Whilst attracting some media attention last week the decision on 3 July 2018 in Searle v Commonwealth of Australia, 2018 NSWSC 1017 raises no new law, as such, but can be seen as something of a shadow over commercial contracts involving Governments of various levels as relevant to the law that the Crown can not fetter the exercise of a statutoty discretion.

The decision concerned a Mr Searle who joined the Navy in January 2011. Thereafter he was invited to sign a “Training Contract” between him and the Navy under which he would participate in the course of training towards a certificate IV in Engineering, a national recognised vocational qualification. That “Training Contract” was entered into on 21 June 2011.

For one reason or another the Navy did not provide the relevant training and Mr Searle left the Navy in 2015 without the qualification. He sued the Commonwealth, represented by the Navy, claiming damages for breach of contract.

Enlisted Military – not Employees – No Contract – Not New

The short point of the case, decided by Fagan J of the NSW Supreme Court, was that because Mr Searle was an “enlisted member of the Navy” his arrangements with the Navy were governed by common law and specific military legislation. The Navy argued successfully that theTraining Contract”, in so far as it was to oblige the Navy to provide certain training, was void as a fetter on the Commonwealth’s executive power in respect of defence.

His Honour outlined the way the Courts had for many years dealt with enlisted personnel of military forces, with law dating from 1661. His Honour followed that law and found that the “Training Contract purported to have the effect of fettering the plaintiff’s commanding officers in what they could order him to do, both with respect to the nature of training that I might require him to undertake and with respect to the performance of other duties which might interrupt his training. I hold that it was beyond the power of the Commonwealth to fetter Naval officers in their command of an enlisted sailor by such a contract” the Contract was beyond the power of the Commonwealth to make and it is void.

The case obviously turned upon the unavoidable reality that Mr Searle was an “enlisted” member of the Navy to its normal contractual employment issues are irrelevant.

Not Fettering Statutory Discretions

However, in the decision His Honour also touched upon principles of much more general relevance involving more recent law to do with Crown entities not being able effectively to fetter the proper exercise of their statutory discretion is contractually.

That law too is not new but it has continued resonance in the current year of in which Government (Commonwealth State and local) agencies are much more involved in outsourcing of activities previously seen as “Governmental”.

The lead case in that area is probably still Ansett Transport Industries (Operations) Pty LCD –v- Commonwealth (1977) 139 CLR 54. In that case Mason J said “in the absence of specific words [in the agreements], an undertaking which would affect the exercise of statutory powers to be exercised for the public good, should not be imputed to the Commonwealth”

The case involved an assertion that certain arrangements between the then two major commercial airlines in Australia involved an implied term that no third operator would be permitted to enter into the market.

In the Searle case Fagan J was of the view that Mason J’s exposition of the principles in the Ansett case were fully relevant to the Training Contract involving Mr Searle.

With government agencies, Commonwealth State and Local, so commonly contracting for works relevant to the exercise of statutory functions to be carried out by private sector organisations, the principles to do with not fettering statutory discretions have to be borne in mind by anyone preparing contract arrangements involving that type of situation.

Care needs to be taken as to whether and to what extent the particular contract in issue is one under which the proper exercise of some statutory discretion might, at some stage, adversely impact on ongoing performance of the contract. Where that is the case, it is best, in my view, to consider how one might deal with it upfront rather than after things go wrong.

Sometimes an agreed damages clause 4 frustration of the contract might be appropriate but it is always a difficult negotiation.

GDR

The text of the paper is only a summary and discussion of particular facts and principles. It is not to be taken as legal or commercial advice as to any particular factual circumstances.