THE (DE) CONSTRUCTION OF WESTERN EXPORTS v JIREH INTERNATIONAL
LegalWise 4th Annual Contracts Conference
Sydney , March 2015
Sydney Jacobs, LL. M (Cam)
Barrister, 13 Wentworth Selborne Chambers
Level 13, 180 Phillip Street, Sydney NSW 2000
Wai Kaey Soon
Barrister, Frederick Jordan Chambers
Ground Floor, 53 Martin Place, Sydney NSW 2000
This Paper will analyse the ambiguities contained within the judgment of Western
Exports Services v Jireh International, a High Court special leave application which
affirmed that intermediate appeal courts were to follow the principles outlined by
Mason J (as he then was) in the case of Codelfa Construction Pty Ltd v State Rail
Authority of New South Wales regarding ambiguity in contractual terms and the use
of extraneous material in construing contracts.
The ambiguities in the judgment arise where the Court noted several other cases in
which extraneous circumstances were used to construe the terms of the contracts,
and that these cases were consistent with the principle in Codelfa. The facts of those
“consistent” Australian cases would appear to indicate that there are some instances
in which extrinsic material is taken into account when construing contractual terms
before an ambiguity is found, much like in English cases since Prenn v Simmonds,
and that “ambiguity” depends on a fine analysis of the facts of each case.
1
INTRODUCTION
Ambiguity and uncertainty
1.
Sometimes agreements leave open certain matters for future agreement . If
there is too much uncertainty , then it may be that the agreement can be struck
down as being –merely-an agreement to agree. The relevant factors are
covered in Ermogenous v Greek Orthodox Community of SA Inc 1 including the
complexity of the arrangement, whether there have been acts of part
performance / subsequent conduct ; and the number of matters remaining to be
agreed.
2.
As long as it is not completely devoid of meaning, an ambiguous provision is
valid and bears such meaning as the court attaches to it after due consideration
: Upper Hunter County District Council v Australian Chilling & Freezing Co Ltd
[1968] HCA 8; 118 CLR 429 at 436 per Barwick CJ.
3.
This serves to differentiate uncertainty from ambiguity, which is where a words
or phrase may have a number of meanings , but these can be resolved by the
process of construction/ interpretation. If the shades of meaning are too many,
such that no rational choice of meaning can be made, that then is uncertainty.
Codelfa
4.
In Australian contract law, it is an often-taught principle that extraneous material
is not admitted or considered when construing a contractual term unless the
term is ambiguous, a principle contained within the often-taught case of Codelfa
Construction Pty Ltd v State Rail Authority of New South Wales2 in the
judgment of Mason J (as he then was). It is useful to cite the passage setting it
out:
“The true rule is that evidence of surrounding circumstances is
admissible to assist in the interpretation of the contract if the language
is ambiguous or susceptible of more than one meaning. But it is not
admissible to contradict the language of the contract when it has a
plain meaning. Generally speaking facts existing when the contract
was made will not be receivable as part of the surrounding
circumstances as an aid to construction, unless they were known to
both parties, although, as we have seen, if the facts are notorious
knowledge of them will be presumed.” 3
5.
The thrust of this is that if there is ambiguity, then surrounding circumstances
known to both parties will be admissible in the quest to resolve the ambiguity.
1
[2002] HCA 8; 209 CLR 95 . See the article Preliminary Agreements by John Tarrant [2006] UNELJ 11; and
the articles on Coal Cliff Collieries v Sijehema in [1991] AU Constr Law NL 31 and [1991] AUMPL Law B 39 (all
viewed online March 2014).
2 (1982) 149 CLR 337
3 p352, ibid.
2
6.
In 2011, in the matter of Western Export Services v Jireh, the High Court
(consisting of Gummow, Heydon and Bell JJ) refused special leave to appeal
from the New South Wales Court of Appeal. The Court stated that the rule in
Codelfa still applied, as affirmed in Royal Botanic Gardens and Domain Trust v
South Sydney City Council4, and that intermediate appeal courts were bound to
apply the rule set out in Codelfa.
7.
The reasons for judgment also include the following statement worth setting out
in full:
“We do not read anything said in this Court in Pacific Carriers Ltd v
BNP Paribas; Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd; Wilkie v
Gordian Runoff Ltd and International Air Transport Association v Ansett
Australia Holdings Ltd as operating inconsistently with what was said
by Mason J in the passage in Codelfa to which we have referred.”5
8.
This statement is interesting. Firstly, those particular cases did in fact appear to
include extrinsic pre-contractual material in construing a contractual term
without (in some cases) an obvious ambiguity, and secondly, there is a line of
authority in both Australian and English law6 that does allow some extrinsic
material to be admitted and considered when construing a contractual term,
namely, evidence that goes to show the commercial context and contractual
purpose of the agreement.
9.
This paper will delve into the facts of Jireh and other cases in an attempt to
discern whether the cases (and others) mentioned by the High Court in Jireh
are consistent with the principle in Codelfa, and to what extent extrinsic material
can be led. A thread that can perhaps be drawn is that “the controversy does
not lie in whether there is an ambiguity or not that can be assisted by extrinsic
material, but rather whether parties should look for the ambiguity first to be
assisted by extrinsic material, or discern if there is an ambiguity after
considering the extrinsic material first.
THE FACTS OF JIREH
10. Since the judgment of the High Court in Jireh was a refusal of a special leave
application and is rather sparse as a result, it is important to review the facts
and analysis set out in the Court of Appeal case7, although a much more
detailed account can be found in the judgment below in the Supreme Court.8
11. With the caveat that the following summary is a significant abridgement of a 10
year commercial relationship, the relevant pre-contractual facts were:
4
[2002] HCA 5
[5], ibid.
