Implied Term
67The primary judge said that if his construction of Clause 3 were incorrect then he would nevertheless imply the term identified in [33] above. This implication would have led to WES being entitled to damages equivalent to Clause 3 commission upon sales made by JIWD and GJCI to Jireh's franchisees (as did success by WES on its construction argument). Again I respectfully differ from the conclusion reached by the primary judge.
68In Secured Income Real Estate (Australia) Ltd v St Martins Investments Pty Ltd [1979] HCA 51; (1979) 144 CLR 596, Mason J (with whom Gibbs, Stephen and Aickin JJ agreed) discussed the circumstances in which contracts would be found impliedly to impose obligations on parties to do what was necessary to secure performance of the contracts. His Honour observed:
"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" (at 607-8).
69In the present case the Letter Agreement did not, at least in express terms, impose any obligation upon Jireh to make sales to any of its franchisees so as to entitle WES to commission. In express terms, the second sentence of Clause 3 simply entitled WES to commission in the event that such sales occurred, but did not require Jireh to make such sales.
70The primary judge correctly approached the implied term issue by seeking to determine "what benefits Jireh promised WES and whether the term for which WES contends is necessary to give business efficacy to the Letter Agreement so that WES receives the benefit of Jireh's promise" (Judgment [307]). Thus the question to be addressed was whether Jireh impliedly promised WES that it would receive commission under Clause 3 and that Jireh would therefore make the sales to franchisees that would generate that commission.
71I can see no justification for holding that Jireh impliedly promised this. The most obvious barrier to such an implication is that the Letter Agreement provided no basis for identifying what quantity of sales would be the subject of such an implied promise. If the parties intended that there be a minimum level of sales by Jireh, it is not easy to see why they did not so specify. A further barrier is that the Court can do no more than speculate whether, assuming that the parties intended that Jireh would be obliged to make some sales, whether they intended that there be no sales at all by companies associated with Jireh rather than Jireh itself, or that such sales be permitted so long as Jireh itself made a certain amount of sales.
72The primary judge said that Jireh promised to reward WES for its services, in part, by paying a commission on sales to GJGC Stores and that "[t]he basal premise underlying this is a contemplation that the sales to GJGC stores would be by Jireh" (Judgment [312]). I do not consider that there is any support in the Letter Agreement (or elsewhere) for the latter proposition.
73Clause 3 commission was one of a number of types of remuneration of WES for which the Letter Agreement provided. By the terms of Clause 3, WES's entitlement to commission was contingent upon Jireh making relevant sales. There is nothing unusual about an entitlement to remuneration or other consideration being contingent upon an event occurring. Indeed the commission payable under Clause 5 of the Letter Agreement is contingent upon Jireh effecting a relevant sale or transfer of, for example, its Master Franchise. It could not sensibly be suggested that Jireh had an implied obligation to make such a sale or transfer.
74The primary judge does not point to any aspect of the Letter Agreement that supports the existence of the "basal premise" to which he referred. To my mind there is nothing either in the Letter Agreement's specific provisions or general tenor that indicates that the parties intended to prohibit Jireh from permitting or causing an associated entity to make sales to any of Jireh's franchisees, at least if that occurred for bona fide commercial reasons (which is not in question).
75The primary judge added that "[w]ithout the implication, the result would be that Jireh retains the benefits of the Letter Agreement and its performance but is able to exonerate itself by voluntary step from an important corresponding obligation to remunerate WES" (Judgment [315]). This observation assumed the existence of an obligation on Jireh to make sales, with the consequence that WES was entitled to commission on those sales. It does not identify any basis for concluding that Jireh had such an obligation.
76The view that there was no implied term of the type found by the primary judge is supported by Jireh's submission that unless any relevant implied term was restricted to requiring Jireh to act in good faith, the implied term would to a significant extent inhibit Jireh's ability to make commercial decisions in connection with the supply of its franchisees.
77Jireh criticised the primary judge's reference in the implied term that he formulated to the concept of "Preferred Supplier". As Jireh rightly pointed out, that was a concept that only became relevant in 2004 when Jireh varied the arrangements for supply of its franchisees and could not as such have been in the contemplation of the parties at the time that the Letter Agreement was entered into. However it seems to me that his Honour was simply referring in a general sense to Jireh's appointment of a related company as a supplier. The reference to "Preferred Supplier" was inappropriate but is not of any significance.
78It may be, as Jireh conceded on appeal, that the Letter Agreement contained an implied term prohibiting Jireh from taking the course that it took for reasons other than genuine commercial ones, for example, for the purpose of avoiding payment of commission. However WES did not plead or otherwise contend that Jireh's conduct in changing the arrangements for the supply of products to franchisees was other than bona fide.
79The following authorities support the approach that I have taken.
