Euphoric Pty Ltd v Ryledar Pty Ltd [2006] NSWSC 2 | Case summary

Euphoric Pty Ltd v Ryledar Pty Ltd [2006] NSWSC 2 | Case summary | Zoe

[39]

27 Ryledar contends that on the true construction of Clause 4.1 and Items 4 and 5 of the Reference Schedule, in the form as varied by the letter of 31 March 1999, Ryledar was entitled to the contractual rebate of six cents per litre in respect of sales to all of its country sites throughout New South Wales. Ryledar submits that this construction emerges from the words of Items 4 and 5, "if necessary construed with or in light of prior communications between the parties" : submissions 11 November 2004, para 3(a). 28 I am unable to accept this submission. The words of Item 4 are clear and admit of no ambiguity in their meaning. 29 Clause 2.1 and the definition of "Sites" make it clear that the parties stipulated that the Supply Agreement would apply to sales to all of Ryledar's locations, present and future, throughout New South Wales. However, Clause 4.1 coupled with the definition of "Contractual Rebate" and Item 4 of the Reference Schedule, both in its original terms and as amended, make it clear that the rebate is not to apply to all "Sites" as defined in Item 8, i.e. all locations in New South Wales. In the original Item 4, the parties named express locations which would have the benefit of rebates. In the amended Item 4, they drew a line connecting particular points on the map and said that towns on or to the east of that line would have the benefit of the rebates. In doing so, they made clear their intention that sales of fuel to some sites in New South Wales would have the benefit of the Rebate and sales to other sites would not: otherwise, there was no point to their drawing the demarcation line. 30 It is now settled that the meaning of a commercial contract is to be construed objectively by reference to what it conveys to a reasonable person. This normally "requires consideration not only of the text of the documents, but also the surrounding circumstances known to [the parties] , and the purpose and object of the transaction" : Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451, at [22]; see also Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165, at [40] and the illuminating discussion of the authorities by Finn J in Lion Nathan Australia Pty Ltd v Coopers Brewery Ltd [2005] FCA 1812, at [78]-[79]. The Court does not, therefore, need to find that the language of a contract is ambiguous before considering its meaning as it may be revealed in the commonly known context and purpose of the transaction. 31 However, that does not mean that when the Court begins the task of construction it puts the words of the document aside and endeavours first to ascertain the commonly known factual context and purpose of the transaction, often only by resolving a strenuous contest between the parties. The Court does not, once it has found the commonly known factual context and purpose, then look at the words of the contract and, if they do not readily accommodate the context and purpose so found, force them to do so by a process of interpretation. 32 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. 33 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. 34 That is the case here. Ryledar says that the commonly known factual circumstances and the purpose of the transaction embodied in Item 4 of the Supply Agreement are revealed in the discussions and correspondence with led up to the execution of the Supply Agreement in its original form and the variation of Item 4 which was effected by the letter dated 31 March 1999. Ryledar has relied on that evidence in aid of its claim for rectification - as, indeed, it must, because the construction which it seeks to put on the words of Item 4 of the Supply Agreement is the opposite of their plain meaning. 35 I have analysed the evidence of discussions and correspondence preceding the execution of the Supply Agreement and the 31 March variation letter for the purposes of considering Ryledar's rectification claim. For the reasons to which I will come shortly, that evidence does not support Ryledar's claim to rectification. Even less does it support Ryledar's claim as to the true construction of the contract. 36 As a matter of construction, I hold that under the Supply Agreement as varied by the letter of 31 March 1999 Ryledar was entitled to rebates on the sale of fuel to the sites within the areas defined in Item 4 but not otherwise.

[40]

37 Ryledar contends that the words of Item 4 as varied by the 31 March 1999 letter do not actually reflect the common intention of the parties so that Item 4 should be rectified. The evidence upon which Ryledar relies in support of its submission must be taken in two stages. The first is evidence of discussions leading up to execution of the Supply Agreement on 18 May 1998; the second is evidence leading up to the expression by the parties of their agreed variations to the Supply Agreement contained in Euphoric's letter of 31 March 1999. 38 I commence by observing that a party seeking rectification bears the civil onus in proving its case on the balance of probabilities. Nevertheless "within the civil onus there are various degrees of satisfaction and courts have held over a considerable period of time that, with rectification, a high degree of satisfaction is required" : per Young J (as he then was) in GPI Leisure Corp Ltd v Herdsman Investments Pty Ltd (No 4) (1990) 9 BPR 17,461 at 463-464; and see e.g. Maralinga Pty Ltd v Major Enterprises Pty Ltd (1973) 128 CLR 336, at 351 per Mason J (as he then was); Pukallus v Cameron (1982) 180 CLR 447, at 456-457 per Brennan J; Crane v Hegeman-Harris Co Inc [1939] 1 All ER 662, at 664. 39 Mr A.A. Magar ("Eddie Magar"), on behalf of Euphoric, conducted negotiations with Mr Hobbs' predecessor as General Manager of Euphoric, Mr Rosenberg, from May 1997 to January 1998. Mr Magar gave evidence but Mr Rosenberg did not. 40 Mr Rosenberg provided a number of drafts of the Supply Agreement for discussion. The drafts were prepared with the assistance of solicitors. Ryledar also had advice from its own solicitors. However, when Mr Hobbs took over from Mr Rosenberg as General Manager of Euphoric in February 1998, discussions between Mr Magar and Mr Hobbs did not involve their solicitors. 41 Mr Magar said that in his negotiations with Mr Rosenberg he had asked for a rebate of more than six cents on sales in the Sydney metropolitan area. Mr Rosenberg countered with a suggestion that there should be a rebate of 6.2 cents per litre on sales in the Sydney metropolitan area and a six cents per litre rebate on sales outside the Sydney metropolitan area. Mr Magar agreed. An early draft of the Supply Agreement contained in Item 4 a provision that the six cents per litre rebate would apply "for outside Sydney Metro locations" . This was the form of draft Item 4 in the Reference Schedule when Mr Hobbs took over negotiations from Mr Rosenberg in February 1998. 42 Mr Hobbs said that when he read the words "six cents per litre for outside Sydney Metro locations" in draft Item 4 he interpreted that as applying only to Ryledar's then existing location outside Sydney, namely, Wollongong, and that if additional sites were acquired by Ryledar within the Sydney metropolitan area and Wollongong, the contract rebate would not apply to those sites. 43 Mr Hobbs said that later in negotiations with Mr Magar, Mr Magar requested that Newcastle and sites between Sydney and Newcastle be added as rebate locations, and that he agreed. Accordingly, he changed Item 4 as it had appeared in the draft Supply Agreement which he had inherited from Mr Rosenberg and inserted the wording which appears in the document as executed on 18 May 1998. 44 I accept Mr Hobbs' evidence. He was not shaken in it and the variations to Item 4 of the draft agreement which were made after Mr Hobbs took over negotiations support that evidence. 45 Mr Hobbs produced two drafts of the Supply Agreement containing the amendments to Item 4 which he had made. Both drafts were provided to Mr Magar, who made comments and suggested amendments to them. Mr Magar is obviously a capable, experienced businessman who has no difficulty at all with spoken or written English. He must have paid close attention to the critical provisions of the pricing provisions of these drafts. Amendments were made to Item 8 of the Reference Schedule, which defined "Sites", before the Agreement was executed. Yet Mr Magar did not suggest any amendment to the new Item 4, as proposed by Mr Hobbs, although its plain meaning was contrary to the intention which he said both parties had at the time. 46 Mr Magar gave evidence of his discussions with Mr Hobbs in paragraphs 195 to 247 of his witness statement of 7 April 2003. At paragraphs 227 to 233 he said that during negotiations for the Supply Agreement he and Mr Hobbs worked through a pricing example which made clear that the 6¢ rebate applied to all country locations in New South Wales. Mr Magar's evidence is detailed and elaborate, considering that the discussions occurred some five years before he recorded them in a witness statement and he had no contemporaneous notes of the conversations to refresh his recollection. 47 Elsewhere I have referred to evidence given by Mr Eddie Magar which I regard as demonstrating a preparedness to give untruthful evidence where it assists his case: see paragraphs 50-52, 92-94, 165-167. The same indications were present when Mr Magar gave evidence about his discussions with Mr Hobbs and about his understanding of the terms of the Supply Agreement in its various drafts. He was often prevaricating and avoided conceding the obvious when it did not suit his case. 48 For example, Mr Magar was taken to a draft of the Supply Agreement in which the price of the products was clearly stated to be the Mobil List Price plus freight. Mr Magar insisted that the List Price nevertheless included freight and that the draft agreement provided for a free delivery zone (which it clearly did not). Then he conceded that Ryledar had to pay freight under the terms of the draft agreement; later, he said that it did not. His evidence was highly confusing, not because he did not understand the questions but because he chose to make it so: see T170.5-T174.9. 49 Again, Mr Magar was taken to Item 4 in draft 1 of the Supply Agreement which clearly provided a 6.2¢ rebate on the list price for sales "for Sydney metro locations" and a rebate of 6¢ "for outside Sydney metro locations" . There was no reference to freight in the schedule of this draft. He was then taken to draft 2 of the Supply Agreement which provided in Items 4 and 5: " Contractual Rebate Gasoline 6.2 cents per litre for Sydney Metro locations 6.0 cents per litre for Wollongong, Central Coast and Newcastle locations Automotive Distillate 6.2 cents per litre for Sydney Metro locations 6.0 cents per litre for Wollongong, Central Coast and Newcastle locations"

