Plaintiff v Firstnamed Defendant Secondnamed Defendant Thirdnamed Defendant [2010] VSC 443 | Case summary

Plaintiff v Firstnamed Defendant Secondnamed Defendant Thirdnamed Defendant [2010] VSC 443 | Case summary | Zoe

[56]

"An agreement in restraint of trade, like every other agreement, is to be construed with reference to its subject matter and descriptive words may be restricted in their operation by reference to the circumstances in which the parties contract. But the agreement should be interpreted for the purpose of ascertaining its real meaning independently of the rules prescribing the tests of reasonableness for the purpose of ascertaining its validity. If an evident ambiguity appears from its text it may be proper to take into account the law relating to the validity of covenants in restraint of trade in resolving the ambiguity but a restrictive interpretation of general words is not to be adopted simply to save a covenant or agreement from invalidity. Here I think the circumstances in which the parties contracted show what they meant by the expression 'business of a transhipping agent'. They did not have in mind transhipment for the purpose of sea carriage. Plainly they were concerned only with carriage by land. Nor did they, I think, have in mind the possibility of transhipment at some road transport terminal or depot from one motor lorry to another. The question upon which the appeal depends is therefore whether by interpretation the covenant may be confined in point of locality.

Wallangarra is not the only place in Australia where the necessity exists of transhipping goods from trucks of one gauge to trucks of another. Such a necessity exists at Albury, at Clapham Junction in Brisbane and Port Pirie and also at Kalgoorlie. The agreement was made at a border town and it is not possible by some presumption to confine it to a given State. The alternative, therefore, seems to be to give it no less than an Australia-wide operation or else to confine it by implication to Wallangarra and Jennings.

Now the words are perfectly general. There is no reference at all to place and if the operation is to be confined to the junction at Wallangarra it must be by implication. An implication of such a kind ought not to be made unless from the subject matter and the contents of the document an inference that the parties so intended arises with such force as to carry conviction to the mind. The words 'business of a transhipping agent' are descriptive of a character of business and in them nothing can be found limiting them to a place.

...

In the present case, if the operation of the clause is to be confined to Wallangarra, words of limitation must be introduced so as to limit quite general words containing no suggestion of locality or of identification with a specific business or thing. The necessity of doing so to effect a restriction is shown by the form of the decree which adds the words 'at Wallangarra or Jennings' to the words of the clause. There appears to be no sufficient ground justifying the making of such an implication. The case is in truth of the description expressed by Lord Macmillan in Vancouver Malt & Sake Brewing Co Ltd v Vancouver Breweries Ltd (1934) AC, at p 191, where it was maintained that the restrictions limited themselves by practical considerations to a particular area and that the limitation should be held to be implied as a matter of construction. The contention was answered by Lord Macmillan that it was not so nominated in the bond and that there was no reason to import a limitation that the parties had not seen fit to express." [emphasis added]

[58]

43 Clause 20.1(a) does not contain any express limitation on the operation of its provisions with respect to a particular region. Healthscope and AHC (LD) submitted, on the basis of the authorities to which reference has been made, that the provision could and should be interpreted as a worldwide restraint on the basis that there is no means of limiting its provisions as to a particular locality. At first sight, a submission of this nature seems extreme and to produce a result which commercial parties could not have intended. However, on the basis of the statements in the judgments in Butt v Long,[30] it was submitted by Healthscope and AHC (LD) that this did not produce any relevant ambiguity of the kind referred to in cases such as Australian Broadcasting Commission v Australian Performing Right Association Ltd.[31] Rather, it was said, the lack of any geographical restraint provision cannot be cured by a departure from the ordinary meaning of the words used by the parties in their agreement, in this case the leases, in the absence of any reference to geographical limitation. The difficulties highlighted, particularly by Dixon CJ and Fullagar J in Butt v Long,[32] are clear when it is considered that any geographical limitation which could be argued for, on the basis of "commercial reality" and reasonable understanding of commercial parties, might extend to the whole of Australia or the whole of the metropolitan area of Melbourne or Sydney. Thus the process is not one of construction but, rather, an impermissible reworking of these provisions. In particular, such a process would seem to amount to using the particular metropolitan location of the hospitals to justify reading a geographical limitation of this nature into the restraint, at odds with the statements and approach of Fullagar J in Butt v Long.[33] Having regard to these matters and the authorities to which consideration has been given, I am of the opinion that words of limitation which limit the geographical operation of clause 20.1(a) cannot be introduced. Nevertheless, this is not necessarily decisive of the proper construction of clause 20.1(a) as, consistently with Butt v Long,[34] attention must also be given to the nature and extent of the primary prohibition.

[67]

"On the question whether the covenant was unreasonably wide, Mr Hesketh conceded that, as it stood, the covenant was unreasonably wide because the words 'similar to or' preceding the word 'competing' would be unnecessary for the protection of the plaintiff company's interest. Recognizing that position, the judge has excised those words, and thereby severed the covenant; and the question principally argued on this appeal is whether it was legitimate to do so.

I have no doubt in my own mind that it is. It is quite clear that in a 'vendor and purchaser case', in so far as matters of geography are concerned - as was pointed out by this court in Goldsoll v Goldman[49] which has already been cited - it is quite legitimate to deal with the area by severance. Lord Cozens-Hardy MR referred to the judgment of Neville J in the court below in this way[50]: 'On the question of the space covered by the covenant Neville J has held, and I entirely agree with him, that it is unnecessarily large in so far as it is intended to cover not merely the United Kingdom and the Isle of Man but also the foreign countries mentioned in the covenant. He has also held, and his decision is consistent with a long series of authorities, that the covenant can be severed as regards the space covered by it. It is clear that part of the covenant dealing with the area is reasonable, and the learned judge has limited the injunction ...'.

