ described the nature and effect of rule 25.02 in the following terms:[5]

   It provides a procedure whereby in circumstances of urgency a judge can decide issues which are capable of speedy resolution without lengthy hearing and give judgment without trial, Wicklow Enterprises Pty Ltd v Doysal Pty Ltd and the Registrar-General 1985 124 LSJS 225; Lawrence v Griffiths 1987 140 LSJS 134. Another purpose of the procedure is to operate as an alternative to an Application for summary Judgment under Rule 25.01 where the Rule 25.01 endorsement has not been made but where the plaintiff considers that there is no serious issue to be tried, Bellas v Kipouros 1974 8 SASR 418 at 419. This latter purpose is emphasised by the language of the 1987 Rules which express the Rule 25.02 procedure as an alternative to the Rule 25.01 procedure.

   In Wicklow Enterprises Pty Ltd v Doysal Pty Ltd and Registrar-General, of the predecessor to rule 25.02, order 10, King CJ observed:[6]

   The Summons for Immediate Relief is a convenient vehicle for disposing expeditiously of cases in which there is not substantial dispute or in which the nature of the dispute is such that it can be resolved readily and speedily in Chambers.  An attempt to determine by means of the Summons for Immediate Relief issues of fact and law requiring substantial hearing time produces mischiefs which are well illustrated by the course which the present case took.

   The first such mischief is that the relief sought is likely to be delayed rather than expedited by the procedure followed.  …

   The second mischief is that the adoption of this procedure leads to the decision of complex issues of fact and law other than by means of a regular orderly trial.  The attempt to resolve such issues by means of a succession of affidavits and intermittent examination and cross-examination of witnesses rather than by means of a regular and orderly trial can only be regarded as unsatisfactory and possessing a tendency to lead to an incorrect result.

   The third mischief is that if the procedure adopted in this case were followed on a substantial scale, it would disrupt the orderly arrangement of the business of the Court and would be unjust to parties whose cases were listed for hearing in the ordinary way.

   [3] Lawrence v Griffiths (1987) 47 SASR 455.

   [4] Settlement Wine Co Pty Ltd v National and General Insurance Co Ltd (1988) 146 LSJS 150.

   [5] Settlement Wine Co Pty Ltd v National and General Insurance Co Ltd (1988) 146 LSJS 150 at 152.

   [6] Wicklow Enterprises Pty Ltd v Doysal Pty Ltd and Registrar-General (1985) 124 LSJS 225 at 226-227.

9. The remarks of Doyle CJ in Kadeh v Gill[7] are apposite to the present appeals:[8]

   Unless there are circumstances of urgency, the only basis for making an order can be that the case is, as a matter of law and as a matter of fact, bound to fail.  There has to be some good reason to deal with a claim or defence in this summary fashion.

   As such, in the absence of urgency, a matter will only be determined summarily where the defendant has no arguable defence, or, in the words of Doyle CJ, where the defendant is bound to fail.

   [7] Kadeh v Gill (2000) 211 LSJS 88.

   [8] Kadeh v Gill (2000) 211 LSJS 88 at [93].

   Construction of Commercial Contracts

10. The general principles that govern the construction of commercial contracts are settled.[9]  In Lake v Simmons,[10] Viscount Sumner observed:[11]

    Every one must agree that commercial contracts are to be interpreted with regard to the circumstances of commerce with which they deal, the language used by those who are parties to them, and the objects which they are intended to secure. 

    These words were drawn on by Gleeson CJ in McCann v Switzerland Insurance,[12] where it was observed:[13]

    A policy of insurance, even one required by statute, is a commercial contract and should be given a businesslike interpretation.  Interpreting a commercial document requires attention to the language used by the parties, the commercial circumstances which the document addresses, and the objects which it is intended to secure.

    [9] See discussion in Hardy Wine Company Ltd v Tasman Liquor Traders Pty Ltd (In liq) [2006] SASC 168.

    [10] Lake v Simmons [1927] AC 487.

    [11] Lake v Simmons [1927] AC 487 at 509.

    [12] McCann v Switzerland Insurance (2000) 203 CLR 579.