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Q. And with that in mind, you went through these drafts, I am suggesting to you, very carefully indeed, didn't you? A. To the point of concern. That was never a point of concern which is the 6 cents rebate because it already applied. We knew it was 6.2 in Sydney and 6 cents all the rest of the State so it wasn't even a point of concern for us. It is supplied. 51 This evidence, and Mr Magar's manner in giving it, persuaded me that he had no genuine explanation as to how he could have misunderstood the plain meaning of the words in Item 4 of draft 2; he merely insisted on adhering to a position which advanced his case: see also T187.3 - T187.35. 52 To return to Mr Magar's evidence of his discussions with Mr Hobbs during negotiations for the Supply Agreement: I formed the impression that much of this evidence was reconstruction and argumentative and that it appealed to business logic regarded exclusively from the viewpoint of Ryledar. I am unable to accept that evidence as reliable. 53 Mr Hobbs frankly conceded that he did not have a clear recollection of much of the discussions. However, he was firm in denying the critical statements attributed to him by Mr Magar. For these reasons, I prefer the evidence of Mr Hobbs to that of Mr Magar. 54 Mr Rosenberg may, indeed, have intended to allow the 6¢ rebate for sales to all country areas when he prepared the draft Supply Agreement containing in Item 4 the words "6 cents per litre for outside Sydney Metro locations" . I do not need to make a finding in this regard because Mr Rosenberg's intention in February 1998 is not the decisive question when one comes to consider Euphoric's intention at the time it executed the Supply Agreement on 18 May 1998. By that time, Mr Hobbs, not Mr Rosenberg, represented the mind of Euphoric so far as concerned this transaction: see e.g. Hamilton v Whitehead (1988) 166 CLR 121, at 127. Mr Hobbs intended that the Agreement should reflect what he himself understood to be the agreement reached by the parties. If Mr Hobbs mistakenly thought that his intention was the same as Mr Rosenberg's intention, that is beside the point. If Mr Magar's evidence of his own understanding of what was agreed and intended by Item 4 is accepted, then his understanding did not coincide with Mr Hobbs' understanding at the time that the Supply Agreement was executed. 55 Ryledar appeals to Mr Hobbs' conduct subsequent to 18 May 1998 in allowing the rebate to all country sites as evidencing an actual intention on his part as at 18 May 1998 that the Supply Agreement should provide such rebate. I do not accept this submission. As the evidence recounted above in relation to Euphoric's claim founded upon mistake makes clear, in allowing the rebate Mr Hobbs was not intending either to implement or to vary the terms of the Supply Agreement: his decision was made without regard to the terms of the Agreement and was concerned solely with fostering the commercial relationship with his customer. 56 For these reasons, I am far from being persuaded to a high degree of satisfaction that when the Supply Agreement was executed on 18 May 1998, both parties had an actual common intention that the 6¢ rebate would apply to sales to all sites outside the Sydney metropolitan area. 57 The next issue is whether the parties had formed the common intention that the 6¢ rebate would apply to all country sites by the time that they came to sign and exchange copies of the letter dated 31 March 1999, which varied the Supply Agreement. As I have said, the terms of Item 4, as varied by that letter, are clear enough that the rebate was not to apply outside the defined area. However, Ryledar relies mainly on a series of facsimiles exchanged between the parties prior to signature of the variation letter as demonstrating that the parties had reached a common intention and that it miscarried in expression in the variation letter. 58 The correspondence begins with a letter dated 11 August 1998, sent to Mr Hobbs about a week after Euphoric had commenced supplying Ryledar at its new location in Wandandian, which was the first site opened by Ryledar outside the rebate area as defined in the original Item 4 of the Supply Agreement. 59 The letter contained the following: "… we need your co-operation on a number of retail business opportunities in areas covered by Item 4 & 5 of the Reference Schedule in our Agreement. As you are aware, the Agreement states clearly the mechanism to adjust the Contractual Rebate for deliveries in areas outside Sydney, Wollongong, Central Coast and Newcastle. A typical example for Coffs Harbour is as follows: Cents per litre Contractual Rebate to Newcastle 6.0 Less Actual Freight to Newcastle 1.5 Plus Actual Freight to Coffs Harbour (3.0) Equals Contractual Rebate to Coffs Harbour 4.5

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Please acknowledge as soon as possible as this matter has been outstanding for about two months." 60 This letter is highly confusing. It says that the Supply Agreement "states clearly the mechanism to adjust the Contractual Rebate for deliveries in areas outside Sydney, Wollongong, Central Coast and Newcastle" , but there was no mechanism in the Supply agreement which "adjusted" the "Contractual Rebate", as properly defined and as applied in accordance with the existing Item 4, in respect of any location outside the specified locations: under the Agreement as it stood, sales to sites outside the specified locations were not entitled to any Contractual Rebate. 61 The letter purports to give an example in respect of a sale to Coffs Harbour. It includes in the calculation a deduction from the List Price of a "Contractual Rebate of 6¢ per litre" to Newcastle, but the Supply Agreement made no provision for a sale to a site outside Newcastle to attract the rebate of 6¢ per litre which was allowable for a sale to Newcastle. 62 The explanation for the confusion is that the letter was drafted by Mr Peter Beckwith, then the General Manager of Ryledar, although it was signed by Mr E. Magar. Mr Beckwith conceded that he did not pay any particular attention to the words of the Supply Agreement or of Item 4 in particular when he drafted the letter but rather set out how he thought the pricing system should operate; he "assumed" that the Contractual Rebate would apply to sales to all sites in country New South Wales although, clearly, Item 4 did not say that and its words could not reasonably provide any foundation for such an assumption. 63 Mr Beckwith suggested that Item 5 in the Reference Schedule, which provided for freight charges, governed the interpretation of Item 4. But Item 4 dealt with a quite different topic, although the two pricing components in Item 4 and 5, rebate and freight charges, could come together to produce a delivered price for Ryledar where there was a sale to a location within the areas defined in Item 4. Mr Beckwith seemed to believe that the Supply Agreement provided - or, rather, ought to have provided - that the Contractual Rebate and the provisions relating to freight charges would always apply to a sale to country location, wherever it was New South Wales: see T273.30-T276.13. 64 I found Mr Beckwith's evidence on this point very unsatisfactory. For example, at first he said that before drafting the letter of 11 August 1998 he read Item 4 of the Supply Agreement and understood the words as meaning that the 6¢ rebate would apply to all sales in New South Wales "with an adjustment for incremental freight" . Later he insisted that the words of Items 4 and 5, which dealt with different topics, had to be read together to produce an interpretation which was simply not available on any fair and reasonable reading of Items 4 and 5 and of the Supply Agreement: T274.27 - T276.13. I shall return to the character and reliability of Mr Beckwith's evidence on this point below. 65 On 14 August 1998, Mr Hobbs responded to Mr Beckwith's letter in the following terms: "The pricing mechanism for areas outside the Metropolitan, Wollongong, Central Coast and Newcastle is also clear. Freight will be charged as per Mobil's Price Book less the freight applicable to Newcastle. This calculation mechanism is based on Mobil's Price Book, hence the reference. An example for Gasoline:

