(d) Mr Spira should bring Mr Skettos home.
120 There was no evidence that CBA expressed the view attributed to it in par (a). The evidence suggests to the contrary. Protracted negotiations took place in December as to the terms of the variation offer. A facility variation agreement consequent upon the acceptance of this offer was not signed until 9 March 2000 because DPG sought variations to it. CBA expressed dissatisfaction with the failure of DPG to float. Different versions of the Heidelberg transaction from that described in the latter part of 1999 were being presented to CBA. Instead of a loan to a Spira company outside DPG, it was proposed that Heidelberg would lend the $15 million dollars to the fifth defendant. Details of the Terraplanet float were also changing during this period. DPG had not provided audited accounts for the year ended 30 June 1999. In early February, Mr Spira requested a return to a five year period under the Facility Agreement and the restoration of the original financial covenants. CBA required execution of a facility variation agreement with respect to 22 December 1999 agreement before any further proposal was entertained. Late in February, Mr Spira sought a 10 year interest only commitment from CBA. In early March 2000, Mr Lock informed Mr Spira that the problem with the Heidelberg transaction was that it did not result in any new equity and, with growth forecasts remaining strong, DPG remained under-capitalised whereas the Heidelberg transaction agreed in December 1999 injected $15 million in new equity. Mr Spira indicated that the market was depressed and he was not prepared to go ahead with the float. He said he wanted to terminate the relationship and there were other financiers wanting to do business with DPG. It was agreed that the sale of the imaging business to Terraplanet should be expedited, the facility variation agreement with respect to the December 1999 agreement should be executed and the Heidelberg transaction as described in February 2000 should go ahead. This was not a regular and acceptable facility to CBA. Paragraph (a) of the Seventh Representations was not established.
121 Mr Lock's statement in December 1999 contained two aspects. If DPG honoured its obligations, CBA was willing to continue the relationship. If DPG failed to honour those obligations, CBA wanted to be re-financed. Paragraph (b) and par (c) were not made out.
122 Mr Lock did say that Mr Skettos should come home but in the context that he was the person with detailed knowledge of the Heidelberg transaction. In that context, par (d) does not amount to a representation that there was no necessity for Mr Spira to consider re-financing.
123 On 9 March 2000, the parties executed a facility variation agreement ("Fourth Variation") which reduced the bill discount facility by $2million, reduced the contingent liability facility by $0.3 million and reduced the asset finance facility by $2.5 million, bringing total facilities down to $99.45 million. It provided for a reduction of $18 million on 31 December 2000 with prepayment upon completion of the Heidelberg transaction or the partial float of DPG and the float of Terraplanet.
124 In May 2000, CBA received $2.5 million from the sale of the imaging business to Terraplanet. The Heidelberg transaction changed again. In June 2000 it was concluded and CBA received $15 million in reduction of the debt.
125 In June 2000, CBA rejected a request to provide the asset finance facility beyond 31 December 2000 and, in light of information that the documentary credit facility of $1.5 million was no longer required, it was cancelled, CBA indicating that it would consider requests to draw on that amount in terms of a cash flow budget presented to it to assist DPG while completing its re-finance. In re-examination, Mr Spira said it was waste of time to make any application. DPG did not avail itself of the opportunity.
126 Mr Spira said that working capital shortages expected from July 2000 onwards prevented him from taking out foreign exchange contracts for paper purchases in US dollars from early February 2000 onwards. There is some confusion in the evidence as to what information was made available to Mr Spira as to the availability of foreign exchange trading facilities. While it is true, as CBA submitted, that there were un-committed balances in the bill discount facility when paper orders were made without foreign exchange cover, that does not answer Mr Spira's evidence.
127 DPG did not arrange alternative finance by 31 December 2000. The bill discount facility was retired into a bills matured account to which a higher rate of interest applied.
128 In early March 2001, DPG sought further urgent additional funds of approximately $3 million to enable it to finalise an offer of re-financing by Westpac Banking Corporation ("Westpac"). CBA agreed to this course. Westpac funding was not, however, taken up. Mr Spira had expected to be able to obtain re-finance resulting in a surplus working capital of about $12 million whereas the Westpac proposal produced a surplus of only $3 million to $4 million. In addition, sales figures were down in December 2000 and in the first quarter of 2001. Mr Spira attributed this to a reduction in stocks to ease cash flow demands and DPG's inability to quote a competitive price because of its increased cost of raw materials.
129 In late March 2001, orders for the next quarter were 40% to 50% down on the previous year. On 30 March 2001, voluntary administrators were appointed to DPG and the companies were wound up on 2 July 2001.