    [13] McCann v Switzerland Insurance (2000) 203 CLR 579 at 589. (footnotes omitted)

11. In Pacific Carriers Ltd v BNP Paribas,[14] the High Court restated the general principles in regard to the construction of commercial contracts:[15]

    The case provides a good example of the reason why the meaning of commercial documents is determined objectively:  it was only the documents that spoke to Pacific.  The construction of the letters of indemnity is to be determined by what a reasonable person in the position of Pacific would have understood them to mean.  That requires consideration, not only of the text of the documents, but also the surrounding circumstances known to Pacific and BNP, and the purpose and object of the transaction.  In Codelfa Constructions Pty Ltd v State Rail Authority of NSW, Mason J set out with evident approval the statement by Lord Wilberforce in Reardon Smith Line Ltd v Hansen-Tangen:

    “In a commercial contract it is certainly right that the court should know the commercial purpose of the contract and this in turn presupposes knowledge of the genesis of the transaction, the background, the context, the market in which the parties are operating.”

    [14] Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451.

    [15] Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451 at 461-462. (footnotes omitted)

12. In Pacific Carriers, the High Court, in its joint judgment, considered that the construction of the letters of indemnity in question was to be determined upon what a reasonable person in the position of Pacific would have understood the letters to mean.  The Court recognised that enquiry to require a consideration not only of the text of the letters, but also of the surrounding circumstances known to the parties to the letters and the purpose and object of the letters.  In respect of this latter proposition, their Honours referred with apparent approval in a footnote to the decision of the House of Lords in Investors Compensation Scheme Ltd v West Bromwich Building Society,[16] where Lord Hoffman observed:[17]

    Interpretation is 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. …Subject to the requirement that it should have been reasonably available to the parties, … it includes absolutely anything which would have affected the way in which the language of the document would have been understood by a reasonable man.

    Lord Hoffmann further explained his remarks in Bank of Credit and Commerce International SA v Ali:[18]

    I should in passing say that when, in Investors Compensation Scheme Ltd v West Bromwich Building Society, ... I said that the admissible background included “absolutely anything which would have affected the way in which the language of the document would have been understood by a reasonable man”, I did not think it necessary to emphasise that I meant anything which a reasonable man would have regarded as relevant.  I was merely saying that there is no conceptual limit to what can be regarded as background.  It is not, for example, confined to the factual background but can include the state of the law (as in cases in which one takes into account that the parties are unlikely to have intended to agree to something unlawful or legally ineffective) or proved common assumptions which were in fact quite mistaken.  But the primary source for understanding what the parties meant is their language interpreted in accordance with conventional usage … I was certainly not encouraging a trawl through “background” which could not have made a reasonable person think that the parties must have departed from conventional usage.  (original emphasis)

    [16] Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896.

    [17] Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896 at 912-913.

    [18] Bank of Credit and Commerce International SA v Ali [2002] 1 AC 251 at [39].

13. In Pacific Carriers, the Court then made reference to the evident approval given by Mason J in CodelfaConstruction Pty Ltd v State Rail Authority of NSW[19] to Lord Wilberforce’s remarks in Reardon Smith Line Ltd v Yngvar Hansen-Tangen.[20]  By a further footnote, the Court made reference to its decision in Royal Botanic Gardens and Domain Trust v South Sydney City Council.[21] In Royal Botanic, Gleeson CJ, Gaudron, McHugh, Gummow and Hayne JJ in their joint judgment observed:[22]

    Two further matters should be noticed.  First, reference was made in argument to several decisions of the House of Lords, delivered since Codelfa but without reference to it.  Particular reference was made to passages in the speeches of Lord Hoffmann in Investors Compensations Scheme Ltd v West Bromwich Society and of Lord Bingham of Cornhill and Lord Hoffmann in Bank of Credit and Commerce International SA v Ali, in which the principles of contractual construction are discussed.  It is unnecessary to determine whether their Lordships there took a broader view of the admissible “background” than was taken in Codelfa or, if so, whether those views should be preferred to those of this Court.  Until that determination is made by this Court, other Australian courts, if they discern any inconsistency with Codelfa, should continue to follow Codelfa.

    [19] CodelfaConstruction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337 at 347.