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Over the last few months we have been discussing the applicable rebate for your new site at Wandandian the applicable Freight at this location is 2.5 CPL. We agreed, as a gesture of good faith to use Nowra Freight as the benchmark, which is 1 CPL lower than Wandandian. We also agreed to use Wollongong as the reference point rather than Newcastle, saving .3 CPL for Gasoline and .5 CPL for Diesel. All up the saving to you versus the letter of the Supply Agreement is 1.3 CPL for gasoline." 66 It will be seen that Mr Hobbs took the example which Mr Beckwith had given in the letter of 11 August but arrived a different ultimate deduction from the List Price. Further, it is clear that in this letter Mr Hobbs was concerned with the calculation of freight charges, which was the contentious issue between the parties, as is demonstrated by the correspondence which ensued. 67 On 26 August 1998, Mr Magar replied as follows: "Contrary to your letter of the 14th August, no final agreement had been reached between ourselves on the contractual rebate for Wandandian. Your advice is not consistent with our supply agreement. The Agreement states clearly the freight applicable to Newcastle from Sydney is to be used as the reference freight for all areas outside the designated areas in New South Wales. We would not have included this matter in our letter of the 11th August if this matter had been resolved." 68 It is notable that both in this letter and in the letter of 11 August, Ryledar used the words "Contractual Rebate" as including both the 6¢ rebate allowable under Item 4 and the rebates for freight charges allowable under Item 5. The words "Contractual Rebate" were certainly not used in the strict sense defined in the Supply Agreement. 69 The dispute between the parties as to whether the freight reduction should be book freight or actual freight continued in correspondence dated 22 September, 6 October, 12 November, 2 December and 14 December. At a meeting on 22 December between Messrs Hobbs and Braid, representing Euphoric, and Messrs Eddie Magar and Peter Beckwith representing Ryledar, Mr Hobbs suggested as a compromise to the freight dispute that New South Wales should be split into three zones, south, west and north. In the south the rates applicable to Wollongong freight would be used; in the west the freight charges applicable to Penrith would be used; and in the north the freight charges applicable to Newcastle would be used. Mr Beckwith responded that the idea was worth pursuing and that the zones would need to be defined. The parties agreed to think about the idea. 70 On 13 January 1999, Mr Eddie Magar sent to Mr Hobbs a facsimile which had been drafted by Mr Beckwith, in the following terms: "Further to our meeting on 21/12/98, we have reviewed the three zone proposal to resolve the 'freight issue'. The proposal (refer attachment) put is done on a without prejudice basis. We consider this counter proposal is a fair compromise. As discussed, the agreement signed on the 18th May 1998 remains unchanged until both parties are in full agreement on any proposed changes." 71 The attached proposal described three freight zones (north, west and south) by reference to specified major highways. The proposal then defined three separate "6 CPL Contractual Rebate areas" . Again, they were divided into three zones, north, west and south. The north zone was described as: "All towns between Newcastle, Lithgow and Sydney Metro" . The west zone was described as: "All towns between Lithgow, Moss Vale and Sydney Metro" . The south zone was described as: "All towns between Moss Vale, Wollongong and Sydney Metro" . 72 It is unmistakeably clear from Ryledar's proposed definition of three zones for the 6¢ Contractual Rebate that Ryledar did not believe, at that time, that it was entitled to a Contractual Rebate for sales to country sites throughout the whole of New South Wales. The proposal for three specified zones which would qualify for the 6¢ Contractual Rebate clearly acknowledged that sales to sites outside those specified zones would not be entitled to the rebate. 73 Mr Hobbs responded to this facsimile on the same day. He proposed certain changes to the specified zones for freight charges but said nothing about the proposed zones attracting the 6¢ Contractual Rebate. 74 On 9 February 1999, Mr Magar, in a facsimile drafted by Mr Beckwith, said: "Further to your fax dated 13/1/99 and subsequent telephone calls, we confirm our agreement on the 'freight issue'."

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Under the heading "Reference Schedule Item 4 Contractual Rebate" appeared the words which were included under that heading in the 31 March 1999 variation letter which amended the Supply Agreement. Under the heading "Reference Schedule Item 5 Freight" appeared the words which were reproduced under that heading in the 31 March variation letter. 80 However, the 15 March letter went on to give "typical examples of Ryledar's delivered prices for each Zone" . Those examples did not appear in the 31 March variation letter. The examples given are the same as had been included in Mr Magar's facsimile of 9 February 1999, i.e., Wagga, Queanbeyan and Coffs Harbour. The examples included in each case a deduction from the List Price of the 6¢ rebate although, as I have noted, the three towns were outside the zone for the Contractual Rebate proposed in the amended Item 4. 81 On 31 March 1999, Mr Hobbs sent the proposed letter of variation of the Supply Agreement, including the changes sought by Ryledar to Item 4 of the Reference Schedule but not including in the letter any example of how delivered prices for each zone would be calculated. 82 On 13 April 1999, Mr Magar sent a further facsimile to Mr Hobbs, drafted by Mr Beckwith, requesting that Mr Hobbs confirm that the examples of Ryledar's delivered prices for each zone "are correct as demonstrated in our letter dated 15/3/99" . Mr Hobbs responded by sending by facsimile his letter of 24 February 1999. Mr Magar says that he executed the 31 March 1999 letter of variation shortly after 13 April 1999. 83 Between 13 April 1999 and 6 July 2000, Euphoric applied the 6¢ Contractual Rebate to sales to all Ryledar's country sites which opened during that time, whether those sites appeared within the area defined in Item 4 or not. In his witness statement, Mr Hobbs said that if he had been aware that Euphoric was allowing the 6¢ rebate contrary to the terms of the Supply Agreement he would have reviewed the practice. However, in cross examination, Mr Hobbs conceded that he probably would have continued the practice of allowing the rebate to all of Ryledar's country locations, for commercial reasons. 84 On 6 July 2000, Mr Hobbs' successor, Mr Rodgers, confirmed to Ryledar that from then on Euphoric would not allow the 6¢ rebate for sales outside the area defined in Item 4 of the Supply Agreement, as varied by the 31 March 1999 letter. 85 In support of its contention that by 31 March 1999 the parties had arrived at a common intention that the 6¢ rebate would apply to sales to all of Ryledar's country locations throughout New South Wales, Ryledar relies heavily upon the worked examples of pricing which appeared in the correspondence between the parties leading up to the variation letter, some of those examples emanating from Mr Hobbs. 86 The great difficulty with this submission is that those examples are manifestly at odds with the clear wording of revised Item 4 of the Reference Schedule, which Ryledar itself had put forward. If it had really been the intention of Ryledar to propose that the 6¢ rebate be allowable for sales to all its country locations in New South Wales, nothing would have been simpler than to say so in those very words. Instead, a carefully demarcated rebate zone was proposed in amended Item 4, a quick reading of which would have left the reader in no doubt that the rebate would be applicable to sales within that zone and not otherwise. 87 One possible explanation for the discrepancy between the worked examples and the words of the amended Item 4 is that Ryledar suspected that, if it asked outright that the 6¢ rebate be applied to all of its country locations, Euphoric would refuse; Ryledar therefore disingenuously included in its correspondence pricing examples showing the rebate as allowed to sales outside the defined area, hoping thereby to gain Euphoric's unwitting acceptance of the examples and, consequently, a basis for arguing later that Euphoric had agreed to allow the rebate throughout New South Wales, notwithstanding the wording of Item 4. 88 This suggestion was put directly to Mr Beckwith, who was the author of Ryledar's relevant correspondence with Euphoric, commencing with the letter of 11 August 1998. Mr Beckwith denied the suggestion. However, as I shall explain, I did not find at all convincing his explanation as to why he had thought it necessary to seek Mr Hobbs' confirmation of pricing examples pursuant to an agreement which, he said, was quite clear in its meaning. 89 Mr Beckwith said that the Supply Agreement, prior to the amendment by the March 1999 letter, was clear in its terms that the 6¢ rebate applied to sales at all Ryledar sites throughout country New South Wales. However, he said that in drafting the letter of 11 August setting out pricing examples showing the 6¢ rebate as applied to sales outside the areas defined in Item 4, he wanted to gain Mr Hobbs' confirmation that the rebate applied throughout New South Wales as a matter of "professional wisdom … it is just one of those things as being part of the commercial world" . 90 Mr Beckwith was then taken to the words which he had drafted under the heading "6 CPL Contractual Rebate Areas" in the proposal sent to Mr Hobbs by Ryledar under cover of its facsimile of 13 January 1999. Mr Beckwith gave this evidence: "Q: In paragraph 2 of the document on page 3.222 [should read 2.332] you specifically defined the areas in which the contractual rebate would apply, didn't you? A: If you read it as per the original agreement, that is true but that is not what the understanding was."

