Kane & Co (NSW) Pty Ltd v Idolbox Pty Ltd

Chronology of relevant facts

1. KCN is a company which was established by Mr Dimitry Kane. Mr Kane is a petrol station operator. Over the past 20 years, through companies and in his own name, he has acquired, sold and leased various service station sites in different places in New South Wales. The shares in KCN are held by Mr Kane and his wife, Mrs Helen Kane. They are also the directors of the company, but, according to Mr Kane, he makes all business decisions for KCN on behalf of the two of them.
2. Idolbox is a company the shares in which belong to Mr Stephen D'Eresby Davidson. Mr Davidson is a motor mechanic who has many years' experience of operating service station and automotive repair businesses. Mr Davidson and his wife, Mrs Carmen Davidson, are the directors of Idolbox. Mrs Davidson is the only director with an email address and appears to have dealt with all online correspondence on behalf of the company during the transaction, presumably, in some instances, after consultation with Mr Davidson.
3. The property which is the subject of the proceedings is triangular in shape and has two road frontages, one on Clovelly Road to the north-east and one on Bligh Place to the west. Two photographs of the property appear below:
4. The first photograph shows the entrance to the service station from Clovelly Road. The second is an aerial photograph of the property. Visible from the aerial view is the roof of the service station building, which covers the forecourt and the office.
5. At the rear of the building, beneath the service station floor level, is the automotive workshop. The entrance to the workshop is from Bligh Place and is pictured below:
6. According to the Planning Certificate annexed to the contract, the land is zoned R3 (medium density residential) under the relevant Local Environmental Plan. This would permit some commercial and retail uses (with consent) but not the current use as a service station and mechanical workshop. It appears however to be common ground that the property has existing use rights which permit that use to continue.
7. The Davidsons decided to sell the property at some point in 2022. Mr Kane became aware that the property was for sale through an internet search. Upon further enquiry, he was provided with an information memorandum and a draft standard form contract of sale by Mr James Nixon of PPSA. This happened on 4 November. The property was to go to public auction on 24 November.
8. The information memorandum stated: 651sqm* Block In The Heart of Randwick| Dual Tenancy| Further Upside An exciting opportunity exists to acquire a zoned B1 property set on an approx. 651sqm* block offering boundless potential and possibilities. Exceptionally located in the heart of Randwick, it currently comprises a service station and a mechanic, both of which yield a substantial return while there is scope for numerous residential or commercial endeavours. With 1.5:1 FSR and a height limit of 12 metres. It is positioned within a short stroll to Frenchmans Road's village shops and cafes, popular neighbourhood pubs, public transport, and moments to Clovelly beach. * denotes approximate.
9. The reference to the zoning of the property is puzzling. Whether the reference to the property being zoned "B1" was a mistake or was equivalent to the actual zoning of R3 was not addressed in the evidence.
10. In the days before the auction, negotiations took place between the parties which resulted in them agreeing the terms of the contract on which KCN would be bidding at the auction (I was informed by counsel for the parties that it was not uncommon for bespoke contracts to be negotiated with prospective bidders in this way). I will set out the evidence about the negotiations in more detail below.
11. Mr Theo Casimatis of Sparke Helmore Lawyers ("Sparke Helmore") acted for KCN in the negotiations. He is a solicitor with very extensive experience in property transactions, including service station sites. Mr Casimatis was assisted by an associate, Ms Emma Simpson, who was responsible for the day-to-day conduct of the matter. Mr Jim Lyons of Murphy Lyons Lawyers acted for Idolbox.
12. KCN was the successful bidder at the auction on 24 November. Contracts in the form agreed were exchanged on the same day. The deposit of $437,500 was paid by KCN into the PPSA trust account.

