The primary duty of a court construing a written contract is to ascertain the legal meaning of the document from the words of the instrument in which the contract is embodied,...
Ambiguity is a conclusion, to be reached after consideration of evidence of surrounding circumstances, rather than a precondition to the admissibility of evidence of surrounding...
Evidence of the parties' subjective intentions is not admissible or usable to construe a contract, but evidence of objective background facts known to both parties, including the...
Where the text of a guarantee uses broad language including 'all amounts (including damages)' 'under or in connection with the Agreement or any transaction contemplated by the...
Issues before the court
Whether pre-contractual correspondence between solicitors was admissible and usable for the construction of the guarantee absent ambiguity on its...
Whether the guarantee extended only to the $30,250 payable under the Second Variation or also to the vendors' loss on resale ($147,500) under cl 9.3...
Plain English Summary
Two company directors personally guaranteed their company's obligations when negotiating extra time to buy land. The guarantee document used very wide wording that expressly covered 'all amounts (including damages)' connected with the time-extension deal or any deal it contemplated. When the company failed to buy the land the sellers cancelled, sold to someone else at a big loss, and sued the directors for the shortfall plus the extension fee. The directors said the guarantee was only meant to cover the extension fee, pointing to emails between the lawyers that suggested that was the plan. The court said the emails could be looked at as background but the guarantee's words were too clear and broad to be read narrowly. The loss on resale was covered because damages were mentioned, the original sale contract was kept alive by the variation, and failing to complete was connected to the varied deal. The directors lost the appeal.
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Deep Dive
2,900 words · generated 24/04/2026
Cited legislation
7 cited instruments linked from this judgment.
What happened
In November 2013 Bathurst Central Pty Ltd contracted to buy land at Raglan near Bathurst from Phillippa and Jock Steele-Park. The standard-form Contract included cl 9.3, which entitled the vendors, after valid termination for essential breach, to recover the deficiency on a resale effected within 12 months together with reasonable costs ([9]). Completion was originally due by 28 March 2014. In March 2014 the parties executed the First Variation, extending completion to 13 June 2014 and inserting an interest obligation if completion occurred after 6 April 2014 ([10]-[11]).
Completion did not occur. In July 2014 the appellants, Messrs Cherry and Sharpe, the directors of Bathurst Central, executed the Guarantee. Shortly afterwards the Second Variation was executed. It further extended completion to 1 October 2014, deleted the interest obligation, varied the due-diligence date in cl 40(a)(i), and required Bathurst Central to pay $27,500 plus GST ($30,250) in consideration for the further extension. That sum was payable on 1 October 2014 or completion, whichever first occurred, and was not to be credited towards the purchase price but was payable in addition to it. The Second Variation expressly provided that, subject to the variations, the principal agreement remained in full force and effect and was to be read and construed as if the variations were inserted ([13]-[14]).
The Guarantee defined “Agreement” as the Second Variation. “Guaranteed Money” was defined as all amounts (including damages) payable, owing but not payable, or that otherwise remain unpaid by the debtor to the beneficiary on any account at any time under or in connection with the Agreement or any transaction contemplated by the Agreement, whether present or future, actual or contingent, including the obligation to pay the amounts specified in cll 4 and 5 of the Agreement. “Guaranteed Obligations” was defined in correspondingly wide terms ([17]-[18]). Clause 2.1 contained the guarantee of due and punctual payment of the Guaranteed Money and performance of the Guaranteed Obligations. Clause 3 contained an indemnity.
Completion did not occur by 1 October 2014. A notice to complete was served and expired uncomplied with. On 24 April 2015 the vendors terminated and on the same day exchanged with a third-party purchaser at a price $147,500 lower than the original contract price. Mr Steele-Park (to whom his wife’s rights had been assigned) sued in the District Court for $176,947.16, comprising the deficiency, the $30,250, and legal fees net of deposit. Default judgment was entered against Bathurst Central. As against the guarantors the appellants conceded liability for the $30,250 but contended the Guarantee did not extend to the deficiency. In the alternative they pleaded estoppel based on the solicitor correspondence. They tendered a bundle of emails passing between Mr Kermode (for the purchaser and guarantors) and Mr Shillington (for the vendors) between May and June 2014. Those emails showed the vendors initially requiring personal guarantees for the extension fees unless paid upfront, the purchaser’s solicitor accepting that position, and later correspondence confirming the guarantee was to cover the $27,500 plus GST payable under the Second Variation ([22]-[33]).
The primary judge ruled, under s 136 of the Evidence Act 1995 (NSW), that the correspondence was admissible only on the estoppel defence because it was “no more than evidence of the parties’ subjective intentions” and not “evidence of objective facts known to both contracting parties” ([38]). Her Honour rejected the estoppel defence (which was not challenged on appeal) and held that the Guarantee extended to the deficiency. She did so by reference to the text alone, noting the width of the definition, the express inclusion of damages, the inclusion of the cl 4 and 5 amounts, and the fact that the original Contract remained in force and the sale was a transaction contemplated by the Second Variation ([39]-[41]).
The appellants appealed on two grounds: that the correspondence should have been available on the construction issue, and that on its proper construction (including context) the Guarantee was limited to the $30,250. The Court of Appeal (Gleeson JA agreeing with Leeming JA; White JA agreeing in the result but differing on the evidentiary ruling) dismissed the appeal.
Why the court decided this way
Leeming JA began with the uncontroversial proposition that the task is to identify the imputed intention of the parties by reference to text, context and purpose ([34]). However, he emphasised three distinctions that had not been addressed at first instance: between admissibility and use, between subjective intentions and objective background facts, and between ambiguity as a precondition and ambiguity as a conclusion ([35]).
On the first, his Honour noted that the application had been framed as one for a limiting order under s 136, yet no submissions had been directed to the statutory criteria of unfair prejudice or risk of the evidence being misleading or confusing. In a judge-alone trial where the documents were already before the court on the estoppel defence, there was no real point in a limiting order ([52]-[58]). White JA, while agreeing that the ruling was not shown to be erroneous on the materials before the primary judge, considered that the parol evidence rule (preserved by s 9(1) of the Evidence Act) could have justified exclusion of the material on the construction issue if it were irrelevant to that issue ([157]-[162]).
On the second distinction, Leeming JA held that the emails were not merely evidence of subjective intentions. The initial 19 May 2014 email from the vendors’ solicitor proposing guarantees “for the payment of this sum” (the extension fee), the purchaser’s acceptance, and the later confirmation that “the guarantee is to extend to all of the funds payable by 1 October under variation No 2 totalling $27,500 + GST” were objective facts known to both sides. They formed part of the genesis and commercial purpose of the Guarantee and were analogous to the communicated desire treated as objective in Boreland v Docker [2007] NSWCA 94 and the letter of offer in Angas Securities Ltd v Small Business Consortium Lloyds Consortium No 9056 [2016] NSWCA 182 ([62]-[67]). White JA took a narrower view, regarding the correspondence as disclosing the parties’ actual (subjective) intentions as to the scope of the Guarantee and therefore inadmissible on construction, though the objective fact that the Guarantee was sought only once a further extension fee had been exacted was admissible background ([146]-[156]).
On the third distinction, Leeming JA reviewed the authorities showing that the “true rule” in Codelfa does not impose an ambiguity gateway. Woodside, Mount Bruce Mining, Victoria v Tatts Group Ltd and Simic all require regard to text, context and purpose without first deciding the contract is ambiguous. Ambiguity is a conclusion reached after that exercise ([68]-[86]). The primary judge had therefore applied the wrong test, but the error was immaterial.
Turning to construction, Leeming JA parsed the definition of Guaranteed Money grammatically and semantically. It was exhaustive (“means”) yet contained inclusive extensions (“including damages”; “including the obligation to pay the amounts specified in Clauses 4 and 5”). It applied to “all amounts” on “any account” at “any time” “under or in connection with” the Agreement “or any transaction contemplated by” it. The words were of repeated generality. Damages were expressly included, which was necessary because an unpaid vendor cannot ordinarily sue for the price (McDonalds v Dennys Lascelles Ltd (1933) 48 CLR 457). The conveyance itself was a transaction contemplated by the Second Variation, which repeatedly referred to the principal agreement, varied it, and kept it on foot ([96]-[117]).
Even accepting that the commercial purpose evinced by the emails was to secure only the extension fee, that context could not narrow the wide words chosen. The primacy of the text, repeatedly affirmed in ABC v APRA, Mainteck, Newey v Westpac and McGrath v Sturesteps, prevented judicial rewriting. The strictissimi juris principle for guarantees required a genuine constructional choice; none was available. The case was not one in which context revealed the text to be ambiguous; rather, the text was too clear to be displaced. The position was analogous to that described in Ryledar Pty Ltd v Euphoric Pty Ltd (2007) 69 NSWLR 603 at [108]: where context cannot give the words a meaning they will not bear, the remedy is rectification, not construction ([108]).
White JA agreed that the terms of the executed Guarantee were too clear to be read down by the subjective intentions disclosed in the correspondence. The inference from the objective background that the Guarantee might have been intended to be limited was “rebutted by the terms of the Guarantee” ([163]).
Before and after state of the law
Before this decision, intermediate appellate authority was divided on whether ambiguity was a precondition to the use of surrounding circumstances. Western Australian decisions following Western Export Services Inc v Jireh International Pty Ltd [2011] HCA 45 (special leave refusal) maintained the precondition, while New South Wales decisions (Mainteck at [71]-[85], Newey at [89], WIN Corporation Pty Ltd v Nine Network Australia Pty Ltd [2016] NSWCA 297 at [59]) treated ambiguity as a conclusion reached after regard to context, consistently with the High Court’s emphasis in Woodside at [35] on text, context and purpose. The High Court in Mount Bruce Mining had left the point open ([49]), but Victoria v Tatts and Simic gave strong support to the New South Wales approach by deciding construction questions without any anterior ambiguity finding.
This judgment resolves the division for New South Wales courts. It confirms that the “true rule” in Codelfa at 352 is not displaced and that ambiguity is a conclusion, not a gateway. It also reinforces the primacy of text: even powerful evidence of commercial purpose and genesis cannot “defeat the wide words in the Guarantee” ([117]). The distinction between subjective intentions and objective background facts is sharpened by the detailed consideration of Boreland, Lahoud v Lahoud [2009] NSWSC 623, Angas Securities and Taouk v Assure (NSW) Pty Ltd [2017] NSWCA 227. The judgment makes clear that solicitor correspondence forming the immediate negotiating history can constitute admissible objective context, but only to the extent it reveals facts known to both rather than mere statements of position or uncommunicated expectation.
After the decision, the law in New South Wales is that surrounding circumstances known to both parties are available from the outset, but the court must still begin and end with the words used. The judgment has been cited for the proposition that context cannot warrant violence to clear general language. It also illustrates the limited utility of s 136 limiting orders in judge-alone trials where evidence is already before the court on another issue.
Key passages with plain-English translation
At [72] Leeming JA said: “The primary duty of a court construing a written contract is to ascertain the legal meaning of the document from the words of the instrument in which the contract is embodied, which qualifies the scope for evidence of surrounding circumstances to detract from the contractual text.” (Citing ABC v APRA at 109 and Mainteck at [74].) Plain English: The starting point and the finishing point is what the contract actually says. Background facts can help understand those words but cannot rewrite them.
At [76] the judgment states: “Ambiguity is a conclusion, to be reached after consideration of evidence of surrounding circumstances, rather than a precondition to the admissibility of evidence of surrounding circumstances.” Plain English: You do not need to find the contract unclear before you can look at the background. You look at the background first; only then can you decide whether there is more than one possible meaning.
At [91] the emails are characterised as “objective facts known to both sides of the transaction … the immediate objective context in which the contractual document was drafted and executed … ‘specific information as to the genesis of the transaction’.” Plain English: The back-and-forth between the lawyers showed what both sides were thinking when they negotiated the extra time and the guarantee. That history can be considered, but it cannot change the clear words they ultimately signed.
At [108], quoting Palmer J in Ryledar: “When the Court is construing a commercial contract, it begins with the words of the document … However, when a party to a contract argues that the known context and common purpose of the transaction gives the words of the contract a meaning which, by no stretch of language or syntax they will bear then, in truth, one has a rectification suit, not a construction suit.” Plain English: If the words cannot possibly mean what the background suggests, the parties should have sought to correct the document in equity rather than asking the court to stretch the language.
At [117]: “The contextual evidence is incapable of defeating the wide words in the Guarantee.” Plain English: Even though the emails pointed to a limited guarantee, the document the directors signed was an “all monies” guarantee in very broad terms. The words prevailed.
What fact patterns trigger this precedent
This precedent is triggered whenever a party seeks to rely on pre-contractual negotiations or correspondence to narrow the apparent width of a written commercial instrument, particularly a guarantee or indemnity. It applies to disputes over the scope of “all monies” or “all obligations” clauses that use words of generality such as “under or in connection with”, “any transaction contemplated by”, or express inclusion of “damages”. It is engaged when the commercial purpose evident from the genesis of the deal (for example, that a guarantee was sought only to secure a variation fee) appears narrower than the executed text.
The case also governs evidentiary rulings where a bundle of solicitor emails is tendered both on construction and on a defence such as estoppel or rectification. It confirms that such material is admissible as objective context if it reveals facts known to both parties or the transaction’s genesis, but not if it merely records negotiating positions or uncommunicated expectations. The decision is engaged whenever a trial judge is asked to make a limiting order under s 136 of the Evidence Act in respect of material already before the court on another issue.
It further applies to any guarantee given in the context of variations to an existing executory contract for the sale of land where the original contract’s termination and resale remedies remain on foot. The factual trigger is a subsequent claim for a resale deficiency where the guarantor argues that the guarantee was only ever intended to secure the variation consideration.
How later courts have treated it
The judgment itself applies and follows a consistent line of High Court and New South Wales authority. It applies Codelfa’s “true rule” at [68] and [74], follows Woodside at [35], Mount Bruce Mining at [46]-[51] and [108]-[109], and Tatts at [51]-[75]. It treats Mainteck, Newey and WIN Corporation as correctly stating that ambiguity is a conclusion, not a gateway, and declines to follow the Western Australian approach in Technomin Australia Pty Ltd v Xstrata Nickel Australasia Operations Pty Ltd (2014) 48 WAR 261. Ryledar is applied at [108] for the proposition that context cannot give words a meaning they will not bear. Boreland, Lahoud, Angas Securities and Taouk are cited with approval for the distinction between subjective intentions and objective background facts ([62]-[67]).
White JA’s separate reasons reinforce the continuing authority of Codelfa at 352 and Mount Bruce Mining at [50], emphasising that communicated intentions as to the scope of a guarantee still constitute subjective intentions that cannot override the executed instrument. The decision has been treated within the same court as confirming the primacy of text while permitting a broader admission of contextual material than earlier “ambiguity gateway” approaches. No subsequent appellate treatment is recorded in the judgment itself, but the principles it restates have been applied to other commercial instruments containing broad relational phrases such as “in connection with”.
Still-open questions
The judgment leaves open the precise operation of s 136 of the Evidence Act when the only relevance of tendered material is to construction and the parol evidence rule (preserved by s 9(1)) renders it irrelevant for that purpose. Leeming JA declined to express a view on White JA’s suggestion that a ruling under s 55 could be made on that basis, noting the point was not argued and may be inconsistent with earlier first-instance authority ([58]).
It also leaves open the exact boundary between admissible objective background (genesis, aim, communicated desire) and inadmissible statements of negotiating position. Leeming JA accepted that later emails were “less clearly within this area” but, because neither party sought differential treatment, did not decide the point ([64]). White JA would have excluded more of the correspondence as disclosing actual intentions.
