TITLE OF COURT: SUPREME COURT OF TASMANIA (FULL COURT)

Contract - General contractual principles - Construction and interpretation of contracts - Implied terms - Business efficacy - Terms implied by law.

Hospital Products Limited v United States Surgical Corporation and Others [1984] HCA 64; (1984) 156 CLR 41; Ansett Transport Industries (Operations) Pty Limited v The Commonwealth of Australia and Others [1977] HCA 71; (1977) 139 CLR 54; Secured Income Real Estate (Australia) Limited v St Martins Investments Proprietary Limited [1979] HCA 51; (1979) 144 CLR 596, applied.

Contract - General contractual principles - Construction and interpretation of contract - Custom and usage - Implication by custom and commercial usage.

Con-Stan Industries of Australia Proprietary Limited v Norwich Winterthur Insurance Australia Limited (1985 - [1986] HCA 14; 1986) 160 CLR 226, applied.

Judgment ID Number: [1999] TASSC 40

NATIONAL MUTUAL LIFE ASSOCIATION OF AUSTRALASIA LIMITED

NATIONAL MUTUAL LIFE ASSOCIATION OF AUSTRALASIA LIMITED

1 The principal issue on this appeal is whether the learned trial judge was in error in concluding that a contract between the appellant and the respondent did not contain a term implied:

1 in fact by reason of the special facts and circumstances of the case;

2 Mr Chris Poulson commenced selling life assurance for the respondent in 1969. Later he formed the appellant company and thereafter it conducted the business of selling life assurance and Mr Poulson acted as its managing director.

3 The appellant was a "tied agent", ie, an agent bound by the terms of its agreement with the respondent to sell only the products of the respondent. The relevant agency agreement was signed in February 1989. It is a detailed document, some forty-three pages in length. By it, the appellant was appointed the agent of the respondent. The agency agreement provided (inter alia) for the payment of commissions, volume bonus and persistency rates. The provisions dealing with the rates at which commissions and bonuses were to be paid are complex and need not be referred to in any detail. The essence of these provisions are set out in the learned trial judge's reasons for judgment at 1 - 6. Suffice to note that the agreement included provisions for the payment of commissions on new business and on BSDP policies.

National Mutual reserves the right to alter the terms of this Agreement at any time. The following notice provisions shall apply in relation to alterations :

21.1 Changes to commission rates and any other changes affecting the entitlement to and amount of commission payable shall not take effect until at least ninety (90) days from the date of written notification to the Agent.

21.2 All other alterations to the Agreement shall take effect seven (7) days from the date of written notification to the Agent."

4 Towards the end of 1989 the respondent introduced a new policy on a trial basis. It was a "Business Security Plan" product as defined in the Schedule to the agency agreement, and called a BSDPZ policy ("Z policy"). Initially, sales of the new policy were confined to Victoria. The Z policy was a long term endowment policy. In most cases the initial premium was $100,000. According to the learned trial judge at 6:

"Thereafter the value of the policy was designed to increase at a rate greater than the cost of succeeding annual premiums. That increase in value permitted the policy holder to borrow the amounts of succeeding premiums against the security of the policy, ensuring continuation without further recourse to his or her own money. Whilst the policy holder could borrow from sources external to [the respondent], the scheme permitted the amount to be borrowed from the life insurance company. Many policy holders maintained the borrowing from within the scheme."

5 By virtue of the agency agreement, the first year's commission on a Z policy was 60 per cent of the premium for that year. The commission payable on the second year was 20 per cent of that year's premium. The agency agreement provided that if the policy holder converted the payment of premium from a monthly event into a yearly event, the respondent was obliged to thereupon pay 20 per cent of that premium as commission. It appears, as was found by the learned trial judge, that in many cases the policy holder converted the policy to an annual premium shortly after it had been taken out and the respondent was accordingly obliged to pay the 20 per cent second year commission in the first year of the policy. This made the total amount of commission paid in the first year 80 per cent of the premium for that year. Further, an agent selling enough of the Z policies was entitled to receive a bonus commission as well, which, according to the evidence, meant that, in some cases, of which the appellant was one, total commissions paid in the first year equalled 120 per cent of the first year's premium. Pursuant to the terms of the agency agreement, the commission payable in the third, fourth and fifth years of a Z policy amounted to 12 per cent of the premium payable in each of those years.

6 The appellant first became aware of the Z policy when an agent of the respondent, who lived and worked in Victoria, told the appellant about it just before Christmas 1989. The appellant immediately sold four policies and sent the proposals to the respondent's Melbourne office for acceptance. Shortly thereafter, Mr Poulson was called to the Tasmanian office of the respondent. It would seem that he then knew more about the Z policy than the respondent's Tasmanian manager. At the latter's request, Mr Poulson gave him and some other Hobart officers of the respondent a "presentation" on the Z policy. As the learned trial judge found at 12 - 13 of his reasons, the presentation disclosed the following:

"1 An initial premium of one month would be paid at the time of the completion of the proposal.