    [20] Reardon Smith Line Ltd v Yngvar Hansen-Tangen [1976] 1 WLR 989.

    [21] Royal Botanic Gardens and Domain Trust v South Sydney City Council (2002) 186 ALR 289.

    [22] RoyalBotanic Gardens and Domain Trust v South Sydney City Council (2002) 186 ALR 289 at [39] (footnotes omitted).

14. It may be understood from the decision of Pacific Carriers that notwithstanding the observations of the joint judgment in Royal Botanic, when approaching the construction of a commercial contract, it is not only the text of the document that is relevant, but also the surrounding circumstances known to the parties and the purpose and object of the transaction.  That inquiry allows a determination to be made by the court of what a reasonable person in the position of the parties would have understood the terms of the contract to mean.

15. The observations in Pacific Carriers were approved by the High Court in Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd,[23] where the High Court further commented:[24]

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

    In particular, the Court restated the principle that the meaning of the terms of a contractual document is to be determined on what a reasonable person would have understood them to mean and that that normally requires consideration not only of the text but also of the surrounding circumstances known to the parties and the purpose and the object of the transaction.

    [23] Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165.

    [24] Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165 at 179.

16. The observations of the High Court in Pacific Carriers and Toll are of direct relevance to the present proceedings.  The meaning of the terms of the contracts is to be determined by what a reasonable person would have understood them to mean.  The resolution of that question would allow a consideration not only of the text of the documents but also a consideration of the surrounding circumstances as known to the parties and of the purpose and object of the transaction.  The further evidence identified by Woolworths and the evidence that might be disclosed upon further inquiry may elucidate those matters.

17. The High Court in Pacific Carriers and Toll saw no apparent conflict between the above proposition and the following observations of Mason J in Codelfa:[25] 

    The true rule is that evidence of surrounding circumstances is admissible to assist in the interpretation of the contract if the language is ambiguous or susceptible of more than one meaning.  But it is not admissible to contradict the language of the contract when it has a plain meaning.

    [25] Codelfa Construction Pty Ld v State Rail Authority of NSW (1982) 149 CLR 337 at 352.

18. It is to be observed from observations made later in these reasons that I am of the view that there is arguably ambiguity as to the meaning of the terms of the contract the subject of these appeals.  In these circumstances, evidence of the surrounding circumstances may assist the court in the resolution of that ambiguity.  The observations of Mason J in Codelfa specifically support the admissibility of relevant evidence in this respect.

    Implied terms

19. The circumstances in which it will be appropriate to find that an implied term exists in a contract were recently considered by this Court in Hardy Wine Company Ltd v Tasman Liquor Traders Pty Ltd (In liq):[26]

    [26] Hardy Wine Company Ltd v Tasman Liquor Traders Pty Ltd (In liq) [2006] SASC 168 at [56]-[58].

    The approach to be taken to implying terms into an agreement was outlined by Lord Cross in Liverpool City Council:[27]

    [27] Liverpool City Council v Irwin [1977] AC 239 at 258.

    Here it is not enough for the court to say that the suggested term is a reasonable one the presence of which would make the contract a better or fairer one; it must be able to say that the insertion of the term is necessary to give - as it is put – “business efficacy” to the contract and that if its absence had been pointed out at the time both parties - assuming them to have been reasonable men - would have agreed without hesitation to its insertion.

    The observations of Scrutton LJ in Reigate v Union Manufacturing Co are also pertinent:[28]

    A term can only be implied if it is necessary in the business sense to give efficacy to the contract; that is, if it is such a term that it can confidently be said that if at the time the contract was being negotiated some one had said to the parties, “What will happen in such a case,” they would have both replied, “Of course, so and so will happen; we did not trouble to say that; it is too clear.”  Unless the Court comes to some such conclusion as that, it ought not to imply a term which the parties themselves have not expressed.

    In Codelfa Construction Pty Ltd v State Rail Authority of NSW, Mason J observed:[29]

    The conditions necessary to ground the implication of a term were summarized by the majority in B.P. Refinery (Westernport) Pty. Ltd. v. Hastings Shire Council: "(1) it must be reasonable and equitable; (2) 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; (3) it must be so obvious that `it goes without saying'; (4) it must be capable of clear expression; (5) it must not contradict any express term of the contract."