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Q. Mostly, well, what else? A. The mechanism, we wanted to make sure the mechanism worked all right which is in the agreement which was number 4 and 5 altogether." 93 Why Mr Magar would want to confirm the freight to Newcastle by taking as an example a sale to Coffs Harbour when Ryledar then had no site at Coffs Harbour is very curious. Almost in the same breath, Mr Magar said that he did not know why Coffs Harbour was selected as an example in the letter, that Coffs Harbour was selected because Ryledar was looking at acquiring a site there and, finally, that he did not know why Coffs Harbour was selected: T203.33 - T204.4. 94 It was put directly to Mr Magar that in sending the 11 August letter Ryledar was trying to get an inadvertent concession from Mr Hobbs about the application of the Contractual Rebate notwithstanding the terms of the Supply Agreement. Mr Magar denied the suggestion. In the light of the unsatisfactory nature of Mr Magar's evidence on this topic, as well as the unsatisfactory character of his evidence generally, I cannot accept his denial with any assurance. 95 I can by no means dismiss as a real possibility that Ryledar deliberately set out to engineer, in its correspondence giving pricing examples, a state of confusion, at the least, in which it could argue later that Euphoric had agreed to allow the 6¢ rebate for sales to its sites in country New South Wales, wherever located, notwithstanding the clear words of Item 4 of the Supply Agreement. 96 On the other hand, I do not find any great difficulty in accepting Mr Hobbs' evidence that he regarded freight charges, not applicability of the 6¢ rebate, as the significant issue in the discussions between the parties leading up to the March variation letter and that he focused on that issue and gave no particular attention to the mention in the pricing examples of the 6¢ rebate. I do not regard as inherently improbable Mr Hobbs' evidence that in commenting upon Ryledar's pricing examples and in working out his own examples he included the 6¢ rebate without paying any regard to whether the locations were within the area defined in Item 4 of the Supply Agreement. 97 Ryledar also places strong reliance on the fact that from 13 April 1999 onwards Euphoric allowed the 6¢ rebate for sales to country locations outside the zone defined in Item 4 of the Supply Agreement. However, as I have noted, this circumstance does not lead to the inevitable conclusion that the parties had a common intention as at 13 April 1999 as to what the Supply Agreement should provide: it is explicable as evidencing the attitude which Mr Hobbs took to keeping Ryledar, a growing customer, happy in terms of pricing inducements, regardless of what the Supply Agreement said about entitlement to the Contractual Rebate. 98 In order to succeed in its defence of the rectification claim, Euphoric does not have to prove that Ryledar set out to trick it by seeking its confirmation of pricing examples which included rebates not allowable under the Supply Agreement. Euphoric will succeed in its defence if Ryledar cannot provide convincing proof, i.e. proof to a high degree of satisfaction, that notwithstanding the clear and unambiguous language of Item 4 of the Supply Agreement, as amended by the March variation letter, and as drafted by sophisticated commercial parties highly experienced in the industry, both parties actually intended the opposite of what they had said. 99 I am far from convinced that Ryledar has proved its rectification claim. I regard as improbable the suggestion that Ryledar itself put forward wording for the amended Item 4 which was directly contrary to what it believed to be the actual agreement of the parties. I regard the pricing examples used in the correspondence between the parties prior to March 1999 as confused and confusing in so far as they bear upon the parties' intention as to Ryledar's entitlement to the 6¢ rebate. I regard that confusion as introduced principally by the terms of Ryledar's letter of 11 August 1998. I do not find Euphoric's allowance of the 6¢ rebate to all locations after 13 April 1999 to be unequivocal evidence of a common intention as at that date that that entitlement be a term of the Supply Agreement rather than a commercial inducement or bonus which Euphoric, through Mr Hobbs, was prepared to proffer to keep Ryledar, as a substantial customer, happy. 100 For these reasons, I am not satisfied that as at the time of the parties' execution of the March 1999 variation letter, the parties had the common intention for which Ryledar contends. Accordingly, Ryledar's claim for rectification of the Supply Agreement fails.

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Mr Eddie Magar signed the 31 March 1999 letter varying the Supply Agreement. 106 I do not accept this submission, for the following reasons. 107 First, if the evidence of Mr Eddie Magar and Mr Beckwith is to be accepted, Ryledar firmly believed from 18 May 1998 onwards that the Supply Agreement, in its original form and on its true construction, entitled Ryledar to the 6¢ rebate for all country locations. This belief, if it was in truth held by Ryledar, could not have been induced by Mr Hobbs' letter of 14 August 1998. 108 Second, Ryledar, or more correctly, an associated company Azkanaad Pty Ltd, opened the first country site outside the locations identified in Item 4 of the Supply Agreement in July 1998, before Mr Beckwith wrote the 11 August 1998 letter and Ryledar had received Mr Hobbs' reply on 14 August. 109 Third, it was clear from the exchange of correspondence commencing on 11 August 1998 that the parties were endeavouring to negotiate variations to the Supply Agreement which, if agreed, would have to be formally documented. Ryledar well knew that Clause 15.1 of the Supply Agreement required any variation to be in writing signed by both parties in order to be effective, as it reminded Ryledar on occasion. I do not accept that Ryledar believed that Mr Hobbs' letter, which in certain respects did not accept the examples given in the 11 August letter, represented that, if the Supply Agreement in its original form did not entitle Ryledar to the 6¢ rebate for all country sales, then the Agreement, by virtue of the 14 August letter, was varied so as to confer that entitlement. Neither do I accept that Ryledar believed Mr Hobbs' letter contained a representation that the variations to the Supply Agreement, when finally agreed and confirmed according to Clause 15.1, would confer such an entitlement. 110 Fourth, on 15 March 1999, Ryledar sent to Euphoric a proposal for amendments to the Supply Agreement which defined the zone within which sales would attract the 6¢ Contractual Rebate. The wording of the proposal was totally inconsistent with a belief on the part of Ryledar at that time either that the Supply Agreement in its original form already entitled Ryledar to the 6¢ rebate throughout New South Wales or else that the variation proposed would confer that entitlement. 111 The wording of Ryledar's proposal was reproduced in the 31 March 1999 letter of variation. There is no evidence that at any time before 13 May 1999, when Ryledar signed the March variation letter, Euphoric said to Ryledar anything to the effect: "Don't worry about the clear terms of Item 4 of the Supply Agreement - the Supply Agreement really does entitle you to the 6¢ rebate throughout New South Wales" . 112 In short, I am not satisfied that by the time Ryledar came to sign the variation letter Euphoric had represented to it anything more than that it was prepared to vary the Supply Agreement on the terms expressly set out in the 31 March 1999 letter and that those terms contained the true agreement of the parties. 113 The second submission is that there was a representation by Euphoric's conduct after 13 May 1999 in allowing the 6¢ rebate for sales outside the area designated in Item 4 that it was a term of the Supply Agreement that Ryledar was entitled to such rebate. I do not accept that submission. The allowance was capable of being seen as a commercial benefit or inducement, over and above the terms of the Supply Agreement, which Euphoric was prepared to extend to Ryledar to keep it happy. This was, of course, in fact the case. 114 Euphoric did or said nothing after 13 May 1999 which represented that its conduct in allowing the rebate was pursuant to a contractual obligation. In the face of the clear terms of Item 4 of the Supply Agreement, it would be manifestly unreasonable for Ryledar to construe the rebate concession as representing a contractual variation of the Supply Agreement, particularly as it had earlier reminded Euphoric that variations to the Supply Agreement were required by Clause 15.1 to be in writing and signed by the parties. 115 For these reasons, I am not satisfied that Euphoric made the representation as alleged. Ryledar's claim founded on misrepresentation therefore fails at the threshold.

