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[2021] QCA 156
General information, not legal advice.
Court of Appeal (Qld)
2021-07-30
Sofronoff P and Bond JA and Applegarth J
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Source: Queensland Judgments (Supreme Court Library Queensland) (www.queenslandjudgments.com.au). Converted to plain text by ZoeLaw. Not the official version.
SUPREME COURT OF QUEENSLAND
CITATION: Rankin Investments (Qld) Pty Ltd & Anor v CMC Property Pty Ltd & Ors [2021] QCA 156
PARTIES: RANKIN INVESTMENTS (QLD) PTY LTD / ACN 150 860 647 / (first appellant) / BRADLEY JOHN RANKIN / (second appellant) / v / CMC PROPERTY PTY LTD / ACN 128 857 429 / (first respondent) / PETER THOMAS KENDALL / (second respondent) / DAVID SPENCER AHERN / (third respondent)
FILE NO/S: Appeal No 216 of 2021 / SC No 4624 of 2020
DIVISION: Court of Appeal
PROCEEDING: General Civil Appeal
ORIGINATING COURT: Supreme Court at Brisbane – [2020] QSC 366 (Davis J)
DELIVERED ON: 30 July 2021
DELIVERED AT: Brisbane
HEARING DATE: 14 July 2021
JUDGES: Sofronoff P and Bond JA and Applegarth J
ORDER: The appeal is dismissed.The appellants pay the respondents’ costs of and incidental to the appeal.
CATCHWORDS: CONTRACTS – GENERAL CONTRACTUAL PRINCIPLES – CONSTRUCTION AND INTERPRETATION OF CONTRACTS – where the parties entered into a joint venture agreement about the development of land – where the joint venturers were bound by decisions of the board of the joint venture company – where the joint venture company engaged consultants to carry out work – where one of the joint venturers sent emails directing those consultants to stop work – where the parties have an obligation to not do any act that might jeopardise the continued enjoyment of the land for the purposes of the joint venture – whether the primary judge erred in construing the meaning of “continued enjoyment of the land” – whether the primary judge erred in concluding that the sending of the emails breached that obligation / CONTRACTS – GENERAL CONTRACTUAL PRINCIPLES – CONSTRUCTION AND INTERPRETATION OF CONTRACTS – IMPLIED TERMS – GENERALLY – where the joint venture agreement requires the parties to take all necessary steps to give full effect to the agreement – whether that obligation implies a negative stipulation to not do things inconsistent with the steps required to be taken – whether in failing to give effect to a decision for work to be done and, instead, taking some inconsistent action, a party fails to take “all necessary steps” – whether the primary judge erred in concluding that the obligation was breached when the appellants took action which prevented the carrying out of resolutions of the joint venture company / Brambles Holdings Ltd v Bathurst City Council (2001) 53 NSWLR 153; [2001] NSWCA 61, cited / Butt v M’Donald (1896) 7 QLJ 68, cited / Byrne v Australian Airlines Ltd (1995) 185 CLR 410; [1995] HCA 24, cited / Hart v MacDonald (1910) 10 CLR 417; [1910] HCA 13, cited / Kabbara & Ors v Australian National Sports Club Incorporated [2020] NSWSC 497, cited / Liverpool City Council v Irwin [1977] AC 239; [1976] UKHL 1, cited / Marcus Clarke (Vic) Ltd v Brown (1928) 40 CLR 540; [1928] HCA 12, cited / Peters (WA) Ltd v Petersville Ltd (2001) 205 CLR 126; [2001] HCA 45, cited
COUNSEL: D O'Brien QC, with P D Hay, for the appellants / M R Hodge QC, with D Tay, for the respondents
SOLICITORS: Enyo Lawyers for the appellants / Carter Newell for the respondents
SOFRONOFF P: I agree with the reasons of Applegarth J and with the orders proposed. I also agree with the reasons and conclusions of Bond JA.
BOND JA: I have had the advantage of reading in draft the reasons for judgment of Applegarth J and I agree with the orders which his Honour proposes.
I would base that conclusion on the proposition that the Rankin interests breached cl 6.1(a) essentially by what his Honour described at [107] as “[t]he alternative route to the same result”. His Honour’s reasons permit me to explain my conclusion in a summary way.
Clause 5 of the Agreement provided:
“5. ACTIVITIES OF THE BOARD
5.1 The Board will be responsible for the Project for and on behalf of the Joint Venture and will be responsible for the overall policies and implementation of the Project subject to this agreement.
…
5.4 The decisions of the Board will bind the Joint Venturers.
5.5 The Board will meet as often as is necessary. Any of the Shareholders may call a meeting of the Board by giving not less than fourteen (14) days’ notice in that regard to the other Joint Venturer or such shorter notice as the parties may from time to time agree.
5.6 A resolution in writing signed by all members of the Board shall be as valid and effectual as if it had been passed at a duly convened meeting of the Board.
…
5.10 No member of the Board shall be entitled to a casting vote in addition to his deliberate vote.
…
5.16 Decisions of the Board (including borrowing and a decision to Dispose of any part of the Property) require a majority of greater than 50% of the votes to be cast. In the event of a deadlock in voting of the Board where only 50% of the votes have been cast in favour of the matter the subject of the vote, there is no casting vote and the Board will not proceed with the matter the subject of the vote.”
