Council of the City of Sydney v Goldspar Australia Pty Limited [2006] FCA 472 | Case summary

Council of the City of Sydney v Goldspar Australia Pty Limited [2006] FCA 472 | Case summary | Zoe

INTRODUCTION 1 This is another round in what is assuming the proportions of a title fight between the cross-respondent, Council of the City of Sydney (the Council), on the one hand, and the cross-claimant, Goldspar Australia Pty Limited (Goldspar), on the other, arising out of a contract between them for supply by Goldspar to the Council of a number of multi-functional street poles, called hereafter 'poles' or 'Smartpoles'. 2 On 28 August 2002 I delivered reasons for judgment in relation to four separate questions ordered to be determined in this proceeding pursuant to O 29 r 2 of the Rules of Court (Council of the City of Sydney v Goldspar Australia Pty Limited [2002] FCA 1064). On 11 October 2002 I delivered reasons for judgment as to the orders to be made following the earlier reasons for judgment (Council of the City of Sydney v Goldspar Australia Pty Limited (No 2) [2002] FCA 1268). In the result, the orders made on 11 October 2002 were varied on 17 October 2002 and 21 October 2002. The answers to the separate questions related, in essence, to issues concerning copyright and intellectual property. 3 On 7 May 2004 I delivered reasons for judgment which dealt with all outstanding claims by the Council against Goldspar and Douglas Rawson-Harris (Rawson-Harris), the second respondent (Council of the City of Sydney v Goldspar Pty Limited [2004] FCA 568, (2004) 62 IPR 274). That decision led to orders being made on 18 June 2004. 4 This hearing relates to a cross-claim by Goldspar against the Council arising out of the termination of the contract. These reasons for judgment are to be read with the previous reasons for judgment and assume knowledge of those reasons and the orders that have been made. This, in effect, is a continuation of the previous hearings. The previous history of the proceeding is a necessary backdrop to this segment of the matter. However, a body of evidence has been led that relates to the cross-claim alone and involves a different focus from that in the previous hearings. The evidence needs to be evaluated with that in mind. 5 The contract documents were identified by an expert determination agreed to by the parties (Expert Determination). I rejected a claim by the Council for rectification of the contract. It will be necessary to go to the contractual documents in some detail, but, in order to sketch the issues in the case, it suffices to say that the contract provided the framework within which Goldspar would provide poles and accessories to the Council over a period of years. Part of the backdrop was an intention to beautify some of Sydney's streets prior to the Olympic Games to be held in the latter half of 2000. In respect of each of the three years ended 30 June 1999, 30 June 2000 and 30 June 2001, the contract provided that the Council would take and Goldspar would supply a minimum of 300 poles and accessories. The contract was formally entered into on 29 May 1998, although the manufacture of poles had commenced earlier. A number of poles were supplied in the year ended 30 June 1999, although there is a dispute as to whether the number fell short of 300. No poles were ever supplied in relation to the year ended 30 June 2000. On 10 March 2000 the Council forwarded a notice of termination of contract to Goldspar. By notice of 22 March 2000 Goldspar, in turn, gave notice of termination of contract to the Council, relying upon the Council's alleged wrongful repudiation of the contract by virtue of the purported termination by it. On any view, the contract had by then come to an end. Goldspar's cross-claim to be determined is for damages for repudiation of the contract by the Council and for certain associated claims. The Council contends that its termination was effective and not a repudiation of contract. It asserts that, even if this is incorrect, Goldspar was not in a position to itself terminate the contract and sue for damages because it was not then ready, willing and able to complete the contract. 6 In my opinion, the Council was not entitled to purport to terminate the contract as it did, and in so doing it repudiated the contract. Goldspar was entitled to accept that repudiation and bring the contract to an end, which it did. I am satisfied that Goldspar was ready, willing and able to perform the contract in the relevant sense and is entitled to damages. Although the proper construction of the contract looms large, it is necessary to outline a number of facts and circumstances concerning the performance of the contract prior to the termination of it. The evidence was voluminous and covered many facts and circumstances. Many were not controversial and many had little, if any, ultimate importance. I will only deal with those which I regard as significant in resolving the essential issues. The written and oral submissions ranged far and wide. Again, I shall deal with those that I regard as significant in the end result.

Facts 7 The manufacture and supply of poles commenced in January or February of 1998, prior to the execution of the formal contract. At that time, Goldspar had indicated that it would install the poles but had set out in some detail a description of how the poles would be supplied on alternative bases - namely, delivery only (described as Arrangement B), on the one hand, and delivery and installation (described as Arrangement C), on the other. Arrangement B was that poles would be delivered to a single address in an unassembled state but ready for assembly with all parts in labelled boxes bearing full instructions on assembly methods. The cranage off the truck was not included in the price. Arrangement C included the following: 'Our quote was based on being able to gain easy access to the pole site so we can drop the pole directly from the truck onto the rag bolt assembly. All rag bolt installation will be on a site specific basis from a structural point and we need to be flexible in the methods used for installation at these sites. The delivery of the poles to site will be as per our B method above and assembly of poles will happen once the pole is in place. Electrical work will follow.' 8 The poles were initially assembled on site prior to installation. That accorded with the proposed procedure for supply and installation at that stage. A document of 3 April 1998 entitled 'Installation Procedures and Loading Parameters Issue D' was a manual, the purpose of which was to provide relevant parties with step by step instructions on the correct procedure for installing the pole and its accessories. It became part of the contract. 9 In April 1998, Adele Khreich (Khreich) of the firm of Tracey, Brunstrom and Hammond Pty Ltd was asked to give advice to the Council concerning the process of handling poles on site. The instructions were as follows: 'This confirms your instruction to TBH to assess the current status of Smart Poles procurement and design a monitoring system that will enhance the management of pole delivery to the contractors on site.

TBH will undertake this work as a variation to our existing consultancy, and will itemise and invoice this work separately.' 10 Khreich reported on 20 May 1998 to Terry Daly (Daly) of the Council with a copy to Bob Howard of the Department of Public Works. Daly was the Deputy Director of City Projects for the Council. Vasilios Angelo (Bill) Tsakalos (Tsakalos) was the Director. Steven Newman (Newman) was then a project manager employed in City Projects. None of Tsakalos, Daly or Newman gave evidence. The report is not directly relevant to construction of the contract as such, but is of relevance because it indicates the then thinking of Khreich which was made known to the Council and is significant in understanding that which took place thereafter. The report is too long to reproduce. Khreich analysed the Goldspar tenders as providing $2000 difference between supply only, on the one hand, and supply, assemble and install, on the other. He assessed the work of assembly and installation as only justifying an additional $900. In particular, he believed the cost for assembly of approximately $1600 was considerably more than the cost of assembly in the factory which he assessed as $500. Khreich's recommended strategy was to place further orders on the basis of supply only, attempt to arrange a better price for assembly and installation but, if unsuccessful, to vary the Goldspar order to include those items. It is of interest in the light of later events that one recommendation was: 'COS to commence scheduling pole requirements beyond February 1999, and reconsider the poles procurement process in order to ensure that poles will be available for next year.' 11 Forward scheduling of the poles was necessary because the contract provided the potential for different types of poles to be installed in different locations. It was also necessary to have advance notice so as to be able to work in cooperation with the contractors engaged by the Department of Public Works in relation to corresponding work on the footpaths and roadways. Goldspar had been provided with one such initial schedule. 12 On 22 May 1998, Khreich wrote to Goldspar as follows: 'RE: SMART POLES DELIVERY - LONG TERM PLAN

13 After an initial period, Goldspar, in order to improve efficiency, commenced assembling the poles off site and transporting them assembled for installation. To assist in this, Goldspar rented an additional factory at Dee Why dedicated to the manufacture and assembly of the poles. 14 In August 1998 the Council purported to appoint Khreich as the Superintendent's representative. The contract provided for the appointment of a Council's representative but did not provide for the appointment of a representative of the Superintendent. 'Superintendent' meant the person responsible for supervising the Site, as nominated by the Council under the relevant clause. The Superintendent was Wayne Anthony Burns (Burns) until he was replaced in September 1999 by Shane Henn (Henn). Each was employed in City Projects. There was also an obligation upon the supplier to have an individual to whom the Council or the Council's representative could give directions and make enquiries at all times; that person was to be known as the supplier's representative. The supplier's representative was initially Antony (Tony) Barnes (Barnes) who was later replaced by Rawson-Harris. It does not appear that either Burns or Henn assumed an active or a decision-making role as the Council's representative. It rather appears that the day to day administration was left to Khreich, who took his instructions from Daly. Burns was a project manager reporting to Daly. Goldspar acquiesced in the role of Superintendent's representative, although it sought Khreich's replacement as such as early as February 1999 and complained about his independence in July 1999. 15 The minutes of the Smartpoles Procurement Meeting of 2 December 1998 record: 'WB to issue forward roll out specifications for work beyond March 1999…' It will be recalled that the then current schedule expired in March 1999. The effect of this entry is controversial. Burns does not accept that it related to the following year. According to Barnes it was preceded by a conversation between Barnes and Burns towards the end of November. Barnes' version is that he and Rawson-Harris and Burns had attended a meeting and whilst waiting for a lift after the meeting he said to Burns:

