Brooks v NSW Grains Board & Ors

1 The Plaintiff ("RB") carries on business as a grain trader in New South Wales and in other States, dealing in barley amongst other grain commodities. The First Defendant ("the Board") is a body corporate constituted by the Grain Marketing Act, 1991 (NSW) ("the Act") and is charged with the administration of the Act. The Second Defendant ("Grainco") carries on business as a grain and commodities trader. By a Deed dated 30 October 2000, Grainco acquired from the Board the exclusive rights to administer certain rights and powers of the Board under the Act. On 10 November 2000, an Administrator was appointed to the Board under s.31 of the Act. 2 On 6 and 7 December 2001, Grainco caused its agents to issue to the managers of grain receival sites at Hillston and Bribbaree in New South Wales notices pursuant to s.87(7)(d) of the Act whereunder those agents purported to take possession of quantities of barley stored at those sites. Section 87(7)(d) empowers authorised officers, being in this case the Grainco agents, to take possession of and to remove any commodity which the authorised officers reasonably suspect is the property of the Board. 3 The Board and Grainco say that the grain the subject of these proceedings is the property of the Board because it is malting barley produced by NSW growers, it is vested exclusively in the Board by s.45 of the Act, and RB did not have authority under the Act to acquire it. 4 RB says, first, that at the time that the grain was purchased it was not malting barley but feed barley, which it is entitled to acquire under an Authorised Buyers Agreement dated 24 September 2001 between itself and Grainco as the Board's agent ("the ABA"). The Board and Grainco concede that RB is authorised to acquire feed barley under the ABA but say that the subject grain was malting barley, which RB is not authorised to acquire under the ABA. Second, RB says even if some of the grain was malting barley, the ABA, on its true construction, gave RB the authority to acquire it. Third, and in the alternative, RB says that even if some of the grain was malting barley, RB had authority to acquire it under a Joint Venture Agreement between itself and the Board dated 15 October 1999 ("the JVA"). The Board and Grainco deny each of these assertions. 5 The broad issues may be summarised thus:

• was the subject grain malting barley at the time of its acquisition by RB; - if the grain was malting barley at the time of its acquisition by RB:

was the acquisition authorised under the ABA on its true construction;

if not, was the acquisition authorised under the JVA. The relevant sections of the Act

6 The Act was amended in material respects on 14 December 2001, but the events the subject of these proceedings took place just before that date. The parties accept that the relevant provisions of the Act are those in force immediately prior to the December amendments. 7 The functions of the Board under the Act are to do all things necessary for or incidental to achieving the purpose of improving the marketing of coarse grains and oilseeds in New South Wales: s.32. The Board is empowered to market or arrange for the marketing of a commodity vested in or delivered or to be delivered to it: s.33. By s.3(1), "marketing" includes "buying, selling, financing, collecting, cleaning, grading, packing, treating, carrying, storing, warehousing, rehandling, distributing (by wholesale or retail), delivering and promoting" . 8 Section 45 provides for vesting of ownership of grain in the Board. It relevantly provides as follows: "45(1) If a product has been declared a commodity the Governor, by proclamation, may:

(i) that the commodity is … to be divested from the producers of the commodity and become absolutely vested in and be the property of the Board, and

(ii) that on any of the commodity coming into existence … it is to become absolutely vested in and be the property of the Board, …

(2) On the date of publication of the proclamation under subsection (1) or on and from the date specified in the proclamation … the commodity is absolutely vested in and is the property of the Board.

(4) Any of the commodity vested in the Board by the operation of subsection (2) or (3) and accepted by the Board is so vested freed from all mortgages, charges, liens, pledges, interests and trusts affecting it, and the rights and interests of every person in the commodity are converted into a claim for payment for the commodity so accepted." 9 "Commodity" is defined by s.3(1) of the Act as meaning: "(a) coarse grains, or

declared for the time being to be a commodity by a proclamation in force under Part 2." 10 In 1991 barley was declared a commodity and the Governor by proclamation made the declarations referred to in s.45(1)(a) which were published in the Gazette. Similar declarations were made in respect of sorghum and canola. Consequently, all barley coming into existence thereafter was absolutely vested in the Board unless exempted in accordance with s.46. Section 46 relevantly provides for exemption as follows: "(1) The Board may, in such manner, in such cases and on such terms and conditions as it thinks fit or as are prescribed, exempt (either generally or in any particular case or class of cases) from the operation of section 45 (Vesting of Commodity in Board):

(b) sales of the commodity directly from producers to consumers, processors, merchants or retail vendors, …

(2) The Board's decision as to whether any specified person, article or thing falls within the limits of any such exemption is final."

RB claims that the impounded barley at Bribbaree and Hillston was exempted under s.46 because RB is a merchant, barley was sold directly to it from producers and the ABA or the JVA operated to exempt such sales from the provisions of s.45. 11 An ABA is issued by the Board pursuant to s.40, which relevantly provides as follows: "(1) The Board may, by order in writing, appoint any person to be an authorised buyer.

(2) An authorised buyer is, subject to and in accordance with the order appointing the person, authorised to purchase, on the authorised buyer's own account, from a producer of the commodity or any other person any of the commodity which that producer or other person is entitled to sell." Was the impounded grain malting barley?

12 The Board and Grainco contend that the ABA does not authorise RB under s.40 of the Act to purchase malting barley because the Agreement, on its title page, is described thus: " AUTHORISED BUYER AGREEMENT FOR BARLEY (For all Barley with the exception of Barley meeting NSW Malting Barley Standards)"

The parties agree that, for the purposes of this case, the "NSW Malting Barley Standards" are the "Barley Receival Standards 2001/2002" promulgated by Grainco (Exhibit 2D 1) ("the Malting Barley Standards"). 13 RB contends that, even if the ABA does not authorise the purchase of malting barley, nevertheless it authorised the purchase of all barley which was actually delivered to Bribbaree and Hillston because that barley did not meet the Malting Barley Standards at the time of its delivery. The Board and Grainco concede that if that contention is correct, RB succeeds in its claim to property in the barley and no other issues in the case need be decided. It is therefore expedient to deal with this issue first. 14 Mr Hutley SC, who appears with Mr McHugh of Counsel for RB, has very properly made a number of concessions, namely: - that the onus is on RB to establish that the subject grain did not meet the Malting Barley Standards at the date of its delivery to Bribbaree and Hillston; - that, apart from a quantity of the subject grain identified as non-malting barley varieties, namely some 734 tonnes of the Tantangara variety delivered to Bribbaree, and some 538.61 tonnes of the Chebec variety delivered to Hillston, the remainder of the grain delivered to Bribbaree and Hillston comprised the Schooner, Arapiles and Gairdner varieties, which are malting barley varieties;

• that RB is unable, on the evidence, to discharge the onus of proving that the Schooner, Arapiles and Gairdner varieties delivered to Hillston and Bribbaree did not satisfy eleven of the twelve tests prescribed in the Malting Barley Standards;

• that in respect of the Schooner, Arapiles and Gairdner varieties delivered, the only issue is whether, at the time of their delivery to Bribbaree and Hillston and their acquisition by RB, they satisfied test number 6 of the Malting Barley Standards, namely, "germination minimum 95.0%" . 15 Before turning to Mr Hutley's submissions, it is necessary to describe, although fairly briefly, the means by which the "germination minimum 95.0%" prescribed by the Malting Barley Standards may be ascertained. There is no dispute as to these facts. 16 The test for germination ascertains whether the barley grain is alive or dead. Only live grain is regarded as suitable for malting purposes. However, grain, although alive, will be dormant for about two or three weeks after harvesting. The period of dormancy varies according to circumstances and conditions and according to the barley variety. 17 There are two equally reliable tests for the germination rate of malt variety barley, namely, the "germinative energy" test and the "germinative capacity" test. The "germinative energy" test cannot be applied while the barley is dormant. After the barley ceases to be dormant, its "germinative energy" is tested by placing 100 grains in a Petri dish, covering them with water and checking the results over three days. After that time, the seeds which have not germinated, that is, begun to sprout, are counted and the remaining number of grains provide the germination percentage for the purposes of the Malting Barley Standards. 18 The "germinative capacity" test, on the other hand, can be performed immediately after harvesting and while the barley is still dormant. The test, which can be carried out in about twenty minutes, requires the dissection of 100 grains in a sophisticated machine called a vitascope. The test will determine whether the grain is alive and therefore capable of germinating when it ceases to be dormant, or dead and therefore incapable of germinating. Grainco and various other large organisations would have these machines but not most, if any, receival centres. Certainly, the receival centres at Bribbaree and Hillston did not have vitascopes. 19 In the present case, samples taken from the malting variety barley purchased by RB and delivered to Bribbaree and Hillston were tested for germination by the "germinative energy" test after the grain ceased to be dormant. The germination rates satisfied the Malting Barley Standards. In other words, at the time of testing, at least 95.0% of the malting variety barley delivered to Bribbaree and Hillston was alive and capable of germinating. RB does not dispute these results and, further, it concedes that if 95.0% of the malting variety barley was alive at the time of testing then at least 95.0% must have been alive, although dormant, at the time of its delivery to Hillston and Bribbaree: barley grain, once dead, cannot be brought back to life. 20 The Malting Barley Standards are set out on a single sheet of A3 paper in a chart-like format designed, I gather, to enable the sheet to be attached to the wall of a grain receival centre for easy reference. The Malting Barley Standards set out in the chart are described rather cryptically, no doubt because people using the chart would be familiar with the terms used and their expanded meanings. The Malting Barley Standards state: "These Standards are to be applied on individual truck loads and must not be averaged over a number of loads"