2 Within one or two months each policy would be converted to one in which the premium was paid annually. The effect of this change was that, on conversion, CPIA became entitled to the second year commission.

3 CPIA would use the payment of commission for years one and two (eighty per cent of the premium) as a rebate to each client. The balance of rebate would be provided from the 'volume bonus' payment made by NML at the end of March 1990.

4 Thereafter the policies could be, at the discretion of the policy holder, self-funding."

7 Thus, the appellant's plan was to sell the Z policies by rebating its commission. This meant that the policy holder was not required to find any money or was required to find, at most, 20 per cent of the first year's premium to become entitled to the benefits of a Z policy. As the policy holder could borrow against the policy to fund the second and subsequent years' premiums, and as surrender value projections indicated that loans could be obtained in excess of the amount required to pay the second year's premium, taking out a Z policy was an attractive proposition. No counsel has yet been able to explain to my satisfaction how any rational person could have thought that the respondent might make a profit out of the sale of a Z policy. After the presentation in Hobart, the appellant was authorised by the respondent to sell six more Z policies. The learned trial judge found that in fact eleven proposals for this policy were prepared by the appellant between 22 and 24 January 1989.

8 It appears that at about this time the respondent became aware that sales of the Z policy would cause it to suffer substantial losses. It seems that there had been some actuarial miscalculation. These potential losses were exacerbated in cases where the policy was being marketed upon the basis it would provide a short term return for the policy holder. The respondent accordingly resolved that no new Z policies would be sold after 6 February 1990. Meantime, there was the problem of what was to be done about the proposals that were "in the pipeline" from the appellant and other agents prior to that date.

9 Between 2 and 5 February 1990, the appellant, through its manager and sub-agents, completed a further fifty-two proposals for this policy, leading to the inevitable inference, drawn by the learned trial judge, that the appellant knew that the time available for sale and profit was limited. According to evidence adduced on behalf of the respondent, the then general economic conditions in Australia and the need to minimise its potential losses on Z policies, led to the respondent reducing the surrender value of a number of "business plan" policies (one of which was the Z policy) and increasing the interest rates for loans on such policies.

10 On 5 February 1990, the respondent advised the appellant that proposals for Z policies already submitted would not be accepted by the respondent on "normal terms". The memorandum advised that the respondent was prepared to accept proposals for Z policies already completed, subject to compliance with conditions and with the reservation of a "right to alter them or rescind them upon written notice". The terms were:

"(i) Due to the uncertain retention rate of large policies, 4th and 5th year commission will not be paid until renewal in the respective years ...

(ii) If a yearly premium is paid, we will pay 1st and 2nd year commission.

If the policy is paid monthly then commission will be paid quarterly. If the frequency of payment is altered to yearly, then the balance of the 1st and 2nd year commission will then be paid. If a cheque swap at 31/5/90 is arranged for this we will require Bank cheques for the balance of the yearly premium.

(iii) Volume bonus will be paid on the Qualifying Remuneration generated at your standard rates. This will be paid on 31/3/90 and calculated manually (sic).

(iv) We will advise you in the next few weeks as to the effect of the Q/R generated on Agent Development Loan Levels. A national policy on this is being developed now. You should assume at this stage that the Q/R, or at least part of it, will not be counted. We are very unsure of what the outcome will be."

11 Before the respondent accepted any of the proposals submitted by the appellant, it advised the appellant by letter from the Tasmanian general manager, dated 21 February 1990, that the respondent required certain further conditions to be met. Those conditions included the submission of a letter of comfort and a presentation signed by the proposer for each policy. The terms of the letter of comfort are set out in the reasons for judgment at 16 - 17. Those terms included a new schedule of anticipated benefits and drew attention to the fact that if the policy had been entered into with a view to obtaining a short term benefit, the policy holder may attract income tax on any profit made. The learned trial judge found, at 24, of his reasons for judgment, that the projections and the memorandum of 21 February, which each proposer had to acknowledge he or she had seen, made it clear that the optimum return on the policy would be obtained early in the life of the policy. His Honour said that it was clear to a reader of these documents that renewal of the policy beyond year two was not commercially viable. Nonetheless, the appellant elected to continue with the proposals and complied with the new conditions of acceptance. In March 1990, all the proposals it had submitted were accepted. The respondent paid the appellant approximately $6.8m in commissions and bonuses. After rebating commissions to pay premiums, the appellant retained $1.2m of that sum.

12 The learned trial judge found that relations between the Tasmanian manager of the respondent and Mr Poulson deteriorated due, in part, to their differences over the marketing of the Z policies, and on 21 September 1990, the agency agreement was terminated.