A further open question is the interaction between the strictissimi juris principle for guarantees and the modern objective approach. The judgment confirms that the principle requires a genuine constructional choice among meanings fairly open, but does not explore its application where the guarantee is given by directors who are also the guiding minds of the debtor company.
Finally, the judgment notes that the Guarantee contained drafting infelicities (execution clause purporting to bind the company, uncertainty whether it was a deed) but these were abandoned at trial. Whether such defects could affect the admissibility of surrounding circumstances in other cases is not resolved. The decision also leaves untouched the availability of rectification in a court with jurisdiction, a remedy the judgment twice identifies as the proper vehicle when context and text cannot be reconciled ([108], [117]).
Catchwords
CONTRACTS - construction - evidence of surrounding circumstances - "true rule" in Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337
Judgment (26 paragraphs)
[1]
Background - overview
Messrs David Cherry and Richard Sharpe were the directors of Bathurst Central Pty Ltd. On 4 November 2013, Bathurst Central contracted with Ms Phillippa and Mr Jock Steele-Park to purchase a parcel of land at Raglan near Bathurst (Contract). The Contract was in standard form. One clause provided that if the vendors terminated and sold the land for a lower price to a third party purchaser within 12 months, they could recover the difference from Bathurst Central.
Completion of the Contract was to occur no later than 28 March 2014. On 17 March 2014, the parties executed a "Variation of contract for the sale and purchase of land", which extended the completion date to 13 June 2014 (First Variation). The First Variation also provided that if completion took place after 6 April 2014, Bathurst Central agreed to pay interest calculable at a rate of 7% per annum on the number of days between 6 April and the completion date.
Completion did not occur by 6 April. Nor had it occurred by 13 June 2014. On 23 July 2014, a "Second Variation of contract for the sale and purchase of land" was executed, which further extended the completion date to 1 October 2014 (Second Variation). As well as extending the completion date, the Second Variation removed the clause which had been inserted by the First Variation for the payment of interest, and instead provided that Bathurst Central agreed to pay, in addition to the purchase price, the sum of $27,500 plus GST (namely, $30,250) on the earlier of 1 October 2014 or completion. Prior to the execution of the Second Variation, the guarantee executed by Mr Cherry and Mr Sharpe which has given rise to this appeal was delivered to Mr and Mrs Steele-Park's solicitors (Guarantee).
By 1 October 2014, completion had still not occurred. On 16 October 2014, solicitors for Mr and Mrs Steele-Park served a notice to complete on the solicitors for Bathurst Central, requiring completion by 10 November 2014, which again did not occur. On 24 April 2015, solicitors for Mr and Mrs Steele-Park served a notice of termination of the contract of sale on solicitors for the appellants. On the same day, Mr and Mrs Steele-Park exchanged contracts for sale of the property with a third party purchaser, for a price which was $147,500 less than the purchase price agreed to under the contract with Bathurst Central.
On 23 September 2015, Mr Steele-Park (to whom Mrs Steele-Park had assigned her rights under the Contract) commenced an action in the District Court against Bathurst Central, Mr Cherry and Mr Sharpe. He obtained default judgment against Bathurst Central, which took no part in the trial or appeal. As against the guarantors, Mr Steele-Park claimed $176,947.16 as a debt due and payable pursuant to the Guarantee, or alternatively as damages for its breach.
Mr Cherry and Mr Sharpe advanced a number of defences which were not ultimately pressed. By the end of the hearing (which occupied one day, with written submissions supplied thereafter), they accepted that they were liable under the Guarantee for the $30,250, but denied that on its proper construction it extended to the balance of the amount for which they were sued. In the alternative, they said that Mr Steele-Park was estopped from claiming the difference in price under the Guarantee because of statements made by his solicitors as to its proper construction.
Both defences were rejected by the primary judge. This appeal is concerned solely with the construction of the Guarantee, and there is no complaint as to her Honour's finding that an estoppel was not made out.
During the course of the hearing, her Honour ruled that a bundle of emails between the parties leading to the execution of the Guarantee was admitted on a limited basis, namely, that "the evidence is admissible on questions of estoppel only".
[2]
The Contract and the First and Second Variations
Clause 9 of the Contract provided for Mr and Mrs Steele-Park's remedies in the event that Bathurst Central defaulted under it. It provided:
"If the purchaser does not comply with this contract (or a notice under or relating to it) in an essential respect, the vendor can terminate by serving a notice. After the termination the vendor can -
…
9.3 sue the purchaser either -
9.3.1 where the vendor has resold the property under a contract made within 12 months after the termination, to recover -
• The deficiency on resale (with credit for any of the deposit kept or recovered and after allowance for any capital gains tax or goods and services tax payable on anything recovered under this clause); and
• The reasonable costs and expenses arising out of the purchaser's non-compliance with this contract or the notice and of resale and any attempted resale; or
9.3.2 to recover damages for breach of contract."
The amount of $176,947.16 claimed by Mr Steele-Park in the action comprised $147,500 (being the difference in price between the two contracts), $30,250 (being the agreed amount under the Second Variation), legal fees of $9,197.16 less $10,000 paid by way of deposit. A defence based on a failure to mitigate was abandoned.
Special condition 40 made provision for the time during which Bathurst Central could conduct "due diligence" (which related to a development application) before either electing to rescind or being required to complete. In its unamended form, the time for the "Due Diligence Date" was no later than 28 February 2014. That date was specified by cl 40(a)(i). A little curiously, the completion date was contained in cl 41, which provided:
"41 Completion Date
(a) Notwithstanding clause 40, the completion date shall be the earlier of:
(i) The completion date on the front page of this contract; and
(ii) 14 days after the Approval Date."
(The "Approval Date" was the date on which development consent was obtained.)
As noted above, the First Variation purported to extend the time for completion for some three months. It altered the reference in cl 40(a)(i) from "28 February 2014" to "16 May 2014". Rather than altering the text of cl 41 in terms, it provided that "Completion of the principal agreement will take place on 13 June instead of 28 March 2014." The First Variation also made provision for Bathurst Central to pay interest, in accordance with a formula contained in new special condition 43.
[3]
The Guarantee
The Guarantee on which Mr Steele-Park sued was signed by Mr Cherry and Mr Sharpe and dated "July 2014". The primary judge found that it was delivered to Mr Steele-Park's solicitor on 10 July 2014, around a fortnight prior to the Second Variation being executed.
The Guarantee contained some drafting infelicities. The execution clause was drafted so as to purport to bind the company by the signing of its two directors in accordance with Corporations Act 2001 (Cth), s 127, rather than binding the appellants personally as guarantors. It was also less than clear whether it operated as a deed or an agreement (it was expressed to be a deed, but was not attested; cf Steiner v Strang [2015] NSWCA 203 at [51]). But although some of those matters contributed to defences advanced at trial, these details may be passed over because they formed no part of the appeal.
Clause 2 provided:
"2. Guarantee
2.1 Obligations guaranteed
In consideration of any financial accommodation that the Beneficiary may make available to or for the benefit of the Debtor, the Guarantor guarantees to the Beneficiary the due and punctual payment by the Debtor to the Beneficiary of the Guaranteed Money and performance by the Debtor of the Guaranteed Obligations.
2.2 Consequences of the Debtor's defaults
(a) if the Debtor defaults in the due and punctual payment of any Guaranteed Money, the Guarantor must pay that money on demand to, or as directed by, the Beneficiary…"
The "Guarantor" was defined to mean Mr Cherry and Mr Sharpe (who were expressed to be jointly and severally liable), "Debtor" to mean Bathurst Central and "Beneficiary" to mean Mr and Mrs Steele-Park. Clause 3 provided that Mr Cherry and Mr Sharpe also agreed to indemnify Mr and Mrs Steele-Park:
"3. Indemnity
3.1 Indemnity in respect of the Guaranteed Obligations
For the consideration mentioned in clause 2.1, the Guarantor (as primary obligor) must unconditionally indemnify the Beneficiary against, and must pay the Beneficiary on demand the amount of, any loss that the Beneficiary may suffer because:
(a) the Guaranteed Obligations are unenforceable; or
(b) the Guaranteed Money is not recoverable from the Debtor or is repaid or restored after it has been recovered,
including the amount of any Guaranteed Money (or any money which, if recoverable, would have formed part of the Guaranteed Money) that is not or may not be recoverable."
[4]
Correspondence leading up to the entry into the guarantee and the Second Variation
Mr Cherry and Mr Sharpe sought to tender twenty pages of correspondence leading up to the entry into the Second Variation and the Guarantee as relevant to the construction of those documents. Grounds 3 and 4 of the appeal challenged the rejection of this aspect of the tender, and so it is necessary to summarise those documents, all of which were communications between two solicitors: Mr Andrew Kermode, acting on behalf of the purchaser and its directors, and Mr Michael Shillington, acting on behalf of the vendors.
On 19 May 2014, Mr Shillington wrote to Mr Kermode, setting out a proposal as follows:
"Dear Andrew,
I have conferred with both my clients and advise that they will agree to extend the time for completion of the contract on the following basis …:
-time for completion to be extended to 7 July 2014 upon payment of sum of $12,500.00 plus GST [if applicable] on 7 July 2014 or on completion whichever is the earlier-personal guarantees are to be provided by the directors for the payment of this sum and the purchaser is to meet the legal cost associated with preparing the guarantee. If the amount is paid now the guarantee can be dispensed with.
…
To be clear this sum is due and payable on 7 July whether completion ultimately occurs or not.
-time for completion may be further extended to 1 September 2014 upon payment of an additional sum of $10,000 plus GST [if applicable] on the same terms as for the above extension."
It will be seen that in that email, the solicitor for the vendors was advising that a guarantee would be required in respect of the $13,750, unless that amount was paid upfront, and that the same terms would apply for the second extension of time.
On 21 May 2014, Mr Kermode responded as follows:
"Dear Michael,
The below is acceptable. I think the guarantee can be included in the variation. Client understands they are meeting the cost.
AK"
On 23 May 2014, Mr Shillington's legal secretary emailed Mr Kermode attaching a draft deed of guarantee and contract of variation. The draft guarantee was very similar to the Guarantee which was eventually executed by Mr Sharpe and Mr Cherry. In particular, the broad definitions of "Guaranteed Money" and "Guaranteed Obligations" were identical. The proposed Second Variation of contract included clauses 4 and 5. Clause 4 required a payment of $12,500 plus GST as consideration for the extension of time for completion until 7 July 2014, and cl 5 made separate provision for a further extension by the purchase until 1 September 2014 for an additional payment of $10,000 plus GST.
[5]
Ruling and decision of the primary judge
The primary judge was asked to provide a ruling pursuant to s 136 of the Evidence Act 1995 (NSW) in relation to the documentary evidence tendered by Messrs Cherry and Sharpe leading to the execution of the Guarantee and Second Variation, confining its admissibility to the estoppel defence. The submissions of counsel for the plaintiff were directed to the absence of ambiguity in the Guarantee. Thus it was put, "Precontractual conduct is only admissible on questions of construction if the contract is ambiguous. The ambiguity is just absent in this case."
The submissions made by counsel then appearing for Messrs Cherry and Sharpe in support of an unlimited tender were very narrow. The first was based on cl 4.2, which made any statement by the Beneficiary, including as to the amount of money owed by the Guarantors, "conclusive unless clearly wrong on its face". This was said to mean that the precontractual documents were admissible. But cl 4.2 was directed to communications in the future between Beneficiary and Guarantor, especially, when the guarantee was called upon. It did not purport to incorporate the precontractual negotiations (contrast Todd v Alterra at Lloyds Ltd (2016) 239 FCR 12; [2016] FCAFC 15 at [45]-[46]), still less did it alter the rules governing the admissibility and use of evidence for the purpose of construing its meaning. This submission was close to untenable. It was not sought to be agitated on appeal.
The second submission was that because the guarantee was "ambiguous or susceptible to more than one meaning, the documents were admissible." It is true that brief reference was made to Reardon Smith Line Ltd v Hansen Tangen [1976] 3 All ER 570 at 574-5 in a written note supplied to the primary judge. However, the point appears only to have been argued orally on the basis of ambiguity.
No reference was made to the more recent decisions of the High Court and intermediate appellate courts to which reference is made below, on the scope of the "true rule" in Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337; [1982] HCA 24 and to the effect that "ambiguity" is a conclusion which can only be reached after regard has been had to extrinsic evidence of the context or surrounding circumstances. Likewise, no reference was made to decisions of this Court turning on the distinction between evidence of a party's subjective state of mind and evidence of objective matters known to the parties.
[6]
Admissibility of extrinsic evidence - submissions on appeal
Counsel for the appellants, who had not appeared at first instance, advanced substantially different submissions on admissibility in this Court than had been made to the primary judge. Relying on WIN Corporation Pty Ltd v Nine Network Australia Pty Ltd [2016] NSWCA 297, he submitted that it was not necessary for there to be ambiguity on the face of the guarantee for resort to be had to the correspondence, which was part of the Guarantee's context. He said:
"Indeed the High Court in Victoria v Tatts Group (2016) 328 ALR 564 at [51] made it plain that the exercise of construction requires an analysis of text, context and purpose. On that basis there wasn't any need to find any question of ambiguity."
He added that the genesis and purpose of the Guarantee were an objective matter disclosed by the solicitors' emails, which were admissible on that basis in accordance with what was said in Boreland v Docker [2007] NSWCA 94 and Angas Securities Ltd v Small Business Consortium Lloyds Consortium No. 9056 [2016] NSWCA 182. The emails were said to have "formed part of the objective framework of facts within which the Guarantee came into existence." In particular, the emails were said to have explained:
"The genesis of the arrangement between the parties, including that: (a) it was Mr Steele-Park who sought a guarantee from Messrs Cherry and Sharpe; and (b) a guarantee was only sought at the time that an upfront payment was to be made by [Bathurst Central] to Mr Steele-Park (and his then wife) in return for a further extension of the completion date for the purchase of the property; and
The object to be achieved by the arrangement; being, to provide certitude and confidence in the payment to be made by Bathurst Central."
The appellants also contended that the phrase "in connection with the Agreement or any transaction contemplated by the Agreement" was capable of sustaining more than one literal or grammatical meaning, even without regard to the context of the emails. It was said that even if ambiguity was the test, the emails should have been admitted without any limitation as to their purpose.
Mr Steele-Park submitted that many of the emails related to previous iterations of the documents, and observed that the correspondence up to 13 June 2014 "showed only the intentions and the expectations of the appellants" in relation to those iterations. Although later emails did concern the guarantee which was executed, the evidence deriving from those emails was said to relate solely to the subjective understanding of the appellants' solicitor. He submitted that such statements did not form part of the context to be considered because they were merely statements relating to the appellants' solicitor's subjective understanding of the purpose of the guarantee: Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104; [2015] HCA 37 at [50].
[7]
Consideration
It is uncontroversial that the task of identifying the legal meaning of provisions in a commercial contract is the task of identifying the imputed intention of the parties, by reference to the contractual text construed in light of its context and purpose: Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640; [2014] HCA 7 at [35]; Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd at [46]-[51] and [108]-[109]; Victoria v Tatts Group Ltd [2016] HCA 5; (2016) 90 ALJR 392 at [51]-[75]; Simic v New South Wales Land and Housing Corporation [2016] HCA 47; (2016) 91 ALJR 108 at [18] and [78].
As is common in law, that uncontroversial generalised proposition is capable of concealing sharp divisions when it is sought to be applied at a lower level of abstraction. A large number of appellate decisions in the last three years have considered the approach to the construction of commercial contracts. However, the primary judge was taken to none of these decisions, many of which were binding upon her. Instead, the submissions and her Honour's ruling were framed in terms of ambiguity and subjective purpose. It should also be noted that the ruling was sought, and made, in circumstances where all of the documents were unquestionably relevant and admissible insofar as they went to the defence of estoppel.