6 Prenn v Simmonds [1971] 3 All ER 237 as per Lord Wilberforce: “The time has long passed when agreements,
even those under seal, were isolated from the matrix of facts in which they were set and interpreted purely on
internal linguistic considerations. We must inquire beyond the language and see what the circumstances were
with reference to which the words were used, and the object appearing from those circumstances, which the
person using them had in view.”
7 Jireh International v Western Export Services [2011] NSWCA 137 at [12] to [17]
8 Western Export Services v Jireh International [2010] NSWSC 622 at [5] to [162]
5
3
11.1.
Western Export Services (or “WES”) is a company that acts as a
representative for other companies, in this case a coffee company that
bought and sold premium coffee in the United States under the brand
name “Gloria Jean’s”;
11.2.
Jireh International (or “JI”) is a company that wanted to become
involved in the business of selling coffee, possibly as a franchisee of
the American Gloria Jeans;
11.3.
JI and WES engaged in a commercial relationship which, as one of its
aims, was to have JI become master franchisee of Gloria Jeans. JI was
to sell goods obtained from the American parent company to its Gloria
Jeans stores in Australia. WES obtained a 5% commission on those
sales;
11.4.
On 21 August 1995, WES sent to JI a Letter Agreement to record
arrangements between JI and WES, finally signed by JI on 19 March
1996; and
11.5.
On 5 April 1996, JI became a party to the master franchisee agreement
for Gloria Jeans’ American parent company to sell and roast coffee in
Australia.
12. The Letter Agreement is important. At clause 3 is a stipulation which is
reproduced in its entirety below:
“3. One of the primary goals of negotiations with GJGC CORP. is to
establish JIREH INTERNATIONAL PTY LTD., or an associated entity,
as a roaster/supplier of Gloria Jean's, or other branded coffees, teas
and other products for sale in GJGC STORES in Australia and to
GJGC Master Franchisees or GJGC STORES in other countries. For
sales by JIREH INTERNATIONAL PTY LTD. to GJGC STORES in
Australia and to other countries, WES shall receive a commission of
5% of the ex-factory price of the coffees, teas and other products.”
13. The underlined section is added, and is the key, for after the original letter
agreement was entered into, JI eventually agreed with a different company that
was not JI, Jireh Warehouse and Distribution Pty Ltd (“JIWD”), that JIWD was
to sell coffee and other supplies to Gloria Jeans shops in Australia and not JI. JI
therefore claimed that WES was no longer entitled to commissions under the
Letter Agreement, which resulted in WES bringing an action in the Supreme
Court on the basis that the construction of clause 3 ought to have included
closely related parties (which JIWD was).
14. The Court at first instance gave a judgment in favour of WES. Hammerschlag J
noted that the proper construction of the contract and the surrounding
circumstances (as was set out in paragraphs 5 to 162) would lead a reasonable
person to understand that clause 3 would in fact cover sales by JIWD. In
support of this, the Court noted several cases which were mentioned in the
reasons of the special leave application in the High Court, particularly “the
4
principles in Franklins Pty Ltd v Metcash Trading Ltd.” 9 HH reasoned that in
the context of the relationship between JI, its franchisees, and WES clause 3:
“comprehends sales to GJGC stores under Jireh’s franchise
arrangements with them by Jireh’s Preferred Supplier acting where
Jireh itself (but for the interposition of a Preferred Supplier), would have
sold.”10
15. The Court of Appeal reversed the decision on the basis that, as in fact noted by
the Court below, the words of clause 3 could admit of no other meaning than
that WES could only obtain commissions if JI was the entity selling supplies
and coffee to Gloria Jeans stores in Australia. In that instance, the commercial
context of the clause would be guided by the actual words of the clause if they
were unambiguous.11
16. If a reading between the lines could be detected in the Court of Appeal’s
reasoning, the implication would be that it was the fault of WES that, as a
sophisticated commercial entity, it did not properly define on what bases it was
to receive a commission. There would be no point in looking at the entire
circumstances of the case because WES had unwisely drafted its commission
agreement in a clear and unequivocal manner.
17. The High Court, in refusing special leave, considered that the Court of Appeal
had made the correct decision. The High Court considered that the applicant’s
arguments regarding the commercial context and relationship of the parties
required re-consideration of Codelfa ,which their Honours in the High Court
were not prepared to countenance.
THE CASES CONSISTENT WITH CODELFA (AS STATED IN JIREH)
18. With this background of Jireh’s facts in mind, it is worthy of note that the High
Court would consider that Pacific Carriers, Toll, Wilkie and International
Aviation were decided consistently with the rule in Codelfa. The following
analysis of those cases, Electricity Generation Corporation v Woodside12, and
reference to a few English cases, will show that where the construction of the
term is ambiguous, extrinsic material is used, and where it is not, it is not
admitted. In that respect, they are consistent.
Where they are not consistent is at what point the extrinsic material is brought
in – before or after an ambiguity is found.
Pacific Carriers Ltd v BNP Paribas
19. In Pacific Carriers Ltd v BNP Paribas13, the focus of the case fell on the
construction of a letter of indemnity by the defendant and a third party .
9
[285] to [287], supra
[299], ibid.
11 Jireh International v Western Export Services [2011] NSWCA 137 at [55].
12 [2014] HCA 7
13 (2004) 218 CLR 451
10
5
Pacific Carriers Ltd (“Pacific”) was the charterer of a vessel, the MV Nelson,
which was carrying a load of grain and legumes from Australia to India. BNP
Paribas (“BNP”) was the banker of the Australian based seller of the goods,
which was selling them to an Indian grain distributor.
20. There was no bill of lading 14transferring ownership of goods from the seller to
purchaser, and the charterer ended up with the vessel being arrested and
seeking an indemnity from BNP, as the seller had become insolvent.
