Kone Elevators Pty Limited v Canberra Southern Cross Club Limited [1998] ACTSC 113 (16 October 1998)

Last Updated: 13 October 1999

KONE ELEVATORS PTY LIMITED v CANBERRA SOUTHERN CROSS CLUB LIMITED [1998] SCACT 113 (16 OCTOBER 1998)

CATCHWORDS

CONTRACT - Construction of - termination clause - whether defendant able to terminate agreement with 90 days' notice - clause to be construed objectively according to natural and ordinary meaning - no issue of principle.

No. SC 624 of 1997

Coram: Higgins J

Supreme Court of the ACT

Date: 16 October 1998

IN THE SUPREME COURT OF THE )

) No. SC 624 of 1997

AUSTRALIAN CAPITAL TERRITORY )

BETWEEN: KONE ELEVATORS PTY LIMITED (ACN 000 142 426)

Plaintiff

AND: CANBERRA SOUTHERN CROSS CLUB LIMITED (ACN 008 488 855)

Defendant

ORDER

Judge Making Order: Higgins J

Where Made: Canberra

Date of Order: 16 October 1998

THE COURT ORDERS THAT:

1. Judgment be entered for the Defendant.

1. On 3 August 1979 the plaintiff and the defendant entered into an agreement in writing described as a "FULL MAINTENANCE AGREEMENT" ("Agreement") in respect of two electric lifts installed within the defendant's premises. The defendant is a licensed club established in the Australian Capital Territory. The plaintiff manufactures, installs and maintains lifts.

2. The Agreement was entered into so as to coincide with the expiration of the warranty period applicable to the lifts after they had been installed by the plaintiff. The warranty period had been of twelve months' duration.

3. The parties are at issue as to whether the Agreement has been validly terminated by the defendant.

4. Clause 8 of the Agreement states:

"Maintenance Services shall commence on 14 September 1979 and subject to clause 7 hereto, shall continue thereafter until terminated:

(a) by either party giving to the other party before the end of the Twentieth (20) year from such commencement date or before the end of any subsequent such year ninety (90) calendar days prior written notice; or

(b) by the Owner in the event of the Owner -

(i) selling the building or transferring its lease; or

(ii) removing, replacing or permanently discontinuing the use of one or more units of the Equipment [ie the lifts] and then only in respect to such unit or units;

and giving to EPL [the plaintiff] of ninety (90) calendar days prior written notice of such action."

5. The Agreement continued without apparent amendment or modification, with fees being adjusted from time to time pursuant to Clause 9. That clause provides for a complex formula adjusting maintenance fees according to movements in relevant indices representing changes to the cost of labour and materials.

6. In about September 1996 the defendant's maintenance manager Mr Spokes raised a question as to whether the plaintiff would be interested in maintaining two lifts in a second building which had been acquired by the defendant. Later in the course of a discussion with Mr Crossing, the ACT Branch Manager of the plaintiff, the defendant's Woden manager, Mr Burrows, expressed the view that the plaintiff's charges were "too expensive". The plaintiff, through Mr Crossing, offered a five year agreement at reduced rates.

7. However, that proposal did not find favour with the defendant. On 28 January 1997 the defendant advised that:

"...in accordance with clause 8(a), the Canberra Southern Cross Club will terminate the Maintenance Agreement on 2 x Electric Lifts located at Carinya Street, Phillip ACT on 14 September 1997."

8. The plaintiff responded on 4 February 1997 rejecting this contention, stating:

"...Clause 8a does not entitle you to terminate the maintenance agreement prior to the 14^th September 1999."

9. On 14 February 1997, the defendant, in effect, withdrew its former notice substituting a new notice expiring on 30 June 1997.

10. Each party tendered evidence that it had always considered that its current interpretation of the Agreement was always its understanding and that the contrary view was commercially unacceptable. Each view seems to me to be fatally infected with hindsight.

11. No doubt each party expected the Agreement would continue for up to the twenty years and, perhaps, beyond. The primary question is the objective meaning of the termination provision. The uncommunicated meaning either party had perceived it to have is not relevant. There was, faintly advanced, an argument that the defendant did realise, or should have realised, that the Agreement was for a minimum period of 20 years. That, it was said, imposed a duty on the defendant to inform the plaintiff of that view. It did not do so. Thus, said the plaintiff, the defendant is estopped from relying on the alternative interpretation upon which it currently relies.

12. I reject that contention. If anything, the plaintiff demonstrates no more than unilateral mistake on its part, if it be mistaken. There was no representation by the defendant and, it follows, no reliance thereon by the plaintiff. No doubt, in the belief that it had a long-term contract, the plaintiff more willingly acquiesced in an early upgrade of lift motors. However the original mechanism had frequently malfunctioned. The decision to replace them was, therefore, at least partly referable to a need to avoid litigation. In any event, whether obliged to or not, the defendant continued the Agreement for all but two of the twenty year period without seeking to terminate it.

13. The replacement of the lift motors may support the view that the plaintiff's representatives always believed twenty years to be the minimum term. It may also support the proposition that the defendant's officers, or some of them, knew or suspected that. That, however, is not relevant absent a conclusion that it would, somehow, be unconscionable for the defendant to rely on the natural and ordinary meaning of the Agreement.

14. In my view the termination clause as written does permit termination by the defendant on 90 days' notice. It permits modification or termination of it if the premises or lift equipment cease to be owned or used by the defendant. It would, in any event, be open to either party to terminate forthwith for repudiatory breach.

15. As far as total termination is concerned, it is apparent that reliance on clause 8(a) would render 8(b) otiose. That, however, is immaterial.

16. It follows that the plaintiff's claim must fail.

17. I would add that the current form of maintenance contract used since 1992 by the plaintiff supports the view to which I have come. It provides for an "Initial Period" which is described as "Minimum Contract Duration". That is to be specified as "5 years" or "other". Clause 6 then provides for "termination".

18. It states:

"This contract remains in force for the Initial Period, and thereafter automatically continues in force for further periods of 3 years until terminated by either party giving written notice to the other at least 90 days prior to the end of the relevant period unless terminated under clause 6.2 [cessation of ownership or use], 6.3 [default not remedied by party in default after 60 days] or 6.4 [forthwith upon breach by owner in specified respects].

19. That clause refers to the initial period as a minimum term. Subsequent periods are not so referred to. The difference between the two is the same as the difference between the initial term in that agreement and that in the subject Agreement under clause 8(a).

20. I will hear the parties as to costs.

I certify that this and the three (3) preceding pages are a true copy of the Reasons for Judgment herein of his Honour, Justice Higgins.

Associate:

Date: 16 October 1998

Counsel for the Plaintiff: Mr R L Crowe

Solicitors for the Plaintiff: Clayton Utz

Counsel for the Defendant: Mr B A Meagher

Solicitors for the Defendant: Mallesons Stephen Jaques

Date of hearing: 22 September 1998

Date of judgment: 16 October 1998