There are then set out in columns the twelve standards applicable to the three grades of malting barley and the two grades of feed barley. Some of the standards have a number of components. 21 Standard 6 is simply stated as "germination min (%)" and the figure "95.0" is given for each of the three grades of malting barley. No figure is given for either grade of feed barley because feed barley is not required to be capable of germinating at all. 22 All parties agree that "germination min (%)" does not mean that malting grade barley must be in the process of germinating at the time that it is delivered to the receival centre and identified as malting barley or feed barley. Maltsters do not want to buy malting barley which has already begun to germinate. "Germination min (%)" must therefore mean: having a germination capacity of a specified percentage. 23 It is also common ground that tests to ascertain the germination percentage of malting variety barley are not carried out at the time of the delivery of that barley to receival centres. This is for three reasons: first, the grain will probably be dormant if it has been freshly harvested, as is often the case, and it will be unsuitable for testing by the "germinative energy" method; second, even if the grain is not dormant, the "germinative energy" test would take three days, whereas the decision as to character and quality of the grain has to be made at the time of delivery in order to fix a price; third, the much quicker "germinative capacity" test requires a vitascope which receival centres do not have. 24 Accordingly, the practice of the Board and of authorised buyers has been that a decision is made on receival of barley as to whether it is or is not capable of germinating and therefore qualifying as malting barley by reference to a number of considerations. First, as Grainco's expert, Mr J. Stuart said, and I accept, it is common knowledge in the industry that freshly harvested barley has a very high germinative ability and that, given time, it will germinate readily after dormancy. Second, its capacity to germinate is affected by four main factors: its moisture content, the temperature at which it is stored, whether there are any pre--germinated kernels, and whether it is affected by field fungi or black tip. If these factors are found at the time of delivery not to be adverse, there is strong ground to believe that the barley will germinate in due course. In the absence of either a "germinative energy" test or a "germinative capacity" test carried out at the time of delivery, the Board and authorised buyers who acquire barley as malting barley take a risk that later on the barley, when tested, may not achieve the prescribed germination percentage. However, the degree of risk is one that the industry has for many years apparently regarded as quite acceptable. 25 Mr Hutley's submission is that malting variety barley which is dormant at the time of its delivery to a receival centre cannot, at that time, meet standard 6 of the Malting Barley Standards as to germination because it is impossible to test the grain using the "germinative energy" test. In support of that proposition, he relies upon the practice of the Board for many years in specifying that the germinative test to be applied to malting barley is the "germinative energy" test, not the "germinative capacity" test. He refers in this regard to the Board's Quality Assurance Manual for the 1999/2000 season (Ex P1). Mr Hutley says, therefore, that it must now be understood that "germination", when used in standard 6 of the Malting Barley Standards and incorporated by reference in the excluding words of the ABA, means the germination percentage of barley as determined by the "germinative energy" test. The consequence is that barley which is not capable of being tested by the "germinative energy" test at the time of delivery to a receival centre because it is still dormant is not barley which at that time meets standard 6 of the Malting Barley Standards. 26 I am unable to accept that submission, for the following reasons. 27 The Board's Quality Assurance Manual - or at least that part of it which is in evidence - does not expressly state that the "germinative energy" test is to be carried out at the time of receival of barley and prior to its acceptance as malting barley. The Manual simply states: "THIS DOCUMENT REFERS TO THE APPLICATION OF THE NEW SOUTH WALES GRAINS BOARD 'BARLEY QUALITY STANDARDS' AND INCLUDES DEFINITIONS AND PROCEDURES FOR RECEIVAL AND OUTTURN OF BARLEY STORED ON BEHALF OF THE NSW GRAINS BOARD. 1999/2000 SEASON

All Standards apply to individual loads." 28 As I have noted, industry practice interprets the Quality Assurance Manual in so far as it applies to barley receivals as requiring that the test for germination percentage at the time of receival be done, not at the time of receival, but at some time thereafter when the grain ceases to be dormant. Even so, the Quality Assurance Manual is not expressly incorporated by reference in the ABA; only the Malting Barley Standards are so incorporated. One must, therefore, focus primarily upon the Malting Barley Standards. 29 The Malting Barley Standards, as incorporated into the ABA, are concerned with whether, as a matter of fact, at the time of receival malting variety barley meets certain specifications. Neither the ABA nor the Malting Barley Standards expressly prescribe how and when the tests establishing whether or not those specifications are met are to be performed. Accordingly, the ABA and the Malting Barley Standards are to be taken as adopting industry practice as to the ascertainment of specifications at the time of receival. As I have noted, industry practice ascertains germination percentage as at receival by the "germinative energy" test performed after receival at a time when the grain has ceased to be dormant. It follows that the ABA and the Malting Barley Standards do not pose as the critical question: is the barley able to be tested for germination percentage by a "germinative energy" test carried out at the time of receival? Rather, they pose the question: does the barley have the specified germination percentage at the time of receival, regardless of when that fact may be scientifically ascertainable? 30 By reason of the tests conducted on the barley delivered to Bribbaree and Hillston to which I have referred, it was established that the grain had a germination percentage which satisfied the Malting Barley Standards as at the time of its receival. Accordingly, I find that the malting variety barley delivered to Bribbaree and Hillston the subject of the impounding notices was malting barley as referred to in the ABA. 31 The question now arises: was RB's acquisition of malting barley authorised under the ABA on its true construction? Use of extrinsic evidence in construing standard form contracts

32 The parties disagree substantially upon the extent to which the Court may have regard to extrinsic facts and circumstances in construing the ABA. Mr Hutley submits that there cannot be any extrinsic evidence admissible and relevant to the construction of a standard form contract such as the ABA because a standard form contract must always mean the same thing, regardless of the very different factual circumstances in which a variety of people may come to enter into it. Accordingly, he submits that a standard form contract must be construed strictly according to its express terms. He cites no authority for this proposition and I do not think that it can be correct. 33 As Lord Wilberforce said in Reardon Smith Line Ltd v Hansen-Tangen (The Diana Prosperity) [1976] 1 WLR 989, at 995H: "No contracts are made in a vacuum: there is always the setting in which they have to be placed."

The setting in which a contract is made must be known to the Court because the words of the contract, being merely symbols of language, "convey meaning according to the circumstances in which they are used" : Codelfa Construction Pty Ltd v State Rail Authority (NSW) (1982) 149 CLR 377, at 401 per Brennan J. This is so even in standard form printed contracts. 34 For example, a standard form bank guarantee may require that the guarantor, in a certain event, grant a mortgage or charge in favour of the bank over "any real estate owned by the guarantor" as security for the guaranteed debt. As at the time of giving the guarantee the guarantor may not have owned any real estate in the sense of being the registered proprietor of an estate in fee simple. Yet the guarantee may have been given in circumstances where the bank was prepared to lend only upon the substance and worth of the guarantor and the guarantor accordingly disclosed to the bank as its principal assets valuable leasehold interests under long-term leases of income-producing land. In those circumstances, "any real estate owned" could well be construed as "any estate in real property owned" by the guarantor so that the leasehold estates owned by the guarantor would be within the scope of the clause. 35 By contrast, in a different transaction in which the same standard form guarantee is used, another guarantor may disclose to the bank assets which include estates in fee simple, as well as short-term leasehold interests. In that case, "any real estate owned" may be construed as including only the estates in fee simple, not the leasehold estates. 36 So, in different factual contexts, the same words in the same standard form contract can have different meanings because, to repeat what Brennan J said in Codelfa , "the words convey meaning according to the circumstances in which they are used" . 37 This proposition seems to be in accordance with the approach taken by the High Court in a recent case concerning a standard form contract for insurance. In McCann v Switzerland Insurance Australia Ltd (2000) 203 CLR 579, the appellant, a firm of solicitors, had taken out a professional indemnity insurance policy with the respondent. Clearly, with the exception of the particular requirements of the appellant such as amount of cover and exclusions, the terms of the policy were in standard form. A client of the appellant made a claim against the firm alleging breach of mandate, breach of fiduciary duty and negligence by one of its partners, causing substantial loss. The claim was settled and the appellant claimed indemnity from the respondent under the policy. The respondent denied liability in reliance on an exception clause which provided that the policy would not indemnify the appellant in respect of any liability brought about by the dishonest or fraudulent act or omission of the appellant, including any of its partners. 38 The appellant asserted that the exception clause did not apply for a number of reasons, one being that the delinquent partner did not actually intend the loss to result from his conduct and that on the proper construction of the exclusion clause it applied where a dishonest act directly caused the loss or, if the loss was caused indirectly, where the loss was intended by the delinquent partner. 39 The Court, by a majority, rejected this submission. At p.589, Gleeson CJ said [para.22]: "A policy of insurance, even one required by statute, is a commercial contract and should be given a businesslike interpretation ( Hydarnes Steamship Co v Indemnity Mutual Marine Assurance Co [1895] 1 QB 500 at 504, per Lord Esher MR). Interpreting a commercial document requires attention to the language used by the parties, the commercial circumstances which the document addresses, and the objects which it is intended to secure ( Lake v Simmons [1927] AC 487 at 509, per Viscount Sumner)."