21. The document that was the subject of the proceedings was a letter of indemnity
that was executed by the seller and by BNP, through a Ms Dhiri. Such
documents are often relied upon by carriers or charterers as an indemnity
where there is no bill of lading15 and are often called on against the issuing
bank. The letter is set out in its entirety and is annexed to this paper at
annexure A. It wrongly states that it was given by the cargo receivers. In truth, it
was given by the vendors. The misdescription arose because sellers had
sought the indemnity from the receivers, failed to obtain it ; then repurposed the
document with the error.
22. The Court took the view that it needed to consider the surrounding
circumstances known to the parties and the purpose and object of the
transaction when it identified a misdescription on the face of the letter of
indemnity and at clause 4.16 It observed that the seller had attempted to obtain
indemnity from a different party before repurposing the letter of indemnity and
considered that the misdescription could be easily construed to mean the
sellers of the cargo, not the receivers. In this respect, there appears to be no
inconsistency with Codelfa.
23. As a matter of construction on the face of the letter, the Court concluded that
the document was an offer of indemnity by BNP to Pacific.17 However, the
Court analysed and took into account the commercial circumstances of the
relationship between the parties, as outlined above.18
24. Evidence was led that Ms Dhiri gave her signature only to verify the seller’s
signatures. This evidence was rejected on the basis that it was a subjective
consideration of what Ms Dhiri thought.19 However, that evidence became
important in respect of a different question, of which the Court considered it
necessary to refer to the surrounding circumstances.
25. This may partly be due to the fact that Ms Dhiri was authorised to verify
signatures, but was not authorised to provide the indemnity, the evidence of
which was led in relation to argument regarding her ostensible and actual
authority by BNP. Ambiguity could thus possibly arise not regarding the
meaning of the words themselves, but rather in relation to the significance of
Ms Dhiri’s signature and the use of the bank stamp on the letter.
14
A bill of lading has a number of functions, including contract of affreightment and document of title.
Pacific Carriers Ltd v BNP Paribas [2004] HCA 35 at [7]
16
[24], ibid.
17 [24] to [26], ibid.
18 See also [42] to [43].
19 [21] to [22], ibid.
15
6
26. In that respect, then, lies an ambiguity in respect of which the Court considered
the commercial relationship between the parties and considered pre-contractual
relations – consistent with the ambiguity principle in Codelfa. But it is not
apparent at first blush.
Toll v Alphapharm
27. In Toll (FGCT) Pty Limited v Alphapharm Pty Limited,20 the High Court was
confronted with another transportation contract – this time between Toll (at the
time known as Finemores), a carrier, and a pharmaceutical company which
wanted flu vaccine which was sensitive to temperature changes, distributed to
its warehouse and then to its customers. It was critical that the “cold chain” was
maintained.
28. Alphapharm (or its agents) told Toll about the sensitivity of the vaccines. Toll
provided a document that, amongst other things, contained an exclusion clause
and an indemnity clause, at annexure B. That document was signed by an
agent of Alphapharm.
The goods were damaged, variously in storage and transit.
29. The carrier relied upon an exclusion clause or, alternatively, a clause providing
for an indemnity. The question was whether those clauses formed part of the
contract and, if so, who was bound by them.
30. “Each of the four parties to the case is a substantial commercial organisation,
capable of looking after its own interests. This hardly seems an auspicious
setting for an argument that a party who signs a contractual document is not
bound by its terms because its representative did not read the document.” :
para [29]
31. At hearing, a significant amount of evidence was led and admitted relating to
the subjective intentions of the parties including that the respondent’s agent did
not read the document outlined above. The High Court rejected the evidence of
the subjective intentions of the parties. It focused on the objective view of the
parties’ intentions as was evidenced by the contractual documents and on the
cases regarding signatures on contractual documents – essentially, the rule in
L’estrange v Graucob.21 In doing so, it noted that
“The meaning of the terms of a contractual document is to be
determined by what a reasonable person would have understood them
to mean. That, normally, requires consideration not only of the text, but
also of the surrounding circumstances known to the parties, and the
purpose and object of the transaction.”22
32. It may appear that the consideration of the surrounding circumstances would
necessarily require analysis of pre-contractual events, but it was not in this
case. This was because the case hinged not on the actual terms which were
20
[2004] HCA 52
[1934] 2 KB 394
22 [2004] HCA 52 at [40]
21
7
subject of the dispute, but on the meaning of the signature on the contract
document including the exclusion clauses. There was no ambiguity, because
the signature was evidence, at law, that Alphapharm bound itself through its
agent, and no amount of considering the pre-contractual events could change
that.
33. Thus, in this instance, no consideration of the commercial circumstances was
had, nor was there any ambiguity in the clauses requiring its consideration. The
case was not inconsistent with the principle in Codelfa.
Wilkie v Gordian Runoff
34. In Wilkie v Gordian Runoff Pty Ltd 23 the document in question was an
insurance policy for certain officers and employees of the defunct company, FAI
Insurance Limited, which was issued by the first respondent (along with the
second respondent, a Lloyds’ syndicate.) The policy offered cover in respect of
defence costs for legal proceedings, but contained an exclusion clause.
35. The appellant was charged with offences under the Corporations Act 2001, and
sought indemnity under the policy under extension 9. The insurer denied
liability under exclusion 7 after being provided with a copy of the brief by the
Commonwealth Director of Public Prosecutions.
36. The policy wording which was subject to analysis regarding construction is at
annexure C. There was some argument that the interaction between extension
9 and exclusion 7 could be ambiguous.