    [28] Reigate v Union Manufacturing Co [1918] 1 KB 592 at 605.

    [29] Codelfa Construction Pty Ltd v State Rail Authority of NSW (1981-1982) 149 CLR 337 at 347. (footnotes omitted)

    Commercial contracts - terminable on reasonable notice

1. The authorities relevant to whether and in what circumstances commercial contracts for an indefinite period may be terminated were authoritatively reviewed by McHugh JA in Crawford Fitting Co v Sydney Valve & Fittings Pty Ltd,[30] where His Honour observed:[31]

   [30] Crawford Fitting Co v Sydney Valve & Fittings Pty Ltd (1988) 14 NSWLR 438.

   [31] Crawford Fitting Co v Sydney Valve & Fittings Pty Ltd (1988) 14 NSWLR 438 at 443-444, 445.

   When the question arises whether a commercial agreement for an indefinite period may be terminated, the answer depends upon whether the agreement contains an implied term to that effect: Winter Garden Theatre (London) Ltd v Millenium Productions Ltd [1948] AC 173 at 205; Martin-Baker Aircraft Co Ltd v Canadian Flight Equipment Ltd [1955] 2 QB 556 at 581; Australian Blue Metal Ltd v Hughes [1963] AC 74 at 97; Decro-Wall International SA v Practitioners in Marketing Ltd [1971] 1 WLR 361 at 371, 376; [1971] 2 All ER 216 at 224, 229 and Barro Group Pty Ltd v Fraser [1985] VR 577 at 583-584, 585. The existence of the term is a matter of construction. But the question of construction does not depend only upon a textual examination of the words or writings of the parties. It also involves consideration of the subject matter of the agreement, the circumstances in which it was made, and the provisions to which the parties have or have not agreed: Re Spenborough Urban District Council's Agreement [1968] Ch 139 at 147.

   In Llanelly Railway and Dock Co v London and North Western Railway Co (1875) LR 7 HL 550, Lord Selborne declared (at 567) that:

   "... an agreement de futuro, extending over a tract of time which, on the face of the instrument, is indefinite and unlimited, must (in general) throw upon anyone alleging that it is not perpetual, the burden of proving that allegation, either from the nature of the subject, or from some rule of law applicable thereto."

   In Llanelly the House of Lords held that an agreement by which a railway company was given running powers over another company's lines was a permanent and not a terminable agreement. However, with the exception of Lord Selborne, the judgments of the other members of the House were based on the terms of the agreement and not upon any general principle of construction: see Lord Cairns (at 560), Lord Chelmsford (at 561), and Lord Hatherley (at 565).

   Although even in the second half of this century the law has been stated to be in accordance with the speech of Lord Selborne in Llanelly (see Halsbury, 3rd ed, Vol 8, par 267 at 156), the weight of twentieth century authority makes it difficult to hold that there is any presumption of perpetuity in the case of commercial agreements: Crediton Gas Co v Crediton Urban Council [1928] Ch 447; Winter Garden Theatre (London) Ltd v Millenium Productions Ltd; Martin-Baker Aircraft Co Ltd v Canadian Flight Equipment Ltd; Re Spenborough Urban District Council's Agreement; Australian Blue Metal Ltd v Hughes and Decro-Wall International SA v Practitioners in Marketing Ltd.

   In Martin-Baker Aircraft Co Ltd v Canadian Flight Equipment Ltd, McNair J said (at 577) that there is no presumption of permanency in the case of an indefinite commercial agreement but that if there is it is in favour of termination and not perpetuity. Buckley J has also expressed the view that there is no presumption either way: Re Spenborough Urban DistrictCouncil's Agreement (at 150). To the same effect is the judgment of Lockhart J in State Bank of New South Wales v Commonwealth Savings Bank of Australia (1985) 6 FCR 524 at 554; 60 ALR 73 at 101. However, it is not easy to reconcile these statements with the principle that there is a general presumption against adding to a contract a term which the parties have not expressed: Luxor (Eastbourne) Ltd v Cooper [1941] AC 108 at 137 per Lord Wright. In principle, the better view would seem to be that, although there is presumption against implying a term that an agreement is terminable, ordinarily the nature of a commercial agreement will lead to the conclusion that the parties must have intended it to be terminable on notice. This was the effect of the approach of the courts in Winter Garden; Martin-Baker; Spenborough and Decro-Wall.