This statement was adopted by Kirby J at 605 [para.81]. 40 For these reasons, I conclude that I am entitled to apply to a standard form contract, such as is the ABA, the rules of construction applicable to contracts generally. Conflict in the rules of construction: literal approach or contextual approach?

41 Mr Biscoe QC, who appears with Mr Kirk of Counsel for Grainco, submits that there are a number of facts and circumstances surrounding the execution of the ABA to which the Court may legitimately have regard in construing its terms. Mr Hutley says that even if extrinsic evidence may be admitted to construe standard form contracts, that can only be done where the terms of the contract are ambiguous. In the present case, he says, the operative clauses of the ABA are clear and unambiguous so that no extrinsic evidence is admissible. Mr Hutley's contentions raise an issue which is the subject of present controversy in the law. 42 In the discussion which follows I use the terms "construction of a contract" and "interpretation of a contract" interchangeably. Some writers, particularly in the United States of America, draw a distinction between these terms, referring to "construction" as the process of identifying what terms are included in the contract, especially by implication, and to "interpretation" as the process of identifying what the terms so included actually mean. The distinction is not universally recognised, probably because the functions of finding what is implied in a contract and what its express words mean are almost always inseparably intertwined and are performed intuitively at the same time. Speaking for myself, I think that the distinction between "construction" and "interpretation" adds unnecessary complexity to an area of jurisprudence already inspissated by distinctions and I prefer to avoid it. 43 There are two competing schools of thought as to the point in time at which the Court may look at extrinsic evidence in order to construe a contract. One approach, which I might call the literal approach, gives primacy to the words of the document: it holds that the starting point in the task of construction is always the text. If a reading of the text gives a clear meaning then the starting point of the exercise will also be the finishing point: no recourse to extrinsic evidence is necessary or permissible. 44 The rationale for the literal approach to construction is said to be the saving of time, expense and disputation where the meaning of the contract is clear from its terms. A powerful statement of this approach is found in the judgment of Kirby J in Royal Botanic Gardens and Domain Trust v South Sydney City Council (2002) 76 ALJR 436, at 449 (paras.70 and 71): "In statutory construction, there is a tendency, noted in several recent cases, for judges and others to look first to a number of external sources for guidance, including judicial generalities … or legal history …. It is as if some who have the responsibility of interpretation of legal words find the reading and analysis of the texts themselves distasteful …, like dentists happy to talk about the problem but loath to pull a tooth. In statutory construction this error of approach must be rooted out. The proper place to start is the statute. A wide range of other materials may now be accessed, if need be, to assist in the task. But the task itself remains that of finding the meaning of the legislation from the text - not from other materials.

The same point of principle is applicable where the function in hand is to construe the terms of a written contract. The starting point must be the contract. Only later, if need be, may the decision-maker have resort to contextual materials and supplementary or extrinsic evidence in elaboration of the written text. This approach is equally applicable to a statute and a written contract because it is based on a principle informed by strong considerations of practicality. The text may be unarguably clear. In such a case, it will not be necessary, or ordinarily permissible, for the decision-maker to go beyond the written language from which the legal answer to the question in issue is to be found. If the text is so clear, that will normally be the end of the matter. A great deal of time and disputation may then be avoided." 45 The competing approach, which I might describe as the contextual approach, holds that the words of a document, being no more than symbols of language, can never be reliably understood in isolation from the context in which the words were used. One does not, therefore, start with the language and ascertain from the language alone whether or not there is ambiguity: one looks at the language together with the context. This is because words may seem clear and unambiguous when read in isolation, but may seem quite unclear and ambiguous when one knows the context in which they were used. As Holmes J said in Towne v Eisner (1918) 245 US 418, at 425: "A word is not a crystal, transparent and unchanged, it is the skin of a living thought and may vary greatly in colour and context according to the circumstances and the time in which it is used." 46 The contextual approach is by no means of recent invention although the apparent conflict between the literal approach and the contextual approach has lately been brought back into prominence by Lord Hoffman in Charter Reinsurance Co Ltd v Fagan [1997] AC 313, at 391, Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd [1997] AC 749, at 774-775, and Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896. In West Bromwich at pp.912-913 his Lordship, having observed that almost all the "old intellectual baggage" of legal interpretation has now been discarded, summarised in five principles the way in which, according to his Lordship, modern Courts approach the construction of documents. 47 The first of his Lordship's principles is that "interpretation is the ascertainment of the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were placed at the time of the contract" . Pausing at this point, it will be noted that his Lordship did not make a consideration of the text stage one of the process, to be followed, as stage two, by reference to extrinsic evidence. Nor did he say that reference to extrinsic evidence is permissible only to resolve ambiguity. On the contrary, his Lordship regarded the exercise of construing the words of the text as necessarily requiring the Court to understand the setting in which the words of the text were used. This is so because, according to his Lordship, the exercise of interpretation requires the Court to enter the mind of the hypothetical reasonable person possessed not only of the knowledge which the parties actually had at the time of the contract, but also of the knowledge which they reasonably had available to them. 48 At p.913 Lord Hoffman explained the rationale for this approach: "The meaning which a document (or any other utterance) would convey to a reasonable man is not the same thing as the meaning of its words. The meaning of words is a matter of dictionaries and grammars; the meaning of the document is what the parties using those words against the relevant background would reasonably have been understood to mean. The background may not merely enable the reasonable man to choose between the possible meanings of words which are ambiguous but even (as occasionally happens in ordinary life) to conclude that the parties must, for whatever reason, have used the wrong words or syntax …." 49 The principles of construction proposed by Lord Hoffman in West Bromwich have been adopted and followed in the United Kingdom: see e.g. Don King Productions Ltd v Warren [1998] 2 Ll R 176; Sinochem International Oil (London) Co Ltd v Mobil Sales and Supply Corp [2000] 1 Ll R 339; Philip Collins Ltd v Davis [2000] 3 All ER 808. 50 In New Zealand, the law prior to West Bromwich adopted the literal approach to the construction of documents so that examination of the text was the first, and sometimes the only, consideration: see especially the judgment of the Court of Appeal in Benjamin Developments Ltd v Robt Jones (Pacific) Ltd [1994] 3 NZLR 189. However, despite the marked disparity between the literal approach and the contextual approach, New Zealand Courts have now endorsed and applied West Bromwich with scarcely a nod in the direction of Benjamin Developments : see e.g. Boat Park Ltd v Hutchinson [1999] 2 NZLR 74; Pyne Gould Guinness Ltd v Montgomery Watson (NZ) Ltd [1999] NZCA 266; NDA Engineering Ltd v Oxford Group Ltd [1999] NZCA 270; Valentines Properties Ltd v Huntco Corp Ltd [2000] 3 NZLR 16; Contact Energy Ltd v Natural Gas Corp of NZ Ltd [2000] NZCA 132. 51 In Australia the position is unclear. On the one hand, the literal approach is strongly supported in the High Court by Kirby J in the passage from Royal Botanic Gardens which I have set out at paragraph 44 above. On the other hand, Gleeson CJ, Gaudron, McHugh, Gummow and Hayne JJ in the same case said at para.39: "… reference was made in argument to several decisions of the House of Lords, delivered since Codelfa but without reference to it. Particular reference was made to passages in the speeches of Lord Hoffmann in Investors Compensation Scheme Ltd v West Bromwich Building Society and of Lord Bingham of Cornhill and Lord Hoffmann in Bank of Credit and Commerce International SA v Ali , in which the principles of contractual construction are discussed. It is unnecessary to determine whether their Lordships there took a broader view of the admissible 'background' than was taken in Codelfa or, if so, whether those views should be preferred to those of this Court. Until that determination is made by this Court, other Australian courts, if they discern any inconsistency with Codelfa, should continue to follow Codelfa."

Callinan J did not refer to West Bromwich , nor did the Court of Appeal below. The question which the majority in the High Court left to inferior Courts to puzzle out now arises: is the decision in Codelfa consistent or inconsistent with the contextual approach adopted in West Bromwich ? The decision in Codelfa