37. The Court again mentioned that it was required to consider the surrounding
circumstances, purpose and object of the transaction. However, the
interpretation of extension 9 and exclusion 7 did not require it. The Court found
that exclusion 7 required that the breaches or acts contained within the
exclusion required to be “in fact,” which required adjudication by a court or
admission by the appellant.24 Neither had yet occurred. In any event, extension
9 allowed recovery of costs paid out in the event that indemnity had not been
denied (like, for example, under exclusion 7 after admission or adjudication). As
a result, exclusion 7 could not have applied to extension 9.
38. It would appear that the “plain reading” of exclusion 7 happily interacted with
the commercial context of having extension 9 – it would give the recovery
section of extension 9 very little work to do if exclusion 7 could apply before the
proceedings which would be the subject of an extension 9 claim could be
finalised.25 In accord, the “plain textual analysis” and the commercial analysis
supported each other.
23
[2005] HCA 17
[34],[36]-[40], ibid.
25 Noted by the Court at [41], ibid.
24
8
39. As a result, there was, at first blush, no inconsistency with Codelfa. Some
argument could be had, however, as to whether the Court looked at the “logical
plain meaning” of the interaction between extension 9 and exclusion 7 first, or
considered the commercial context before the analysis of the sections. This
aspect of the case is important.
40. As an aside to the core of this paper , the plurality observed that :
Wilkies counsel “prudently eschewed any recourse to the maxim verba
chartarum fortius accipiuntur contra proferentem[9] for the interpretation of an
insurance policy agreed between the parties, all of which were organisations
involved in the business of insurance.”
International Air Transport Association v Ansett
41. In International Air Transport Association v Ansett,26 the association (“IATA”)
contracted with Ansett so as to include Ansett in a special arrangement with
other airline carriers so as to streamline payments between airlines for allowing
passengers to “code share” along routes.
42. It was important (for the purposes of this paper) that IATA construe the nature
of the payments made under this arrangement to be a debt or claim between
IATA and Ansett (called a “clearance”); whereas Ansett sought the opposite for
purposes relevant to its administration under the Corporations Act 2001 ie that
it was a debt as between itself and other “code sharers.”
43. This arrangement between IATA and the “code sharers” was recorded in a
contract known as the “Multilateral Interline Traffic Agreement.” The relevant
sections are extracted at annexure D, along with relevant regulations. The High
Court also noted article 8.2.3 of the contract, which provides with respect to
services rendered by a party to the Passenger Agreement that "the right to
payment hereunder" arises at the time those services are rendered. Regulation
9(b) also allows the Clearing House to “clear any claim for clearance.”
44. In the Victorian Court of Appeal, the regulations and arrangement were
construed so as to make the clearances or claims between IATA and Ansett
those of the airlines behind it, not IATA – mostly due to the analysis of
regulation 9(b). The High Court reversed that decision and accepted the
construction of the contract and the regulations as favoured by IATA – that is,
the clearance was between IATA and Ansett and not the airline “behind” the
IATA.
45. It should be noted that the Court took as a matter of construction that the
regulations were made in the context of airlines conducting business with each
other.27 Evidence was obtained at hearing from the commercial director of IATA
explaining how the system worked and its commercial operation in the airline
industry.28 It was also curious to note the significant amount of time spent by
26
[2008] HCA 3
[65], ibid.
28 Ansett Australia v International Air Transport Association [2006] VSCA 242 at [17]
27
9
the Court in discussing the case of British Eagle v Air France,29 which had
provoked the drafting of the relevant regulations and would by definition
constitute pre-contractual facts.30
There was no suggestion of ambiguity in any of the contractual terms or
regulations. It was a matter simply of construction.
46. At the same time, it would appear obvious that there was an ambiguity in the
text of the regulations, or at least an implied one – regulations 9(a) through to
9(c) would have given rise to an ambiguity as to the nature of the clearances
between IATA and Ansett. In that instance, although not explicit, it appears that
the Court analysed the agreement through the lens of history to that point so as
to construe the nature of the clearances between IATA and Ansett.
In that respect, then, but only that sense, Codelfa is not inconsistent with Jireh
– although in the absence of any discussion of ambiguity, it is clear, at least on
the face of the judgment, that the Court admitted extrinsic material first , then
resolved issues of construction that were provoked by the facts.
Electricity Generation Corporation v Woodside
47. This case post dated Jireh High Court by some years : it was decided by the
High Court in 2014.31
48. “The gas is extracted from natural reservoirs, processed and supplied into the
pipeline in a continuous process. The capacity of a plant to process gas is
affected by a number of matters that are outside the suppliers' control, including
the amount of spare capacity in the pipeline at any time. The supply of gas is a
process, not a transaction. The unique nature of the sale of gas is reflected in
the terms of the GSA, in particular, the nomination and supply provisions ……..”
per McLure P , [2013] WASCA 36 para [5] (ie en route to the HC).
49. On a given day, Verve the purchasers, had nominated their requirements and
the sellers had accepted that nomination. However, there was a fire at a plant
in the supply chain, and this effected a 30% disruption to the supply chain.
Demand in WA then similarly exceeded supply.
50. “There was an element of artificiality about the construction task in the appeal
as it was undertaken without reference to all the facts which gave rise to the
dispute. Each side advanced a construction for which they contended. The
Sellers conceded that, if Verve's construction was upheld, they had gas
available for the supply of SMDQ to Verve in the relevant period (4 June to 29
September 2008). The inference from their submissions was that the Sellers
chose not to make SMDQ gas available to Verve in the relevant period because
of the significant market price distortion caused by the Apache incident.
29
[1975] 1 WLR 758
[2008] HCA 3 at [13] to [15], [22] to [28], [36], [56]
31 [2014] HCA 7
30
10
Demand exceeded supply and the market price of gas skyrocketed.” (ibid) para
[16].
51. In this matter, evidence was sought to be led of the nature of a relationship
between a gas supplier (Woodside) and an electricity generator (EGC) which
used the gas to power its power plants.