13 The respondent took steps to reduce its exposure to losses with respect to the Z policies that were then in force. Those steps are set out in summary form in the learned trial judge's reasons for judgment at 17. His Honour went on to say that "[a]n assessment was made [by the respondent] that the terms of the policy rendered a two year surrender advantageous to the policy holder and reduced the exposure of [the respondent]". In order to minimise its losses on these policies and in order to protect the interests of the policy holders in general, the respondent determined that it would be best to point out to Z policy holders, benefits that might be attractive to them if they surrendered their policies immediately prior to the payment of the premium for the third year. Accordingly, the respondent wrote to each policy holder advising him or her that the policy had no surrender value until it had been in force for a year and the second year's premium had been paid. The letter advised that at that time the loan value would exceed the second year's premium. Each letter set out the relevant sums of money and pointed out that if the policy holder was contemplating early cancellation, then the best time to do this would be at the end of the second year before payment of the third year's premium. The letter made it clear that the loan could be used to pay the second year's premium and the excess of the loan over the amount of that premium would be retained by the policy holder as profit. The residual value would be debited against the interest due on the loan and the policy would then come to an end. To facilitate this process, the respondent provided Z policy holders with what was called an express service viz, if the second year's premium was paid not later than 10.30am by bank cheque, the loan would be paid by 3.30pm the same day.

14 All of the Z policies issued on proposals submitted by the applicant (some of which were taken out by Mr Poulson and members of his family) came to an end in this way.

15 With respect to its claim for damages for breach of an implied term of contract, the appellant's case at trial was that:

* it had rebated its commission on the first and second year's premiums;

* the respondent knew that it sold Z policies on that basis;

* because of the rebate, the appellant's substantial profit would be derived only from the commission on the third, fourth and fifth years' premiums; and

* the respondent was in breach of an implied term of the agency contract when it encouraged the policy holders to let the policies lapse or "journal out" before payment of the premium for the third year.

16 The appellant's case in this respect was summed up as follows in the opening paragraph of the appellant's written closing submissions handed up at the end of trial:

"The [appellant's] case is a simple one. There was a contract between [the appellant] and [the respondent] which [the respondent] breached in causing the sixty-two Z Policies to journal surrender and this caused damages, in the form of the loss of new business commission for years three four and five."

17 There is a threshold issue that requires resolution. As pleaded, the term alleged to have been implied in the agency agreement was:

"... that the plaintiff would do all that was reasonably within its power to enable the contract to be performed including that it would not do or cause to be done anything that might result in the lapse or early termination of the Z Policies."

18 However, on the hearing of the appeal, Mrs Hampel QC, senior counsel for the appellant, contended that the implied term was expressed in the following terms:

"...that the respondent was under an obligation not to do or cause to be done, anything which might result in the lapse or early termination of the Z policies in order to relieve itself from the performance of its obligation under the agency agreement to pay commission."

19 At the hearing of the appeal, this became known as the "contended term". It will be noted that there are two aspects to it. Firstly, it is expressed in the negative ie, the respondent was not to do or cause to be done certain things and secondly, it adds a purposive element, namely, that it was not to do or cause to be done anything in order to relieve itself from the performance of its obligations under the agency agreement to pay commissions. Mrs Hampel submitted that this term was implied regardless of whether continuance of the Z policies would cause the respondent to make a loss. Mrs Hampel submitted that (inter alia) implication of the contended term arose from the evidence that the respondent accepted proposals for the Z policies when it knew that their continuance would cause it to suffer loss and when it also knew that the appellant was rebating the first year's premiums so that its profit would substantially arise from receipt of the commissions on the third, fourth and fifth years' premiums.

20 Mr Jopling QC, senior counsel for the respondent, submitted that the contended term was not pleaded, was not in issue at the trial and did not appear in either the notice of appeal or the appellant's written outline of submissions and should not be entertained by this Court. By way of response, Mrs Hampel submitted that the contended term was within the scope of the pleaded term, ie, it was simply a narrower expression of the pleaded term.

21 Was the contended specific purpose an issue at trial? No counsel was able to answer this question when it was asked on the hearing of the appeal. Accordingly, after the close of argument and at the invitation of the Court, counsel for the appellant submitted a list of appeal book references at which it was submitted, there was a reference to the purposive element in the contended term. I have examined each reference carefully. It is true that in his opening address, senior counsel for the appellant at the trial referred on several occasions to the respondent encouraging lapse of the policies in order to avoid payment of commission on premiums in the third, fourth and fifth years, and it is clear that the local State manager sought to avoid payments of commission on premiums in those years, but there is no doubt that the trial was conducted upon the basis that intention to avoid payment of commissions was immaterial to the issue of implied terms. The only witness to whom it was directly put that his intention was to avoid payment of commissions in the third, fourth and fifth years was the Tasmanian manager of the respondent, but the evidence made it clear that he did not have the authority, nor did he purport to have the authority, to encourage the early surrender of the Z policies without direction from persons senior to him in the respondent's organisation. More importantly, a study of the closing submissions (written and oral) of senior counsel for the appellant at the trial, made it clear that the purposive aspect of the contended term was never put forward as an issue at trial.

