Flinders Journal of Law Reform
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Flinders Journal of Law Reform |
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ANDREW STEWART[†] AND J W CARTER[††]
Some years ago, we surveyed the contribution made by the High Court to the development of Australian contract law.[1] We focused in particular on the remarkable years of 1982 and 1983, when a flood of contract litigation happened to reach the Court, and on the decade that followed. We noted that over that period the High Court was prepared to move away from English law in many significant respects, not least in embracing the concept of unconscionability as the central element in a variety of doctrines and in its creative use of equitable remedies. We also suggested, however, that certain important issues remained to be addressed by the Court, including the extent to which the notion of unconscionability could or should be used to police opportunistic commercial conduct, and the inhibiting effect of the (long since abolished) forms of action on the development of restitutionary remedies.
With the passage of a decade since that account was written, and with contract cases continuing to come before the High Court in significant numbers (albeit with nothing like the frequency of 1982–83!), it seems timely to update it. In this article, therefore, we discuss the Court’s more significant decisions since 1993 under four broad headings. The first two pick up on the themes that have already been mentioned: the centrality of the concept of unconscionability, associated with the flexibility of equitable relief; and the continuing development of the law of restitution. The remaining sections are devoted to the implication and interpretation of terms, and to the unenforceability of contracts on public policy grounds, issues that have repeatedly come before the Court in the past nine years.
Finally, in the concluding section we return to another theme of our earlier study — the importance of the Court providing clear guidance on matters of contract law to the ‘consumers’ of its judgments.
If anything, the High Court has had rather less to say over the past decade about the concept of unconscionability[2] than might have been expected after it appeared so regularly during judgments in the 1980s and early 1990s.[3]
There have been two major cases on the doctrine of unconscionable bargains. In Garcia v National Australia Bank Ltd[4] the High Court rescued the Yerkey[5] principle (concerning the ability of married women to have guarantees of their husbands’ debts set aside) from what appeared to be an imminent demise. For good measure, it departed from English authority in formulating the principles under which a challenge may be mounted against a guarantee given in favour of a third party for the benefit of a person with whom the guarantor is in a relationship of ‘trust and confidence’. In the other case, Bridgewater v Leahy,[6] the Court took a broad view of the concept of disadvantage arising from dependence in characterising a transfer of property as having been obtained by unconscionable conduct, where the transferor was in a frail physical condition and where his mental faculties were correspondingly diminished by age. The Court also took the opportunity to emphasise that ‘conceptual and practical distinctions’[7] remain between the doctrines of unconscionable bargains and undue influence, even though they can overlap considerably in practice (especially where actual as opposed to presumed undue influence is concerned). Perhaps surprisingly, however, the Court has not yet had an occasion to consider the provisions in the Trade Practices Act 1974 (Cth) that both give statutory effect to (s 51AA) and extend (ss 51AB–51AC) the general law doctrine of unconscionable bargains;[8] though this seems only a matter of time, in light of the number of such cases now coming before the Full Federal Court.[9]
It is also notable that there have been no further High Court cases on promissory estoppel in a contractual context; although the willingness to allow estoppel to be used to realise expectations (as opposed to merely reversing detriment) displayed in cases such as Waltons[10] and Verwayen[11] was evident once again in Giumelli v Giumelli.[12] The case concerned a son who worked in a family business and lived in a house he had built on one of the properties from which the business operated. He was promised by his parents, who owned the property, that if he stayed there the property would be subdivided and the relevant portion transferred to him. He then fell out with his parents and the promise was not fulfilled. It was held that his reliance on the promise generated an equity in his favour. The Court made it clear that this would normally be given effect through an order for the creation and conveyance of the promised lot, specifically rejecting the defendants’ argument that any relief must be limited to the extent of the detriment suffered by the plaintiff. It did accede to the further submission that subdivision of the land would impact unjustly upon other members of the family, but nonetheless ordered that the parents pay their son an amount representing the value of what would have been his interest in the property. In effect then, the Court ‘substituted expectation relief in monetary form for expectation relief in specie’,[13] albeit secured by an equitable charge.
Importantly, none of the cases mentioned so far (Garcia, Bridgewater and Giumelli) involved commercial transactions between parties operating (more or less) at arm’s length. The High Court has not had the occasion therefore to meet the challenge we posed in our earlier article: ‘to explain what role the standard of unconscionability is intended to play, if any, in regulating cynical though not unusual commercial behaviour’.[14] The Full Court of the Federal Court has recently had occasion, in the context of the statutory provisions mentioned above, to stress that behaviour that might be regarded as unreasonable or opportunistic does not for that reason alone qualify for the epithet ‘unconscionable’; and also that a party cannot be said to be at a ‘special disadvantage’ merely because they are in a commercially vulnerable position.[15] It remains to be seen whether the High Court, if given the opportunity, is prepared to affirm that proposition.
A related and equally important issue, which we had also raised in our earlier piece, is whether an obligation to perform in good faith should be implied as a matter of law into contracts of all description, or at least commercial contracts. The proposition that a duty of ‘good faith and fair dealing’ should be recognised as an inherent feature of contracts is routinely now accepted by the New South Wales Court of Appeal,[16] and by some other courts,[17] at least in connection with the exercise of contractual rights and albeit in circumstances where it is generally found that the duty has not in fact been breached. These cases have not, however, given much content to the obligation, or even explained whether it operates as a distinct contractual obligation the breach of which sounds in damages.[18] In some instances, the duty envisaged would seem to go little further than the established principle that a party must do ‘all such things as are necessary … to enable the other party to have the benefit of the contract’.[19] On the other hand, it has been suggested that a duty of good faith and fair dealing may not only require a degree of cooperation, but extend beyond that to require compliance with ‘honest’ or even ‘reasonable’ standards of conduct.[20] Indeed the New South Wales Court of Appeal has expressly equated the suggested duty of good faith with ‘an implied term of reasonableness’.[21] However as Barrett J has pointed out:
If adherence to such standards of conduct is the predominant component of a separate obligation of good faith in performance of a contract, it becomes necessary to enquire about the extent to which selflessness is required. It must be accepted that the party subject to the obligation is not required to subordinate the party’s own interests, so long as pursuit of those interests does not entail unreasonable interference with the enjoyment of a benefit conferred by the express contractual terms.[22]
It was hoped that some of these matters might be resolved by the High Court in Royal Botanic Gardens and Domain Trust v South Sydney Council.[23] As it turned out, the issues raised in that case did not ultimately depend on resolution of the good faith issue, which was raised in relation to a lessor’s power to fix rent. As Gleeson CJ, Gaudron, McHugh, Gummow and Hayne JJ explained in their joint judgment, both parties accepted that the lessor was subject to an obligation of good faith and fair dealing in exercising this power; what they were arguing over was the extent of the power, a matter which depended (as will be explained when the case is considered in more detail later) on the construction of one of the express terms of the lease agreement. Accordingly, while acknowledging the importance of ‘the issues respecting the existence and scope of a “good faith” doctrine’, their Honours considered this was ‘an inappropriate occasion to consider them’.[24]
However, while the majority were giving nothing away, the remaining judges were more revealing. Although agreeing that there was no need to determine the matter, Kirby J observed that the idea of an implied term of good faith and fair dealing ‘appears to conflict with fundamental notions of caveat emptor that are inherent (statute and equitable intervention apart) in common law conceptions of economic freedom’.[25] This seems to suggest that he would prefer to see any restrictions on the ‘unfair’ exercise of contractual rights articulated through equitable and/or statutory provisions based on the concept of unconscionability, rather than through a common law duty of good faith.[26] He also added that such a term ‘appears to be inconsistent with the law as it has developed in this country in respect of the introduction of implied terms into written contracts which the parties have omitted to include’.[27] Callinan J did not go so far, but tellingly described the arguments put by the lessee on the basis of the aforementioned New South Wales Court of Appeal authorities as ‘rather far-reaching’.[28]
What the High Court will eventually say on this issue remains a matter of speculation, though the comments offered by Kirby J and (more elliptically) Callinan J do not bode well for those who see good faith as an implied in law duty. It is worth noting too that should he sit on such a case, Gummow J would need to decide whether he still adheres to the generally negative views he expressed about the concept of a general duty of good faith and fair dealing while on the Federal Court.[29]
Ultimately, the Court will need to resolve certain tensions which have developed because of the lower court decisions. For one thing, the relationship between good faith and fiduciary duty needs to be clarified.[30] In Breen v Williams,[31] the High Court made it clear that the fact that a contractual relationship has fiduciary aspects does not mean that there is a general fiduciary relationship or that terms should be implied to give effect to broader duties than those imposed by equity. It also pointed to the difficulties which have arisen in other jurisdictions (particularly Canada) by a tendency to see ‘good faith’ and ‘fiduciary’ as imposing equivalent standards.
A further tension lies between an implied requirement of good faith in the exercise of rights and the concept of unconscionability.[32] For a time it seemed that unconscionability (rather than good faith) would be the standard by reference to which Australian courts would police the exercise of contractual rights. There were suggestions that the doctrine of relief against forfeiture adopted in Legione v Hateley[33] might be extended to contracts in general — without the need for any proprietary interest to be in issue. The High Court has left that matter open.[34] However, in applying a requirement of good faith to the exercise of contractual rights, and treating the party having the right as subject to a requirement of reasonableness, the lower courts appear to have bypassed that issue. We have already noted the Full Federal Court’s view that unreasonable behaviour is not necessarily unconscionable behaviour. That suggests — rightly in our opinion — that reasonableness sets a lower threshold. We then have the rather peculiar situation that in cases such as Legione a purchaser who sought relief from the consequences of an otherwise valid termination was required to prove ‘forfeiture’ of a proprietary interest and unconscionable conduct; whereas the commercial parties in cases such as Renard[35] and Hungry Jack’s,[36] although having no proprietary interest in the subject matter and therefore unable to raise relief against forfeiture as a basis for challenging the termination of their contracts, were held to be entitled to deny the validity of the other party’s election to terminate on the simple ground that that party had acted unreasonably.[37]
Moving on, we noted in our 1993 article that a key to understanding the High Court’s growing emphasis on the concept of unconscionability was its willingness to deploy equitable remedies in a creative and flexible manner. A more recent example of this tendency, which in many ways can be seen as the Court’s most revolutionary decision on contract law over the past decade, is Vadasz v Pioneer Concrete (SA) Pty Ltd.[38] The case involved a guarantee, which in its terms applied both to future debts and to debts previously incurred by a company. The guarantee was given to one of the company’s suppliers, which was owed money by the company and was refusing to provide further supplies. When the supplier sought to enforce the guarantee, the guarantor (one of the company’s directors) successfully argued that he been induced to give the guarantee by reason of a misrepresentation that it related only to future debts. However his attempt to have the guarantee rescinded in its entirety failed. It was held that in order to do ‘practical justice’[39] between the parties, the guarantee should be set aside in equity only to the extent of the past debts, leaving the supplier free to enforce it in regard to debts incurred after the guarantee was given. What was granted therefore, as equitable relief against the consequences of the misrepresentation, was partial rescission of the contract.[40]
On the facts of the case, the decision plainly seems appropriate. As the Court pointed out, it would have been unconscionable for the guarantor to be relieved of a commitment he would have been quite happy to give had there been no misrepresentation. He had not undertaken to restore the benefits that had been given in return for the guarantee — the supplies provided to the company. Accordingly in the absence of an undertaking, or some legal or equitable basis for making the guarantor liable in restitution, full rescission would have left the supplier with no payment at all for the supplies and effectively conferred upon the guarantor an ‘unwarranted benefit’ at the supplier’s expense.[41] The decision must also be viewed in the context of other recent High Court decisions which have emphasised the breadth and flexibility of equity’s power to impose terms as a condition of setting aside contracts and other transactions.[42] Nonetheless, the case can be seen to break new ground in recognising a power to partially enforce contracts that equates in some ways to the US remedy of ‘reformation’ (rewriting) of contracts. That remedy includes what in Anglo-Australian law would be an order for rectification, although it is available in a much broader range of circumstances, for example as an alternative to avoidance (rescission) in cases of misrepresentation or duress.[43] Another way to view Vadasz is indeed that it blurs the distinction between the remedies of rescission and rectification.[44]
Two recent cases are relevant to our concern with forms of action and restitutionary remedies. Interestingly, they stand in stark contrast to each other.
