The Big Pineapple and Negative Stipulations

The recent decision of Rankin Investments (Qld) Pty Ltd & Anor v CMC Property Pty Ltd & Ors [2021] QCA 156 considered whether a contractual obligation to ‘take all necessary steps’ imposed a corresponding implied duty not to act in a way that was inconsistent with this obligation.

Rankin Investments (Qld) Pty Ltd entered into a joint venture agreement with CMC Property Pty Ltd to redevelop the Big Pineapple on the Sunshine Coast. Big Pineapple Corporation Pty Ltd was the corporate vehicle for the joint venture. Pursuant to the joint venture agreement, Rankin and CMC were bound to follow the decisions of the Big Pineapple board regarding the project.

The Big Pineapple board engaged several consultants as part of the project. A director of CMC raised concerns about a potential conflict of interest between Rankin and one of Big Pineapple’s consultants. In response, and without the knowledge or consent of CMC or the board, Mr Rankin (the director of Rankin) sent emails to that consultant and others requesting they cease all work for an undefined period. On 16 January 2020, CMC issued Rankin a default notice under the joint venture agreement, asserting (amongst other things) that Mr Rankin’s emails breached clause 6.1. That clause was as follows:

6.1 Each of the parties undertakes with the other:

(a) to take all necessary steps on its part to give full effect to the provisions of this Agreement;

[…]

(c) not to do or cause or permit to be done any act matter or thing whereby in any way the continued enjoyment of the Land or the purpose of the Joint Venture might be jeopardised…

On 26 February 2020, CMC issued Rankin a further contractual notice which triggered CMC’s right to purchase Rankin’s interest in the joint venture.

Rankin commenced proceedings in the Supreme Court of Queensland disputing the validity of CMC’s notices. The judge found, amongst other things, that Rankin had breached its obligations pursuant to clause 6.1(a) of the joint venture agreement by directing the consultants to stop work.

In making that finding, the judge observed that:

•    a party does not “take all necessary steps” (as per clause 6.1(a) of the joint venture agreement) to give effect to the provisions of an agreement if its actions are inconsistent with that agreement; and
•    if the Big Pineapple board decided to have work done and retained consultants to perform the work, ordering the consultants to stop work is a breach of the obligation under 6.1(a) of the joint venture agreement.

Rankin appealed the Supreme Court’s decision.

The Court of Appeal disagreed with Rankin and upheld the Supreme Court’s decision. Justice Applegarth (with whom the other judges agreed) stated that:

•   The obligation in clause 6.1(a) to “take all necessary steps to give full effect to the provisions of this Agreement” imposes, by implication, a corresponding duty to not act in a way that is inconsistent with that obligation.
•   To refuse to recognise the implied duty, would produce a “plainly perverse result” that would prevent the express obligation from being fulfilled. For example, a party taking “all necessary steps” might be obliged by clause 6.1(a) to sign a document. In the absence of the implied obligation, it would be free to tear it up.
•   Clause 6.1(a) requires a party to give effect to the Big Pineapple board’s decisions.  The implied obligation obliges a party not to hinder or prevent those decisions.
•   The presence of an express negative obligation about certain matters in clause 6.1(c), does not preclude there being an implied negative obligation in clause 6.1(a).

This decision provides another example of the approach Courts will adopt when interpreting commercial contracts to ensure, amongst other things, that a party will enjoy the benefit of the bargain agreed.  In this instance, the Court held that it was necessary to imply a negative stipulation as a matter of construction having regard to the nature of the contract, the relationship it created between the parties, and the contract’s express words.

The full decision can be found here.