52 The judgment in Codelfa most frequently referred to as to the use of surrounding circumstances in the construction of contracts is that of Mason J. Brennan J also considered the question, but in much less detail. The other three Judges did not find it necessary to discuss the question. 53 Mason J commenced his analysis at p.347 by drawing attention to the broad purpose of the "parole evidence rule": it was "to exclude extrinsic evidence (except as to surrounding circumstances) … to subtract from, add to, vary or contradict the language of a written instrument". His Honour pointed out that the rule did not originally deny resort to extrinsic evidence in order to construe a contract, but that in time it came to be regarded that way as support for the literal approach to construction grew in the first half of the last century. 54 His Honour then drew attention to the fact that the contextual approach long ago coexisted with the literal approach. He quoted the well-known statement by Lord Wilberforce in Prenn v Simmonds [1971] 1 WLR 1381, at 1383-4: "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. There is no need to appeal here to any modern, antiliteral, tendencies, for Lord Blackburn's well-known judgment in River Wear Commissioners v Adamson ([1877] 2 App Cas 743, 763) provides ample warrant for a liberal approach. We must, as he said, 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. Moreover, at any rate since 1859 ( Macdonald v Longbottom (1859) 1 E&E 977 [120 ER 1177]) it has been clear enough that evidence of mutually known facts may be admitted to identify the meaning of a descriptive term." 55 Mason J noted that Lord Atkinson and Lord Shaw in Great Western Railway and Midland Railway v Bristol Corporation ((1918) 87 LJ Ch 414) thought that extrinsic evidence was admissible only to resolve a patent ambiguity and not to raise an ambiguity and that, in the same case, Lord Wrenbury thought that extrinsic evidence was admissible both to raise and to resolve an ambiguity. Lord Wrenbury's view, I should add parenthetically, had previously been voiced by Griffiths CJ in Rankin v Scott Fell & Co (1904) 2 CLR 164, at 173-4. 56 At p.351, Mason J quoted the following passage from Lord Wilberforce's speech in Reardon Smith : "… what the court must do must be to place itself in thought in the same factual matrix as that in which the parties were. All of these opinions seem to me implicitly to recognise that, in the search for the relevant background, there may be facts which form part of the circumstances in which the parties contract in which one, or both, may take no particular interest, their minds being addressed to or concentrated on other facts so that if asked they would assert that they did not have these facts in the forefront of their mind, but that will not prevent those facts from forming part of an objective setting in which the contract is to be construed." 57 Mason J then referred to his own judgment in Secured Income Real Estate (Australia) Ltd v St Martins Investments Pty Ltd (1979) 144 CLR 596 in which, he said, he had accepted and applied Lord Wilberforce's views as to the admissibility of evidence of surrounding circumstances and the inadmissibility of the parties' subjective intentions or understanding for the purposes of construing the contract. His Honour remarked that he had not changed the opinions which he then expressed. 58 His Honour continued: "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." 59 When one reads this passage in the context of what his Honour has previously said, its meaning is quite clear. His Honour is not saying: evidence of surrounding circumstances is admissible only if it first appears that the language of the contract is ambiguous. His Honour is saying: evidence of surrounding circumstances is admissible only for the purpose of explaining ambiguous language in the contract and not for the purpose of changing the meaning of clear words. In short, all that his Honour is doing is emphasising the point which he made at the beginning of his analysis: the parole evidence rule, rightly understood, excludes extrinsic evidence tendered for the purpose of changing the plain meaning of the words of a contract; it has nothing to do with excluding extrinsic evidence for the purpose of construing ambiguous words in a contract. 60 As to the point in time in the exercise of construction at which reference to extrinsic evidence is permissible, his Honour agrees with Lord Wilberforce's approach in Prenn and Reardon Smith , the pith of which is that the time has passed when contracts are isolated from the matrix of facts in which they were set and interpreted purely on internal linguistic considerations. 61 A careful reading of the judgment of Mason J in Codelfa , therefore, shows that his Honour would be in complete sympathy with the contextual approach promoted by Lord Hoffman in West Bromwich . Like Mason J, Lord Hoffman has built his argument for the proper approach to the construction of contracts upon the speeches of Lord Wilberforce in Prenn and Reardon Smith : see West Bromwich at 912G. 62 The views of Brennan J in Codelfa are expressed quite succinctly. At p.401 his Honour says: "The meaning of a written contract may be illuminated by evidence of facts to which the writing refers, for the symbols of language convey meaning according to the circumstances in which they are used. 'The time has long since passed', Lord Wilberforce said in Prenn v Simmonds , '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'. Both the internal and extrinsic context in which a word or phrase is used may throw light upon the meaning with which the parties must be taken to have used it, though an extrinsic fact known to only one of the contracting parties can shed no light upon the meaning with which that word or phrase was used by the other or others.

When the court picks up a written contract in order to construe the writing, it must 'place itself in thought in the same factual matrix as that in which the parties were' as his Lordship said in Reardon Smith Line v Hansen-Tangen ." 63 It is clear at once from this passage that Brennan J, like Mason J, adopts entirely the views of Lord Wilberforce in Prenn and Reardon Smith and that he too would endorse Lord Hoffman's contextual approach. 64 It remains to be noted that of the three remaining Judges who decided Codelfa , Stephen J agreed with what Mason J had said as to the implication of a term, thereby presumably agreeing in all of his Honour's reasoning; Aickin J, in concluding that no term should be implied, did not find it necessary to refer to the use of extrinsic evidence for the purpose of construing a contract; and Wilson J, in agreeing with both Mason and Aickin JJ that no term should be implied, adopted both their Honours' reasons. 65 Accordingly, in my view, there is no support for the literal approach to the construction of contracts to be found in Codelfa . On the contrary, the case is entirely in line with the contextual approach to construction promoted by Lord Hoffman in West Bromwich . 66 In the result, I conclude that I am not constrained to find ambiguity within the four corners of the ABA before I am permitted to have regard to the surrounding circumstances known to all parties in which the contract came into existence. 67 Before leaving this point of principle may I say, with great respect to those who promote the literal approach to construction, that to a trial judge the rationale for that approach does not appear very compelling. Of course, it would be a good thing in terms of saving time, trouble and expense if a trial judge could reject the tender of extrinsic evidence on the basis that the words of the contract are clear and unambiguous. The difficulty is that, in real life, the judge is told by the plaintiff's counsel in opening that the words of the contract clearly mean X, only to be told by the defendant's counsel immediately afterwards that the words clearly mean Y. In all but a very few cases, the arguments of both counsel seem respectable. How can a judge confidently reject at the outset extrinsic evidence tendered in aid of construing words said to have at least two meanings on the ground that he or she has already formed the view that the words are clear and could not possibly mean what one or other counsel says they mean when seen in the context of surrounding circumstances? Willy-nilly, the judge has to admit the evidence, hear the disputation arising from it and, at the end of the day, work out whether any of it is of assistance. 68 I suspect that approaching the construction of a contract is rather like approaching the eating of a boiled egg and that the controversy between the literalists and the contextualists has as much practical significance as the controversy between the Big-Endians and the Little-Endians recounted in Gulliver's Travels : whichever end of the egg you start at, it all gets eaten up and it all tastes the same anyway. The circumstances surrounding the ABA

69 The circumstances surrounding the execution of the ABA, known to both parties, may be summarised thus. 70 On 26 October 2000, a media release was issued by Grainco stating that it had acquired "exclusive rights to administer the vesting and export powers of the New South Wales Grains Board" . Mr Christopher Brooks recalled reading reports of that announcement. 71 On 27 October 2000, the Board sent an e-mail to industry members, including Mr Brooks, stating that the agreement between Grainco and the Board gave Grainco "exclusive access to the single desk export rights for NSW in barley, canola and sorghum and to the domestic vesting rights for malt barley in NSW for the next five years." [Emphasis added.] 72 On 3 November 2000, the Board sent to Mr Brooks a facsimile in the following terms: "I am writing to inform you of the intention of the exclusive agent of the NSW Grains Board, Grainco Australia, to fully enforce its vesting rights on malt barley grown in the state of NSW. It is understood that, except for small tonnages of malt barley licensed to Barrett Burston Malting and Joe White Maltings, all malt barley grown in NSW will be directly purchased by Grainco Australia under the vesting rights of the Grain Marketing Act (1991) NSW ." [Emphasis added.] 73 On the same day, Mr Brooks responded to the Board in a letter which contained the following statements: "I am frustrated by your threats to fully enforce the vesting rights of the malt barley in NSW. I must also advise that we are seeking legal advice with respect to the Grainco threat of laying charges against us for the barley purchases we made under our existing agreement that was in place prior to you giving over the license to Grainco. It was the same NSW Grainsboard that gave us license to buy the grain that also gave Grainco license to buy." 74 On 5 December 2000, RB wrote to barley growers concerning contracts for the purchase of malt barley. In the course of that letter, RB stated: "We may have trouble securing a license to contract Malt Barley with you in the future while Grainco have the monopoly over this state . We are presently reviewing every possibility to accommodate you for this coming season and will keep you informed of any option that becomes available within the laws of the existing Grain Marketing Act." [Emphasis added.] 75 It can be seen, therefore, that the ABA was executed in a context in which all parties knew that:

• rights under the Act to buy malting barley were exclusively controlled by Grainco;

• Grainco was asserting its right to purchase directly all malting barley grown in NSW;

• Grainco had a "monopoly" over malting barley in NSW which it intended to assert as against RB;

• Grainco was the party having control over the issue of ABAs.

In those circumstances it must be an inference reasonably known to all concerned that Grainco would issue ABAs for the purpose of furthering, not destroying, its "monopoly" over malting barley in NSW. 76 The operative clauses of the ABA do not expressly refer to whether the "barley" which is the subject of the agreement is malting barley or feed barley, whereas the cover page of the document draws that distinction. Clause 2 contains a restriction on selling barley for malting purposes, which suggests that malting barley might be bought under the ABA but not sold for only one of its possible uses. Accordingly, I am prepared to hold that there is ambiguity in the ABA as to whether it authorises the purchase of barley of all descriptions or authorises the purchase of barley other than malting barley. If I were a literalist, I would now consider myself entitled to look at the circumstances in which the ABA was executed. If I were a contextualist, I would look at those circumstances in any event. The ABA

77 The ABA was executed by RB on 14 September 2001, by Grainco on 18 September 2001, and by the Board on 24 September 2001. Although it is described as an "agreement", the ABA is in fact an application by RB to the Board for the appointment of RB as an authorised buyer under s.40 of the Act. The application matures into an agreement when it is approved by the Board. 78 The relevant portions of the document are as follows:

• there is a title page with the Grainco logo at the top; beneath the logo appear the following words: " AUTHORISED BUYER AGREEMENT FOR BARLEY (For all Barley with the exception of Barley meeting NSW Malting Barley Standards)" - On the page 2 of the document appears: "WHEREAS The New South Wales Grain Board (hereinafter referred to as 'the Board') is a Body Corporate constituted pursuant to the provisions of the Grain Marketing Act, 1991 (hereinafter referred to as 'the Act').