As an illustration of our concern about the inhibiting effect of forms of action, the decision in Astley v Austrust Ltd[45] is unfortunate indeed. The Court held that a statutory provision[46] allowing damages awards to be reduced by reason of the plaintiff’s contributory fault was inapplicable to actions for breach of contract, even where the obligation breached was identical in scope to a duty of care concurrently arising under the law of negligence. In the result, the plaintiffs were able to recover the full amount of their loss from the defendant lawyers, who had been found to have given negligent advice, by the simple expedient of suing them for breach of contract — despite the fact that an award of damages in tort would have been reduced by 50% for contributory negligence. The outcome is hard to justify in policy terms, and the judgments disappointing in their emphasis on the significance of forms of action. So much for the modern convergence of tort and contract law![47] Not surprisingly, perhaps, Australian Parliaments have moved fairly quickly to overturn the effect of the decision in virtually all jurisdictions.[48]
On the other hand, in the context of restitution Roxborough v Rothmans of Pall Mall Australia Ltd[49] has gone some way towards the rejection of total failure of consideration as the basis for restitution in the context of ineffective contracts. The case arose after the Court held in a separate case[50] that the tobacco licence provisions in New South Wales were unconstitutional. Prior to that decision, manufacturers (and wholesalers) such as Rothmans passed on the cost of the licences to retailers by issuing invoices for the goods which (as in fact required by the legislation) included a separate component referable to and identified as the licence fee. The plaintiff retailers now brought an action for restitution — or money had and received, in the terminology of the forms of action which the Court seems to prefer — to recover from Rothmans the licence fees it had collected from the retailers but not paid over to the government. Aside from arguing that they were entitled to repayment pursuant to an implied term in their contracts with Rothmans, a point that will be considered later, the retailers pleaded a total failure of consideration in respect of the licence fees.
In substance, of course, the so-called licence fee was really a tax on the supply of the goods (which indeed was why the legislation in question was struck down under s 90 of the Constitution). Hence it is hardly surprising that the lower courts should have treated the fee as simply a component of the price. On that basis, and given the approach of the law of quasi-contract to apportionment, the obvious conclusion was that any failure of consideration was simply a partial failure in relation to a lump sum payment.[51] In the High Court, however, the retailers were successful in recovering the payments, on the basis that the licence fee was a separate and distinct component of the overall purchase price, and that the invalidation of the relevant legislation had resulted in a total failure of consideration in respect of that severable portion.
Nine years earlier, the Court had rather conservatively maintained the traditional requirement that money paid under a contract terminated for breach can only be recovered in restitution if the payee has received no part of what they bargained to get in return for the payment.[52] Now though, following Roxborough, it would seem that although total failure of consideration is a sufficient basis for restitution of a payment made under a contract, it is no longer necessary. A partial failure of consideration will suffice if the contract is severable or if the basis for the payment fails. Moreover, a generous approach was taken in Roxborough to the concept of severability. Thus, although in the past severability required that the payment be made for a severable part of the promisor’s performance, in Roxborough it was sufficient that the purpose of the payment was separately identified, even though there was no distinct reciprocal obligation in relation to the payment itself.
Although failure of the basis for the ‘licence’ payment is probably the most logical rationale for the Court’s decision in Roxborough, it does indicate that the Court is continuing to take a broader view of restitutionary obligations than applied under the old law of quasi-contract. That is consistent with the approach taken a decade earlier in David Securities[53] in allowing recovery of payments made under a mistake of law. However, in other respects the case is a departure. Thus, whereas the Court in David Securities was impressed by the unjust enrichment rationale for restitutionary claims, the Court in Roxborough was rather less than enthusiastic. Although space does not permit a full examination of his judgment, Gummow J in particular engaged in a surprising degree of revisionism. In Moses v Macferlan[54] Lord Mansfield said that the basis of all claims for money had and received is ‘the ties of natural justice and equity’.[55] Restitution scholars have generally treated this famous statement as pointing the way towards a concept of unjust enrichment. By contrast, Gummow J preferred to see it as emphasising the role of equity. He found support in various places, including South Australian Cold Stores Ltd v Electricity Trust of South Australia,[56] where it was said:
Under that rule the action is available when the payee cannot justly retain the money paid to him because it would not have come to his hands if it had not been for a false supposition of fact on the part of the payer causing the latter to believe that he was compellable to make the payment or at all events that he ought to make it. It is to be noticed that Parke B in Kelly v. Solari defines the requisite mistake as ‘the supposition that a specific fact is true, which would entitle the other to the money, but which fact is untrue’.[57]
It is not clear to us though why equity would want to number the various money had and received claims as its children. For example — and somewhat ironically, given the High Court’s views these days (of which more later) on the treatment of claims affected by illegality — in a case between the same parties as the decision just quoted restitution was refused in respect of payments made for electricity supplied at prices in excess of those permitted by statute.[58] This was on the basis that because the statute was directed to the regulation of prices generally, and not concerned with the protection of a class of persons, the plaintiffs could not invoke an exception to the in pari delicto rule (which states that restitutionary claims arising out of illegal contracts will be denied where the parties are ‘equally at fault’). This is hardly what one would describe as a ‘just retention’!
We are equally puzzled by why it is, if equity underlies the failure of consideration concept, that the law should have lumbered itself with a general requirement of a total failure of consideration. We do not accept as an answer the fact that the plaintiff is often a party who can claim damages for breach of contract.[59] Apart from the fact that the principle of failure of consideration is not restricted to contracts, if the equitable rationalisation is correct the equitable concept of restitutio in integrum ought for instance to be applicable to claims in respect of payments made under void contracts. At present it is not. We are, moreover, left entirely in the dark in relation to the basis of restitutionary claims for services rendered, unless we can still rely on the fact that Pavey & Matthews Pty Ltd v Paul[60] is authority for these being dealt with by reference to the concept of unjust enrichment.
Whether this attempt to turn back the clock in relation to unjust enrichment will ultimately be successful remains to be seen. However, we would make one further observation on Roxborough. As Kirby J pointed out in dissent, the justice of the decision is questionable. Since the retailers had passed on to consumers the cost of the ‘licence fee’ in the prices of tobacco products, the decision provided them with a windfall. The importance of that is simply that the approach of the common law has usually been to let losses lie where they fall unless there is a positive reason for changing their incidence. Under our law, an enrichment is not presumed to be unjust: in order to obtain restitution the plaintiff is required to establish a basis for restitution. Unjust enrichment has already proved to be a powerful tool for determining when the idea of letting losses lie where they fall is inappropriate. We therefore find it disappointing that the High Court does not consider working out the scope of unjust enrichment as a general basis for restitution to be a worthy concern. Gummow J criticised unjust enrichment because of an alleged tendency to ‘generate new fictions’.[61] Yet, that seems to us just what is happening here in the name of equity. It can only lead towards a conception of restitution in terms of a discretion to do ‘justice’ — which is of course the very thing that Deane J denied in his seminal judgment in Pavey.
That leads us to a matter of speculation. Given the antipathy of some members of the High Court towards unjust enrichment as a basis for restitution, what will the Court make of the decision in Attorney-General (UK) v Blake?[62] In that case the House of Lords awarded ‘restitutionary’ damages (which Lord Nicholls termed an ‘account of profits’[63] and Lord Steyn a ‘disgorgement of profits’[64]), albeit in circumstances that suggested that punishment of the defendant was uppermost in their minds.[65] The defendant was the exiled traitor George Blake, who had contracted to publish his autobiography in breach of a commitment not to divulge information acquired during his employment by the Crown. The effect of the decision was to give the Crown the benefits which Blake made through his breach of contract, even though it had suffered no corresponding loss. Not surprisingly, the decision has attracted considerable academic interest.[66] So far, and also not surprisingly, lower court comment on Blake in Australia has been non-committal at best.[67] Given that the approach to damages for breach of contract in Australia has always been compensatory,[68] it is doubtful whether any court other than the High Court could take the step of adopting Blake.[69] That is not to say that there is clear High Court authority rejecting the proposition that restitutionary damages may be awarded for breach of contract — the point is too obvious for that. However, Hospital Products Ltd v United States Surgical Corp[70] for one clearly assumes that the presence and breach of a fiduciary relationship is necessary for such an award to be made,[71] and that the doctrinal rationale is in terms of equity rather than the common law of contract.[72] We hope that we are not being cynical if we say that, given the current composition of the High Court, Blake would probably be considered by the Court in terms of the scope of equitable damages and the account of profits in equity and not by reference to the principles of unjust enrichment.[73]
Codelfa Construction Pty Ltd v State Rail Authority of New South Wales[74] was one of the most wide-ranging of the crop of contract decisions in 1982/83, addressing as it did not merely the doctrine of frustration, but the implication of terms and the use of extrinsic or ‘factual matrix’ evidence to interpret agreements. While the first of those issues has not subsequently come before the High Court, the other two matters have been the subject of significant further consideration.
In Byrne v Australian Airlines Ltd,[75] the Court simultaneously liberalised and restricted the implication of terms into contracts. In relation to terms implied in fact — that is, terms implied in light of the circumstances relating to a particular transaction — the Court moved to moderate the test it had earlier adopted in Codelfa. That test, originally enunciated by the Privy Council in the BP Refinery case,[76] involves the satisfaction of five requirements. For a term to be implied in fact, it must be (1) reasonable and equitable; (2) necessary to give ‘business efficacy’ to the contract; (3) so obvious that if an ‘officious bystander’ had asked the parties about it they would have said that it went without saying; (4) capable of clear expression; and (5) consistent with the express terms of the contract. The difficulty of satisfying all five of these criteria is demonstrated by the fact that, with very few exceptions,[77] arguments seeking the implication of a term on this basis have consistently been rejected by the Court out of hand. In Roxborough, for example, only Callinan J was prepared to accept that it would be ‘reasonable and equitable’ to imply a term requiring the wholesaler to reimburse the licence fee.[78] Gleeson CJ, Gaudron, Hayne and Gummow JJ gave short shrift to the retailers’ argument.[79] Kirby J also rejected it, though he criticised the artificiality of the ‘officious bystander’ test and suggested it might be time for the courts to ‘acknowledge candidly that, in defined circumstances, the law to which they give effect permits, according to a desired policy, the imposition upon parties of terms and conditions for which they have omitted to provide expressly’.[80]
Returning to Byrne, the Court made it clear that while the BP Refinery test remains applicable to formal contracts, it was appropriate to lower the bar somewhat in relation to contracts that are either purely oral or at least not fully expressed in writing. Adopting a view previously suggested by Deane J, the Court suggested that it should be enough in such instances to ask whether ‘implication of the particular term is necessary for the reasonable or effective operation of a contract of that nature in the circumstances of the case’.[81] It may be debatable, however, whether this simplified test is any easier to satisfy in practice than the BP Refinery requirements.[82] In Byrne itself, for example, the issue was whether a term should be implied into an employment contract requiring the employer to observe some or all of the terms in an industrial award regulating the employment relationship. This would in effect have allowed the employee to seek damages in contract for breach of an award provision prohibiting their employment being terminated in a ‘harsh, unjust or unreasonable’ fashion. Even on the basis of the modified test, the Court had little hesitation in rejecting the argument, ruling that incorporation of the award provision as a term of the employment contract was in no sense necessary to the operation of that contract.[83]
In their joint judgment in Byrne, McHugh and Gummow JJ also rejected any suggestion that a term incorporating award provisions should be implied as a matter of law into all employment contracts regulated by an award.[84] In doing so they adopted a test which, in contrast to the approach taken in relation to terms implied in fact, appears to narrow the basis for such implication.