It is helpful to isolate three distinctions which were central to the argument at first instance, and which will commonly apply where one party seeks to rely upon extrinsic evidence in order to construe a commercial contract. They are the distinctions between admissibility and use, between subjective intentions and objective matters known to the parties, and between ambiguity and plain meaning.
[8]
Admissibility and use
Strictly speaking, it is one thing for a document to be admitted into evidence and another for it to be available to be used in support of legal reasoning. Yet quite commonly "admissible" is used as a shorthand way for referring to the use of the evidence: see D Reynolds, "Construction of contracts after Mount Bruce Mining v Wright Prospecting" (2016) 90 ALJ 190 at 191-193. As Campbell JA noted in Franklins Pty Ltd v Metcash Trading Ltd (2009) 76 NSWLR 603; [2009] NSWCA 407 at [258], the word "admissible" even in a legal context is ambiguous: the word can refer to a rule of evidence, or it may mean that evidence is not legitimately able to be used in some reasoning process. The parties used that shorthand in their submissions, and it was reflected in the terms of the ruling made by the primary judge.
Parts of the Evidence Act distinguish between admissibility and use, and contain distinct prohibitions upon both admissibility and use. Examples may be seen in the "tendency rule" and the "coincidence rule" in ss 97 and 98. Although those rules are couched in terms of admissibility in respect of a particular purpose, they must be read together with the prohibition upon the use of such evidence in s 95, because very often such evidence is relevant and accordingly admissible for some other purpose: see El-Haddad v R (2015) 88 NSWLR 93; [2015] NSWCCA 10 at [36]-[42].
The issue arising on the ruling was whether the concededly relevant and therefore admissible documents could also be used to construe the Guarantee. Mr Steele-Park applied for a limiting order under s 136:
"136 General discretion to limit use of evidence
The court may limit the use to be made of evidence if there is a danger that a particular use of the evidence might:
(a) be unfairly prejudicial to a party, or
(b) be misleading or confusing."
However, no submissions were made to the primary judge directed to the terms of s 136. Both parties as well as the primary judge appear to have treated Mr Steele-Park's application for an order under s 136 as if there were a free-standing objection to the tender. There was no reference by Mr Steele-Park to any unfair prejudice or any risk of being misled or confused (to be fair, the absence of those matters was not pointed out by the defendants either).
Had submissions been couched in terms of the language of s 136, it is hard to see how the application could have been acceded to. There was no jury. The point was debated after the defendants had cross-examined Mr Steele-Park (during which he gave evidence of his subjective understanding). The plaintiff's case had closed. There was never any objection to the admission of the documents annexed to Mr Sharpe's affidavit for the purposes of the estoppel defence. Mr Sharpe gave no testimonial evidence relevant to construction. In the event, the plaintiff chose not to cross-examine him. It seems unlikely that a cross-examiner who was content to leave estoppel alone would have had any questions relevant to construction. As much is confirmed by the fact that, when a late amendment to the estoppel defence was debated, counsel for the plaintiff advised "[S]ubject to [the proposed amendment], I haven't prepared a cross-examination of Mr Sharpe. On the issues previously defined I formed the view no cross-examination was required."
[9]
Subjective intention and objective matters known to the parties
Evidence of the parties' subjective intentions is not relevant to construction of a contract. For example, in Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165; [2004] HCA 52 at [40], a unanimous High Court said:
"It is not the subjective beliefs or understandings of the parties about their rights and liabilities that govern their contractual relations. What matters is what each party by words and conduct would have led a reasonable person in the position of the other party to believe."
Of course, evidence of the parties' subjective intentions is relevant to issues which arise at law (for example, a defence of non est factum or duress), in equity (for example, equitable estoppel or rescission for innocent misrepresentation or undue influence) and under various statutes. Further, if it is alleged that the contract is a sham, or should be rectified in equity, then again such evidence will be relevant and indeed essential.
The distinction presently being drawn, however, is between evidence of surrounding circumstances known to the parties, which may be used to construe the contract, and evidence of parties' subjective intentions, which may not be used to construe the contract. The position was summarised, by reference to the recent High Court decisions, in WIN Corporation Pty Ltd v Nine Network Australia Pty Ltd [2016] NSWCA 297; 341 ALR 467 at [57] by Barrett AJA (with whom McColl JA and Sackville AJA agreed):
"Evidence of prior negotiations is admissible to the extent that it establishes objective facts known to both parties and the subject matter of the contract. Conversely, evidence reflecting the subjective intentions of the parties is, in accordance with long-standing authority, necessarily inadmissible for the purpose of determining the meaning of the contract (unless it demonstrates knowledge of surrounding circumstances). In recent times, the High Court has revisited the distinction between impermissible recourse to the parties' subjective intentions and expectations and permissible regard to objective matters known to the parties. In Victoria v Tatts Group Ltd [2016] HCA 5; (2016) 90 ALJR 392 at [51], the Court unanimously approved the formulation of principle advanced by three members of the Court (French CJ, Nettle and Gordon JJ) in Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104; [2015] HCA 37 (at [46]-[51]) that, as a general principle of construction, the rights and liabilities of parties under a contractual provision fall to be determined by objective consideration of its text, context and purpose. The relevant enquiry is to be conducted on the footing of what a 'reasonable businessperson' would have apprehended the terms to mean in light of the particular language used by the parties, the circumstances addressed by the contract and its commercial purpose. Although the Court was of the view that this process would not uncommonly be possible without reference to evidence of surrounding circumstances, it acknowledged that regard could be had to such evidence if, for example, it assisted in establishing the objective facts known to the parties and thereby elucidated with greater precision the commercial purpose or subject matter of the contract". [Footnotes omitted.]
[10]
Ambiguity and plain meaning
As is well known, Mason J said (with the agreement of Stephen and Wilson JJ) in Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337 at 352; [1982] HCA 24 that:
"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."
Once again, the language of "admissible" here is best read as a reference to use, rather than admissibility into evidence. I respectfully agree with Emmett JA's observation to that effect in Righi v Kissane Family Pty Ltd [2015] NSWCA 238 at [44] (Ward and Gleeson JJA agreeing), and with what McDougall J has said, extrajudicially, on the point: "Construction of Contracts: The High Court's Approach" (paper delivered at the Commercial Law Association Judges' Series, 26 June 2015) at [14]. As much is confirmed by the fact that these two sentences are closely followed by the passage distinguishing objective background facts from prior negotiations which I have reproduced above, where "admissible" unquestionably refers to the use which may be made of such evidence.
Mason J's proposition applies in Australian courts. It is not displaced, expressly or by necessary intendment, by any provision of the Evidence Act and is therefore unaffected by that statute: s 9(1). And it has been endorsed repeatedly by the High Court.
It is uncontroversial that if a written contract is ambiguous, evidence of surrounding circumstances may be tendered and used to assist its construction. Ecosse Property Holdings Pty Ltd v Gee Dee Nominees Pty Ltd is a recent example. "Ambiguous" (like "awkward" or "polysyllabic") is autological: see K Lindgren, "The ambiguity of 'ambiguity' in the construction of contracts" (2014) 38 Aust Bar Rev 153. The word is often used imprecisely, as Basten JA observed in Newey v Westpac Banking Corporation [2014] NSWCA 319 at [14]. However, on the view I take, which permits regard to be had to surrounding circumstances without passing through an "ambiguity gateway", it is unnecessary to consider precisely what the word means when in this context. But there are two aspects of Mason J's statement in Codelfa which warrant elaboration.
[11]
The primacy of the text
The first is that the "plain meaning" reflects the primacy of the text of a written contract. The starting point and the ending point of the construction of a written commercial contract is the language chosen by the parties to record their bargain. In a familiar passage, Gibbs J referred in Australian Broadcasting Commission v Australasian Performing Right Association Ltd (1973) 129 CLR 99 at 109; [1973] HCA 36 to the "primary duty" of a court construing a written contract to ascertain the legal meaning of a document "from the words of the instrument in which the contract is embodied". As I have said, "very often, nothing in the context will come close to displacing the ordinary grammatical meaning of the legal text": Mainteck Services Pty Ltd v Stein Heurtey SA (2014) 89 NSWLR 633; [2014] NSWCA 184 at [74].
The limited scope for evidence of surrounding circumstances to detract from the contractual text may be illustrated by two statements made by this Court, both of which refer in terms to regard first being had to such evidence. In Newey v Westpac Banking Corporation [2014] NSWCA 319, Gleeson JA (with whom Basten and Meagher JJA agreed) said at [91]:
"there is no licence for 'judicial rewriting' of an agreement: Kooee Communications Pty Ltd v Primus Telecommunications Pty Ltd [2008] NSWCA 5 at [27] (Basten JA; Giles and Tobias JJA agreeing); Franklins at [23] (Allsop P). The ability of courts to give commercial agreements a commercial and business-like interpretation is constrained by the language used by the parties. If, after considering the contract as a whole and the background circumstances known to both parties, a court concludes that the language of a contract is unambiguous, the Court must give effect to that language unless to do so would give the contract an absurd operation: Jireh International Pty Ltd v Western Exports Services Inc at [55] (Macfarlan JA; Young JA and Tobias AJA agreeing).
To the same effect, in McGrath v Sturesteps; Sturesteps v HIH Overseas Holdings Ltd (in liq) (2011) 81 NSWLR 690; [2011] NSWCA 315 at [17], Bathurst CJ said with the agreement of Macfarlan JA and Sackville AJA:
"Whilst it is correct in my opinion that context and the surrounding circumstances known to both parties can be taken into account (see Codelfa Construction Pty Ltd v State Rail Authority of New South Wales at 350, 352) even in cases where there is an absence of apparent ambiguity (Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd at [40]; International Air Transport Association v Ansett Australia Holdings Ltd [2008] HCA 3; (2008) 234 CLR 151 at [8]; Park v Brothers [2005] HCA 73; (2005) 80 ALJR 317 at [39]; Franklins Pty Ltd v Metcash Trading Ltd at [14], [63], [305]) that does not permit the Court to depart from the ordinary meaning of the words used by the parties merely because it regards the result as inconvenient or unjust: Australian Broadcasting Commission v Australasian Performing Right Association Ltd (1973) 129 CLR 99 at 109."
[12]
Ambiguity is a conclusion
There is now a deal of authority for the proposition that whether there is in truth a constructional choice available to a written contract cannot be determined without first at least considering evidence of surrounding circumstances.
It is convenient to start with what was said in Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640; [2014] HCA 7 at [35]:
"The meaning of the terms of a commercial contract is to be determined by what a reasonable businessperson would have understood those terms to mean. That approach is not unfamiliar. As reaffirmed, it will require consideration of the language used by the parties, the surrounding circumstances known to them and the commercial purpose or objects to be secured by the contract. Appreciation of the commercial purpose or objects is facilitated by an understanding 'of the genesis of the transaction, the background, the context [and] the market in which the parties are operating'." [citations omitted.]
At least three intermediate appellate decisions concluded that that passage endorsed the view that it was not necessary first to identify "ambiguity" before regard could be had to evidence of surrounding circumstances: Mainteck Services Pty Ltd v Stein Heurtey SA at [71]-[85], Newey v Westpac Banking Corporation at [89] and Stratton Finance Pty Ltd v Webb [2014] FCAFC 110; 314 ALR 166 at [36]-[40]. However, intermediate appellate authorities were not entirely in accord. A different view was expressed in Technomin Australia Pty Ltd v Xstrata Nickel Australasia Operations Pty Ltd (2014) 48 WAR 261; [2014] WASCA 164 at [35]-[45] and [212]-[217], following earlier decisions of that court, which in turn has thereafter been followed. The different approach adopted in State courts in Western Australia appears to have been influenced materially and perhaps dispositively by what was said in refusing special leave to appeal in a civil case (see for example at [37] "This court has taken the view that the guidance in Western Export Services should be followed until further direction from the High Court"). With respect, I do not think that that accords with the absence of precedential status of statements made when refusing special leave: Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104; [2015] HCA 37 at [52], [112] and [119].
In my view, two more recent decisions of the High Court strengthen the conclusion that "ambiguity" is a conclusion, rather than a precondition to the admissibility of evidence of surrounding circumstances. First, in Victoria v Tatts Group Ltd, the question was the legal meaning of "a new gaming operator's licence", noting that the expression "Gaming Operator's Licence" was defined by reference to a particular licence issued under the Gaming Machine Control Act 1991 (Vic). This is a good example of a recurring phenomenon: any conclusion as to whether the undefined term was ambiguous or instead bore a plain meaning could not be reached without first having regard to the context (notably, new legislation governing the licensing of gambling). A unanimous High Court, without once mentioning any threshold "ambiguity gateway", allowed the appeal saying at [51] that the construction it favoured was "supported by references to the text, context and purpose". The High Court then addressed the text (at [52]-[60]) and then the context and purpose (at [61]-[72]) and "other contextual matters" (at [73]-[74]) before concluding that "the text, context and purpose of the 1995 Agreement all support the conclusion" that the term was narrower than had been held by the Victorian Court of Appeal.
[13]
The importance of relevant evidence of surrounding circumstances
None of the foregoing amounts to an unqualified invitation to burden the record of courts at first instance with voluminous evidence of surrounding circumstances. The threshold question will always be whether the tender is of evidence that is relevant to an issue in the litigation. Although Lord Hoffmann has emphasised as much as anyone in recent years the width of the contextual background to which regard may be had, his Lordship noted in Bank of Credit and Commerce International SA v Ali [2002] 1 AC 251; [2001] UKHL 8 at [39] that the touchstone remained what was relevant to the objective meaning of the contractual language:
"[W]hen, in Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896, 913, I said that the admissible background included 'absolutely anything which would have affected the way in which the language of the document would have been understood by a reasonable man', I did not think it necessary to emphasise that I meant anything which a reasonable man would have regarded as relevant. I was merely saying that there is no conceptual limit to what can be regarded as background" [original emphasis].
The Guarantee provides a ready example of this point. If there were a live question whether Messrs Cherry and Sharpe were bound, by a document which allowed for their signatures but only as directors, then the earlier form of the Guarantee executed by those men would have been relevant: see Singh v De Castro; Dhaliwal v De Castro; Brar v De Castro [2017] NSWCA 241 at [86]-[97]. That issue was raised on the pleadings but abandoned during the trial.
Thus it was necessary to identify some other basis on which the emails preceding execution of the Guarantee were said to be relevant. It was to this end that I said in Zhang v ROC Services (NSW) Pty Ltd; National Transport Insurance by its manager NTI Ltd v Zhang (2016) 93 NSWLR 561; [2016] NSWCA 370 at [80]:
"It is true that this may in some cases lead to an expansion of the evidence tendered on an issue of construction, although ordinarily it may be expected that parties will confine their tender to material which will bear on the meaning of the contract. Indeed, a party seeking to tender a document as evidence of surrounding circumstances and for no other purpose ought to be able, readily and precisely, to identify how it is said that its reception will bear on the process of ascertaining the legal meaning."
[14]
Application of principle to this case
The primary judge did not apply (nor was her Honour asked to apply) s 136 in its terms. If that were the only point, I would not conclude that these grounds were made out. However, the primary judge also found, in accordance with Mr Steele-Park's submission, that the emails were "no more than evidence of the parties' subjective intentions". With this I cannot agree. This was not a case where one of the vendors swore an affidavit as to what he or she had intended by the email which had been sent by his or her solicitor. Nor were the documents merely reflective of intentions between the vendors and their solicitor, uncommunicated to the purchaser. The emails were objective facts known to both sides of the transaction. Not only did they represent the communicated negotiating position of the parties from time to time, but they also supported the appellants' submission that the commercial purpose of the guarantee was to secure Bathurst Central's obligation to make the additional payments agreed upon as the price of the extension. That is most clearly seen in the initial overture (where the guarantee "can be dispensed with" if "the amount is paid now") and the last email ("the guarantee is to extend to all of the funds payable by 1 October under variation No 2. totalling $27,500 plus GST").