AND WHEREAS All barley produced for sale in New South Wales is absolutely vested in and becomes the property of the Board by Proclamation published in New South Wales Government Gazette of 26th July 1991.

AND WHEREAS The Board may by order in writing pursuant to the Act appoint any person to be an authorised buyer.

AND WHEREAS Grainco Australia Limited ACN 070 878 241 ('Grainco Australia') as the appointed Licensee by the NSW State Government on the 30 October 2000, shall administer and maintain all aspects regarding the application of the Authorised Buyer Agreement in NSW.

NOW I/WE RAY BROOKS PTY LTD OF [address]

(Hereinafter referred to as 'the Authorised Buyer') hereby apply to be appointed by order of the Board as an authorised buyer of Barley in NSW.

AND IN THE EVENT of the Board ordering my appointment as an Authorised Buyer, I/We hereby agree to be bound by the following terms and conditions of appointment:

(2) The Authorised Buyer shall not in any way sell or supply or cause to be sold or supplied, directly or indirectly, any Barley for use in the malting / or brewing trade, or for export as unprocessed barley, without written permission from Grainco Australia."

• At the foot of page 2 of the document and of the remaining four pages, appear in small print the words "Authorised Buyers Agreement - Feed Barley" .

• There are 28 clauses in the "terms and conditions of appointment"; other than Clause 2, they do not throw any light on the question for construction. "Barley" appears throughout these clauses sometimes with an upper case initial and sometimes with a lower case initial, without any apparent consistency in usage. It is impossible to say that an upper case initial indicates that "barley" means "feed barley" only, and a lower case initial indicates all varieties of barley, or vice versa.

• On the last page of the document is recorded the statement, under the signature of the Board's Administrator, that the Board: "Hereby orders the appointment of Ray Brooks Pty Ltd as an Authorised Buyer upon the terms and conditions set out herein and pursuant to resolution passed by the Board." The construction of the ABA

79 Mr Hutley's first submission is that the Court must look only at the "operative part" of the ABA, namely, clauses 1 to 28; it cannot look at the title page and, in particular, it cannot have regard to the words "For all Barley with the exception of Barley meeting NSW Malting Barley Standards" , or to the words at the foot of each page "Authorised Buyers Agreement - Feed Barley" . The Court cannot look at these words, Mr Hutley says, because RB has agreed to accept as the terms and conditions of its appointment as an authorised buyer only those terms and conditions in clauses 1 to 28, and the Board has appointed RB as an authorised buyer only upon the terms and conditions contained in those clauses. Clauses 1 to 28, he says, contain no express prohibition or limitation as to the grade, class or description of the barley which may be purchased by RB as an authorised buyer. 80 I am unable to accept this submission. It adopts a formal, literalistic approach to the construction of contracts rather than a purposive approach. The formal, literalistic approach has no place in the modern law of contract. Portia's literalistic submission as to the true construction of Shylock's bond with Antonio may have found favour with the Duke's Court in Venice, but it would have fallen on deaf ears in the High Court of Australia: see Wilson v Anderson (2002) 190 ALR 313, at para.9. 81 As is manifest, the ABA is unskilfully drawn: the inconsistency in referring to "barley" with an upper and a lower case initial is but one of many instances of clumsiness. The document contains no definition of "barley" in the operative part, as one might have expected in a well-drawn document but, on the other hand, the title page is very evidently intended to convey to an applicant for authorised buyer status under s.40 of the Act just what particular authority to buy is to be conferred if the applicant completes the document and the Board approves the application in terms. In my opinion, it is clear from the document, looked at as a whole, that it is intended for use only where the applicant is seeking authorised buyer status in respect of barley which does not meet the Malting Barley Standards, i.e. feed barley. Consequently, the agreement which comes into existence upon the Board's acceptance of that application must be understood as applying only to feed barley. 82 Next, Mr Hutley submits that clause 2 of the ABA is inconsistent with the incorporation in the contract of the title page as containing a definition of "barley" as feed barley. Why, he asks, does clause 2 expressly prohibit the sale of barley to maltsters if, on the proper construction of the ABA, malting barley cannot be acquired under the agreement in the first place? Clause 2 supports the construction, says Mr Hutley, that the ABA authorises the purchase of all varieties of barley, including malting barley, and is concerned only to prohibit any malting barley acquired from being on-sold to maltsters. 83 I am unable to accept this submission for two reasons. First, clause 2 may be superfluous in light of the exclusion of malting barley from the authority to buy conferred by the ABA, but that is not a strong indication that the plain words of the title page must be disregarded. Superfluity would not be surprising in a document so ill drawn. The evidence suggests that what has happened is that a prior version of the ABA, which authorised the purchase of all types of barley but contained the restriction in Clause 2, has been modified to exclude authority to purchase malting barley by the simple but clumsy expedient of inserting an overall definition on the title page but with no careful consideration as to the amendments which might be necessary to make the document otherwise consistent. 84 The second reason is, as submitted by Grainco, that clause 2 may not be superfluous at all. The Grainco Malting Barley Standards are not necessarily the malting barley standards applicable elsewhere in Australia. It may be in the interests of Grainco and the Board to prevent or control the sale of barley which, although not meeting NSW Malting Barley Standards, is nevertheless acceptable to maltsters outside New South Wales. In short, if the ABA on its proper construction prohibits the acquisition of barley meeting the Malting Barley Standards, I am unable, as the evidence stands, to conclude that there is no circumstance in which clause 2 can have any work to do. 85 Thirdly, Mr Hutley submits that the ABA must be construed as effecting a purpose which the Board can lawfully carry out. Section 40(2) of the Act, he says, empowers the Board to authorise the purchase only of a "commodity", such as "barley" and not "parts" or "types" of a commodity, such as "feed barley". Because the Board could not lawfully authorise the purchase of feed barley alone, he submits, the ABA should be construed by ignoring the words on the title page and in the footers, so that the reference to "barley" throughout the operative part of the agreement must be construed as meaning all types of barley. 86 I am unable to accept this submission. In my view, the Act empowers the Board to authorise a buyer to purchase certain grades, classes or descriptions of a commodity, such as "malting barley" or "feed barley", as well as barley of every grade, class or description. The functions conferred on the Board with respect to the marketing of grains are expressed in the widest possible terms by s.32 and s.33 and by the definition of "marketing" in s.3(1). Further, by s.36 the Board is empowered to "establish grades, classes or descriptions of a commodity and … to fix the price at which a grade, class or description of a commodity may be sold by wholesale" . 87 In the light of these very broad functions and powers it can be seen that it may well be desirable for the Board to authorise buyers to purchase certain grades, classes or descriptions of a commodity on certain terms and to authorise the purchase of other grades, classes or descriptions of a commodity on other terms, thereby establishing or monitoring control over and stabilising the fixing of prices at which these grades, classes or descriptions of the commodity may be sold by wholesale. 88 Further, s.40(2) authorises a buyer to purchase any of the commodity which a producer is entitled to sell. A producer is entitled to sell a commodity under s.46(1)(b) to merchants, such as authorised buyers, "in such cases and on such terms and conditions as [the Board] thinks fit" . The Board, in my opinion, therefore has a wide power to impose terms and conditions on producers, including terms as to what grades, classes or descriptions of a commodity they are entitled to sell to authorised buyers. 89 Correspondingly, under s.40(2) the Board must be empowered to impose conditions upon the appointment of a person as an authorised buyer so as to make clear that the authority to purchase is expressly limited to particular grades, classes or descriptions of a commodity which the Board has authorised producers to sell pursuant to terms imposed on those producers under s.46(1). That power is implicitly recognised by the words in s.40(2) "subject to and in accordance with the order appointing the person" . Those words would be pointless if it were beyond power for the Board to impose any conditions at all on an appointment under subsection (1). 90 When this analysis of the text of the ABA is seen in the light of the surrounding circumstances to which I have referred in paragraphs 69 to 75, the conclusion that the ABA does not authorise the purchase of malting barley is, in my opinion, irresistible. The background and genesis of the JVA