Over the years, the courts have identified a wide range of terms which are to be implied by law into all contracts, or at least all contracts in a particular category, in default of any contrary intention by the parties. The explanation that had come to be accepted for this form of judicial supplementation to agreements was that legal duties should be imposed as an incident of a particular relationship ‘in cases where the law thinks that policy requires it’.[85] By contrast, McHugh and Gummow JJ preferred to couch the rationale for the implication of terms as a matter of law in more restricted language. The true explanation, they said, lay in ‘the concern of the courts that, unless such a term be implied, the enjoyment of the rights conferred by the contract would or could be rendered nugatory, worthless, or perhaps, seriously undermined’.[86] This appears to import a concept of ‘necessity’ akin to that adopted in relation to terms implied in fact. As such it might be seen to preclude the development of new terms which the judiciary is persuaded are desirable in policy terms, even if not strictly required to make a contract ‘workable’. A good example is provided by the subsequent decision in Breen,[87] where the Court used the new test to reject any suggestion that patients have an implied contractual right to access medical records held by their doctor, however reasonable the demand. It would be unfortunate if the ‘nugatory, worthless, or seriously undermined’ formula were to be used to stifle the judicial creativity that has been so essential to the development of many of the implied terms that are already firmly entrenched in our contract law, and that indeed is a hallmark of the common law method.[88]
A further aspect of the Codelfa decision which has come back before the High Court relates to the admissibility and use of evidence as to the ‘factual matrix’ or circumstances surrounding the making of a written contract as an aid to its interpretation. In Royal Botanic,[89] the Court was confronted with a deceptively simple issue concerning the lease of land for the Domain parking station in Sydney. The lease allowed the lessor (the Trust) to determine an annual rent, and stated that for this purpose the lessor ‘may have regard to’ certain costs and expenses. According to the Trust, this meant exactly what it said — that the Trust was permitted to have regard to those matters, but could take other factors into account as well. Hence, the Trust argued, it was fully justified in moving to charge a ‘fair and reasonable’ rent for the land, having for many years been content with a much smaller sum. On the other hand, the Council (as lessee) argued that what the lease meant was that the Trust could only have regard to increases in the relevant costs and expenses in varying the annual rent. In effect, it suggested that the word ‘may’ should be read as ‘may and may only’. To bolster its argument, the Council sought to rely on the lengthy and involved background to the negotiation of the lease, which was in fact formally concluded in 1976 but given retrospective operation as from 1958, when the parking station was constructed and rental payments commenced.
The competing arguments presented to the Court in this respect revolved around the views expressed in Codelfa as to the relevance of such extrinsic evidence. As we highlighted in our earlier article,[90] the judgment given by Mason J in that case is more than a little problematic. Although making it clear that the task of a court in interpreting a written contract is not to seek to determine ‘the actual intentions’ of the parties,[91] his Honour stressed that their ‘presumed intention’ in using certain words could and should be ascertained by reference to the ‘objective framework of facts within which the contract came into existence’.[92] Yet while this might suggest a broad view as to the relevance of evidence concerning the ‘commercial purpose’ of a contract in resolving any dispute as to its interpretation, he went on to state that while ‘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’, it is ‘not admissible to contradict the language of the contract when it has a plain meaning’.[93] This seems to indicate that if a clear meaning can be derived from a textual analysis of the parties’ document, there is no basis for looking beyond the bare words used — even if evidence as to the background to the contract might suggest an alternative construction.[94]
This can be contrasted with Lord Hoffman’s much-cited judgment in Investors Compensation Scheme Ltd v West Bromwich Building Society.[95] In summarising the general principles for the interpretation of contractual documents, his Lordship stated:
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. … The meaning which a document (or any other utterance) would convey to a reasonable man is not the same thing as the meaning of its words. The meaning of words is a matter of dictionaries and grammars; the meaning of the document is what the parties using those words against the relevant background would reasonably have been understood to mean.[96]
There is no suggestion here that ambiguity is required for evidence to be given as to the ‘relevant background’.
Unfortunately, the Court in Royal Botanic has left this fundamental issue of principle unresolved. Only Kirby J, who dissented, made his views plain on the matter. Just as with the interpretation of statutes, he asserted, if the language of a contract is clear then extrinsic material is simply irrelevant. Finding in favour of the Trust, he said that the disputed provision meant what it appeared to say (though in fact he would not have found otherwise even if it had been appropriate to consider the extrinsic evidence on which the Council sought to rely). He stressed that ‘there are strong reasons of legal policy for adhering to a general principle that holds parties to their written bargain in the terms that they have accepted’.[97] Tellingly, he also noted that the Council had not challenged the rejection at trial of its claim to have the lease provision rectified to read ‘may and may only’, the trial judge having ruled that there was no ‘common intention’ that the agreement limit the Trust’s discretion in that way.
The majority, by contrast, were content to find that the disputed provision was indeed susceptible of more than one meaning, and relied upon the extrinsic evidence to uphold the Council’s preferred construction. Callinan J seemed to accept that, on the basis of Mason J’s judgment in Codelfa, it was necessary for ambiguity to be shown for the extrinsic evidence to be admissible. So did the joint judgment of Gleeson CJ, Gaudron, McHugh, Gummow and Hayne JJ, though they did not expressly endorse Mason J’s ambiguity requirement. On the other hand, it is significant that their Honours were prepared to admit evidence of the parties’ prior negotiations as part of the factual matrix, something that even Lord Hoffman specifically excluded in his summary of interpretation principles.[98]
In any event, Gleeson CJ, Gaudron, McHugh, Gummow and Hayne JJ indicated at the end of their judgment that it was unnecessary to determine whether Lord Hoffman’s approach involves ‘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’. Australian courts inclined to ‘discern any inconsistency’ in this regard were instructed to ‘continue to follow Codelfa’.[99] This unhelpful observation, which of course does not even make it clear what inconsistency their Honours had in mind, becomes even more problematic when it is recalled that just two months earlier, three of the same judges (Gleeson CJ, Gummow and Hayne JJ) had apparently quoted this part of Lord Hoffman’s judgment with approval![100]
The reality is that, whether they say so or not, judges generally interpret the words used in contractual documents by reference to the context in which the transaction has occurred — as indeed they should.[101] The willingness to do this is especially evident in a series of recent decisions in which courts have applied another of Lord Hoffman’s principles:
The ‘rule’ that words should be given their ‘natural and ordinary meaning’ reflects the common sense proposition that we do not easily accept that people have made linguistic mistakes, particularly in formal documents. On the other hand, if one would nevertheless conclude from the background that something must have gone wrong with the language, the law does not require judges to attribute to the parties an intention which they plainly could not have had.[102]
In each of these cases, the parties had signed off on a document which, on a literal construction, had a perfectly clear meaning. Only when viewed in context was it apparent that the literal construction would result in a commercial absurdity, and that accordingly the parties must reasonably have intended to mean something quite different.[103]
What the majority in Royal Botanic seem to have done was to purport to identify an ‘ambiguity’ (although it was hardly more than a difficulty in interpretation), and then look at the surrounding circumstances to resolve that ambiguity. Arguably, however, it was only by reference to those circumstances that the lease provision could be said to be ‘ambiguous’ at all.
One possible way of reconciling the competing statements of principle here is to take a broad view of what constitutes ‘ambiguity’ for this purpose.[104] After all, as McHugh JA (as he then was) once observed, ‘few, if any, English words are unambiguous or not susceptible of more than one meaning’.[105] Indeed, it has been suggested that the ambiguity requirement should be understood merely as ‘a mechanism for filtering out arguments which are extravagant, merely speculative, or obviously tangential’, and that ‘if the parties are in genuine dispute over the scope or meaning of the written document, ipso facto there is ambiguity’.[106] But this borders on the absurd, or at the very least involves resort to an unnecessary charade.
Even Kirby J, who limited the reception of extrinsic evidence in favour of a textual analysis, was influenced in reaching his conclusion in Royal Botanic by certain aspects of the factual matrix, notably the legislation defining the Trust’s powers and duties. In our view, evidence of the factual matrix should not be regarded as ‘extrinsic’ at all. Rather, it is an essential ingredient of the interpretation process to have regard to such evidence. The sooner the High Court formally abandons any suggestion that such evidence is admissible only to resolve ‘ambiguity’, the better.[107]
Finally, we should raise what may now be the most important issue, namely, the current status of the parol evidence rule. There are countless cases, including important High Court decisions such as Gordon v Macgregor[108] and Hope v RCA Photophone of Australia Pty Ltd,[109] not to mention Codelfa itself, which clearly lay down the principle that in relation to a written contract the prior negotiations of the parties cannot be admitted as evidence of the factual matrix (‘surrounding circumstances’ in the older cases) unless a recognised exception to the parol evidence rule is applicable. If, as Royal Botanic now seems to suggest, a mere difficulty in interpretation (as opposed to genuine ambiguity) lets in such evidence, what work is there really left for the parol evidence rule to do?
As the authors of a recent textbook rightly observe of the effect of illegality on a contract:[110]
This is an area of law beset with difficulties: commentators have variously described it as ‘one of the least satisfactory branches of contract law’,[111] or ‘complex and obscure’, with cases that often seem ‘hit and miss’[112] or, more generously, ‘often challenging and sometimes difficult’.[113]
The High Court has been at pains in recent decisions to refine and simplify the principles governing claims arising out of transactions tainted by the involvement of one or both parties in some form of illegal or undesirable conduct. Whether it has achieved that objective is a matter for debate, though for some purposes at least the law has undoubtedly been clarified. By contrast, in relation to the related issue of whether promises should be regarded as unenforceable by reason of the doctrine of restraint of trade, clarification seems very far down the Court’s list of priorities.
In Fitzgerald v F J Leonhardt Pty Ltd[114] the issue for the Court was whether a landowner could use the defence of illegality to resist paying for certain bores, on the basis that they had been drilled without the permit required by the Water Act 1992 (NT). It appeared to be accepted that the contract was neither expressly or impliedly prohibited by the statute, so that the primary question was whether the driller’s action to enforce the contract should be denied under common law principles of public policy because it had been performed illegally. All five judges answered that question in the negative, essentially on the basis that there was nothing in the statute to justify such an outcome. The breach was incidental rather than being intended from the outset, inadvertent rather than deliberate, and not the fault of the driller (it being the landowner’s responsibility to secure the necessary permit).
The emphasis on determining the case by reference not to hard and fast rules as to whether the contract was ‘illegal as performed’, but instead by asking whether denial of a claim would serve the policy or purpose underlying that statute, is consistent with the approach previously adopted in Yango Pastoral Co Pty Ltd v First Chicago Australia Ltd.[115] There the Court had allowed an institution trading as a bank in breach of the Banking Act 1959 (Cth) to enforce its loan contracts, reasoning that to do otherwise would leave innocent depositors with no enforceable rights and contradict the Act’s object of protecting the public by ensuring the financial soundness of banking institutions. Importantly, however, a majority of the bench in Fitzgerald (McHugh, Gummow and Kirby JJ) adopted[116] the following statement of overarching principle by McHugh J two years earlier in Nelson v Nelson:
[C]ourts should not refuse to enforce legal or equitable rights simply because they arose out of or were associated with an unlawful purpose unless: (a) the statute discloses an intention that those rights should be unenforceable in all circumstances; or (b)(i) the sanction of refusing to enforce those rights is not disproportionate to the seriousness of the unlawful conduct; (ii) the imposition of the sanction is necessary, having regard to the terms of the statute, to protect its objects or policies; and (iii) the statute does not disclose an intention that the sanctions and remedies contained in the statute are to be the only legal consequences of a breach of the statute or the frustration of its policies.[117]
Nelson concerned a house which was acquired with a mother’s money, but transferred into the names of her children. The purpose was to allow her to claim a statutory benefit (a subsidy to buy a further property) by falsely declaring that she did not already have a financial interest in a house. She then sought to argue that the proceeds of the sale of the house were subject to a resulting trust in her favour, notwithstanding the illegal purpose of the arrangement. In Tinsley v Milligan[118] the House of Lords had allowed a similar claim, applying what has come to be known as the Bowmakers principle: that a claim to or over property that has been the subject of illegal dealings may be maintained ‘provided that the plaintiff does not seek, and is not forced, either to found his claim on the illegal contract or to plead its illegality in order to support his claim’.[119] But they had also indicated that where property is transferred in circumstances which raise a presumption of advancement, the transferor will not be allowed to rebut that presumption in order to create a resulting trust, as that would involve ‘relying’ on the illegality.[120] No such presumption had arisen in Tinsley, but it did in Nelson and it was argued that accordingly the claim for the resulting trust should fail.