Witnesses

1. Two lay witnesses were called in KCN's case, Mr Kane and Mr Casimatis. Both were cross-examined. There was no evidence from Ms Simpson.
2. One lay witness, Mr Davidson, was called in Idolbox's case. He was cross-examined. There was no evidence from Mr Lyons or Mrs Davidson.
3. Each party obtained an expert report from a qualified environmental engineer. The reports, which are discussed below, were admitted into evidence by consent. Neither expert was required for cross-examination.

Statutory framework and EPA Guidelines

1. As its name suggests, the Contaminated Land Management Act 1997 ("CLM Act") contains a general statutory regime which applies to contaminated land in this State. The Act empowers the EPA to make management orders binding on the owner of contaminated land. Such orders may require the remediation of the land or may restrict the way in which operations on the land are carried out for as long as it remains in its contaminated state. The Act also contains an obligation on owners of land which is contaminated, to report the contamination to the EPA upon becoming aware of it.
2. For the purposes of the Act, the EPA is empowered to make guidelines for its own use or for the use of landowners, developers, site auditors or any other section of the public or the general public (s 105(1)). Once made, guidelines are to be published in the Gazette (s 105(2)(c)).
3. The EPA's power to make a management order does not extend to a site just because it is, in fact, contaminated. The EPA must first make a formal declaration that the contamination "is significant enough to warrant regulation.
4. There are constraints on the EPA's power to make such a declaration. The declaration must specify the substances that the EPA believes constitute significant contamination and must state the harm which the EPA believes has been, or may be, caused by those substances (s 11(2)(b)(c)). Before declaring land to be significantly contaminated, the EPA is also required to take into account "any relevant guidelines", and additional specified matters with respect to the relevant substances (s 12(1)).
5. The matters to be taken into account include whether there are "exposure pathways" available to the substances. Exposure pathways are "routes whereby the substances may proceed from the source of the contamination to human beings or other aspects of the environment" (s 12(1)(c)).
6. A landowner's duty to report contamination to the EPA is found in s 60(2). A person whose activity has contaminated land is under a similar obligation (s 60(1)). Subsection (3) provides: (3) A person is required to notify the EPA under subsection (1) or (2) only if - (a) each of the following is true - (i) the substance contaminating the land (the contaminant) or any by-product of the contaminant has entered or will foreseeably enter neighbouring land, the atmosphere, groundwater or surface water, (ii) the regulations prescribe for the purposes of this subparagraph, or the guidelines specify, a level of the contaminant or by-product in the neighbouring land, atmosphere, groundwater or surface water, (iii) the level of the contaminant or by-product after that entry is, or will foreseeably be, above the level prescribed or specified and will foreseeably continue to remain above that level, or (b) a guideline specifies a level of the contaminant in soils with respect to a current or approved use of the land and the level of the contaminant on or in any part of the soil on that land is equal to or above that specified in the guideline and a person has been, or foreseeably will be, exposed to the contaminant or any by-product of the contaminant, or (c) the contamination meets any other criteria that may be prescribed by the regulations for the purposes of this subsection.
7. The CLM Act does not directly prohibit a landowner from conducting operations on a contaminated site. Nor does it directly oblige the landowner to make an assessment as to whether the site is contaminated. But in practice, environmental consultants are regularly commissioned to make such assessments. The reasons for doing so presumably include: deciding whether contamination, once discovered, should be reported to the EPA under s 60(2); making representations to the EPA about whether or not the site should be declared to be "significantly contaminated"; and making representations to the EPA on what management orders, if any, should be imposed if it is.
8. Shortly after the commencement of the CLM Act, the National Environment Protection Council ("NEPC"), a Commonwealth statutory body, adopted the National Environment Protection (Assessment of Site Contamination Measure) 1999 for the purpose of providing general guidelines, at a national level, for the assessment of site contamination in Australia. The Measure was designed to be implemented by the States and Territories ("participating jurisdictions") if they chose. This State is a participating jurisdiction, and, as will be seen below, has implemented the Measure through guidelines made by the EPA under s 105 of the CLM Act.
9. The Measure was substantially amended in 2013 and it is the amended version which is relevant for present purposes. As a matter of legal citation it retains its 1999 date but in the expert reports it is often referred to as a 2013 publication of the NEPC. In this judgment, I shall refer to it as "the ASC NEPM", which is the abbreviated title endorsed by the NEPC, or "the Measure".
10. The Measure states that its purpose is to establish "a nationally consistent approach to the assessment of site contamination to ensure sound environmental management practices" for regulators, site assessors, land owners, developers and industry, among others (art 5). It sets out, in art 6, certain principles which "should be observed" in relation to site contamination assessment. But art 3 provides: In the context of this Measure the use of the word "should" does not imply obligation, but rather provides for general guidelines for the assessment of site contamination.
11. The objectives of a site assessment are dealt with in art 6(15): The purpose of site assessment is to determine whether site contamination poses an actual or potential risk to human health and the environment, either on or off the site, of sufficient magnitude to warrant remediation appropriate to the current or proposed land use. In assessing that risk a balance is to be achieved between:

