The 12 July 1990 Contract
20 The defendant's first line of attack on the trial judge's reasoning related to his findings about the 12 July 1990 contract. Grounds 3 and 4 of the Amended Notice of Appeal were:
"3. The trial judge erred in holding that the agreement between the Appellant and the Respondent dated 12 July 1990, and specifically clauses 3, 8, 19 and 21 of that agreement, prohibited the Appellant from charging any fees for the acceptance of liquid waste (J28.8.98, pp.32-33).
4. The trial judge erred in holding that liquid waste was commercial and industrial waste within the meaning of clause 21 of the agreement between the Appellant and the Respondent dated 12 July 1990 (J28.8.98, p.32)."
21 The trial judge's reasoning was as follows (Red 46Q-49C):
"I note that the contract by cl.6 required the defendant to keep the Depot open between specified hours for the depositing of trade refuse (defined to include liquid refuse) by any person; and by cl.3 and cl.8 to provide and operate at its own expense all labour, materials, and plant. For its management services, it was entitled to receive the payments set out in cl.19. Under cl.21, it was made responsible to collect fees levied by Council as set out in cl.21, and authorised to retain them (subject to the remittances to the Council required by cl.22). The question is, could the defendant charge fees to persons for depositing liquid waste, without authorisation from the Council; and if not, why not?
In effect, the defendant says it was conducting a business, and incurring expense, so it was free to require payment for its own benefit for items received at the Depot; a fortiori, if such items were not covered by the fees specified in cl.22.
However, the contract must be construed against the background that the Depot is the Council's property, used for the provision of a service to the community, and that the defendant was managing this property for the Council for a fee. Leaving aside any considerations arising from the pre-existing practice of charging for liquid waste, I would in those circumstances readily interpret cl.21 as providing that the defendant could charge, for the categories of waste specified in cl.21, the fees specified in cl.21 and no more. There is some force in Mr McDougall's contention that measurement by the cubic metre is not appropriate for liquid waste; but that measurement is certainly applicable and can readily be translated into gallons or litres, and no other reason has been advanced why liquid waste would not fall generally within the category of general commercial waste. In my opinion, cls.3, 8, 19 and 21 in fact impliedly prohibit the defendant from charging any fees for the receipt of any waste, other than the fees specified in cl.21; and a fortiori prohibit the defendant charging other fees for general commercial waste, including liquid waste.
In any event, in my opinion to charge for liquid waste a fee not authorised by cl.21 would be inconsistent with the defendant's obligations under cl.6. It may be that under cl.6 the defendant is not obliged to receive liquid waste of a nature or quantity incompatible with the proper management of a solid waste depot in accordance with other provisions of the contract; but if such waste was brought to the Depot, the defendant's proper response would be to refuse to accept it, not to charge for it for its own benefit.
On this approach, the contract on its true construction does not prohibit the defendant from charging for liquid waste for its own benefit. This is not an implication of a term by operation of law or on the basis of business efficacy; but rather the drawing out of what is implied by the language of the contract itself.
Part of the background circumstances against which the contract must be construed is the on-going practice, which pre-existed the tender and continued during negotiations and after the contract, whereby the defendant did in fact charge for liquid waste and retain the fees collected. In my opinion, if one construes the contract having regard to this practice, one reaches the same result. Mr. Grundy accepted in his evidence that the fee for liquid waste was set and authorised by the Council: the defendant attempted to increase it in December 1989, but complied with the Council's direction to the contrary early in 1990. My construction of the contract would make it inconsistent with the practice, and the contract purports to cover the field; but in my opinion, the Council having a contractual right against the defendant could waive it. If the Council were to claim that the defendant could not rely on this waiver because of lack of consideration, it would have been open to the defendant to contend that consideration was provided by its bona fide belief in its right to refuse liquid waste: see Wigan v Edwards (1973) 47 ALJR 586. In any event, by reason of estoppel, the Council could probably not have taken away the permission to the defendant to charge and retain fees authorised by the Council, without first giving reasonable notice."
22 The defendant submitted that the trial judge "failed to apply conventional and accepted principles of the law of contract". He was said to have done so in three respects: failure to apply the principles as to the implication of terms; straining the contractual language; and failing to have proper regard to the factual matrix. An evaluation of these criticisms depends in part on bearing in mind what are the conventional and accepted principles of the law of contract relating to the problems in this case. These will be noted before the three criticisms are discussed.
23 To some extent the defendant's arguments turned on appeals to the conduct of the parties before the contract was made on 12 July 1990, to their conduct after the contract was made on that date, to their subjective beliefs and to submissions about the implication of terms.
24 The first relevant principle of law is that pre-contractual conduct is only admissible on questions of construction if the contract is ambiguous and if the pre-contractual conduct casts light on the genesis of the contract, its objective aim, or the meaning of any descriptive term: Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337 at 347-352.
25 The second relevant principle is that post-contractual conduct is admissible on the question of whether a contract was formed: Howard Smith & Co Ltd v Varawa (1907) 5 CLR 68 at 77; Barrier Wharfs Ltd v W Scott Fell & Co Ltd (1908) 5 CLR 647 at 668, 669 and 672; B Seppelt & Sons Ltd v Commissioner for Main Roads (1975) 1 BPR [97011] at 9149 and 9154-9156; Film Bars Pty Ltd v Pacific Film Laboratories Pty Ltd (1979) 1 BPR [97023] at 9255.
26 The third relevant principle is that post-contractual conduct is not admissible on the question of what a contract means as distinct from the question of whether it was formed. As explained by Priestley JA (Meagher JA agreeing) in Hide & Skin Trading Pty Ltd v Oceanic Meat Traders Ltd (1990) 20 NSWLR 310 at 326-330, the status of the relevant High Court authorities is unclear: hence unless it is demonstrated that the later decisions of the Victorian Full Court and Court of Appeal against admissibility, Ryan v Textile Clothing & Footwear Union of Australia [1996] 2 VR 235 and FAI Traders Insurance Co Ltd v Savoy Plaza Pty Ltd [1993] 2 VR 343, are clearly wrong or they are overruled, they should be followed in New South Wales. No attempt was made to demonstrate that they are clearly wrong.
27 The fourth relevant principle is that the construction of a contract is an objective question for the court, and the subjective beliefs of the parties are generally irrelevant in the absence of any argument that a decree of rectification should be ordered or an estoppel by convention found. No argument of these kinds was advanced in this case.
28 The fifth relevant principle is that terms may be implied in one of four ways. The trial judge set out this orthodox classification in his unreported interlocutory judgment in Carlton & United Breweries Ltd v Tooth & Co Ltd, which was quoted by Young J, the trial judge in that case ((1986) 7 IPR 581 at 605-6):
"A more precise classification of the different types of implied terms was given by Hodgson J in his first interlocutory judgment in the current proceedings. His Honour set out four classes of implied terms, the first two of which are in the class of terms implied in law, the second two the implied terms in fact. His Honour said:
'There is a spectrum of different types of implied terms covering, inter alia, the following:
(i) Implications contained in the express words of the contract: see Marcus Clarke (Vic) Ltd v Brown (1928) 40 CLR 540 at 553-4.
(ii) Implications from the 'nature of the contract itself' as expressed in the words of the contract: see Liverpool City Council v Irwin [1977] AC 239.
(iii) Implications from usage (for example, mercantile contracts).
(iv) Implications from considerations of business efficacy: see BP Refinery (Westernport) Pty Ltd v Hastings Shire Council (1977) 52 ALJR 20 at 26; Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337.'"
29 The reasoning of the trial judge conformed to these principles. The submissions of the defendant did not.