Case: B.P. Refinery (Westernport) Pty Ltd v Shire of Hastings [1977] HCA 40 ; (1977) 180 CLR 266
Outcome: followed
It is common ground between AIPA and Qantas that, as at the date of the Explanatory Memorandum, there had been no express agreement as to the starting date for the relevant side agreement, or as to its finishing date. It is also common ground that some provision fixing the duration of any agreement about those matters was an essential term, without which there could not be a binding agreement. The case for AIPA is that the absence of this essential term is cured by the implication of a term to the effect that the side agreement would be of the same duration as EBA7, ie that it would start to operate when EBA7 was certified and would continue in operation until EBA7 was replaced by a further certified agreement, or otherwise ceased to be binding. This term was said to satisfy the requirements for a term to be implied into a contract, laid down in B.P. Refinery (Westernport) Pty Ltd v Shire of Hastings [1977] HCA 40 ; (1977) 180 CLR 266 at 283: (1) it must be reasonable and equitable; (2) it must be necessary to give business efficacy to the contract, so that no term will be implied if the contract is effective without it; (3) it must be so obvious that "it goes without saying"; (4) it must be capable of clear expression; (5) it must not contradict any express term of the contract. 80 Before considering whether the suggested implied term meets these criteria, it is necessary to deal with one argument. That argument is based on the proposition found in the judgment of Kaye J, with whom Marks and Teague JJ agreed, in Australian and New Zealand Banking Group Ltd v Frost Holdings Pty Ltd [1989] VR 695 at 702, that "the law does not permit a court to imply a term into a bargain between parties for the purposes of making their bargain an enforceable contract." If this proposition is to be taken at face value, it is hard to see how most of the cases in which it has been held that there are implied terms in contracts could have been so decided. There have been numerous cases in which courts have held that implied terms that the performance of agreed obligations take place within a reasonable time, or that a party may bring about the termination of agreed obligations by giving reasonable notice, are available to ensure the binding nature of those agreed obligations. In the words of the Privy Council in the B.P. case, such implied terms are "necessary to give business efficacy" to the contracts of which they are found to be part. The danger of taking the proposition expressed by Kaye J at face value is obvious. Such a proposition could lead to arguments akin to those about whether the chicken came before the egg, or the egg before the chicken. Was there already an agreement, so that it can be supplemented by an implied term to give it efficacy, or was there no binding agreement because there was no express agreement about the subject matter of the implied term? In my view, Kaye J intended to mean no more than that the parties must have agreed to be bound by the obligations they have expressed in their negotiations, before the question whether a term can be implied to give that agreement efficacy can be addressed. It is on that basis that I approach the present case. 83 Before examining the relevant communications between the parties subsequent to 28 September 2005, it is worthwhile to apply the criteria in the B.P. case to the implied term advanced by AIPA on the pleadings. In this respect, it is clear that the alleged implied term cannot survive being tested against the third criterion, that the term must be so obvious that "it goes without saying". 85 Similarly, the question of a date of termination of the obligations did not necessarily have a relationship with the duration of EBA7. In this respect, the parties could have chosen a termination date, or mechanism, from a range of possibilities. For instance, it might have been agreed that the side agreement should continue to operate until such time as one or other party terminated it by giving some agreed period of notice. A specific termination date might have been chosen, with or without the possibility of termination by notice. The existence of such a range of reasonable possibilities is fatal to the satisfaction of the third criterion in the B.P. case. It must be remembered that the criteria in the B.P. case must be satisfied by a particular term. It is not open to the Court to choose from a range of possible implied terms, for the purpose of making an agreement into a final one. The particular term advanced must be so obvious that it is unnecessary to express it, because both parties will recognise that it is present in their agreement. The implied term pleaded in the present case clearly does not satisfy that requirement. 86 The negotiations between the parties subsequent to 28 September 2005 confirm that, as at that date, the implied term pleaded was not at all obvious. In her first draft of the memorandum of understanding, Ms Starke chose a different term altogether. Her proposal was that the agreement would come into effect on certification of EBA7 and continue to operate forever, unless varied, replaced, rescinded or terminated by agreement between the parties. Qantas responded with a proposal that the side agreement expire on the nominal expiry date of EBA7. Only then did Ms Starke, on behalf of AIPA, propose something like what is now said to be the obvious term, in an attempt to ensure that the side agreement should continue in force if EBA7 endured beyond its expiry date, in accordance with s 170LX of the WR Act . In her submissions to the Commission on 16 November 2005, when she was seeking to have the application for certification of EBA7 adjourned, Ms Starke did not contend that there was a binding agreement containing an implied term that the memorandum of understanding would have the same duration as EBA7. She contended that there was no completed agreement. It may be true that her perception of the situation was not conclusive of the non-existence of a binding agreement. It is equally true that the term that AIPA now contends was so obvious as to go without saying was not obvious to Ms Starke, who had the principal responsibility for finalising the memorandum of understanding on behalf of AIPA. 87 At a very late stage in the trial of the proceeding, in submissions in reply, counsel for AIPA applied to amend the statement of claim, so as to allege in the alternative an implied term to the effect that the agreement containing the non-pertaining provisions would come into operation immediately and would continue until either party terminated it on reasonable notice. I reserved the question whether leave to amend at that stage ought to be granted. As I have said, the objective observer of the terms expressed in the Explanatory Memorandum of 28 September 2005 would have been more likely to have formed the view that the terms agreed on would come into effect immediately, and would continue until terminated by reasonable notice. Such a term is more obvious than the one originally pleaded in this case. The question remains, however, whether it is so obvious that it goes without saying. Given the existence of a range of possible provisions as to duration, it is impossible in my view to select any one as being the obvious provision, so that any expression of a term as to duration was unnecessary. 88 The subsequent negotiations of the parties about the wording of a duration clause are inconsistent with any proposition that they must be taken to have accepted that any particular term relating to duration was so obvious that its content did not require expression for the agreement to be binding. The reality is that the parties did not regard themselves as having reached a concluded agreement about the non-pertaining matters at 28 September 2005. What remained to be done was not a mere drafting exercise, but the negotiation of the terms of the agreement proposed. The correspondence between the parties about the content of the duration agreement is clear evidence of this. So also is the negotiation that took place about the sharing of any liability that might arise from the implementation of the proposed agreement. It is a reasonable inference that it was not until some time after 28 September 2005, and probably when they were exchanging drafts in November 2005, that the parties began to realise that there were potential legal difficulties confronting the proposal to transfer the non-pertaining provisions into another document. The principal difficulty was obvious. At the time when they were agreed, and were included in EBA5 and EBA6, on the assumption that the provisions were valid, there was no difficulty about the effect that they had in relation to the obligations of Qantas under EBA5 and EBA6. Once the provisions were removed, however, and the terms that they had qualified were left unqualified in EBA7, those terms would become enforceable under the WR Act in their unqualified form. It would have been possible for an inspector, or an employee whose employment was subject to EBA7, to institute a proceeding pursuant to s 178(1) of the WR Act (as it then stood), seeking to recover a penalty in respect of any breach of any term of EBA7 brought about by an attempt to modify the operation of the terms of EBA7 by applying any of the non-pertaining provisions. It seems that this realisation gave rise to Qantas's proposal in relation to the sharing of liability. Far from refusing to countenance this proposal, on the basis that there was already a concluded agreement, AIPA proposed a modification of the clause that would provide equivalent protection to AIPA in the event of any liability. The course of these negotiations is evidence that the parties were still in negotiation about what would be the terms of any memorandum of understanding that might be entered into in consequence of what was said in cll 2.4 and 2.5 of the Explanatory Memorandum.