   Whether a contract is terminable on reasonable notice instead of at will also depends upon the existence of an implied term: Winter Garden Theatre (London) Ltd v Millenium Productions Ltd (at 206); Martin-Baker Aircraft Co Ltd v Canadian Flight Equipment Ltd (at 581); Australian Blue Metal Ltd v Hughes (at 99). That question is determined by the circumstances existing at the date of the contract: Australian Blue Metal Ltd v Hughes (at 99). However, the reasonableness of the period of notice depends upon the circumstances existing when the notice is given: Winter Garden Theatre (London) Ltd v Millenium Productions Ltd (at 199-200); Australian Blue Metal Ltd v Hughes (at 99); W K Witt (WA) Pty Ltd v Metters Ltd and General Industries Ltd [1967] WAR 15 at 23-24; Decro-Wall International SA v Practitioners in Marketing Ltd (at 370; 224; 376-377; 229; 381; 234).

   When a contract is terminable on reasonable notice, the period of notice must be sufficiently long to enable the recipient to deploy his labour and equipment in alternative employment, to carry out his commitments, to bring current negotiations to fruition and to wind up the association in a businesslike manner: Winter Garden Theatre (London) Ltd v Millenium Productions Ltd (at 200-201); Australian Blue Metal Ltd v Hughes (at 99) and W K Witt (W A) Pty Ltd v Metters Ltd (at 24-25). But in the latter case Hale J denied (at 23) that it is relevant to the reasonableness of the period of notice that the recipient needs time to recoup any expenditure incurred.

   …

   In Australian Blue Metal Ltd v Hughes, the parties entered into a written agreement which gave the "right to mine for magnesite" in return for a royalty. The Judicial Committee held that the agreement was terminable at will with a period of grace to remove any mineral already mined. However, Lord Devlin, in tendering the advice of the Judicial Committee, said that it would not have made any difference to the result of the appeal if the agreement was terminable only on reasonable notice. He said (at 99):

   "... The implication of reasonable notice is intended to serve only the common purpose of the parties. Whether there need be any notice at all, and, if so, the common purpose for which it is required, are matters to be determined as at the date of the contract; the reasonable time for the fulfilment of the purpose is a matter to be determined as at the date of the notice. The common purpose is frequently derived from the desire that both parties may be expected to have to cushion themselves against sudden change, giving themselves time to make alternative arrangements of a sort similar to those which are being terminated."

   The Contracts

2. The contracts under consideration are of a commercial nature.  The contracts are in relevantly identical terms.

3. The contracts contain no date of expiration.  Nor do they contain any reference to the intended length of their duration.  As previously observed, the only reference to termination within the contracts appears in clause 10, which provides in each contract:

   Termination:

   (a)Unless otherwise specifically agreed between the parties, the Contractor shall give seven (7) days’ notice of termination of the contract during which period the Contractor shall, if required by the Company so to do, travel another contractor for familiarization purposes.  At the expiration of the notice referred to the Contractor shall be paid all monies due under this contract provided that the Company may deduct from any such payment any monies owed to it by the Contractor.

   (b)Unless otherwise specifically agreed by the parties the Company shall give notice of the termination of the Contract in accordance with the following:

   (i)    If the company intended to cease trading – four (4) weeks or to change company owned vehicles – six (6) weeks.  In addition, in the event of the company changing to company owned vehicles the Contractor shall be given first right of refusal of employment as a company driver.

   (ii)     If the Contractor himself or his servants or agents:

   -   falsify documents to the company – 1 day

   -   do not perform their part of the contract satisfactorily – seven (7) days, provided, that such notice shall not be given unless a warning has been given on this ground at least seven (7) days prior to the giving of notice and the warning has not been heeded.

   -   engage in conduct which could cause harm to the company’s servants – seven (7) days

   -   are dishonest or consume or are affected by intoxicating liquor prior to the completion of duty on any day – immediate and without notice.