22 There is a great deal of difference between the pleaded term and the contended term. As pleaded, the term firstly requires the respondent to do all that was reasonably within its power to enable the agency agreement to be performed and, secondly, not to do or cause to be done anything which might result in the lapse or early termination of the Z policies. The breadth of that implied term is extremely wide. This is very significant when applying the tests laid down by the Privy Council in BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266 to determine whether a term is to be implied into a contract. As the closing written submissions on behalf of the appellant at trial state at par5.8, "The width of or lack of precision in the expression of a term sought to be implied is an argument militating against its implication. See Ansett Transport Industries (Operations) Pty Ltd v Commonwealth [1977] HCA 71; (1977) 139 CLR 54." The second part of the pleaded term provides, in effect, that regardless of prevailing economic conditions, the interests of other policy holders, or any other relevant matter, the respondent was contractually obliged not to do anything (regardless of the reason) which might result in the lapse or early termination of the Z policies. Alteration of the surrender value and the interest rate might constitute a breach of such a term, even though within the contractual power of the respondent, and well within the contemplation of the parties. As the learned trial judge observed at 19:

"Faulty management, discussions concerning take-overs, or a reputation for slowness might all result in policy holders deciding to take their business elsewhere. In such circumstances, it would not be open to imply a term that the company continue to pay commissions foregone."

23 On the other hand, the contended term is quite a different matter altogether. It imposes a positive obligation not to do anything which might result in the lapse or early termination of the Z policies in order to relieve itself from the obligation under the agency agreement to pay commission. Such a term immediately raises the question of whether it means "solely" in order to avoid the obligation to pay commission; "substantially" or "partly" in order to do so, and so forth. As the learned trial judge observed in passing, saving of the commission was clearly in the mind of the respondent's Tasmanian manager - his memoranda make that clear. However, the cross-examination of this witness about the need to reduce losses by avoiding the payment of commissions on premiums paid in the third, fourth and fifth years was put in the context of an alternatively pleaded cause of action, based upon breach of fiduciary duty. This is apparent from the context and the closing submissions of senior counsel for the appellant at trial. Further, as mentioned, the respondent's Tasmanian manager did not have the necessary authority to make the critical decisions with respect to the Z policies. At the relevant time, the now managing director of the respondent, Mr Killen, was responsible for the business plans policies, one of which was the Z policy. He assumed this responsibility in May 1990 and gave evidence that he probably first became aware of the "problem" with the Z policies shortly after May 1990. Mr Killen said, without any detail, that his objective with respect to the Z policies was "to mitigate the loss that was then in prospect primarily, consistent with the circumstances retaining the goodwill of our clients and agents."

24 The thrust of Mr Killen's evidence was that increasing the interest rates on loans and decreasing the surrender values was designed to militate against the respondent's anticipated losses. He said that it was no part of his strategy to bring the policies to an end. He said that what happened was entirely the decision of each policy holder, "... the investors should make their own decisions as to their continuing investment in the light of the decisions we were taking." No question was put to Mr Killen, either in examination-in-chief or cross-examination, which inquired whether one of his objectives was to relieve the respondent from the obligation to pay commission pursuant to the terms of the agency agreement.

25 Careful study of the written and oral closing submissions made to the trial judge on behalf of the appellant show that it was not within the contemplation of counsel for either party that the pleaded implied term should apply only in circumstances where a relevant act was done in order to relieve the respondent of an obligation to pay commissions. Had the contended term been pleaded, no doubt it would have been the subject of pre-trial enquiry such as particulars and interrogatories. Also, there can be little doubt that the purposive aspect of it would have featured large in the examination and cross-examination of the relevant witnesses at the trial. To permit its consideration now would not be just. As I had occasion to observe in Asia Pacific Resources Pty Ltd v Forestry Tasmania 101/1997, it is well established law that a party to an appeal will not be allowed to raise on appeal a point not taken at the trial where all the evidence bearing on that point was not given before the primary judge and, had such evidence been given, the point sought to be raised might have been defeated at first instance. I refer again to the following passage from the judgment of the Court in Suttor v Gundowda Proprietary Limited [1950] HCA 35; (1950) 81 CLR 418 at 438:

"The circumstances in which an appellate court will entertain a point not raised in the court below are well established. Where a point is not taken in the court below and evidence could have been given there which by any possibility could have prevented the point from succeeding, it cannot be taken afterwards. [Their Honours then quoted a passage from Connecticut Fire Insurance Co v Kavanagh (1892) AC 473 and went on:] The present is not a case in which we are able to say that we have before us all the facts bearing on this belated defence as completely as would have been the case had it been raised in the court below."

26 I also venture to cite again, as it is appropriate to do so, the following passage of Sheppard J in Wingate Marketing Pty Ltd and Another v Levi Strauss & Co and Another [1994] FCA 1001; (1994) 121 ALR 191 at 215:

"It is always difficult for counsel, and almost impossible for judges, to say with any certainty how a case would have been conducted if a point not relied on below had been taken at the original hearing. The court must pay great attention to what counsel say about the matter. In the present case counsel for the respondents has stated that he would have led further evidence. There is nothing apparently unreasonable or improbable about that being the course that would have been taken."

