Cirrus's alleged implied terms
166 As mentioned earlier, Cirrus also pleaded that the teaming agreement contained an implied term. Paragraphs [14C] and [14D] of the FASOC plead that aspect of the case as follows:
14C. It was an implied term of the teaming agreement that the first and second respondents would act reasonably, cooperatively and in good faith by:
(a) ensuring the applicant had the benefit of the Express Term; and/or
(b) not engaging in conduct to deprive the applicant of the benefit of the Express Term,
(Implied Term).
Particulars
A. The term is implied by law; and/or
B. The term is implied in order to give the contract business efficacy.
C. Email from Peter Freed to Steve Lang dated 22 July 2014 at 10.24am.
D. Email from Steve Lang to Peter Freed dated 22 July 2014 at 10.43am.
E. Email from Steve Lang to Peter Freed dated 4 August 2015 at 4.21pm.
F. Email from Craig Purry to Peter Freed dated 16 December 2016 at 3.46pm.
G. Email from Peter Freed to Craig Purry dated 16 December 2016 at 4.16pm.
H. Email from Peter Freed to Craig Purry dated 21 December 2016 at 2.14pm.
I. Email from Katrina Binotto to Peter Freed dated 21 December 2016 at 3.07pm.
J. Email from Peter Freed to Katrina Binotto dated 21 December 2016 at 3.12pm.
K. The paragraph of the Version 4 Quotation in section 10.3 headed "Cooperative Approach" at page 120.
L. Further particulars to be provided in due course.
14D. By reason of the Implied Term, the first and second respondents were required to act reasonably, cooperatively and in good faith in the following ways:
(a) inviting the applicant to participate in negotiations with the Ministry of Defence in respect of the provision of AWO training systems;
(b) negotiating with the Ministry of Defence in a way that ensured the applicant would have the benefit of the Express Term;
(c) informing and fully disclosing to the applicant any changes in the Ministry of Defence's requirements communicated to the respondents subsequent to the Tender in respect of the provision of AWO training systems;
(d) informing and fully disclosing to the applicant if circumstances might arise which would deprive the applicant of the benefit of the Express Term;
(e) negotiating a subcontract with the applicant that enabled the respondents to meet the Ministry of Defence's requirements for an AWO training systems under the Prime Contract;
(f) providing the applicant with the opportunity of meeting any changed requirements in the Prime Contract in respect of the supply of AWO training systems; and/or
(g) informing and fully disclosing to the applicant any intention of the respondents to obtain AWO training systems from a supplier other than the applicant, [sic]
167 The implied term case must necessarily fail because it relies on the presence of what the pleadings refer to as the "Express Term" (being the alleged term requiring the respondents to engage it "on the basis of" the Version 4 Quotation if they entered into an agreement with the NZDF that contained a requirement for an AWO training system). I have found that the teaming agreement (if it was a contract) contained no such term. I have, however, addressed the implied term case briefly on the hypothesis that the "Express Term" is part of the teaming agreement.
168 Cirrus relied on Secured Income Real Estate (Australia) Ltd v St Martins Investments Pty Ltd (1979) 144 CLR 596, 607-8 (Secured Income). In that case, Mason J (with whom Gibbs, Stephen and Aickin JJ agreed) said:
But it is common ground that the contract imposed an implied obligation on each party to do all that was reasonably necessary to secure performance of the contract. As Lord Blackburn said in [Mackay v Dick (1881) 6 App. Cas. 251, 263]:
"as a general rule … where in a written contract it appears that both parties have agreed that something shall be done, which cannot effectually be done unless both concur in doing it, the construction of the contract is that each agrees to do all that is necessary to be done on his part for the carrying out of that thing, though there may be no express words to that effect."
It is not to be thought that this rule of construction is confined to the imposition of an obligation on one contracting party to co-operate in doing all that is necessary to be done for the performance by the other party of his obligations under the contract. As Griffith C.J. said in [Butt v M'Donald (1896) 7 QLJ 68, 70-71]:
"It is a general rule applicable to every contract that each party agrees, by implication, to do all such things as are necessary on his part to enable the other party to have the benefit of the contract."
It is easy to imply a duty to co-operate in the doing of acts which are necessary to the performance by the parties or by one of the parties of fundamental obligations under the contract. It is not quite so easy to make the implication when the acts in question are necessary to entitle the other contracting party to a benefit under the contract but are not essential to the performance of that party's obligations and are not fundamental to the contract. Then the question arises whether the contract imposes a duty to 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.
(Footnotes incorporated in text.)
169 The respondents accepted that the teaming agreement, if it had contractual force, contained an implied duty to cooperate of the kind described by Mason J in Secured Income, being a duty to "co-operate in the doing of acts which are necessary to the performance by the parties or by one of the parties of fundamental obligations under the contract". However, the respondents submitted that the implied term alleged in [14C] and [14D] of the FASOC goes well beyond the kind of term contemplated in Secured Income, and that the teaming agreement does not contain the implied term alleged.
170 Cirrus's reliance on Secured Income is misplaced. Cirrus appears to suggest that the implied term alleged falls within the category of terms Mason J labelled "easy to imply": that is, a term that requires the parties "to co-operate in the doing of acts which are necessary to the performance by the parties or by one of the parties of fundamental obligations under the contract". That cannot be correct because no action from the respondents was required for Cirrus to be able to perform its obligations under the teaming agreement. On Cirrus's case, its obligations under the teaming agreement were performed when it released the respondents from the contractual restriction on the use of information in the Version 4 Quotation so it could submit a compliant tender. That permission was wholly within the power of Cirrus to give and required no cooperation from the respondents.