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130 Ryledar points to the fact that certain of the "inputs" to the calculation of the intervention price shown in the 16 January 1995 document, namely spot price, wharfage, insurance and loss, are expressed in cents per litre. The evidence of Mr Beckwith was that in respect of these "inputs", volume was measured in litres adjusted at 15ºC. The evidence of Mr Beckwith in this regard was confirmed by Mr G. Asher, an expert who had worked for the Prices Surveillance Authority and then for the ACCC. Mr Asher first gave an affidavit on behalf of Ryledar; subsequently he gave an affidavit on behalf of Euphoric. Mr Asher was not cross examined. 131 Mr Beckwith went on to give evidence that the ACCC intervention price was measured on the basis of volume converted or adjusted at 15ºC. Ryledar says, therefore, that when the Supply Agreement required the price of petroleum products sold to Ryledar to be determined by reference to the ACCC maximum list pricing mechanism, it required the price per litre to be determined as a price per litre measured on the basis of volume adjusted at 15ºC. 132 Mr Beckwith's evidence that the ACCC intervention price was measured on the basis of volume adjusted at 15ºC was plainly wrong. 133 Mr Asher, whose evidence I accept without reservation, explained the true position thus: "Although the PSA intervention formulae … used some information that was expressed to be volume adjusted to 15ºC neither the PSA intervention price nor the endorsed wholesale price (explained … below) were expressed as temperature adjusted to 15ºC (or any other specific temperature)." 134 Mr Asher then referred to an enquiry which the ACCC had undertaken into the petroleum products industry in 1996 and to part of its report, which he annexed to his affidavit. Pertinent parts of the report are as follows: " Temperature correction of petrol sales Petrol expands as temperature rises. International trade, transfers between domestic oil majors and excise duty payments are made on a volume corrected basis at the international reference temperature of 15ºC. Singapore spot product prices reported by Platts assume sales on a corrected basis.

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"in any case, in circumstances where Euphoric, in breach of its own contractual obligation, has failed to measure and prove what the volume was at delivery, the Court should apply the 15ºC volume measurement standard" : Ryledar's written submissions, 11 November 2004, para 133. 137 I am unable to accept the submission that, as a matter of construction of Clause 5.4, Euphoric was required to measure volumes sold at the point of delivery. All that Clause 5.4 provides is that title and risk to whatever quantity of petroleum is delivered passes at the point of delivery: it says nothing about the measurement of the petroleum products to which the title and risk is to pass or where that measurement is to take place. 138 In any event, I could not be satisfied on the evidence that during the whole of the time that Euphoric supplied petroleum products to Ryledar, the ambient temperatures at the points of loading were higher than the temperatures at the points of delivery, so that Ryledar always paid for a larger volume of petroleum than it actually received. There is no evidence which would sufficiently support the conclusion that that happened even in one particular case, let alone in all or in the majority of cases. The only evidence upon which Ryledar relies in this regard is paragraphs 39 and 40 of a statement of Mr P. McCullagh, which recount his experiences as an officer of BP in Melbourne from 1987 to February 1988 in such generality as to carry no weight in the proof of the critical issue in this case. 139 It could well have happened in some cases that, by reason of contraction during transportation, Ryledar paid for a larger volume of petroleum than it actually received. Equally, in other case, it could well have happened that the ambient temperatures at the point of loading were lower than the temperatures at the point of delivery, so that Ryledar received a larger volume of petroleum than it had actually paid for. As I have said, the evidence does not enable me to draw any inference as to whether, on the whole, Euphoric or Ryledar did better from the fluctuations in volume of petroleum products sold under the Supply Agreement. 140 I do not accept that, in light of the fact that petroleum products inherently have a high coefficient of expansion, it is necessary in order to give business efficacy to the Supply Agreement to imply a term that volumes sold are to be measured at the point of delivery. Such a term could hardly be so obvious as to go without saying. The very debate about measurement in the sale of petroleum products in this case has been going on in the wholesale and retail petroleum industry for a long time, both overseas and in this country, without resolution: see Appendix U to the 1996 ACCC report - "Temperature correction of petrol sales" , Annexure A to Mr Asher's affidavit, 8 November 2004; Esso Petroleum Co Ltd v Addison [2003] EWHC 1730 (Comm); Caltex Petroleum Pty Ltd v Flomad Pty Ltd [2003] FCA 648. If the hypothetical bystander at the time of execution of the Supply Agreement had asked the parties whether it was understood that petroleum sold was to be measured at point of delivery rather than at point of loading, to avoid the effects of volume contraction during transport, I have no doubt that each of the parties would have given a different answer. 141 In my opinion, the answer to the issue of volume contraction is suggested by s.33(1) of the Sale of Goods Act 1923 (NSW) which provides: " Delivery of wrong quantity or mixed goods (1) Where the seller delivers to the buyer a quantity of goods less than the seller contracted to sell, the buyer may reject them, but if the buyer accepts the goods so delivered the buyer must pay for them at the contract rate." 142 Under this section, it was open to Ryledar to measure the volume of petroleum delivered in each case against the volume ordered. If the measurement showed that the volume delivered was less than the volume ordered, Ryledar could reject the delivery. Alternatively, it could accept the volume delivered and pay at the contract rate but then it would bear the onus of showing that the volume delivered was not the volume ordered and loaded: see e.g. Canberra Washed Sand Pty Ltd v Ro-Mix Concrete Pty Ltd (1976) 11 ACTR 1, at 7-8. Ryledar has uniformly accepted the volumes delivered by Euphoric but it has not even attempted to discharge the onus of showing that any one of these volumes was less than the volume ordered and loaded. 143 Another answer is suggested by s.36 of the Sale of Goods Act which provides: " Risk where goods are delivered at distant place Where the seller of goods agrees to deliver them at the seller's own risk at a place other than that where they are when sold, the buyer must nevertheless, unless otherwise agreed, take any risk of deterioration in the goods necessarily incident to the course of transit." 144 Prof. K. Sutton says of this section in "The Laws of Australia" , Sale of Goods, Chapter 4, para 27: "Deterioration which is natural to the class of goods sold, or necessarily incidental to such storage or transit as the contract contemplates, is (agreement apart) something which the buyer must accept: while deterioration attributable to inherent faults or unusual characteristics in the goods calls primarily for consideration of the question whether the condition or quality of the goods has been warranted and the period or point of time to which such warranty relates." 145 "To deteriorate" means "to grow worse in character; to become lowered or impaired in quality or value ; to degenerate" : Oxford English Dictionary . I think that, from a purchaser's viewpoint, it is legitimate to say that a tanker load of petroleum which it has purchased has "deteriorated" during transport because it has contracted to a smaller volume than that paid for and is therefore is of less value to it than when it was loaded at the refinery. 146 However, I do not think it essential that this case fit squarely into the words of s.36 Sale of Goods Act . In my opinion, the section states a general proposition of law as to how risk of deterioration inherent in the nature of the goods or in the nature of their transportation is to be borne, which may be applied by analogy in the present case. 147 Here, Euphoric, having sold the petroleum, agreed by Clause 5.1 and 5.2 to deliver it to Ryledar's sites. By Clause 5.4, the delivery was to be at Euphoric's own risk. However, as both buyer and seller well knew, there was a risk but not a certainty, inherent in the very nature of petroleum products, that there would be contraction in the volumes to be delivered due to variations in temperature necessarily incident to the course of transit. The Supply Agreement does not expressly or implicitly provide which of the seller or buyer is to bear that risk. Consistently with the policy evinced in s.36 Sale of Goods Act , it should be the buyer who bears the risk. Correspondingly, if there was an expansion in the volume delivered to the buyer between the time of loading and the time of delivery, then it should be the buyer who gains the benefit. 148 For these reasons, I conclude that Ryledar's contraction claim fails. It follows that the sum of $1,233,900.75, ascertained by the Referee as the value of this claim, cannot be deducted from the sum owing by Ryledar to Euphoric for the sale of petroleum products under the Supply Agreement. $100,000 CHARGE TO LOAN ACCOUNT