I find it very sad that the antics of Council have caused innocent workers to suffer in this manner.' 19 On 20 April 1999 Colin Biggers & Paisley, solicitors, wrote on behalf of Goldspar to the solicitors for the Council seeking 'delivery schedules promised since last November'. The reply of 23 April 1999 responded: 'With respect to delivery schedules, we are instructed that there are no delivery schedules outstanding.' 20 On 21 May 1999 Barnes wrote to Burns by facsimile including the following: 'In early November 1998, you are on record as stating that the next delivery schedule would be issued within a week or so. This was not done before Christmas, despite many assurances that it would be issued. During the Determination process, you again stated that the schedule would be a few days away. This was then changed to "it will be issued as soon as the Determination is over". The Determination is over and yet you still have not issued any correspondence on this, in fact it appears you will not return any calls or faxes on any matters.' 21 On 2 July 1999 Barnes wrote to the General Manager of the Council and said, inter alia: 'We have to now request that you instruct the Superintendent to act independently, as is required by the contract, and to forthwith act on the following matters, as requested previously: … 3. Issue schedules (as he has already said he would) be issued for supply of poles in November 1998 and again after the Determination.' 22 The reply of 5 July 1999 from Burns included the following: '3. The Superintendent has no recollection of the statement alleged. There are no schedules outstanding. CoS will continue to order the Product in accordance with the Contract.' 23 The reply of 15 July 1999 from Barnes to Burns included the following: '3. With regard to the issuing of further schedules, the minutes of the Procurement meetings in November 1998, held at the offices of TBH, record that "Wayne Burns will issue the next schedule next week". Goldspar await the issue of this schedule.' 24 The reply from Burns to Barnes dated 3 August 1999 included the following: '3. A number of schedules have been issued since the meeting in question.' 25 By letter dated 12 August 1999 Barnes wrote to Burns as follows: 'Goldspar Australia Pty Ltd has discussed with its sub-contractors the closing dates for placement of pole component orders. The purpose of these discussions has been to ensure purchase orders are placed by Goldspar in sufficient time to receive components, and thus manufacture the contracted quantity of poles, before the end of the 12-month Contract period 1 July 1999 to 1 July 2000.

In the event that a comprehensive pole delivery schedule is not received from Council by the above date, the subsequent accelerated delivery costs incurred by Goldspar in order to supply poles within the Contract period will be passed on to Council.' 26 This is how the parties' dealings as to the Council's future requirements rested at the time of a significant meeting between Barnes, Khreich and one Martin Greenhill on 29 September 1999 to which I shall return. Other events of significance had occurred in the meantime, some of which cast light upon the issue concerning future requirements. 27 On 13 October 1998 Khreich advised Burns that Goldspar would not be installing poles in the future, and installation ceased at about that time. This accorded with the earlier advice by Khreich to the Council. There is a question as to whether the Council had the right to make that unilateral decision and, if so, the consequences of such a decision. 28 In November 1998 Newman and Burns raised with Khreich the possibility of the Council pursuing the acquisition of Smartpole accessories outside the Goldspar contract and by late 1998 Streetscape had supplied Smartpole accessories to the Council. I shall return to Streetscape in due course. 29 On 24 November 1998, the parties entered into an agreement for the Expert Determination and it commenced shortly thereafter. On 15 January 1999 an Expert Determination was made as to the documents which comprised the contract and, on 19 January 1999, certain other claims were determined. Further Determinations were made on 9 February and 3 May 1999. By July a summons had been filed in the Supreme Court challenging the Determinations. 30 By no later than 21 December 1998 negotiations had commenced between the Council and Energy Australia as to the manner in which future installations of poles were to be done. On that day there was a meeting between officers of Energy Australia and officers of the Council (including Tsakalos, Daly, Burns and Newman). Newman's notes of that meeting indicate that the Goldspar contract was discussed in some detail. It was noted, amongst other things, that Goldspar will have supplied 502 poles by mid-late February (1999). Tsakalos and Burns said that a master plan was 70-80 per cent complete and would be complete by, say, the end of January for the remaining 578 poles (to complete 1080). There was a cryptic note within Newman's notes which said 'to be issued this week'. 31 A draft of Annexure A, of what was said to be '"Installation and Maintenance Agreement in respect of smartpoles in the City of Sydney Council Area" dated 2nd February 1999', was produced in early 1999. Burns claims to be the principal author of that document. It was described as a rollout plan, the purpose of which was to specify the scope of works, and associated requirements, for the installation of smartpoles by Energy Australia. The foreword included the following assumption: 'City of Sydney will continue as Principal of the smartpole supply contract (Contract no. 9733 - Supply of Multi-Functional Street Poles). City of Sydney will order each of the poles and ensure Goldspar complies with the requirements of the supply contract. This does not prohibit Council from augmenting its current supply by contracting to alternative suppliers.'

ection Street side or intersection location Deliver To Site Date See Note 3 Pole Type Lamp Watts Light Outreach (m) Luminaire Height Pole Ref. N# Pedestrian Push Button Audio Tactile Pedestrian Walk Don't Walk Vehicle Lanterns on Vertical Vehicle Lanterns on Outreach Outreach & Length (m) Dia 50mm Conduit x 6.5 m As noted below (m) Intersection KS-CR SP05 B 400 3.0 9.6 014 Intersection KS-CR SP06 D 015 Note 3 Intersection KS-CR SP04 D 016 Note 3 Intersection KS-CR SP03 D 017 Note 3 Mid Block CR SP02 D 100 018 1 1 1 1 COS pole height Mid Block CR SP01 D 100 019 1 1 1 1 COS pole height Martin Place CR SP07 D 100 020 1 1 1 1

36 The reference at the meeting of 23 February 1999 to 'tender pre order 100 lengths' is of some significance. One of the constraints to the production of Smartpoles was the availability of column extrusions. The only practical source of those extrusions was Capral. It had provided the extrusions for the Smartpoles manufactured by Goldspar up to that time. There was contention over the ownership of the die used to manufacture the extrusions. If the Council were contemplating entering into a contract with an alternative supplier of Smartpoles there would be a practical problem in that supplier obtaining extrusions. Hence, the reference to a tender pre-order. In the course of a meeting on 28 May 1999, after the Request for Tender 9912 had issued, Council officers made the interesting discovery that Capral had 70 extrusions on hand. It was at this same meeting that Khreich and Newman were endeavouring to secure the pre-order of supply of extrusions for the successful tenderer in relation to Tender 9912. The relevant officer of Capral described the extrusions as a quantity left over from previous runs which were in stock. Khreich and Newman decided to endeavour to acquire those extrusions for the purposes of Contract No 9912. 37 This led to a series of dealings between the Council and Capral which were complicated by the potential claims of Goldspar to be entitled to the extrusions which had been fabricated pursuant to the earlier arrangements between Goldspar and Capral. The dealings were also complicated by Goldspar's claims to intellectual property in relation to the die which had been utilised. It is unnecessary for the purposes of this judgment to trace those dealings in detail. Suffice it to say that Capral ultimately chose to sell the extrusions to the Council on the basis that it received an indemnity from the Council against claims from Goldspar. 38 On 9 July 1999, the Council issued Addendum No 6 to Tender 9912, one aspect of which related to these extrusions: '1. NOMINATED SUPPLY

The Supplier will be responsible for the transportation of the material from Capral's Lidcombe store, where it will be loaded onto the Supplier's truck. The Supplier will be responsible for checking the quantity and quality of the extrusion at prior to removal from Capral's yard. The extrusions will remain the property of the City of Sydney.' 39 The extrusions were actually delivered to the Council on 10 August 1999. Whatever the legal rights and wrongs of that result may have been, it demonstrated a determination by the Council to facilitate the task of the successful tenderer for Tender 9912 at the direct expense of performance of the balance of the contract with Goldspar. Goldspar was free to respond to Tender 9912 and did so. However, the reality was that a successful tenderer was required to acknowledge intellectual property in the Council in a way which was unacceptable to Rawson-Harris, as must have been predicted by the responsible officers of the Council. No conforming tender was lodged by Goldspar, again predictably. No evidence was led from the decision makers at the Council as to the rationale for calling Tender 9912 in the face of the existing contract with Goldspar, nor to explain the obvious overlap in numbers of poles required, nor how it was regarded as practical that the two contracts might be fulfilled concurrently, each in a timely manner. 40 A Smartpole Location Plan had been prepared by 11 June 1999 and a Smartpole Priority Zones Plan by 28 June 1999. The agreement between the Council and Energy Australia was entered into on 23 June 1999. There were 1131 Smartpoles on the Smartpole Location Plan. 41 The agreement with Energy Australia was described as an agreement by Energy Australia to install and maintain certain Smartpoles and a Fibre Optic Cable network for 47 close circuit television security cameras and certain other items of telecommunications equipment. The detail of the agreement involved Energy Australia purchasing from the Council 'Existing Smartpoles' which meant: 'approximately 521 smartpoles supplied and installed as at the date of this document or contracted to be supplied and installed by a third party as at the date of this document and the electrical network to support the supply of electricity to those smartpoles from the point of contact with the relevant Energy Australia substation to the Smartpole, as identified in schedule 1.'