• optimising the current or intended use of the site; and
• adequately protecting human health and the environment.

1. Risk assessment is described at art 6(14): The initial assessment of human health risks and ecological risks may be undertaken by comparing levels of contaminants on the site with appropriate investigation or screening levels or, if necessary, by undertaking a site-specific risk assessment. The initial assessment may be followed by a more detailed assessment of human health risks and ecological risks.
2. The term "investigation or screening levels" is defined (art 3) as "the concentration of a contaminant above which further appropriate investigation and evaluation will be required".
3. Schedule A sets out the general process for the assessment of site contamination, and schedule B sets out general guidelines for that assessment (art 7). Schedule A takes the form of a flowchart. Schedule B is made up of nine separate schedules, some of which contain extensive appendices. The submissions of the parties in the present case focussed on schedule B1, which is the guideline on investigation levels for soil and groundwater.
4. The flowchart in Schedule A depicts a multi-stage process which can, at different stages, be iterative, in the sense that a process may have to be repeated so as to gain sufficient information to proceed to the next stage. An important feature of the process is the development of what is described as a "conceptual site model" ("CSM"). A CSM incorporates information about: the history and physical features of the relevant site; the contaminants which are or may be present; the ways in which those contaminants might accumulate, dissipate or migrate; and the relevant exposure pathways (see [36] above) for those contaminants.
5. The process may proceed through different "tiers". "Tier 1" is a "site investigation". Depending on the contamination detected, the assessment may move on to what is described as "Tier 2 or 3" which is a "site-specific risk assessment".
6. As depicted in schedule A, Tier 1 may itself contain two stages (see also art 8). The first is a "preliminary site investigation". The second is a "detailed site investigation". Both investigations are contemplated to involve sampling and laboratory analysis, followed by the development or refinement of the CSM.
7. The question in a Tier 1 investigation is whether the investigation levels or screening levels for the intended land use are exceeded. If they are not, no further action is required. If they are exceeded, it may be possible to decide on a site remediation plan without further investigation. But if not, a site-specific risk assessment must be undertaken.
8. The purpose of a site-specific risk assessment, as its name suggests, is to determine whether the exceedences of investigation or screening levels indicate contamination which gives rise to a risk of harm and requires some form of remediation or site management. In some cases, the state of scientific knowledge may permit the risk to be assessed quantitatively. For instance, it may be possible to say, for a particular carcinogen, that a certain concentration in the soil (assuming the existence of exposure pathways) gives rise to a certain number of excess deaths from cancer. But in other cases, this may not be possible and the assessment of risk therefore has to be done qualitatively.