80In Elders IXL Ltd v National Employers' Mutual General Insurance Association Ltd (NSW Court of Appeal, 29 April 1988, unreported) an insured was entitled to a rebate on premiums in respect of two workers' compensation policies if the policies were current "for a further period of twelve months". The rebate was not paid because the policies were not renewed as the insurer stopped writing workers' compensation business.
81McHugh JA said that "if you cannot imply a term that the insurer would renew the policy, and it is not suggested that you can, it is difficult to imply a term to the effect that the insurer would not voluntarily do anything to prevent the policy being renewed". His Honour concluded that the insurer's only obligation was to pay the rebate if, and only if, the parties "renewed their business relationship".
82Likewise Samuels JA agreed that there was no basis for finding that the insurer was obliged to remain in the workers' compensation insurance business and therefore to renew the policies. Without such an obligation there was no basis for implying a term that the insurer would not voluntarily do anything to prevent the policy being renewed. As his Honour put it, "the cooperative steps to be taken can only be assessed once the full extent of the parties' mutual obligations has been determined".
83This Court took a similar approach in Roadshow Entertainment Pty Ltd v (ACN 053 006 269) Pty Ltd (1997) 42 NSWLR 462. In that case the Court held that an agent's contractual right to be the sole and exclusive distributor of products could not be defeated by the supplier/principal selling its business. The Court posed the first question for consideration as follows:
"The first question to be considered is the meaning and effect of the express provisions of the contract. It may be that, upon its true construction, the contract obliges the principal, during the term of the agency, to continue the business or to take steps which depend upon such continuance, or gives the agent a right to a continuing benefit ... On the other hand, it may be that there is no such obligation or right to be found in the contract" (at 473-4).
84The Court applied the reasoning of Scrutton J in Lazarus v Cairn Line of Steamships Ltd [1911-13] All ER Rep 1265 which included the following summation of the principles to be derived from earlier authorities:
"I read [the earlier authorities] as deciding (1) that the first thing to consider is the express words the parties have used; (2) that a term they have not expressed is not to be implied because the court thinks it is a reasonable term, but only if the court thinks it is necessarily implied in the nature of the contract the parties have made; (3) that where there is a principal subject-matter in the power of one of the parties, and an accessory or subordinate benefit arising by contract out of its existence to the other party, the court will not, in the absence of express words, imply a term that the subject-matter shall be kept in existence merely in order to provide the subordinate or accessory benefit to the other party; (4) but that where there is an express term requiring the continuance of the principal subject-matter, or giving the plaintiff a right to a continuing benefit, the courts will not imply a condition that the plaintiff's right in this respect shall cease on certain events not expressly provided for" (at 1268).
85Similarly in Australis Media Holdings Pty Ltd v Telstra Corporation Ltd (1998) 43 NSWLR 104 this Court held that any implied contractual duty to co-operate must relate to a contractual obligation contained in the contract. In this respect, the Court said:
"The 'implication' of a term implied in law depends upon the demonstration of 'necessity' ... It follows that, leaving aside fiduciary obligations (which are not involved here), there cannot be a duty to co-operate in bringing about something which the contract does not require to happen. An 'implication, arising as it does from necessity, must be limited by the extent of the need': Board of Fire Commissioners (NSW) v Ardouin (1961) 109 CLR 105 at 118, per Kitto J. For these reasons, we consider it necessary to address the issue whether the clauses envisaging negotiation between the parties were enforceable and capable of supporting the implied obligation enforced by the injunction ordered below.
...
A contract may 'contemplate' many benefits for the respective parties, but each can only call on the other to provide, or co-operate in the providing of, benefits promised by that party. For example, in the absence of an express covenant, a landlord is not bound in contract to repair the demised premises" (at 124-5).
86In RDJ International Pty Ltd v Preformed Line Products (Australia) Pty Ltd (1996) 39 NSWLR 417, Young J (as his Honour then was) found that there was an implied obligation on the purchaser of a business not voluntarily to do anything that would make it materially more difficult for the vendor to receive the royalties to which the purchase contract provided it was entitled. The royalties were to be paid over the following 3 years on sales made by the purchaser through the business sold. However the purchaser had ceased to manufacture the product within 18 months of the purchase. It appears from Young J's obiter remarks concerning breach of the implied term (an issue that was yet to be litigated) that his Honour contemplated that the implied obligation that he found would not have prevented the purchaser voluntarily ceasing to manufacture the product if it did so for good commercial reasons (at 424). The approach taken by his Honour is therefore consistent with that which I have taken.
87In assessing whether there was an implied negative prohibition on Jireh of the type that he found to exist, the primary judge correctly considered whether Jireh was obliged to supply products to its franchisees and whether in consequence WES had a correlative right to have that occur and therefore to earn commission. However, for the reasons that I have given, I respectfully disagree with his Honour's conclusion that Jireh had such an obligation to supply. As a result the primary judge's implication of an implied negative obligation on Jireh cannot be supported.