4. On the Judge’s construction of the contracts, as contended for by Basetone and Mr and Mrs Montebello, clause 10 is exhaustive of the circumstances in which the contracts can be terminated.  Beyond the occurrence of any of the situations expressly identified in clause 10, the contracts are interminable.  Upon this construction, Woolworths is only permitted to terminate the contracts in the confined circumstances identified, whereas the owner-drivers are able to terminate simply upon seven days notice.  On the Judge’s construction, the contracts are therefore perpetual contracts.

5. Counsel for Woolworths contended that properly construed, clause 10 in each contract stipulates certain time periods for notice of termination required to be given in certain circumstances.  On this construction, clause 10 has the effect of addressing occasions that might at common law justify summary termination of the contracts, but which has been varied by agreement between the parties so that for some kinds of misconduct that would justify dismissal without notice, there is some period of notice required.  Counsel contended that clause 10 did not in any way address the right, recognised at common law, to terminate the contracts without cause upon reasonable notice.  Far from excluding the prospect of termination without cause upon reasonable notice, counsel contended that it is implicit that either party was able to terminate the contracts at any stage, without cause, provided that reasonable notice was given. 

6. It is, in my opinion, at least reasonably arguable that clause 10 should be so construed. 

7. With respect to whether or not regard ought to be had to the commercial context in which the contracts were formed, the Judge observed:

   I am not satisfied that the wording of the [contract is] ambiguous or susceptible of more than one meaning, hence I am not persuaded there is any basis for enquiring into the circumstances of its formation.

   In so concluding, the Judge erred.  Not only is there a degree of ambiguity regarding the construction of the contracts and in particular clause 10, it is clear from the authorities discussed above that the context of a commercial contractswill always be a relevant consideration, regardless of whether or not ambiguity exists as to the construction of the contract.

   Evidence

8. At the hearing of the appeal, Woolworths sought to tender, pursuant to Supreme Court Rule 95.15, further affidavit material containing evidence obtained by Woolworths since the hearing before the Judge.  Counsel for Woolworths said that the affidavits, both those he sought to tender to this Court and those tendered before the Judge, demonstrated that there existed a body of untapped and unexplored evidence relevant to the factual matrix in which the contract was concluded.  Counsel submitted that the evidence went to

   -the size and nature of Woolworths during the relevant period;

   -the distribution practices of Woolworths Australia-wide;

   -the organisational structure of Woolworths at the time;

   -the business in which the owner-drivers were to be engaged upon entering into the contract;

   -how Woolworths ran its business prior to engaging the owner-drivers on the terms of the contract;

   -what involvement the owner-drivers had in the business of Woolworths prior to their engagement on the terms of the contract;

   -why Woolworths changed its cartage operations to use of owner-drivers on the terms of the contract;

   -the known capacity and potential of Woolworths’ business to fluctuate;

   -the known susceptibility of Woolworths Limited’s share price to fluctuations as a result of downturns in the business; and

   -the known items of costs in Woolworths’ business available for reduction.

9. Before this Court, both Basetone and Mr and Mrs Montebello opposed the reception of the further affidavit material.  It was said to be fishing and speculation on the part of Woolworths.  This submission should be rejected.  The affidavits should be admitted as relevant to demonstrate that steps have been taken by Woolworths to uncover facts, the difficulties encountered because of the lapse of time and the possibility of relevant evidence existing.  The affidavits are admissible on the question of the suitability or otherwise of the claims for rule 25.02 relief.

10. Counsel for Woolworths contended that the proper construction of the contract could only be fairly ascertained following the presentation of relevant evidence at trial.  For this reason, counsel submitted that Woolworths ought to be afforded the opportunity to continue to collate relevant evidence and to have the opportunity to present that evidence at trial.  Importantly for present purposes, the probable existence of such evidence may support Woolworths’ arguable defence.  At the very least, it makes it inappropriate to conclude, at this preliminary stage, that Woolworths’ suggested defence is bound to fail.