Pre-contractual negotiations between the parties

1. The contract sent by Mr Nixon to Mr Kane on 4 November consisted of the Law Society standard form together with 21 special conditions. Special conditions 7 and 18 relevantly provided: 7. PURCHASER WARRANTIES 7.1 The purchaser warrants to the vendor that: (a) It has satisfied itself as to: (i) the property and its state of repair and contamination; (ii) the neighbourhood in which the property is located; (iii) the fitness or suitability for any use or purpose of the property; (i) any financial return or income to be derived from the property; (v) any tax deduction/depreciation to be derived from the property; or (vi) any matter relating to the quality of the property; (b) It has relied entirely on its own enquiries and inspection of the property made by or on behalf of the purchaser relating to the condition of the property and that it has sought independent legal advice on and is satisfied as to its rights and obligations in this contract; and … 7.2 The purchaser acknowledges that the vendor has, in entering into this contract, relied on the purchaser's warranties given herein. … 18. CONTAMINATION a. The Purchaser acknowledges that the premises have been over many years and continue being used for the purposes of a motor vehicle garaged, workshop and the sale of fuel and ancillary products. b. The Purchaser accepts all risks of any contamination and warrants to the Vendor that the Purchaser has made its own enquiries and has either obtained independent expert advice in this regard or made such other searches and enquiries as the Purchaser considers necessary and appropriate or that the Purchaser has otherwise declined to avail itself of the opportunity to seek such advice. c. The Purchaser shall make no requisition, objection or claim for compensation and in this regard and indemnifies the Vendor against any such claim as and from the date of this contract. d. This clause shall not merge on completion.
2. The negotiations between the solicitors began with an email from Ms Simpson to Mr Lyons at 6:52pm on 21 November 2022. The email relevantly stated: We refer to the above matter and note we act for Dimitry Kane who intends on bidding at auction for the property on Thursday 24 November 2022. … We are instructed by our client to request the following amendments to the Contract; … 12. Amend clause 7.1(i) by inserting "subject to … new clause 22"; … 15. Amend clause 18(b) and clause 18(c) to be "subject to … new clause 22" and insert in clause 18(b) after the word risk "from completion of any contamination on the property". … 19. Insert new clause 22: (a) The vendor at its cost must obtain and provide a copy of an Environmental Report for the property within twelve weeks from the contract date. (b) If the Environmental Report indicates that the property does not fall within the NSW Environment Protection Authority guidelines in relation to the contamination levels in, on or under the property and which permits the property to be used as a Service Station then the Purchaser may rescind this contract by notice in writing to the vendor in which [sic] clause 19 of the contract will apply. (c) The vendor at its cost must procure three monitoring wells to be installed in the mechanical workshop area prior to completion of this Contract. (d) "Environmental Report" in this clause means a Phase 2 Contamination Report for the property prepared by a consultant approved by the purchaser (acting reasonably) and must test a minimum of six core holes in the workshop area. ... … Please note that this email is subject to our client's final instructions and further amendments (if any).
3. Meanwhile, Mrs Davidson had been obtaining an "environmental compliance" letter for the property. For this purpose, an environmental consultancy firm named "Aurora" was retained. The letter was issued on 21 November.
4. The letter began: [Aurora] has conducted a desktop review of the [Clovelly Road property] and [makes] the following comments based on information provided and a review of current environmental guidelines in NSW: • the site is occupied by an operational service station (branded Randwick Petroleum) and comprises a petroleum storage system of four fuel storage tanks and four dispensing pumps. • it is understood the site was constructed by Caltex Australia Pty Ltd (now Ampol) in the 1970s or 1980s and sold to the current owners around 1998. Caltex removed all petroleum infrastructure upon exiting the site and replaced with [sic] the existing petroleum infrastructure by the current owners. • the service station site is constructed on an elevated or suspended slab above a mechanical workshop facility which operates a separate business underneath the service station. Access is from Bligh Place, along the site's western boundary. • all petroleum infrastructure including all petroleum storage tanks and pipelines are understood to be wholly encapsulated within concrete pits and sealed trenches.
5. Aurora went on to consider the application of certain environmental guidelines which apply to underground petroleum storage systems (referred to as the UPSS Regulations). The regulations include requirements to install ground water monitoring wells. In Aurora's opinion, the guidelines did not apply because the tanks on the site were situated wholly above ground level.
6. The letter continued: On this basis, any proposed assessment of environmental soil and groundwater conditions within the site in relation to historical service station operations would not be practical or feasible. An environmental assessment of soil and groundwater beyond the service station boundary may be feasible, however approval from the relevant landowners including Council and relevant parties would need to be provided. It is however noted that the risk to the surrounding environment in relation to the service station operations at this site is considered very low.