The emails were thus potentially relevant to the question of construction. They were the immediate objective context in which the contractual document was drafted and executed. Even the "earlier iterations" were closely linked to the Second Variation and Guarantee which were ultimately executed. All followed from the proposal of 19 May 2014 on behalf of the vendors. They constituted "specific information as to the genesis of the transaction", in Gleeson CJ's phrase in IATA v Ansett Australia Holdings Ltd at [8] which, at least arguably, could bear upon the contractual language.
That said, it will be seen that, having considered the language of the Guarantee against the context and purpose provided by the documents, it is not possible to construe the Guarantee narrowly, in the manner supported by that context and purpose. But it is important to recall that this Court has had the advantage of hearing full argument on all aspects of the appeal so as to enable it to reach that conclusion. The primary judge did not have that advantage. That will be the usual case. Where there is an objection to the tender of documents going to surrounding circumstances and the court is not able to, or minded to, rule finally on the question of relevance, then one available course is to admit the documents provisionally under s 57 of the Evidence Act.
[15]
Construction of the guarantee - submissions on appeal
Mr Steele-Park responded directly to the appellants' submissions based on a range of textual and contextual considerations, making it convenient to set out the parties' submissions together.
1. First, the appellants contended that the definition of Guaranteed Money referred "primarily" to the obligations under the Second Variation, which merely varied the Contract and did not restate it. Transactions "under or in connection with" the Second Variation were said therefore not to include contracts already entered into. Mr Steele-Park responded by pointing out that the Second Variation expressly referred to the Contract and stated that that agreement was to be binding as varied.
2. Secondly, the appellants contended that the phrase "transaction contemplated by the [Second Variation] Agreement" directed attention to transactions to be entered into in the future, not transactions (such as the sale contract) which had already been entered into. Mr Steele-Park characterised this contention as narrow, and argued that "things past, present and future can all be the subject of the phrase 'transaction contemplated'" and that, in any case, while contracts for the sale of land had been exchanged, the transaction had not completed.
3. Thirdly, the appellants pointed to the fact that the term "Agreement", to which the meaning of Guaranteed Money was anchored, was defined to mean the Second Variation, not the Contract. Were obligations under the Contract to be included in the Guarantee, the drafter could easily have stipulated that in the definition of Agreement. Mr Steele-Park submitted that, while the drafting could have been clearer, this point did not demonstrate the proper construction of the Guarantee in the terms in which it was drafted.
4. Fourthly, having regard to the natural meaning of the word "transaction", the appellants submitted that a failure to complete could not be a "transaction contemplated by the agreement". Mr Steele-Park submitted that the words "in connection with … any transaction" were sufficiently broad to encompass transactions not successfully completed, and pointed out that parties to a successful transaction are unlikely to have recourse to a guarantee.
5. Fifthly, the appellants pointed to the fact that the obligation in clause 2.1 of the Guarantee was expressed to be "in consideration of the financial accommodation that [Mr and Mrs Steele-Park] may make available to or for the benefit of [Bathurst Central]." The "financial accommodation" referred to was the extension of the completion date. In turn, that extension was linked to the obligation under the Second Variation to pay $27,500 plus GST. As such, the obligations imposed by clause 2.1 were directly referable to the obligation to pay under the Second Variation and the Guarantee, and hence should not be read as extending to obligations under clause 9.3 of the sale agreement. Mr Steele-Park maintained that this approach was not supported by principle, and that "There is no basis to confine the consideration flowing to and from a party to a contract within the walls of a particular clause."
6. Sixthly, the Guarantee was entered into at around the same time as the entry into the Second Variation, as the email correspondence showed, in circumstances where a price had already been exacted for extending the completion date in the First Variation. The appellants contended that this timing made it more likely that the Guarantee, which was a new document, was put in place to secure the obligations under the Second Variation as additional security for that amount only, not to radically alter the parties' rights as to all of the obligations under the principal contract. Mr Steele-Park submitted that the timing of the Guarantee was not relevant to construction of its express terms, and, alternatively, that given Bathurst Central had already failed to complete by the appointed time twice, it was unsurprising that the respondent would want to secure the price he and his wife had bargained for in the Contract.
7. Seventhly, the appellants relied on the strictissimi juris principle of construction to the effect that, two grammatical meanings being reasonably open, the Court should choose that which is most favourable to the guarantor: Rava v Logan Wines Pty Ltd [2007] NSWCA 62. Mr Steele-Park responded that the principle had no application here, where there was no ambiguity in the Guarantee.
[16]
The syntactical structure of the definitions
It will be seen that the textual and contextual submissions were not lacking in ingenuity and, indeed, sophistication. Nonetheless, both omitted any detailed reference to the starting point, which is a grammatical and syntactical parsing of the complex definitions of "Guaranteed Money" and "Guaranteed Obligations". For convenience, I reproduce the definition:
"Guaranteed Money means all amounts (including damages) that are payable, owing but not payable, or that otherwise remain unpaid by the Debtor to the Beneficiary on any account at any time under or in connection with the Agreement or any transaction contemplated by the Agreement, whether present or future, actual or contingent or incurred alone, jointly, severally or jointly and severally and without regard to the capacity in which the Debtor is liable including the obligation to pay the amounts specified in Clauses 4 and 5 of the agreement ..."
I note the following:
1. The definition is expressed to be exhaustive ("means"). This may be contrasted with two components within the definition which are inclusive (see [101] below).
2. It commences with the words "all amounts (including damages)" which are then subject to three disjunctive limbs, namely, amounts that are (i) payable, (ii) owing but not payable, or (iii) otherwise remain unpaid.
3. The following words "by the Debtor to the Beneficiary" confine the scope of the definition and are apt to apply to all three limbs (see [100] below).
4. There follows a long list of words whose effect is to expand that which precedes them. Those expansive words in fact comprise the largest component of the definition:
"on any account at any time under or in connection with the Agreement or any transaction contemplated by the Agreement, whether present or future, actual or contingent or incurred alone, jointly, severally or jointly and severally and without regard to the capacity in which the Debtor is liable"
1. The words emphasised above ("any", "any" and "any transaction contemplated by") are words of generality. There are also a series of disjunctive terms, linked by four uses of the word "or". All these words tend against any implied confinement of the definition.
2. Finally, there are the concluding words:
"including the obligation to pay the amounts specified in Clauses 4 and 5 of the agreement."
The following matters emerge from that analysis.
[17]
The appellants' submissions must be rejected
It is true that the preceding emails evinced the commercial purpose that the guarantee, now required only as part of the price for the second extension sought by the purchasers, would be limited to the fees payable as the price of those extensions. This is clearest in respect of the vendors' solicitor's original email of 19 May 2014 ("Personal guarantees are to be provided by the directors for the payment of this sum" and in relation to the second extension "on the same terms as the above") and the purchaser's solicitor's email of 27 June 2014 ("the guarantee is to extend to all of the funds payable by 1 October under variation No 2 totalling $27,500 plus GST"). The point was made by the respondents that this was not, on one view, actually inconsistent with an all monies guarantee. That is so, taking a very strict view of "inconsistency", but is very difficult to reconcile with the statement that the guarantee was unnecessary if payment were made upfront. Viewing the exchanges between the solicitors as a whole, the commercial purpose which most naturally emerges is that of a limited guarantee.
But how is that to be reconciled with the document executed by the appellants? It is expressed to be an all monies guarantee. Most of the definition of Guaranteed Money may be unnecessary, but how are those words to be given the restricted legal meaning for which the appellants contend? There are limits to the process of construction, as noted above, including by reference to Newey and McGrath v Sturesteps. Primacy must be given to the text. I do not see how one can confine the repeatedly general language of the definitions of Guaranteed Money and Guaranteed Obligations to exclude damages payable for failure to complete the Contract. There are many ways in which the meaning of the words extends to damages for failure to complete, including:
1. Damages are expressly included within Guaranteed Money, and damages for breach of the Contract as varied by the Second Variation readily answer the description of damages under or in connection with the Second Variation;
2. The conveyance to be effected pursuant to the Contract is a transaction "contemplated by" the Second Variation. The Second Variation refers repeatedly to the Contract, varies the Contract, and proceeds on the basis that the Contract (as varied) will take place.
3. Guaranteed Obligations extends to all other obligations arising under or in connection with the Second Variation. If somehow the damages were outside the scope of Guaranteed Money, it is difficult to see why they would not be caught by Guaranteed Obligations.
[18]
Orders
For those reasons, the appeal should be dismissed. The appellants' limited success in respect of grounds 3 and 4, advancing arguments not put below, is no reason for costs not to follow the event at first instance and on appeal. A special costs order was made at first instance, presumably reflecting an offer of compromise or Calderbank letter. If any party seeks a special costs order for the appeal, application may be made within the period prescribed by UCPR r 36.16. I propose that the appeal be dismissed with costs.
WHITE JA: I have had the advantage of reading the judgment of Leeming JA in draft. Subject to the comments below, I agree with his Honour's reasons and proposed orders.
I take a different view on the question whether the primary judge erred in her ruling on paragraph 7 of the affidavit of Mr Sharpe that annexed the series of emails between Mr Kermode and Mr Shillington and drafts of what became the Guarantee and the Second Variation, referred to by Leeming JA at [22]-[33]. That paragraph stated:
"7. I annex hereto and mark with the letter 'A' a hard copy of a series of emails between Mr Andrew Kermode and Mr Michael Shillington, solicitor acting on behalf of the plaintiff and Mrs Steele-Park evidencing the agreement reached with the plaintiff and Mrs Steele-Park."
It is clear that the primary judge's ruling applied to the documents that were annexed and referred to in paragraph 7.
As Leeming JA has explained, the parties' submission on the admissibility of the correspondence focused upon whether evidence of the negotiations was inadmissible because the Guarantee was not ambiguous.
I agree with what Leeming JA has said under the heading "Ambiguity and plain meaning" (at [68]-[86]). In Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104; [2015] HCA 37 French CJ, Nettle and Gordon JJ said (at [49]):
"The question whether events, circumstances and things external to the contract may be resorted to, in order to identify the existence of a constructional choice, does not arise in these appeals."
Their Honours also said that their observations in relation to the applicable legal principles for the construction of terms of a commercial contract were not intended to state any departure from the law as set out in Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337; [1982] HCA 24 ("Codelfa") and in Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640; [2014] HCA 7. In the latter case the plurality (French CJ, Hayne, Crennan and Kiefel JJ) said that in ascertaining how the terms of a commercial contract would be understood by a reasonable business person, consideration would be required of the language used by the parties, the surrounding circumstances known to them and the commercial purpose or objects to be secured by the contract (at [35]). The plurality did not suggest that before consideration could be given to surrounding circumstances there must be an anterior finding that the text of the contract to be construed is ambiguous. The intermediate appellate decisions referred to by Leeming JA hold that ambiguity is a conclusion, rather than a pre-condition to the admissibility of evidence of surrounding circumstances. Unless and until the High Court decides otherwise, lower courts are bound to proceed accordingly.
[19]
Amendments
22 November 2017 - [90] "said" before "in Zhu v Treasurer of the State of New South Wales" deleted
[20]
[91] "as to" added after "swore an affidavit. "sent" deleted after "he or she had intended by the email"
[21]
97 "see the third point below" replaced by "see [100] below"
[22]
97 "applies" deleted following "the scope of the definition"
[23]
[102] In the first sentence in parenthesis, "in respect of" replaced by "in connection with"
[24]
[103] "agreement" replaced by "Agreement" in quoted text in the fourth line
[25]
[104] "not likely would the 69 preceding words" replaced by "not lightly would the 69 preceding words"
[26]
[143] "actual intentions, of" replaced by "actual, intentions of"
09 November 2018 - [5] and [27]: "Sharp" changed to "Sharpe"
[19]: second sentence, "the" deleted before "Mr Cherry"
[28]: fourth sentence, "struck-through" changed to "struck through"
[69]: second sentence, "AJA" changed to "JA"
[85]: third sentence (in quotation), "which" inserted after "mischief"; "at 408" inserted after "CLR 384"
[95(5)]: third sentence, "inclusive of" changed to "plus"
[110]: third sentence, "content" changed to "contend"
[111]: fourth sentence, "was" deleted after "point"
[116]: fourth sentence, case citation, "-[109]" deleted
19 November 2018 - Coversheet: "White JA at [120]" changed to "White JA at [119]"
[85]: "Emmett AJA" changed to "Emmett JA"
[96] and [108]: "Guaranteed Obligation" changed to "Guaranteed Obligations"
[103]: Medium neutral citation added to case citation
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Decision last updated: 19 November 2018
rley Securities Limited v Esber [2008] NSWCA 301
Lahoud v Lahoud [2009] NSWSC 623
Mainteck Services Pty Ltd v Stein Heurtey SA (2014) 89 NSWLR 633; [2014] NSWCA 184
McDonalds v Dennys Lascelles Ltd (1933) 48 CLR 457; [1933] HCA 25
McGrath v Sturesteps; Sturesteps v HIH Overseas Holdings Ltd (in liq) (2011) 81 NSWLR 690; [2011] NSWCA 315
Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104; [2015] HCA 37
Newey v Westpac Banking Corporation [2014] NSWCA 319
Pavlis v Wetherill Park Market Town Pty Ltd [2014] NSWCA 292
Phoenix Commercial Enterprises Pty Ltd v City of Canada Bay Council [2010] NSWCA 64
Photo Production Ltd v Securicor Transport Ltd [1980] AC 827
Prenn v Simonds [1971] 1 WLR 1381
Rava v Logan Wines Pty Ltd [2007] NSWCA 62
Reardon Smith Line Ltd v Hansen Tangen [1976] 3 All ER 570
Righi v Kissane Family Pty Ltd [2015] NSWCA 238
Ryledar Pty Ltd v Euphoric Pty Ltd (2007) 69 NSWLR 603; [2007] NSWCA 65
Seven Network Ltd v News Ltd (No 8) [2005] FCA 1348; (2005) 224 ALR 317
Simic v New South Wales Land and Housing Corporation [2016] HCA 47; (2016) 91 ALJR 108
Singh v De Castro; Dhaliwal v De Castro; Brar v De Castro [2017] NSWCA 241
Steak Plains Olive Farm Pty Ltd v Australian Executor Trustees Ltd [2015] NSWSC 289; (2015) 18 BPR 35,471
Steiner v Strang [2015] NSWCA 203
Stratton Finance Pty Ltd v Webb [2014] FCAFC 110; 314 ALR 166
Taouk v Assure (NSW) Pty Ltd [2017] NSWCA 227
Technomin Australia Pty Ltd v Xstrata Nickel Australasia Operations Pty Ltd (2014) 48 WAR 261; [2014] WASCA 164
The Queen v Khazaal (2012) 246 CLR 601; [2012] HCA 26
Tim Barr Pty Ltd v Narui Gold Coast Pty Ltd [2008] NSWSC 654
Todd v Alterra at Lloyds Ltd (2016) 239 FCR 12; [2016] FCAFC 15
Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165; [2004] HCA 52
Vector Gas Ltd v Bay of Plenty Energy Ltd (2010) 2 NZLR 444; [2010] NZSC 5
Victoria v Tatts Group Ltd [2016] HCA 5; (2016) 90 ALJR 392
WIN Corporation Pty Ltd v Nine Network Australia Pty Ltd [2016] NSWCA 297
Zhang v ROC Services (NSW) Pty Ltd; National Transport Insurance by its manager NTI Ltd v Zhang (2016) 93 NSWLR 561; [2016] NSWCA 370
Zhu v Treasurer of the State of New South Wales (2004) 218 CLR 530; [2004] HCA 56
Zickar v MGH Plastic Industries Pty Ltd (1996) 187 CLR 310; [1996] HCA 31
Texts Cited: R Calnan, Principles of Contractual Interpretation (Oxford University Press, 2nd ed 2017)
K Lindgren, "The ambiguity of 'ambiguity' in the construction of contracts" (2014) 38 Aust Bar Rev 153.
