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Implying law into contracts March 26, 2018

Bayside Council v V Corp Constructions Pty Ltd [2017] NSWCA 120


39. In dealing with a deed of release, in Bank of Credit and Commerce International SA v Ali, [5] Lord Hoffmann, after noting that the language of the document was “very wide”, continued:
“So I think that anyone who was simply reading the document without preconceptions would accept that the draftsman was not leaving deliberate gaps. It does not however follow that the language was to be read completely literally. There may be limitations in scope to be inferred from the background, limitations from context which the draftsman may have thought too obvious to mention.”
Lord Hoffmann continued, by way of explication of statements as to admissible background material made in Investors Compensation Scheme Ltd v West Bromwich Building Society: [6]
“It is not, for example, confined to the factual background but can include the state of the law (as in cases in which one takes into account that the parties are unlikely to have intended to agree to something unlawful or legally ineffective)”.
41. An undertaking to carry out works does not need to be described as an undertaking to carry out works “if they can lawfully be accomplished”. Some things may be understood as encompassed within general language. If not express, such a limitation is at least consistent with the tenor of the contract, is the only reasonable and equitable solution to the refusal of Energy Australia to give its approval, and thus makes sense of the contractual obligation. It must be assumed that the parties knew that no such work could be done without the approval of Energy Australia. That circumstance was analogous to an agreement to lease land, where the lease requires approval of a Minister. [7]
On another view, if the contract does not expressly so provide, the implication of a term to that effect is both necessary and obvious. It can be accommodated by implying the words “with the approval of and” before the words “in accordance with the standards and requirements of Energy Australia”; that would exclude from the scope of the obligation work which would be unlawful and would render the obligation legally effective. Such an implied term would satisfy the requirements of BP Refinery (Westernport) Pty Ltd v Shire of Hastings. [8]

71. 71 In such circumstances, the present case is one in which at least two interpretations of cl 2.1(b) are possible: first, that the first respondent had an absolute obligation to perform even if approval were denied, such that the first respondent would be liable in damages if it did not perform; and second, that the first respondent’s obligation was subject to Energy Australia granting approval. In K Lewison and D Hughes, The Interpretation of Contracts in Australia(2012, Lawbook Co) at 320, the following principle is stated: “[w]here the words of a contract are capable of two meanings, one of which is lawful and the other unlawful, the former construction should be preferred”. Support for such an approach may be found in the judgment of Lord Hoffmann in Investors Compensation, as quoted above (at [40]) by Basten JA. The principle was also endorsed in the dissenting judgment of Mason P in Global Network Services Pty Ltd v Legion Telecall Pty Ltd [2001] NSWCA 279 at [102]. While Meagher JA and Beazley JA (as her Honour then was) disagreed (at [113]; [122]) with the “legal conclusions” reached by Mason P, I read their disagreement as turning on the precise contractual provision at issue in that case (Meagher JA describing the relevant provision (at [114]) as “perfectly unambiguous”). I read Mason P’s remarks (at [106]-[107]) as apposite to the contractual provision at issue in the present case:
Later (at [260]) Professor Carter explains that, where a contract cannot be performed without the consent or approval of a third party, or the issue of a licence, one of the parties will usually be subject to an express or implied obligation to obtain the consent, approval or licence. If nothing is said on the standard of duty, the usual approach has been to imply a duty requiring the exercise of care, due diligence and best endeavours.
The clearest example of this phenomenon is a contract for sale of land where performance requires a Minister’s consent. In Egan v Ross [1928] NSWStRp 101; (1928) 29 SR(NSW) 382 at 387 Harvey CJ in Eq explained that the implication of such a best endeavours proviso may be necessary in order to save an apparently absolute promise from a plea of illegality. He cited an earlier decision of his (Duncan v Mell [1914] NSWStRp 42; 14 SR(NSW) 333 at 339) where he had said:
Where a contract for the sale of such an interest is made, and nothing is said about the subject of the Minister’s consent, it appears to me it must be implied in such contract that if things are left as they are at that date and the consent of the Minister is refused, the contract would go off. Prima facie it would be the duty of the vendor under such circumstances to procure the consent, that being necessary to complete his power to transfer; but if he does not obtain it, it seems to me it must be implied that the contract goes off….

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