Case: Renard Constructions (ME) Pty Ltd v Minister for Public Works (1992) 26 NSWLR 234
Outcome: cited
Clause 25.2 gives the Council a discretion to give a written notice to show cause. It is further argued for Goldspar that this discretion is also conditioned upon the implied term of reasonableness and good faith. That is a difficult argument because it must assume a substantial breach of contract and the clause only relates to a notice to show cause the substantive discretion to terminate comes into play at a later point of time, although Renard Constructions (ME) Pty Ltd v Minister for Public Works (1992) 26 NSWLR 234 provides support at least for reasonableness as a criterion to be satisfied. If so, the term would be breached as I regard the whole exercise as designed to effect the anterior purpose of preventing Goldspar from completing the contract. 188 The next thing to note about cl 25 is that, pursuant to cl 25.4, the Council may, by notice in writing, terminate the contract if 'the Supplier fails to show reasonable cause why the Council should not exercise that right' (emphasis added). In other words, there must be an objective failure by the supplier to show reasonable cause. The clause is not conditioned upon the satisfaction of the Council or any other party (cf Renard Constructions (ME) Pty Ltd v Minister for Public Works; Hughes Bros Pty Ltd v Trustees of the Roman Catholic Church for the Archdiocese of Sydney (1993) 31 NSWLR 91). Even if both orders were valid and effective so that there was a substantial breach of contract to support each show cause notice, Goldspar did not fail to show reasonable cause when called upon to do so. In my opinion, the response to the notices showed reasonable cause why the Council should not terminate the contract by reason of failure to comply with each order on the terms ordered. Bearing in mind the time of year and the availability of components, compliance with the orders was quite impractical. 193 Clause 25.4 gave to the Council a discretion to terminate. It follows from the findings that have been made that the necessary preconditions to exercise that discretion did not occur. It is also argued that the exercise of that discretion is subject to an implied term as to reasonableness and good faith. This arises in a different context to the similar questions discussed earlier. In Jenkins v NZI Securities Australia Ltd the Full Court considered the following clause: '5.08 On the third anniversary of the first Drawdown Date, the Financier will review the Facility with a view to extending the Repayment Date by a further period of 12 months. If the Financier is prepared to so extend the Repayment Date, it will notify the Company accordingly and request the Company to advise whether it so wishes the Repayment Date to be so extended. Upon receipt of such notice from the Financier, the Company shall advise the Company [sic] within seven (7) days as to whether it wishes the Repayment Date to be extended. If the Company so advises the Financier, the Repayment Date will be extended for a further period of 12 months and otherwise the Repayment Date will remain unaltered.' Beaumont, Gummow and Carr JJ said (at 619): 'We would add that the law would oblige the financier to conduct the review in good faith and, perhaps, also reasonably, in the sense of paying regard to the interests of both parties: Amann Aviation Pty Ltd v Commonwealth (1990) 92 ALR 601; 22 FCR 527 at 532, 542 4, affd [1991] HCA 54 ; (1991) 174 CLR 64 at 96, 150; 104 ALR 1; Renard Constructions (ME) Pty Ltd v Minister for Public Works (1992) 26 NSWLR 234 at 280; cf Hughes Bros Pty Ltd v Trustees of Roman Catholic Church for Archdiocese of Sydney (1993) 31 NSWLR 91.' I should follow that guidance and imply a term accordingly. There is an air of unreality in considering breach of that term because, for it to arise, the show cause notice must be taken to have been valid and Goldspar would not have shown reasonable cause. However, I have no doubt that in purporting to rescind the contract the Council was acting pursuant to the determination which had been formed to remove the work from Goldspar and give it to others and so was in breach of the implied term, no matter how it is precisely framed.