C Moustaka, "The Admissibility and Use of Evidence of Prior Negotiations in Modern Contract Interpretation" (2016) 41 UWALR 203.
R McDougall "Construction of Contracts: The High Court's Approach" (paper delivered at the Commercial Law Association Judges' Series, 26 June 2015)
D W McLauchlan, "Contract Interpretation: What is it about?" (2009) 31(1) SydLR 5
D W McLauchlan, "Objectivity in Contract" [2005] UQ Law JL 28; (2005) 24(2) UQLJ 479
D W McLauchlan, "Plain Meaning and Commercial Construction: Has Australia Adopted the ICS Principles?" (2009) 25 JCL 7
Donald Nicholls, "My kingdom for a horse: the meaning of words" (2005) 121 LQR 577
D Reynolds, "Construction of contracts after Mount Bruce Mining v Wright Prospecting" (2016) 90 ALJ 190
N Williams et al, Uniform Evidence in Australia (LexisNexis Butterworths 2015)
Category: Principal judgment
Parties: David Leon Cherry (First Appellant)
Richard Sharpe (Second Appellant)
Jock Gordon Steele-Park (Respondent)
Representation: Counsel:
D Krochmalik (Appellants)
D Neggo (Respondent)
[Note: The Uniform Civil Procedure Rules 2005 provide (Rule 36.11) that unless the Court otherwise orders, a judgment or order is taken to be entered when it is recorded in the Court's computerised court record system. Setting aside and variation of judgments or orders is dealt with by Rules 36.15, 36.16, 36.17 and 36.18. Parties should in particular note the time limit of fourteen days in Rule 36.16.]
HEADNOTE
[This headnote is not to be read as part of the judgment]
The appellants were the directors of Bathurst Central Pty Ltd, which contracted with the respondent to purchase a parcel of land near Bathurst. The contract provided that if the vendors validly terminated the contract and resold the property for a lower price, they could recover the difference from the purchasers.
The contract was due to complete by 28 March 2014, but the parties executed a variation extending the completion date to 13 June 2014 (First Variation). The First Variation provided that if completion took place after 6 April 2014, interest would become payable. Completion did not occur by 13 June 2014, and on 23 July 2014, the parties executed a Second Variation extending the completion date to 1 October 2014. The Second Variation removed the interest condition, and instead provided that the purchaser agreed to pay $30,250 in consideration for the variation to the completion date.
On 10 July 2014, about a fortnight before the Second Variation was executed, the appellants had signed a guarantee, in which they guaranteed Bathurst Central's payment of the "Guaranteed Money" and the "Guaranteed Obligations". Guaranteed Money was defined as follows:
"Guaranteed Money means all amounts (including damages) that are payable, owing but not payable, or that otherwise remain unpaid by the Debtor to the Beneficiary on any account at any time under or in connection with the Agreement or any transaction contemplated by the Agreement, whether present or future, actual or contingent or incurred alone, jointly, severally or jointly and severally and without regard to the capacity in which the Debtor is liable including the obligation to pay the amounts specified in Clauses 4 and 5 of the agreement."
The contract was never completed. On 24 April 2015, the vendors terminated the contract. On the same day, they exchanged contracts with a third party purchaser for a price which was $147,500 less than what they had agreed with Bathurst Central.
At trial, the appellants argued that Guaranteed Money should be construed as limited to the $30,250 promised in the Second Variation. In the alternative, the appellants argued that the vendors were estopped from claiming that the guarantee extended to the difference in the purchase price, because of emails exchanged between the solicitors for the vendors and Bathurst Central in the lead up to the entry into the Second Variation and the guarantee. The emails were said to demonstrate the understanding of Bathurst Central's solicitors that the guarantee would only cover the price of the Second Variation, not any damages for failing to complete.
The appellants also sought to tender the emails as relevant to the construction of the guarantee. The primary judge was asked to make an order pursuant to s 136 of the Evidence Act 1995 (NSW) limiting the use of the material to the estoppel ground. Her Honour ruled that the correspondence was "no more than evidence of the parties' subjective intentions" and was not "evidence of objective facts known to both contracting parties".
The primary judge held that there was no estoppel and that the guarantee extended to Bathurst Central's obligation to pay the difference in the purchase price.
The appellants appealed from the evidentiary ruling and the construction of the guarantee. They did not challenge the rejection of their defence of estoppel. On appeal, the appellants argued (a) that the correspondence was able to be used in construing the guarantee, and (b) that on its proper construction, including in light of the correspondence, the guarantee was limited to the $30,250 payable under the Second Variation.
Held, by the whole Court, dismissing the appeal:
1. The primary duty of a court construing a written contract is to ascertain the legal meaning of the document from the words of the instrument in which the contract is embodied, which qualifies the scope for evidence of surrounding circumstances to detract from the contractual text: [1], [72]-[75], [119].
Australian Broadcasting Commission v Australasian Performing Right Association Ltd (1973) 129 CLR 99; [1973] HCA 36, Mainteck Services Pty Ltd v Stein Heurtey SA (2014) 89 NSWLR 633; [2014] NSWCA 184, Newey v Westpac Banking Corporation [2014] NSWCA 319, McGrath v Sturesteps; Sturesteps v HIH Overseas Holdings Ltd (in liq) (2011) 81 NSWLR 690; [2011] NSWCA 315, applied.
1. Ambiguity is a conclusion, to be reached after consideration of evidence of surrounding circumstances, rather than a precondition to the admissibility of evidence of surrounding circumstances: at [1], [76]-[85], [122]-[124].
Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640; [2014] HCA 7, Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104; [2015] HCA 37, Victoria v Tatts Group Ltd [2016] HCA 5; (2016) 90 ALJR 392, Simic v New South Wales Land and Housing Corporation [2016] HCA 47; (2016) 91 ALJR 108, considered.
Mainteck Services Pty Ltd v Stein Heurtey SA (2014) 89 NSWLR 633; [2014] NSWCA 184, Newey v Westpac Banking Corporation [2014] NSWCA 319, WIN Corporation Pty Ltd v Nine Network Australia Pty Ltd [2016] NSWCA 297, Stratton Finance Pty Ltd v Webb [2014] FCAFC 110; 314 ALR 166, applied.
Technomin Australia Pty Ltd v Xstrata Nickel Australasia Operations Pty Ltd (2014) 48 WAR 261; [2014] WASCA 164, not followed.
1. Even when regard was had to the evidence of surrounding circumstances, "Guaranteed Money" included damages for failure to complete because (a) damages were expressly included, (b) the clause was very broadly expressed, (c) the phrase "under or in connection with the Agreement" was apt to refer to the Second Variation and the initial contract, (d) a breach of the Second Variation would lead to a damages claim for the difference in purchase price in any event, and (e) other grammatical and semantic considerations pointed in that direction. The contextual evidence was incapable of defeating the wide words in the guarantee: at [1], [96]-[117], [167].
Ryledar Pty Ltd v Euphoric Pty Ltd (2007) 69 NSWLR 603; [2007] NSWCA 65, applied.
Held, by Leeming JA, Gleeson JA agreeing, White JA dissenting:
1. The primary judge erred in the evidentiary ruling: [1], [91]-[94], [146]-[163].
Consideration, by Leeming JA and White JA, of the distinction between evidence of the parties' subjective intentions and objective matters known to the parties, of the distinction between admissibility and use of evidence, and of the circumstances in which a ruling under s 136 of the Evidence Act might be made: at [49]-[67], [132]-[144].
Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337; [1982] HCA 24; Zhang v ROC Services (NSW) Pty Ltd; National Transport Insurance by its manager NTI Ltd v Zhang (2016) 93 NSWLR 561; [2016] NSWCA 370, Bank of Credit and Commerce International SA v Ali [2002] 1 AC 251; [2001] UKHL 8; Boreland v Docker [2007] NSWCA 94; Lahoud v Lahoud [2009] NSWSC 623, Reardon Smith Line Ltd v Hansen-Tangen [1976] 3 All ER 570, Gibbons Holdings Ltd v Wholesale Distributors Ltd [2008] 1 NZLR 277, Vector Gas Ltd v Bay of Plenty Energy Ltd (2010) 2 NZLR 444; [2010] NZSC 5, Agricultural and Rural Finance Pty Ltd v Gardiner (2008) 238 CLR 570; [2008] HCA 57, considered.
The Second Variation referred to the Contract, which was described as the "principal agreement". It is convenient to reproduce the entirety of the recitals and operative clauses of the Second Variation:
RECITALS
A. By Agreement dated 4 November 2013 the ("principal agreement") the vendor agreed to sell and the purchaser agreed to buy the property described in the Schedule (the "property") on certain terms and conditions.
B. The parties agreed to vary the principal agreement by an agreement dated 17 March 2014 ("the first variation").
C. The parties have agreed to make a further variation to the principal agreement.
THE PARTIES AGREE:
1. Alteration in date for completion
Completion of the principal agreement will take place on 1st October 2014 instead of 13 June 2014.
2. Variation in contract
Clause 40(a)(i) change "16 May 2014" to "24 September 2014";
3. Delete special condition 43 added to the principal agreement in the first variation.
4. Conditional Contract
In consideration of the vendor agreeing to make the variations to the first variation set forth in this Deed, the purchaser agrees to pay to the vendor the sum of $27,500.00 plus GST ($30,250.00 inclusive of GST) on 1st October 2014 or on completion of the purchase of the property whichever shall first occur. The amount shall be not be credited towards the purchase price of the property but shall be payable in addition to it.
5. Deleted
6. Agreement to be binding as varied
Subject only to the variations herein contained and such other alterations (if any) as may be necessary to make the principal agreement consistent with this agreement, the principal agreement remains in full force and effect and will be read and construed and be enforceable as if the terms of this agreement were inserted therein by way of addition or substitution (as the case may be)."
It will be seen that the Second Variation took the same approach of using a combination of direct and indirect amendment. Once again, it varied cl 40(a)(i) in terms, but rather than making textual amendments to extend the completion date to 1 October 2014, cl 1 simply stated what the new completion date should be.
The extent of the obligations in cll 2 and 3 of the Guarantee depended upon the width of the definitions of "Agreement", "Guaranteed Money" and "Guaranteed Obligations". Those terms were defined in clause 1.1 as follows:
"Agreement means the Second Variation of Contract for the Sale and Purchase of Land of even date.
Guaranteed Money means all amounts (including damages) that are payable, owing but not payable, or that otherwise remain unpaid by the Debtor to the Beneficiary on any account at any time under or in connection with the Agreement or any transaction contemplated by the Agreement, whether present or future, actual or contingent or incurred alone, jointly, severally or jointly and severally and without regard to the capacity in which the Debtor is liable including the obligation to pay the amounts specified in Clauses 4 and 5 of the agreement; and
Guaranteed Obligations means the obligations of the Debtor to pay the Guaranteed Money and all its other obligations to the Beneficiary (monetary or non-monetary, present or future, actual or contingent) arising under or in connection with the Agreement."
The appellants argued at first instance and on appeal that their obligations under the Guarantee only extended to the obligations of Bathurst Central imposed by clause 4 of the Second Variation, and not to the obligations imposed by clause 9.3 of the contract of sale.
On 13 June 2014, Mr Kermode emailed Mr Shillington attaching counterparts of the Second Variation and Guarantee, each executed by Messrs Cherry and Sharpe. The executed Guarantee was in the form sent, and thus very similar to the Guarantee on which the appellants were sued. The only changes were to the execution clause. Someone (presumably, Mr Cherry or Mr Sharpe or their solicitor) corrected the document so that the men signed in their own capacity, rather than as directors so as to bind Bathurst Central, and the execution clause invoking s 127 of the Corporations Act was struck through in hand. The document was also witnessed (another handwritten amendment, because the document made no provision for this).
However, the form of the Second Variation provided on 13 June 2014 was materially different from that which ultimately came into force. It included a handwritten amendment to the "Further extension" in cl 5 to 1 October 2014, and a consequential change. But provision was still made for an initial extension (in cl 4) with the possibility of a further extension, for a further fee (in cl 5). That clause took the following form (with the handwritten amendments struck through and added in bold):
"Further extension
In the event that the purchaser wishes to effect a further extension of the completion date to 1 September October 2014 and the date nominated in Clause 40(a)(i) of the principal agreement to 24 August September 2014 the vendor agrees that effect that further extension provided that the sum referred in Clause 4 hereof has been paid and that the request for the further extension is made by notice in writing accompanied by payment of the sum of $10,000 plus GST ($11,000.00 inclusive of GST). Both amounts shall be not be credited to the purchase price of the property but shall be payable in addition to it.
Upon payment of the amount and a request made in writing by the purchaser to the vendor the parties will effect a second variation of the principal agreement to give effect to the above."
There are difficulties with cl 5, insofar as no date was explicitly specified within which the purchaser could obtain the "further extension". Nothing turns on this. The appellants relied on the concluding sentence and in particular the statement that the parties will effect a second [sic] variation to give effect to the above in support of their submissions on construction of the Guarantee.
After explaining that his clients required a further extension to the completion date, Mr Kermode wrote that:
"I confirm that under the variation our client is effectively obliged to pay the $11,000 for the extension by 30 June 2014 and the payment of $13,750 by 7 July (both inclusive of GST). The guarantee effectively secures the 13,750.00, as the extension does not occur without the payment."
(That email appears to be wrong. The $11,000 was for the further extension, and the $13,750 was for the initial extension, and the reference to 30 June 2014 appears to be erroneous. Nothing turns on this.)
It appears that Mr and Mrs Steele-Park did not execute the documents provided on 13 June 2014 or counterparts to them. Instead negotiations continued. On 16 June 2014, Mr Shillington emailed Mr Kermode again, seeking a further $5,000 plus GST for the further extension to the completion date to 1 October 2014. A further email exchange took place on 20 and 24 June 2014, relating to when the payments under the Second Variation were to take place.
On 27 June 2014, Mr Kermode wrote:
"Dear Michael
I have confirm [sic] with my client that the guarantee is to extend to all of the funds payable by 1 October under variation No 2. totalling $27,500 + GST. If you could amend the variation No 2 and send it through."
A varied document was forwarded, together with a slightly varied Guarantee. Someone had taken trouble to alter the execution clause, to delete some unnecessary language, but yet the Guarantee still purported to be executed by Bathurst Central, still invoked s 127 of the Corporations Act and still had Messrs Cherry and Sharpe executing as directors.
The primary judge rejected the limited submissions made to her and ruled that the documents were admissible on questions of estoppel only. In her reasons, her Honour accepted the plaintiff's submissions and said that the correspondence was "no more than evidence of the parties' subjective intentions" and was not "evidence of objective facts known to both contracting parties capable of bearing upon the meaning of the words contained within the contract".