42 It is to be noted that Tender 9912 dovetailed into this agreement as the obligation was to supply assembled poles including delivery but with no installation. It is quite apparent that the Energy Australia contract and the matching Tender 9912 reflect the substance of what had been discussed between officers of the Council and Energy Australia in December 1998. Contract 9912 did not include all of the accessories provided for by the Goldspar contract. Streetscape was to play a role in relation to that. 43 On 12 August 1999 Goldspar wrote to Burns claiming that there had been a short order of poles for the year commencing 1 July 1998. There was no substantive reply. 44 On 29 September 1999 a meeting of some significance took place between Barnes, Khreich and one Martin Greenhill, a consultant quantity surveyor retained by Goldspar. Before examining the detail of that meeting, I accept the substance of the evidence of Barnes that, in late November 1998 and January 1999, he requested from Burns advance notice concerning the orders to be placed for the 12 months' supply to commence in July 1999. 45 I reject Burns' denials of that evidence. The evidence of Burns was generally unimpressive. His claimed recollection of events was very poor - much worse than might have been expected, even if (as I find) his true role was more limited than his title of Council's representative might have implied. My impression when he gave his evidence was that he was not genuinely giving the best of his recollection. His express denials of the evidence in question of Barnes were in marked contrast to most of his evidence and did not ring true at the time. On the other hand, generally speaking, Barnes impressed as an honest witness, although particular aspects of his recollection may not have been reliable. His evidence in question here was given in a convincing manner. Counsel for the Council was able to point to differences in the precise wording of the various accounts given by Barnes in evidence - in particular, the difference between schedule and orders. Nonetheless, these differences did not detract from the overall effect of the evidence. I am satisfied that the entry in the minutes of 2 December 1998 related to the 1999-2000 year. The substance of the contention of Barnes was repeated in correspondence over many months and the response was evasive at best. 46 Furthermore, Barnes' version accords with the surrounding circumstances and the commercial probabilities. Forward planning was essential for a project of this kind. An orderly delivery of poles in the correct sequence was desirable for all parties. The type of poles which were to be required was essential knowledge for the planning and commencement of manufacture. Continuity of work was important. There was an issue as to whether the dedicated factory organised by Goldspar should be maintained. What is more, the Council's forward planning beyond the 1998-1999 year, recommended by Khreich as early as 20 May 1998, was at an advanced stage by November/December 1998. It had plainly progressed further when the draft schedule to the Energy Australia agreement was prepared in February 1999. There was no reason why an interim schedule should not have been provided to Goldspar by that time. Furthermore, the schedules were effectively complete by June 1999 and had still not been provided to Goldspar by the meeting of 29 September, notwithstanding continued requests. 47 The only sensible conclusion from the overall circumstances is that in late 1998 Burns had assumed that, in accordance with past practice, Goldspar would be given the schedule that he and Tsakalos were preparing and were expected to complete shortly. However, there was a change of heart in the Council camp, presumably after it was decided to pursue the Energy Australia arrangements and the alternative tender. 48 The meeting on 29 September 1999 was relatively well documented. There were handwritten and typewritten notes and an email from Khreich to Henn which purported to summarise the outcome of that meeting. Oral evidence was given by Barnes and Khreich. The typewritten minutes prepared by Greenhill were agreed by Khreich to be a correct record although they are, to an extent, cryptic and leave some room for debate. Barnes had a point of disagreement which is not of great significance in the case. The minutes were as follows: 'MINUTES OF MEETING HELD AT THE OFFICE OF T.B.H.

51 Rawson-Harris replied on 6 October 1999, and his contemporaneous account of the conversation was as follows: 'Adel, listen to me very carefully. Goldspar has had enough of Council. We don't believe you have behaved with integrity. We are not prepared to discuss anything with you. Good-bye.' Rawson-Harris went on: 'It would be in the interests of both parties and would avoid ambiguity in the future to have meetings between us recorded and have any matters which you wish to put to us, apart from at those meetings, put in writing' 52 Regardless of what was actually said on 5 October 1999 between Rawson-Harris and Khreich, the Council did not then and there allege that there had been a repudiation of contract and claim to bring the contract to an end. It acted thereafter as if the contract was still on foot. This was not surprising, as Rawson-Harris' communication of 6 October 1999 made it clear that Goldspar's position was not that it would not deal with the Council or carry out the contract, but, rather, that it would require dealings between them to be properly recorded. This would have made it entirely appropriate for the schedule to have been provided under cover of a written explanation forthwith. Khreich did not suggest that any failure by Barnes to provide information had any impact upon his failure to supply the schedule. 53 A matter of importance, disclosed at the meeting of 29 September 1999, was that the Council were proposing that the poles should be delivered already assembled by Goldspar, but that installation would be carried out by Energy Australia. This carried the seeds of controversy as it did not appear to comply with either contractual form of supply. Greenhill noted that the contract was to supply and install. Goldspar's communication of 6 October 1999, apart from confirming that Goldspar had met and would continue to meet its contractual obligations, raised a number of issues which, in turn, provoked a reply from the solicitor for the Council which was met by a further reply from Goldspar. It is not necessary to pursue those matters of detail. 54 On 5 October 1999, the Council had asked whether Goldspar would enter into a contract for Tender 9912 'in the form tendered'. Goldspar responded negatively on 12 October 1999 (explaining why), which led to advice on 13 October 1999 that Goldspar would not be considered for that tender. 55 On 19 October 1999, Khreich, as 'Superintendent's Representative', purported to give an instruction to supply product in accordance with the following requirements: '1. The description of the Product to be supplied is shown in the attached four (4) page spreadsheet, entitled "ORDER PLACED WITH GOLDSPAR ON 19/10/99", referring to 147 poles of types A, AB, B and D. The pole numbers range from 2/001 to 2/147 inclusive. This spreadsheet also describes various variations required in addition to the Product.

