GREENWOOD v ALL STATES FOOD SERVICE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL GLEESON CJ, HANDLEY JA and COLE AJA 29 April 1994, 29 April 1994 [1994] NSWCA 115 Cole AJA On 11 August 1980 the appellant, Roy Stanley Greenwood, as "Agent Distributor", entered into a contract with the respondent, All States Food Service Pty Ltd ("the company") by which the appellant purchased from the respondent a franchise for a term of five years with an option for renewal to deliver fruit and vegetables from Flemington Market to a franchise territory in the Manly Warringah area. In order to perform the contract the appellant attended at the respondent's warehouse at the Flemington Markets between approximately 5 and 6 am each day, parked his truck in his nominated parking spot near the warehouse, collected and wheeled trolleys laden with pre-packed orders to his truck, loaded the truck, and thereafter delivered the goods to various outlets in his territory. He received a payment for his services calculated by reference to percentages of the invoice price of the goods. On 24 July 1984 the respondent purported to terminate the contract by a letter delivered to the appellant on that day. The letter, in part, read: "We have reviewed the above contract, and in particular both the express and implied actions required on your part to ensure its satisfactory execution. We consider that your conduct is outside the terms of our agreement in a commercial context, and that specifically: (iii) you have refused to co-operate with our warehouse goods handling system which is adhered to by 23 other drivers" The appellant treated that letter as a wrong repudiation of the franchise contract and, on 8 November 1984, sued the respondent for damages. The matter was heard by Smart J four and a half years later in June 1989. His Honour delivered judgment on 27 August 1990. Smart J dismissed the appellant's claim finding that his conduct in not abiding by egress arrangements introduced as part of what his Honour described as the respondent's "warehouse system" breached an implied term of co-operation necessary to permit the working of the respondent's warehouse operations from which the appellant and some 23 other franchisees collected and removed produce for distribution. His Honour found that there was necessarily implied in the franchise agreement a term, variously expressed, that each party should co-operate with the other in relation to the delivery of produce by the respondent to the appellant and the removal by the appellant of such produce from the warehouse. The respondent succeeded before Smart J only upon the ground of breach of the implied term of co-operation. Thus only that finding is challenged in this appeal. The implied terms pleaded by the respondent in his Further Amended Defence were: "9. Alternatively, the defendant said that it was an implied term and a condition of the said agreement that the plaintiff: (a) would observe the Defendant's warehouse handling system and/or 2 UNREPORTED JUDGMENTS (b) would observe and obey all reasonable directions by the Defendant concerning the loading and dispatch of its products from its warehouse at Flemington Markets. 9A. (a) Alternatively, the Defendant says that it was an implied term and a condition of the said Agreement that each party would extend reasonable co-operation to the other in the carrying out of their respective functions at Building M Flemington Markets. (b) In breach of the said term, the plaintiff refused to observe the Defendant's warehouse handling system and/or to observe a reasonable direction by the Defendant concerning the loading and dispatch of its products from its said warehouse" Particulars of the alleged breach at 9A were that the defendant repeated particulars given elsewhere in his statement of defence. Smart J's judgment records, at p643 of the appeal book: "Para9A was added on the last day of the trial after the evidence had closed. The plaintiff did not consent to the amendment that it could not show any prejudice and did not wish to lead any further evidence or further cross-examine any witness who had been called. Leave was granted to the defendant to amend and para9A was added to the defence". In contrast, the written submissions of the appellant assert: "Leave to amend was granted over objection" and, in para22 and para23 of the written submissions, the following: "The appellant was prejudiced by the Court allowing there amendment after close of the evidence because the making of the amendment in fact gave rise to a fresh factual issue which was adjudicated upon by the Court and found adversely to the Appellant, without the Appellant having been put notice of that issue or given an opportunity to be heard. The discretion of the Court to allow the amendment miscarried because, in that way, it operated so as to deny the Appellant natural justice". In my view the appellant suffered no prejudice if, as Smart J recorded, he could point to no prejudice from the amendment and if he was given the opportunity to lead any further evidence he desired or further cross-examine any witness who had been called. No evidence was placed before this Court to suggest that Smart J incorrectly recorded what occurred. The transcript does not record any discussion about the amendment at the close of evidence. Obviously counsel for the appellant had a chance to address the Court after the amendment and after the close of evidence, and, accordingly, it is not correct to assert that the appellant was not given an opportunity to be heard on the legal principles or evidence dealing with the implied term pleaded. It is, however, correct to assert, as the appellant does, that it was not given an opportunity to be heard upon the implied term as formulated by Smart J which is different in form, but not in my view different in substance, to the implied terms pleaded. Smart J formulated the term which he would imply as being "an amalgam of parts of para9 and para9A of the Amended Statement of Defence" in the following terms: "Each party shall reasonably co-operate with the other in the collection by the plaintiff of the goods ordered and their removal to the Plaintiff's truck in conjunction with the general receipt and dispatch of goods into and from the warehouse. The defendant shall implement and maintain a reasonable