Mr Eastham, as I understand it, accepts that, but he says that striking out the words 'similar to or' is not a limitation of the area. In my judgment, it is, and as my Lord pointed out, it is really the only way in which in practice the area can be limited for the protection of the plaintiff company's business. In the case of a publication, which is said to be a rival publication, the competition of which is feared, it is, as I see it, impracticable to limit the area by drawing geographical lines upon a map; and the only way in which the area can be practically limited is in the way adopted by Roxburgh J, namely, by limiting the area to that covered by the words 'competing with the business of the partnership.'"

[102]

"In Thomas v Hayward (1869) LR 4 Ex 311 a covenant by the lessor of a public house not to use adjoining land for the sale of liquor was held not to touch and concern the land because its value to the tenant was collateral: it related to the business he carried on, not to the land itself. The decision was a hard one and is to be treated as authority for no more than that a covenant the value of which is wholly dependent on the use of the land for a specific business is collateral.

Next Mr Blackburne relied on Dewar v Goodman [1909] AC 72. In that case, a head lease contained a covenant by the head lessee to repair all buildings erected on the land, which numbered some 211 in total. The head lessee granted an underlease of two of the houses and covenanted with the underlessee to perform the covenants in the head lease so far as they related to premises not comprised in the underlease. The plaintiff was the assignee of the underlease: the defendant was the assignee of the head lease. Because of a breach of the covenant to repair in the head lease, the freeholder forfeited the head lease and ejected the plaintiff. The plaintiff sued the defendant for damages for breach of the lessor's covenant to perform the covenants in the underlease. The House of Lords held that the covenant to perform the covenants in the head lease did not touch and concern the land in the underlease because it did not require anything to be done on the land demised: the covenant related to the buildings other than those contained in the underlease. Surprisingly, there is little discussion of the second limb of the test in Congleton Corporation v Pattison [1808] EngR 276; (1808) 10 East 130, i.e., that it is sufficient if the covenant per se affects the value of the land even though this does not involve doing anything on the land of the covenantee itself. Even more surprisingly, although both cases were decided within months of each other and the argument and decision in the House of Lords in Dewar v Goodman [1909] AC 72 was given after the argument in the House of Lords in Dyson v Forster [1909] AC 98, in neither case is the other referred to, although Lord Loreburn LC was party to both decisions.

I find the two cases very difficult, if not impossible, to reconcile. The performance of the covenant by the head lessee in Dewar v Goodman [1909] AC 72 was manifestly of value to the underlessee for the time being and to no one else. Yet this point is not dealt with in the judgment. The distinction may lie in this. In Dewar v Goodman the doing of the covenanted act did not benefit the land of the covenantee as such but only his estate in it. The covenant was to repair adjoining premises: the breach of the covenant did not affect the land comprised in the underlease but merely led to a forfeiture of the estate in the land. In Dyson v Forster [1909] AC 98 on the other hand, the covenant benefited the owner of the surface land whatever his estate in it, e.g. it enabled him to let the land at a better price. The distinction, if any, is therefore between a covenant which operates only to protect the estate or interest in the covenantee's land (which does not touch and concern the land) and a covenant which affects the value of the land as such. If this is a valid distinction, then a surety covenant falls squarely on the Dyson v Forster side of the line: it increases the value of the landlord's reversion as such, whatever his estate. If, as I suspect, the two decisions are in fact irreconcilable, I am free to choose between them. I prefer to follow Dyson v Forster which gives effect to the second limb in the Congleton test[1808] EngR 276; , 10 East 130, 138 (which everyone has treated as the true basic test) whereas Dewar v Goodman appears to ignore the second limb completely.

Mr Blackburne also relied on Hua Chiao Commercial Bank Ltd v Chiaphua Industries Ltd [1987] AC 99. In that case a lease provided that at the commencement of the term the tenant should pay to the landlord a substantial security deposit on the terms that it would be repayable at the end of the term if there was no breach of the tenant's covenants. The landlord mortgaged the reversion to the defendant bank, which went into possession. The tenant committed no such breach of covenant during the term and sought to recover the security deposit from the bank, claiming that the provisions as to the deposit touched and concerned the land.

The Privy Council dismissed the claim, holding that the covenant did not touch and concern the land. Lord Oliver of Aylmerton, giving the judgment on behalf of the Judicial Committee, plainly rejected any general rule that every covenant which is related, however obliquely, to some other obligation which touches and concerns the land itself necessarily touches and concerns the land: see p 107c. But he did not rule out the possibility that a covenant closely connected and bound up with a covenant which does touch and concern the land can itself touch and concern the land. The ratio of the decision, in my judgment, is to be found at p 187p-H. Lord Oliver points out that the assignee of the reversion was not entitled to receive the deposit from the original lessor on the assignment of the reversion: nor was an assignee of the term entitled to recover it at the end of the term. The liability to repay the deposit at the end of the term remained throughout on the original landlord and was an obligation to repay to the original tenant. So viewed, the decision is entirely consistent with the test laid down by Best J. The benefit of the covenant to repay could not touch and concern the land because someone other than the owner for the time being of the term could take the benefit of it."

[121]

"[91] In Bahr v Nicolay (No 2), the plaintiffs transferred their title in land to the first defendant by way of a sale contract which included a clause that the latter retransfer the land back to the plaintiffs at a later date (cl 6). After becoming the new registered proprietor, the first defendant sold the land to the second defendants by way of a sale contract which included a clause that the second defendants acknowledge 'that an agreement exists between Walter Bahr & Joanna Maria Bahr and Marcus Grenville Nicolay [the plaintiffs and first defendant] as stamped and signed on the 5th March 1980' (cl 4). The plaintiffs failed to lodge a caveat to protect its unregistered interest until after the second defendants had become the registered proprietors.