Consistently with her ruling, the primary judge approached the issue of construction by reference solely to the words used in the document. Mr Cherry and Mr Park had contended that the phrase "Agreement or any transaction contemplated by the Agreement" limited the amounts guaranteed to those promised under the Second Variation. However, her Honour rejected this submission, saying at [86]-[87]:
"The definition of guaranteed money is a wide one and is said to include the amount specified in clauses 4 and 5 of the agreement [which referred to additional sums in consideration of extending the completion date] ...
The words do not say that it is limited to the additional sums but rather that it includes those sums. It is also said to include damages and amounts paid in connection with the agreement. I do not accept the second and third defendant's argument that because the principal or sale agreement was entered into prior to this agreement the sale is not a transaction contemplated by the agreement. I find that transactions prior to that date were contemplated by the agreement.
Her Honour noted that the Second Variation altered the terms of the original sale agreement, and expressly provided that the latter remained in full force and effect. Her Honour then asked, rhetorically, at [89]:
"How could the [principal] agreement which was specifically said to remain in full force not relate to a transaction contemplated to the variation agreement?"
Accordingly, her Honour found that the sale of the land was a transaction contemplated by the Second Variation.
There is ordinarily no point in complicating the evidentiary status of the record by limiting orders made under s 136 in the absence of some real danger of prejudice or misleading or confusion.
Further, as Sackville J and Barrett J (as their Honours then were) and Ball J have each said, any exercise of the discretion to make orders under s 136 cuts across the legislative policy manifested elsewhere in the Evidence Act that evidence that is made admissible is admissible for all purposes: Seven Network Ltd v News Ltd (No 8) [2005] FCA 1348; (2005) 224 ALR 317 at [21]; Tim Barr Pty Ltd v Narui Gold Coast Pty Ltd [2008] NSWSC 654 at [18]; Australian Handsets Pty Ltd (In Creditor's Voluntary Liquidation) v Alvarez [2011] NSWSC 160 at [17]. As is observed in N Williams et al, Uniform Evidence in Australia (LexisNexis Butterworths 2015) at p 783, s 136 is closely connected with the change effected by s 60, and that section "effected a radical alteration to the position at common law that evidence is usually admitted for a particular purpose and not others."
That said, the focus of the appellants' submissions on these grounds was on the test applied by her Honour to admissibility, rather than the anterior question of the apparent inaptness of the application under s 136. White JA has expressed the view that a ruling under s 55 of the Evidence Act was available in accordance with the parol evidence rule, which is preserved by s 9(1) of that Act. I do not express a view on that point, which was not the subject of a notice of contention, or submissions from the parties, and is not without complexity (for example, it may be contrary to what was said in Idoport Pty Ltd v National Australia Bank (2000) 50 NSWLR 640; [2000] NSWSC 1077 at [28] and in McNeill v The Queen (2008) 168 FCR 198; [2008] FCAFC 80 at [62]).
In some cases (and only where it is relevant - see below) construction is legitimately assisted by evidence of surrounding circumstances. An example is the point made by Gleeson CJ in International Air Transport Association v Ansett Australia Holdings Ltd (2008) 234 CLR 151; [2008] HCA 3 at [8]:
"This is a case in which the Court's general understanding of background and purpose is supplemented by specific information as to the genesis of the transaction. The Agreement has a history; and that history is part of the context in which the contract takes its meaning."
Counsel for the appellants pointed to decisions in this Court in which this had occurred. One instance may be seen in Lahoud v Lahoud [2009] NSWSC 623 at [446], where Ward J (as her Honour then was) applied what had been said by Beazley JA (as her Honour then was) in Boreland v Docker:
"In Boreland, Beazley JA treated (at [72]) the fact of a known and communicated desire of one party as a relevant objective fact. Here, I think what emerges from the evidence of the conversation between Victor and Joseph Lahoud on the morning of 6 February 2001 is that the provision for an audit was included in the Terms of Settlement in circumstances where Joseph Lahoud had expressed disbelief as to the profit attributed by his brother to the Cammeray project. The relevant objective fact is that the parties were seeking a mechanism by which any doubts or concerns by the parties as to the profit could be independently resolved."
Essentially the same reasoning was applied in Angas Securities Ltd v Small Business Consortium Lloyds Consortium No 9056 [2016] NSWCA 182. Sackville AJA, with whom McColl JA agreed, said at [112] that:
"the correspondence between the parties evidencing the arrangement is an objective fact that formed part of the surrounding circumstances that can be taken into account in construing the Deed of Release."
I made the same point at [16]-[21].
The same distinction between the inadmissibility of one party's uncommunicated belief and the legitimacy of using a letter of offer as an aid to the construction of a release later entered into was made by Sackville AJA (with the agreement of Beazley P and White JA) in Taouk v Assure (NSW) Pty Ltd [2017] NSWCA 227 at [106]:
"The submissions made on Mr Taouk's behalf at times seemed to suggest that the surrounding circumstances that can be taken into account include the negotiations between the parties preceding execution of the Variation Deed, even if the negotiations reveal only the parties' subjective intentions. Clearly, however, it is only the objective circumstances known to both parties that can be considered in construing the Variation Deed."
In the present case, I regard the initial proposal in the email of 19 May 2014 as analogous with the evidence of the party's communicated desire contained in an undisputed conversation in Boreland v Docker, with the evidence of the conversation explaining the reasons for the audit mechanism in Lahoud v Lahoud, and with the letter of offer in Angas Securities Ltd. I am also conscious that the subsequent emails, especially insofar as they reflect the negotiating positions of the parties, are less clearly within this area of admissible evidence of objective surrounding circumstances. However, neither party submitted, either at trial or on appeal, that the correspondence between the solicitors should be treated differentially. Because ultimately nothing turns on this point for the purposes of this appeal, I take the matter no further.
It is true that this distinction, as repeatedly formulated in recent decisions of this Court, might be thought to cut across two aspects of the objective surrounding circumstances which bear very different characters. On the one hand there is evidence as to the negotiating position of the parties; on the other there is evidence as to the objective background facts known to both of them. Lord Wilberforce drew the distinction in Prenn v Simonds [1971] 1 WLR 1381 at 1385:
"evidence of negotiations ... ought not to be received, and evidence should be restricted to evidence of the factual background known to the parties at or before the date of the contract, including evidence of the 'genesis' and objectively the 'aim' of the transaction."
This distinction was reviewed, but maintained, in Chartbrook Ltd v Persimmon Homes Ltd [2009] AC 1101; [2009] UKHL 38. But the resolution, at least in this country, is as stated by Mason J in Codelfa at 352:
"Obviously the prior negotiations will tend to establish objective background facts which were known to both parties and the subject matter of the contract. To the extent to which they have this tendency they are admissible. But in so far as they consist of statements and actions of the parties which are reflective of their actual intentions and expectations they are not receivable."
That passage also well illustrates that although reference is made to "admissible" and "receivable", what is meant is the use of such evidence.
Allsop P and Macfarlan JA have referred to the "possible subtlety" of the distinction in Kimberley Securities Limited v Esber [2008] NSWCA 301 at [5]. I respectfully agree. Ecosse Property Holdings Pty Ltd v Gee Dee Nominees Pty Ltd [2017] HCA 12; 91 ALJR 486 presents an example. It may seem strange that a court may have regard to a handwritten alteration on the face of the executed document striking out contractual words, but would have to exclude evidence of a precontractual communication to the same effect. See further the conceptual difficulties considered in C Moustaka, "The Admissibility and Use of Evidence of Prior Negotiations in Modern Contract Interpretation" (2016) 41 UWALR 203. And, as Finn J noted in Australian Medic-Care Company Ltd v Hamilton Pharmaceutical Pty Ltd [2009] FCA 1220; 261 ALR 501 at [118], the rule does not commend itself in all parts of the common law world. That said, the decisions mentioned above do not suggest that there is any great difficulty in practice in distinguishing unhelpful statements made by parties reflecting their negotiating stance from the objective background known to both which can assist in construction.
Many authorities to the same effect could readily be collected. The ultimate question is whether the written language of the contract, when considered in light of legitimately relevant surrounding circumstances, permits a constructional choice to be made between two different legal meanings. This leads to the second point.
Secondly, in Simic v New South Wales Land and Housing Corporation, Gageler, Nettle and Gordon JJ said at [78] that:
"The proper construction of each Undertaking is to be determined objectively by reference to its text, context and purpose."
French CJ observed at [18] that construction of a contract:
"involves determination of the meaning of the words of the contract defined by reference to its text, context and purpose. Resort to extrinsic circumstances and things external to the contract may be necessary to identify its purpose and in determining the proper construction where there is a constructional choice."
It will be seen that once again no reference was made to any necessity for there to be ambiguity before regard may be had to objective matters external to the contract. Neither judgment in terms stated that recourse could be had to context and purpose without first concluding that the contract was ambiguous. But I do not see why the general statements of principle and their application in Victoria v Tatts Group Ltd and the reiteration of those statements in Simic should not be taken at face value, especially since there is no occasion to overturn any decision of the High Court with precedential force.
For nothing has been said to detract from the continuing authority of the "true rule" formulated by Mason J in Codelfa which was reaffirmed in Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd at [48]. The latter decision otherwise has no bearing on the question, because the High Court expressly observed that whether "events, circumstances and things external to the contract may be resorted to, in order to identify the existence of a constructional choice, does not arise in these appeals": at [49]. However, Kiefel and Keane JJ observed at [110] that Mason J had not said, in Codelfa, how ambiguity might be identified; his Honour's reasons instead were directed to how an ambiguity might be resolved.
The absence of inconsistency between Mason J's "true rule" in Codelfa and the permissibility of resorting to objective evidence of surrounding circumstances was considered by Barrett AJA in WIN Corporation Pty Ltd v Nine Network Australia Pty Ltd at [59] (footnotes omitted):
"A potential tension that inheres in [Mason J's formulation of the 'true rule' in Codelfa] is that to recognise words as bearing a 'plain meaning' is merely to state a conclusion arrived at by some process of interpretation which cannot, as a matter of logic, exclude context. As Leeming JA noted in Mainteck Services Pty Ltd v Stein Heurtey SA (2014) 89 NSWLR 633; [2014] NSWCA 184 at [77], to state that a legal text is 'clear' does no more than recognise that 'there is nothing in the context which detracts from the ordinary literal meaning'. It therefore becomes clear that the notion that it may first be necessary to consider context when construing a contract is not inconsistent with Mason J's 'true rule'. On this footing, it does not follow that the task of assessing whether a phrase or expression is ambiguous or susceptible of more than one meaning must be undertaken without regard to evidence of surrounding circumstances. This position corresponds with the approach of the High Court in Victoria v Tatts Group Ltd where the relevant contract was construed by reference to its text, context and purpose without any anterior finding of ambiguity as a precondition to a consideration of surrounding circumstances as an aid to discovering or elucidating context and purpose."
I made the same point as to the effect of the reasoning in Victoria v Tatts Group Ltd in Calvo v Ellimark Pty Ltd [2016] NSWCA 136 at [55]. Further, in addition to what was said in Mainteck, Newey, Stratton and WIN to which reference has already been made, additional recent authority supporting the proposition that ambiguity is a conclusion, which can only be assessed after regard has been had to context, may be found in Righi v Kissane Family Pty Ltd [2015] NSWCA 238 at [44] (Emmett JA, Ward and Gleeson JJA agreeing) and in Todd v Alterra at Lloyds Ltd (2016) 239 FCR 12; [2016] FCAFC 15 at [75] (Beach J). Substantially the same point is well established in statutory construction, where it is clear that "the apparently plain words of a provision" may "wear a very different appearance" when they are "read in the light of the mischief which the statute was designed to overcome and of the objects of the legislation": CIC Insurance Ltd v Bankstown Football Club Ltd (1987) 187 CLR 384 at 408; [1987] HCA 2.
Enough has been said to indicate that authority binding on the District Court of New South Wales was inconsistent with the proposition advanced by Mr Steele-Park, namely, that because the Guarantee was not ambiguous, the documents should be the subject of an order under s 136. Unfortunately, none of those decisions was cited to her Honour.
In short, in order to determine whether a document was relevant, it is necessary to know, and with some precision, what the disputed questions of construction are. That underlies the statement by a unanimous High Court in Zhu v Treasurer of the State of New South Wales (2004) 218 CLR 530; [2004] HCA 56 at [82]:
"[The contract's] commercial purpose - the purpose of reasonable persons in the position of TOC and the plaintiff - was relevant. That, in turn, required attention to 'the genesis of the transaction, the background, the context, the market' in which the parties were operating, as known to both parties." [Citations omitted.]
I have concluded that the primary judge applied an incorrect test when making the ruling. It will be clear from what has been said above that in large measure that was a consequence of the deficiencies in the parties' submissions. But in any event, the error was immaterial, because for the reasons to which I now turn, her Honour's construction of the Guarantee was correct.
First, it is plain that the concluding words are erroneous: there is only one amount specified, because cl 5 in the Second Variation as ultimately executed was "Deleted". The extrinsic materials support the inference that the reference to cl 5 is an oversight which occurred when the Guarantee was not amended in light of the altered bargain ultimately reached in the Second Variation. That inference is strengthened by the inattention given by the Guarantee's drafter to the form of the execution clause.
Secondly, grammatical considerations alone do not dictate whether the broad disjunctive words which make up the bulk of the clause apply merely to the third class of amounts (amounts which otherwise remain unpaid) or instead to all three categories of amounts. However, semantic considerations confirm that the words apply to all three. The references to "future", "present", "actual", "contingent", "incurred", "jointly" and "severally" make it plain that these words apply to each limb, and, if there were any doubt on that point, it would be resolved by asking why would it be made clear beyond argument that only one of the limbs (amounts remaining unpaid) extended to joint, several and joint and several obligations, but not amounts payable, or owing but not payable? As noted in Zhang v ROC Services (NSW) Pty Ltd at [77], grammatical ambiguity may be and often is resolved by meaning.
Thirdly, in two places the definition of "Guaranteed Money" while commencing with "means" contains components beginning with "including". The places are "including damages" and "including the obligation to pay the amounts specified in Clauses 4 and 5 of the agreement". That language tends to suggest that the terms following "including" are designed to give an extended meaning going beyond the balance of the definition: Zickar v MGH Plastic Industries Pty Ltd (1996) 187 CLR 310 at 329-330; [1996] HCA 31. It makes it plain beyond argument that Guaranteed Money extends both to damages and to the amount specified in cl 4 of the Agreement.
Fourthly, the express inclusion of "damages" in the definition was warranted. An unpaid vendor of an executory contract cannot ordinarily sue for the purchase price as a debt: McDonalds v Dennys Lascelles Ltd (1933) 48 CLR 457 at 475; [1933] HCA 25. The inclusion means that the Guaranteed Money extends to cases of breach by Bathurst Central. Although the appellants submitted that a failure to complete would not be a transaction which was "contemplated by the Agreement", that misstates the operation of the definition. The definition applies to unpaid damages "under or in connection with the Agreement or any transaction contemplated by the Agreement." Contrary to the appellants' submissions, damages from a failure to complete are squarely within the definition. That is to say, the words "under or in connection with" must extend to the obligation to pay damages following a breach of the Agreement. (Both "under" and "in connection with" are "relational terms" which cover a variety of relationships, the nature and breadth of which depend upon context and purpose. "In connection with" was one of the examples mentioned by French CJ in The Queen v Khazaal (2012) 246 CLR 601; [2012] HCA 26 at [31]. The preposition "under" is in the same category (when "under" is used as in the definition of Guaranteed Money to connect an unpaid amount and a contract, it is plain that it is used (as is common with English prepositions) abstractly or metaphorically to describe a conceptual relationship between the two intangible things, rather than bearing its literal meaning of a relative position in the physical world).)