171 The term alleged falls within the category that Mason J went on to describe next, being terms that impose a duty to engage in "acts … necessary to entitle the other contracting party to a benefit under the contract but [which] are not essential to the performance of that party's obligations and are not fundamental to the contract". His Honour's observations do not preclude the finding of those terms in appropriate cases, but do note that implying them is not "easy", and that whether they exist is a question of construction in each case.
172 The implied term is pleaded in a confusing way and has several possible permutations.
173 An obligation to "ensure" that "the applicant had the benefit of the Express Term" might be taken to mean no more than complying with that express term. On that view it adds nothing to the express term. However, if [14C(a)] is intended to mean that the respondents came under an obligation to conduct themselves in a way that ensured that the conditions in which Cirrus became entitled to be retained as a subcontractor came about (which appears to be how it was framed in submissions), it would impose a burdensome and potentially impossible obligation on the respondents. A duty to "ensure" is a duty of strict liability: Australian Securities and Investments Commission v Cassimatis (No 8) [2016] FCA 1023; 336 ALR 209 at [7] (Edelman J). Prima facie, "ensuring" that Cirrus had the benefit of the contract would entail entering into a contract with Cirrus on the basis of the Version 4 Quotation, no matter the results of the respondents' negotiations with the NZDF. The respondents would be obliged to contract with Cirrus even if doing so eliminated the entire profit margin on its contract with the NZDF, or even if it imperilled their financial positions or drove one or both into insolvency. The obligation could not be sidestepped by simply pulling out of the negotiations or refusing any contract offered by the NZDF. Such a term is not reasonable or equitable, nor is it necessary to give business efficacy to the teaming agreement, and it is certainly not so obvious that it goes without saying: Codelfa at 347 (Mason J).
174 If [14C(a)] is read in that broad way, [14C(b)] adds nothing to it. However, if [14C(a)] simply requires compliance with the express term, [14C(b)] does add something and requires independent consideration.
175 This limb of the alleged implied term would also impose significant and burdensome obligations on the respondents. "Not engaging in conduct to deprive Cirrus of the benefit of the Express Term" would also severely restrict the respondents' commercial liberty in a way that is not reasonable or equitable or necessary to give business efficacy to the teaming agreement. For example, a contractual term of this kind would prohibit the respondents from walking away from the ACTC Project and simply deciding not to tender at all, or pulling out of the negotiations if the NZDF's demands were unreasonable, because that would be conduct that deprived Cirrus of a subcontract. That kind of onerous obligation is not one that the parties, being sensible commercial actors, would leave to implication. It is also not so obvious that it goes without saying.
176 In addition, Cirrus pointed to the part of cl 10.3 of the Version 4 Quotation headed "Cooperative Approach" (extracted at [76]) as the "culmination" of references between the parties in the other communications particularised at [14C] of the FASOC. Cirrus's reliance on that aspect of cl 10.3 is misplaced because, as I have explained (see [143]), the terms of the Version 4 Quotation were not incorporated into the teaming agreement.
177 Even if that were not so, Cirrus did not explain how that part of cl 10.3 was said to relate to the implied term it alleges. That relationship is important because the presence of an express term on the same subject matter as an implied term can have more than one consequence. As Buss JA said in Servcorp WA Pty Ltd v Perron Investments Pty Ltd [2016] WASCA 79; 50 WAR 226 at [145] (Martin CJ and Murphy JA agreeing):
Although the mere fact that an express term deals with a particular subject matter is not, of itself, decisive against an implication which involves the relevant subject matter being dealt with more extensively, an examination of the contract, in the context of the objective framework of facts within which it came into existence, may reveal that the express term was intended to cover the field that would otherwise be occupied, at least in part, by the alleged implied term. In those circumstances, there would be no room for the implication of the alleged term. See Gemmell Power Farming Co Ltd v Nies (1935) 35 SR (NSW) 469, where Jordan CJ (Halse Rogers and Street JJ agreeing) made these comments (at 476-477):
"The implied promise may also be negatived by an express provision which is inconsistent with it … This occurs where the contract is found to contain in the same field an express promise in different terms … The fact that there is an express provision dealing to some extent with the same subject is not, of itself, sufficient, in every case, to negative the implied promise … It may appear that the express term is intended only to supplement it … But if the express term appears to be intended to cover the field that would otherwise be occupied by the implied term, the implied term is excluded."
178 In my opinion, cl 10.3 would have covered the field, leaving no room for any implied duty of cooperation. The parties addressed in their agreement the extent of any duty to cooperate and behave reasonably and did not include onerous terms of the kind alleged to be implied. It might be said that the implied term supplements the express one, but Cirrus did not put its case in this way.
179 Paragraph [14D] of the FASOC alleges a series of more specific obligations that are said to arise "by reason of the implied term". Because I have rejected the implied term as pleaded, these do not arise. Some of these asserted duties (such as keeping Cirrus informed of any changes of position by the NZDF) might plausibly have been alleged as implied terms in their own right or as arising from a general duty to act in good faith. However, this was not how the case was put. One (a duty to provide Cirrus with an opportunity to meet any changed requirements of the NZDF: [14D(f)]) was disavowed in submissions.
180 Much of Cirrus's factual case appeared to be directed at proving a course of conduct by the respondents that was deliberately directed at bringing about a situation in which Cirrus could be excluded from participation in the project and MAROPS retained instead. This, if proved, would have constituted a breach of any version of the implied term discussed above. However, the submission that the teaming agreement (if it had contractual force) contained an implied term of the kind pleaded cannot be accepted. Conduct of the kind adverted to here (again, if proved) might also be seen as a breach of a narrower implied term (eg that the parties would act in good faith to promote and not undermine the aims of the teaming agreement), but the case was not pleaded in this way.