[92] All five justices held that the plaintiffs were entitled to relief against the second defendants, the then registered proprietors. However, they differed in their reasons. Wilson and Toohey JJ gave a joint judgment, Brennan J substantially agreed in a separate judgment. These three judges are considered the majority. Mason CJ and Dawson J in their joint judgment proffered different reasons and took a more expansive view of what is fraud than the majority.

[93] Counsel for the plaintiffs in Bahr v Nicolay (No 2) submitted that because the agreement between the first and second defendants was to give effect to the earlier agreement between the plaintiffs and first defendant, the result was that the second defendants became constructive trustees for the benefit of the plaintiffs. Mason CJ and Dawson J found an express trust in favour of the plaintiffs (at 619) while Wilson, Toohey and Brennan JJ found a constructive trust (at 638 and 654).

[94] The High Court held that cl 4 in the matrix of circumstances in the case, in particular the conduct of the second defendants before and after registration, was more than a mere acknowledgment. It was an agreement to be contractually bound to the first defendant's resale obligation to the plaintiffs: see Mason CJ and Dawson J at 616, Brennan J at 647.

[95] In Bahr v Nicolay (No 2) the conduct of the second defendants which significantly contributed to the finding of their having committed fraud consisted of their express acknowledgment of the plaintiffs' unregistered interest in cl 4, their subsequent correspondence with the plaintiffs about that interest and the resale obligation, and their refusal to honour the resale obligation.

[96] When considering Bahr v Nicolay (No 2) in Heggies Bulkhaul Ltd v Global Minerals Australia Pty Ltd [2003] NSWSC 851; (2003) 59 NSWLR 312, Austin J said at [103] that:

[132]

"In my view the contract should be read in the light of its express terms, as well as in the light of the fact that prior to its execution the defendants' interest was one at will only. This last fact does not however mean that Farrow and Snowlong could not contract in a fashion restoring the defendants' interest to that which would have been perfected had Merlin, or more accurately its solicitor, carried out the act of registration for which the defendant had paid the necessary fees in 1987. In that regard, there can be no doubt that Merlin and the defendants intended the lease to be registered and that equity would, if necessary, have compelled Merlin to permit that step to be taken while it remained as registered proprietor. Any right against Merlin the defendants had in this regard, however, would seem to have been extinguished once it transferred the property to Citac.

Notwithstanding, I am of the view that read according to the natural meaning, the combined effect of preamble K, the Third Schedule, cl 19 and the annexure of the original lease, is to give rise to an undertaking on the part of Snowlong to take title subject to a lease to the defendants in the terms of the lease document annexed, that being a lease for five years from 5 May 1987 with two options for renewal each of five years. In that regard I consider it important that in the Third Schedule, the 'nature of the occupancy' of Snowlong is described expressly as a 'lease for five years commencing on 5 May 1987 with two options for renewal each of 5 years' and not a tenancy at will, terminable on one months notice. That schedule also referred the purchaser to the attached lease for 'further details. It was the 'terms and conditions of the tenancies noted in the Third Schedule' by which Snowlong, under cl 19(a), agreed to abide. Additionally it expressly agreed to observe 'the provisions whereby any option to renew ... is given to any lessee therein ...'. It is also not unimportant that by cl 19(c) of the contract, Snowlong acknowledged that it had inspected and was aware of the terms and conditions of the tenancies 'copies of which are attached to' the 'contract', one such copy document being the original lease to the defendants."

[153]

"In Nordenfelt v Maxim Nordenfelt Guns and Ammunition Co Ltd, [1894] AC 535, at p 565; [1891-4] All ER Rep 1, at p 18, Lord Macnaghten said: 'The true view at the present time I think, is this: The public have an interest in every person's carrying on his trade freely; so has the individual. All interference with individual liberty of action in trading, and all restraints of trade of themselves, if there is nothing more, are contrary to public policy, and therefore void. That is the general rule. But there are exceptions: restraints of trade and interference with individual liberty of action may be justified by the special circumstances of a particular case. It is a sufficient justification, and indeed it is the only justification, if the restriction is reasonable - reasonable, that is, in reference to the interests of the parties concerned and reasonable in reference to the interests of the public, so framed and so guarded as to afford adequate protection to the party in whose favour it is imposed, while at the same time it is in no way injurious to the public.'

In Peters American Delicacy Co Ltd v Patricia's Chocolates and Candies Pty Ltd [1947] HCA 62; (1947), 77 CLR 574, at p 589, Dixon J (as he then was), said: 'In Herbert Morris Ltd v Saxelby, [1916] 1 AC 688; [1916-17] All ER Rep 305, Lord Parker said: "as I read Lord Macnaghten's judgment" (in Nordenfelt v Maxim Nordenfelt Guns & Ammunition Co Ltd, [1894] AC 535; [1891-4] All ER Rep 1), "he was of opinion that all restraints on trade of themselves, if there is nothing more, are contrary to public policy, and therefore void. It is not that such restraints must of themselves necessarily operate to the public injury, but that it is against the policy of the common law to enforce them except in cases where there are special circumstances to justify them. The onus of proving such special circumstances must, of course, rest on the party alleging them. When once they are proved, it is a question of law for the decision of the judge whether they do or do not justify the restraint. There is no question of onus one way or another." This is now settled doctrine.'