130 John Melluish is a chartered accountant and a registered liquidator and a partner in Ferrier Hodgson. The liquidators of DPG were also partners of that firm. Mr Melluish had the day to day conduct of the liquidations. Based on his analysis of the financial accounts of DPG as at 30 June 2000, Mr Melluish expressed the opinion that DPG was not in good shape to weather a downturn in the industry in 2001 because of its debt to equity ratio and because of the magnitude of the subsequent events. He was of the view that the downturn in forward orders for the quarter commencing 1 April 2001 would have had its impact on DPG in June, July and August 2001 by which stage, unless external funds were injected, he was of the view that DPG would have had trouble paying its debts as they fell due. This was not so much a matter of the level of debt as it was a problem of a lack of adequate working capital although, of course, an injection of additional capital would flow through to working capital in many circumstances.
131 From newspaper articles and the like Mr Melluish concluded that the significant fall in projected revenue for the June 2001 quarter was consistent with a fall across the printing industry generally. As printing volume dropped, price competition within the industry increased. Mr Melluish formed the view that in the period commencing I July 2001, DPG, on its projected cash flows, was unable to meet its debts as they fell due and the only way of continuing to trade solvently was if there was a further injection of debt or equity. This was not the position, in Mr Melluish's view, in the quarter commencing 1 January 2001 during which there was no apparent shortage of working capital.
132 The cross-claimants seek declarations that the Representations and Nondisclosures constituted misleading and deceptive conduct on the part of CBA. While the pleading does not say so, presumably reliance is placed upon the Australian Securities and Investments Commission Act 2001 (Cth), s 12DA(1) or the Trade Practices Act 1974 (Cth), s 52(1).
133 If the Fifth Representations were made in December 1998 as to waiver of the supposed breaches of financial covenants and their amendment, they did not constitute misrepresentations and did not constitute misleading or deceptive conduct. Those matters were carried out. Of the other Representations and Nondisclosures, that CBA would take a flexible approach to doing business with DPG, that CBA would consider additional capital expenditure financing for acquisition of other assets or businesses on a case by case basis and that DPG could rest assured that it had the support of CBA, were the only ones I find were made.
134 All of those representations were made prior to the execution of the Facility Agreement. They were either in the nature of puffery or they became irrelevant or of little, if any, significance following the execution of the Facility Agreement and its subsequent variations.
135 In Pappas v Soulac Pty Ltd (1983) 50 ALR 231 at 234-235, Fisher J observed that one should be reluctant to elevate introductory comment in the nature of puffery to the status of potentially misleading conduct (see, also, General Newspapers Pty Ltd v Telstra Corporation (1993) 45 FCR 164 at 178). I agree with that observation. Furthermore, the cross-claimants have not established that they suffered any loss or damage as a result of those representations.
136 The cross-claimants have failed to establish any entitlement to damages under the Trade Practice Act 1974 (Cth), s 82(1) or other relief under s 87(1) or under the comparable provisions of the Australian Securities and Investments Commission Act 2001 (Cth), s 12GF(1) and s 12GM(1).
137 The cross-claimants submitted that there was to be implied in the Facility Agreement a term that CBA would exercise its powers and discretions thereunder and under the security documentation in good faith, fairly and reasonably and for the purpose for which they were given. The cross-claimants submitted that such a term is to be implied by law in New South Wales in all commercial contracts. It was submitted that this was decided by the Court of Appeal in Burger King Corporation v Hungry Jack's Pty Ltd [2001] NSWCA 187.
138 Implication of a contractual term by operation of law is based on more general considerations than those applicable to an implication of a term necessary to give business efficacy to a contract (Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337 at 345-346, Castelmaine Tooheys Ltd v Carlton & United Breweries Ltd (1987) 10 NSWLR 468 at 486-487). The latter process has been called ad hoc implication (Renard Constructions (ME) Pty Ltd v Minister for Public Works (1992) 26 NSWLR 234 at 256).
139 When a court first determines that a term should be implied into a contract of a particular type by operation of law, the process by which that is achieved has been variously described. It has been said that the implied term is one the parties must have intended by necessary implication, as a basis without which the whole transaction would be futile (Miller v Hancock [1893] 2 QB 177 at 181). Lord Wilberforce said that the term should be read into the contract as the nature of the contract itself implicitly requires, no more, no less: "a test, in other words, of necessity." (Liverpool City Council v Irwin [1977] AC 239 at 254). As McHugh and Gummow JJ said in Byrne v Australian Airlines Ltd (1995) 185 CLR 410 at 450, terms implied by law reflect the concern of the courts that, unless implied, the enjoyment of the rights conferred by the contract could be rendered nugatory, worthless, or, perhaps, seriously undermined. Hence the reference in the authorities to "necessity".