Thus, the Agreement allocated responsibility for the implementation of the Project to the Board. It provided a specific mechanism pursuant to which the Board would discharge its responsibilities. Urgent matters could be dealt with by the flying minute procedure specified in cl 5.6. However, cl 5.16 made clear that decisions could only be made by a resolution commanding more than 50 per cent of the votes to be cast. In the event of deadlock, any proposal that a particular decision be made would fail.
The Board had resolved that the Company should take the steps identified in the judgment of Applegarth J at [18]. The appellants accepted that the contemplation of the Board and the Company must have been that the persons engaged to do specified tasks would actually perform their retainers.
If the Rankin interests had wanted to change one of the decisions which the Board had made, or otherwise to alter the way in which the Board had embarked on the implementation of the Project, then the Agreement provided the mechanism by which that outcome could be achieved. But in order for that to happen, the resolution for change would need to command more than 50 per cent of the votes to be cast. In the event of deadlock, the proposal for change would fail and the status quo would prevail.
In other words, giving full effect to the provisions of cl 5 required the Rankin interests to accept that they were bound by the decisions which had been made, to take the course mentioned in the previous subparagraph if they wanted to change that position, and to accept their inability to do so in the event of a deadlock. The unilateral transmission of emails of the nature and effect of those identified by Applegarth J at [19] to [21] was a plain example of a failure to give full effect to the provisions of cl 5. It was a breach of cl 6.1(a).
This conclusion by itself would justify the orders proposed by Applegarth J. However, I record further that I also agree with Applegarth J’s rejection of the arguments concerning the proper construction of cl 6.1(a) advanced by the Rankin interests.
I would conclude that it is not necessary to consider whether there was a separate breach of cl 6.1(c).
I agree with his Honour that leave should not be granted to argue ground 4 because the point was not argued below and might have been met by evidence below. It is unnecessary to express a view on whether there would have been any utility in the grant of leave.
APPLEGARTH J: The parties to this appeal became joint venturers in a project to redevelop the Big Pineapple on the Sunshine Coast. The corporate vehicle for the joint venture was Big Pineapple Corporation Pty Ltd (the Company) as trustee for the Big Pineapple Unit Trust (BPUT).
The appellants, Mr Rankin and his company Rankin Investments (Qld) Pty Ltd, were one of “the Joint Venturers” as defined in the joint venture agreement. Rankin Investments held 50 per cent of the units in the BPUT.
“lease, licence and/or develop and/or ultimately dispose of the Property or do any other act, matter or thing as the Board may determine from time to time, where applicable, in accordance with the provisions of this document whether alone or in conjunction with one or more third parties”. (cl 2.1, emphasis added)
Clause 5.1 made the Board responsible for the project “for and on behalf of the Joint Venture” and responsible for the project’s “overall policies and implementation”. Clause 5.4 provided “The decisions of the Board will bind the Joint Venturers”.
The Company resolved to:(a)remodel the main building;(b)apply to the National Australia Bank for finance;(c)engage Ceccato Hall to undertake the contract tender purposes; (d)engage Savills to seek tenants of the property;(e)engage Mitchell Brandtman to perform quantity surveying; and(f)engage Greg Bourke to perform public relations work.1
Despite this and the terms of the joint venture agreement, on 19 December 2019 Mr Rankin sent various emails to the consultants referred to in (c)-(f) requesting them to stop work. This was done unilaterally, and without the authority of the Company. It was done without the knowledge or consent of the other Joint Venturer (the respondents to the appeal) and without the approval of the Company’s board.
The emails which Mr Rankin sent requesting work to stop forwarded an email that Mr Kendall had sent to Mr Rankin on the afternoon of 19 December 2019 with the subject line “Major Conflict of Interest”. It thereby disclosed a significant dispute between the Rankin interests and the Kendall interests.
Mr Rankin’s emails did not ask each of the consultants to stop work for some defined period. For example, he asked the leasing agent to “reframe (sic) from any work until sorted”. He asked the quantity surveyor to “hold off on further works in case I am found to be guilty”. The consultants were not to know from Mr Rankin’s emails for how many weeks or months they were being asked to stop work. They were apt to be uncertain about how long it would take the project’s Joint Venturers to resolve the matters that were in dispute between them in December 2019.
Mr Rankin did not subsequently clarify, qualify or withdraw his stop work requests.
On 16 January 2020 the other Joint Venturer sent a default notice to Mr Rankin and Rankin Investments. It asserted, among other things, that the sending of the emails on 19 December 2019 to the consultants “unilaterally, without our knowledge or consent, and without approval of the board of the Company” placed the Rankin interests in default of the joint venture agreement, particularly cll 2.1, 4 and 6.1. It required the default to be remedied within 28 days.
The other Joint Venturer subsequently gave a “Notice of Event of Default” dated 26 February 2020 which, if valid, triggered the provisions of the agreement (cll 8 and 9) by which the joint venture interest owned by the Joint Venturer who had been provided with a notice of an “Event of Default” might be purchased by the other Joint Venturer.