In fact the High Court upheld the claim, though subject to the mother repaying the benefit she had obtained. Deane, Toohey, McHugh and Gummow JJ each refused to follow Tinsley, taking the view that the validity of the claim should not depend on whether or not the mother was ‘relying’ on the illegality. Rather, it was a question of looking at the policy underlying the statute under which the illegality arose (here the Defence Service Homes Act 1918 (Cth)) and determining whether that policy would be better served by granting or withholding relief.[121] All four judges considered that to refuse to allow the mother to assert her beneficial ownership of the proceeds of the sale would impose a penalty far in excess of that contemplated by the statute, although Toohey J dissented from the proposition that she should be required to ‘do equity’ by repaying the subsidy. He would simply have enforced the trust, a conclusion also reached by Dawson J, though on the very different ground that the mother was not ‘relying’ on the illegality.[122]
While Nelson was not a contract case, the leading judgments were clearly intended to lay the foundation for a more general approach to illegality in the statutory context that would apply to the resolution of any type of claim, not just one involving a proprietary interest. Thus, although Deane and Gummow JJ devoted most of their joint judgment to establishing the flexibility of equitable remedies in dealing with situations involving illegality arising under statute, they also approved the more general proposition that ‘if illegality consists in the violation of a statute, courts will give or refuse relief depending upon the fundamental purpose of the statute’.[123] Similarly, the principles quoted above from the judgment of McHugh J can be seen to be expressed in very broad terms. In his judgment in Nelson, they followed a passage in which he had summarised the previously established exceptions to the principle that a plaintiff may not found a cause of action upon an illegal or immoral act (ex turpi causa non oritur actio).[124] Both those exceptions and the case law cited in support of them are predominantly concerned with restitutionary claims to recover money paid under illegal transactions. However McHugh J evidently regarded them as having broader application — hence their relevance to a case involving a resulting trust, rather than an action for money had and received. They were expressly treated by he and Gummow J in Fitzgerald as being applicable to actions to enforce rather than undo a contract, subject to the important qualification that such actions might still succeed on the basis of the general considerations enumerated by McHugh J in Nelson, even if none of the previously recognised exceptions applied.[125]
The approach to statutory illegality that has emerged from the decisions in Nelson and Fitzgerald can be criticised on a number of grounds. For one thing, it has undoubtedly blurred the distinction between the concept of statutory prohibition and the potential impact of public policy on causes of action. Instead of a two stage test — is the contract expressly or impliedly prohibited by the statute in question? and if it is not, are there reasons of public policy why a cause of action otherwise maintainable should be denied? — those questions have in most situations now been effectively bundled up into one inquiry. This is something that the High Court would no doubt be at pains to deny; and indeed in Fitzgerald, Kirby J expressly rejected the suggestion that the notion of implied statutory prohibition is a fiction that serves no useful purpose.[126] The reality though is that with certain exceptions,[127] courts rarely today find a contract to be impliedly prohibited, so that cases involving statutory illegality short of express prohibition are generally dealt with under the common law principles.[128] Moreover, it is apparent that some lower courts at least are now taking the view that even where a contract is impliedly prohibited, the consequences of that ‘prohibition’ may still be determined by reference to the factors set out by McHugh J in Nelson — a clear conflation of the categories of statutory prohibition and (common law) public policy.[129]
A second criticism, and perhaps a more significant one, is that by failing to acknowledge the extent to which they have been departing from principles built up (however uncertainly) by previous case law, the Court has left important questions unanswered. What, for instance, is the status of the Bowmakers principle where a proprietary claim is met by a defence of illegality, and the illegality in question does not involve breach of a statute?[130] And do the overarching principles enunciated by McHugh J in effect override the established principle that even a total failure of consideration is not a sufficient justification for awarding restitution in respect of benefits conferred under a contract unenforceable for illegality?[131]
In defence of the Court, it is no easy matter to cut through the tangle of rules, sub-rules and exceptions that have long characterised the legal principles in this area. Nevertheless, the result of its recent forays has been to throw the law into confusion: both the principles and the approaches of earlier decisions seem to have been cast aside without any indication of how lower courts should deal with High Court precedents which are inconsistent with the principles and the approach of the recent cases. Indeed, it would seem now that even an illegal promise can in some cases be enforced, a proposition which is impossible to reconcile with the High Court’s past pronouncements on the subject.
If the Court can at least be applauded for trying to simplify the law on statutory illegality, the same cannot be said of its recent pronouncements on the scope of the doctrine of restraint of trade. The Court has had two opportunities over the past year to settle the issue that so divided the House of Lords in Esso Petroleum Co Ltd v Harper’s Garage (Stourport) Ltd:[132] the adoption of a single test to determine when a restriction on trading activities will or will not attract the operation of the doctrine and its presumption that restraints are unenforceable unless proven to be reasonable. Yet not only did it manage to avoid answering the question on both occasions, but a number of members seem to have been unclear from one decision to the next just what it was that they were prepared to say.
It is axiomatic that, while the categories of restraint that are presumed to be contrary to public policy ‘are not closed’,[133] the doctrine of restraint of trade does not apply to every restriction on a person’s capacity to engage in trading activities. Quite apart from the fact that there are transactions which are by long convention immune from the doctrine, such as sales and leases of land,[134] there is the more general consideration that just about every commercial or employment contract involves something that could be called a restraint. But it is one thing to be clear on the fact that there are some restraints that do not require justification in order to be considered enforceable, and quite another to formulate a test which satisfactorily explains why they are excluded — or, to put it the other way round, why those covenants which are subject to the doctrine, such as post-employment restraints and restraints on the vendors of businesses, should be treated by the common law with greater suspicion.
In Peters (WA) Ltd v Petersville Ltd[135] the Court had to rule on a deal between two businesses each involved in the manufacture and sale of ice-cream products. Prior to the deal being struck in 1983, Peters WA sold ice-cream under the brand name ‘Peters’ in Western Australia. In every other State, the same brand name was used by the respondents, who also marketed products nationally under the name ‘Pauls’. The agreement involved Peters WA buying the respondents’ ice-cream business in Western Australia and paying for the exclusive right to use the ‘Pauls’ name and associated trade marks in that State. For a period that was capable of lasting until 2012 if certain options were exercised, Peters WA would pay a royalty to the respondents on all Pauls products it sold. In return, the respondents covenanted for the same period not to sell or distribute any of their own ice-cream products in Western Australia.
When the respondents sought to challenge the validity of the restrictive covenant, Peters WA argued that it was not subject to the doctrine of restraint of trade and hence did not need to be justified. It relied for this purpose on the ‘sterilisation of capacity’ test suggested by Lord Pearce in Esso as a basis for excluding ties operating during the continuance of an agreement:
The doctrine does not apply to ordinary commercial contracts for the regulation and promotion of trade during the existence of the contract, provided that any prevention of work outside the contract, viewed as a whole, is directed towards the absorption of the parties’ services and not their sterilisation.[136]
The High Court rejected this test, however, with Gleeson CJ, Gummow, Kirby and Hayne JJ commenting that it involved ‘the application of criteria of particular indeterminacy, at least some of which are likely to recur in any consideration of reasonableness’.[137] Such matters, they suggested, were ‘best left to legislative provision by way of exception to the provisions of Pt IV of the Trade Practices Act, rather than judicial intervention of dubious justification and persuasiveness’.[138] Moreover, even if Lord Pearce’s test were to be applied, the restriction imposed on the respondents could not be regarded as merely incidental to the licensing arrangements. In a separate judgment Callinan J also expressed the view that the test was unsatisfactory. As we will see presently, he had more doubts about treating this particular restraint as unenforceable, but was not prepared to dissent from the finding that the restriction had the effect of ‘sterilising’ the respondents’ services.
Since Peters WA had relied solely on the sterilisation of capacity test in arguing that the restriction was not subject to the restraint of trade doctrine, and was not appealing against the finding in the lower courts that the restraint was unreasonable, the restriction was accordingly found to be unenforceable. Gleeson CJ, Gummow, Kirby and Hayne JJ briefly commented, however, on two other ‘threshold’ tests that had emerged from the other judgments in Esso. One, the ‘fettering existing freedom’ test, is premised on the notion that the doctrine only applies when a person ‘contracts to give up some freedom which otherwise [they] would have had’.[139] Their Honours noted that this test had been extensively criticised by commentators, and that Menzies and Walsh JJ had previously cast doubt on its correctness in an earlier High Court decision.[140] Nonetheless, given the way Peters WA had presented its case, there was ‘no occasion further to consider that aspect of Esso’.[141]
Reference was also made to the ‘trading society’ test developed by Lord Wilberforce in Esso, which suggests that restrictions will be immune from the operation of the restraint of trade doctrine if ‘they have become part of the accepted machinery of a type of transaction which is generally found acceptable and necessary, so that instead of being regarded as restrictive they are accepted as part of the structure of a trading society’.[142] This test was adopted by the Full Court of the Federal Court in Australian Capital Territory v Munday[143] in holding that a provision in a contractual licence, under which a person was granted permission to enter a rubbish tip, was not subject to the restraint of trade doctrine even though it prohibited the licensee from ‘soliciting for goods’ at the tip. Again though, Gleeson CJ, Gummow, Kirby and Hayne JJ in Peters considered that it was ‘inappropriate’ to express any concluded view on the trading society test, because Peters WA could not bring the restriction at issue here ‘within that explanation of the cases’.[144]
Just a few months after the Peters decision, the High Court handed down judgment in another case in which argument had been presented as to the scope of the restraint of trade doctrine, Maggbury Pty Ltd v Hafele Australia Pty Ltd.[145] The restraint here was contained in a non-disclosure agreement which the defendants signed at the request of the plaintiffs prior to discussions being held as to the possible exploitation of the plaintiffs’ idea for a new design of foldaway ironing board. Under the agreement, at least as construed by the High Court,[146] the defendants undertook that if the negotiations did not bear fruit they would not subsequently make use of the (then secret) information imparted to them about the plaintiffs’ idea, even if that information was subsequently published — as it was when the plaintiffs applied for a patent in respect of the invention. The High Court upheld by majority the defendants’ contention that the restriction imposed by the non-disclosure agreement was subject to the restraint of trade doctrine. Since the plaintiffs had made no attempt at trial to establish the reasonableness of the restraint, it was once again ruled to be unenforceable.[147]
In reaching this conclusion, Gleeson CJ, Gummow and Hayne JJ (three of the four judges, it will be noted, who delivered the joint judgment in Peters) correctly observed that Lord Pearce’s sterilisation of capacity test had been rejected in Peters. But they also suggested that the ‘fettering existing freedom’ test had likewise been rejected in that case,[148] which as the extract above from the relevant section of their judgment indicates is demonstrably incorrect.[149] As for the trading society test, they again passed up the opportunity either to adopt or spurn it, commenting that the present appeal was ‘not the occasion for dealing with that subject’,[150] since ‘the notion of a contractual restraint in respect of publicly available information is far from attaining general acceptance of the kind of which Lord Wilberforce spoke’.[151]
As Callinan J noted in a dissenting judgment which can only be described as radical in tone, the test to be applied for the application of the restraint of trade doctrine in Australian remains unclear. Expanding upon a theme that he had first raised in his judgment in Peters, he questioned whether it was time for the courts to abandon their ‘ancient distrust’ of restraints and reverse the common law presumption that they are unreasonable and unenforceable, especially in the context of agreements freely negotiated at arm’s length between parties with access to legal advice. Ideally, he stated:
The law should seek to uphold bargains and enforce restraints other than those which are clearly and demonstrably against the public interest. In other words, a person who wants to break a restrictive covenant should be obliged to show that enforcement of it would substantially reduce competition within a marketplace, result in price fixing, or otherwise cause the public some real and discernible economic detriment of an anti-competitive nature.[152]
He accepted that he was constrained by authority to hold that the restriction in the non-disclosure agreement was presumptively enforceable, but went on to hold that it was nevertheless a reasonable restraint in all the circumstances.