Express terms 142 The Council's position substantially depends upon the application of cl 17.3 of the General Conditions of Contract. Clause 17 illustrates the difficulty of applying standard general conditions to this arrangement. The Annexure identified stage 2 as 'future CBD projects'. No delivery dates were stated, rather, a minimum quantity of four types of poles per financial year was stated starting in July 1998 for three years. It was submitted for the Council that the effect of this was that, absent any other notification, the contractual obligation binding upon Goldspar was to deliver the minimum quantity of each type of pole by the end of each financial year with the last day of the financial year being the Date for Delivery for the purposes, inter alia, of cl 17.1 and cl 17.3. There are great difficulties with this construction of the contract. It will be recalled that there was an option for the contract to be a supply and install contract. The first of the three financial years of stage 2 was such a contract. The bare requirements of the Schedule together with cl 17 plainly could not operate in relation to such a contract. Precise and timely advance notice would be required of the place of installation of each pole of each type, together with precise details of the accessories to be included. That, of course, is what happened for the year expiring on 30 June 1999, leaving aside the question as to whether there was any under-ordering. The Specifications provided for the seven poles in March 1999 are a good example of what was required. 143 It is not at all clear at whose option the contract would include installation. Whatever be the correct answer to that question, it is submitted for Goldspar that, once the election was made, that option had been exercised and could not be exercised again. It is submitted for the Council that the option could be exercised from time to time as the Council saw fit in relation to any pole or group of poles. 144 In my opinion, the construction contended for by Goldspar is to be preferred. Both the language of the contract and the commercial context favour that construction. The conclusion that it would be open to one party to switch at will between one alternative and the other, pole by pole or group of poles by group of poles, is not sensibly open. Clause 17 needs to be construed against that background. 145 Goldspar's claim that the contract was for supply and installation is referred to in the notes of the meeting of 29 September 1999 kept by Greenhill. That was the first substantive discussion of the requirements for the then current year. Nonetheless, the first purported order of 19 October 1999 referred to the rates being listed in the Schedule of Prices Part 2(D) that related to supply only. That discrepancy was pointed out in Goldspar's letter of 26 October 1999. Nonetheless, the same statement is made in the critical Order No 1 of 8 November 1999. Goldspar again pointed out the discrepancy in its communication of 17 November 1999. Order No 2 for 154 poles was silent on the point. The supply was to be for '154 Type B poles in accordance with the Contract' - although delivered to Energy Australia depot rather than being installed. Khreich's letter of 17 November 1999 purported to confirm that the order of 8 November 1999 was based upon Schedule of Prices Part 2(D). 146 It is worth repeating the relevant portion of one of the communications from Goldspar to Khreich of 30 November 1999: 'We have pointed out to you on several occasions that Schedule 2D is a Schedule that relates purely to the supply of poles in an unassembled state. Our understanding of Council's requirements is that you require the poles in a supply and assembled basis. Are you saying to us that you now do not require us to assemble the poles prior to delivery? Please advise us by return as to what Council's requirements are in this regard. If you require them on an assembled basis, then we draw to your attention that the correct Schedule is Schedule 2E (excluding erection). We also point out that as Council is contractually obligated to order on an assembled, supply and erection basis, Goldspar will be claiming all profit that it would achieve on such a basis irrespective of whether or not Council orders on that basis.' 147 Any ambiguity in relation to Order No 2 in respect of the basis for delivery was clarified by Khreich's letter of 15 December 1999 in which it was made clear that that order was also required to be fulfilled in accordance with the Schedule of Prices Part 2(D). However, the information in that letter under the heading 'Column Arrangement' makes it quite clear that the Council was unequivocally requiring poles assembled in a certain manner pursuant to both orders. 148 In my opinion, the Council simply was not in a position to call for the supply of assembled poles on the basis of a Schedule of Prices Part 2(D). In the first place, as I have said, Goldspar was correct in taking the view that, in the events which happened, the contract was a supply and install contract for the relevant period. The Council could not unilaterally revert back to the supply basis at will. In the second place, the instruction to deliver the poles assembled could not be given if supply only was required. Although counsel for the Council made a valiant attempt to persuade me that some obscure provisions of the contract contemplated assembly as part of the supply only option, that argument could not stand with the clear descriptions of the work in the relevant contractual Manual amongst other things. The fact that Goldspar was prepared to deliver assembled poles without installing them does not alter the position. It took the stance that it was entitled to be effectively paid in full. Its acquiescence in the same situation for part of the 1999 year is of no greater significance. In my opinion, this fundamental point is decisive in establishing the invalidity of each notice to show cause. It has been submitted for Goldspar that the obfuscation by the Council and Khreich on the point was deliberate. Whilst I am inclined to the view that that is correct, it is unnecessary to come to a final conclusion about that for the purposes of this issue. 149 There were some faint suggestions in the course of submissions that Orders No 1 and No 2 may have been regarded as variations pursuant to the contract. This was not fully developed nor appropriately pleaded. It was not the way that the Superintendent or the Superintendent's Representative expressed matters at the time. In any event, any such contention would meet a formidable barrier in the passage from the judgment of Fullagar J in Carr v JA Berriman Pty Ltd (1953) 89 CLR 327 at 346-348 (agreed in by the other members of the Court). 150 It is also submitted on behalf of Goldspar that Order No 1 lacked important information and detail, namely: (i) No information was provided in relation to the location of holes required to be drilled into the poles to accommodate the specified accessories. (ii) No information was provided in relation to the specifications or positioning of the luminaires required to be provided for the poles. 151 That was correct. Whilst this would normally be the kind of detailed information which might be provided informally, and whilst Rawson-Harris and Barnes may have been able to make educated guesses about some of the information, an order having the draconian consequences contended for by the Council must be complete and self-contained. In my opinion, this notice was not. 152 It can also be said that Order No 2 of 30 November 1999 directing Goldspar to supply '154 Type B poles in accordance with the contract' lacked necessary detail. No information was provided in relation to outreach arms, luminaires or other attachments to be supplied in relation to the positioning of the attachments or in relation to the location of holes required to be drilled to accommodate the attachments. Furthermore, no definite date or time for performance was specified. 153 It is contended for Goldspar that the Council was not in a position to make time of the essence by either notice. That would probably be correct if non-compliance with the time limit was, of itself, to be regarded as sufficient to enable peremptory rescission. That is not the question here. The notices are said to found breaches of contract entitling the issue of a show cause notice. If, as contended by the Council, cl 17 was complied with in issuing Orders No 1 and No 2, then failure to comply with them would be a breach of contract, although the failure of Order No 2 to nominate a time for compliance would be a complicating factor.

Implied terms 154 Goldspar also contends that the Council was bound to act reasonably and in good faith when issuing directions and notices under cl 17 of the General Conditions of Contract and that it did not do so. I shall return to that contention. It also contended for the following implied terms of the contract: '(a) Council would co-operate with Goldspar to enable the Contract to be performed and not prevent or hinder Goldspar in the performance of its contractual obligations; … (b) Council would provide to Goldspar a schedule of its requirements under the Contract beyond those already notified in the schedule to the General Conditions annually or, alternatively, at reasonable times in the course of the year so as to enable Goldspar to plan for and schedule timely and efficient manufacture of poles and accessories to be supplied pursuant to the Contract.' It was also pleaded by Goldspar that: '14. In or about November 1998 Goldspar requested, and Council agreed or, alternatively, represented to Goldspar, that Council would provide to Goldspar a schedule of requirements ("the schedule of requirements") in respect of the next 300 poles to be supplied by Goldspar to Council pursuant to the Contract. … 15. Council did not provide any schedule of requirements as council had agreed or, alternatively, represented to Goldspar that it would provide either in or about November 1998 or at any time thereafter and notwithstanding further requests by Goldspar that it do so.' 155 I have accepted the substance of the factual evidence of Goldspar that underlies the pleading in paragraphs 14 and 15. However, I do not see that as amounting to a variation of contract or as a separate contract. It was not framed as such at the time and it is unlikely that either side would vary a formal contract in that way. There would also be questions as to the authority of those concerned. Further, as pointed out by counsel for the Council, there is no pleading of estoppel. In any event, the representation or promise was disavowed well before the events that commenced with the meeting of 29 September 1999. In my opinion, the allegations go nowhere as such. 156 The implied terms (a) and (b) above need to be considered. I have already adverted to the difficulty of applying cl 17 to a supply and install contract. Even in the case of a pure supply contract, it would be contrary to common sense if, as contended for by the Council, a notice could be given at any time requiring delivery of the whole contracted amount within 12 weeks, particularly as the Council could increase the quantities above the minimum. Such a construction would be starkly at odds with the underlying commercial situation. The poles had to be installed by somebody and had to be installed in a sensible sequence. It would make no sense at all for large numbers of poles to be delivered at the one time compared with delivery according to a staggered schedule of deliveries. Furthermore, the constraint involved in the obtaining of extrusions from Capral meant that it would be quite impractical to manufacture large numbers of poles in a period of weeks. It can be deduced from the contract that 12 weeks was a reasonable period of time within which to manufacture a pole from a standing start but it is absurd to think that it would be reasonable time for manufacturing and delivering the whole of a year's supply, assembled or not. It is equally absurd to suggest that the supplier should maintain a stockpile of the year's supply or something close to it to enable it to meet peremptory demands from time to time. 157 Counsel for the Council submits that cl 17 cannot be read down, that this is a contract which tightly binds the supplier and can be taken to have been deliberately framed to do so. 158 There is a good deal to be said for Goldspar's contention that the Council was required to give advance orders or directions and, in particular, give any notices (including quantities) pursuant to cl 17 prior to the commencement of the relevant period - in this case, prior to 1 July 1999 in order to give commercial efficacy to the contract and avoid absurd results. 159 The concern about obtaining an order from the Council for poles for the 1999-2000 year was not restricted to Goldspar. The following evidence was given by Khreich: 'When did you first receive information as to when the poles would be required to be delivered?---I received instructions from a Mr Terry Daley, our client at Council, and the date is mentioned in my affidavit but it was around August of '99, July or August of '99 and the information was that they require poles for the Energy Australia contract as soon as possible or it was going to cost Council money.