52. The relevant contractual term over which construction was required was a
“reasonable endeavours” clause for the suppliers to provide EGC with gas (the
clause of the gas supply agreement is extracted at annexure E.)
Evidence was led at the hearing of the commercial arrangements between gas
suppliers and purchasers32 which was accepted. Further, the term itself
contained a requirement that the parties consider the commercial and other
circumstances of the moment at which EGC requested supply of gas by the
suppliers.
53. The primary judge, Le Miere J, held in favour of the sellers , as follows :
“Before the primary judge (Le Miere J), Verve submitted that once it had
nominated SMDQ under the GSA, the Sellers were obliged to use reasonable
endeavours to make the nominated quantity of gas available for delivery.
Verve contended that cl 3.3(b) gave further content to that obligation, by
providing that "relevant commercial, economic and operational matters" could
be taken into account by the Sellers in determining whether they were "able" to
supply SMDQ under the GSA; that is, whether they had the capacity to supply
SMDQ, not whether they wished to do so. The Sellers submitted that the
obligation under cl 3.3(a) to supply SMDQ could not be considered in isolation
from the "logically anterior question" arising under cl 3.3(b) − whether the
Sellers were able to supply SMDQ after taking into account all relevant
commercial, economic and operational matters. Clause 3.3(b), it was
submitted, entitled the Sellers to determine their ability to supply SMDQ to
Verve on any given day after taking into account all commercial, economic and
operational matters relevant to them.
54. The WACA resolved the construction issue against the sellers, who
successfully appealed to the High Court. The High Court preferred the
approach of the trial judge, Le Miere J, thus demonstrating that whilst a contract
might only have one true meaning, that true meaning is the one ascribed by the
final court on appeal.
55. The High Court held that the commercial considerations surrounding the
contract had to be taken into account when construing clause 3.3. The Court
said,
The meaning of the terms of a commercial contract is to be determined
by what a reasonable businessperson would have understood those
terms to mean. That approach is not unfamiliar. As reaffirmed, it will
require consideration of the language used by the parties, the
32
[2011] WASC 268 at [12]
11
surrounding circumstances known to them and the commercial
purpose or objects to be secured by the contract. Appreciation of the
commercial purpose or objects is facilitated by an understanding "of the
genesis of the transaction, the background, the context [and] the
market in which the parties are operating.33
56. Many cases were footnoted to the above extract, none of which was Jireh.
57. With this in mind, it considered that the commercial circumstances meant that
“reasonable endeavours” did not require the suppliers to sell at the prices for
which they normally sold gas to EGC, nor were they required to sell pursuant to
the gas supply agreement.34
58. It must be said that this view accords more with a long line of English authority
from Prenn v Simmonds up to Investors Compensation Scheme Ltd v West
Bromwich Building Society,35 which has embraced the use of extrinsic material
in order to properly construe contractual terms, even to the point where terms
that might have an ordinary meaning might be interpreted differently when
considered against the factual background.36
59. It must also be said that at no point in Woodside was ambiguity considered,
although the term “reasonable endeavours” must be one of the more malleable
terms available to contracts draughtspersons.
This lack of certainty is an ambiguity in and of itself that does not accord with
Jireh, yet at the same time, could reasonably be said to be consistent with that
case (in that an ambiguity search will readily find one so as to engage the need
for extrinsic material).
The compass of admissible extrinsic evidence extends to oral evidence
60. Of practical consideration is whether oral evidence is admissible.
In Ecosse Property Holdings v Gee Dee Nominees 37 (ie post Jireh High Court)
a term in a lease regarding who was liable for certain payments was found to
be ambiguous, and thus, extrinsic material was required. This was partly
because the lease was to sidestep the inability to sell the property freehold, and
thus had terms that reflected that issue.
61. In this instance, the affidavit of the solicitor who negotiated and drew up the
lease agreement was admitted. The solicitor gave evidence as to the meeting
regarding what was to be done to the property in question.38 Whilst the thrust of
the evidence was mutually known matters, there appeared to be some material
that might, on first blush, be evidence of subjective intentions .39 However, that
33
[2014] HCA 7 at [35]
[47], ibid.
35 [1998] 1 All ER 98
36 at 144, ibid
37
[2014] VSC 479
38 [17] to [20], ibid.
39 [17] – “I recall that both Mr Silber and I held instructions from our respective clients that the landlord was to be
responsible for all rates, taxes and outgoings…”
34
12
material was used to discern the commercial relationship between the parties in
the proceedings, and thus the circumstances that might lead to the proper
interpretation of a clause that was the subject of the proceedings – a clause for
rates
and
levies
for
the
“landlord”
and
“tenant”
to
pay.
62. Significantly, the VSC cited with no criticism a submission as follows held as
follows (note the absence of any reference to ambiguity as a gateway to back
ground circumstances):
“In relation to surrounding circumstance the defendant submitted that it is also
well established that a court can have regard to pre-contractual
communications if the contract is ambiguous[6] and that a court may also be
entitled to look outside the instrument in the absence of ambiguity.[7] In the
present circumstances, the relevant law is conveniently summarised by Allsop
P (as he then was) in Franklins Pty Ltd v Metcash Trading Ltd[8] as follows
“The state of the law in this respect is to be ascertained from a number of High
Court cases: Maggbury Pty Ltd v Hafele Australia Pty Ltd [2001] HCA 70;
(2001) 210 CLR 181 AT 188 [11]; Pacific Carriers v BNP Paribas (at 461 [22]);
Zhu v Treasurer of the State of New South Wales [2004] HCA 56; (2004) 218
CLR 530 at 559 [82]; Toll (FGCT) v Alphapharm (at 179 [40]) and International
Air Transport Association v Ansett Australia Holdings Ltd [2008] HCA 3; (2008)
234 CLR 151 at 160 [8] and 174 [53]. These cases are clear. The construction
and interpretation of written contracts is to be undertaken by an examination of
the text of the document in the context of the surrounding circumstances known
to the parties, including the purpose and objective of the transaction and by
assessing how a reasonable person would have understood the language in
that context. There is no place in that structure, so expressed, for a requirement
to discern textual, or any other, ambiguity in the words of the document before
any resort can be made to such evidence of surrounding circumstances.”