7. Finally, the letter dealt with leak detection: The site does however maintain a petroleum loss monitoring system which is an approved method under the [UPSS Regulations]. The service station operators (Randwick Petroleum) use Statistical Inventory Reconciliation Analysis (SIRA) which is considered best-practice method to conduct ongoing statistical analysis of their fuel inventory, delivery and dispensing data. This program, operated by an independent third-party specialist, provides monthly reports to identify any data inconsistencies which flag a possible leak in the system which the operator is obliged to report immediately. Copies of any historical SIRA data can be obtained from the site operator upon request.
8. Mr Lyons was provided with the letter before he responded to Ms Simpson's email at 12:14pm on the following day (22 November). His response took the form of a return email (copied to Mrs Davidson and Mr Nixon) with his comments added. The relevant comments are shown below in bold: 12. Amend clause 7.1(i) by inserting "subject to … new clause 22"; The Vendor … rejects new clause 22. … 15. Amend clause 18(b) and clause 18(c) to be "subject to clause 11 and new clause 22" The Vendor agrees to include the reference to clause 11 of the contract but rejects new clause 22. and insert in clause 18(b) after the word risk "from completion of any contamination on the property" Not agreed; … 19. Insert new clause 22: Not agreed. See attached letter from [Aurora]. The vendor sells the property in its present state and will not provide any warranty in relation to any unknown or latent contamination.
9. The reply came swiftly. About forty minutes later (12:56pm) Ms Simpson emailed Mr Lyons (with copies to Mr Nixon and Mrs Davidson) with KCN's response. This relevantly stated: Our client will not be bidding at the auction unless requested amendment 12, 15 (in relation to new clause 22), new clause 22 (contamination clause) and clause 19 (release of deposit clause) are agreed to by the vendor. …
10. Presumably in response, Idolbox's negotiating position shifted to some extent. Mrs Davidson prepared the following letter to Mr Lyons: We agree to our consultant [Aurora] carrying out an inspection of the site and reporting to the value of $10,000 only for the purchaser's comfort. That [sic] the site is sold and has acceptable use for its current commercial use as a Service Station and Mechanical Workshop. The purchaser can only rescind the contract if the property is not suitable for continued use as a Service Station and Mechanical Workshop. We do not see the point in installing new infrastructure (ground wells) for the purchaser. This is a property improvement. This does not benefit us and is not necessary for us. Surely this is when the purchaser activates his demolition clause so he could do this work then. Given the 3-month settlement extension and 5% Deposit (not 10%). It is only fair that the Deposit is released. This is accepted by others.
11. About an hour after Ms Simpson's email (1:59pm) Mr Nixon emailed to Mr Kane the text of Mrs Davidson's letter to Mr Lyons. Mr Nixon's email stated: Below is correspondence the vendor has just sent to their lawyer[;] this will be sent across to your side now.
12. I was not referred to any evidence that Mrs Davidson's letter was actually sent to Sparke Helmore. But, at 5:33pm that afternoon, Mr Lyons emailed Ms Simpson: Mr Lyons to Ms Simpson, 22 November, 5:33pm: • As there are quite a number of interested purchasers, our client has agreed to obtain a report from [JBS&G]. • If [there] is significant contamination preventing the use of the site as a Petrol Station and Mechanical Workshop then either party may rescind the contract ab initio. • Our client will contribute $10,000 to the costs of the report from JBS&G Sydney Environmental Consultants, and the purchaser must contribute any additional amount above the vendors contribution which largely overcomes your objection. ...
13. The following email communications ensued between the solicitors (emphasis added): Ms Simpson to Mr Lyons (cc Mr Casimatis), 22 November, 6:38pm: … We are instructed to press that the contamination levels (giving either party a right to rescind) be in line with the EPA guidelines for service stations and workshops in line with our wording in proposed clause 22(b) "Environmental Report indicates that the property does not fall within the NSW Environment Protection Authority guidelines in relation to the contamination levels in, on or under the property and which permits the property to be used as a Service Station". … Mr Lyons to Ms Simpson, 23 November, 2:34pm: Please let me have a draft of all the special conditions your client wishes as it is very confusing with the various numerous request from the other [interested] purchasers and I will get instructions. For clarification if there is any contamination then either party shall be entitled to rescind the contract ab initio. No compensation claim by the [Purchaser] will be entertained by the vendor and clauses 6 & 7 will be deleted from the contract. … I am in the process of amending the auction contract so please let me have your requested amendments as quickly as possible so that I can obtain instructions.
14. At 3:49pm on 23 November Ms Simpson sent Mr Lyons her draft of the special conditions, showing the amendments sought in mark-up. Ms Simpson wrote in her covering email: Please find attached the special conditions which now include the amendments in mark up. The amendments highlighted in yellow are pressed by our client and require you to obtain further instructions. All other amendments made in mark-up have previously been addressed and agreed by the vendor. The vendor's required amendment to standard clause 6 and clause 7 has been appropriately addressed in additional clause 18(d) precluding the purchaser from a right to make a claim in relation to contamination on the property. …
15. New SC 22 and the related changes to SC 7 and SC 18 were highlighted.
16. At 6:20pm, Mr Lyons replied (with copies to Mr Nixon and Mrs Davidson) with what he described as the "final draft contract". New SC 22 and the related changes to SC 7 and SC 18 had been accepted. There was no further change (or at least no relevant further change) in the special conditions as executed.