162 The difficulty lies in giving content to that obligation. It is not a mechanism for alleviating the consequences of hard, even harsh or unconscionable, contractual provisions. The duty of cooperation does not extend to being nice or even reasonable to the other party. As Mason J said in Secured Income Real Estate (at 607): '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.' 163 I am inclined to the view that the first part of the pleaded implied term (b) (annual notification) whilst sensible, is not a necessary implication in the requisite sense. However, I am persuaded that the second part of that term should be implied. Clause 17 must be construed in a manner that could apply to the supply and install option if chosen. It is clear enough that the clause cannot operate, literally construed, in isolation from the other provisions in relation to that option for reasons already explained. It is obvious that reasonable advance notice must be given of the precise locations, types of pole and accessories in order to make the contract effective. The pleaded term is a sensible application of the general Mackay v Dick obligation of cooperation and, if it be necessary, meets the requirements for implication of a term set out in BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266 at 283. Such a term would also have appropriate application to a supply contract. Clause 17 applies across the board and I have pointed out the absurdities involved in the literal construction of it proposed on behalf of the Council, even in the case of a supply only contract. 164 The proposed implication is consistent with and supported by, but does not depend upon, the conduct of the parties in the performance of the contract. There has been considerable debate about the use that can be made of post-contractual conduct (eg Charles, 'Interpretation of Ambiguous Contracts by Reference to Subsequent Conduct', (1991) 4 Journal of Contract Law 16). The current received wisdom is that it may not be used for purposes of construction of the contract (Winstonu Pty Ltd (t/a Harvey Norman Electrics) v Pitson [2001] FCA 541; Magill v National Australia Bank Ltd (2001) Aust Contract R 90-131, [2001] NSWCA 221; Collins Hill Group Pty Ltd v Trollope Silverwood & Beck Pty Ltd [2002] VSCA 205). However, Charles QC (as he then was) referred with approval to the view of Greig and Davis (The Law of Contract (1987) 436-438) that subsequent conduct could provide a basis for implying an additional term into an existing contract. A similar view is expressed by the authors of Carter and Harland, Contract Law in Australia, 4th ed, 2002 at [719]. I can see no difficulty in regarding subsequent conduct as relevant to the question as to whether a term is necessary to give business efficacy to the contract. Indeed, if a contract has been performed without adhering to, or without inconsistency with, the claimed term, without complaint or commercial difficulty, that would be powerful evidence that the term is not necessary. The law prefers facts to prophecies (HTW Valuers (Central Qld) Pty Ltd v Astonland Pty Ltd (2004) 217 CLR 640 at [39]). It would be odd to imply a term as necessary where such a conclusion would be contrary to the facts as they later appeared. If conduct may be relevant to negative the implication of a term as being necessary then it should also be relevant to support the implication of a term on the same basis. Here, the contract was always administered on the basis that advance notice of particular requirements was required to be given by the Council. Indeed, even Orders No 1 and No 2 illustrate that. It is a short, and appropriate, step to say that such notice must be reasonable, as had been the case in practice until 19 October 1999. 165 It is apparent from my findings of fact that the implied term was not complied with in issuing Orders No 1 and No 2. It follows that they could not found any substantial breach of contract for the purposes of the show cause notices. 166 The next live question is whether a term that the Council would act reasonably and in good faith when issuing directions and notices under cl 17 of the General Conditions of Contract is to be implied. The answer to that question will be of particular importance if I am wrong in implying the term just discussed. There is a bewildering variety of opinions in the authorities and commentaries as to the implication of terms as to reasonableness and good faith in commercial contracts. For example, in this Court compare the more adventurous approach of Finkelstein J in Pacific Brands Sport & Leisure Pty Ltd v Underworks Pty Ltd [2005] FCA 288 at [61]-[65] (although see Pacific Brands Sport & Leisure Pty Ltd v Underworks Pty Ltd [2006] FCAFC 40 at [119]) with the more cautious approach of Gummow J in Service Station Association Ltd v Berg Bennett & Associates Pty Ltd (1993) 45 FCR 84 and the Full Court in Wenzel v Australian Stock Exchange Ltd (2002) 125 FCR 570 at [80]-[81]. All of the relevant authorities, save perhaps for the recent Victorian Court of Appeal judgment in Esso Australia Resources v Southern Pacific Petroleum NL [2005] VSCA 228 (which took a conservative line) have been discussed at length recently in numerous articles and a book (eg TM Carlin, 'The Rise (and Fall?) of Implied Duties of Good Faith in Contractual Performance in Australia, (2002) 25 University of New South Wales Law Journal 99; JW Carter and A Stewart, 'Interpretation, Good Faith and the "True Meaning" of Contracts: The Royal Botanic Decision', (2002) 18 Journal of Contract Law 182; A Wallwork, 'A Requirement of Good Faith in Construction Contracts?', (2004) 20 Building and Construction Law Journal 257; B Zeller, 'Good Faith - Is it a Contractual Obligation?',(2003) 15 Bond Law Review 215; JW Carter and E Peden, 'Good Faith in Australian Contract Law', (2003) 19 Journal of Contract Law 155; PD Finn, 'Good Faith and Fair Dealing: Australia', (Speech delivered at Commercial Good Faith Conference, Auckland New Zealand, 2 September 2005); E Peden, Good Faith in the Performance of Contracts, (2nd ed, 2003)). 167 In 2002 Carter and Stewart (supra, p 190) said 'perhaps the most important unresolved issue in Australian contract law today is the extent to which the law recognises an implied requirement of good faith in performance and enforcement.' Nothing that has occurred since has resolved the issue in a manner binding upon me. Even Finn J, one of the principal proponents of such an obligation has recently said extra-judicially that ' … one cannot, for the moment, be assured that the regulation of contractual behaviour under the good faith rule will take root in Australia at all, or other than limply.' (supra) 168 The best way for a single judge to travel through this thicket is to concentrate upon the particular contractual provision in question, in the particular contract, in the particular circumstances of the case. When this is done, in my opinion, an instruction or direction could not validly be given pursuant to cl 17 for the purpose of causing Goldspar to default in order that the Council would thereby have a pretext for terminating its contract with Goldspar so that the works the subject of that contract could be done by others. That conclusion follows from the application of principles enunciated in a series of High Court decisions. 169 The closest analogy is Carr v JA Berriman Pty Ltd. In that case a clause in a building contract provided: 'The Architect may in his absolute discretion and from time to time issue … written instructions, written directions … in regard to:

