Case: GEC Marconi Systems Pty Ltd v BHP Information Technology Pty Ltd [2003] FCA 50 ; (2003) 128 FCR 1
Outcome: applied
although the present state of the law in this country is not yet settled on whether it is possible to use post-contractual conduct as an aid to construction of a written contract, the more favoured view is that it is not: see Masterton Homes, at [114]; FAI Traders Insurance Co Pty Ltd v Savoy Plaza Pty Ltd [1993] 2 VR 343. The criticisms of this view are, in the main, directed at its inflexibility particularly in relational contract settings: see eg GEC Marconi Systems Pty Ltd v BHP Information Technology Pty Ltd [2003] FCA 50 ; (2003) 128 FCR 1 at [351] ; see also Unidroit Principles of International Commercial Contracts: 2004 , Art 4.3. What I should emphasise at the outset is that AMC does not rely upon conduct subsequent to the execution of the Distribution Agreement, but which is inconsistent with its terms, to evidence an oral variation of the agreement: cf GEC Marconi Systems Pty Ltd v BHP Information Technology Pty Ltd [224]-[231]. Neither has there been any attempt to rely upon subsequent conduct for the purpose of interpreting the Distribution Agreement: see Cheshire and Fifoot's Law of Contract , [10.16] (9 th Aust ed). Distinctly, there is no allegation made that in exercising its cl 41.1.6 power Hamilton breached its duty of good faith and fair dealing to AMC or otherwise acted unconscionably: cf 67 Am Jur 2d, "Sales", &#167;343. (a) AMC's contentions As AMC's submissions as to the inefficacy of the 13 July 2006 notice of termination turns, in the first instance, upon the construction it advances of cl 8.1, it is appropriate to deal with that provision first. The AMC case can be put shortly. It is that cl 8.1 provides the mechanism for setting the "Term" (ie the duration) of the Distribution Agreement. Unless and until either (or both) of the parties gave "the written notice of its desire to terminate" the Agreement, or "to alter its terms and conditions" (such notice to be given 4 years before the expiration of the 5 year term) "the Term in this Agreement was automatically extended for 12 months to make up the Term to 5 years". In other words, subject to the non-occurrence at the end of the first year of the term of the stipulated condition (which, if it had occurred, would have limited the term of the agreement to a further 4 years (the remaining of the initial term), the initial term was automatically extended a further year. In this sense, it allowed for a rolling 5 year term. Further, it provided expressly for four years notification of a party's "desire to terminate" the Agreement. It could not otherwise be terminated (save by later express agreement). Importantly, it could not be terminated under cl 41.1.6. I have earlier indicated that AMC has not pleaded that the Distribution Agreement was amended after its execution so as to vary cl 8.2. I need not enter upon the matter of variation or of the possible significance of the agreement apparently made at the 23 March 2005 meeting to continue automatically to extend the Distribution Agreement each year for a further 12 months "thereby ensuring a rolling 5 year term at all times". However I would make the following observations. Neither the entire agreement clause (cl 45) nor the writing requirement of cl 50.2 provided an impediment to an oral variation of the Distribution Agreement if such an agreement was in fact reached. I considered the efficacy of "no oral modification" clauses at length in GEC Marconi Systems Pty Ltd , at [214]-[222]. The rule to be applied to such clauses reflects the observation made by Cardozo J in Beatty v Guggenheim Exploration Co 122 NE 378 (1919): "Whenever two men contract, no limitation self imposed can destroy their power to contract again". I would add, as I said in GEC Marconi (at [220]): (5) The usual objection raised to depriving a no oral modification clause of legal effect is that it involves a failure to give effect to what the parties have agreed. In the present case GEC Marconi has raised just this objection. The vice in it, though, is that a later oral or implied contract is itself an agreement. As a US commentator recently observed (Snyder, "The Law of Contract and the Concept of Change: Public and Private Attempts to Regulate Modification, Waiver and Estoppel" (1999) Wis L Rev 607 at p 640): The question for the court is not whether to honour the parties' original agreement, but rather which of their agreements should be effective. To say that contract law should enforce the parties' agreement, therefore, does not resolve the issue. The question is whether to enforce the first agreement or the second. The common-law courts addressing [no oral modification] issues chose the second. This choice makes a fair amount of sense; the later agreement probably reflects what the parties want better than their earlier agreement does. I would add that the opinion expressed in the second quoted paragraph is particularly appropriate to relational contracts which, as in the present instance, may be evolutionary in character.