warehouse system for such collection and removal by all truck drivers with which the plaintiff shall comply. URJ GREENWOOD v ALL STATES FOOD SERVICE (Cole AJA) 3 In my view there is no difference in substance between the implied terms so formulated and those alleged in para9 and para9A. It follows, in my view, that the appellant had the opportunity to submit to Smart J that which he wished regarding the substance of the implied terms pleaded and advanced by Smart J. Accordingly, there was no denial of natural justice. In any event, Smart J found the terms as pleaded in para9 and para9A both established and breached. The distribution agreement between the parties was as follows: "Cl12: ... for this purpose the Agent Distributor shall attend at the Company's depot presently located at Building M, Flemington Markets, or at such other depot or depots as the Company may from time to time establish within reasonable distance of the said franchise area every morning at the hour of 6 o'clock am from Monday to Friday inclusive. It shall be the duty and the responsibility of the Agent Distributor to check all orders against their respective invoices before delivery as to description, quality and quantity and upon delivery to complete the deliver/receipt sheets (which sheets the Company will make available to the Agent Distributor) as required, including the obtaining of the purchaser's signature thereon". C130: "There are no other agreements or understandings either oral or in writing between the parties affecting this franchise or the agreements and provisions hereunder or relating to the sale and distribution of All States Providers products and this instrument contains the entire and only agreement between the parties hereto". Ci31: "No agreement between the parties which is at variance with any of the provisions of this agreement or which imposes definite obligations upon either party not specifically imposed by this agreement or which is intended to be effective or performed following the expiration or other termination of this agreement and imposes obligations or extends the time for performance thereof other than as is provided in these presents shall be binding upon either party unless in writing executed by the Agent Distributor and by the Company or its authorised officer". Smart J held that cl30 and cl31 "lead to a cautious approach to implying any terms in the agreement". On this appeal the appellant argued five grounds of appeal. They are grounds 1, 2, 3, 4 and 6 and are set out at p664 of the appeal book: 1. The Court erred in implying into the contract between the parties dated 11 August 1980, the terms contended for in para9A(a) of the Further Amended Notice of Defence as amended on 7 June 1989 or any other term to like effect. 2. Further and in the alternative, the Court erred in holding that the appellant had breached any such term. 3. Further and in the alternative, the Court erred in holding that any such breach was a repeated and serious breach of the said contract within the meaning of cl24 thereof. 4. Further and in the alternative, the Court erred in not holding that any such repeated and serious breach had been waived by the respondent. 6. Further and in the alternative, the discretion of the Court miscarried in allowing the respondent's application to amend the Further Amended Notice of Defence by the addition of an alleged implied term after close of the evidence. 4 UNREPORTED JUDGMENTS If any of those grounds of appeal succeeded, he sought consequential relief. For reasons which I have already given ground 6 which asserted that the discretion of the court had miscarried in allowing the respondent's application to amend the Further Amended Notice of Defence by the addition of an alleged implied term after close of evidence fails. The correct approach when considering whether there be implied in a contract an obligation upon each party to co-operate to achieve performance of a contract is set forth by Mason J in Secured Income Real Estate (Australia) Ltd v St Martins Investments Pty Ltd (1979) 144 CLR 596 at 607 and 608: *But it is common ground that the contract imposed an implied obligation on each party to do all that was reasonably necessary to secure performance of the contract. As Lord Blackburn said in Mackay v Dick: "as a general rule... where in a written contract it appears that both parties have agreed that something shall be done, which cannot effectual be done unless both concur in doing it, the construction of the contract is that each agrees to do all that is necessary to be done on his part for the carrying out of that thing, though there may be no express words to that effect' it is not to be thought that this rule of construction is confined to the imposition of any obligation on one contracting party to co-operate in doing all that is necessary to be done for the performance of the other party of his obligations under the contract. As Griffith CJ said in Butt v McDonald: 'It is a general rule applicable to every contract that each party agrees, by implication, to do all such things as are necessary on his part to enable the other party to have the benefit of the contract' It is easy to imply a duty to co-operate in the doing of acts which are necessary to the performance by the parties or by one of the parties of fundamental obligations under the contract. It is not quite so easy to make the implication when the acts in question are necessary to entitle the other contracting party to a benefit under the contract but are not - fundamental to the contract. Then the question arises whether the contract imposes a duty to co-operate on the first party or whether it leaves him at liberty to decide for himself whether the acts shall be done, even if the consequence of his decision is to disentitle the other party to a benefit. In such a case, the correct interpretation of the contract depends, as it seems to me, not to much on the application of the general rule of construction as on the intention of the parties as manifested by the contract itself. The franchise agreement did not address in terms any arrangement for the delivery by the respondent to the appellant for the collection or loading of goods so collected by the appellant from the respondent at the warehouse each morning. As the franchise agreement bestowed upon the appellant