91 All parties agree that the JVA is ambiguous and all have sought to rely upon the circumstances surrounding its execution. 92 RB has been in the business of trading grain, mainly barley, since its incorporation in 1986. Prior to its incorporation, the business had been carried on by Mr Ray Brooks since 1958. The business consists of buying, storing, carrying and selling cereal grains and oil seeds, including barley, wheat, oats and canola throughout Australia. 93 RB's business had a turn-over of about $66M in the year ended 30 June 1999. The majority of that business was transacted in a region south of the Lachlan River in New South Wales, extending from north-east of Balranald in south-western NSW, in an arc going north-east to Condobolin and then south-east down to Cowra. A large part of RB's business consisted of trading with the Board, but it also had substantial trading activities which did not involve the Board. 94 For some four years prior to the JVA, RB had acted jointly in the purchase of grain in southern NSW. Despite the fact that under the Grain Marketing Act all grain produced in NSW was vested in the Board, grain growers, including barley growers, in south-western NSW found it more economical to transport grain into Victoria for sale. The Board was keen to stop this "leakage" of NSW grain into Victoria and it came to an arrangement with RB whereby RB offered to buy this grain at more competitive rates. The Board and RB set up jointly operated grain storages along the NSW/Victorian border to which this grain would be transported. The Board then marketed the grain in accordance with its powers under the Act. This joint operation had proved successful in retaining in NSW substantial quantities of good quality grain for use by the Board in expanding its business. 95 At all times during the conduct of these joint trading activities with the Board, RB held ABAs. 96 Up to July 1998, trading in grain had been regulated in Victoria and South Australia in much the same way as in NSW. On 1 July 1998 the feed barley domestic trade was totally deregulated in Victoria and South Australia and, by early 1999, it became known that the malting barley domestic trade also was to be totally deregulated in those States. There was at that time no firm proposal to deregulate the barley trade in NSW. 97 In mid-1999, the position of the Board and RB in relation to the grain trade in Victoria and South Australia was clear enough. RB and the Board had been conducting a joint operation in south-western NSW involving grain storage facilities along the NSW/Victorian border, and they were both keen to take advantage of deregulation in Victoria and South Australia. The Board wished to buy grain produced in Victoria and South Australia for use in NSW so that it could supply more grain produced in NSW for the more profitable export market. RB was already an established buyer of grain in northern Victoria and southern NSW. The Board and RB would be substantial buyers in the deregulated markets of Victoria and South Australia and if they competed directly in those markets the competition could have the effect of raising prices, to the disadvantage of both of them. On the other hand, if they co-operated, a competitive price war could be avoided. 98 In about late August 1999, the Managing Director of the Board, Mr Graham Lawrence, and another officer of the Board, Mr Peter Jeffries, came to see Mr Christopher Brooks. According to Mr Brooks, a conversation to the following effect occurred: " Graham Lawrence: 'As you know there is going to be deregulation in Victoria in the barley industry next year and anybody will be able to trade in Victoria. That includes the NSWGB. We do not know whether we will require your services any longer to accumulate grain for us.'

Chris Brooks: 'I understand that. By the same token I do not need you to sell the grain.'

Graham Lawrence: 'Fair enough. Are we going to be nice to one another or will we be competitors?'

Chris Brooks: 'It's your call. I think we have a pretty good arrangement at the moment. We accumulate and you market.'

Graham Lawrence: 'Okay. Maybe we had better draft up a longer term agreement so that we can continue the present arrangements for a reasonable period.'" 99 Neither Mr Lawrence nor Mr Jeffries has been called to give evidence. The terms of this conversation are not in dispute and I accept Mr Brooks' account of it. However, while this conversation explains the origin of the JVA, it does not really assist in the construction of its terms. 100 Mr Lawrence and Mr Brooks decided that they would not use lawyers to draw up the new agreement. Mr Lawrence prepared a draft and sent it to Mr Brooks. Discussions produced a number of amendments. The document which finally became the JVA became binding on 15 October 1999. 101 As at 15 October 1999, RB had a number of grain storage locations in NSW, some of which were referred to in Schedule 1 to the JVA, some of which were not. 102 Two directors of the Board and Mr Christopher Brooks have given evidence of their understanding of the terms of the JVA. This evidence was tendered as relevant and admissible for a number of reasons, none of which included a claim for rectification or estoppel. In my opinion, this evidence, being nothing more than evidence of the respective subjective intent or understanding of each party to the contract, is inadmissible as an aid to its construction and I have paid it no regard. The JVA

103 The significant provisions of the JVA are as follows:

RAY BROOKS PTY LTD (BROOKS) AND NEW SOUTH WALES GRAINS BOARD

This is to confirm the agreement reached between RAY BROOKS PTY LTD (BROOKS) and New South Wales Grains Board (NSWGB) whereby both parties have agreed to conduct a joint venture grain storage/trading/merchandising business in accordance with the terms and conditions as outlined hereunder.

A. The primary object of the joint venture relationship is the purchase, storage and sale of grain products as mutually agreed from time to time, in Victoria and South Australia (in areas/silos as per Schedule 1) Both parties agree to conduct this business in conjunction with the other party; and various responsibilities will be allocated to each party and may be paid for at commercial rates.

B. In the legal relationship, all the Brooks grain trading business to be channelled through the J.V. and the NSWGB to channel all its Victorian and South Australian grain trading business (as per areas/silos per Schedule 1) through the J.V.

C . It is agreed that the stock position be openly declared to both parties at all times and the marketing, (sales and purchases) decisions to have input from both parties. 1 CONDUCT OF THE BUSINESS

In the conduct of this business BROOKS undertake to:-

1.1 maintain daily contact with farmers, suppliers and grain market participants to ensure adequate market coverage and information is available to the joint venture parties.

1.2 purchase grain on farm, or other basis, as directed by NSWGB and/or agreed between Brooks and NSWGB, in the JV.

1.3 sell the grain as directed by NSWGB. BROOKS will ensure that proceeds of such sales are directly deposited into the separate bank account established by the NSWGB for the purpose of the joint venture.

1.4 arrange transport and storage of grain as required by NSWGB. BROOKS will be responsible for certifying payment of all trucking and related costs affecting the movement and handling of grain. The freight rates to be agreed upon consultation with NSWGB, (at commercial rates).

1.6 provide grain storage facilities and plant items as listed in schedule 1.

1.7 maintain full and accurate books of account and provide computer and other facilities that are required to accurately record the business activities.

1.8 All dealings and transactions relating to the joint venture business, including details relating to the purchase, cartage and storage of grain, shall be duly entered in the accounting records and those records shall be open to NSWGB representatives as may be reasonably required …

2.1 not to utilise the joint venture assets, whether in the form of grain inventory or other, to provide guarantee or indemnity to secure the liabilities or obligations of any (person) party other than the NSWGB.

2.2 not to sell, transfer or otherwise dispose of any part of joint venture assets, whether in the form of grain inventory or other, or to contract to do so otherwise than with the express agreement of NSWGB.

2.3 not to enter into any similar partnership or profit sharing agreement with any other (person) party, not to disclose to any person any confidential information provided in mutual trust regarding their respective business or customers.

3 For its part NSWGB will (following consultation with Brooks:-)

3.1 Implement the operations/merchandising decisions of the joint venture which shall be made in consultation between the parties.

3.2 Set daily market prices that shall be paid to farmers and which will be the basis of sale/purchase contracts to be entered into by the Joint Venture.

3.3 Undertake to pay for all grain purchased by BROOKS on behalf of the joint venture but acknowledges that Brooks has the right to share this role. NSWGB will establish a separate bank account for the purpose of operating the joint venture business, as outlined herein. The aforesaid grain paid for by NSWGB shall remain the property of NSWGB via title transfer, until such time as it is sold by the joint venture.

3.16 Not to sell, transfer or otherwise dispose of any part of joint venture assets, whether in the form of grain inventory or other, or to contact to do so otherwise than with the express agreement of BROOKS.

3.17 Not to enter into any similar partnership or profit sharing agreement with any other (person) party in the same area.

3.18 Not to disclose to any person any confidential information provided in mutual trust regarding their respective business or customers.

4.1 There shall be a Joint Venture Operating Committee to which each participant shall appoint two members. Each participant may appoint one alternate member for each member appointed by it.

Each participant shall give notice to the other Participants of the appointment of its members and alternate member.

An alternate shall act only in the event that the member for whom he is appointed alternate is not present at a meeting of the Committee, in which event he shall for the purposes hereof be deemed to be that member and may exercise all powers of the member for whom he is appointed alternate to the extent that the member has not exercised them.

Each Participant shall have the right to change any of its members and alternates at any time by notifying the other Participants to that effect.

4.5 (a) The Committee shall have full and complete power and authority and the Participants hereby empower and direct the Committee to give all approvals and to make all decisions and determinations required or permitted to be given or made by the Participants pursuant to this agreement with respect to the Joint Venture assets and liabilities.

6.1.1 NSWGB will provide all working capital to underwrite grain purchases by the JV; subject to clause 3.3 and 3.5.

6.1.2 BROOKS will be guaranteed a management fee by the JV as per clause 5.1;

6.1.3 BROOKS to receive a "good will" fee on Pool Receivals as per clause 5.3;

6.1.4 NSWGB and BROOKS to channel all Victorian grain receivals and Victorian grain sales (including the Bulk Grain storages, and agreed SA storages) into this JV. …

6.2 Based upon the background outlined in the agreement but particularly in clause 6.1, the NSWGB shall have equity at 51% and BROOKS at 49%, in the JV. (I.E. net profits/losses to be shared as 51% NSWGB 49% Brooks).

7.5 This agreement shall continue in force for 5 years unless terminated or extended by mutual agreement by giving notice no less than 6 months before the expiry date; and shall have the terms reviewed by the parties annually.

7.6 This agreement is not deemed to constitute an agency, partnership or relationship between the parties except for the purposes as outlined herein.