The proceedings
The Rankin interests filed an originating application seeking declarations that the Default Notice dated 16 January 2020 and the Notice of Event of Default dated 26 February 2020 were each not a valid and enforceable notice.
The primary judge found that the sending of the emails on 19 December 2019 constituted a breach of obligations in cll 2.1, 6.1(a) and 6.1(c).2 Although the Default Notice had referred to cl 4 as well as those clauses, it was not submitted by the Rankin interests that the validity of the notice to remedy default was undermined if one alleged breach was not made out.
The primary judge found that:
“(a)the Rankin interests breached their obligations under the property agreement;
(b)the Kendall and Ahern interests gave a valid notice requiring remedy of the breaches;
(c)the Rankin interests failed to remedy the breaches;
(d)clauses 8 and 9 of the property agreement were triggered; and
(e)the Kendall and Ahern interests gave a valid notice under clause 8 of the property agreement and the right identified in clause 9 arose in favour of the Kendall and Ahern interests.”3
The Rankin interests’ application was dismissed and declarations were made that the notices fell within the meaning of the relevant clauses of the joint venture agreement.
Clause 2.1 of the joint venture agreement is quoted above. The other two clauses that are relevant to the primary judge’s finding of breach and to this appeal are cll 6.1(a) and (c). It is helpful to highlight them in their immediate contractual context:
“6. UNDERTAKING
6.1 Each of the parties undertakes with the other:
(a)to take all necessary steps on its part to give full effect to the provisions of this Agreement;
(b)not to engage (whether alone or in association with others) in any activity in respect of the Land except as provided or authorised by this Agreement or as agreed in writing by the parties;
(c)not to do or cause or permit to be done any act matter or thing whereby in any way the continued enjoyment of the Land for the purposes of the Joint Venture might be jeopardised; and
(d)to be just and faithful in all of its activities and dealings with the others.
6.2 Except in accordance with this agreement, no Joint Venturer shall sell, convey, assign, transfer, mortgage, pledge, charge, encumber, lease, sub-lease or otherwise dispose of or deal in or suffer or permit or cause to be sold, conveyed, assigned, transferred, mortgaged, pledged, charged, encumbered, leased, sub-let, disposed of or dealt with the whole or any part of the Joint Venture Assets or its Joint Venture Interest whether by act or deed, amalgamation, merger or consolidation or by operation or law (save for death where it will pass at law) except with the written consent of the other Joint Venturers.”
(emphasis added)
In essence, the primary judge found that the Rankin interests breached cll 6.1(a) and 6.1(c) by causing the consultants to stop work.4 The Rankin interests did not take necessary steps to give full effect to the agreement’s provisions. Rather than take necessary steps to give full effect to the agreement which bound each Joint Venturer to follow the decisions of the Board about the development and the implementation of the project, Mr Rankin had asked the consultants to stop work upon which they had been engaged by the Company. In acting this way, Mr Rankin was said to have “countermanded” decisions by the Company for the consultants to be engaged on that work.
Sending the emails jeopardised the development because progress of the work upon which the consultants were engaged was stopped for an indefinite period.
The primary judge concluded that the evidence supported the inference that the development was jeopardised by the sending of the 19 December 2019 emails. The completion of the project was delayed when work stopped. The Company was carrying debt. The lost time would have a financial consequence.5
The appeal grounds
The Rankin interests appeal against the findings that they breached the joint venture agreement. Grounds 1, 2 and 3 contend that, properly construed, neither cl 6.1(c) nor the other clauses were breached. They also challenge a finding that the emails “countermanded” the Company’s resolutions.
The fourth ground of appeal seeks to raise a matter that was not raised before the primary judge. The Rankin interests accept that they require leave to do so, and leave is opposed. The new argument is that the evidence does not establish that Mr Rankin’s emails of 19 December 2019 were sent by, or on behalf of, Rankin Investments. They contend that they were therefore not sent by a “Joint Venturer” which is defined in their case as being Rankin Investments and Mr Rankin “in respect of the Units and Shares held by them” (cl 1.1(n)).
Overview of the appeal and its disposition
The Rankin interests accept that to succeed on the appeal they must prevail on either:(a)each of grounds 1, 2 and 3; or(b)ground 4.
If the Rankin interests succeed on only one or two of the first three grounds then one of the relevant clauses of the agreement will have been breached.
For the reasons that follow, I conclude that the primary judge correctly construed cl 6.1(c) and did not err in concluding that the sending of the emails breached it. This makes it unnecessary to consider whether there was a separate breach of cl 6.1(a). In my opinion, however, the proper construction of that clause leads to the conclusion that the Rankin interests breached it.
I also conclude that leave should not be granted to argue ground 4. This is because if the issue of whether the emails were sent on behalf of Rankin Investments had been raised before the primary judge it is possible that additional evidence could have been adduced to prove that they were. In any case, the proper construction of the agreement leads to the conclusion that the emails constituted a default by the composite “Joint Venturer” of “its obligations”.
Was there a breach of clause 6.1(c)?