a franchise for distribution only to a limited area, it was obviously known to both parties at the time of signing the agreement that there would be other franchisees who, along with the appellant, would be attending at the warehouse each morning to collect goods for delivery. It must have been known to the appellant that to enable delivery to or collection by the numerous franchisees of their respective orders of goods each morning, the franchisor would need so to organise the warehouse as to permit receipt of produce, its packing into the various orders, and the delivery or collection of those orders once packed to the various franchisees. That involved management by the franchisor of the warehouse premises from which it operated its business in such manner as it chose to permit it to perform its obligation to the franchisees, including the appellant, to provide for collection of URJ GREENWOOD v ALL STATES FOOD SERVICE (Cole AJA) 5 the franchisees, orders. Of necessity, that involved co-operation by the franchisees in the system of administration operating by the franchisor to permit it to comply with its contractual obligation, and to permit the franchisees to have the benefit of their contractual rights to collect goods for distribution. The "manifest intention" referred to by Mason J in Secured Income of the franchise agreement was that the franchisor make available to the franchisee, from a warehouse conducted by the franchisor, goods. It is consequentially implicit that the franchisee will co-operate in such manner as may be necessary to permit operation of the franchisor's business at its warehouse so as to permit both parties to receive the benefit of the franchise agreement. It follows, in my view, that a duty of co-operation is imposed implicitly upon the franchisee. There is nothing in the franchise agreement which restricts the manner in which the franchisor may conduct its business on receiving produce, repackaging it into orders and making it available for collection by the franchisees. In the conduct of its business in its premises it is entitled to regulate the flow of traffic, including a right to determine the method of ingress and egress of goods to and from its premises. Those matters are obviously adjuncts to the conduct of its business and must be taken to have been understood by the appellant at the time of contract. It cannot seriously be thought that the appellant contracted on the basis that he could determine in what manner or through what entrances the franchisor was to receive its goods or require goods delivered by the franchisees to leave the premises. In my view the basis and method of ingress and egress of large quantity of produce involving the movement of many forklifts, and trolleys and people was clearly a matter fundamental to the operation of the franchisor's business, and to the contract between it and the various franchisees. It follows that there is to be implied into the franchise agreement an obligation of co-operation, including co-operation in relation to the place of ingress and egress of goods from the warehouse premises by franchisees. The term alleged in each of cl9 and cl9A(a) of the statement of defence is to be implied into the contract, as, indeed, is a term as formulated by Smart J. The implication of such a term is not inhibited by cl30 or cl31. Such implied term does not impose "definite obligations" upon "the franchisee not specifically imposed by this agreement". In context, "obligations" refers to an imposition or requirement additional to the implicit obligation upon both parties to do that which is necessary to permit the performance of the contract. The first ground of appeal thus fails. Smart J found that the plaintiff did not co-operate with the defendant. There was abundant evidence to support that finding of fact. Smart J recounted that the appellant had been asked to adhere to the arrangements in place regarding egress when moving stock prior to 14 December 1983 by Mr Caltabiano Jnr, Mr Cirene, by Mr Caltabiano Jnr in July 1984. Smart J rejected the applicant's evidence that he had first received an instruction from management regarding the egress in July 1984. There is no reason to disturb Smart J's findings of fact, and the second ground of appeal thus fails. Cl24(e) permits the franchisor to terminate the franchise immediately by delivery of a written notice of termination in the event of "any serious or repeated breach hereof by the Agent Distributor'. The appellant has argued that repetitively disregarding requests or instructions not 6 UNREPORTED JUDGMENTS to wheel goods out of the warehouse premises through the receiving entrance does not constitute "a serious or repeated breach of the agreement because, by reference to the remainder of cl24, "serious" is to be characterised by reference to death, incapacity, bankruptcy, conviction, failure to remit money or the like. There is no reason so to construct cl24(e). In my view breach of the implied term of co-operation by being disruptive of the orderly conduct of the warehouse operation was a serious breach of the franchise agreement and there was, additionally, abundant evidence of repetitive breaches. The third ground of appeal fails. The appellant argued that the conduct complained of as a serious and repeated breach occurred in 1983, and that as the termination occurred in July 1984, the respondent must be taken both not to have regarded the breach as serious and, further, to have waived it. That submission disregards the finding of Smart J that the conduct continued contrary to the instructions of Mr Cirene in the four months in early 1984, and the findings that Mr Catebiano Jnr again spoke to the appellant regarding this matter in May, June, July 1984. There was no waiver of that conduct by the respondent prior to the notice of termination on 24 July 1984. The fourth ground of appeal fails. I have previously addressed the sixth ground of appeal which also fails. I would propose that the orders of the court be that the appeal is dismissed with costs. Handley JA I agree. Gleeson CJ I agree. The orders of the court will be as proposed by Cole AJA. Counsel for the appellant: JC Kelly SC/A Gelbart Solicitors for the appellant: Cowley Hearne Counsel for the respondent: ACA Bridge Solicitors for the respondent: Hannaford, Grieg & Co