7.7 In the event of any dispute it will be the responsibility of NSWGB Managing Director representing NSWGB and Ray Brooks representing BROOKS respectively, to resolve, by negotiation. If negotiation fails to resolve a difference of opinion between the parties over one of the partners proposed stocks buying or selling bid or offer, relative to Joint Venture transactions and stocks, then the other party shall take over the position (outside the JV) at the rejected bid or offer price." The parties' contentions

104 There is no contest that in entering into the JVA the Board was acting within the powers conferred upon it by the Act. 105 RB's contentions may be summarised thus:

• an ABA is not required under s.40 of the Act for purchases by RB for the joint venture account because RB is not buying for itself but as agent for the Board, which retains title for the grain until it is sold;

• clause 7.7 provides a mechanism whereby either party to the JVA is permitted to buy grain outside the JVA. If that mechanism is activated for the benefit of RB, then clause 7.7 operates as "an order in writing" by the Board under s.40(1) of the Act appointing RB to be an authorised buyer on its own account to purchase all and any grain which RB could have purchased on the joint venture account;

• alternatively, clause 7.7 operates under s.46(1)(b) of the Act to exempt from the vesting provisions of s.45 any grain sold to RB pursuant to the exercise of RB's rights under clause 7.7;

• the scope of the joint venture activities included all of RB's business throughout Australia in all cereal grains including malt barley;

• from 19 July 2001 onwards the Board refused to authorise any further purchases by RB on the joint venture account due to the Board's financial difficulties;

• the Board's refusal to authorise the purchase of any further stock for the joint venture constituted a dispute over RB's "proposed stocks buying" within the meaning of clause 7.7 so that RB was thereafter entitled to buy for itself any grain which could have been purchased within the scope of the joint venture activities;

• the malting barley purchased by RB and stored at Bribbaree and Hillston was grain which could have been purchased within the scope of the joint venture activities because the business of RB, which was incorporated into the joint venture, included trading in the areas in which the barley was purchased. 106 The contentions of the Board and Grainco may be summarised thus:

• Clause 7.7 of the JVA does not operate as an exemption under s.46(1)(b) or as an authority under s.40(1) of the Act entitling RB to buy on its own account any grain which could have been purchased on the joint venture account: the clause is no more than a dispute resolution mechanism and is not intended in itself either to confer authority under s.40(1) or to exempt grain purchased on RB's own account from the vesting provisions of s.45 of the Act;

• in any event, the scope of the joint venture business did not include all of RB's grain business throughout Australia: it included only that part of RB's business as was conducted in Victoria and South Australia or, alternatively, in those States and in the south-west region of NSW where the storage sites listed in Schedule 1 are located;

• alternatively, if the scope of the joint venture operation cannot be limited as proposed in the prior submission, then any purported extension in the JVA of the joint venture operations beyond those areas is void for uncertainty. 107 I accept the submissions of the Board and Grainco as to the construction of Clause 7.7 and as to the scope of operations of the joint venture, for the following reasons. Operation of Clause 7.7

108 Clause 7.7 must be seen in its context as a dispute resolution mechanism. It is the means whereby the competing interests which the joint venture parties already have might be accommodated without disruption to the joint venture activities. It provides an exception to the normal operation of the joint venture whereunder RB is buying grain as agent for the Board itself: see Clauses 1.2, 3.3 JVA and s.39(1) of the Act. Where RB is buying as agent for the Board it does not require an authority to buy in its own right under s.40(1), nor does it need an exemption under s.46(1)(b). 109 The first and most obvious thing to note is that Clause 7.7 says nothing about exempting sales to RB of any commodity from the operation of s.45 pursuant to s.46(1)(b), nor does it say anything about conferring authority on RB under s.40(1) of the Act to buy any particular commodity where such a purchase would be outside the operation of the joint venture. Its wording bears no resemblance to the terms found in s.46(1)(b) and s.40(1) and (2) of the Act. 110 The second thing to note is that the words "the other party shall take over the position (outside the JV) at the rejected bid or offer price" cannot be applied literally. The joint venture may receive an offer from a grain producer to sell to the joint venture at a certain price. One joint venture party might think the price acceptable, the other might think it too high; there is a dispute so that the joint venture itself cannot buy at the offered price. Do the words "the other party" (presumably the one wishing to buy) " shall take over the position" mean that that other party is bound by Clause 7.7 to buy at the offered price? What purpose of the joint venture is served if one party is obliged to buy stock at a price which the joint venture itself rejects? Surely, the words mean: "the other party shall be entitled to take over the position …". 111 As far as these words of Clause 7.7 affect RB, the result is that the clause recognises that RB is entitled, but not obliged, to conduct a grain trading business on its own account in order to take up a "buy position" rejected by the joint venture. What, then, does the clause have to say about exemption under s.46(1)(b) or about authority under s.40(1) of the Act to purchase grain for the business that RB is entitled, but not obliged, to carry on for its own account? The answer is: nothing. 112 Is an exemption under s.46(1)(b) or an authority to purchase under s.40(1) in favour of RB to be necessarily implied in Clause 7.7 in order to enable RB to purchase grain which it is entitled to purchase, but not obliged to purchase, outside the JVA? I cannot see why such an implied exemption or authority is so obvious that it goes without saying. If RB wishes to conduct a grain buying business outside the JVA why should it not have to comply with the same requirements, obligations and restrictions under the Act as all other grain merchants? 113 Further, I cannot see that an implied exemption under s.46(1)(b) or an implied authority to buy under s.40(1) is necessary to give business efficacy to the Joint Venture Agreement. The JVA is concerned only with operations within the joint venture and for its account; it is not concerned with the conduct of any business by RB which RB is entitled to conduct, but not obliged to conduct, outside the joint venture. 114 Finally, I cannot see why the implication of an authority under s.40(1) in Clause 7.7 would be equitable. It is not as if RB is prevented by other terms in the JVA from obtaining an exemption under s.46(1)(b) or an authority under s.40(1) in the normal way for any purchases which it wishes to make outside the joint venture. 115 For these reasons, regardless of the scope and area of the joint venture business, I am of the view that Clause 7.7 does not operate by implication or otherwise to confer exemption under s.46(1)(b) or authority under s.40(1) on RB to purchase grain outside the joint venture operations. Accordingly, the clause does not operate to exempt grain purchased by RB outside joint venture operations from the vesting provisions of s.45 of the Act. 116 RB's case, therefore, fails at this point. Scope of the joint venture business

117 The issue as to the scope of the joint venture business has occupied a great deal of the parties' time and attention in the case. As the matter will doubtless go further, I should for the sake of completeness give my conclusions. 118 I cannot accept RB's submission that the joint venture business included the whole of RB's grain business throughout Australia, for the following reasons. 119 First, in my view, Clause B of the JVA, upon the literal words of which RB places so much reliance, must be read in the context of Clause A. So read, Clause B does not stand separately and independently of Clause A but, rather, as ancillary to it. 120 Clause A refers to the "primary object" of the joint venture relationship as being the purchase, storage and sale of grain in Victoria and South Australia (I leave aside for the moment the reference to the "areas/silos" in Schedule 1). Clearly, therefore, the "primary object" of the joint venture is not the operation of a business Australia-wide, but the operation of a business within only two States. Clause B does not state that "another object" of the joint venture relationship is to transact business in a much wider field of operation than that specified as the "primary object" in Clause A. Rather, Clause B begins "in the relationship" , which in my opinion means "in the relationship specified in Clause A", that is, the relationship established for the purpose of conducting the business in Victoria and South Australia. 121 So understood, Clause B explains or amplifies Clause A by stating that all RB's grain trading business within the "primary object" of the relationship stated in Clause A is to be channelled through the joint venture. Certainly, the clause goes on to state that all of the Board's Victorian and South Australian grain trading business is to be channelled through the joint venture, giving the basis for Mr Hutley's argument that Clause B draws a distinction between the Board's contribution to the joint venture business, which is limited to Victoria and South Australia, and RB's contribution, which is unlimited. 122 But needless repetition in Clause B of the scope of the Board's business which is to form part of the joint venture is not to be wondered at in an agreement drawn by laymen who thought that they knew what the words meant, even if the words were confusing to outsiders. In my opinion, the reference to the scope of the Board's business in Clause B is intended merely to emphasise that it is not the whole of the Board's very extensive business which is included in the joint venture. 123 Second, RB's construction of Clause B is inconsistent with Clause 6.1.4. Why is there any particular need to specify in Clause 6.1.4 that RB will channel Victorian and agreed South Australian grain trading into the joint venture if its obligation is to channel all of its Australian grain trading into the joint venture? In my opinion, Clause 6.1.4 is a clumsy repetition of what is expressed in Clauses A and B. Perhaps this is so because Clause 6 is the clause which apportions the equity in the joint venture between the parties and it was intended to emphasise that only limited parts of the parties' respective businesses were to be subject to profit and loss sharing. 124 Third, the evidence establishes that RB owned or leased grain storage facilities and plant items in addition to those listed in Schedule 1. Those facilities were at Coleambally, Naradhan, West Wyalong, Temora, Junee, Walla Walla and Burrumbuttock. Yet under Clauses 1.5 and 1.6 of the JVA RB is required to provide and maintain only those of its facilities which are listed in Schedule 1. If the business of RB which was intended to be within the scope of the joint venture was truly the whole of its business, wherever conducted in Australia, it would be very odd indeed to require it to provide for joint venture purposes only part of the storage facilities and plant which it used in that business. 125 Finally, Clause 7.7 itself recognises that RB is entitled to conduct business "outside the joint venture" if it wishes a transaction to proceed on the joint venture account but the Board disagrees. If the whole of the business of RB were to be subsumed by the joint venture, one would expect the dispute resolution mechanism to provide in such a case that if the dispute were resolved in RB's favour, by a stipulated process, then the transaction would proceed on the joint venture account but, if the process resulted in a decision against RB, then the transaction would not proceed at all. Instead, RB is simply entitled to take the transaction out of the joint venture for itself; of necessity, in carrying out that transaction it must be able to use its plant, equipment, storage sites and other facilities. In other words, Clause 7.7 envisages that RB will continue to conduct its own business and that that business will include transactions which are not within the scope of the joint venture. 126 For these reasons, I conclude that the business of RB intended to be within the scope of the joint venture was not the whole of its grain trading business throughout Australia. The question then arises: what was the area within which RB's grain trading business was to be incorporated into the joint venture? There is no difficulty about Victoria and South Australia; the question is whether RB's business in any part of NSW was included and, if so, what part. 127 It is pointless to say that the words of Clauses A and B and 6.1.4 are difficult to understand: the parties thought that they meant something and the Court must do its best to give the words meaning. I have come to the conclusion that the area of RB's grain trading business which was to be included in the joint venture operation did not include any part of NSW, for the following reason. 128 It seems to me that the words in Clause A describing the activities of the joint venture must be read distributively amongst the areas referred to. I think that Clause A really intends to say: the primary object of the joint venture relationship is the purchase of grain products in Victoria and South Australia, the storage of those grain products "in the areas/silos as per Schedule 1" and the sale of those grain products wherever they may be sold. 129 If Clause A is construed in this way, Clause B makes sense, meaning: in carrying on this business, RB's purchases of grain in Victoria and South Australia are to be channelled through the joint venture, the Board's grain purchases in Victoria and South Australia are to be channelled through the joint venture and the joint venture's business is to use RB's "areas/silos" as listed in Schedule 1 and the other "areas/silos" listed in that schedule as well. 130 I should say in conclusion that RB sought to rely on post-contractual conduct as an aid to the construction of the JVA. It was said that purchases of grain by RB in NSW had been made for the joint venture account. 131 This is not the occasion for a dissertation on the uncertain state of the law in Australia as to whether post-contractual conduct is admissible as an aid to construction. Even if such conduct had been admissible in the present case, I would not have found it of any assistance, bearing in mind that all joint venture transactions had not been analysed and having regard to the inherent possibility, even probability, that those within the Board who were actually involved in these transactions were involved on an ad hoc basis with no first hand knowledge or understanding of the terms of the JVA or of the legal ground upon which the transactions were said to be for the joint venture account. I have therefore paid no regard to this evidence. 132 For all of these reasons, RB's case fails. Consequences