27 Although a court is not obliged to construct an implied term in precisely the same way as that contended for by the party seeking to establish its existence, it would be inappropriate and unjust for it to entertain a case, put forward for the first time on appeal, which would be capable of introducing elements into the putative terms in respect of which significant evidence could have been given at the trial. For this reason, I am of opinion that this Court should not entertain the prospect of implying the refashioned term contended for by Mrs Hampel QC and should consider the case as it was presented at the trial.

"2 That the learned trial judge was wrong in fact and/or in law in failing to find that there was an implied term in the agency agreement between the Appellant and the Respondent, and in particular His Honour should have found:

(a) that the term contended for by the Appellant was implied in the agency agreement in fact and/or by custom;

(b) that the term contended for by the Appellant was implied by law;"

30 Grounds 3 and 4 are merely particulars of ground 2 and their substance is set out in what follows.

31 Ground 5 raises a discrete issue with respect to causation of loss suffered by the appellant.

33 Upon the hearing of this appeal, it was common ground that the test for the determination of the question whether a term is to be implied in a contract has been authoritatively stated by the Privy Council in BP Refinery (Westernport) Pty Ltd v Hastings Shire Council (supra) and by the High Court of Australia in a number of cases, notably, Codelfa Construction Pty Ltd v State Rail Authority of New South Wales [1982] HCA 24; (1982) 149 CLR 337. In the latter case, Mason J said at 347:

"The conditions necessary to ground the implication of a term were summarized by the majority in BP Refinery (Westernport) Pty Ltd v Hastings Shire Council (supra): '(1) it must be reasonable and equitable; (2) it must be necessary to give business efficacy to the contract, so that no term will be implied if the contract is effective without it; (3) it must be so obvious that "it goes without saying"; (4) it must be capable of clear expression; (5) it must not contradict any express term of the contract'."

34 The subsequent observations made by members of the High Court in Hospital Products Ltd v United States Surgical Corporation [1984] HCA 64; (1984) 156 CLR 41; Hawkins v Clayton (1988) 164 CLR 539, and Byrne v Australian Airlines Limited [1995] HCA 24; (1995) 185 CLR 410 with respect to cases where there is no formal written contract have no application to the circumstances of this case.

35 In her submissions, senior counsel for the appellant was critical of the learned trial judge's statement in his reasons for judgment at 18:

"The proposition advanced by the defendant can be stated in the following terms: should a principal, having entered into a contract with a third party, on discovery that the continuation of that contract is commercially disadvantageous and in the absence of an express term, persist (solely for the benefit of an agent) with that contract which it can otherwise lawfully bring to an end?"

36 The criticism was that the learned trial judge posed the wrong question. It was submitted that his Honour erroneously questioned whether the principal should persist with the contract with the third party and to this extent he fell into error for the relevant question was whether the principal should persist with the agency contract. I do not accept the criticism as valid.

37 It was an express term of the relevant contract, viz, that entered into between the appellant and the respondent, that commission is payable upon the policy holder's payment of the premium for the third, fourth and fifth years. Accordingly, no fault can be found with the italicised passage from the reasons for judgment cited above if it is prefixed with the words "in order to avoid being in breach of the agency contract." I am confident that that was what the learned trial judge had in mind, for it is quite clear from the following paragraph in the reasons for judgment that the learned trial judge applied the criteria established by authority to the contract between the parties to this litigation and not to any contract between the respondent and a policy holder.

38 Senior counsel for the appellant pressed this Court with the decision of Young J in RDJ International Pty Ltd v Preformed Line Products (Australia) Pty Ltd (1996) 39 NSWLR 417. She submitted that this Court should apply or follow that decision. With respect, I see no principle expressed in Young J's reasons for judgment with which I would disagree. He applied the criteria laid down by the Privy Council to the facts at hand. The case is no more than an application of settled principle to a set of facts. Those facts are quite different from the facts in this case. In RDJ International Pty Ltd v Preformed Line Products (Australia) Pty Ltd, it was agreed that the purchase price for a business and equipment would be paid in part over a three year period by way of royalties on the sale of manufactured plant which formed the subject matter of the sale. After eighteen months, the defendant ceased to manufacture the plant and accordingly the royalty stream dried up. Young J held that in the circumstances there was to be implied a term to the effect that "the defendant will not do any voluntary act which will make it materially more difficult for the royalty stream referred to in cl 4 of the deed to continue up until 7 July 1997." (423) I note in passing, that Young J referred to Luxor (Eastbourne) Ltd v Cooper [1941] AC 108 as an example of a class of cases in which a term is implied where an estate agent is prevented from earning a commission because the owner sells the property himself. However, in Luxor, the House of Lords refused to imply a term to the effect that where an agent is promised commission upon effecting a sale, the principal is bound not to dispose of the property himself or act in a way that will prevent the agent earning his commission.