It is unnecessary to dwell on whether the emails “countermanded” the Company’s decisions to progress the development by engaging consultants to undertake the contract tender process, seek tenants for the property and perform quantity surveying. In my view, they did. Telling consultants to stop work for an indeterminate period was inconsistent with the decisions of the Company to engage consultants to do that very work. It sought the opposite of what had been decided by the Company, namely for work to proceed under engagements that were necessary to progress the development which was underway. The primary judge’s use of the word “countermanded” is understandable.
The substantive issue, however, is whether, upon a proper construction of cl 6.1(c), emails from Mr Rankin requesting the consultants to stop work “might” jeopardise “the continued enjoyment of the Land for the purposes of the Joint Venture”.
An important part of the enjoyment of “the Land” for the purposes of the Joint Venture was that it be developed. Its enjoyment for the purposes of the Joint Venture entailed that it be developed as the Joint Venturers had agreed in cll 2.1 and 5 that it should be. This was in accordance with decisions made by the Board from time to time about the implementation of the project and the progress of the development. Asking consultants that the Company had engaged to progress the development to stop the work upon which they were engaged “might” jeopardise the development.
The Rankin interests argue that, on its proper construction, cl 6.1(c) only prohibits actions that impair “the availability of the Land for use in the joint venture” and that sending the emails did not impair the land’s availability.
I am unable to agree that the construction of cl 6.1(c) should be so limited. The clause does not refer to the “availability” of the land. It is not confined to things that might jeopardise the land itself, for instance something which destroyed its physical state or contaminated it. The clause refers to things that might jeopardise “the continued enjoyment of the Land for the purposes of the Joint Venture” (emphasis added).
In its commercial and contractual context, the “continued enjoyment” of the land for the purposes of the Joint Venture entailed its development with a view to leasing areas and possibly disposing of the property at some stage during the course of its development.
Conduct that stalled that development therefore might jeopardise the enjoyment of the land for the purposes of the Joint Venture.
The primary judge was correct to find a breach of cl 6.1(c). Subject to ground 4, that is sufficient to dispose of the appeal.
Should the appellants have leave to argue ground 4?
As to ground 4, the issue of whether the emails were sent on behalf of Rankin Investments was not raised before the primary judge. In light of the evidence and the conduct of the parties, that hearing proceeded on the understandable assumption that they were. The primary judge recorded that as sole director and sole shareholder of Rankin Investments, Mr Rankin controlled it.6 In submissions the Rankin interests denied that “their conduct” was an event of default under the agreement. It was not submitted by the Rankin interests that Mr Rankin’s actions were not also those of Rankin Investments.7
If that matter had been an issue before the primary court, it is possible that additional evidence could have been adduced to support the conclusion that the emails were sent by Mr Rankin on his own behalf and on behalf of his company. After all, Mr Rankin was seeking to protect his corporate alter ego’s financial interests as the holder of 50 per cent of the units that the Company held on trust.
The Rankin interests commenced the proceeding, denying that the agreement had been breached and disputing that the notices were valid. As Mr Rankin stated in an affidavit, he commenced the proceeding because he disputed that “I should now be forced to sell my interests in the joint venture” (emphasis added). If any issue had been raised at the hearing that the emails were not sent by him on behalf of his company that held, what he described as “my interests in the joint venture”, then it would have been possible to adduce further evidence about this in Mr Rankin’s cross-examination. Mr Rankin may have found it hard to deny that in sending the emails he was acting both on his own behalf and on behalf of his corporate alter ego, which had held 50 per cent of the units in the BPUT. It was Rankin Investments’ financial interests that were at stake by the conduct of the other joint venturer about which he was complaining. He had not been given any authority by the joint venture corporate vehicle to write to consultants on its behalf, and did not purport to do so.
It is possible that additional evidence would have fortified the conclusion that the emails were sent, not simply by Mr Rankin in a personal capacity, but on behalf of what the agreement defined as “the Joint Venturer”, being a composite of Mr Rankin and his company.
Applying settled principles about the circumstances in which leave will be granted to advance a new contention not advanced in the primary court, I would decline leave to argue ground 4. This is because the point could possibly have been met by adducing additional evidence in the primary court.8
Was there a breach of clause 6.1(a)?
It is unnecessary in the circumstances to decide the ground relating to cl 6.1(a). The issue having been helpfully argued, I shall address that matter.
As earlier quoted, cl 6.1(a) requires each of the parties “to take all necessary steps on its part to give full effect to the provisions of this Agreement”. In essence, the respondents’ case before the primary judge was that, rather than fulfil this obligation, Mr Rankin sent the emails to suspend work the Company had engaged consultants to perform, and thereby breached cl 6.1(a).
As to cl 6.1(a), the primary judge observed as follows:
“Clause 6.1(a) is expressed in positive terms in that it speaks of what a party must do, rather than what it must not do. However, a party does not “take necessary steps” to give effect to the provisions of the agreement if it acts inconsistently with the agreement.”9
“If the board of [the Company] has resolved for work to be done and has retained consultants who are performing that work, then he has breached his “obligations” under both clause 6.1(a) and clause 6.1(c) by causing the consultants to stop work.”10
Submissions
On appeal, the Rankin interests contend that the primary judge erred in construing cl 6.1(a) as imposing a negative obligation to refrain from doing the things which Mr Rankin did. They acknowledge that whether “a positive obligation is intended to impose a correlative negative duty is a matter of intention, to be ascertained from the terms of the agreement and the surrounding circumstances in which an agreement was entered”.