In Butt v Long [1953] HCA 76; (1953), 88 CLR 476, Dixon CJ, at p 486, said: 'The clause does, of course, impose a restraint of trade and a restraint of trade is unreasonable if it is greater than is needed to give adequate protection to the person for whose benefit the restraint is imposed. It may be too great in the area which it covers or in the time through which it endures or in other respects. A bare covenant restrictive of competition even if it is limited in point of time and place cannot be sustained. "The covenants restrictive of competition which have been sustained have all been ancillary to some main transaction, contract, or arrangement, and have been justified because they were reasonable necessary to render that transaction, contract or arrangement effective" - per Lord Macmillan for the Privy Council (Vancouver Malt & Sake Brewing Co Ltd v Vancouver Breweries Ltd, [1934] AC 181, at p 190; [1934] All ER Rep 38). For a restraint to be reasonable in the interests of the parties it must afford no more than adequate protection to the party in whose favour it is imposed - per Lord Parker of Waddington (Herbert Morris Ltd v Saxelby, [1916] 1 AC 688, at p 707; [1916-17] All ER Rep 305)."

[161]

"In the first place, I consider that the rules relating to restraints of trade have no application to the present case. Of course it is now settled that those rules are not limited to particular kinds of restraint. 'The categories of restraint of trade are not closed': Petrofina (Gt Britain) Ltd v Martin.[169] Indeed, the rules are not confined to contractual arrangements but apply to all restraints of trade, howsoever imposed: Dickson v Pharmaceutical Society of Great Britain;[170] Buckly v Tutty.[171] It is also settled that the rules apply to a restraint which extends only to the use of a particular piece of land: Esso Petroleum Co Ltd v Harper's Garage (Stourport) Ltd;[172] Amoco Australia Pty Ltd v Rocca Bros Motor Engineering Co Pty Ltd.[173] Nevertheless, in Esso Petroleum Co Ltd v Harper's Garage (Stourport) Ltd[174] all the members of the House of Lords who took part in that decision agreed that the rules do not apply to a covenant given by a purchaser or lessee restricting the use to which the land purchased or leased may be put: see per Lord Reid;[175] Lord Morris of Borth-y-Gest;[176] Lord Hodson;[177] Lord Pearce;[178] Lord Wilberforce.[179] In such a case the covenantee is not required to establish that the covenant is reasonable; the covenant is not subject to the doctrine. Different reasons were given by their Lordships in support of this conclusion. The view of the majority (Lords Reid, Morris of Borth-y-Gest and Hodson) was that the doctrine only applies where a person gives up some freedom which he already possesses, and that a person who buys or takes a lease of land subject to a negative restrictive covenant gives up no freedom which he previously had. Lord Wilberforce adopted a more flexible test which may in time come to be preferred; he said that the exemption of these transactions from the doctrine of restraint of trade should be explained 'by saying that they have become part of the accepted machinery of a type of transaction which is generally found acceptable and necessary, so that instead of being regarded as restrictive they are accepted as part of the structure of a trading society'.[180] His Lordship continued: 'If in any individual case one finds a deviation from accepted standards, some greater restriction of an individual's right to "trade", or some artificial use of an accepted legal technique, it is right that this should be examined in the light of public policy.' It is unnecessary, for present purposes, to consider whether either of these statements of principle correctly defines the limits of the doctrine. The conclusion that the rules relating to restraint of trade do not apply to restrictive covenants given by a person purchasing or leasing land should be accepted as correct, at least as a general rule. The doctrine of restraint of trade is based on public policy. When a purchaser, with a view to obtaining a particular piece of land, which he could not otherwise acquire, or could acquire only on paying a greater price, freely gives to the vendor a covenant, for the benefit of other land of the vendor, that he will not use the land purchased for the purpose of trade generally or for the purpose of a particular trade, there is, speaking generally, no possible reason of public policy that would require such a covenant to be invalidated. The same is true where a purchaser or lessee chooses to buy or lease land already subject to a restrictive covenant. Indeed, as Lord Pearce said in Esso Petroleum Co Ltd v Harper's Garage (Stourport) Ltd: 'It would be intolerable if, when a man chooses of his own free will to buy, or take a tenancy of, land which is made subject to a tie (doing so on terms more favourable to himself owing to the existence of the tie) he can then repudiate the tie while retaining the benefit.'[181] Where the public policy has no possible operation, the rules founded on it have no application."

[170]