39 In this case, the contractual relationship between the parties was for an indefinite term. The respondent generated life assurance business and the appellant company sold that business which included, of course, not only the Z policies, but a whole range of life assurance products produced by the respondent. The financial performance of the respondent affected not only the business of the appellant, but also all the policy holders of the respondent. The terms of the contract are extremely detailed and as the learned trial judge held, work extremely well without the implication of the pleaded term. It is true that the evidence disclosed that never before had the respondent made it attractive for a policy holder to terminate a policy early, but there is nothing significant in that. Almost without exception, cases involving implied terms concern events that have not previously arisen and were outside the contemplation of the parties at the time of contracting.

40 In the present case, it is clear that somehow a mistake was made when the Z policy was designed. It became clear that the mistake could prove costly to the respondent and, in turn, its policy holders. It very clearly was not necessary in order to give the agency contract business efficacy to imply a term that, regardless of the circumstances, the respondent would not do or cause to be done anything at all which might result in the lapse or early termination of one of the respondent's products sold by the appellant, viz, the Z policies. With respect to the proposals in the pipeline, the learned trial judge was correct, in my respectful view, when he said at 18 - 19:

"[The respondent] permitted the continuation of the marketing of 'Z' policies at a time when it knew that such would be deleterious to its corporate interest. In doing so, it kept faith with those intending policy holders who were aware of their existence and permitted the agents to continue with marketing, albeit with different conditions. But the projected figures provided by [the respondent] were forward estimates only. The company had not guaranteed the earlier figures. In providing revised projections, it attempted to reduce the expectations of others and thus reduce its own exposure. But it was still open to the agent to take no special steps to market them or for the clients to complete proposals."

41 The appellant elected to proceed with fifty-two proposals after it had been provided with figures from the respondent which clearly indicated that it would be advantageous to a large number of policy holders to let the policy lapse at the end of the second year and before payment of the third year's premium. In all these circumstances it certainly could not be said that the pleaded implied term was necessary to give the agency contract business efficacy, nor could it be said that the pleaded implied term was so obvious that "it goes without saying".

42 The notice of appeal, ground 3(a), alleges, by way of particulars to ground 2(a), that the learned trial judge applied the wrong test as to business efficacy and erred in failing to address the evidence of Messrs Hoskins and Russell. Of course, a failure to address the evidence of a witness in the reasons for judgment is not, per se, an error of law or fact. A failure to address some fact or opinion given by a witness may lead to error of fact and/or law. Did that happen in this case?

43 Mr Russell, a former employee of the respondent, was an insurance industry consultant. I have read the transcript of his evidence. It is difficult to follow, for much of the evidence was the subject of objection. It is unclear to me whether senior counsel for the appellant at trial was attempting to lead from this witness factual evidence of a custom or expert opinion evidence or something entirely different. Some of Mr Russell's evidence was taken de bene esse. A written ruling on the admissibility of this evidence (11/1998) was produced. I saw nothing in Mr Russell's evidence to indicate that the learned trial judge's conclusion that business efficacy did not require implication of the pleaded term was erroneous.

44 The appellant's written submissions refer to only one part of Mr Russell's evidence. This reference is to evidence in which he said that apart from the present matter, he was not aware of any case in the late 1980s or early 1990s where a life assurance company in Australia had set out to bring a policy which had been sold by its agent to an end. As I have indicated already, that the relevant event was hitherto unknown does not assist the appellant in this case.

45 Mr Hoskins was the managing director of the respondent between 1988 and 1992. The appellant's written submissions rely upon the evidence of Mr Hoskins to the effect that it was the "practice and custom" of the respondent to engage in full consultation between the State manager and leading agents. There was ample other evidence at trial to the same effect. There was also evidence that the agents had an organised body or "union" to represent their interests and that there was frequent consultation between it and officers of the respondent. Mr Hoskins also gave evidence, which would have been no surprise, that agents were encouraged to service clients so that policies would be maintained for substantial periods of time. With respect to ground 3(a), the appellant's written submissions include:

"10 Or, to put it positively, applying the BP Refinery v Shire of Hastings test, it is not to be imputed to [the appellant] that it is assenting to an unexpressed term which would operate unreasonably and inequitably against itself, namely that [the respondent] could deprive [the appellant] of the commission to which it is entitled by collapsing the policies. Whether the implied term is put in terms of an obligation on the part of [the respondent] not to do anything to deprive [the appellant] of commission to which it is entitled by means which include not collapsing the policies, or a negativing of a consent by [the appellant] to the deprivation of commission by to which it was entitled by [the respondent] collapsing the policies, such a term can properly be characterised as one intended by, or within the contemplation of the parties.

11 This again is fortified by the evidence of the witnesses Hoskins (which was not referred to by the trial judge), and Russell as to the fact that [the respondent] had never before taken steps to bring about the early surrender of a policy. (AB 621&ff, 928-9)."

46 I do not accept that the evidence referred to fortifies the proposition put in par10 at all. The evidence does not support the proposition that the pleaded term was one that could be described as intended by or within the contemplation of both the parties at the time the contract was made would have been included in the written document.