140 In Renard Constructions at 263-264 Priestley JA advocated the implication by law of a term of good faith and fair dealing in the performance of contracts generally. His Honour took the view (at 268) that unconscionability, unfairness and lack of good faith had a great deal in common and that prevailing community expectations are consistent with the implication in all contracts of a duty upon the parties of good faith and fair dealing in their performance. I have said elsewhere (Mainland Holdings Ltd v Szady [2002] NSWSC 699 at par 64) that I agree with his Honour. In Hughes Aircraft Systems International v Airservices Australia (1997) 76 FCR 151 at 192-193, Finn J inclined to the view of Priestley JA but implied a term in a class of contract limited to competitive tender process contracts. In Hughes Bros Pty Ltd v Trustees of Roman Catholic Church (Archdiocese of Sydney) (1993) 31 NSWLR 91 the New South Wales Court of Appeal applied Renard Constructions, Kirby P stating at 93 that he was bound by the decision.
141 The issue came before the New South Wales Court of Appeal again in Alcatel Australia Ltd v Scarcella (1998) 44 NSWLR 349. At 369 Shellar JA with whom the other members of the court agreed said:
"The decisions in Renard Constructions and Hughes Bros mean that in New South Wales a duty of good faith, both in performing obligations and exercising rights, may by implication be imposed upon parties as part of a contract…"
142 In Burger King the New South Wales Court of Appeal stated that a review of the authorities since Alcatel indicated that courts in various jurisdictions had, for the most part, proceeded upon an assumption that there might be implied as a legal incident of a commercial contract, terms of good faith and reasonableness (par 159). Far Horizons Pty Ltd v McDonalds [2000] VSC 310, Garry Rogers Motors Aust Pty Ltd v Subaru (Aust) Ltd [1999] FCA 903, Saxby Bridge Mortgages Pty Ltd v Saxby Bridge Pty Ltd [2000] NSWSC 433 and Asia Television Ltd v Yau's Entertainment Pty Ltd (2000) 48 IPR 283 were considered. The court accepted that if terms of good faith and reasonableness are to be implied, they are to be implied as a matter of law (par 164) and went on to say that for a term to be implied in a new type of contract it must be both reasonable and necessary, citing Castlemaine Tooheys and Byrne (par 167). The court went on to consider whether the term should be implied in the particular contract before it (par 168), concluding that it should (par 186) on the basis that wide powers in the contract might otherwise be exercised so as to render enjoyment of rights of the other party to the contract nugatory, worthless or, perhaps, seriously undermined (par 176, par 177) and that for the slightest of breaches, very valuable rights could be brought to an end (par 183).
143 In Overlook v Foxtel [2002] NSWSC 17 at par 62, Barrett J took the view that Burger King decided that a term requiring the exercise of good faith in its performance was a legal incident of every commercial contract. His Honour may well be correct. The Court of Appeal stated an assumption in this form and concluded that it arose in the contract before it. At the least, the Court of Appeal confirmed the decision in Alcatel that such a term might be implied by law in commercial contracts.
144 There is a line of authority referred to in Castlemaine Tooheys at 490-492 that terms implied by law may yet be excluded from contracts within the particular class (Liverpool City Council at 257, Szymonowski & Co v Beck & Co [1923] 1 KB 457 at 466, Duncombe v Porter (1953) 90 CLR 295 at 306, 311, G H Myers & Co v Brent Cross Services Co [1934] 1 KB 46 at 55 approved in Young & Marten Ltd v McManus Childs Ltd [1969] 1 AC 454, Gloucestershire County Council v Richardson [1969] 1 AC 480 at 494-495, 506, 510, Helicopter Sales (Australia) Pty Ltd v Rotor-Work Pty Ltd (1974) 132 CLR 1 at 17). I am bound by some of those decisions. It may be, however, that in light of recent decisions highlighting the difference between implication by law and implication ad hoc, those decisions should be re-visited by an appellate court.
145 The difficulty I have is that in Burger King the court considered it appropriate to investigate the question whether it was appropriate to imply a term of good faith in the particular contract before it. This was a different exercise from determining whether the term was excluded from that contract. It was an exercise one would expect in deciding ad hoc implication.