11. Both the Master and the Judge were critical of Woolworths’ apparent inaction in searching for and compiling evidence relevant to the circumstances underpinning the formation of the contract.  Both considered that Woolworths had been afforded ample opportunity to collate and present such evidence.

12. Although Woolworths may be criticised justifiably for being tardy in this respect, the circumstances particular to Woolworths must be borne in mind.  Woolworths forms part of an Australia-wide corporate operation.  The events that gave rise to these actions occurred more than 20 years ago.  Many of Woolworths’ officers involved in negotiating and concluding the contract are no longer available to assist in investigations or to give evidence.  In contrast to Basetone and Mr and Mrs Montebello, none of Woolworths’ present officers have first-hand recollection of the circumstances leading to the formation of the contract.  Woolworths is therefore dependent to a significant degree upon reconstructions from secondary sources.  In these circumstances, it is understandable that Woolworths may need a longer than usual time in which to collect its evidence. 

13. Given the seriousness of the consequences facing Woolworths should Basetone and Mr and Mrs Montebello ultimately succeed, the justice in the case requires that Woolworths be afforded every reasonable opportunity to defend itself.  Justice ought not to be forsaken for the expediency of the management of trial lists.  To this extent, the remarks of the High Court in Queensland v J L Holdings Pty Ltd[32] are of assistance:[33]

    Case management is not an end in itself.  It is an important and useful aid for ensuring the prompt and efficient disposal of litigation.  But it ought always to be borne in mind, even in changing times, that the ultimate aim of a court is the attainment of justice and no principle of case management can be allowed to supplant that aim.

    [32] Queensland v J L Holdings Pty Ltd (1997) 189 CLR 146.

    [33] Queensland v J L Holdings Pty Ltd (1997) 189 CLR 146 at 154 (Dawson, Gaudron, Mason JJ).

14. The Judge took the view that Woolworths had not only had a reasonable opportunity to locate and present evidence that may be relevant but that it had received all the opportunities that it was entitled to.  In particular the Judge observed:[34]

    It seems to me the appellant has had all the opportunity it is entitled to, to identify and advance some evidence as to that, and the respondent should not be denied relief simply because something might emerge, at a later time, which will assist the appellant.

    These observations should be rejected.  The Judge failed to have proper regard to the difficulties confronting a party seeking to ascertain facts that occurred more than two decades ago.  The affidavits disclosed that relevant witnesses are either dead or in retirement.  It is not surprising that difficulty had been encountered in gathering together the relevant facts to explain the context in which the contracts were entered into.  It is apparent from the affidavit of Mr Petraccaro, as earlier referred to, that there had been a number of relevant contextual events occurring.  These included strike action and union negotiation.  Discovery including non-party discovery are avenues that Woolworths ia legitimately entitled to follow through.  Neither have taken place as yet.

    [34] Transeast Pty Ltd v Commonwealth Bank of Australia (1990) 157 LSJS 447.

15. The observations of the High Court in J L Holdings were apposite.  The Judge’s desire for a prompt and efficient disposal of the litigation has supplanted the aim of the attainment of justice.

16. There is no urgency.  The owner-drivers in each case had lengthy notice of Woolworths’ plans.  They were well able to issue proceedings for declarations, quia timet injunctions and if thought appropriate, proceedings for anticipatory breach of contract.  They did not do so.  There is no reason why the matter should not go to trial.  Applications for early trial, if advanced, can be considered and resolved as part of the normal interlocutory processes. 

17. The issues to be tried are legally and factually complex.  Difficult questions as to the proper construction of the contract needs to be resolved.  An arguable defence has been raised to each claim.  The authorities gathered by McHugh JA in Crawford Fitting Co v Sydney Valve & Fittings Pty Ltd and His Honour’s observations suggest that there may be a right to terminate on reasonable notice.  As earlier discussed, the arguments arising simply on the construction of the contract itself may be said to support that conclusion.  In short, the actions raise complex questions of law and fact, an arguable defence has been identified in each case and both actions should go to trial.  These are not appropriate actions for resolution pursuant to rule 25.02. 

    Conclusion

18. Both appeals should be allowed.  The declarations made in each action should be set aside.  An order should be made that the actions be remitted to the District Court for hearing and determination in accordance with the Rules of Court.