They submit that a negative duty does not arise by implication in the case of cl 6.1(a) for three reasons.
First, the language of the clause does not suggest a wider negative obligation was intended.
Second, the agreement, as a whole, is submitted to be inconsistent with the existence of such an implied negative obligation. Particular reliance is placed upon the fact that cll 6.1(b) and (c) contain negative obligations, making it improbable that the parties would have intended to imply a negative stipulation where they had expressly stipulated other negative obligations.
Third, they submit that there is a danger in so broadly concluding that a party is in breach of cl 6.1(a) if it acts in some way that is, or is perceived to be, inconsistent with the agreement. Such an approach would leave no room for a party to act in its own interests, including by declining to act in a certain manner. The primary judge’s construction of cl 6.1(a) is said to lead to the conclusion that a breach occurs whenever a party acts inconsistently with the agreement.
In response, the Kendall interests submit that the primary judge did not imply a negative obligation into cl 6.1(a). Instead, the conclusion was reached that a party will not “take necessary steps” to give effect to the agreement if it acts inconsistently with the agreement, such as by sending unauthorised emails that ask for work approved by the Company to stop.
The Kendall interests also submit that the construction of cl 6.1(a) urged by the Rankin interests suggests that the clause should be read to mean that parties to the joint venture are positively obliged to take all steps necessary to give effect to the agreement, but then are free to take additional steps to impede it.
The issue of construction
Implications
“There is a spectrum of different types of implied terms covering, inter alia, the following:
(i)Implications contained in the express words of the contract: see Marcus Clarke (Vic) Ltd v Brown (1928) 40 CLR 540 at 553–4.
(ii)Implications from the “nature of the contract itself ” as expressed in the words of the contract: see Liverpool City Council v Irwin [1977] AC 239.
(iii)Implications from usage (for example, mercantile contracts).
(iv)Implications from considerations of business efficacy: see BP Refinery (Westernport) Pty Ltd v Hastings Shire Council (1977) 52 ALJR 20 at 26; Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337.”11
In the leading case of Liverpool City Council v Irwin,12 Lord Wilberforce said that implied terms were shades “on a continuous spectrum”. Learned authors have observed that the various categories of implied terms merge “imperceptibly” into one another.13
The first category identified by Hodgson J was recently discussed by Rein J in Kabbara & Ors v Australian National Sports Club Incorporated.14 After analysing the judgments in Marcus Clarke (Vic) Ltd v Brown,15 Rein J noted that in the context of terms implied by reason of express words used (i.e. Hodgson J’s first category) issues of the type that arise in the fourth category are not relevant.16 However, one relevant consideration in the first category is whether the absence of the implied term would produce “a plainly unreasonable and unjust result”.17
The Rankin interests’ first submission
The issue is one of construction of the express term to ascertain if a negative stipulation must be implied. The Rankin interests point to the fact that cl 6.1 requires action to be taken only where some positive step is necessary to give effect to the agreement. Failing to take all necessary steps would be a breach. However, it does not follow that other actions, in circumstances where no “step” is necessary, are prohibited.
So much may be accepted. The issue remains, however, as to whether, if a step is necessary, the obligation in cl 6.1(a) carries a negative stipulation by implication. In my view, as a matter of construction, a positive obligation under cl 6.1(a) to do something necessarily implies a prohibition on taking action that is inconsistent with, or impedes, that step. An example was given in oral argument by Mr Hodge QC on behalf of the Kendall interests of circumstances in which the obligation in cl 6.1(a) requires a party to sign a document. An implication from the words is that the party, having signed the document, is not free to tear it up.
I conclude that the language of cl 6.1(a) does not preclude a negative obligation arising by implication.
The Rankin interests’ second submission
The existence of express negative obligations in cll 6.1(b) and (c) are relevant to the issue of contractual construction. However, once it is accepted that cl 6.1(a) in the context of the contract as a whole may imply a negative stipulation, the presence of express negative obligations in other clauses is not decisive.
One should not assume that the positive obligation in cl 6.1(a) is a correlative of the negative obligations in cll 6.1(b) and (c). They are not opposite sides of the same coin.
It is possible to imagine circumstances in which the obligation in cl 6.1(a) overlaps with obligations in a clause such as cl 6.1(c). Certain conduct may constitute a failure to take a necessary step and also breach an obligation in cll 6.1(b) or (c).
It is also possible to imagine circumstances in which only one of the provisions is breached. The express stipulation of negative obligations about specific conduct in cll 6.1(b) and (c) does not mean that cl 6.1(a) (including any negative stipulation implied by it) cannot be engaged by circumstances that fall outside cll 6.1(b) and (c).
The parties may have been content to expressly prohibit certain conduct in cll 6.1(b) and (c), leaving the positive obligations in cll 6.1(a) and (d) to do their separate or additional work. A simple example is that the obligation in cl 6.1(d) to be just and faithful necessarily implies a prohibition on conduct that is unjust, making an express negative obligation unnecessary.