63. To like effect see post Franklins and post Jireh NSW cases eg NSW Court of
Appeal in OneSteel Manufacturing Pty Limited v BlueScope Steel (AIS) Pty
Limited [2013] NSWCA 27 paras [13] and [61] and [63 ] , citing numerous
authorities, indicating that in many trials, there are differences of opinion as to
meaning not only between the parties, but between the judges all the way up to
the highest court that hears the matter . Significantly, the Court of Appeal would
seem to have ignored what the High Court said on the topic in Jireh in [2011] by
not even citing the case.
64. From this and other cases it would seem that where there is an ambiguity or a
possible ambiguity, evidence indicating the commercial relationship can be
obtained in a myriad of ways (including by affidavit of those who had dealings
with the other party.)40
The nature of such evidence will depend on the circumstances of each case.
Or, as stated by Lord Hoffman in Bank Credit and Commerce International v Munmar [2001] 1 All ER 961, “I
was merely saying there is no conceptual limit to what can be regarded as background.”
40
13
WHAT WAS THE AMBIT OF AMBIGUITY IN JIREH?
65. There seems to be an obvious tension between the cases that were mentioned
by the High Court as being consistent with Codelfa in Jireh. The tension is not
in the fact that an ambiguity was or was not found that required the extrinsic
material to be considered so as to properly construe the contractual document
or term. For the most part, the same analysis and meaning for the contractual
terms would occur. The tension is what stage such evidence should be
admitted – do you look for the ambiguity first, or do you discern ambiguities
from a proper knowledge of the entire circumstances, on which evidence must
be led first? The Australian cases are not clear.
66. In light of a comment by the author of Cross on Evidence, The Hon Mr Heydon,
(whom, it should be noted, was on the bench in Jireh) that evidence of precontractual events may be admitted and considered in order to show the
objective background facts from which the intentions of the parties may be
inferred,41 it would appear that the High Court in Jireh indicated that:
66.1.
if there is no ambiguity in the wording of the contract, it is likely that no
background facts or evidence led would affect the wording (and thus
any evidence regarding it can safely not be admitted); but
66.2.
if there was more than one interpretation of the contractual term, or of
what something might signify on a contract, or there was in fact
ambiguity as to how that contractual term ought to be construed in light
of the circumstances, then evidence of pre-contractual events and of
the commercial environment and relationship between the parties may
be led, because that would assist to determine the proper construction
of the term.
67. This means that there is no problem with admitting extrinsic material if that
material would tend to show that there is an ambiguity.
68. This squares up the circle of the comment that Pacific Carriers et al are
consistent with Codelfa. If Jireh notes that Pacific Carriers is consistent, it was
because the meaning of Ms Dhiri’s signature and bank stamp was ambiguous
and evidence needed to be led regarding it. In Toll v Alphapharm, the evidence
of a signature on the contractual document, in the circumstances and at law,
must lead to the conclusion that the exclusions applied, because the law on
signatures no longer made the meaning of the signature ambiguous. In Wilkie,
there was at least an implied finding of an ambiguity that was solved by a
contextual understanding of commercial insurance contracts, and in IATA v
Ansett, there was in fact an ambiguity where two clear parts of a regulation
gave rise to two possible interpretations of the “clearance” over which both
parts of the regulation had effect.
69. It would also accord with the analysis and apparent rejection of the Codelfa
ambiguity principle in Franklins v Metcash42 where Allsop P (as he then was)
41
42
J D Heydon, Cross on Evidence (8th Ed) at 1459
Franklins Pty Ltd v Metcash Trading Ltd [2009] NSWCA 407
14
noted that ambiguity was not required43 before bringing in extrinsic material, but
where the Court in fact required that extrinsic material to analyse what the
meaning of “Wholesale Price” in a contract meant.44 The term “Wholesale
Price” was, in the circumstances, ambiguous.
70. Where there is inconsistency or tension lies in the “direction of approach” for
parties aiming to litigate a construction / interpretation case. It would appear
that the Jireh approach is to look for the uncertainty before bringing in evidence
to explain it – whereas Franklins and Woodside would appear to bring in the
evidence of the surrounding circumstances before asking whether an ambiguity
arises justifying its use to interpret the contractual term.
71. The recent New South Wales Court of Appeal case of Mainteck45 sought to
reconcile the requirement for ambiguity by stating that the grammatical
meaning of a contractual term was a good point to start construction and that
the determination that a term had its “natural and ordinary meaning” was the
conclusion of a process of analysis of the circumstances, not the start,46 by
which extrinsic evidence would later assist if there was ambiguity 47, but as an
intermediate judgment, its views are only persuasive in light of the competing
approaches in Jireh and Woodside.
72. Resolving these different nuances will require an explicit analysis by the High
Court.
43
[16], ibid.
[97], ibid.
45 Mainteck Services Pty Ltd v Stein Heurtey SA [2014] NSWCA 184
46 [75] to [79], ibid.
47 [99], supra.