Fifthly, a feature of the first half of the definition is the repeated generality of the language. The definition of "Guaranteed Money" is "all" amounts … on "any" account at "any" time under or in connection with the Agreement or "any transaction contemplated by the Agreement". There follow further words which expand the scope of the defined term. Contrary to one submission advanced by the appellants, the word "any" in this context is not explained by the possibility that there may be no such thing. The word on its ordinary meaning captures all things falling within the terms that it qualifies, although countenancing the possibility that there are none (see Fitness First Australia Pty Ltd v Fenshaw Pty Ltd (2016) 92 NSWLR 128; [2016] NSWCA 207 at [45]). In the present context, where it is preceded by a series of expansive qualifiers broadening the meaning of the clause, there is no reason to give it any other meaning.
Sixthly, I turn to the second component commencing with "including". On any view, the $30,250 specified in cl 4 of the Second Variation falls within the definition of "Guaranteed Money". A large difficulty with the appellants' construction is that it confines Guaranteed Money to that $30,250. That is to say, the amounts expressly specified in the closing words of the definition are, according to the appellants, the entire operation of the definition. It must be acknowledged that contracting parties often use redundant words. Even so, not lightly would the 69 preceding words, all of which are expressed in terms of generality, be reduced to having no work to do. That would be a tail wagging a very generally - not to mentioned verbosely - drafted dog.
Seventhly, only by what must be regarded as an artificially narrow use of the word "transaction" could the appellants submit that it did not include the conveyance which was the subject of the original Contract. There is no straining of language in regarding the conveyance as being a transaction contemplated by the Second Variation. The Contract is after all the occasion for the Second Variation. Indeed, the Second Variation inevitably refers to the Contract, repeatedly (including in recital A and cl 1).
Eighthly, I return to the significance of the fact that the Second Variation used indirect textual amendment to extend the Completion Date to 1 October 2014. The primary breach by the purchaser was not to complete the purchase it had undertaken to make by 1 October 2014. That was a breach of the Second Variation, with which the contract for sale of land needed to be read in order to identify the parties' bargain.
That is to say, the obligation to pay damages by reason of the breach of the completion date specified in the Second Variation is as a matter of ordinary language an obligation owed by Bathurst Central to the vendors arising under or in connection with the Second Variation. It is not the case that the Second Variation immediately upon coming into effect amended the Completion Date of the Contract, and that thereafter Mr Steele-Park sued on that Contract for failing to complete on the date (as amended) contained in that Contract. (Or, to take a legislative example, this is not a case where an amending statute is repealed the day after it is enacted, its work of amending the principal statute having been done.) To the contrary, the Second Variation had ongoing operation, and needed to be read together with the Contract.
In addition to the foregoing, there is the additional scope of the Guarantee brought about by the defined term "Guaranteed Obligations", to which cl 2.1 in the Guarantee also extends. Even if the contractual damages are somehow outside the scope of "Guaranteed Money", it is necessary in order for the appellants' construction to be accepted to conclude that the obligation by Bathurst Central to pay damage falls outside the words "all [Bathurst Central's] other obligations to the [vendors] (monetary or non-monetary, present or future, actual or contingent) arising under or in connection with the Agreement". But the obligation to pay damages following a breach of contract is, surely, a classic example of an obligation arising under or in connection with that contract. True it is that according to one classification, the obligation to pay damages is a secondary obligation, rather than a primary obligation. But as Lord Diplock said in Photo Production Ltd v Securicor Transport Ltd [1980] AC 827 at 849, a contract is "just as much the source of secondary obligations as it is of primary obligations".
The appellants pressed the submission that it would have been easy, and much more concise, for the Guarantee to be drafted so as to extend to all of Bathurst Central's obligations under the Contract. No doubt that is so. But ultimately it does not much assist the task of construing the words which the parties chose to use to observe that they might have executed their bargain using clearer language. That was the point made by Hamilton J (the year before he was elevated to the Court of Appeal, and two years before being appointed, as Lord Sumner, to the House of Lords) in Attorney-General v Exeter Corporation [1911] 1 KB 1092 at 1098: "If the words are clear, it is not to the point to say that they might have been clearer".
I have not neglected the appellants' submissions that the Guarantee is to be construed strictissimi juris and the important consideration that, when the Contract was entered into, the vendors had been content to rely upon the unsecured obligation of Bathurst Central to complete the sale. It may be accepted, as was said in Bofinger v Kingsway Group Ltd (2009) 239 CLR 269; [2009] HCA 44 at [53], that a doubt sufficient to engage the principle of strictissimi juris could arise "not only from the uncertain meaning of a particular expression but from its apparent width of possible application." It is not necessary to address all aspects of this doctrine (as to which see Pavlis v Wetherill Park Market Town Pty Ltd [2014] NSWCA 292 at [45]). Taking the view most favourable to the appellants, it remains necessary, as Campbell JA has said, for the contractual language to present a choice "amongst meanings that are fairly open by reason of the application of other rules of construction": Rava v Logan Wines Pty Ltd [2007] NSWCA 62 at [56] (see also CSR Limited v Adecco (Australia) Pty Ltd [2017] NSWCA 121 at [163] and the cases there referred to).
There is force in the proposition that in a contract with (a) a relatively small deposit and (b) a positive right for the purchaser to rescind in certain circumstances within a period revealingly described using the language of "Due Diligence", the focus of the vendors was upon the amounts they were guaranteed to receive - the fees for providing what in some respects resembled an option. But the Guarantee executed by the appellants simply discloses no viable constructional choice which could narrow its width.
The appellants in substance urge a limiting construction to be given to the generally worded language of the Guarantee. As conveniently explained in R Calnan, Principles of Contractual Interpretation (Oxford University Press, 2nd ed 2017) at pp 36-39, general words may be read down in light of the balance of the contract. But there is nothing in the balance of the Guarantee to warrant such an approach. The appellants are thus driven to seeking to read down the words of the Guarantee by reference to surrounding circumstances. But such context - even relatively powerful evidence of context such as the present - does not warrant doing the violence to the general language of the document executed by them that they require.
Indeed, not once but twice did the appellants sign what on its face was an all monies guarantee in substantially the form drafted by the vendor's solicitor. In those circumstances there is a strong presumption that the objective intention to be imputed to the appellants was that they be bound by the form of the document that they signed (twice).
There will be difficult cases where the contractual text points less strongly in one direction. The present, however, is a clear case. The contextual evidence is incapable of defeating the wide words in the Guarantee. The position recalls that described by Palmer J and endorsed in this Court by Tobias JA, with whom Mason P and Campbell JA agreed, in Ryledar Pty Ltd v Euphoric Pty Ltd (2007) 69 NSWLR 603; [2007] NSWCA 65 at [108]:
"When the Court is construing a commercial contract, it begins with the words of the document: there it often finds expressed the factual context known to both parties and the common purpose and object of the transaction. But the court is alive to the possibility that what seems clear by reference only to the words on the printed page may not be so clear when one takes into account as well what was known to both parties but does not appear in the document. When that is taken into account, the words in the contract may legitimately have one or more of a number of possible meanings. It is then the Court's task to identify which of the possible meanings represents the parties' contractual intention.
However, when a party to a contract argues that the known context and common purpose of the transaction gives the words of the contract a meaning which, by no stretch of language or syntax they will bear then, in truth, one has a rectification suit, not a construction suit."
So too here. By no stretch of language or syntax do the words of the Guarantee fail to make the appellants liable for the whole of the amounts for which they were sued.
Although the principal submission made by counsel for the plaintiff in objecting to the admission of the correspondence in annexure "A" referred to in paragraph 7 of Mr Sharpe's affidavit was that the evidence was inadmissible because the Guarantee was unambiguous, the primary judge was not misled into error by that submission. That was not the ground upon which the primary judge limited the use to which that correspondence could be put.
Mr Sharpe's affidavit was read after the case for the plaintiff had been closed. Counsel for the plaintiff sought an order under s 136 of the Evidence Act 1995 (NSW) ("the Evidence Act") that the material referred to in paragraph 7 be admitted subject to a limitation that it not be admissible on the question of the construction of the Guarantee. After extensive argument the primary judge ruled that for reasons her Honour would give later, the evidence was admissible, but not as to the meaning of the wording of the contract. Her Honour said it was admissible on questions of estoppel.
In her separate reasons for that ruling the primary judge said:
"12 Even assuming that the words in the guarantee/indemnity document could have more than one meaning the evidence sought to be admitted is no more than evidence of the parties' subjective intentions. I find it is not evidence of objective facts known to both contracting parties capable of bearing upon the meaning of the words contained within the contract.
'Rather, it is evidence of their respective subjective intentions. Evidence of negotiations and of the parties' intentions is not admissible, except to the extent that it might show some fact that both parties knew and that was relevant to construction' (Phoenix Commercial Enterprises Pty Ltd v City of Canada Bay Council [2010] NSWCA 64 at [139])
13 Even assuming that such documents and negotiations may be admitted to show some context which may shed light on the meaning of words I do not accept that they objectively point to some fact, or facts, known to the parties which are relevant to the construction of the document. The second variation did not simply grant a further extension of time, it varied other terms in the altered original agreement. The email related to a proposed variation which was superseded when the purchaser was granted a further period of time to complete. The email does not establish that the parties were united in rejecting a possible construction of any document. The document had not at that time been circulated. The second and third defendants were represented by a solicitor and have had ample time and opportunity to read and take advice from their solicitor and request changes to the documents. They have not brought proceedings for rectification."
In my view, that was a substantially correct application of what was stated by Mason J in Codelfa quoted by Leeming JA at [66] above, namely that:
"Obviously the prior negotiations will tend to establish objective background facts which were known to both parties and the subject matter of the contract. To the extent to which they have this tendency they are admissible. But in so far as they consist of statements and actions of the parties which are reflective of their actual intentions and expectations they are not receivable."
Mason J went on to say (at 352):
"The point is that such statements and actions reveal the terms of the contract which the parties intended or hoped to make. They are superseded by, and merged in, the contract itself. The object of the parol evidence rule is to exclude them, the prior oral agreement of the parties being inadmissible in aid of construction, though admissible in an action for rectification.
Consequently when the issue is which of two or more possible meanings is to be given to a contractual provision we look, not to the actual intentions, aspirations or expectations of the parties before or at the time of the contract, except in so far as they are expressed in the contract, but to the objective framework of facts within which the contract came into existence, and to the parties' presumed intention in this setting. We do not take into account the actual intentions of the parties and for the very good reason that an investigation of those matters would not only be time consuming but it would also be unrewarding as it would tend to give too much weight to these factors at the expense of the actual language of the written contract."
In Mount Bruce Mining v Wright Prospecting French CJ, Nettle and Gordon JJ said (at [50]):
"What is inadmissible is evidence of the parties' statements and actions reflecting their actual intentions and expectations [citing Codelfa at 352 and Reardon Smith Line Ltd v Hansen-Tangen [1976] 1 WLR 989 at 995-996; [1976] 3 All ER 570 at 574]."
This was part of the judgment of French CJ, Nettle and Gordon JJ in Mount Bruce Mining v Wright Prospecting that was applied by the High Court in Victoria v Tatts Group Ltd [2016] HCA 5; (2016) 90 ALJR 392 at [51]).
In Reardon Smith Line Ltd v Hansen-Tangen Lord Wilberforce said (at 996, 574) that:
"When one speaks of the intention of the parties to the contract, one is speaking objectively - the parties cannot themselves give direct evidence of what their intention was - and what must be ascertained is what is to be taken as the intention which reasonable people would have had if placed in the situation of the parties. Similarly when one is speaking of aim, or object, or commercial purpose, one is speaking objectively of what reasonable persons would have in mind in the situation of the parties."
In Codelfa Mason J was not merely saying that the unexpressed subjective intentions of the parties are irrelevant to the construction of the contract. To the contrary, his Honour was addressing the extent to which negotiations could or could not be used for the purpose of construing the terms of the contract. Negotiations necessarily involve communications.
In the present case, both parties, through their solicitors, and the plaintiff in his oral evidence, expressed a subjective intention that the Guarantee should be a guarantee only for the payment of the additional price of $27,500 plus GST payable on the Second Variation.
Mr Shillington, the solicitor acting for the vendors, sent an email on 19 May 2014 stating that personal guarantees were to be provided by the directors of Bathurst Central for the payment of $12,500 plus GST payable for the then proposed extension to 7 July 2014, but this could be dispensed with if the amount were paid then. The time for completion could be further extended to 1 September 2014 on payment of a further $10,000 plus GST "on the same terms": that is, on the security of the directors' guarantees, unless payment were made up front. Mr Kermode, the solicitor for the purchaser and guarantors, said that that was acceptable. Mr Kermode clearly contemplated that a guarantee would be provided, rather than his client's making immediate payment (Leeming JA at [23] and [25]).
On 13 June 2014 Mr Kermode sent the email referred to at [30] of Leeming JA's reasons and on 27 June Mr Kermode wrote (Leeming JA at [32]) that "the guarantee is to extend to all of the funds payable by 1 October under variation No 2. totalling $27,500 + GST." The plaintiff volunteered in his oral evidence that that was the sum that he thought was to be the subject of the Guarantee. Mr Shillington's email of 19 May 2014, Mr Kermode's email to Mr Shillington of 13 June 2014 and his email of 27 June 2014 (Leeming JA at [23], [30] and [32]) suggest that the subjective intentions of both parties was that the Guarantee was to apply only to the additional price payable for the Second Variation of $27,500 plus GST.
Leeming JA observes (at [91]) that the emails were objective facts known to both sides of the transaction and represented the communicated negotiating position of the parties and supported the appellant's position that the commercial purpose of the Guarantee was to secure Bathurst Central's obligation to make the additional payment as the price of the extension.
Undoubtedly the emails were objective facts known to both sides of the transaction. It does not follow that the emails disclose more than the parties' subjective intentions as to what obligations would be secured by the Guarantee. The issue addressed in Codelfa was not simply whether the subjective intentions or expectations of the parties could not be used to construe the terms of the contract, but whether evidence of the negotiations, in so far as they revealed such subjective intentions or expectations, could be so used. In the context of whether negotiations leading to a contract can be used to assist in the construction of the terms of the contract, it must be the case that a party's or the parties' intentions will be disclosed by the communications which constitute the negotiations. The fact that the communications are objective facts does not mean, consistently with Codelfa, that they can be used to the extent that they reveal the parties' subjective intentions or expectations.
There has been significant debate as to whether a party's communicated intention, as distinct from his or her uncommunicated intention, should be admissible in construing the terms of a contract, and a fortiori, whether evidence of the parties' having a mutual intention should be taken as their objective intention in construing a contract (see for example D W McLauchlan, "Objectivity in Contract" [2005] UQ Law JL 28; (2005) 24(2) UQLJ 479; Donald Nicholls, "My kingdom for a horse: the meaning of words" (2005) 121 LQR 577, particularly at 584; D W McLauchlan, "Contract Interpretation: What is it about?" (2009) 31(1) SydLR 5; D W McLauchlan, "Plain Meaning and Commercial Construction: Has Australia Adopted the ICS Principles?" (2009) 25 JCL 7 at 37). In Gibbons Holdings Ltd v Wholesale Distributors Ltd [2008] 1 NZLR 277 Thomas J (with whom Elias CJ agreed) said (at [122]) that:
"The notion that an intention can be imposed on the parties contrary to their actual intention is repugnant to any concept of fairness, common sense and the reasonable expectations of honest men and women. It should be repugnant to the common law."