Incidentally, if cl 6.1(c) had the restricted operation for which the Rankin interests contend, there would be even stronger grounds to suppose that conduct that fell outside the prohibition in cl 6.1(c) might be prohibited by a negative stipulation that is implied by cl 6.1(a). However, even on the interpretation of cl 6.1(c) which I favour, there are reasons to suppose that conduct which is not prohibited by the express prohibition in cl 6.1(c) may be prohibited by a negative stipulation that arises by implication from cl 6.1(a).
In short, the implication of a negative stipulation in cl 6.1(a) is not precluded or made improbable by the presence of express negative obligations about certain matters in cll 6.1(b) and (c).
In support of their second argument, the Rankin interests point to cl 20.11 of the agreement which provides:
“There are no agreements, representations or warranties relating to the subject matter of this agreement between the Joint Venturers other than those expressly set out in this agreement.”
This clause is submitted to make clear that the parties did not intend to imply a negative stipulation where they had expressly stipulated other negative obligations.
This submission is unpersuasive. The operation of what may be described as an “entire agreement clause” depends on its terms and the nature of the implied term that is alleged.18
Here the issue is not whether there was an additional agreement, representation or warranty relating to the subject matter of the agreement other than those expressly set out in it. Instead, it is the proper construction of the express terms that are set out in the agreement and the implications that they convey.
Hart v MacDonald19 illustrates that a clause to the effect that there is no agreement or understanding that is not embodied in the contractual documents does not prevent a stipulation being implied. As Griffith CJ observed, an entire agreement clause does not prevent a promise being enforced if the promise “arises by necessary implication upon a proper construction of the express words”.20 In the same case Isaacs J rejected the notion that the entire agreement clause excluded implications:
“It excludes what is extraneous to the written contract: but it does not in terms exclude implications arising on a fair construction of the agreement itself, and in the absence of definite exclusion, an implication is as much a part of the contract as any term couched in express words.”21
The Rankin interests’ third submission
The essential issue
The Rankin interests’ arguments raise the following issue. Do the words of cl 6.1(a) in the context of the whole contract imply that each party will not do something that is inconsistent with the steps cl 6.1(a) requires it to take?
That issue is about an implication from express words. It might be argued that such an implied term arises, not by an implication from the express words of the agreement, but is implied by law as a matter of necessity having regard to the nature of the contract and as a necessary incident of the relationship concerned in a case in which the parties have not expressly excluded such an implied term.22 That argument engages the second category identified by Hodgson J. In that context, a term may be implied as a matter of necessity where “the enjoyment of the rights conferred by the contract would or could be rendered nugatory, worthless, or, perhaps, be seriously undermined”.23 The same may apply where a contract would be “deprived of its substance, seriously undermined or drastically devalued” unless the term is implied.24
Another approach to the issue of construction is to engage what Griffith CJ described in Butt v M’Donald as “a general rule applicable to every contract that each party agrees, by implication, to do all things as are necessary on his part to enable the other party to have the benefit of the contract”.25
In Peters (WA) Ltd v Petersville Ltd the joint judgment of Gleeson CJ, Gummow, Kirby and Hayne JJ stated that the law implies “a negative covenant not to hinder or prevent the fulfilment of the purpose of the express promises”.26
The essential issue, whichever approach is taken, is whether the relevant obligation is implied as a matter of construction, having regards to the nature of the contract, the relationships it creates between the parties and the contract’s express words.
In my view, the obligation to “take all necessary steps to give full effect to the provisions of this Agreement” imposes, by implication, a correlative duty to not act in a way that is inconsistent with the step being taken. This is a necessary implication to enable a party to enjoy the benefit of the obligation imposed on each other party by cl 6.1(a). A good example is the obligation to not tear up a document that cl 6.1(a) requires a party to sign.
The practical content of the negative stipulation in a case such as this
The alternative route to the same result
An alternative and simpler way to frame the issue of construction is to ask whether, in failing to do something and, instead, by taking some inconsistent action, the party has failed to take “all necessary steps”, as required by cl 6.1(a). This issue arises in the context of an agreement under which the parties are bound by the decisions of the Board and agree that the Company will develop the property and “do any other act or matter or thing as the Board may determine from time to time” (cl 2.1). Clause 6.1(a) obliges each of the parties to take all necessary steps on its part to give full effect to such decisions of the Board. If instead of taking all necessary steps to implement the decisions of the Board, a party does acts that hinder or impede those decisions then it will have breached cl 6.1(a).
Such an interpretation does not disable a party from doing other things to protect its interests. For example, if a matter of concern arose that, in the party’s view, made it inappropriate for the Company to implement a decision, then a necessary step to give full effect to the provisions of the agreement would be to raise the relevant concerns with the Company’s Board and with other joint venturers and to seek to persuade the Company to alter its decision. The practical content of the relevant obligation would be to communicate the party’s concerns to the Board and other joint venturers, and no further. The obligation would entail not taking unilateral action to hinder or prevent effect being given to the decision. Instead the party might attempt to resolve the concerns through communications within the joint venture and not communicate those concerns to others at least until the Board was given the chance to consider the concerns and alter its decision. If the Board did not alter its decision, the Joint Venturer might choose to withdraw from the joint venture if it did not wish to give effect to the binding decisions.