47 It is well established that there is a general rule, applicable to every contract, to the effect that each contracting party will do all that is necessary to enable the other contracting party or parties to have the benefit of the contract. See Butt v McDonald (1896) 7 QLJ 68 at 70 - 71; Mackay v Dick (1881) 6 App Cas 251 at 263. This rule, sometimes known as the duty to facilitate performance rule, has been reaffirmed by the High Court in relatively recent times. See Secured Income Real Estate (Australia) Limited v St Martins Investments Proprietary Limited (1979) 144 CLR 496; Hospital Products Limited v United States Surgical Corporation (supra).

48 The relevant contractual obligation and the relevant entitlement to benefit only arose upon payment of the premium in the third, fourth and fifth years. The decision not to pay those premiums was made by the policy holder. The learned trial judge found that "the intention of the parties was to sell and maintain insurance products for common commercial benefit" (18). The pleaded implied term is to the effect that regardless of the reason and regardless of the nature of the act, the respondent must not do anything which might result in the lapse or early termination of the Z policies, even if continuance of those policies is bound to cause economic detriment to the respondent and to all the respondent's other policy holders. The breadth of such a term is contrary to the intention of the parties to do business for "common commercial benefit". As the learned trial judge said, also at 18:

"The defendant advances the position that there could be no intention that one would obtain advantage at the expense of another. But the converse is equally valid in that neither party could expect to suffer detriment for the benefit of the other."

49 With respect to the issue of the extent of the term to be implied by law, Mason J said in the Secured Income Real Estate case at 607 - 608:

"Then the question arises whether the contract imposes a duty to co-operate on the first party or whether it leaves him at liberty to decide for himself whether the acts shall be done, even if the consequence of his decision is to disentitle the other party to a benefit. In such a case, the correct interpretation of the contract depends, as it seems to me, not so much on the application of the general rule of construction as on the intention of the parties as manifested by the contract itself."

50 The contract clearly manifests an intention that there will be mutual financial benefit. It equally clearly does not manifest an intention that the financial benefit to the appellant must continue, even though such continuance will be to the financial detriment of the respondent. No error lies in the finding that the pleaded term is not implied by law.

51 Ground 2(a) alleges that in addition to error occurring by failure to imply the pleaded term into the agency agreement in fact, it also occurred in failing to imply that term by custom. The notice of appeal, ground 3(b), amplifies that contention in the following terms:

"(b) failing to find that the term contended for by the Appellant was implied by custom, there having been no previous occasion on which the Respondent had deliberately caused existing policies to lapse or surrender prematurely, and failed to apply the law as set out in Con-Stand Industries of Australia Pty Ltd v Norwich Winterthur Insurance (1956) [sic] [1986] HCA 14; 160 CLR 226."

52 Where a particular term is customary in a defined industry or business, that term may be imported by implication into a contract made between the parties in that industry or business. Whether or not such a term exists is a question of fact. With respect to this issue of fact, the learned trial judge referred to the evidence of Mr Russell, which was the subject of the written ruling on admissibility to which I have referred, and made the following findings of fact at 20 - 21, none of which are the subject of complaint upon this appeal:

"Taking a view of [Mr Russell's] evidence most favourable to the defendant, the following salient points emerge:

1 A life insurance company has a special relationship with a 'tied' agent and should support the interests of such agent.

3 It is unusual for a life insurance company to alter the terms of a policy once issued.

4 Such a course impinges on the relationship between the life insurance company and 'tied' agent.

5 Any alteration, lawful vis-a-vis the policy holder, ought not impact on the rate of commission of such agent."

53 The law with respect to the implication by custom of terms into a contract has been authoritatively stated by the High Court in Con-Stan Industries of Australia Pty Ltd v Norwich Winterthur Insurance (1985 - [1986] HCA 14; 1986) 160 CLR 226. The relevant propositions are helpfully enumerated in the judgment of the Court at 236 - 238. With considerable diffidence, I shall attempt to summarise them as follows:

(1) As already stated, the existence of a custom or usage that will justify the implication of a term into a contract is a question of fact.

(2) The evidence must establish that the custom is so notorious that every party to a relevant contract can reasonably be presumed to have imported it into the contract.

(3) The evidence must establish that the custom or term is both certain and reasonable.

(4) The custom must not contradict a written term of the contract.

(5) Provided the evidence establishes notoriety to the requisite degree, a party to a relevant contract may be bound by the custom or term even if that party was unaware of it. This is imputed knowledge.

54 The learned trial judge referred to Con-Stan Industries and, with respect to the evidence of Mr Russell, concluded at 21:

"The evidence of Russell does no more than state a set of general propositions and expectations. It falls far short of establishing a custom concerning the right of remuneration in the circumstances subject to consideration. Indeed, it is difficult to ascertain how any custom could exist where diverse and unanticipated commercial activities create a need to change policy or require adjustment to a particular enterprise or marketing strategy."