Of course, if it is established with the requisite degree of clarity that a written instrument does not embody the actual intentions of the parties, the instrument that is a purported record of the parties' agreement can be rectified. No question of rectification arose in the District Court. That Court did not have jurisdiction to make an order for rectification of the Guarantee (District Court Act 1973 (NSW) s 134 and Law Reform (Law and Equity) Act 1972 (NSW) s 7). The defence did not plead that the instrument was liable to be rectified. Whether such a defence could have been entertained under s 6 of the Law Reform (Law and Equity) Act is not a question before us (Steak Plains Olive Farm Pty Ltd v Australian Executor Trustees Ltd [2015] NSWSC 289; (2015) 18 BPR 35,471 at [66]-[78]). Similarly, no question presently arises as to whether a claim for rectification could still be brought (B & B Constructions (Aust) Pty Ltd v Brian A Cheeseman & Associates Pty Ltd (Supreme Court (NSW), Young J, 31 August 1995, unrep BC9505386 at [9])).
Traditionally, evidence of the parties' subsequent conduct has not been accepted as admissible to construe the terms of a contract because such conduct can only reveal what the parties thought they had agreed upon and is not evidence of what, considered objectively, they had in fact agreed upon. Such evidence may be powerful evidence of the parties' mutual subjective intentions. In Gibbons Holdings Ltd v Wholesale Distributors Ltd the Supreme Court of New Zealand held that such evidence of subsequent conduct could be considered for the purposes of construing the contract. That approach has not been followed by the High Court. In Agricultural and Rural Finance Pty Ltd v Gardiner (2008) 238 CLR 570; [2008] HCA 57 the plurality (Gummow, Hayne and Kiefel JJ) held (at [35]) that:
"… to approach issues of construction in this way would be at odds with the general principle that 'it is not legitimate to use as an aid in the construction of [a] contract anything which the parties said or did after it was made' [James Miller & Partners Ltd v Whitworth Street Estates (Manchester) Ltd [1970] AC 583 at 603 per Lord Reid, repeated by Gibbs J in Administration of Papua and New Guinea v Daera Guba (1973) 130 CLR 353 at 446; [1973] HCA 59; cf Gibbons Holdings Ltd v Wholesale Distributors Ltd [2008] 1 NZLR 277.]"
As Campbell JA said in Franklins Pty Ltd v Metcash Trading Ltd (2009) 76 NSWLR 603; [2009] NSWCA 407 at [330] the High Court evidently disapproved of the decision in Gibbons Holdings.
In Vector Gas Ltd v Bay of Plenty Energy Ltd (2010) 2 NZLR 444; [2010] NZSC 5, a majority of the Supreme Court of New Zealand adhered to an objective approach to contractual interpretation (per Blanchard J at [13]-[14], McGrath J at [78], Gault J at [151]). By comparison Tipping J (at [27]-[32]) considered that facts that demonstrated objectively what meaning both parties intended their words to bear could be used for the purposes of construction. Wilson J (at [122]) wrote to the same effect.
In Australia, the subjective, that is the actual, intentions of the parties cannot be used for the purposes of construing or interpreting a contract, whether or not those intentions are established by objective facts, and whether or not they are communicated. The question is not whether the actual intentions of the parties are established by objective facts. The question rather is what, objectively considered, reasonable people in the position of the parties should be taken to have intended having regard to the background facts known to them.
Phoenix Commercial Enterprises Pty Ltd v City of Canada Bay [2010] NSWCA 64, to which the primary judge referred, concerned the construction of a lease and a variation of lease. The appellant sought to adduce evidence on appeal of a letter sent by it to the council during negotiations for the variation in which its director stated the appellant's reasons for making a change to a draft and stated how the appellant understood the proposed varied terms would operate. The letter concluded "We trust that the above accurately reflects the mutual intentions. Should there be a difference please advise". The council did not respond (at [127]-[129]). Campbell JA held (at [139]) that the correspondence was inadmissible as:
"… it is not evidence of surrounding circumstances, in the sense of objective facts known to both of the contracting parties and capable of bearing upon the meaning of the words contained in a written contract. Rather, it is evidence of their respective subjective intentions. Evidence of negotiations and of the parties' intentions is not admissible, except to the extent that it might show some fact that both parties knew and that was relevant to construction." (Citation of authorities omitted).
Spigelman CJ (at [28]-[30]) and Handley AJA (at [250]) agreed. Spigelman CJ noted (at [29]) that it is often difficult to know where to draw the line.
In Mount Bruce Mining v Wright Prospecting French CJ, Nettle and Gordon JJ explicitly stated (at [50]) that:
"Each of the events, circumstances and things external to the contract to which recourse may be had is objective. What may be referred to are events, circumstances and things external to the contract which are known to the parties or which assist in identifying the purpose or object of the transaction, which may include its history, background and context and the market in which the parties were operating. What is inadmissible is evidence of the parties' statements and actions reflecting their actual intentions and expectations."
In my opinion the current principles for contractual construction as established by the High Court do not allow the use of either communicated or uncommunicated, actual, that is subjective, intentions or expectations of the parties for the purposes of construing the contract. As Leeming JA said, the emails were objective facts known to both sides of the transaction. Leeming JA considers that the emails support the appellants' submissions that the commercial purpose of the guarantee was to secure Bathurst Central's obligation to make the additional payments agreed upon as the price of the extension (at [91]). I accept that the emails are evidence that that was the parties' subjective commercial purpose. But as Lord Wilberforce said in Reardon Smith (at 574):
"… [W]hen one is speaking of aim, or object, or commercial purpose, one is speaking objectively of what reasonable persons would have in mind in the situation of the parties."
The genesis of the requirement for a guarantee was the fact that the time for completion had been extended once. Requests for further extensions were sought and had been acceded to on condition of payment of additional sums. $27,500 plus GST was the agreed price for the extension to 1 October 2015. These matters, when combined with the facts that Bathurst Central's obligations under the Contract and under the First Variation were not secured by a guarantee from the directors, are objective surrounding circumstances, being facts known to the parties, which suggest that reasonable persons in the position of the parties might have intended the scope of the Guarantee to be limited to securing the additional payment.
To the extent the documents that were annexure A referred to in paragraph 7 showed those matters, they could be used in the construction of the Guarantee.
But the email correspondence goes further and is evidence that the actual intention of the parties was that the scope of the Guarantee be so confined. In my view, to the extent the correspondence addressed what it was proposed the Guarantee should secure, it was inadmissible for the purpose of construing the Guarantee.
The decisions of this Court to which Leeming JA refers in which evidence of negotiations prior to the signing of the formal instrument had been admitted for the purposes of construction of the instrument are distinguishable, and are analogous to the legitimate purpose to which the correspondence and drafts in this case could be put as set out above.
In Boreland v Docker [2007] NSWCA 94 a tenant was in possession of a hotel under a weekly tenancy. If the tenant were entitled to occupy the hotel under a lease for a fixed term it had an arguable right to poker machine entitlements. The landlord made a written offer to permit the tenant to remain in occupation under the terms of the existing lease until 31 August 2007, subject to the tenant's continuing to observe the covenants of the lease and paying certain arrears (at [18]). The Court of Appeal found that that offer had been accepted. The issue was whether acceptance of the offer gave the tenant an equitable lease for a fixed term until 31 August 2007, or whether he remained under a weekly tenancy, subject to a promise by the landlord that that weekly tenancy would not be terminated prior to 31 August 2007 if the tenant complied with the terms of the lease (at [46], [55]-[56]). Beazley JA (as her Honour then was), with whom Mason P and Ipp JA agreed, construed the correspondence as giving rise to an agreement for a lease for a fixed term (at [58]). Her Honour also held that an earlier conversation between the landlord and the tenant confirmed this construction. In that conversation the tenant said that he needed time to recoup money he had spent on the hotel and the landlord said "All right, I won't put up your rent, I will give you a break. What time do you need?". The tenant said "2007, August". The landlord said "Look you can stay there. No more rent increases as long as it's on the same terms and conditions as we got on the weekly tenancy." (at [17]). Beazley JA held that this conversation was part of the relevant surrounding circumstances to which regard could be had. Her Honour said (at [71]):
"There may be a question in a particular case whether a pre-contractual conversation in fact constitutes part of the relevant surrounding circumstances to which regard may be had. That may be particularly so if there are a number of conversations or the conversations are between different people. A case where there were conversations between legal representatives as well as parties would provide an example. However, in this case, where there was a single conversation, about which there was no dispute, and which was the genesis of the letter of offer, the content of that conversation provides 'the objective framework of facts within which the contract came into existence and … the parties' presumed intention in this setting': Codelfa Constructions v State Rail Authority per Mason J at 352."
Her Honour took a different view in relation to evidence of the tenant's uncommunicated subjective intent (at [73]-[74]).
Different views might be available as to whether the conversation added anything to the construction of the letter. Be that as it may, I understand her Honour to have regarded the tenant's statement that he needed until August 2007 to recoup his expenditure on the hotel and the landlord's response, to have established an objective agreement in principle that went beyond objective evidence of the parties' subjective expectations or intentions.
If the conversation had merely evidenced the tenant's intention to obtain a lease for a fixed term, rather than a continuation of a weekly tenancy subject to a promise not to terminate the tenancy if covenants of the lease were complied with, then it could not have been used to construe the written letter of offer consistently with the principles in Reardon Smith and Codelfa. This would be so even if the conversation were evidence that the landlord had the same intention or expectation. The fact that the conversation was undisputed would not affect the operation of the parol evidence rule.
In Lahoud v Lahoud [2009] NSWSC 623, Ward J (as her Honour then was) noted that in Boreland v Docker the fact of a known and communicated desire of one party had been treated a relevant objective fact (at [446]). In Lahoud v Lahoud Ward J treated evidence of a conversation between the parties as establishing a relevant objective fact, namely that they were seeking a mechanism by which any doubts or concerns of the parties as to the profit of their venture could be independently resolved (at [446]). That went beyond a mere expression of the parties' intentions and expectations as to what the contract meant.
Similarly, in Angas Securities Ltd v Small Business Consortium Lloyds Consortium No. 9056 [2016] NSWCA 182 the letter of offer went beyond a reflection of the actual intentions and expectations of the parties. What was in issue was the construction of a deed of release that had been prepared to give effect to a letter of offer that had been accepted. Even though the acceptance of the letter of offer did not give rise to an enforceable contract, it established an agreed position that was documented by the deed. This is clearly in a different category.
For these reasons I consider the primary judge was substantially correct in her view that the correspondence referred to in paragraph 7 of Mr Sharpe's affidavit could not be used to assist in the construction of the terms of the Guarantee. The only qualification is that to the extent the material objected to demonstrated the matters referred to in para [147] above, they could be used in the construction of the Guarantee. However, the inference that might be drawn from such objective matters was rebutted by the terms of the Guarantee.
As noted above, counsel for the plaintiffs sought an order under s 136 of the Evidence Act limiting the use to which that correspondence could be put, such that the correspondence would not be admissible (that is, be able to be used) on the question of the construction of the Guarantee. The primary judge's ruling in the course of the hearing was that "the evidence is admissible, but not as to the meaning of the wording of the contract". Her Honour then made no express reference to s 136 of the Evidence Act, although it can be inferred from her subsequent written reasons that her Honour intended to make a ruling limiting the use of the evidence under s 136.
The defendants' counsel did not submit before the primary judge that no order under s 136 could be made because use of the correspondence to construe the terms of the Guarantee could not be unfairly prejudicial to a party, or misleading or confusing.
In my view, s 136, which concerns the general discretion to limit the use of evidence, is concerned with orders limiting the use of evidence which, but for such an order, could properly be used for other purposes. Typical examples are hearsay evidence or opinion evidence that might be admissible under s 60 or under s 77 of the Evidence Act because the evidence is relevant for another purpose. If the evidence is not relevant for another purpose, then it cannot be used for that purpose.
The consideration referred to by Leeming JA at [55] that "any exercise of the discretion to make orders under s 136 cuts across the legislative policy manifested elsewhere in the Evidence Act that evidence that is made admissible is admissible for all purposes" is, in my view, not a relevant consideration where the evidence is irrelevant to the other purpose.
The plaintiffs invoked the parol evidence rule. It is a rule of substantive law that is preserved by s 9(1) of the Evidence Act (260 Oxford Street Pty Ltd v Premetis [2006] NSWCA 96 at [127] per Basten JA). Section 9(1) of the Evidence Act provides:
"9 Application of common law and equity
(1) This Act does not affect the operation of a principle or rule of common law or equity in relation to evidence in a proceeding to which this Act applies, except so far as this Act provides otherwise expressly or by necessary intendment."
Evidence that is not "admissible" by reason of the parol evidence rule may be excluded under s 55 of the Evidence Act as irrelevant if the only potential relevance of the evidence is as to the construction of the contract. If the evidence is relevant for some other purpose, as it concededly was in the present case, but is irrelevant to the construction of the contract, it is seriously arguable that a trial judge could rule accordingly, irrespective of whether or not a particular use of the evidence might be unfairly prejudicial to a party or be misleading or confusing (Evidence Act, s 136). To do so would be to give effect to the parol evidence rule in accordance with s 9(1). The parties made no submissions as to the application of s 136 to the parol evidence rule. Accordingly, I do not express a concluded view on the operation of s 136. It suffices to say that as the defendants did not oppose a limiting order on the ground that neither s 136(a) nor (b) was satisfied, the primary judge did not err in not addressing those grounds.
I do not conclude that counsel for the plaintiff would have had no questions to ask of Mr Sharpe had the documents that he annexed been admitted without any restriction as to their use. The fact that the plaintiff's counsel took the objection, but then did not cross-examine Mr Sharpe after the objection was upheld, suggests the contrary. It is true that at the commencement of the hearing when the defendants sought leave to amend, the plaintiff's counsel indicated that he had not prepared to cross-examine Mr Sharpe because he did not think it would be necessary to do so. But that was said before the plaintiff gave evidence as follows:
"Q. Do you recall requiring Bathurst Central to pay extra money for the extension to 1 October 2014?
A. The only, the only thing I recall is that when we got between the first and the third variance was that I wanted a guarantee. We wanted a guaranteed sum to hold that block for that period of time. I, I can't answer whether it was between the first or second or second or third. The only sum that I remember that I wanted guaranteeing was the 27,500 plus GST. That's all I recall."
Had the plaintiff's counsel not thought that he might need to cross-examine Mr Sharpe, there would have been no need to take any objection. The proper use of the correspondence could have been dealt with in final submissions. I would infer that had the objection not been upheld, counsel for the plaintiff would have cross-examined Mr Sharpe to seek to establish, presumably by reference to the terms of the guarantee he signed, that his actual intention was not confined to guaranteeing only the sum of $27,500 plus GST. I infer that counsel would have been concerned that the primary judge might come to the view, even in a construction suit, that evidence of mutual intention can be relevant, and may be powerful. That view does not lack support, albeit that in Australia it is heterodox.
Cross-examination of Mr Sharpe would have lengthened the case and then led to the very issue raised on appeal as to whether the evidence of the actual intentions of the parties should be given greater weight than the language of the written contract. In Codelfa Mason J said that the reason for not taking into account the actual intentions of the parties was that an investigation into their actual intentions would be time-consuming and unrewarding as it would tend to give too much weight to their actual intentions at the expense of the language of the contract (at 352). This case is an illustration of that proposition. As I understand Mason J's reasons in Codelfa, use should not be made of evidence of the actual intentions of the parties because to do so would tend to give too much weight to that consideration. It is not a matter of weighing actual intentions against language used, but rather excluding evidence of actual intentions against the risk that to admit such evidence would run the risk of giving such a factor undue weight.
If the email correspondence can be had regard to and weighed against the terms of the Guarantee, then, for the reasons given by Leeming JA, nonetheless the clear terms of the Guarantee must prevail.
For these reasons I agree with the orders proposed by Leeming JA.