171 Godfrey Constructions Pty Ltd v Kanangra Park Pty Ltd (1972) 128 CLR 529 dealt with cl 14 of the then standard contract for the sale of land in New South Wales, which was in the following terms: '14. If the Vendor shall be unable or unwilling to comply with or remove any objection or requisition which the Purchaser has made and shall not waive within fourteen days after the Vendor has given him notice of intention to rescind this Agreement, the Vendor, whether he has or has not attempted to remove or comply with such objection or requisition, and notwithstanding any negotiation or litigation in respect thereof, and whether the Purchaser has or has not taken possession shall be entitled by notice in writing to rescind this Agreement.' Barwick CJ held that there had been no requisitions within the meaning of the clause but said (at 538): 'If the matter be approached, as in my opinion it should not, by assuming that what the appellant had said in his "requisitions" 2 and 33 were requisitions within the meaning of cl. 14 of the contract, it ought, in my opinion, to be held that it would be unconscionable for the respondent to have attempted to exercise his powers under cl. 14, in the circumstances. I would have thought clearly it was so, because what he would be doing would be to deny to the purchaser the performance of an essential obligation which he had undertaken when entering into the contract with knowledge of the existence of the caveat. In this connexion I find no need to refer to decisions on the use of this type of clause in connexion with land under common law title. The title to this land is under the Real Property Act. The caveat was lodged and presumably notified before the sale was made. To allow the vendor to rescind in the circumstances would be to afford him the right, in substance, to say that the sale was in reality no sale at all: only a transaction conditional on his own willingness to perform.' McTiernan J agreed with the Chief Justice. Walsh J said (at 543): 'The principles by which limitations have been imposed upon the right of a vendor to exercise the power conferred by such a clause as cl. 14 are well known and they were of course recognized by the learned primary judge, who referred in his judgment to some of the authorities on this subject. But with due respect to his Honour I am of opinion that he did not give sufficient weight, in deciding whether the respondent did attempt to use the power arbitrarily or unreasonably, to some features of the case to which I shall now refer.' His Honour dealt with matters particular to the case and then said (at 546): 'I am of opinion that what the respondent could not do, if acting reasonably, was to exercise the power under cl. 14 to get rid of its contract with the appellant whilst the litigation with Doris Parkinson was still pending. The respondent was not engaged in that litigation because it had made the contract with the appellant. The case is not one in which the existence of that contract involved, or might involve, the respondent in expensive litigation of which otherwise it would have been free and which it was reasonable for it to avoid by exercising its power of rescission.' Gibbs J said (at 547): 'In my opinion, it was unreasonable for the respondent on 7th April 1971 to attempt to exercise the power of rescission given by cl. 14 of the contracts and the attempt was accordingly ineffectual. I concur with what my brother Walsh has said in his judgment in relation to this aspect of the case.' Stephen J said (at 549): 'Courts have approached the task of confining the operation of such clauses within what are regarded as proper limits in one or other of two ways; the vendor has been denied the right to rescind either upon the basis that, as a matter of construction, the circumstances of the particular case do not fall squarely within the terms of the clause or else because, although, on its proper construction, the clause applied, nevertheless, the vendor having attempted to use the rights conferred upon him for an improper purpose, he could not be permitted to rely upon its terms. In Webster's Conditions of Sale, 3rd ed., p. 356, the learned author concludes that: "It is not really a question of construction - the court interferes with the contract to prevent a fraud being committed." It perhaps matters little which of these two approaches be preferred; there may, on analysis, be no very clear distinction between them. I do not propose in this judgment to adhere to any clear distinction between the two approaches.' After reviewing the authorities, his Honour said (at 554-555): 'It cannot be, consistently with the authorities to which I have already referred, that a vendor may, in such circumstances, take advantage of what it believes to be only a passing cloud which the purchaser has pointed out must be, and which both parties believe will be, removed and, while proceeding in fact to have it removed, declare that it constitutes such an obstacle in fulfilling its contractual obligations as to entitle it to have recourse to cl. 14. To do so is to employ the clause for a purpose quite foreign to that which the courts have regarded as its true function.' 172 One of those authorities was Gardiner v Orchard (1910) 10 CLR 722, particularly the passage from Isaacs J, including the following, concerning a clause similar to cl 14 (at 739-740): 'In considering whether such a clause justifies a vendor in any given case in cancelling his contract, the Court must bear in mind three things: First, the purpose of every such condition, which is a matter of law, and is stated in the passage quoted from Greaves v. Wilson ((1858) 25 Beav. 290 [53 E.R. 647]); next, the necessity for bona fides on the part of the vendor in using his power for that purpose: see also Woolcott v. Peggie ((1889) 15 App. Cas. 42). This is a question of fact, and is admitted here. The third essential is that the cancellation must be reasonable. Reasonableness is a question of fact, dependent on the whole of the circumstances, though one of those circumstances consists always of the wording of the contract itself.' The reference to Greaves v Wilson was explained by Stephen J as follows (at 552): 'His Honour's reference to Greaves v. Wilson ((1858) 25 Beav. 290 [53 E.R. 647] is to a passage in which Sir John Romilly M.R. said ((1858) 25 Beav., at p. 293 [53 E.R., at p.649]) that such conditions were introduced to meet the case where a vendor finds that he is to be put to: " ... so much expense and trouble as to make it unreasonable that he should be called upon to do it." The learned Master of the Rolls emphasized that it was always "a question of the reasonableness of the thing required". As early as 1841 Lord Langdale M.R. had used reasonableness as a test of the validity of the vendor's rescission in his judgment in Page v. Adam ((1841) 4 Beav. 269, at p. 285 [49 E.R., 342, at p. 348]).' 173 There was further discussion of cl 14 in Pierce Bell Sales Pty Ltd v Frazer (1973) 130 CLR 575. Barwick J, after referring to the decision in Godfrey Constructions, said (at 587): 'Broadly it may be said that the vendor will not be allowed to use his contractual right if it would be unconscionable in the circumstances to do so.' Later he said (at 588): 'According to my view of the contract between the parties, the obligation to transfer to the appellant the fee simple in the land was central and fundamental to their bargain. It must be a relatively rare case, in my opinion, in which cl. 14 can conscionably be used to avoid performance of such an obligation.' Gibbs J cited with approval the following passage from Viscount Radcliffe in Selkirk v Romar Investments Ltd ([1963] 1 WLR 1415 at 1422-1423) (at 590): 'Thus, it has been said that a vendor, in seeking to rescind, must not act arbitrarily, or capriciously, or unreasonably. Much less can he act in bad faith. He may not use the power of rescission to get out of a sale 'brevi manu', since by doing so he makes a nullity of the whole elaborate and protracted transaction. Above all, perhaps, he must not be guilty of 'recklessness' in entering into his contract, a term frequently resorted to in discussions of the legal principle and which their Lordships understand to connote an unacceptable indifference to the situation of a purchaser who is allowed to enter into a contract with the expectation of obtaining a title which the vendor has no reasonable anticipation of being able to deliver.' 174 Meehan v Jones (1982) 149 CLR 571 concerned a special condition in a contract for the sale of land on which an oil refinery had been built as follows: 'This contract is executed by the parties subject to the following:- (a) the purchaser or his nominee entering into a satisfactory agreement or arrangement with Ampol Petroleum Limited for the supply of a satisfactory quantity of crude oil … (b) the purchaser or his nominee receiving approval for finance on satisfactory terms and conditions in an amount sufficient to complete the purchase hereunder.' Gibbs CJ said (at 580-581): 'The intention of such a clause in my opinion is to leave it to the purchaser himself to decide whether the terms and conditions on which finance is available are satisfactory. The condition prevents a purchaser from being obliged to go through with a sale when he does not believe that he can raise the necessary funds. Such a condition is generally entirely for the protection of the purchaser, and it is the satisfaction of the purchaser, not that of some hypothetical reasonable man, that will satisfy the condition. No doubt it may be implied that the purchaser will act honestly in deciding whether or not he is satisfied. However, it does not seem to me necessary, in order to give business efficacy to a contract, that a condition should be implied that the purchaser will make reasonable efforts to obtain finance. The parties may expect that he will, but he does not contract to so do.' Mason J said (at 589): 'To say that a "subject to finance" or "subject to finance on satisfactory terms and conditions" clause denotes finance which is satisfactory to the purchaser is not to say that he has an absolute or unfettered right to decide what is satisfactory. To concede such a right would certainly serve the object of the clause in protecting him. But it would do so at the expense of the legitimate expectations of the vendor by enabling the purchaser to escape from the contract on a mere declaration that he could not obtain suitable finance. With some justification the vendor can claim that the agreement made by the parties is not an option but a binding contract which relieves the purchaser from performance only in the event that, acting honestly, or honestly and reasonably, he is unable to obtain suitable finance.' After referring to authority, his Honour said (at 590-591): 'In this case it is not necessary to decide whether the purchaser, in deciding whether finance is on satisfactory terms, is bound to act honestly or whether he is also bound to act reasonably. The cases already mentioned appear to support the first rather than the second alternative. And there is some ground for thinking that the parties contemplated that the question was to be left to the honest judgment of the purchaser rather than to the judgment of a court as to whether the purchaser acted reasonably in the circumstances.

175 I shall return to these authorities having examined the purpose of the Council in purporting to utilise cl 17 as it did. The most significant indicia of the true purpose of the Council was the so called order of 19 October 1999. Out of the blue it purported to make time of the essence for delivering nearly one half of the annual requirement in the space of eight weeks. There had been no hint of that requirement at the meeting of 29 September 1999, as a result of which it would have been reasonably anticipated that an order would be received promptly for a true staged delivery of the required poles for the balance of the current annual period with a small number of poles to be delivered by Christmas. Goldspar had been pressing for forward scheduling since late 1998 and had received no response. The Council had, by then, acquired the only stock of extrusions in existence and was about to let a tender which, in addition to utilising those columns, would be competing with Goldspar for all relevant supplies. The 'order' was given on opaque terms which would obviously be regarded as unacceptable by Goldspar. There was the reference to time being of the essence, correctly described by counsel for Goldspar as menacing as it flagged termination of the contract if the impossible demand was not met. 176 No evidence was called by the Council to explain this extraordinary behaviour. Khreich made it apparent that the timing and form of the order was dependent upon the instruction to him by Newman and was the responsibility of the Council, not himself or his firm. Burns was no longer the supplier's representative. Henn, who replaced him, was not called. Those potentially responsible for the decision, namely, Tsakalos, Daly and Newman, were not called. As no appropriate explanation was proved, the usual Jones v Dunkel inference is available as to all issues upon which they could have given relevant evidence. 177 Order No 1 does nothing to improve the Council's position. It was obviously the result of it being appreciated within the Council's ranks that the order of 19 October 1999 could not be supported on any basis as it simply did not comply with even the most draconian reading of cl 17. The fact that more time was allowed by Order No 1 than the order of 19 October 1999 was inevitable given the contractual provisions and the interpolation of the Christmas period. In that respect I accept Goldspar's contention that, in this industry, it was quite unrealistic to allow only two weeks extra time for the Christmas shutdown. It necessarily involved much longer dislocation. The situation was exacerbated by Order No 2 simply calling for supply of the balance of the annual requirement 'in accordance with contract', whatever that meant. Each order was, to say the least, ambiguous as to the basis for delivery and payment. Given the history of the matter, any reasonable exercise of the contractual powers by the Council would have nominated an appropriate date for the commencement of deliveries and a reasonable schedule for supplying the poles thereafter on terms which complied with the contract so far as the form of delivery was concerned. The conclusion as to the Council's true purpose is assisted by the fact that there was an immediate recourse to the show cause and termination provisions as soon as the Council deemed them to be available. 178 The circumstances provide powerful evidence of subjective bad faith on the part of the relevant Council officers. That conclusion is strengthened when attention is paid to other aspects of the matter. Khreich's initial advice of 20 May 1998 carried with it the seeds of the fruit borne in late 1999 and early 2000. He advised that Goldspar had too favourable a contract on a supply and install basis - which was the then basis of the contract. The strategy thereafter was obviously to seek to unwind that favourable position. However, it is to be noted that as early as that date Khreich recommended that the Council commence scheduling pole requirements for the next annual period. The negotiations with Energy Australia as to installation had obviously commenced prior to the meeting of December 1998, which is recorded in the evidence. It could not be clearer that a purpose of that contract, and the dovetailing Tender 9912, was to cut Goldspar out of installation and to set the scene for cutting Goldspar out of the contract altogether. Notwithstanding persistent requests, the Council did not offer any explanation for the letting of Tender 9912 at the time and did not do so in evidence. Further, there was no reason at all why a complete forward schedule of poles could not have been provided to Goldspar no later than 28 June 1999 (prior to the commencement of the next contract period) and no reason why a substantial interim schedule could not have been provided some months before that. No explanation was then, or has now, been given for that failure. 179 It also needs to be borne in mind that the parties had been in dispute as to various matters including payment of outstanding monies and ownership of intellectual property. Some were referred for Expert Determination in late 1998, and by 30 June 1999 disputes concerning the valuation of work were the subject of proceedings in the Supreme Court of New South Wales. 180 Another important aspect of the matter is the role of Streetscape. Something of the background appears in an earlier judgment (Council of the City of Sydney v Goldspar Pty Limited [2004] FCA 568, (2004) 62 IPR 274 at [97]-[98] and [112]). 'On 13 May 1998 Matchett introduced Rawson-Harris to Paul Obeid and Moses Obeid and on 15 May 1998 the Obeids made Rawson-Harris an offer effectively to purchase the benefit of the Council contract, which was refused.