146 If a term is to be implied in a class of contract as a matter of law, I would have thought that such an inquiry is irrelevant. If general issues of community acceptance justify the implication as a matter of law, there should be no legitimate exclusion of the term from a particular contract within the class. If the court concludes that exceptions are legitimate it should not, in my opinion, imply the term as a matter of law. If an implication is to be made in those circumstances it should be ad hoc.
147 I take the same view with respect to exclusions, while acknowledging that I am bound to hold to the contrary. If as a matter of general policy a term is to be implied by law in all contracts of a particular class, public policy should not, in my view, countenance any exclusion of the term from contracts within the class. While bound by the decision, I respectfully disagree with the observation of Hope JA in Castlemaine Tooheys at 492 that a term implied by law in a class of contract may be excluded by an express provision to that effect and also as being inconsistent with a term or terms of the contract or the matrix of facts in which the transaction took place.
148 If Overtel is correct, a term of good faith in performance of the Facility Agreement is implied. If Burger King requires an investigation as to whether the term should be implied in law in the Facility Agreement, CBA submitted that I should not do so because good faith is addressed in the Facility Agreement and it is an entire contract.
149 As to the former argument, cl 7 of the Facility Agreement provided that if as a result of any change in the law or a governmental requirement, CBA determined that it was illegal, impossible or contrary to the governmental requirement for it to raise funds or provide or maintain accommodation under the Facility Agreement, CBA and DPG would negotiate in good faith with a view to agreeing whether the relevant accommodation might be provided by some alternative means. I do not regard that limited requirement to act in good faith as standing in the way of an implication of a general term of good faith. As Finn J did in Hughes Aircraft at 42, I regard cl 7 as a particular manifestation of the general duty.
150 Secondly, it was submitted that cl 22(b) of the Facility Agreement, which provided that CBA was not obliged to do anything including, without limitation, disclosing anything or giving advice except as might be expressly set out in the Facility Agreement, indicated that the parties regarded the Facility Agreement as an entire contract. Again, I do not see that circumstance as standing in the way of an implication of a term governing the manner in which rights and obligations under the entire contract are to be exercised. A somewhat similar submission was made in Burger King at par 174 which did not find favour with the Court of Appeal.
151 The Facility Agreement contained rights that, if untrammelled in the manner of their exercise, might render nugatory, worthless or seriously undermine the rights of DPA. For example, any failure to observe an obligation under the Facility Agreement constituted an event of default under cl 11(b) enabling CBA to call up all moneys under cl 11.2(b) and cl 5.2 provided that if the float of DPG had not occurred by 31 March 1999, CBA might thereafter give notice to DPA that the rate of interest, fees and/or margins applicable to any accommodation was varied in the manner set out in that notice (cf Paragon Finance plc v Nash [2002] 1 WLR 685 at 699-700). In my opinion it is appropriate to imply a term of good faith in the Facility Agreement as a matter of law.
152 So far as those authorities which condone an exclusion of a term otherwise implied by law are concerned, there was, in my view, no express provision to this effect and no inconsistency in the terms of the Facility Agreement or in the matrix of facts in which the transaction took place to lead to such a result.
153 I was invited to depart from Burger King on the basis that any extension of the type of contract in which an implication as a matter of law should be made should be circumscribed and not extended to commercial contracts generally. I decline to do so. I regard myself as bound by Alcatel at 369 and Burger King at par 167 and par 168 to the view that such implication arises or may arise in commercial contracts.
154 In my view, once it is accepted that a term of good faith may be implied in a contract of a particular type as a matter of law if it is both reasonable and necessary to do so in the sense specified in Byrne, there seems no good reason to confine the types of contract in which the implication may arise or to allow for extension of the categories in limited circumstances only.
155 The Court of Appeal in Burger King did not discuss the content of the implied term of good faith save to comment, apparently favourably, upon the apparent equation of the notions of reasonableness and good faith in Alcatel at 369. The matter was considered by Barrett J in Overlook at par 61 to par 67. His Honour concluded that the implied obligation of good faith underwrites the spirit of the contract and supports the integrity of its character. A party is precluded from cynical resort to the black letter but is not fixed with a duty to subordinate self interest entirely. The duty is not one to prefer the interests of the other contracting party. Rather it is a duty to recognise and to have due regard to the legitimate interests of both parties in the enjoyment of the fruits of the contract as delineated in its terms. The cross-claimants submitted that I should adopt his Honour's delineation of the content of the duty and I am content to do so for the purpose of this case, mentioning only that the content of the implied term of good faith may need further scrutiny to avoid being merely a slogan.
156 The Cross-claimants alleged that the implied obligation of good faith was breached in the following circumstances.