44
15
ANNEXURE A – The Letter of Indemnity in Pacific Carriers v BNP Paribas
"STANDARD FORM OF UNDERTAKING TO BE GIVEN BY CARGO
RECEIVERS IN RETURN FOR RECEIVING CARGO WITHOUT
PRODUCTION OF THE BILLS OF LADING
To
PACIFIC CARRIERS LTD
The owners of the M/V Nelson
c/- MULTIMODE MARITIME PVT LTD
53-A MIRZA GHALIB STREET
CALCUTTA 700016
TEL: (9133) 229 4314/7312/7339/5298
FAX: (9133) 226 9081/5353 MR BIBLAP RAY
FROM
NEW ENGLAND AGRICULTURAL TRADERS PTY LTD
PO BOX 770
ARMIDALE NSW 2350
TEL: 61 2 67 725588
FAX: 61 2 67 728004
Dear Sirs,
SHIP:
SS.M/V NELSON
VOYAGE: FREMANTLE/ESPERANCE/BRISBANE,
AUSTRALIA TO CALCUTTA, INDIA
CARGO & ORIGINAL BILLS OF LADING NUMBERS:
10,469.23 METRIC TONNES AUSTRALIAN FIELD
(DUN) PEAS FARMER DRESSED
BILLS OF LADING NOS:
2 DATED 27/12/98
3 DATED 27/12/98
1 DATED 24/12/98
The above goods were shipped on the above vessel by Mssrs NEW ENGLAND
AGRICULTURAL TRADERS PTY LTD (and consigned to order) for delivery at
the port of CALCUTTA, INDIA, but the Bills of Lading have not yet arrived
and we, NEW ENGLAND AGRICULTURAL TRADERS PTY LTD hereby
request you to give delivery of the said cargo to:
16
RECEIVERS AS DIRECTED BY M/S ROYAL TRADING COMPANY
NO 2, CLIVE GHAT STREET
5TH FLOOR, ROOM NO 8
CALCUTTA 700 001 (W.B)
without production of the original Bills of Lading.
In consideration of your complying with our above request we hereby agree as
follows:
1.
To indemnify you, your servants and agents and to hold all of you
harmless in respect of any liability loss or damage of whatsoever nature which
you may sustain by reason of delivering the goods to RECEIVERS
AS DIRECTED BY
M/S ROYAL TRADING COMPANY
NO 2, CLIVE GHAT STREET
5TH FLOOR, ROOM NO 8
CALCUTTA 700 001 (W.B)
in accordance with our request.
2.
In the event of any proceedings being commenced against you or any
of your servants or agents in connection with the delivery of the goods as
aforesaid to provide you or them from time to time with sufficient funds to
defend the same.
3.
If, in connection with the delivery of the cargo as aforesaid, the ship
or any other vessel or property belonging to/chartered by you should be
arrested or detained or if the arrest or detention thereof should be threatened,
to provide on demand such bail or other security as may be required to
prevent such arrest or detention or to secure the release of such vessel or
property and to indemnify you in respect of any liability, loss, damage or
expenses caused by such arrest or detention or threatened arrest or detention
whether or not such arrest or detention or threatened arrest or detention may
be justified.
4.
As soon as all original bills of lading for the above goods shall have
come into our possession, to produce and deliver the same to you whereupon
our liability hereunder shall cease.
5.
The liability of each and every person under this indemnity shall be
joint and several and shall not be conditional upon your proceeding first
17
against any person, whether or not such person is party to or liable under this
indemnity.
6.
The liability of each and every person under this indemnity shall in no
circumstances exceed 200% of the CIF value of the above cargo.
7.
This indemnity shall be construed in accordance with English law and
each and every person liable under this indemnity shall at your request submit
to the jurisdiction of the High Court of Justice of England.
[stamp: [NEW ENGLAND AGRICULTURAL]
[TRADERS PTY LTD
]
[PO BOX 770
]
[ARMIDALE NSW 2350
[ACN 003 271 841]
Yours Faithfully,
[signature of]
[signature of]
[Peter Sniekers]
[Peter Howard]
...............................................................
For and on Behalf of
NEW ENGLAND AGRICULTURAL TRADERS PTY LTD
PO Box 770
ARMIDALE NSW 2350
TEL: 61 2 67 725588
FAX: 61 2 67 728004
Name(s): [printed PETER P SNIEKERS] [printed: PETER M HOWARD]
Designation(s):
[printed DIRECTOR]
[printed DIRECTOR]
For and on behalf of:
BANQUE NATIONALE DE PARIS
12 CASTLEREAGH ST
SYDNEY NSW 2000
AUSTRALIA
(insert name of bank)
Banker's
[Era Dhiri]
signature
[or 'chop']"
[signature
18
of]
[bank
stamp]
19
ANNEXURE B – THE CLAUSES IN TOLL v ALPHAPHARM
6.
Notwithstanding any other clause of this Contract ... under no circumstances
shall the Carrier be responsible to the Customer for any injurious act or default of the
Carrier, nor, in any event, shall the Carrier be held responsible for any loss, injury or
damage suffered by the Customer either in respect of:
(a)
the theft, misdelivery, delay in delivery, loss, damage or destruction,
by whatever cause, of any goods being carried or stored on behalf of the
Customer by the Carrier at any time (and regardless of whether there has been
any deviation from any agreed or customary route of carriage or place of
storage) ...;
(b)
any consequential loss of profit, revenue, business, contracts or
anticipated savings; or
(c)
any other indirect consequential or special loss, injury or damage of
any nature
and whether in contract, tort (including without limitation, negligence or
breach of statutory duty) or otherwise.
In this clause ... 'Customer' includes the Customer's Associates.
...
8.
The Customer agrees to indemnify the Carrier ... in respect of:
...
(e)
any demand or claim brought by or on behalf of the Customers' [sic]
Associates arising out of, related to, or connected with this Contract.
20
ANNEXURE C – RELEVANT CLAUSES IN WILKIE v GORDIAN RUNOFF
Extension 9:
9.