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162 I accept the Referee's conclusion, and Euphoric's submission, that the charge of $100,000 was debited to the loan account on 1 November 1999 merely to reflect the reconciliation of accounts which had been agreed between the parties. 163 The agreed reconciliation constituted an admission by Ryledar that it was indebted to Euphoric in the stated amount. It was at liberty to show in the reference that its admission was wrong as to the whole of the amount - i.e. that, in fact, it owed nothing on the loan account. Alternatively, it could have shown that its admission was partly wrong in that it owed Euphoric less than the amount agreed in the reconciliation. Ryledar chose to adopt the latter course in the reference. Before me, it has not endeavoured to show that there is any other error in the loan account amount. 164 I do not think that Ryledar, having agreed to a reconciliation of accounts in October 1999 and having undertaken to show in the reference that only part of the reconciliation was wrong, can now take the position before me that the reconciliation counts for nothing as an admission and that Euphoric must prove every item for which it claims payment as reflected in the loan account. In my opinion, Ryledar is bound by its admission as to the reconciliation and by the course which it took before the Referee in endeavouring to show that only part of the reconciliation amount was not owing. 165 I do not accept the evidence of Mr Eddie Magar that he agreed to the reconciliation of accounts in his letter of 13 October 1999 because he believed that he did not have time to check the figures and was concerned about a threat by Euphoric to cut supply. As I have said, the reconciliation exercise had been going on between the parties for a long time. Euphoric had been endeavouring to set up regular meetings between the parties to reconcile the accounts. The tone of its correspondence was co-operative, not threatening: see e.g. the letter from Mr Hobbs to Mr Bill Magar dated 27 August 1999. There was no "threat to cut supply" in Mr Hobbs' letter of 11 October 1999 unless the reconciliation was agreed within a specified time. 166 Mr Eddie Magar said that when he received Mr Hobbs' letter of 11 October 1999 he relied on what Mr Hobbs told him about the figures in agreeing to the reconciliation: witness statement 7 April 2003, paragraph 412. I reject this evidence as untruthful. The evidence as a whole leaves not the slightest doubt that throughout the whole of Ryledar's relationship with Euphoric it did not accept any invoice from Euphoric, or any account, without query and it very frequently disputed claims for payment. I regard it as improbable in the extreme that, when asked to agree to the reconciliation set out in Mr Hobbs' letter after so much discussion had taken place, Mr Eddie Magar took Mr Hobbs' figure on trust and felt cowed into agreeing with it. 167 Both Mr Magar and Mr Beckwith are forceful and assertive people, as the tone of their correspondence and their evidence before me demonstrate. I regard Mr Eddie Magar's suggestion that he took Mr Hobbs' reconciliation figure on trust and that he was somehow pressured into accepting it as indicating that he is generally prepared to give untrue evidence when he thinks that it will advance his case. 168 In short, I do not accept that Ryledar agreed to the reconciliation of accounts without fully appreciating the consequences. 169 Accordingly, Ryledar fails in its contention that the $100,000 charge to the loan account is unjustified. RYLEDAR'S CROSS CLAIM

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190 Ryledar submits that, even it was otherwise in default in payment of overdue amounts as at 17 November 2000, nevertheless any obligation to pay those amounts was suspended so that it was not in breach of the Supply Agreement as at that date and its exercise of the option was valid. 191 Ryledar submits that because Euphoric wrongfully repudiated the Supply Agreement on 4 October 2000 by refusing to acknowledge the validity of Ryledar's exercise of the option, Ryledar was thereupon absolved from the obligation of paying for petroleum products previously sold and delivered to it. 192 Ryledar relies upon the following statement by Brennan J in Foran v Wight (1989) 168 CLR 385, at 428: "… where a party repudiates, the non-repudiating party, who does not accept the repudiation and affirms the continued existence of the contract, is thereby absolved from tendering further performance under the contract while the repudiatory attitude is maintained." 193 I am unable to accept this submission, even if I were to accept that Euphoric's letter of 4 October 2000 constituted a repudiation of the Supply Agreement. I note, first, that the proposition stated by Brennan J was not endorsed by the other members of the High Court in Foran v Wight and has been rejected by the House of Lords in Fercometal SARL v Mediterranean Shipping Co SA [1989] AC 788; it is yet to be established as good law in Australia. 194 However, even if the proposition is good law, nevertheless it applies only where a contract is still executory, i.e. both parties have still to perform their promises. In such a case, if one party repudiates, refusing to perform its promise, the innocent party will not be liable for failing to tender performance of its own promise. 195 So, for example, in Peter Turnbull & Co Pty Ltd v Mundus Trading Co (A'asia) Pty Ltd (1954) 90 CLR 235, a contract for sale of goods required the buyers to nominate a vessel for transportation of the goods by a certain date. Before the nomination was made, the sellers repudiated the contract. The buyers did not accept the repudiation but, because of the sellers' repudiation, they did not nominate a vessel by the time required. They then brought an action against the sellers for damages. 196 The sellers' defence was that the buyers had breached a condition of the contract by failing to nominate the vessel. A majority of the High Court held that the buyers were entitled to succeed because the sellers' repudiation had dispensed with the buyers' obligation to nominate the vessel. 197 Again, in Foran v Wight the vendors of land advised the purchasers that they were unable to settle the contract. Consequently, the purchasers did not attend and tender settlement at the time stipulated, time having been made of the essence. The vendors then sought to treat the purchasers' failure to tender settlement as the breach of an essential time stipulation. 198 The High Court held that the purchasers were not in breach in failing to tender settlement because of the prior repudiation by the vendors. 199 Peter Turnbull and Foran are cases in which the contract was entirely executory because both parties had yet to perform their promises by the time that the repudiation had occurred. It is clear that Brennan J did not intend the proposition which he enunciated to be read as applying to the case where a contract is executed by the full performance of one party's promise before repudiation takes place and all that remains is for the other party to provide the consideration promised in return. It is well settled that when a contract is repudiated by one party and the other party accepts the repudiation and terminates, the termination does not discharge the liabilities under the contract of the parties which have accrued and become unconditional prior to the termination; either party may sue to enforce such accrued liabilities, even the repudiating party: see generally McDonald v Dennys Lascelles Ltd (1933) 48 CLR 457, at 477; Ettridge v Vermin Board of the District of Murat Bay [1928] SASR 124, at 128; Hyundai Heavy Industries Co Ltd v Papadopoulos (1980) 1 WLR 1129, at 1136. 200 In the present case, Euphoric was a seller under a contract for the continuing supply of goods. By 17 November 2000, it had on numerous occasions fully performed its promise to sell and deliver certain goods ordered by Ryledar. Upon sale and delivery in accordance with Ryledar's orders, Ryledar's obligation to make payment for the goods had accrued and had become unconditional. If Euphoric repudiated the Supply Agreement by saying that it would no longer supply goods to Ryledar upon the terms of that Agreement and if Ryledar had accepted that repudiation and had terminated the Supply Agreement, Ryledar would have been absolved from its obligation to continue placing orders with Euphoric under the Supply Agreement but it would not have been absolved from its obligation to pay for the goods sold and delivered prior to termination. Ryledar's position at 17 November could be no stronger, when it had not yet accepted Euphoric's alleged repudiation and had not terminated the Supply Agreement.