Kirby J, who also dissented, delivered an equally interesting judgment in which he adopted what was essentially an economic analysis of the issue before the court:
In the present case, the promises sought by [the plaintiffs] and given by [the defendants] tend, in my view, to advance the efficient operation of the market rather than to restrict it. Upholding the promises tends to encourage inventors to disclose to potential competitors and collaborators innovative ideas that may or may not ultimately secure patent protection. In circumstances such as those in this case, to find that the promises are unenforceable on the ground of the common law doctrine prohibiting restraint of trade is to discourage inventors of modest means from dealing with much larger manufacturers and marketing organisations upon terms that protect the interests of the inventor.[153]
There is much to be said for these observations, and for the conclusion that the restraint was inherently reasonable in the circumstances. However besides stressing that the doctrine of restraint of trade must be applied ‘with a broad and flexible rule of reason’,[154] his Honour was no more forthcoming than the remainder of the Court in indicating what (if any) test should generally be applied to determine whether the presumption of enforceability does or does not come into play.
In the result therefore, no one test as to the scope or application of the restraint of trade doctrine has the approval of the High Court, notwithstanding the significant number of cases that have reached the Court since Esso. Again, we see a fundamental issue being left unresolved.
In our earlier article, in what we termed a ‘plea for guidance’, we highlighted the unfortunate tendency of the High Court in contract cases to speak with more than one voice, and to fail to deal fully or finally with various issues before it.[155] The former tendency has perhaps abated somewhat, with joint judgments representing at least the majority of the bench seeming to become more common. But there continues to be no lack of examples of the Court frustrating ‘consumers’ of its judgments by (a) refusing to take opportunities squarely presented to it to resolve a longstanding issue of concern; or (b) saying just enough on a particular point to call established principles into question, without going on to take a definitive stance.
Examples of the first tendency which have been highlighted in this article include the cases on illegality and public policy, which have left unresolved such issues as the circumstances in which restitutionary and proprietary claims may be granted in the context of illegal transactions, especially those not involving a breach of statute, and the test for determining whether the doctrine of restraint of trade applies; and perhaps also the unwillingness in Royal Botanic to discuss the possible implication of a term of good faith and fair dealing into commercial contracts.
As for the High Court creating a potential difficulty and then walking away from it, there is no better illustration than the decision in Concut Pty Ltd v Worrell,[156] which we have criticised elsewhere.[157] The argument put to the High Court by the appellant was that an employer may terminate a contract of employment in response to the employee’s breach of their obligations under an earlier contract between the same parties, in part because the employee has an implied duty to disclose their previous misconduct. As it turned out, the Court’s analysis of the facts was that there had only ever been one contract of employment, so that the point did not arise: the employer could simply rely on the employee’s misconduct to justify his summary dismissal. But instead of either proceeding to deal with the disclosure issue anyway, or refraining from comment, Gleeson CJ, Gaudron and Gummow JJ adopted a third course. They engaged in an extended analysis of what had generally been treated as the leading authority on the point, Lord Atkin’s judgment in Bell v Lever Bros Ltd,[158] and concluded that the judgment did not stand for the proposition for which it is often quoted (and which indeed it appears to contain!), which is that an employee is under no implied contractual duty to disclose their own misconduct. Beyond dropping a hint that an employee might be under a duty to disclose because of their status as a fiduciary, however, their Honours would say no more. On any basis, the law is now less clear on this point than before it was fully argued before the Court.
Mention may also be made in this connection of the recent decision in Ermogenous v Greek Orthodox Community of SA Inc.[159] The High Court overturned a decision by the Full Court of the South Australian Supreme Court that the engagement of the appellant by a community organisation to serve as an archbishop was not attended by any intention to create legal relations.[160] In doing so, Gaudron, McHugh, Hayne and Callinan JJ referred to the established view that family and social arrangements are presumed not to be intended to give rise to legal obligations:
For our part, we doubt the utility of using the language of presumptions in this context. At best, the use of that language does no more than invite attention to identifying the party who bears the onus of proof. In this case, where issue was joined about the existence of a legally binding contract between the parties, there could be no doubt that it was for the appellant to demonstrate that there was such a contract.[161]
All well and good, but what does this mean for the equally well established presumption that the parties to a commercial agreement do intend to create legal relations?[162] Must that intention now be proven by the plaintiff wherever the defendant decides to put it at issue? Once again, it seems, the High Court may have created at least as many problems as it has solved.
Perhaps the most disquieting feature though of the recent cases is the tendency to decide cases by reference to principles which are inconsistent with earlier decisions of the Court, without providing guidance on how those cases should be seen by lower courts. Indeed, in most cases there is no reference to the relevant cases, or references which simply ignore any inconsistencies.
Three areas stand out in this regard. The first is that of construction. We find it astonishing that the High Court should still be debating what is perhaps the most fundamental question of contract law, namely, how to interpret a contract. The proper (modern) approach seems to us quite obvious. Whenever a court is called upon to construe a contract it must first inform itself of the context. How else can a document be construed? Yet the role of context is not only still being debated, it is being debated in a way which is technical and relies on various (differing) interpretations of the concept of ambiguity. As we have noted, from the perspective of the parol evidence rule it is also inconsistent with the Court’s own prior decisions.
The other two areas — illegality and restitution — are related. One solution to the ills of the common law of illegality would have been to adopt (and adapt) the principle of unjust enrichment. Indeed, McHugh JA (as he then was) appeared to start along that path in Hurst v Vestcorp Ltd[163] in suggesting that restitution may be awarded in the context of an illegal contract wherever the defendant would otherwise unjustly reap an ‘unmerited benefit’. But in the High Court equity has been given a greater role. In other words, rather than trying to develop the statement in Hurst along principled lines rationalised by reference to a new idea of law — a genuine justification for a fresh start — the High Court has chosen to leave the statement as a kind of ‘stand-alone’ principle and to look to the past for generalisations which lack any central core as the proper basis for resolving illegality issues.
In relation to unjust enrichment itself, and the role of total failure of consideration, the potential which Pavey[164] and David Securities[165] created for development of the law by reference to the elements of unjust enrichment has not been realised. If Gummow J’s judgment in Roxborough[166] is any guide, the High Court seems more likely to reject unjust enrichment in favour of equitable principles which will at best be referenced in the concept of unconscionability and at worst involve no more than discretionary justice. That would, to say the least, be unfortunate
In Australian Competition & Consumer Commission v CG Berbatis Holdings Pty Ltd [2003] HCA 18 (9 April 2003) the High Court dismissed an appeal from the decision of the Full Court of the Federal Court (see nn 9, 15). Unfortunately, this significant decision on the scope of the concept of unconscionability (under both statute and common law) arrived too late to be included in the article. The same is true of the New South Wales Court of Appeal’s decision in LMI Australasia Pty Ltd v Baulderstone Hornibrook Pty Ltd [2003] NSWCA 74 (10 April 2003), which illustrates the difficulties created by the High Court’s decision in Royal Botanic as to the reception of evidence of surrounding circumstances (see text following n 89).
[†] Professor of Law, Flinders University; Legal Consultant, Piper Alderman Lawyers.
[††] Professor of Commercial Law, University of Sydney; Consultant, Freehills; General Editor, Journal of Contract Law.
[1] Andrew Stewart and J W Carter, ‘Commerce and Conscience: The High Court’s Developing View of Contract’ (1993) 23 University of Western Australia Law Review 49.
[2] For general discussions of the concept, see Paul Finn, ‘Unconscionable Conduct’ (1994) 8 Journal of Contract Law 37; Sir Anthony Mason, ‘The Impact of Equitable Doctrine on the Law of Contract’ (1998) 27 Anglo-American Law Review 1; Daniel Clough, ‘Trends in the Law of Unconscionability’ (1999) 18 Australian Bar Review 34; G Dal Pont, ‘The Varying Shades of “Unconscionable” Conduct — Same Term, Different Meaning’ (2000) 19 Australian Bar Review 135; Rick Bigwood, ‘Conscience and the Liberal Conception of Contract: Observing Basic Distinctions’ (2000) 16 Journal of Contract Law 1, 191.
[3] Cf Australian Broadcasting Corporation v Lenah Game Meats Pty Ltd (2001) 185 ALR 1, which although not a contract case is interesting for its exploration (and ultimate rejection) of the notion that courts have an inherent jurisdiction in equity to restrain ‘unconscionable’ conduct, even if the applicant does not have a recognised cause of action.
[4] [1998] HCA 48; (1998) 194 CLR 395 (‘Garcia’). For comment, see Andrew Phang and Hans Tjio (1999) 14 Journal of Contract Law 72; Tina Cockburn, ‘Garcia — A Softly Softly Approach’ (2000) 4 Flinders Journal of Law Reform 51; Richard Haigh and Samantha Hepburn, ‘The Bank Manager Always Rings Twice: Stereotyping in Equity After Garcia’ [2000] MonashULawRw 11; (2000) 26 Monash University Law Review 275.
[5] Yerkey v Jones [1939] HCA 3; (1939) 63 CLR 649 (‘Yerkey’).
[6] [1998] HCA 66; (1998) 194 CLR 457 (‘Bridgewater’).
[7] Ibid 478.
[8] See also Australian Securities and Investments Commission Act 2001 (Cth) ss 12CA–12CC.
[9] See, eg, Hurley v McDonald’s Australia Ltd (2000) 22 ATPR 41-741; C G Berbatis Holdings Pty Ltd v Australian Competition & Consumer Commission [2001] FCA 757; (2001) 185 ALR 555 (‘Berbatis’); Australian Competition & Consumer Commission v Samton Holdings Pty Ltd [2002] FCA 62 (6 February 2002); and see further Ross Buckley, ‘Sections 51AA and 51AC of the Trade Practices Act 1974: The Need for Reform’ (2000) 8 Trade Practices Law Journal 5; Joachim Dietrich, ‘The Meaning of Unconscionable Conduct Under the Trade Practices Act 1974’ (2001) 9 Trade Practices Law Journal 141; Bryan Horrigan, ‘Unconscionability Breaks New Ground — Avoiding and Litigating Unfair Client Conduct After the ACCC Test Cases and Financial Services Reforms’ [2002] DeakinLawRw 4; (2002) 7 Deakin Law Review 73. A High Court appeal has indeed been heard in the Berbatis case.
[10] Waltons Stores (Interstate) Pty Ltd v Maher [1988] HCA 7; (1988) 164 CLR 387 (‘Waltons’).
[11] Commonwealth of Australia v Verwayen (1990) 170 CLR 394 (‘Verwayen’).
[12] [1999] HCA 10; (1999) 196 CLR 101 (‘Giumelli’).