133 In the result, all of the malting barley purchased by RB and delivered to Hillston and Bribbaree was purchased without an authority under s.40(1) of the Act and remained vested in the Board. By reason of the Deed between the Board and Grainco dated 30 October 2000, Grainco was entitled to possession of that barley. 134 The question now arises: what proportion of the subject barley is malting barley, to which Grainco is entitled to possession, and what proportion is feed barley, to which RB unquestionably is entitled to possession? The problem has come about in the following way. 135 The storage facility at Bribbaree comprises the "Bribbaree Shed" and a bunker. The storage facility at Hillston comprises the "Hillston Shed" and at least four bunkers. The only barley now in issue in the proceedings is what was stored in the Bribbaree Shed and in the Hillston Shed and Hillston Bunker No.2. That barley was part of a larger quantity of barley stored at Bribbaree and Hillston, in respect of which Grainco issued the "impoundment" notices on 6 and 7 December 2001 pursuant to s.87(7)(d) of the Act. Some of the barley at Bribbaree and Hillston was released to RB in January 2002. The barley remaining under "impoundment" was that in the Bribbaree Shed, the Hillston Shed and in Hillston Bunker No.2. In May 2002 the parties reached an agreement, without prejudice to their respective positions, whereby the remaining barley at Bribbaree and Hillston was released to RB although, apparently, much of it still remains stored at those locations. 136 Weighbridge tickets show that there are 3,392.06 tonnes of barley stored in Hillston Bunker No.2, 2,708.14 tonnes in the Hillston Shed and, on Mr Brooks' estimate, 600 tonnes in the Bribbaree Shed, making a total of 6,700 tonnes. 137 RB says that not all of this barley is malting variety barley. Relying upon what appears on the weighbridge tickets and upon the evidence of five farmers who delivered non-malting variety barley to Bribbaree and Hillston, RB submits that 755.22 tonnes of the barley in the Bribbaree Shed and 518.61 tonnes of the barley in the Hillston Shed and Hillston Bunker No.2 were non-malting variety barley and therefore lawfully purchased as feed barley under the authority of the ABA. 138 On the other hand, the Board and Grainco rely on tests done on samples taken from these three locations to show that all of the grain stored there was malting variety barley and therefore fell outside the authority to purchase conferred by the ABA. 139 The parties agree that the weighbridge tickets in respect of deliveries to Hillston show that 391.30 tonnes of non-malting variety barley was delivered there. The discrepancy between that amount and the amount of 518.61 tonnes of Chebec variety (a non-malting variety) said to have been delivered there by three farmers, Messrs Trounson, Mitchell and Gray, is not explained. 140 Moreover, Mr Gray says that he cannot remember whether his loads of grain were placed in Hillston Bunker No.2 or in Hillston Bunker No.4. Neither Mr Mitchell nor Mr Trounson says where the barley which he delivered to Hillston was placed in the various storage areas located there. 141 As to the barley at Bribbaree, one of the farmers, Mr West, delivered ten truckloads of Tantangara variety (a non-malting variety), totalling 272.65 tonnes but he said that he actually saw only two of these truckloads placed in the Bribbaree Shed. The other farmer, Mr Sykes, says that he delivered 482.57 tonnes of Tantangara to Bribbaree, but he does not say where that barley was placed. 142 Grainco relies upon laboratory tests of samples of grain taken from the Hillston Shed, Hillston Bunker No.2 and the Bribbaree Shed. Its experts, Messrs Wilson, Williamson, Stuart and Lee, have given evidence as to the results of the testing which was done on those samples. RB has called no expert to contradict the evidence of Grainco's experts or to criticise the adequacy of the sampling and testing process. A report by Mr Moore, tendered by RB, was based upon hearsay, was flawed by the inadequacy of the samples taken and was not relied upon by RB in its submissions. 143 Grainco took a total of six samples of grain from the Hillston Shed. The shed is divided into two sections and three samples were taken from each section. The test results of these samples showed that the grain variety was 100% Schooner, a malting variety. Twenty-one samples of grain were taken from Hillston Bunker No.2. Eighteen samples tested showed 100% Schooner variety and the remaining three samples, taken from one end of the bunker, showed 100% Gairdner variety, also a malting variety. Four samples were taken from the Bribbaree Shed. All samples showed 100% Arapiles variety, a malting variety. 144 RB submits that I should prefer the evidence of the weighbridge tickets and the five farmers to the laboratory results of the samples taken from the three locations, at least to the extent that I would not accept that Grainco has established, on the balance of probabilities, its proposition that all subject grain in the three locations was malting variety barley. I am unable to accept that submission, for the following reasons. 145 I cannot give any weight to the evidence of Messrs Gray, Trounson and Mitchell as they do not say that their grain was placed in the Hillston Shed or Hillston Bunker No.2 rather than in the other storage areas in the Hillston facility. Similarly, I cannot give weight to the evidence of Mr Sykes as he does not say where in the storage areas at Bribbaree his grain was placed. As for the evidence of Mr West and the weighbridge tickets generally, I think that that evidence must be regarded as of far less reliability than the evidence of the laboratory tests. Memories can be faulty, confusion or error may occur in the filling in of records such as weighbridge tickets and, finally, it is possible that some grain was moved out of the subject sites before the samples were taken. 146 For these reasons, I am satisfied that all of the grain in the Hillston Shed, Hillston Bunker No.2 and the Bribbaree Shed as at the date on which the samples were taken by Grainco was malting variety barley. It follows from the other conclusions which I have reached that all of that barley was, at all material times, vested in the Board and that Grainco was entitled to possession of it. 147 Finally, I should draw attention to the fact that precise figures for the various tonnages of varieties of grain delivered to the receival sites at Bribbaree and Hillston were said not to be an issue in the proceedings because quantification was a matter of calculation derived from information on weighbridge tickets and other records. The parties informed me that they would be able to agree upon these figures. During the trial they referred to a number of sets of figures and to variations upon those figures. I am not confident that final agreement on exact figures has yet been reached. There are still differences in the parties' written submissions as to the particular tonnages of various grain varieties delivered to the sites and it will be noted that those differences are reflected in these reasons for judgment. If the calculation of precise figures is necessary for the purpose of formulating the Short Minutes of Order and the parties are unable to agree upon that calculation, I will hear further submissions to resolve this issue. Orders

148 The Plaintiff is not entitled to the declarations and orders sought in the Amended Statement of Claim and there will be judgment accordingly. The First Defendant is entitled to the declaration sought in paragraph 1 of its Cross Claim and there will be judgment accordingly. 149 The parties have suggested that some discussion is necessary amongst them as to the precise formulation of the relief to be granted, having regard to other circumstances with which it has not been necessary to deal in this judgment. Accordingly, I will stand the proceedings over for a short time to enable the Defendants, after consultation with the Plaintiff, to bring in Short Minutes of Order. On that occasion, I will hear argument as to costs. - oOo -

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