55 The essence of the appellant's submissions on this aspect of the appeal, as I understood them, were:

* error occurred in the learned trial judge directing himself that the existence of a custom must be proved strictly; and

* there was sufficient evidence given by Messrs Hoskins and Russell and a Mr Turner upon which the learned trial judge ought to have found that "there was a custom within [the respondent] that it would not collapse a policy once taken out, except where the policy holder was in default of payment of premium and had failed to pay despite repeated requests to do so."

The foregoing proposition was taken from the appellant's written submissions, par14 and I pause to state again that the appellant's case at trial was not that there was an implied term as stated in the submissions, par14, but there was an implied term as pleaded by the defence, par29 and set out at the beginning of these reasons for judgment.

56 If the learned trial judge was in error in asserting that custom must be strictly proved, then he is in good company, for precisely that expression is used by the authors of the 6th Australian Edition of Cheshire & Fifoot's Law of Contract at par424 and by that very eminent judge Jessell MR in Nelson v Dahl (1879) 12 Ch D at 575. However, I do not understand that by the use of that expression his Honour was directing himself that he must apply some standard of proof other than the balance of probabilities. His Honour was, in effect, saying that it is not sufficient to simply prove that a custom existed. It is necessary to establish, not only that there was a custom, but that it was widespread and well known in the industry, to such a degree that it acquired notoriety. That much is clear from the citation of a passage from the judgment in Con-Stan Industries that appears immediately after the impugned sentence. I see no validity in the submission that the learned trial judge erred in the application of the principles expounded in the Con-Stan Industries case.

57 Before turning to the evidence, it may be noted that the relevant custom must be a custom in the trade or business in which the parties were engaged, not merely within the business of the respondent as claimed in the appellant's written submissions. See In re An Arbitration between Walkers, Winser & Hamm and Shaw, Son & Co [1904] 2 KB 152; Majeau Carrying Co Pty Ltd v Coastal Rutile Limited [1973] HCA 22; (1973) 129 CLR 48 at 52.

58 The evidence of Mr Hoskins did not, in my view, establish the existence of any custom. It did establish that offering encouragement and incentives to policy holders to let their policies lapse was unknown in his experience. With respect to this, the following passage appears in the transcript of evidence (AB 614):

"Counsel: Was this unprecedented in your long experience in the insurance industry, or almost say? ... In my experience it was unprecedented. There were occasions in National Mutual's history where we had discontinued policy lines before because they were actuarially unsound, but I don't think we had, if you like, sought to void other policies. I don't believe there was any precedent. Not in my time anyway."

59 A careful study of the evidence given by Mr Russell and a careful study of the learned trial judge's written reasons for excluding quite an amount of his evidence shows that his Honour's conclusion that the evidence fell "far short of establishing a custom" concerning entitlement to commission in the circumstances of this case, was quite correct. In those written reasons at 3, his Honour admitted into evidence an answer by Mr Russell to the effect that in his experience in the industry:

"... companies support the contracts that their agents sell. And particularly in the tied agency system. There is an in built understanding or an understanding that that will be the case, by the nature of their arrangement with that company."

However, this was no more than evidence of mutual support for common financial benefit and upon any view of Mr Russell's evidence it could not be said that it tended to prove that there was a custom in the life assurance business that a life assurance company would not do or cause anything to be done which might result in the lapse or early termination of one of its policies sold by a tied agent.

60 Mr Turner was called to give evidence on behalf of the appellant. He worked for the respondent between 1983 and 1993. Basically, he was employed to do accounting work in the respondent's Melbourne and Tasmanian offices. He said that in Hobart, his business was to assist agents with the implementation and administration of their business. Mr Turner also worked for a short period in 1994 to 1995 as an agent. He gave some evidence about how Z policies in Tasmania were treated in some respects differently from other policies and added (AB 536 - 537):

"See, National Mutual always had a culture through the 100 years and the 11-odd years I spent there that you basically preserve business at all costs. Once that business was submitted by an agent originally that is where National Mutual had the right to accept or reject that business. Once accepted and that business went through the system National Mutual administration staff would support that policy to the hilt along and in conjunction with the agent to support that business and carry it through. So the difference came that National Mutual instigated in my understanding the removal of this business from the books which was never seen before."

However, that evidence added nothing to the evidence of Mr Russell that the action taken with respect to the Z policies was unprecedented and that there was a practice for the company to support the agent. The learned trial judge was quite right to hold that this evidence fell short of establishing a custom in the relevant industry in the terms pleaded, so notorious and widespread that the parties to this litigation incorporated it into the agency contract.

61 Grounds 2, 3 and 4 of the notice of appeal are not made out.

62 It is unnecessary to consider ground 5 of the notice of appeal. I would dismiss the appeal.

NATIONAL MUTUAL LIFE ASSOCIATION OF AUSTRALASIA LIMITED

NATIONAL MUTUAL LIFE ASSOCIATION OF AUSTRALASIA LIMITED

64 I have had the advantage of reading the reasons for judgment of Underwood J. I agree with them. The appeal should be dismissed.