[13] Peter Heffey, Jeannie Paterson and Andrew Robertson, Principles of Contract Law (2002) 173. See further James Edelman, ‘Remedial Certainty or Remedial Discretion in Estoppel after Giumelli’ (1999) 15 Journal of Contract Law 179; Fiona Burns, ‘Giumelli v Giumelli Revisited: Equitable Estoppel, the Constructive Trust and Discretionary Remedialism’ [2001] AdelLawRw 1; (2001) 22 Adelaide Law Review 123. Cf Michael Spence, Protecting Reliance: The Emergent Doctrine of Equitable Estoppel (1999); Michael Pratt, ‘Identifying the Harm Done: A Critique of the Reliance Theory of Estoppel’ (1999) 21 Adelaide Law Review 209; Andrew Robertson, ‘Reliance, Conscience and the New Equitable Estoppel’ [2000] MelbULawRw 7; (2000) 24 Melbourne University Law Review 218; Darryn Jensen, ‘In Defence of the Reliance Theory of Equitable Estoppel’ [2001] AdelLawRw 2; (2001) 22 Adelaide Law Review 157.
[14] Stewart and Carter, above n 1, 66.
[15] Berbatis [2001] FCA 757; (2001) 185 ALR 555; Australian Competition & Consumer Commission v Samton Holdings Pty Ltd [2002] FCA 62 (Unreported, Gray, French and Stone JJ, 6 February 2002). Cf Minister for Industrial Affairs v Civil Tech Pty Ltd (1998) 70 SASR 394.
[16] See Alcatel Australia Ltd v Scarcella (1998) 44 NSWLR 349 and Burger King Corp v Hungry Jack’s Pty Ltd [2001] NSWCA 187 (Unreported, Sheller, Beazley & Stein JJA, 21 June 2001) (‘Hungry Jack’s’), adopting the views expressed in Renard Constructions (ME) Pty Ltd v Minister for Public Works (1992) 26 NSWLR 234, 263–68 (‘Renard’).
[17] See, eg, Hughes Aircraft Systems International v Airservices Australia [1997] FCA 558; (1997) 76 FCR 151; Far Horizons Pty Ltd v McDonald’s Australia Ltd [2000] VSC 310 (Unreported, Byrne J, 18 August 2000); Central Exchange Ltd v Anaconda Nickel Ltd [2001] WASC 128; (2001) 24 WAR 382; but cf NT Power Generation Pty Ltd v Power and Water Authority [2001] FCA 334; (2001) 184 ALR 481, 574.
[18] See Elisabeth Peden, Good Faith in the Performance of Contracts (2003); see also Ian Stewart, ‘Good Faith in Contractual Performance and in Negotiation’ (1998) 72 Australian Law Journal 370; Tyrone Carlin, ‘The Rise (and Fall?) of Implied Duties of Good Faith in Contractual Performance in Australia’ [2002] UNSWLawJl 4; (2002) 25 University of New South Wales Law Journal 99; Adrian Baron, ‘“Good Faith” and Construction Contracts — From Small Acorns Large Oaks Grow’ (2002) 22 Australian Bar Review 54; Peter Heffey, Jeannie Paterson and Andrew Robertson, Principles of Contract Law (2002) ch 12.
[19] Butt v McDonald (1896) 7 QLJ 68, 71; Secured Income Real Estate (Australia) Ltd v St Martins Investments Pty Ltd [1979] HCA 51; (1979) 144 CLR 596, 607; Peters (WA) Ltd v Petersville Ltd [2001] HCA 45; (2001) 205 CLR 126, 142. As to the proper basis for this principle, see Elisabeth Peden, ‘“Cooperation” in English Contract Law — To Construe or Imply?’ (2000) 16 Journal of Contract Law 56.
[20] See, eg, Sir Anthony Mason, ‘Contract, Good Faith and Equitable Standards in Fair Dealing’ (2000) 116 Law Quarterly Review 66, 69.
[21] Hungry Jack’s [2001] NSWCA 187 (Unreported, Sheller, Beazley and Stein JJA, 21 June 2001) [169–72].
[22] Overlook Management BV v Foxtel Pty Ltd [2002] NSWSC 17 (Unreported, Barrett J, 31 January 2002) [65].
[23] [2002] HCA 5; (2002) 186 ALR 289 (‘Royal Botanic’).
[24] Ibid 301.
[25] Ibid 312.
[26] It is perhaps notable that the same judge, when on the New South Wales Court of Appeal, often expressed reluctance to give too much rein to the concept of unconscionability in relation to arms’ length commercial dealings: see, eg, Austotel Pty Ltd v Franklins Selfserve Pty Ltd (1989) 16 NSWLR 582, 585 (‘courts should be careful to conserve relief so that they do not, in commercial matters, substitute lawyerly conscience for the hard-headed decisions of business people’).
[27] Royal Botanic [2002] HCA 5; (2002) 186 ALR 289, 312. Cf Commonwealth Bank of Australia v Spira [2002] NSWSC 905 (Unreported, Gzell J, 21 November 2002), and see especially the observations (at [144–47]) as to whether an obligation of good faith implied in law should be capable of exclusion by the express agreement of the parties.
[28] Royal Botanic [2002] HCA 5; (2002) 186 ALR 289, 327.
[29] Service Station Association Ltd v Berg Bennett & Associates Pty Ltd [1993] FCA 445; (1993) 45 FCR 84, 91–98.
[30] Cf Hungry Jack’s [2001] NSWCA 187 (Unreported, Sheller, Beazley and Stein JJA, 21 June 2001) [187].
[31] (1996) 186 CLR 71 (‘Breen’). As to the relationship between contractual and fiduciary obligations, see also Concut Pty Ltd v Worrell [2000] HCA 64; (2000) 176 ALR 693, 700–01 (‘Concut’); Pilmer v Duke Group Ltd (in liq) [2001] HCA 31; (2001) 180 ALR 249, 269–70.
[32] Cf Trade Practices Act 1974 (Cth) s 51AC(3)(k), which lists ‘the extent to which [the parties] acted in good faith’ as one of a number of factors which are relevant to whether unconscionable conduct has occurred in relation to a ‘small business transaction’. See, eg, Australian Competition and Consumer Commission v Simply No-Knead (Franchising) Pty Ltd [2000] FCA 1365; (2000) 178 ALR 304.
[33] [1983] HCA 11; (1983) 152 CLR 406 (‘Legione’).
[34] See, eg, Sunbird Plaza Pty Ltd v Maloney [1988] HCA 11; (1988) 166 CLR 245, 263.
[35] Renard (1992) 26 NSWLR 234.
[36] [2001] NSWCA 187 (Unreported, Sheller, Beazley & Stein JJA, 21 June 2001).
[37] For an extended analysis of these issues, see J W Carter and Andrew Stewart, ‘Interpretation, Good Faith and the “True Meaning” of Contracts: The Royal Botanic Decision’ (2002) 18 Journal of Contract Law 182.
[38] [1995] HCA 14; (1995) 184 CLR 102 (‘Vadasz’).
[39] See Erlanger v New Sombrero Phosphate Co (1878) 3 App Cas 1218, 1278–79.
[40] For a further example, albeit in the context of an unconscionable bargain and without any reference to Vadasz, see Asia Pacific International Pty Ltd v Dalrymple [1999] QSC 204; [2000] 2 Qd R 229.
[41] Vadasz [1995] HCA 14; (1995) 184 CLR 102, 114. This seems to suggest that the real basis for the decision is the prevention of unjust enrichment, not unconscionability as such: see J W Carter and Gregory Tolhurst, ‘Rescission, Equitable Adjustment and Restitution’ (1996) 10 Journal of Contract Law 167; but cf Andrew Robertson, ‘Partial Rescission, Causation and Benefit’ (2001) 17 Journal of Contract Law 163.
[42] See, eg, Maguire v Makaronis [1997] HCA 23; (1997) 188 CLR 449; Nelson v Nelson (1995) 184 CLR 538 (‘Nelson’); Bridgewater [1998] HCA 66; (1998) 194 CLR 457; though cf David Wright, ‘Fiduciaries, Rescission and the Recent Change to the High Court’s Equity Jurisprudence’ (1998) 13 Journal of Contract Law 166. As to the extent and desirability of the exercise of judicial discretion in relation to the award of remedies, see generally Peter Birks, ‘Three Kinds of Objection to Discretionary Remedialism’ (2000) 29 University of Western Australia Law Review 1; Simon Evans, ‘Defending Discretionary Remedialism’ [2001] SydLawRw 20; (2001) 23 Sydney Law Review 463; Fiona Burns, above n 13.
[43] See Howard Hunter, Modern Law of Contracts (rev ed, 1993) 19.26–19.28.
[44] There is in fact a line of (mostly) English cases (see, eg, Paget v Marshall (1884) 28 Ch D 255) which suggest that where unilateral mistake is established the defendant may be given the option of accepting rectification or submitting to rescission of the contract. These cases are (inevitably) criticised as ‘illogical’ in R P Meagher, J D Heydon and M J Leeming, Meagher, Gummow and Lehane’s Equity: Doctrine and Remedies (4th ed, 2002) 897.
[45] (1999) 197 CLR 1 (‘Astley’).
[46] Wrongs Act 1936 (SA) s 27a.
[47] Cf Michael Tilbury and J W Carter, ‘Converging Liabilities and Security of Contract: Contributory Negligence in Australian Law’ (2000) 16 Journal of Contract Law 78. At the same time, of course, the High Court has continued to expand the situations in which a duty of care to avoid the infliction of economic loss may be recognised, notwithstanding the absence of any contractual relationship: see Perre v Apand Pty Ltd [1999] HCA 36; (1999) 198 CLR 180. For further criticism of the decision in Astley, see Gary Davis and Jane Knowler, ‘Astley v Austrust Ltd — Down But Not Out: Contributory Negligence, Contract, Statute and Common Law’ [1999] MelbULawRw 30; (1999) 23 Melbourne University Law Review 795; Jane Swanton, ‘Contributory Negligence is Not a Defence to Actions for Breach of Contract in Australian Law — Astley v Austrust Ltd’ (1999) 14 Journal of Contract Law 251; Geoff Masel and David Kelly, ‘Contributory Negligence and the Provision of Services: A Critique of Astley’ (2000) 74 Australian Law Journal 306; Nick Seddon, ‘Contract Damages Where Both Parties Are at Fault’ (2000) 15 Journal of Contract Law 207.
[48] See Law Reform (Miscellaneous Provisions) Amendment Act 2001 (ACT); Law Reform (Miscellaneous Provisions) Amendment Act 2000 (NSW); Law Reform (Miscellaneous Provisions) Amendment Act 2001 (NT); Law Reform (Contributory Negligence) Amendment Act 2001 (Qld); Law Reform (Contributory Negligence and Apportionment of Liability) Act 2001 (SA); Tortfeasors and Contributory Negligence Amendment Act 2000 (Tas); Wrongs (Amendment) Act 2000 (Vic).
[49] (2001) 185 ALR 335 (‘Roxborough’).
[50] Ha v New South Wales [1997] HCA 34; (1997) 189 CLR 465.
[51] See Roxborough v Rothmans of Pall Mall Australia Ltd (1999) 161 ALR 253.
[52] Baltic Shipping Co v Dillon [1993] HCA 4; (1993) 176 CLR 344 (‘Baltic Shipping’).
[53] David Securities Pty Ltd v Commonwealth Bank of Australia [1992] HCA 48; (1992) 175 CLR 353 (‘David Securities’).
[54] [1760] EngR 713; (1760) 2 Burr 1005; 97 ER 676.
[55] Ibid 1012; 681.
[56] [1957] HCA 69; (1957) 98 CLR 65.
[57] Ibid 75 (emphasis added by Gummow J, and references omitted).
[58] South Australian Cold Stores Ltd v Electricity Trust of South Australia [1965] HCA 67; (1965) 115 CLR 247.
[59] As for example in Baltic Shipping [1993] HCA 4; (1993) 176 CLR 344.