Whilst much of this evidence is hearsay, it was prescient insofar as Goldspar's fate was concerned. 182 In late 1988 the Council was sourcing accessories for poles outside the Goldspar contract from Streetscape with the Council exploring the possibility of increasing those items. It will be seen that Rawson-Harris alleges that Streetscape was given access to and used Goldspar's designs in relation to the supply of the accessories. 183 The evidence does not give any detail about La Mer, the other successful tenderer in 9912, or as to the number of poles each tenderer was to supply. It is common ground that all of the poles required pre-Olympics (at least 600) were supplied pursuant to Tender 9912. The objective facts were that, once Streetscape came into the picture, Goldspar only received an order for seven more poles in total instead of at least another 600 and was cut out from some of the accessories in relation to the then current period in favour of Streetscape. It was hardly evidence of paranoia on the part of Rawson-Harris that he should feel that Streetscape had the inside running with the Council and that Goldspar was being excluded accordingly. 184 It can be safely concluded that by late 1998 the responsible officers of the Council - probably Tsakalos and Daly - had decided that Goldspar would not be permitted to carry out the contract beyond the year then current. Thereafter, Council officers conducted themselves on that basis but with the aim of being able to dispense with the services of Goldspar without being in breach of contract. The extent to which Khreich was a party to the machinations of Council officers is uncertain. A person of his experience and knowledge could hardly have failed to suspect what was afoot but he appears to have taken the position of seeking instructions from Daly, acting upon those instructions and then loyally defending them. I am particularly troubled by the role that Khreich played at the meeting on 29 September 1999 and its immediate aftermath. If he knew what was coming, then he participated in a dishonest and cynical piece of play acting. If he did not, then he must have been shocked by the instruction he received via Newman which led to the 'order' of 19 October 1999. Nonetheless, he executed the instruction, defended it and then placed two subsequent orders which were no more reasonable and proceeded to defend them, both at the time and in evidence. Giving him the benefit of the doubt, I am inclined to think that his participation in the meeting of 29 September 1999 was an endeavour to get the supply of poles from Goldspar moving but that objective was quickly and firmly countermanded by Council officers. 185 In my opinion, Orders No 1 and No 2 were given when they were and in the form they were not for the purpose of securing the performance of the contract on the part of Goldspar so as to give the Council the benefit of that contract but, rather, to set up a position whereby the Council could argue that Goldspar's services had been validly dispensed. This would then meet the objective of preventing it from doing any further work, which rather would be done by others, without the necessity of paying damages for breach of contract. In my opinion, that is contrary to the manner in which the contract could be administered according to the High Court authorities that I have discussed. Those authorities warrant the implication that cl 17 would be administered in good faith in the sense of honestly for the purposes of enabling the Council to obtain the benefit of the contract. Although it is less clear, those authorities also warrant the implication that cl 17 would be administered reasonably for the same purpose. The conduct of the Council in relation to Orders No 1 and No 2 can be described as neither in good faith nor reasonable in that sense. It follows that neither Order No 1 nor Order No 2 were valid or effective. 186 The net result of all of this is that, in my opinion, Goldspar was not in substantial breach of either contract by virtue of failure to comply with either Order No 1 or Order No 2 as at 23 February 2000. Furthermore, in my opinion, alleged repudiation of contract is not 'a substantial breach of contract' within the meaning of cl 25.2. Indeed, cl 25.1 draws a distinction between breach and repudiation. I should add for the sake of completeness that the reference to progress pursuant to cl 13 adds nothing to the Council's case. It assumes that Goldspar was bound to deliver any number of poles requested on 12 weeks' notice. Thus, neither show cause notice was valid.

Extension of time 189 An important aspect to be considered on the question of the showing of reasonable cause is the application made by Goldspar for an extension of time pursuant to cl 18 of the General Conditions of Contract. I need not set out the relevant correspondence again. There are difficulties of construction of cl 18. It seems that the first two paragraphs apply across the board. The third, fourth and fifth paragraphs relate to what is described as an 'entitlement' to an extension. The sixth paragraph, including the handwritten amendment, relates to an overriding general discretion to grant an extension coupled with an obligation to not unreasonably deny a claim where the event causing the delay is beyond the control of Goldspar. The remainder of the paragraph is general. Leaving aside all other difficulties, I cannot see how Goldspar could have established an 'entitlement' to an extension in the face of the terms of paragraph (v) of the third paragraph. However, the general discretion to extend is a horse of a different colour. The second paragraph describes a wide set of circumstances which would justify notification, which must then be considered with a view to exercising the general discretion coupled with the obligation. In considering that issue Khreich was obliged to do more than merely pursue the interests of the Council - he was required to give genuine and bona fide consideration to the factors advanced by Goldspar. (Amann Aviation Pty Ltd v Commonwealth (1990) 22 FCR 527 per Davies J at 532; Sheppard J at 542-4, see also Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64 per Mason CJ and Dawson J at 96 and Gaudron J at 150; and Jenkins v NZI Securities Australia Ltd (1994) 124 ALR 605 discussed below). 190 In my opinion, there were causes of delay beyond the control of Goldspar and, in the circumstances, it was unreasonable to deny a claim for a reasonable extension of time for those causes. Rather than give bona fide consideration to that issue, the approach by Khreich was to take issue with every contention on the part of Goldspar in an adversary and argumentative fashion having regard only to the interests of the Council. It is not necessary to come to a view as to what particular extension of time should have been permitted, assuming that the orders bound Goldspar according to their terms. That question was never properly addressed. 191 It was disingenuous of Khreich to regard the lack of advance notice from the Council as to its intentions as irrelevant to the question of time when he had hitherto administered the contract on the basis that advance notice of requirements was required: witness the seven poles in March 1999; his request of Daly in July or August to supply him with an order; the fact that the discussion of 29 September 1999 presupposed that there would be an order forthcoming; and the fact that orders indeed were forthcoming. It was also disingenuous to regard the appropriation of the existing Capral extrusions by the Council as irrelevant. He could not have doubted the bona fides of the order which had been placed by Goldspar to hold them in June 1999 or underestimated the significance of having that number of poles on hand. It was certainly seen as very important for the successful tenderer for 9912. Indeed, the constraints of supply by Capral, particularly at the time of year and with a competing contract on foot, were obviously known to Khreich and Council officers in that connection. It was also disingenuous to contend that more should have been done by Goldspar with Capral prior to 8 November 1999. Why would Goldspar place a firm order with Capral when all it had was the derisory 'order' of 19 October 1999 in relation to which time was said to be of the essence. That was obviously issued in order to trap Goldspar into a situation of default with termination to follow. The proof provided to Khreich of the order placed with Capral in December and, in particular, the payment of the deposit and the updates from Capral as to delivery provided an answer to criticism on this issue. 192 It will be apparent that I was not impressed by Khreich's attempts in evidence to justify the various positions taken by him, particularly after 29 September 1999. He was most unconvincing.