In my view, the primary judge was correct to conclude that a party with an obligation to take necessary steps to give effect to decisions which bind it is obliged to not take action which prevents the carrying out of those decisions.
Conclusion – breach of cl 6.1(a)
Clause 6.1(a) may be said to convey by implication a negative stipulation that a party will not do things that are inconsistent with the steps that are necessary on its part to give full effect to the agreement. Alternatively, if instead of taking such a necessary step the party does an act that is inconsistent with its obligation in that regard, then the party has failed to take “all necessary steps” as required by cl 6.1(a).
The Rankin interests agreed to be bound by decisions of the Board, particularly decisions about the implementation of the project and the development of the land. The relevant decisions of the Company to have consultants it engaged carry out work were binding on the Rankin interests. By virtue of cl 6.1(a) the Rankin interests were obliged to take all necessary steps to give effect to those decisions, rather than hinder or impede them.
The primary judge was correct to conclude that the sending of the emails breached cl 6.1(a).
Clause 2.1(a)
“What is contemplated by the property agreement is that the board of directors of BPC will make decisions about the development of the land.27 That is hardly novel. However, by clauses 2.1 and 5.4 the parties make specific covenants with each other. Firstly, they agree that BPC will develop the land “as the board may determine”.28 By clause 5.4, the parties agreed that “the decision of the board will bind the joint venturers”.29 These provisions mean that where BPC, by resolution of its board, resolves to do or refrain from doing something, each of the joint venturers covenant with each other that the company will do or refrain from doing all those things.”30
Conclusion and orders
The primary judge correctly construed cl 6.1(c) and did not err in concluding that the sending of the emails breached it.
Leave should not be granted to argue ground 4. As a result, the appeal should be dismissed.
Although it is unnecessary for the disposition of the appeal, the primary judge did not err in concluding that cl 6.1(a) also was breached.
I would order as follows:
The appeal is dismissed.
The appellants pay the respondents’ costs of and incidental to the appeal.
Rankin Investments (Qld) Pty Ltd & Anor v CMC Property Pty Ltd & Ors [2020] QSC 366 at [132] (Reasons). ↩
Reasons [140]. ↩
Reasons [170]. ↩
Reasons [127]. ↩
Reasons [139]. ↩
Reasons [5]. ↩
Reasons [116](e). ↩
Suttor v Gundowda Pty Ltd (1950) 81 CLR 418 at 438; Water Board v Moustakas (1988) 180 CLR 491 at 497. ↩
Reasons [125]. ↩
Reasons [127]. ↩
Carlton & United Breweries Ltd v Tooth & Co Ltd, unreported, NSWSC, 11 June 1985, but summarised at (1985) 6 IPR 319; approved in Brambles Holdings Ltd v Bathurst City Council (2001) 53 NSWLR 153 at [28]; [2001] NSWCA 61 at [28]; J D Heydon, Heydon on Contract (Thomson Reuters, 2019) at [10.10]. ↩
[1977] AC 239 at 254. ↩
Rankin Investments (Qld) Pty Ltd & Anor
CMC Property Pty Ltd & Ors [2021] QCA 156
(2001) 53 NSWLR 153
(1995) 185 CLR 410
(1910) 10 CLR 417
(1928) 40 CLR 540
(2001) 205 CLR 126
(1977) 52 ALJR 20
(1982) 149 CLR 337
(1950) 81 CLR 418
(1988) 180 CLR 491
(1985) 6 IPR 319
(2014) 251 CLR 640
(1973) 129 CLR 99
(1990) 23 NSWLR 190
(1977) 138 CLR 52
The other 50 per cent were held by the first respondent (CMC), a company controlled and owned by Mr Kendall and Mr Ahern. I shall refer to Mr Kendall, Mr Ahern and CMC as “the Kendall interests”.
Another Joint Venturer, the Lago interests, had been part of the joint venture, which was constituted by an agreement in 2011. That Joint Venturer departed the project in 2014 and its units in BPUT were transferred to the remaining Joint Venturers. As a result, when the agreement referred to “the Joint Venturers” at the relevant dates in 2019 and 2020 it meant:(a)Rankin Investments and Mr Rankin in respect of the units and shares held by them; and(b)CMC and Messrs Kendall and Ahern in respect of the units and shares held by them.
Under the agreement, the Joint Venturers agreed the Company would:
Therefore, leave to argue ground 4 should not be granted.
There is an additional reason to decline leave. The respondents’ arguments about the proper construction of the agreement should be preferred, so there would be no utility in granting leave.