99 Applying the "pre-existing freedom" test to clause 20.1(b) it was said that prior to entering the leases HCoA was free to conduct a pathology business competing with Symbion from the land as was any other pathology service provider to which HCoA granted a lease, licence or right to occupy the premises. I accept this submission. It was also submitted that if the "trading society" test were to be applied clause 20.1(b) would not be excluded from the operation of the restraint of trade doctrine because no evidence had been advanced by Symbion to establish that covenants of the nature of those contained in clause 20.1(b) have become part of the accepted machinery or are acceptable and necessary within the meaning of the "trading society" test. In my opinion, this submission is correct and Symbion's position in this respect is not assisted by cases where covenants designed to protect the value of goodwill of a business conducted on premises are entered into in favour of a covenantee who has purchased the goodwill of the particular business from the covenantor. In my view, this follows for two reasons. First, this is not the factual position in this case as no goodwill has been purchased from the covenantor. Secondly, on the basis of the authorities with respect to the "pre-existing freedom" and "trading society" tests covenants of this nature appear to have been, where they have been enforced, accepted as reasonable restraints rather than situations in which the restraint of trade doctrine would not otherwise be applicable. Symbion, citing Australian Capital Territory v Munday,[200] also submitted that in applying the "trading society" test it should be acknowledge that a common, and important, way of deriving economic benefit from land is the grant of exclusive licences for the conduct of business thereon. This is, however, to generalise to an extent which is, in my view, not helpful as it would, if applied with such generality, substantially abrogate the restraint of trade doctrine, a position not supported by the authorities. On the basis of the authorities discussed above, where the "trading society" test is relied upon, it is not enough to show that the covenant is one that is like a type of covenant that is accepted as part of the structure of a trading society. There is no evidence of or support in the authorities for applying the "trading society" test in the present circumstances. Here the question involves leases rather than licences, not that this would necessarily appear to be critical; but where other pathology service providers were, in any event, apparently permitted to collect specimens at the relevant hospitals without any suggestion that this necessarily infringed the claimed scope of operation of clause 20.1. Further, it is not a similar situation to leases within a shopping centre, for example, where tenants are commonly restrained by lease or licence provisions from competing with other tenants of licensees within the shopping centre - whether by reference to the types of business conducted or the type of goods or services sold or provided. It would not be difficult to contemplate the "trading society" test applying in these circumstances given the frequency of and extent to which these arrangements are found. It must, however, also be borne in mind that tenants or licensees in shopping centres commonly enter into lease or licence arrangements on the basis of this "web" of mutual and mutually beneficial restrictions. In these circumstances, by analogy with the "existing freedom" test, it would be a "fraud" on a tenant or licensee taking up a lease or licence on the basis of mutual restrictions and investing in its business on that basis to allow those mutual restrictions to be set aside or disregarded. That is, however, not the analogy in the present circumstances. The evidence does not support the view that the relevant leases would not have been entered into but for the restrictions or, in my opinion, on other terms and conditions.[201] Further, there is no "web" of or any set of mutual obligations of the type often found in shopping centres, or of a similar type.

[191]

112 Further, in relation to the commercial setting of the agreement, Symbion submitted that the restraint contained in clause 20.1(a) does do no more than is reasonably necessary to protect its legitimate interests. The crux of this submission was the argument that clause 20.1(a) was, properly construed, inherently constrained in the scope of its operation and, consequently, no issue arose with respect to the absence of a provision constraining its operation geographically. On the basis of the judgment of Dixon CJ in Butt v Long,[226] it was submitted that the first matter that needed to be addressed in the construction process, and prior to considering any issues as to the extent of the operation of the restraint geographically, was the proper construction and real meaning of, what might be termed, the primary restraint. Critically, in this respect, it was submitted that the reference to "a trade, business or calling similar to that conducted by the Tenant in the Premises ..." should be read as a reference to a "trade, business or calling in competition with that conducted by the Tenant in the Premises".[227] Symbion submitted that such a construction properly reflected the intention of the parties according to the ordinary rules of construction of commercial contracts.[228] It also submitted that as a consequence of this approach, no issue as to the lack of any express geographical limitation provision in clause 20.1(a) arose. This was said to be because a geographical limitation would be inherent in the primary provisions of the restraint - the boundaries of which could be determined as a question of fact. The factual question would involve determining the points, in all directions, of each of the hospitals, where a "competing business" or a "seriously competing business" would start to compete with the business conducted by Symbion at the particular hospital. This process may not be easy or simple, but if it were to be undertaken, it would be a process of determining the geographical extent of a market, a process familiar in the context of legislation such as the Trade Practices Act 1974 (Cth). For the reasons previously given, I am of the opinion that the restraint provisions of clause 20.1(a) in the JFP, HP and LDP hospital leases fail for lack of any geographical restraint inherent in the primary prohibition.[229]

[192]

113 The pathology services provided by Symbion from the JFP hospital premises were not limited to pathology tests for patients, inpatients or outpatients, at the JFP hospital. Rather, they included pathology tests for patients living in the north-west region of Melbourne and on referrals from doctors practising at various other locations within that area. Accordingly, even if clause 20.1 could be read down to apply only to businesses "in competition with" or "in serious competition with" the trade, business or calling conducted by Symbion at the leased premises, as it submitted, the read down provisions would apply to the conduct of laboratory tests and the taking of pathology specimens throughout a geographical area which extended well beyond the vicinity of the JFP hospital. As it is to be taken as common ground that Gribbles is an entity in which Healthscope and AHC (LD) are "concerned, engaged, interested or employed directly or indirectly" for the purposes of clause 20.1(a), this would mean that the location of any competing Gribbles Pathology laboratory at or near the north-west region of Melbourne would likely result in the restraint provisions of clause 20.1(a) being breached. Even if the lack of geographical limitation on the restraint provisions could be cured by the construction of the primary restraint provisions, I am of the view that the breadth of the restraint provisions and the extent of the restraint in terms of the "trade, business or calling" would produce an extent of operation of those restraint provisions of unreasonable width. The restraint provisions go beyond any protection that might reasonably be required for a business to which restraint provisions of this kind might usually be established to provide some protection for its trade and goodwill. The same reasoning can be applied in relation to the operation of clause 20.1(a) at the HP hospital as the HP hospital laboratory tested specimens from patients throughout the Nepean and North West regions of metropolitan Sydney.