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205 Ryledar submits that from the amount of $3,692,458.73 found by the Referee to be overdue to Euphoric as at 17 November 2000 there must be deducted an amount of $3,820,404. If that deduction were allowed the consequence would be that as at 17 November 2000 Ryledar was not indebted to Euphoric at all. 206 Ryledar's case is that the sum of $3,820,404 is the total owing in respect of deliveries of petroleum products made to Ryledar in April and May 2000 - for convenience, the deliveries for those months are referred to as "the May 2000 deliveries". However, Ryledar says that on or about 5 May 2000 an oral agreement was made between Mr Nabil ("Bill") Magar on behalf of Ryledar and Mr R. Parthasarathy (then Senior Accountant of the Plaintiff) that until journals (as distinct from invoices) for the April and May deliveries were provided by Euphoric to Ryledar no debt would arise on the part of Ryledar in respect of those deliveries and, further, sums paid on account by Ryledar during May would be treated simply as a credit to Ryledar. Ryledar alleges in the alternative that Euphoric is estopped from denying such an agreement. 207 Euphoric denies that such an agreement was made. 208 It is not in dispute that between 10 May 2000 and 9 June 2000 Ryledar made payments to Euphoric, not attributable to specific invoices, totalling $5,675,000. 209 On or about 9 June 2000, Mr Parthasarathy and Mr Bill Magar reconciled disputed items in respect of May deliveries and agreed to set off an amount of $1,780,935.88 from the amounts paid by Ryledar against those deliveries. Due to difficulties encountered by Euphoric when it changed its accounting system, no further journals for the May 2000 period were provided by Euphoric to Ryledar prior to 17 November 2000 although delivery dockets had been provided when the deliveries were originally made. 210 If Ryledar is correct in its submissions, there cannot be taken into account at all in calculating what was owing by Ryledar to Euphoric as at 17 November 2000 the amount of $3,820,404 which was ascertained at the Reference as being the balance owed in respect of the May deliveries. Further, there has to be set off against any other debt owing by Ryledar to Euphoric as at 17 November a credit for an amount in excess of $3,800,000 being the balance of the payments on account made by Ryledar which it says were to be held by Euphoric on credit. 211 In his third witness statement dated 30 May 2003 (para 49), Mr Bill Magar said that in early May 2000 Euphoric commenced using a new accounting system known as SAP. He continues: "I had been told by Partha Sarathy in about May 2000 words to the effect that 'we are implementing a new SAP system and that we will not be able to provide Journals to you when this is happening'. Mr Sarathy then said words to the effect 'will you pay round figures on account and I will supply you proper Journals, a full set for the May period and then we reconcile the account'." 212 It will be noted that in this account of the discussion, Mr Magar does not say that Mr Parthasarathy agreed that the invoices for the May deliveries would not be due and payable until journals were received or that the amounts paid on account by Ryledar would be retained in credit until the journals were delivered. What Mr Magar alleges is simply an agreement that Ryledar will pay for the deliveries on account and that there will be a reconciliation when the journals become available. This accords with the evidence of Mr Parthasarathy, to which I will come shortly. 213 However, in a witness statement dated 7 December 2004 (paragraph 12), Mr Magar amplified the evidence of his discussion with Mr Parthasarathy. In doing so, he changed the evidence which he had previously given in a critical respect. He said: "I recall in about May 2000 I was at the office of Ryledar and I received a telephone call from Mr Partha Sarathy from Euphoric. Mr Sarathy was the senior accountant in charge of the Ryledar account at Euphoric. We had a conversation to the following effect:

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The statements underlined are the critical additions made in Mr Magar's evidence, upon which Ryledar now relies. 214 In his witness statement, Mr Parthasarathy denied making the critical statements attributed to him by Mr Bill Magar in his second witness statement. He said that in his discussions with Mr Magar he may have said that, because journals were not available for the first few weeks in May, Ryledar had to pay a figure which Euphoric calculated would be the value of the deliveries. He denied agreeing that Ryledar itself could estimate what this amount would be. Mr Parthasarathy agreed that he may have told Mr Magar that after the journals for the May deliveries had been sent to Ryledar Euphoric would carry out a reconciliation of the deliveries with the amounts paid by Ryledar on account. He agreed that he may have told Mr Magar that Euphoric would not "chase him for the difference between what he had paid and what had been delivered until after our reconciliation was completed" . Mr Parthasarathy denied, however, ever saying that Ryledar did not have to pay for any of the fuel that was sent until after it received a journal for those deliveries. 215 In cross examination Mr Parthasarathy frankly conceded that, after a lapse of some five years, his recollection of his conversations with Mr Bill Magar in May 2000 was poor. Many statements put to him were met with the response that he could not recollect. This is quite understandable. However, Mr Parthasarathy would not agree to the suggestion that it was likely that he had told Mr Magar "deliveries of fuel for May 2000 won't be due or payable until you get the journals" . He said that his belief was that payment was due when deliveries of petroleum were made: Transcript 13 October 2005, T104.20 - .43, T105.7 - .14. 216 Likewise, Mr Parthasarathy did not agree that he told Mr Magar that Ryledar's account would be in credit, notwithstanding the May deliveries not yet paid for, until the journals had been delivered. He said that payments made by Ryledar, and sales made by Euphoric, would be credited and debited to Ryledar's account in the normal way: Transcript 13 October 2005, T103.20 - .45. 217 The state of Mr Parthasarathy's recollection opened the way for a submission by Mr Biscoe that I should accept the clear and precise evidence of Mr Bill Magar as to the critical conversations. However, I would not be obliged to accept Mr Magar's evidence, even if it were unchallenged, if I were of the view that the evidence was inherently improbable or that there were circumstances casting doubt on its accuracy. 218 I decline to accept Mr Bill Magar's evidence as to the existence of an agreement in the terms which he alleges, for the following reasons. 219 First, the alleged term that no money at all for the May deliveries would be payable by Ryledar until journals (as distinct from invoices and delivery dockets) were delivered is inherently uncommercial and improbable. Very large sums of money were involved in these transactions and it seems contrary to commercial common sense that Euphoric would agree that the debts arising should be left outstanding for an indefinite time, even if the parties then believed it would probably be a matter of weeks. Likewise, it is inherently uncommercial and improbable that payments made in respect of the May deliveries by Ryledar on account during May and June 2000 would not be credited to its account for the supply of petroleum products but would be kept in some sort of suspense account for an indefinite time. 220 On the other hand, the account of the discussions between Mr Bill Magar and Mr Parthasarathy in May 2000 which was given in Mr Magar's first witness statement is simply that there was the sort of agreement one would reasonably expect in the situation in which the parties found themselves: Ryledar would pay regular amounts on account for the May deliveries and, when the journals became available so that more precise vouching could be made, there would be a reconciliation and either Ryledar would pay the shortfall or Euphoric would refund the overpayment. 221 This was the agreement which Mr Parthasarathy said was made. It was also the agreement which Mr Bill Magar ultimately assented to in cross examination: Transcript 11 October 2005, T58.11 - 60.7. Mr Magar gave no reason why the uncommercial and rather bizarre terms of the agreement, as he alleges them, should have been made by the parties. 222 Second, Mr Magar gave no satisfactory explanation why two different versions of the agreement had appeared in his witness statements. He was taken to the witness statement in which he had given the first version, which said nothing about the critical terms which he added in the second version. He then gave this evidence: "Q. And I take it that when you prepared your affidavit of 30 May 2003 you were attempting to record your best recollection of this conversation that you'd had with Mr Sarathy? A. Yes.

