BRESMIST PTY LTD v STATE RAIL AUTHORITY OF NEW SOUTH

Meagher JA In this matter I entirely agree with the judgment of Cripps JA. Each contract which the appellant had with the respondent contained the following clause:

"1. The contract shall continue in force for a period of three (3) years with a three (3) year option."

However, the contract does not condescend to inform the reader who has the benefit of the option or how or when it can be exercised.

In my opinion, if the owner of property grants an estate in that property (eg a lease) for a time certain coupled with an option to extend the time of the grant, and it is uncertain in whom the option is vested, the law will conclude that it is vested in the grantee. Likewise in the present case, where there is a grant of a franchise for a time certain and an option to extend it but no express inference as to who owns the option, the law will assume the parties intended it to belong to the franchisee.

Cripps JA This is an appeal from Giles J in the Supreme Court dismissing a claim for damages for breach of contract brought by Bresmist Pty Ltd trading as W and L Sutcliffe (Bresmist) against State Rail Authority of New South Wales (SRA). The litigation concerned two contracts: the "Tumut Contract" and the "Young Contract". The breaches alleged under both were that SRA failed to accept Bresmist's exercise of what it claimed were its options to renew contracts to carry goods. The issue under each contract was the same because the contracts were in identical terms. Henceforth, I will refer only to the "Tumut Contract".

Prior to December 1986, SRA called for tenders for the collection, carriage and delivery of small freight from its Trackfast centre at Cootamundra to Tumut. Annexed to the tender document was a document headed "Conditions of Tendering", Ptl0 of which provided:

"1. The contract shall continue in force for a period of three (3) years with a three (3) year option."

Bresmist's tender was successful and on 12 January 1987 it entered into a contract with SRA on terms and conditions the same as those contained in the Annexure referred to above. On 14 September 1989 Bresmist purported to exercise the option. It received no reply. It wrote again on 13 October. On 19 October SRA wrote that it was not proposing to exercise its rights "to take up any segments of the three (3) years options".

Before Giles J and in this Court SRA's principal submission was that the option clause was so uncertain as to be ineffective. Its alternative submission was that if it had a meaning it was a condition inserted for the benefit of SRA and that it, and it alone, had an entitlement to compel an extension of the contract for a period of three years. Giles J was of the opinion that the clause was "irredeemably obscure" to use the words of the President in Biotechnology (Australia) Pty Ltd v Pace (1988) 15 NSWLR 130 and hence "so uncertain as to be ineffective".

The issue before this Court is whether Giles J was correct and, if he was not, whether SRA's alternative submission should be accepted or whether the option enured for the benefit of Bresmist.

Giles J noted that Bresmist expressly disclaimed the argument that the option was conferred on each of the parties. Why that concession was made in those terms is not entirely clear. Perhaps it was because, so far as Bresmist was concerned, the only issue was whether it had the right to exercise the option. It was agreed that, if it did, its purported exercise was effective.

The correct principles to be applied are not in dispute. (See York Air Conditioning and Refrigeration (Australasia) Pty Ltd v The Commonwealth (1949) 80 CLR 11 and The Council of the Upper Hunter County District v Australian Chilling and Freezing Co Ltd (1967-1968) 118 CLR 429. In Upper Hunter County District Council Barwick CJ said at 436 to 437:

"But a contract of which there can be more than one possible meaning or which w hen construed can produce in its application more than one result is not therefore void for uncertainty. As long as it is capable of a meaning, it will ultimately bear that meaning which the courts, or in an appropriate case, an arbitrator, decides is its proper construction: and the court or arbitrator will decide its application. The question becomes one of construction, of ascertaining the intention of the parties, and of applying it. Lord Tomlin's words in this connexion in Hillas and Co Ltd v Arcos Ltd (1932) 147LT 503 at 512 ought to be kept in mind. So long as the language employed by the parties, to use Lord Wright's words in Scammell (G) and Nephew Ltd v Ouston [1941] AC 251 is not "so obscure and so incapable of any definite or precise meaning that the Court is unable to attribute to the parties any particular contractual intention', the contract cannot be held to be void or uncertain or meaningless. In the search for that intention, no narrow or pedantic approach is warranted, particularly in the case of commercial arrangements. Thus will uncertainty of meaning, as distinct from absence of meaning or of intention, be resolved."

In support of his principal submission that the contract term was meaningless in the relevant sense, Mr Mater, on behalf of SRA, has pointed to the dominant position of SRA under the contract which, he submits, dispels the suggestion that it was intended by the parties that any entitlement of the type under discussion was to be conferred on Bresmist. For example, Bresmist was not given the exclusive right to carry goods - SRA had the right to ask any other person to provide all or any of the services the subject of the contract. It also had the right to dictate what policies of insurance Bresmist was bound to effect and maintain.

URESMIST PTY LTD v STATE RAIL AUTHORITY OF NEW SOUTH WALES (Cripps JAB

Furthermore, it had the power to suspend the operation of the contract in the event that it could not provide rail services due to fire, floods, strikes etc. He submits, accordingly, that it is highly unlikely that it was the intention of the parties that Bresmist should have any entitlement to extend the contract and that, therefore, CL1 of Pt10 does not have the meaning contended for by it. At most these arguments would lead to a conclusion that the option existed for the benefit of SRA as well as Bresmist - not that it was meaningless. However, SRA's entitlement to exercise the option is not an issue before this Court.

The present is not a case where the meaning once determined is incapable of application. It is agreed that if Bresmist had an entitlement to exercise the option it was properly exercised. It is clear, in my opinion, that the parties intended that an option could be exercised. What is not perhaps as clear as it should be is who had the right to exercise it. Giles J concluded that the clause in question was a case of "absence of meaning or of intention".

The "Conditions of Tendering" were annexed to the tender documents. In a commercial sense, SRA offered tenderers an option. That conclusion is not gainsaid, in my opinion, by the circumstance that in law Bresmist's tender became the offer which SRA accepted. The terms of the contract required Bresmist to have two vehicles available for delivery painted in the corporate colours of SRA and that the drivers of those vehicles were required to wear the uniforms of SRA. It also provided for incentive payments intended to encourage Bresmist to "find new customers and business". Mr Emmett submits that, properly understood, SRA granted a franchise to Bresmist and that, by analogy with similar clauses in leases, the option could be exercised by the grantee. Indeed CLS of Pt2 refers to the "granting of a contract". In my opinion, Mr Emmett's submission should be accepted.

Neither party thought the contract was uncertain or meaningless until after the litigation commenced. SRA maintained it had the right to exercise the option - not that the provision was meaningless. In my opinion, it matters not whether the option could only be exercised by Bresmist although I incline to the view that the provision did not give a similar entitlement to SRA. However that may be, I am of the opinion that Bresmist had the entitlement to exercise the option. I am of the opinion, therefore, that the appeal should be upheld, the order of Giles J set aside and the matter be remitted to the Commercial Division of the Supreme Court for further disposition in accordance with the reasons of this Court. The respondent to pay the appellant's costs of the proceedings before Giles J and of the appeal.

Matter remitted to the Commercial Division for disposition in accordance with the reasons of the Court of Appeal.

Respondent to pay the appellant's costs of the proceedings.

Counsel for the Appellant: A Emmett QC Instructed by: Garland Hawthorn Brahe Counsel for the Respondent: H Mater