[194]

115 Even accepting that the evidence establishes that most pathology referrals did come from inpatients at the JFP and HP hospitals, it is not possible to form any view on this basis as to the extent to which any relevant business which Healthscope or AHC (LD) is "concerned, engaged, interested or employed" is "in competition with" or "seriously competes with" any relevant business conducted by Symbion. First, and perhaps definitively, it does not establish with any specificity what distance away a Healthscope (or Gribbles) laboratory or collection centre would need to be before it does not "compete" or "seriously compete" with Symbion's facilities at these hospitals. In other words it does not provide any evidence as to the geographical extent of the relevant market. Secondly, the evidence could only establish the proportion of Symbion's referrals that actually come from certain sources. It does not provide evidence of the ambit or extent of the field of relevant competitive activity, or potential competitive activity, as between any business conducted by Symbion and any business or businesses conducted by Healthscope (or Gribbles). In particular it may indicate merely that there are other competing pathology services that capture a part of the market that Symbion might otherwise capture if other competitors were not there. In other words it says nothing about the operation of the relevant market. Thirdly, the large proportion of referrals that Symbion relied on include specimens collected from patients who attended at the relevant hospital collection centre after referral by a general practitioner, who could have referred the patients to another competing pathology service. In other words, in terms of this analysis, again the evidence says nothing about the operation of the relevant market. Having regard to the position that the onus is on Symbion to establish that the extent of the restraint is reasonable, this must mean, in my view, that the restraint in clause 20.1(a) is void and unenforceable at the JFP and HP hospitals even on the basis of Symbion's construction of the ambit of the primary prohibition delineated by reference to competitive effects. These considerations do not apply with equal weight to the LDP hospital. At the LDP hospital, all specimens collected by the Symbion collection service were from inpatients at the hospital. The specimens were then tested at a laboratory external to the hospital. Before DCL begun its collection service, Symbion was the only pathology provider to the LDP hospital. There was no evidence that the LDP collection service was competing for any external work. Consequently, a "competition" test could be applied to the LDP hospital to restrict the operation of clause 20.1(a) to pathology services to inpatients at the LDP hospital. However, as discussed above,[231] my view is that a "competition" test should not be applied.

[223]

"[61] An entirely different question is whether an obligation of good faith is by law implied into the parties' contract. The High Court has recently re-affirmed that certain contractual terms are to be regarded as implied by law. In Peters (WA) Ltd v Petersville Ltd [2001] HCA 45; (2001) 75 ALJR 1385, a case concerning licensing of a brand name with associated restraint of trade, Gleeson CJ, Gummow, Kirby and Hayne JJ said:

'The law already implies an obligation by the respondents to do all such things as are necessary on their part to enable Peters WA to have the benefit of those licence arrangements. [Butt v McDonald (1896) 7 QLJ 68 at 70-71; Secured Income Real Estate (Australia) Ltd v St Martins Investments Pty Ltd [1979] HCA 51; (1979) 144 CLR 596 at 607-608]. It is not now necessary to consider the basis of the implication. The law also implies a negative covenant not to hinder or prevent the fulfilment of the purpose of the express promises made in Art 5. [Shepherd v Felt and Textiles of Australia Ltd [1931] HCA 21; (1931) 45 CLR 359 at 378].'

[62] An additional term implied by law into commercial contracts is a term requiring the exercise of good faith in the performance of the contract. This is now in this State a legal incident of every such contract: Burger King Corp v Hungry Jack's Pty Ltd [2001] NSWCA 187. It takes its place beside the terms referred to in Peters (WA) Ltd.

[63] But what are the content and effect of such an implied term? This question was the subject of discussion by the Court of Appeal in Burger King. Sheller, Beazley and Stein JJA referred to the observation of Sir Anthony Mason in his 1993 Cambridge Lecture (see now (2000) 116 LQR 66 at 69) that the concept 'embraced no less than three related notions', being:

'(1) an obligation on the parties to co-operate in achieving the contractual objects (loyalty to the promise itself);

(2) compliance with honest standards of conduct; and

(3) compliance with standards of conduct which are reasonable having regard to the interests of the parties.'

[64] There is some overlap here with the terms implied by law as referred to in Peters (WA) Ltd. Sir Anthony's duty of 'loyalty to the promise itself' may well include the duties not to hinder fulfilment of the promise's purpose and to do everything necessary to enable the other party to have the benefit of the promise. The more substantial and separate content of the duty of good faith itself would therefore seem to lie in the second and third limbs of Sir Anthony's formulation - that is, adherence to standards of conduct which are honest, as well as being reasonable having regard to the parties' interests.

[65] If adherence to such standards of conduct is the predominant component of a separate obligation of good faith in performance of a contract, it becomes necessary to enquire about the extent to which selflessness is required. It must be accepted that the party subject to the obligation is not required to subordinate the party's own interests, so long as pursuit of those interests does not entail unreasonable interference with the enjoyment of a benefit conferred by the express contractual terms so that the enjoyment becomes (or could become), in words used by McHugh and Gummow JJ in Byrne v Australian Airlines Ltd [1995] HCA 24; (1995) 185 CLR 410, 'nugatory, worthless or, perhaps, seriously undermined'. This seems to me to be the principle emerging from para172 to para177 of the joint judgment in Burger King where the various authorities are collected and discussed.

[66] Dr Elisabeth Peden of the University of Sydney has characterised the effect of the good faith requirement in contractual performance as follows ('Incorporation of Terms of Good Faith in Contract Law in Australia'[2001] SydLawRw 9; , (2001) 23 Syd L Rev 222):

'Most basically, by using the obligation to perform in good faith as a principle of construction the courts are merely required to ensure that the parties have genuinely adhered to the bargain which they entered into. This will require an examination of the whole contract and the underlying intentions. Strict rights may not be adhered to, if in the context of the contract as a whole, this would subvert the character of the contract. Most cases that discuss the concept do so in terms of negatives, that is, what is not in breach of good faith. This makes sense, since it is the context of the contract read as a whole that will indicate what is appropriate and what is not.'