[167]

Q. You say that as at 30 May 2003 you could in fact recall more of the conversation with Mr Sarathy but you chose not to put it into your affidavit? A. I record the whole thing. At that time I was discussing my statement with Paul Venis, my solicitor and the agreement with Parthasarathy at that stage, as I understood from Paul, was not relevant because at this time we were dealing with a different date. We were dealing with the termination date. And at that time also Paul misunderstood that we received the full number of journals by then. He didn't even know we received part of the journals so he said to me if you received the journals - this is after the event it's not relevant, so we didn't put it here because at that time - it wasn't relevant at that stage but perhaps I should have put it in." 223 This explanation was confused and was entirely unconvincing. Paragraphs 47 to 51 of Mr Magar's statement of 30 May 2003 deals with the very question of the May 2000 deliveries and Ryledar's liabilities in relation thereto. If there had been an agreement between Euphoric and Ryledar in the terms given in Mr Magar's second version of the discussion, it would have been important and highly relevant to recount it in the earlier witness statement. 224 Third, if the agreement between Mr Magar and Mr Parthasarathy in May 2000 contained the unusual terms which Mr Magar alleges, one would expect to see some diary note or some reference to it in the argumentative correspondence which Ryledar was sending to Euphoric over accounting issues. There is none. 225 For these reasons, I am not satisfied that an agreement as to the May 2000 deliveries was made in the terms which Mr Bill Magar alleges. There is no evidence of any representation by Euphoric, either by words or conduct, which would support an estoppel preventing it from denying the existence of such an agreement. 226 Ryledar fails in its claim that there should be a deduction of $3,820,404 from the amount found by the Referee as overdue to Euphoric as at 17 November 2000.

[178]

without in any way limiting Euphoric's other Rights." 228 Euphoric submits that on the true construction of Clauses 2.6 and 2.9 of the Supply Agreement the credit facility created by Clause 2.9 refers to the credit facility provided by Clause 2.6 so that credit which may be given during the nine day period for payment contemplated by Clause 2.6 is capped at $1.8M. In other words, Euphoric submits that there is only one credit facility provided by the Supply Agreement: Clause 2.6 regulates the time during which credit is to be extended, i.e., a maximum of nine days, and Clause 2.9 limits the amount of the credit facility to $1.8M. 229 Ryledar submits that there are two credit facilities provided by the Supply Agreement: there is a nine day credit period for payment provided by Clause 2.6 which is unlimited in amount although limited in time. There is in addition a rolling credit facility of $1.8M provided by Clause 2.9. 230 If Euphoric's contention is correct then the maximum which can be deducted from the amount otherwise owing by Ryledar as at 17 November 2000 is $1,922,635.34 which is the amount of credit available only in respect of the nine day period for payment provided by Clause 2.6 of the Supply Agreement. This deduction of $1.9M has already been made by the Referee in calculating the balance owing by Ryledar as at 17 November of $3,692,548.73: see Referee's Report para 42. 231 If Ryledar's contention is correct and there are two credit facilities available under the Supply Agreement then, in addition to the $1.9M credit provided by Clause 2.6, there has to be deducted the additional sum of $1.8M. 232 In my opinion, Ryledar's construction of the Supply Agreement is the correct one. Clause 2.10 of the Supply Agreement provides that the credit facility pursuant to Clause 2.9 can be withdrawn in certain circumstances by Euphoric. If the credit facility provided by Clause 2.9 is withdrawn it would seem that the provisions of Clause 2.6 still operate. If Euphoric's construction is correct, that would mean that there would still be a credit facility for a period of nine days under Clause 2.6 but it would be unlimited in amount because, according to Euphoric's construction, the function of Clause 2.9 is to limit the amount of credit which is available under Clause 2.6. 233 It does not seem to make any commercial sense to provide that Euphoric can, for unsatisfactory credit performance by Ryledar, revoke under Clause 2.10 the very provision in the Supply Agreement which, according to Euphoric, limits the credit facility available under Clause 2.6. The result would be that because of its unsatisfactory credit performance, Ryledar would get a nine day credit facility under Clause 2.6 which was unlimited in amount whereas, as long as it was performing its credit obligations satisfactorily, it would have the same nine day credit period but for an amount which was limited to $1.8M. 234 It seems to me that clause 2.9 provides a credit facility which is quite separate and distinct from the credit facility provided by clause 2.6 and that second credit facility is liable to be withdrawn under clause 2.10 if Ryledar does not perform its credit obligations satisfactorily under the terms of clause 2.9. 235 The effect of this construction is that Ryledar is entitled to deduct from the amount of $3.6M owing as at 17 November 2000 the sum of $1.8M under its credit facility. However, this conclusion makes no difference to the ultimate result of Ryledar's Cross Claim: it reduces but does not extinguish the amount overdue for payment to Euphoric by Ryledar as at 17 November 2000. Ryledar was in breach of the Supply Agreement in failing to pay the reduced amount.

[180]

237 The Referee's Report of 31 March 2005 (paragraph 27), in calculating amounts outstanding to Euphoric as at 17 November 2000, includes an item described as "Code 4 as alleged by Ryledar - $407,967.11" . "Code 4" was a term adopted by the parties to apply to invoices for the supply of petroleum products which were incorrect with respect either to location of the delivery or as to the date of delivery. 238 Ryledar says that although it does not dispute that the sum of $407,967 is owing to Euphoric, default in the payment of that sum as at 17 November 2000 cannot be a breach of the Supply Agreement because, as at that date, it was not possible for Ryledar to vouch the accuracy of its calculation by reference to correct invoices. 239 I do not accept this submission. As the Referee noted in paragraphs 73-77 of his Report dated 27 November 2004, the submission depends on the proposition that a payment for petroleum sold under the Supply Agreement is not owing unless and until an invoice for that supply is delivered to Ryledar which is correct in its particulars both as to place of delivery and date of delivery. 240 The Supply Agreement does not provide that payment by Ryledar is to be made upon receipt of an invoice. The only relevant clauses are Clause 2.2 and 2.6. The Supply Agreement says nothing about the provision of invoices, although one would normally expect that a sale under the Supply Agreement would be confirmed by the delivery of an invoice by Euphoric. 241 The evidence is that in the normal course, Ryledar would receive a delivery docket at the time of each delivery, showing the place of delivery and date of delivery. Ryledar had its own records showing deliveries and quantities delivered. It had the means of checking Euphoric's invoices and delivery dockets. 242 Because of the volume of deliveries and the number of sites which Ryledar had, the vouching of accounts on both sides was complex and time consuming. To assist Ryledar in this task, Euphoric agreed to provide journals showing in more detail the deliveries and the charges made. However, Euphoric was not contractually obliged to provide the journals nor was it contractually obliged to provide invoices, let alone invoices free of error, as a pre-condition of Ryledar's obligation to make payment under Clause 2.6. 243 Section 31 Sale of Goods Act provides: " Payment and delivery are concurrent conditions Unless otherwise agreed, delivery of the goods and payment of the price are concurrent conditions, that is to say, the seller must be ready and willing to give possession of the goods to the buyer in exchange for the price, and the buyer must be ready and willing to pay the price in exchange for possession of the goods." 244 In the present case, the Supply Agreement made only one exception to the rule stated by s.31, namely, that instead of being obliged to pay on delivery, Ryledar had a specific time after delivery within which to make payment and had the benefit of a limited credit facility. Otherwise, s.31 applied and cast upon Ryledar, as buyer, the obligation to put itself in the position of being able to pay what was due upon the deliveries which were made by Euphoric. 245 In my opinion, the Referee correctly showed the sum of $407,967.11 as owing by Ryledar to Euphoric as at 17 November 2000. I conclude that, in failing to pay that amount by 17 November, Ryledar was in breach of Clause 2.6 of the Supply Agreement.

Euphoric Pty Ltd v Ryledar Pty Ltd

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Judgment (203 paragraphs)

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Legislation Cited (5)

Cases Cited (10)

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