Hospital Products Ltd v United States Surgical Corporation
156 CLR 4155 ALR 417
(Judgment by: Wilson J) Court:
Judges:
Gibbs CJ
Mason J
Wilson JDeane J
Dawson J
Judgment date: 25 October 1984
Canberra
Judgment by:
Wilson J
My consideration of the issues in this case has led me to a view substantially in accord with that expressed both by the Chief Justice and by Dawson J in their respective reasons for judgment. In the circumstances, I refrain from embarking on a lengthy judgment of my own. I content myself with a few observations.
I accept the finding of the learned trial judge, with which the Court of Appeal agreed, that the statements made by Blackman at the restaurant meeting in November 1978 were "promissory and not merely representational" J J Savage & Sons Pty Ltd v Blakney (1970) 119 CLR 435 at 442) and that consequently it was an express term of the contract that "the distributor would devote its best efforts to distributing USSC surgical stapling products, and building up the market for those products, in Australia, to the common benefit of USSC and itself".
Although the use of the words "common benefit" may leave room for differences of opinion as to the precise operation of such a term, I would not give it an effect which is different in any significant respect from that which is achieved by the implication of the statutory term prescribed by s 2-306(2) of the Uniform Commercial Code which is in force in both New York and Connecticut. That clause provides:--
A lawful agreement by either the seller or the buyer for exclusive dealing in the kind of goods concerned imposes unless otherwise agreed an obligation by the seller to use best efforts to supply the goods and by the buyer to use best efforts to promote their sale.
I would have thought that every sole distributor contract would induce in both parties a reasonable expectation of mutual benefit accruing from the "best efforts" of the distributor.
However, I agree that the trial judge erred when, having identified the express terms of the contract, he went on to imply a term that the distributor would not, during the distributorship, do anything inimical to the market in Australia for USSC surgical stapling products (the "nothing inimical" clause). McLelland J was of the view that the fact that the distributor was bound by a promise to devote its best efforts to distributing USSC surgical stapling products in Australia to the common benefit of USSC and itself necessarily imported, in all the circumstances, an obligation not to do anything inconsistent with building up the market for USSC products in Australia to the common benefit of USSC and the distributor. On a number of recent occasions this court has considered and reviewed the principles which govern the implication of contractual terms. In Secured Income Real Estate (Australia) Ltd v St Martins Investments Pty Ltd (1979) 26 ALR 567 ; 144 CLR 596 Mason J, in a judgment concurred with by other members of the court, declined to imply a term in the contract of sale confining the leases to long-term leases, saying "the fact that such a provision would provide a greater protection for the respondent is not a sufficient reason for implying it": (ALR) at 575; (CLR) at 605. He then referred to and expressly adopted the majority judgment of the Judicial Committee in BP Refinery (Westernport) Pty Ltd v Hastings Shire Council (1977) 16 ALR 363 at 376 ; 52 ALJR 20 at 26, wherein their Lordships said: "... for a term to be implied, the following conditions (which may overlap) must be satisfied: (1) it must be reasonable and equitable; (2) it must be necessary to give business efficacy to the contract, so that no terms 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."
The implication of a term was again considered at length by this court in Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 41 ALR 367 ; 149 CLR 337 at 345 (per Mason J -56, per Aickin J at 371-5 and per Brennan J at 400-7) and, to a lesser extent, in Meehan v Jones (1982) 42 ALR 463 ; 149 CLR 571 and Booker Industries Pty Ltd v Wilson Parking (Qld) Pty Ltd (1982) 43 ALR 68 ; 149 CLR 600 . In those cases the court reiterated that "it is not enough that it is reasonable to imply a term; it must be necessary to do so to give business efficacy to the contract" ( Codelfa per Mason J (149 CLR) at 346). In my view there is no necessity to imply the nothing inimical clause in order to accord business efficacy to the distributorship agreement.
The relationship which existed between the parties in this case, namely that of manufacturer and sole distributor, is not one which would ordinarily be productive of a fiduciary duty. Notwithstanding the fact that Blackman had embarked on a fraudulent scheme, the circumstances of this case do not persuade me that any such duty came into existence. What was required of the distributor was that it devote its best efforts to distributing USSC surgical stapling products and building up the market for those products in Australia to the common benefit of USSC and itself. The extent of that obligation falls to be determined by what is reasonable in the circumstances: see Transfield Pty Ltd v Arlo International Ltd (1980) 30 ALR 201 ; 144 CLR 83 . In Van Valkenburgh v Haydon Publishing Co (1972) 30 NY (2d) 34 the New York Court of Appeals was clearly of the view that the obligation to use one's "best efforts" to promote the object of the agreement between the parties does not foreclose the obligee's right to pursue his own economic interests in matters to which the agreement relates: see Bergan J (with whom Burke, Scileppi, Breitel and Gibson JJ concurred) at p 45.
In a commercial transaction of the kind here under consideration, where the parties are dealing at arm's length and there is no credible suggestion of undue influence, I am reluctant to import a fiduciary obligation. The courts have often expressed a cautionary note against the extension of equitable principles into the domain of commercial relationships, so as "not to strain [them] beyond [their] due and proper limits", to use the words of Lord Selborne LC in Barnes v Addy (1874) 9 Ch App 244 at 251. In New Zealand and Australian Land Co v Watson (1881) 7 QBD 374 the Court of Appeal held that the defendants, who had effected sales of wheat consigned by the plaintiffs for sale, did not stand in any fiduciary character towards the plaintiffs so as to entitle the latter to follow the proceeds of their property in the defendant's hands. Bramwell LJ said, at p 382: "Now I do not desire to find fault with the various intricacies and doctrines connected with trusts, but I should be very sorry to see them introduced into commercial transactions and an agent in a commercial sense turned into a trustee with all the troubles that attend that relation. I think there is no good ground for holding that these defendants have any fiduciary character towards the plaintiffs."
These observations remain as pertinent today as they were one hundred years ago: Scandinavian Trading Tanker Co AB v Flota Petrolera Ecuatoriana [1983] 2 AC 694, per Lord Diplock at 703-4; cf Law Quarterly Rev vol 100 (1984), pp 369-75. As the cases referred to by the Chief Justice in his judgment show, this court has refused, on several occasions, to find a fiduciary relationship in circumstances where the parties contract with each other freely and more or less on an equal footing in a commercial dealing: see Jones v Bouffier (1911) 12 CLR 579 ; Dowsett v Reid (1912) 15 CLR 695 ; Para Wirra Gold & Bismuth Mining Syndicate NL v Mather (1934) 51 CLR 582 . In my view the passage of the judgment of this court in Keith Henry & Co Pty Ltd v Stuart Walker & Co Pty Ltd (1958) 100 CLR 342 , wherein they said: "It cannot be suggested that the plaintiff and the defendant at any stage stood in any fiduciary relationship one to the other. The position is simply that business men --or business firms -- were engaged in ordinary commercial transactions with each other, dealing with each other, as the saying goes, at arm's length" (per Dixon CJ, McTiernan and Fullager JJ at p 351) aptly describes the relationship which existed between the parties in the present case.
I would make orders in similar terms to those proposed by the Chief Justice.