(iii) A party that acts on a genuine but erroneous view of its obligations under the contract will not for that reason alone have repudiated it. That party may still be willing to perform the contract according to its tenor: DTR Nominees Pty Ltd v Mona Homes Pty Ltd (1978) 138 CLR 423 at 431-432; Woodar Investment Development Ltd v Wimpey Construction UK Ltd [1980] 1 WLR 277. But persistence in an untenable construction will ordinarily be regarded as repudiatory: Summers v Commonwealth (1918) 25 CLR 144 at 152; and see Chitty on Contracts, above, par 25-018.' 195 It is interesting that their Honours added immediately thereafter the following paragraph which has resonance in the present case (at 103): 'We would note, additionally, that in the case of contracts of significant duration in which interaction and some level of cooperation is required, it is common for parties without formally varying their contract to conduct their dealings inter se in ways that they find acceptable and convenient, fair and reasonable, or commercially necessary "rather than by reference to a priori rights and duties": cf Integrated Computer Services Pty Ltd v Digital Equipment Corporation (Aust) Pty Ltd (1988) 5 BPR 11, 110 at 11,117.' 196 If it were not for the letter of 14 February 2000 from Rawson-Harris to McDowall of Tracey Brunstrom & Hammond Pty Ltd, I would regard the Council's argument as having very little merit. The correspondence on all sides was contentious. Positions were being taken on various matters which would be difficult to sustain if pressed. Rawson-Harris was in a position of great difficulty. He was faced with conduct on the part of the Council which exhibited lack of bona fides and he could not but have been conscious of the probability that the Council was setting Goldspar up for termination of contract, which would mean that he would not be paid short of litigation. On the other hand, if he did not take appropriate steps to perform the contract, then the Council might be able to terminate the contract without incurring a liability to pay damages. Save for the letter in question, I would not conclude that Goldspar unequivocally indicated that it would not, under any circumstances, supply 300 poles within a reasonable time - perhaps even by the end of the relevant financial year. 197 It needs to be appreciated that the letter in question was part of a course of correspondence relating to the request for an extension of time. An extension of time, if granted, would have the effect of altering the contractual obligation. It should have been granted. The response from Khreich of 19 February 2000 was to insist that the obligation was to deliver the full number of poles specified in the order of 8 November 1999 by 21 February 2000. It is to be noted that the letter in question from Goldspar supplied accurate information as to the expected delivery of extrusions and performance of anodising and accurate information as to when it was anticipated that deliveries would commence. Furthermore, the statement concerning delivery of extrusions indicated to the reasonable reader that there was a contractual arrangement to that effect. Such a contract with Capral would be inconsistent with an intention not to carry out the contract. Seen in this context, in my opinion, the letter was not such as to evince an intention not to be bound by the contract in the relevant sense. It is to be seen as an exaggerated statement of position in a continuing debate and as 'part of the posturing that often accompanies negotiation' (per Ipp AJA in Brambles Holdings Ltd v Bathurst City Council (2001) 53 NSWLR 153 at [156]). 198 I thus conclude that, by its notice of termination, the Council repudiated the contract and Goldspar was entitled to and did accept the repudiation and bring the contract to an end.

Was Goldspar ready and willing to carry out the contract? 199 The Council's defence sets out a number of particulars in support of its contention that Goldspar was not ready willing and able to carry out the contract. Rawson-Harris and Barnes were each subjected to a searching cross-examination on the issue. I am satisfied that Goldspar was ready, willing and able to carry out the contract as at March 2000, notwithstanding the criticisms advanced on the part of the Council. 200 The requirements to be proved by a party, which has properly brought a contract to an end by accepting a wrongful repudiation by the other party to an executory contract and seeks damages, was considered in Foran v Wight (1989) 168 CLR 385, although that was not the precise point of the case. Such a party must establish that it was ready and willing to carry out the contract on its part at the time of acceptance of the repudiation and readiness and willingness includes capacity. However, in a situation in which the wrongdoer relieves the other party from actual performance in the future, that task is not particularly demanding. In Psaltis v Schultz (1948) 76 CLR 547 Dixon J said (at 560): 'It is enough that he is not presently incapacitated from future performance and is not indisposed to do, when the time comes, what the contract requires.' 201 In Rawson v Hobbs (1961) 107 CLR 466 Dixon CJ said (at 481): 'One must be very careful to see that nothing but a substantial incapacity or definitive resolve or decision against doing in the future what the contract requires is counted as an absence of readiness and willingness.' 202 In Foran v Wight Mason CJ said (at 408-409): '… in the case of termination for anticipatory breach the plaintiff will generally be able to show at the time of termination that he would have been able to perform at the time for performance by demonstrating that he was not then disabled or incapacitated from such performance.' [emphasis added] Brennan J said (at 425): 'To speak of an incapacity which is "substantial" and of a resolve or decision which is "definitive" is to import a test of degree. A test of degree inevitably gives rise to differences in the evaluation of facts and produces some uncertainty in the resolution of concrete cases. Yet, in the great variety of circumstances to which the test might be applied, it is impossible to posit terms of greater precision. Lord Sumner's phrase - "wholly and finally disabled" - is too demanding a test of incapacity to accord with reasonable commercial practice but it is indicative of the range which the test of substantiality connotes. The test of incapacity, … as an element in readiness and willingness, is an exacting test though it must be expressed as a matter of degree.' Deane J said (at 437):

203 I am satisfied that Goldspar had the ability to carry out the contract properly construed. There is no reason of substance to doubt the technical competence of Goldspar. It had already delivered hundreds of poles and those concerned, particularly Rawson-Harris, had a considerable amount of expertise in the field. An attack was made upon the financial ability of Goldspar to carry out the contract. It can be concluded that the company was in a somewhat precarious financial position. However, a proprietary company of this kind, in essence, depends upon the situation of those backing it. The critical point is that Goldspar had met all reasonable requirements up to the time of termination, including the payment of the deposit to Capral. Furthermore, the position of Goldspar would have been quite different if the Council had scheduled for deliveries in a proper sequence from the commencement of the year 1999-2000 with the consequent cash flow. Goldspar had a backer, apart from Rawson-Harris, who had assisted as required and who had taken a role in the commercial negotiations with the Council. 204 There was also a substantial attack upon the readiness and willingness of Rawson-Harris to carry out the contract as properly construed. The cross-examination of Rawson-Harris provides support for the view that he was fed up with, and highly suspicious of, Khreich and the relevant Council officers, at least by 5 October 1999 and did not change his attitude thereafter. He was also reluctant to accept the results of the Expert Determination as far as the amounts due to Goldspar were concerned and held a view about intellectual property which was inconsistent with that of the Council and with the finding ultimately made in this case. Those views influenced the positions he took as events developed following the first 'order' of 19 October 1999. The cross-examination also gave support to the conclusion that Rawson-Harris was inclined to hold firm to his own position and not lightly give ground. I should say that I regard Rawson-Harris as essentially an honest witness although tending to be unnecessarily argumentative. 205 A good deal of the impact of the cross-examination is removed, however, when the context is understood. As I have already said, by October 1999 Rawson-Harris had every reason to be deeply suspicious of Council officers and Khreich, who had been the mouthpiece of the Council in relation to this contract. I am not concerned about the fact that Rawson-Harris was not convinced by the Expert Determination, notwithstanding that it was subsequently upheld in the Supreme Court of New South Wales. It is not unreasonable that a losing party might not be convinced by the result of a lay determination. I would say the same concerning the question of intellectual property. Although I found that issue substantially against the interests of Rawson-Harris, I can understand that his position was honestly and firmly held. In my opinion, the critical matter to understand is that Goldspar was on sound ground both legally and, more particularly, commercially in having sought advance notice of firm requirements prior to or within a reasonable period after the commencement of the relevant period on 1 July 1999 but which still had not been provided by 5 October 1999. Furthermore, the requirements, when given on 19 October 1999, were both legally and commercially, indefensible. As I have already said, Orders No 1 and No 2 did nothing to alleviate the substance of the problem. Thus, Rawson-Harris was faced with the position that was quite unreasonable from a legal and commercial viewpoint, tenaciously defended by Khreich on behalf of the Council. 206 It was, no doubt, possible that, faced with this situation, Rawson-Harris might have been tempted to play a cat and mouse game and simply await the inevitable termination of contract which was so clearly flagged. He did not take that course. Goldspar undertook a substantial contractual commitment to Capral backed by payment of a substantial sum of cash and made arrangements with anodisers and others in order to actually commence the delivery of poles in early April. That is not consistent with Goldspar not being ready and willing to carry out the contract. I am unimpressed by arguments concerning the position that Rawson-Harris was taking as to the terms upon which delivery would take place. At the time of termination the Council was persisting in conduct which, in my opinion, was in breach of its contractual obligations and in bad faith. It does not lie in its mouth to complain about steps Rawson-Harris took to seek to protect Goldspar's financial position which could not help but have been badly affected by the manner in which the Council had conducted itself in relation to this contract. I have already referred to the tendency of parties to take negotiating positions. The premature repudiation by the Council meant that Rawson-Harris was never called upon to take a final position on any debatable issue. 207 There was every reason why Rawson-Harris would want Goldspar to carry out the contract. It was committed to take extrusions from Capral and had paid it a substantial deposit. It had no other use for the extrusions. Fulfilling the contract would entitle Goldspar to considerable cash flow, and if it was correct that the contract was supply and install (as in my opinion it was) then, according to Khreich's assessment, it should have been profitable.

Council of the City of Sydney v Goldspar Australia Pty Limited

At a glance

Court

Decision date

Before

Source

Judgment (625 paragraphs)

Parties

Cases Cited (35)

Cited By (8)