The Rankin interests argue that a breach of an obligation imposed upon a “party” does not entitle a “Joint Venturer” to issue a notice to remedy breach, since a breach by a “Joint Venturer” must be a breach by the “Joint Venturer” as defined. This is the collective of the individual and his company. On this view, a breach by one part of the “Joint Venturer” is insufficient to find a breach by the “Joint Venturer”
The better construction, in my opinion, is that where each “Joint Venturer” is the composite of an individual like Mr Rankin and his corporate entity in respect of the units and shares held by them, a “Joint Venturer” breaches its obligations under the agreement when those obligations are breached by one of its constituent parts. It makes commercial sense that such a composite “Joint Venturer” would be in breach of its obligations when a part of that composite entity is in breach. It would be an odd commercial result if the individual who together with his corporate alter ego constitutes the “Joint Venturer” could commit a substantial breach of the Joint Venturer’s obligations under the agreement but be insulated from the notice of default provisions in cl 8 and the operation of cl 9 by insisting that only he had breached obligations under the agreement.
The Rankin interests note that in different places the agreement places obligations upon the “parties” and upon the “Joint Venturers”. This separate treatment is said to evince an intention to differentiate between the obligations of each. It is said to follow that a breach by any one of the individuals that constitute a “Joint Venturer” is insufficient to entitle another Joint Venturer to give a notice to remedy breach.
It is true that the agreement is not confined to the obligations of Joint Venturers. For example, cl 6 contains undertakings by each of the “parties”. However, this is understandable because in addition to imposing obligations on parties who are “Joint Venturers” it imposes obligations on parties who are not, such as the Company.
The agreement deals with the obligations of parties. For example, if an individual who is a party to the agreement breaches an undertaking in cl 6, then another party, such as the Company, might sue him.
The agreement also deals with an “Event of Default” in respect of a Joint Venturer. This is when a Joint Venturer “fails to comply with its obligations” under the agreement and fails to remedy the failure within 28 days after a notice to remedy is given. There is no sound contextual or commercial reason to suppose that “its obligations” do not include the obligations imposed by cl 6.
If a party or parties that constitute a “Joint Venturer” engages in conduct that breaches its obligations, then the agreement provides remedies which co-exist. The Company or another Joint Venturer may seek monetary or other remedies for a breach of the relevant clause. In some circumstances, the other Joint Venturer may not wish to invoke the notice and buy-out provisions of cll 8 and 9. In other circumstances it will.
The fact that the agreement deals both with the obligations of “parties” (who include Joint Venturers) and the obligations of a “Joint Venturer” does not mean that conduct by a party cannot breach the agreement and, at the same time, amount to an “Event of Default” because the Joint Venturer that the party constitutes has failed to comply with its obligations.
The better construction is that if an individual who is defined to be part of a Joint Venturer engages in conduct that results in that Joint Venturer failing to comply with “its obligations” under the agreement, then an “Event of Default” by that Joint Venturer occurs.
The words “its obligations” in the definition an “Event of Default” serve to emphasise that a Joint Venturer is a composite with shared obligations.
Rankin Investments and Mr Rankin as a “Joint Venturer” had shared obligations which they were found to have breached when Mr Rankin sent the emails.
For these reasons, leave to argue ground 4 should be declined, and the appeal should be dismissed.
Such an implication is derived from the express term to take necessary steps. Without that implication, a party who has signed a document it is obliged by cl 6.1(a) to sign would be free to then tear it up. This would produce a plainly perverse result that would hinder or prevent the fulfilment of the purpose of the express term.
Therefore, I conclude that, as a matter of construction, cl 6.1(a) is capable of giving rise to a negative stipulation by way of implication. The implication is that the party will not do things that are inconsistent with the obligation to take necessary steps.
J D Heydon, Heydon on Contracts (Thomson Reuters, 2019) at [10.10] citing G Williams, ‘Language and the Law – IV’ (1945) 61 LQR 384 at 401. ↩
[2020] NSWSC 497 at [24]-[31]. ↩
[1928] HCA 12; (1928) 40 CLR 540. ↩
[2020] NSWSC 497 at [31]. ↩
Ibid at [30] citing Electricity Generation Corporation v Woodside Energy Ltd [2014] HCA 7; (2014) 251 CLR 640 at [35] and Australian Broadcasting Commission v Australasian Performing Right Association Ltd [1973] HCA 36; (1973) 129 CLR 99 at 109-110. ↩
I M Jackman, ‘Some judicial fallacies concerning entire agreement clauses’ (2015) 89 Australian Law Journal 791 at 794. ↩
(1910) 10 CLR 417. ↩
Ibid at 421. ↩
Ibid at 430, followed by McLelland J in Johnson Matthey Ltd v AC Rochester Overseas Corp (1990) 23 NSWLR 190 at 196-197. ↩
Geys v Societe Generale, London Branch [2013] 1 AC 523 at [55]; L J Hooker Ltd v W J Adams Estates Pty Ltd (1977) 138 CLR 52 at 74-75. ↩
Byrne v Australian Airlines Ltd (1995) 185 CLR 410 at 450. ↩
Ibid at 453. ↩
(1896) 7 QLJ 68 at 70-71 (emphasis added). ↩
(2001) 205 CLR 126 at 142; [2001] HCA 45 at [36]. ↩
Clauses 2.1 and 5.1. ↩
Clause 2.1. ↩
Clause 5.4. ↩
Reasons [121]. ↩
Reasons [122]. ↩