[67] Viewed in this way, the implied obligation of good faith underwrites the spirit of the contract and supports the integrity of its character. A party is precluded from cynical resort to the black letter. But no party is fixed with the duty to subordinate self-interest entirely which is the lot of the fiduciary: Burger King at para187. The duty is not a duty to prefer the interests of the other contracting party. It is, rather, a duty to recognise and to have due regard to the legitimate interests of both the parties in the enjoyment of the fruits of the contract as delineated by its terms."

[226]

"[2] The development of the law relating to good faith has travelled an almost full circle. Following initial hesitation, even reluctance,[251] by the courts to imply such a duty, there was a discernible preference to imply, instead, a duty of co-operation to secure performance of the contract.[252] However, there has been clear recognition of the doctrine of good faith.[253] That said, courts have, more often than not, decided these matters on other bases and thereby avoided the conceptual difficulty that can attend the concept of a duty of good faith. The courts seem, by and large, to have postulated ' ... if there is a duty of good faith ... ' then the duty must be owed mutually,[254] and further, account should be taken of the commercial might and capacity of the affected contracting party. Thus, if both parties to the subject contract breached such duty, neither should be able to rely on an alleged breach of duty of good faith. In essence, the concept of 'clean hands' comes into play.[255]

[3] There has also been consideration of the capacity of a contractual party to look after itself and its own interests rather than turn to concepts of good faith for relief.[256] These approaches, more aptly described as judicial reticence, regarding the application of the doctrine of good faith, may be construed as hesitation at the courts' involvement in contractual performance. If a duty of good faith exists, it really means that there is a standard of contractual conduct that should be met. The difficulty is that the standard is nebulous. Therefore, the current reticence attending the application and recognition of a duty of good faith probably lies as much with the vagueness and imprecision inherent in defining commercial morality. The modern law of contract has developed on the premise of achieving certainty in commerce. If good faith is not readily capable of definition then that certainty is undermined. It might be that a duty of good faith is no more than a duty to act reasonably in performance and enforcement, a long established duty.[257] Of course, some commentators have regarded the duty to act reasonably as properly subsumed within the duty of good faith.[258]

[4] Ultimately, the interests of certainty in contractual activity should be interfered with only when the relationship between the parties is unbalanced and one party is at a substantial disadvantage, or is particularly vulnerable in the prevailing context. Where commercial leviathans are contractually engaged, it is difficult to see that a duty of good faith will arise, leaving aside duties that might arise in a fiduciary relationship. If one party to a contract is more shrewd, more cunning and out-manoeuvres the other contracting party who did not suffer a disadvantage and who was not vulnerable, it is difficult to see why the latter should have greater protection than that provided by the law of contract."

[227]

135 It will be noted that the decisions in Overlook Management BV v Foxtel Management Pty Ltd[259] and Esso Australia Resources Pty Ltd v Southern Pacific Petroleum NL[260] were concerned with implied terms in commercial contracts generally; the former concerned with a television channel supply contract and the latter a joint venture agreement. Implicit in the Symbion submissions is the assumption that leases should be treated in the same way as commercial contracts with respect to the issue of the implication of a good faith obligation. Authorities in relatively recent years have departed from the strict view that leases should be treated exclusively on the basis that they constitute the grant of a proprietary interest, ignoring their contractual aspects. It is true that a long-term lease of agricultural land at minimal rent is, having regard to the rights and obligations created, more appropriately viewed as the demise of an estate or interest in land. The modern commercial lease, however, does not sit comfortably in this proprietary, almost feudal, framework, as the obligations of the landlord and the tenant are based primarily upon a contractual relationship. The nature of modern commercial leases has been acknowledged by the courts. In 1981, the House of Lords reviewed, comprehensively, the nature of a modern commercial lease and decided that the contractual doctrine of frustration was applicable to leases, but stressed that the cases in which a lease will be held to have been frustrated will be rare.[261] In Australia, this change in thinking was reflected, most significantly, in Shevill v Builders Licensing Board[262] and in Progressive Mailing House Pty Ltd v Tabali Pty Ltd[263] where the High Court applied the contractual doctrine of repudiation to leases. There have been many cases since where the Australian courts have accepted, what has been termed, the "contractualisation" of leases.[264] Having regard to the treatment in the authorities of leases with respect to the contractual doctrines of frustration and repudiation, it follows, in my opinion, that contractual doctrines with respect to the implication of good faith obligations should also apply to leases in the same manner and to the same extent that they are or may be applied in commercial contracts; but subject to "the extent of coverage of bargain that is usually express in a commercial lease".[265]

[269]

"In Gordon v Lidcombe Investment Pty Ltd, Street J also placed reliance on statements in various English authorities that, for the lessor's obligation to be broken, there must be 'substantial' disturbance or disruption, which his Honour tended to construe as requiring that the interference must have reached a level at which it practically frustrated the purpose for which the lease was granted ([1966] 2 NSWR 9, at 14-16). The word 'substantial' is unfortunately susceptible of more than one meaning, ranging from not empheral or not merely nominal, to considerable, weighty or big: cf Tillmanns Butcheries Pty Ltd v Australasian Meat Industry Employees' Union [1979] FCA 85; (1979) 42 FLR 331, at 348; see also Arnotts Ltd v Trade Practice Commission (1989) 24 FCR 313, at 342-343. Nowadays it is more commonly given the latter meaning, but, particularly in England, that has not always been the case in the past. However, in Newman v Real Estate Debenture Corporation Ltd [1940] 1 All ER 131, Atkinson J held that the lessor was in breach of its implied obligation when it converted the upper floors of a block of residential flats into a shop, which resulted in noise from the frequent banging of lift doors and from people running up and down stairs, as well as sporadic obstruction of access to the building caused by vehicles parking in the highway outside the building. Applying the standard applied to cases of nuisance, his Lordship held that there was 'an inconvenience materially interfering with the ordinary physical comfort according to plain and simple and sober notions' ([1940] 1 All ER 13, at 146), and hence a breach of the implied covenant not to derogate from the grant to the lessee ([1940] 1 All ER 131, at 147-148). The decision was distinguished by the Court of Appeal in Kelly v Battershell [1949] 2 All ER 830; but (as regards the present point) essentially on the ground that the question whether particular circumstances amount to a derogation from a grant, as distinct from mere interference with amenities, is one of fact which in Newman the county court judge had decided in favour of the lessee.