[60] [1987] HCA 5; (1987) 162 CLR 221 (‘Pavey’).
[61] Roxborough (2001) 185 ALR 335, 355.
[62] [2000] UKHL 45; [2001] 1 AC 268 (‘Blake’).
[63] Ibid 285.
[64] Ibid 291–92. Cf James Edelman, ‘Restitutionary Damages and Disgorgement Damages for Breach of Contract’ [2000] Restitution Law Review 129, arguing that the term ‘restitutionary damages’ is better reserved for an award that is measured by the market value of a benefit transferred from the plaintiff to the defendant by reason of their breach of duty (as for example in breach of confidence cases such as Seager v Copydex Ltd (No 2) [1969] 2 All ER 718 and Interfirm Comparison (Australia) Pty Ltd v Law Society of NSW (1975) 5 ALR 527; 6 ALR 445). Edelman contrasts this with what he terms ‘disgorgement damages’ which, as in Blake, is simply an order stripping the defendant of any gains made as a result of their breach, irrespective of whether there has been a corresponding subtraction from the plaintiff’s wealth.
[65] The majority decision arguably bears out the caution sounded in Lord Hobhouse’s dissenting judgment against ‘being drawn into making bad law in order to enable an intuitively just decision to be given against a traitor’: Blake [2000] UKHL 45; [2001] 1 AC 268, 293.
[66] See, eg, Sam Doyle and David Wright,
‘Restitutionary Damages — The Unnecessary Remedy?’ 
[2001] MelbULawRw 1 
; (2001) 25
Melbourne University Law Review 1; Ralph Cunnington, ‘Equitable
Damages: A Model for Restitutionary Damages’ (2001) 17 Journal of
Contract Law 212; Andrew Phang and Pey-Woan Lee, ‘Rationalising
Restitutionary Damages in Contract Law — An Elusive or Illusory
Quest?’
(2001) 17 Journal of Contract Law 240.
[67] See Multigroup Distribution Services Pty Ltd v TNT Australia Pty Ltd (2001) 191 ALR 402, 418; Hospitality Group Pty Ltd v Australian Rugby Union Ltd [2001] FCA 1040; (2001) 110 FCR 157, 195-96 (‘Hospitality Group’). See further James Edelman, ‘Non-compensatory Damages for Breach of Contract and Torts’ (2002) 76 Australian Law Journal 328.
[68] See Gray v Motor Accident Commission (1998) 196 CLR 1, 6; Hospitality Group [2001] FCA 1040; (2001) 110 FCR 157, rejecting the availability of exemplary or punitive damages for breach of contract; and see also Harris v Digital Pulse Pty Ltd [2003] NSWCA 10 (Unreported, Spigelman CJ, Mason P, Heydon JA) (no exemplary damages for breach of fiduciary duty).
[69] See Hospitality Group [2001] FCA 1040; (2001) 110 FCR 157, 195–96.
[70] [1984] HCA 64; (1984) 156 CLR 41.
[71] Cf the suggestion by Deane J in that case that a constructive trust might be imposed ‘where a person could not in good conscience retain for himself a benefit, or the proceeds of a benefit, which he has appropriated to himself in breach of his contractual … obligations’: [1984] HCA 64; (1984) 156 CLR 41, 125. This has not been picked up in subsequent cases, and the same can be said for the suggestion of Gaudron J in Trident General Insurance Co Ltd v McNiece Bros Pty Ltd [1988] HCA 44; (1988) 165 CLR 107, 174–77 (cf 145–46 per Deane J) that restitutionary damages be awarded as a way of circumventing the privity of contract rule.
[72] Cf Acme Office Service Pty Ltd v Ludstrom [2002] NSWSC 277 (9 April 2002), where Gzell J seems to have thought that so long as an employee’s breach of contract was also to be regarded as a breach of fiduciary duty, this justified an award of restitutionary damages based on the employee’s gains, as opposed to an account of profits.
[73] Cf Andrew Burrows, ‘We Do This at Common Law But That in Equity’ (2002) 22 Oxford Journal of Legal Studies 1. No challenge was made before their Lordships to the Court of Appeal’s ruling that any fiduciary duty on Blake’s part could not survive the termination of his employment with the Crown: see Attorney-General (UK) v Blake [1998] Ch 439. It may well be that the High Court would have taken a different view on this issue, thus opening up the possibility of equitable remedies for a (post-employment) breach of fiduciary duty. For conflicting views on this issue within the New South Wales Supreme Court, see Ridgeway International Ltd v McCullum [1998] NSWSC 151 (Unreported, Bryson J, 9 April 1998) and Coordinated Industries Pty Ltd v Elliott (1998) 43 NSWLR 282.
[74] [1982] HCA 24; (1982) 149 CLR 337 (‘Codelfa’).
[75] [1995] HCA 24; (1995) 185 CLR 410 (‘Byrne’).
[76] BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266, 282–83 (‘BP Refinery’).
[77] See, eg, Associated Alloys Pty Ltd v ACN 001 452 106 Pty Ltd (in liq) (2000) 202 CLR 588, where a term was implied to facilitate the operation of a Romalpa (title retention) clause in a contract for the sale of goods.
[78] Roxborough (2001) 185 ALR 335 at 392.
[79] Ibid 341, 351.
[80] Ibid 380. Acceptance of such a view would blur even further the distinction, discussed in the text that follows, between terms implied in fact and terms implied in law. See further on this point Michael Bryan and M P Ellinghaus, ‘Fault Lines in the Law of Obligations: Roxborough v Rothmans of Pall Mall Australia Ltd’ [2000] SydLawRw 27; (2000) 22 Sydney Law Review 636, 638-54; but cf Jeannie Paterson, ‘Terms Implied in Fact: The Basis for Implication’ (1998) 13 Journal of Contract Law 103.
[81] Byrne [1995] HCA 24; (1995) 185 CLR 410, 422, quoting Hawkins v Clayton (1988) 164 CLR 539, 573. Cf Associated Alloys Pty Ltd v ACN 001 452 106 Pty Ltd (in liq) (2000) 202 CLR 588, 609-10, where it appears that both the BP Refinery requirements and the modified test adopted in Byrne were applied!
[82] See further G J Tolhurst and J W Carter, ‘The New Law on Implied Terms’ (1996) 11 Journal of Contract Law 76.
[83] For further discussion (and criticism) of the decision in Byrne, see Breen Creighton and Andrew Stewart, Labour Law: An Introduction (3rd ed, 2000) 226–28, 233–34.
[84] As to the distinction between a term implied in fact and a term implied by law, see Esso Australia Resources Ltd v Plowman (1995) 183 CLR 10, 30; Byrne [1995] HCA 24; (1995) 185 CLR 410, 448–49; Breen (1996) 186 CLR 71, 102–03. In practice, many courts seem to struggle with the distinction: see, eg, State of South Australia v Day [2000] SASC 451; (2000) 78 SASR 270, where the South Australian Supreme Court rejected a proposed term relating to an employer’s duty to rehabilitate an injured worker by reference to the BP Refinery test, despite the fact that as framed by the Industrial Relations Court of South Australia (whose judgment on this point was overturned) the term was very obviously one to be implied by law into every employment contract.
[85] Simonius Vischer & Co v Holt & Thompson [1979] 2 NSWLR 322, 348. See further Elisabeth Peden, ‘Policy Concerns Behind Implication of Terms in Law’ (2001) 117 Law Quarterly Review 459.
[86] Byrne [1995] HCA 24; (1995) 185 CLR 410, 450.
[87] (1996) 186 CLR 71, 103, 124.
[88] Compare for instance the decision of the House of Lords in Scally v Southern Health and Social Services Board [1992] 1 AC 294 to recognise an implied term obliging an employer to inform its employees of certain rights. On the face of it, this term might struggle to meet the ‘nugatory, worthless, or seriously undermined’ test, and yet the decision was referred to with apparent approval by McHugh and Gummow JJ in Byrne [1995] HCA 24; (1995) 185 CLR 410, 451–52.
[89] [2002] HCA 5; (2002) 186 ALR 289. Again, for an extended version of the analysis that follows, see J W Carter and Andrew Stewart, above n 37.
[90] Stewart and Carter, above n 1, 54.
[91] Codelfa [1982] HCA 24; (1982) 149 CLR 337, 352. Cf the spirited attack on this principle by David McLauchlan, ‘A Contract Contradiction’ (1999) 30 Victoria University of Wellington Law Review 175.
[92] Codelfa [1982] HCA 24; (1982) 149 CLR 337, 352.
[93] Ibid.
[94] Cf Brooks v NSW Grains Board [2002] NSWSC 1049 (Unreported, Palmer J, 11 November 2002) [56–65], where Palmer J makes a valiant attempt to reconcile the observations of Mason J with the ‘contextual approach’ discussed in the text that follows.
[95] [1997] UKHL 28; [1998] 1 WLR 896 (‘Investors Compensation Scheme’).
[96] Ibid 912–13 (emphasis added); and see also Bank of Credit and Commerce International SA v Ali [2001] UKHL 8; [2001] 2 WLR 735 at 739, 749. For a dissenting view from a former member of the judiciary, see Sir Christopher Staughton, ‘How Do the Courts Interpret Commercial Contracts’ (1999) 58 Cambridge Law Journal 303, 306–08. Noting that ‘counsel have wildly different ideas as to what a matrix is and what it includes’, he says of Investors Compensation Scheme that ‘[i]t is hard to imagine a ruling more calculated to perpetuate the vast cost of commercial litigation’.
[97] [2002] HCA 5; (2002) 186 ALR 289, 316, citing Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd [1997] UKHL 19; [1997] AC 749, 771.
[98] Investors Compensation Scheme [1997] UKHL 28; [1998] 1 WLR 896, 913. In Codelfa [1982] HCA 24; (1982) 149 CLR 337, 352, prior negotiations were said to be admissible in so far as they had a tendency to establish ‘objective background facts which were known to both parties and the subject matter of the contract’, but (at least in relation to interpretation) not otherwise.
[99] [2002] HCA 5; (2002) 186 ALR 289, 301.
[100] Maggbury Pty Ltd v Hafele Australia Pty Ltd [2001] HCA 70; (2001) 185 ALR 152, 155 (‘Maggbury’). Their Honours, with whom Kirby and Callinan JJ concurred on this point, held in this case (which is discussed further below under the next heading) that a promise to treat certain information ‘as confidential’ should be construed to mean that the promisor was bound by an obligation not to make use of the information at any time thereafter, regardless of whether it was subsequently made publicly available by the promisee. Not only did their Honours consider that this view was supported by a literal construction of the document, they also thought (perhaps more surprisingly) that it was bolstered by recourse to the circumstances surrounding the agreement. See also Wilson v Anderson (2002) 190 ALR 313, 317, where Gleeson CJ cites Investors Compensation Scheme for the proposition that the exercise of construction is not ‘formal and literalistic’, but frequently requires the ‘consideration of background, purpose and object, surrounding circumstances and other matters which may throw light on the meaning of unclear language’.
[101] See, eg, Pan Foods Co Importers & Distributors Pty Ltd v Australian and New Zealand Banking Group Ltd [2000] HCA 20; (2000) 170 ALR 579, where the High Court adopted a relatively broad and non-technical interpretation of the notice provisions in a loan agreement that was plainly influenced by the commercial context. Kirby J specifically observed (at 584) that ‘such documents should be construed practically, so as to give effect to their presumed commercial purposes and so as not to defeat the achievement of such purposes by an excessively narrow and artificially restricted construction’. See also McCann v Switzerland Insurance Ltd [2000] HCA 65; (2000) 176 ALR 711, 716 (Gleeson CJ: insurance policies are commercial contracts which should be given a ‘businesslike interpretation’; and ‘[i]nterpreting 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’).