ADVANCE PAYMENT OF DEFENCE COSTS
If GIO elects not to take over and conduct the defence or settlement of any
Claim, GIO will pay all reasonable Defence Costs associated with that
Claim as and when they are incurred PROVIDED THAT:
(i)
GIO has not denied indemnity for the Claim; and
(ii)
the written consent of GIO is obtained prior to the Insured
incurring such Defence Costs (such consent not to be unreasonably
withheld).
GIO reserves the right to recover any Defence Costs paid under this extension
from the Insured or the Organisation severally according to their respective
interests, in the event and to the extent that it is subsequently established by
judgement or other final adjudication, that they were not entitled to indemnity under
this policy.
Exclusion 7:
This policy does not insure Loss arising out of any Claim:
...
7.
based upon, attributable to, or in consequence of:
(i)
any dishonest, fraudulent, criminal or malicious act or
omission; or
(ii)
any deliberate breach of any statute, regulation or
contract;
where such act, omission or breach has in fact occurred ...
Notwithstanding the above
...
(ii)
Exclusions 5, 6 and 7 shall not apply to any Insured
who had no direct personal involvement in, or knowledge of, the
matters upon which the operation of those Exclusions are based.
21
For the purposes of Exclusions 5, 6 and 7, the words 'in fact' shall mean that the
conduct referred to in those Exclusions is admitted by the Insured or is
subsequently established to have occurred following the adjudication of any court,
tribunal or arbitrator."
22
ANNEXURE D – RELEVANT EXTRACTS OF CONTRACT AND REGULATIONS
IN IATA v ANSETT
8.1
Each issuing airline agrees to pay to each carrying airline the transportation
charges applicable to the transportation performed by such carrying airline and any
additional transportation or non-transportation charges collected by the issuing
airline for the payment of which the carrying airline is responsible in accordance
with applicable regulations and current clearance procedures of the IATA Clearing
House, unless otherwise agreed by the issuing airline and the carrying airline.
8.2.1
Billing of amounts payable pursuant to the Agreement shall be in
accordance with the rules contained in the IATA Revenue Accounting Manual as
amended from time to time.
8.2.2
Unless otherwise agreed settlements of amounts payable pursuant to this
Agreement between parties that are members of the IATA Clearing House shall be in
accordance with the Manual of Regulations and Procedures of the IATA Clearing
House."
Regulations
Regulation 1, definition of “clearance”The ascertainment each month of the balances due to members by the Clearing
House and the balances due by members to the Clearing House after set-off of all
claims duly notified to the Clearing House in accordance with these Regulations.
Regulation 9
9(a) With respect to transactions between members of the Clearing House which
are subject to clearance through the Clearing House as provided in Regulations 10
and 11 and subject to the provisions of the Regulations regarding protested and
disputed items, no liability for payment and no right of action to recover payment
shall accrue between members of the Clearing House. In lieu thereof members shall
have liabilities to the Clearing House for balances due by them resulting from a
clearance or rights of action against the Clearing House for balances in their favour
resulting from a clearance and collected by the Clearing House from debtor members
in such clearance.
9(c) The effecting of a clearance and payment of the balances due to or by the
Clearing House in accordance with these Regulations and current clearance
procedures shall constitute a satisfaction and discharge of every claim dealt with in
23
such clearance. IATA shall be entitled to recover any balances due to the Clearing
House by legal action.
Regulation 38
Notwithstanding anything to the contrary herein, the right of the Clearing House to
collect claims hereunder is created at the earlier of (a) the time payment is made for
services upon which the claim is based or (b) the time such services are rendered by a
party hereto or its agent. It is the intent of the members that funds collected by an
issuing airline pursuant to accounts for clearance and services provided by a carrying
airline pursuant to interline agreements shall be used for discharge of respective
obligations of such airlines to the IATA Clearing House.
Regulation 39:
The liability of the Clearing House to any member arising from any clearance is
subject to payment of the balances due by debtor members in the clearance and is
limited to any balance in favour of creditor members as the result of the clearance
together with the net balance of any sum standing to the credit of such member on
Standing Deposit Account after deducting all amounts due from such member to the
Clearing House under these Regulations.
24
ANNEXURE E – CLAUSE 3.3 IN ELECTRICITY GENERATION CORPORATION v
WOODSIDE
3.3
Supplemental Maximum Daily Quantity
(a)
If in accordance with Clause 9 ('Nominations') the Buyer's nomination for a
Day exceeds the MDQ, the Sellers must use reasonable endeavours to make available
for delivery up to an additional 30TJ/Day of Gas in excess of MDQ ('Supplemental
Maximum Daily Quantity' or 'SMDQ').
(b)
In determining whether they are able to supply SMDQ on a Day, the Sellers
may take into account all relevant commercial, economic and operational matters
and, without limiting those matters, it is acknowledged and agreed by the Buyer that
nothing in paragraph (a) requires the Sellers to make available for delivery any
quantity by which a nomination for a Day exceeds MDQ where any of the following
circumstances exist in relation to that quantity:
(i)
the Sellers form the reasonable view that there is insufficient capacity
available throughout the Sellers' Facilities (having regard to all existing and
likely commitments of each Seller and each Seller's obligations regarding
maintenance, replacement, safety and integrity of the Sellers' Facilities) to
make that quantity available for delivery;
(ii)
the Sellers form the reasonable view that there has been insufficient
notice of the requirement for that quantity to undertake all necessary
procedures to ensure that capacity is available throughout the Sellers'
Facilities to make that quantity available for delivery; or
(iii)
where the Sellers have any obligation to make available for delivery
quantities of Natural Gas to other customers, which obligations may conflict
with the scheduling of delivery of that quantity to the Buyer.
(c)
The Sellers have no obligation to supply and deliver Gas on a Day in excess of
their obligations set out in Clauses 3.2 and 3.3 in respect of MDQ and SMDQ
respectively."
25