Case: Hospital Products Ltd v United States Surgical Corporation [1984] HCA 64 ; (1984) 156 CLR 41
Outcome: applied
aspects of cl 6.2 should be emphasised at the outset. The first is that cl 6.2 imposed reciprocal and, at least in the case of parallel importation, potentially interdependent obligations on AMC and Hamilton. Those obligations could operate upon the same subject matter for the reason that each could relate, as in the present case, to genuine Hamilton products finding their way into the Hong Kong market outside of the Distribution Agreement. Further, when considered together with cl 34, one party's best efforts obligation could require it to do everything reasonable to help the other carry out its best efforts obligation. Secondly , the subclause did not impose a duty on either party to achieve a specific result, rather it was to use best efforts to secure that result: on the difference see Unidroit Principles of International Commercial Contracts : 2004, Art 5.1.4, Comment 1. The content of "best efforts" is considered below. Thirdly , the best efforts obligation was directed at preventing the occurrence of an undesired event, ie the sale "in the Territory" by third parties of products the subject of the Distribution Agreement. In this it was a less common form of the obligation, the more usual form being directed at procuring the occurrence of a desired result, eg the sale or promotion of a product: Hospital Products Ltd v United States Surgical Corporation [1984] HCA 64 ; (1984) 156 CLR 41 at 63-64; the exploitation of an invention: Terrell v Mabie Todd &amp; Co Ltd (1952) 69 RPC 234 ; or the advancement of a business: Sheffield District Railway Co v Great Central Railway Co (1911) 27 TLR 451 at 452. The "standard of endeavour" prescribed by a best efforts clause is characteristically measured by what is reasonable in the circumstances having regard to the particular contract in its business setting and to what could reasonably be expected of the party subject to the obligation: see Transfield Pty Ltd v Arlo Internation Ltd [1980] HCA 15 ; (1980) 144 CLR 83 at 101; see also Farnsworth, Contracts , &#167;7.17. Or to put it shortly, the party's obligation is "to do what [it] reasonably could do in the circumstances": Terrel , at 237. It is nonetheless important in this setting to emphasise the importance of context in giving practical substance to the prescribed standard of endeavour. As Gibbs CJ said of a best efforts obligation in Hospital Products Ltd (at 64): ... it is trite to say that the meaning of particular words in a contract must be determined in the light of the context provided by the contract as a whole and the circumstances in which it was made, and that decisions on the effect of the same words in a different context must be viewed with caution. Today this probably does no more than emphasise the contemporary significance of context in contractual interpretation: see Toll (FGCT) Pty Ltd at [40]; and, relevantly for present purposes, that a commercial contract is to be given "a businesslike interpretation": International Air Transport Association at [8]; or as Lord Steyn put it ( Mannai Investment Co Ltd at 771): "a commercially sensible construction". Factual Setting In these circumstances did Hamilton, through Mr Stafford, satisfy the "standard of endeavour" prescribed by the best efforts clause? Did it do all it reasonably could do in the circumstances to achieve the contractual object of cl 6.1: Hospital Products , at 64? I think not. Hamilton was supplying to Crafers identically, and very distinctively, presented Products to those supplied to AMC. The best efforts clause did not as of course require it to abstain from so doing. What it did require, though, was that Hamilton do all that it reasonably could to prevent the Product sold to Crafers being resold by a third party in AMC's Territory. Mr Stafford sought contractually to regulate where the Product was to be resold. However, unlike in Hamilton's international distributorship agreements, Mr Stafford did not seek contractually to regulate to whom the Products could be sold. For him to rely upon what Crafers (via Mr Lanham) indicated was the purpose of their acquisition was clearly insufficient in the circumstances. Hamilton had had no prior dealings with Crafers. Theirs was not a relationship of trust. Crafers, on the material before me, did not indicate how it would effectuate its purpose. It could, for example, have sold the Product to an exporter. Further there is not, in the circumstances, any proper basis for concluding that Crafers had contractually bound itself to effectuate its purpose. Given that the Products sold to Crafers were intended for use out of Australia (even if resold in Australia), it could reasonably be expected of Hamilton that it stipulate by type the person or classes of person (consistent with the understood purpose of the purchase) to whom the Products could be resold and this with the object of preventing the Products from finding their way into the export trade. If they did, given their Hong Kong packaging, there would be a likelihood of their finding their way into AMC's territory as parallel imports. And that is what occurred. By way of preface I should note that up until final written submissions the case had been prosecuted by Hamilton on the basis that AMC, as Hamilton's fiduciary, held the two trademarks as constructive trustee for it, the marks having been obtained by it in breach of its fiduciary duty to Hamilton. The constructive trust claim and with it, seemingly, the allegation of breach of fiduciary duty were abandoned in Hamilton's written submissions. I say "seemingly" in relation to the fiduciary claim because it was scarcely addressed in submissions yet it is anything but non-contentious in the propositions it asserts: see Hospital Products Ltd ; Rickel v Schwinn Bicycle Co 192 Cal Reptr 732 (1983); Glover, Commercial Equity: Fiduciary Relationships , 3.48-3.51 (1995); and for the causes of contention in this area of the law see my "Fiduciary Principle" in Youdan (ed), Equity, Fiduciaries and Trusts , 1 (1989); see also Gibson Motorsport Merchandise Pty Ltd v Forbes [2006] FCAFC 44 ; (2006) 149 FCR 569 at [11] - [16] . I will return to this in the context of AMC's copyright ownership claim. It was open to Hamilton and AMC to cast their contractual relationship in a way which could, for certain purposes at least, have obliged AMC to act in Hamilton's interests alone or, distinctly, in their joint interests: cf Gibson Motorsport Merchandise at [7]-[16]. They chose to formalise their relationship as one of supplier and distributor, a type of relationship which characteristically is designed, subject to contractual limitations, to serve the several interests of the participants: see Hospital Products Ltd v United States Surgical Corporation ; Rickel v Schwinn Bicycle Co . The Distribution Agreement, and the parties conduct under in it in relation to the packaging was quite characteristic of this. Dr Keung was permitted to serve AMC's interests in selling products it acquired from Hamilton, by utilising artwork and language which he considered would facilitate the sale of those products in the area of the Agreement, so furthering AMC's own interests. Hamilton, in turn, would thereby have its own interests served to the extent that enhanced sales by AMC would be likely to lead to enhanced orders from Hamilton. While AMC was given latitude in the language so used, Hamilton in turn was able to protect its own interests in this matter. It retained for itself a right to approve all statements made on the packaging because of its exposure to product liability and it insisted that the two language versions had to match (to comply with requirements of the TGA scheme). There was nothing fiduciary in this arrangement though it doubtless required elements of trust, cooperation and reliance by the parties if it was to work effectively. But these element of themselves did not turn a non-fiduciary contractual relationship into a fiduciary and personal one outside of, and potentially inconsistent with, the contract itself: cf Gibson Motorsport Merchandise at [11]. The accepted basis in this country of the equitable jurisdiction to relieve against an actual or threatened abuse of confidential information lies ... in the notion of an obligation of conscience arising from the circumstances in or through which the information was communicated or obtained. Moorgate Tobacco Co Ltd v Phillip Morris Ltd [No 2] [1984] HCA 73 ; (1984) 156 CLR 414 at 438.