[102] Investors Compensation Scheme [1997] UKHL 28; [1998] 1 WLR 896, 913. Once again, this passage was cited with apparent approval in Maggbury [2001] HCA 70; (2001) 185 ALR 152, 163. Gleeson CJ, Gummow and Hayne JJ also quoted (ibid) Lord Diplock to the effect that ‘if detailed semantic and syntactical analysis of words in a commercial contract is going to lead to a conclusion that flouts business commonsense, it must be made to yield to business commonsense’ (Antaios Compania Naviera SA v Salen Rederierna AB [1985] AC 191, 201). Cf Australian Broadcasting Commission v Australasian Performing Right Association Ltd [1973] HCA 36; (1973) 129 CLR 99, 109–10, where Gibbs J insisted that ‘[i]f the words used are unambiguous the court must give effect to them, notwithstanding that the result may appear capricious or unreasonable, and notwithstanding that it may be guessed or suspected that the parties intended something different’.
[103] Aside from Investors Compensation Scheme itself, see, eg, Westpac Banking Corp v Tanzone Pty Ltd [2000] NSWCA 25; (2000) 9 BPR 17,521; Dockside Holdings Pty Ltd v Rakio Pty Ltd [2001] SASC 78; (2001) 79 SASR 374.
[104] See, eg, Trawl Industries Australia Pty Ltd v Effem Foods Pty Ltd (1992) 27 NSWLR 326, 358-59; B & B Constructions (Aust) Pty Ltd v Brian A Cheeseman & Associates Pty Ltd (1994) 35 NSWLR 227.
[105] Manufacturers’ Mutual Insurance Ltd v Withers (1988) 5 ANZ Ins Cas 60-853, 75,343.
[106] J G Starke, Nicholas Seddon and Manfred Ellinghaus, Cheshire & Fifoot’s Law of Contract (5th Aust ed, 1988) [408], cited with approval in Hennessey Glass & Aluminium Pty Ltd v Watpac Australia Pty Ltd [2002] QCA 24 (Unreported, Jersey CJ, Davies JA, Ambrose J, 15 February 2002) [80].
[107] On one view, the same might be said of the alleged restriction on the admissibility of evidence as to conduct or statements subsequent to the making of a contract, a subject on which the lower Australian courts are presently divided. In Royal Botanic Kirby J alluded to this division of opinion, but declined to make any definitive comment: [2002] HCA 5; (2002) 186 ALR 289, 318–19.
[108] [1909] HCA 26; (1909) 8 CLR 316.
[109] [1937] HCA 90; (1937) 59 CLR 348.
[110] Lindy Willmott, Sharon Christensen and Des Butler, Contract Law (2001) 544. See also Fitzgerald v F J Leonhardt Pty Ltd [1997] HCA 17; (1997) 189 CLR 215, 231–32 (‘Fitzgerald’).
[111] J W Carter and D J Harland, Contract Law in Australia (3rd ed, 1996) 519.
[112] Nicholas Seddon and Manfred Ellinghaus, Cheshire and Fifoot’s Law of Contract (7th Aust ed, 1997) 675.
[113] Neil Thompson, The Rights of Parties to Illegal Transactions (1991) iii.
[114] [1997] HCA 17; (1997) 189 CLR 215.
[115] [1978] HCA 42; (1978) 139 CLR 410.
[116] [1997] HCA 17; (1997) 189 CLR 215, 229–30, 249–50.
[117] (1995) 184 CLR 538, 613.
[118] [1993] UKHL 3; [1994] 1 AC 340 (‘Tinsley’). See also Blackburn v YV Properties Pty Ltd [1980] VicRp 31; [1980] VR 290; Weston v Beaufils (No 2) (1994) 50 FCR 476; but cf Munro v Morrison [1980] VicRp 10; [1980] VR 83.
[119] Bowmakers Ltd v Barnet Instruments Ltd [1945] KB 65, 71. See Andrew Stewart, ‘Contractual Illegality and the Recognition of Proprietary Interests’ (1988) 1 Journal of Contract Law 134.
[120] See Chettiar v Chettiar [1962] UKPC 1; [1962] AC 294.
[121] For a further example of such reasoning in a case involving an express trust, see Pickering v Smoothpool Nominees Pty Ltd [2001] SASC 387 (Unreported, Gray J, 13 December 2001).
[122] See also Fitzgerald [1997] HCA 17; (1997) 189 CLR 215, 220, where Dawson and Toohey JJ noted that the driller was ‘not required to rely upon any illegality in order to establish his cause of action’. In the case of Toohey J, this echo of the Bowmakers principle sits very uneasily with his rejection of such reasoning in Nelson.
[123] (1995) 184 CLR 538, 559 quoting Clark, Equity: An Analysis and Discussion of Modern Equity Problems (1928 reprint) [401].
[124] (1995) 184 CLR 538, 604–05.
[125] [1997] HCA 17; (1997) 189 CLR 215, 229–30.
[126] Ibid 243–44. Cf Donald Greig and J L R Davis, Law of Contract (1987) 1116–125; and see also Vita Food Products Inc v Unus Shipping Co Ltd (in liq) [1939] AC 277, 293.
[127] Principally cases on company law provisions regulating offers to the public seeking investment in certain ‘prescribed interests’: see, eg, Hurst v Vestcorp Ltd (1988) 12 NSWLR 394 (‘Hurst’); O’Brien v Melbank Corporation Ltd (1991) 7 ACSR 19; Australian Breeders Cooperative Society Ltd v Jones [1997] FCA 1405; (1997) 26 ACSR 26; Amadio Pty Ltd v Henderson [1998] FCA 823; (1998) 81 FCR 149.
[128] See, eg, Australian Broadcasting Corporation v Redmore Pty Ltd [1989] HCA 15; (1989) 166 CLR 454; Capricornia Electricity Board v John M Kelly (Builders) Pty Ltd [1992] 2 Qd R 240; Nonferral (NSW) Pty Ltd v Taufia (1998) 43 NSWLR 312; Freedom Homes Pty Ltd v Botros [1999] QCA 150; [2000] 2 Qd R 377.
[129] See, eg, Corraidini v Lovrinov Crafter Pty Ltd [2000] SASC 224; (2000) 77 SASR 125; but cf Sutton v Zullo Enterprises Pty Ltd [2000] 2 Qd R 196.
[130] See Laws of Australia, vol 7 (Contract — General Principles) Title 7.2 [116]; and see also Andrew Phang, ‘Of Illegality and Presumptions — Australian Departures and Possible Approaches’ (1996) 11 Journal of Contract Law 53. A similar question might be raised as to the status of the High Court’s earlier decision in Gollan v Nugent [1988] HCA 59; (1988) 166 CLR 18, where it held that a proprietary claim may be met with a plea that ‘the articles in question are indecent, obscene, immoral or otherwise of such a nature that relief should be refused’ (1988) 166 CLR18, 50. This proposition was explicitly adopted as a qualification to the Bowmakers principle, and indeed is based on a passage in the original Bowmakers decision: [1945] KB 65, 72. Presumably it should now be regarded as qualified by the overriding need to have regard to the factors set out by McHugh J in Nelson.
[131] See Aleco Vrisakis and J W Carter, ‘Restitution of Payments Made Under Contracts Prohibited by Statute’ (2000) 15 Journal of Contract Law 228, discussing the endorsement given by McHugh and Gummow JJ in Fitzgerald [1997] HCA 17; (1997) 189 CLR 215, 231 to the suggestion by McHugh JA (as he then was) in Hurst (1988) 12 NSWLR 394, 445–46 that even in the case of a contract prohibited by statute, restitution may be awarded wherever the defendant would otherwise unjustly reap an ‘unmerited benefit’.
[132] [1967] UKHL 1; [1968] AC 269 (‘Esso’). Cf Stephen Smith, ‘Reconstructing Restraint of Trade’ (1995) 15 Oxford Journal of Legal Studies 565.
[133] Petrofina (GB) Ltd v Martin [1966] Ch 146, 169.
[134] See, eg, Quadramain Pty Ltd v Sevastopol Investments Pty Ltd [1976] HCA 10; (1976) 133 CLR 390.
[135] [2001] HCA 45; (2001) 205 CLR 126 (‘Peters’).
[136] [1967] UKHL 1; [1968] AC 269, 328.
[137] Peters [2001] HCA 45; (2001) 205 CLR 126, 142.
[138] Ibid 143. Their Honours had earlier observed that while the operation of the common law of restraint of trade is explicitly preserved by s 4M of the Trade Practices Act 1974 (Cth), it was nonetheless appropriate for the courts to have regard to that legislation in developing and refining the common law doctrine: ibid 141.
[139] Esso [1967] UKHL 1; [1968] AC 269, 298; and see ibid 306–09, 316–17.
[140] Amoco Australia Pty Ltd v Rocca Bros Motor Engineering Co Pty Ltd [1973] HCA 40; (1973) 133 CLR 288, 293, 304.
[141] [2001] HCA 45; (2001) 205 CLR 126, 138.
[142] [1967] UKHL 1; [1968] AC 269, 335.
[143] [2000] FCA 653; (2000) 99 FCR 72. See also Hospitality Group [2001] FCA 1040; (2001) 110 FCR 157.
[144] [2001] HCA 45; (2001) 205 CLR 126, 138.
[145] [2001] HCA 70; (2001) 185 ALR 152.
[146] Above n 100.
[147] The majority hinted that it might have been possible for the plaintiffs to argue that the restriction could validly operate at least while the information was still confidential, and also for that period following publication in which by using the information the defendants would have been unfairly exploiting the ‘headstart’ on others derived from having prior access on a confidential basis. But this was not the plaintiffs’ case, since they were seeking a permanent injunction to restrain any future use: Maggbury [2001] HCA 70; (2001) 185 ALR 152, 166.
[148] Ibid 167. Cf ibid 178, n 84 (Callinan J).
[149] It will be interesting to see whether the mistake is corrected when the decision is revised for publication in the Commonwealth Law Reports.
[150] Maggbury [2001] HCA 70; (2001) 185 ALR 152, 167.
[151] Ibid 168.
[152] Ibid 177.
[153] Ibid 171–72.
[154] Ibid 171, citing Howard F Hudson Pty Ltd v Ronayne (1972) 126 CLR 499, 453; Esso [1967] UKHL 1; [1968] AC 269, 331.
[155] Stewart and Carter, above n 1, 69–73.
[156] [2000] HCA 64; (2000) 176 ALR 693.
[157] J W Carter and Andrew Stewart, ‘The Effect of Formalising an Employment Contract: The High Court Misses an Opportunity’ (2001) 17 Journal of Contract Law 181.
[158] [1931] UKHL 2; [1932] AC 161, 227–28.
[160] The High Court remitted to the Supreme Court the issue of whether the contract found to exist between the parties was one of employment or not (the ultimate issue being whether the archbishop was entitled like any other employee to long service leave). Again, it is difficult to know why the High Court did not proceed to deal with this question. While Gaudron, McHugh, Hayne and Callinan JJ expressed no opinion on the point, Kirby J’s analysis (ibid 114–15) clearly hinted that the contract should be regarded as one of employment, while insisting that the issue remained arguable. As with the excursus in Concut, it is hard to see what was to be gained from this. In the result, the Full Court of the Supreme Court duly ruled (as it was almost bound to do) that the contract was one of employment: Greek Orthodox Community of SA Inc v Ermogenous [2002] SASC 384 (Unreported, Doyle CJ, Mullighan and Bleby JJ, 26 November 2002).
[161] (2002) 187 ALR 92, 100.
[162] See, eg, Rose and Frank Co v J R Crompton and Bros Ltd [1923] 2 KB 261, 288; Edwards v Skyways Ltd [1964] 1 WLR 349, 355.
[163] (1988) 12 NSWLR 394, 445–46.
[164] [1987] HCA 5; (1987) 162 CLR 221.
[165] [1992] HCA 48; (1992) 175 CLR 353.
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