For my part, I do not consider that, in order to establish a breach of the lessor's implied obligation recognised in O'Keefe v Williams [1910] HCA 40; (1910) 11 CLR 171, the law insists on 'practical frustration' of the purpose of the lease. At least that is so where, as here, the claim is for damages and not, as in Gordon v Lidcombe Investments, for an injunction to restrain the alleged disturbance in circumstances in which damages would be an adequate remedy for the breach. It was ultimately on this ground that relief was refused in that case, Street J holding that the plaintiffs there had 'failed to establish any equity entitling them to relief'. See [1968] NSWR 9, at 19. Whether they would have succeeded in a claim for damages may have raised considerations of a different kind. The further proposition in Browne v Flower [1911] 1 Ch 219, at 228, that to constitute a breach of the obligation there must be physical interference with enjoyment of the premises ceased to be tenable after the decision in Harmer v Jumbil (Nigeria) Tin Areas Ltd. [1921] 1 CA 200. See Port v Griffith [1938] 1 All ER 295, at 298; and Megarry & Wade, Law of Real Property (4th ed), at 679 n 1 Owen v Gadd, JC Berndt Pty Ltd v Walsh and Newman v Real Estate Debenture Corporation Ltd. are all cases in which there was no direct physical impact on the premises. See also Haig v Chesney [1925] SASR 82, which was an interference with light. In any event the penetration into the leased premises of sawdust, if not of the sound of the planer, was, on any view of it, a physical interference with the enjoyment of the premises."

[295]

43. The general statement by Nicholls LJ in Johnston v Holland must of course be taken in its context. That case, on its facts, appears to have been one of physical unfitness, the new point decided being that the implied restraint could apply to land which was not already owned by the landlord at the time of the grant to the tenant. I do not think that anything said in Johnston casts any doubt on the correctness of Port. The proposition which I think that Port establishes is that the mere fact that premises are let for a particular trade does not prevent the lessor from letting adjoining premises for the same purpose. It is that proposition which I think that Garland J is referring to in Romulus Trading in the first passage which I have quoted above. There was, in fact, in Romulus Trading, no possibility of an implied restriction arising other than out of the mere fact of economic disadvantage; the general statement of law derived from Port made by the Judge must be read in that context, just as Mr Morgan submits, correctly, that the general statement of principle by Nicholls LJ must be read in the context of what was at issue in Johnston. I do not read Garland J as saying that there can never be an implied term arising from the non-derogation principle in relation to competing businesses where the matters complained of do not result in the premises being rendered physically or legally unfit for the purposes for which it is let. Port does not establish so wide a proposition; and Garland J is simply looking, as I read his judgment, at the question whether the law has moved on from the proposition which it does establish. In other words, he is looking at the question - which is the real question which arose in Romulus Trading - whether a case such as Port itself should be decided differently today. It is that result which the Judge rejects, a result with which I respectfully concur.

...

45. In a rather different factual context, in Petra, Hart J (at 473) said this:

[307]

208 ... It is not the duty of a judge to decide every matter which is raised in argument.[343] As Mahoney JA said in Housing Commission of New South Wales v Tatmar Pastoral Co Pty Ltd:

It is not the duty of the judge to decide every matter which is raised in argument. He may decide a case in a way which does not require the determination of a particular submission: in such a case he may put it aside or, as Lord Scarman said, merely salute it in passing: R v Barnet London Borough Council: Ex parte Nilish Shah [1983] 2 AC 309 at 350. A judge will, of course, appreciate the possibility of points being taken or decided on appeal which were not taken or decided below and for this reason he may decide, and give reasons for his decision on, matters which in strictness he need not decide.

However, the decision of a particular submission may be an essential part of the judge's reasoning to his final conclusion. This may be so because it is necessarily so, ie, because he cannot come to his final conclusion without deciding it; or because the reasoning which in fact he follows makes it so. In such a case, the duty of the judge will vary according to the way in which the case has been conducted and according to the reasoning which he has followed.[344]

209 In Kuru v New South Wales,[345] the High Court emphasised the importance of intermediate appeal courts dealing with every ground of appeal so that the High Court can ultimately dispose of the matter without referring it back to the Court of Appeal. Gleeson CJ, Gummow, Kirby and Hayne JJ said:

This Court has said on a number of occasions[346] that, although there can be no universal rule, it is important for intermediate courts of appeal to consider whether to deal with all grounds of appeal, not just with what is identified as the decisive ground. If the intermediate court has dealt with all grounds argued and an appeal to this Court succeeds, this Court will be able to consider all the issues between the parties and will not have to remit the matter to the intermediate court for consideration of grounds of appeal not dealt with below.

210 Whether an issue argued in the case should be ruled on where it is not necessary to decide it to reach a finding on the ultimate issue is a matter for the trial judge. Clearly, factors such as those referred to by the High Court would be relevant matters for the trial judge to consider. It would be convenient in the event of an appeal to have decided all factual matters in dispute. On the other hand, it may be inappropriate to find on issues of credit and misconduct alleged against a party where such a finding is not essential to decide the case.

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