Intentions of the parties

1. Documentary evidence: Internal emails between Mr Kane and Sparke Helmore, which I will summarise in a moment, were in evidence. But none of Sparke Helmore's file notes (if any existed) were. There was no documentary evidence of the internal communications within the Idolbox camp, either between Mrs Davidson or Mr Nixon, or between Mrs Davidson and Mr Lyons.
2. Mr Kane sent the proposed contract to Mr Casimatis for him to work on at 10:43 am on 21 November. The wording of SC 22 (which proved for practical purposes to be the final version) must therefore have been drafted by Sparke Helmore later that day, before it was sent to Mr Lyons at 6:52pm that evening (see [61] above). There is no documentary evidence of any instructions from Mr Kane about the wording of SC 22 or the consequential changes to SC 7 and SC 18.
3. At 5:49pm on the following day (22 November), Ms Simpson emailed Mr Kane (with a copy to Mr Casimatis) attaching a copy of Mr Lyon's email of 5:33pm which conveyed Idolbox's agreement to obtain a report from JBS&G and that either party might rescind the contract if there was "significant contamination preventing the use of the site as a petrol station and mechanical workshop" (see [71] above). She wrote: Please find below email from the vendor's solicitor. The vendor has agreed to pay $10,000 towards the report however the report is to be prepared by [JBS&G]. You are required to pay any additional amount. If contamination is found to prevent the use of the site as a petrol station and mechanical workshop then either party may rescind the contract. Please advise if you agree with this approach and if would like us to commence our preparation of the trust deed [KCN was to acquire the property as a trustee] in anticipation of the auction. …
4. About fifteen minutes later (6:02pm) Mr Kane emailed Mr Casimatis (with a copy to Ms Simpson): I need the environmental clause to state that the contamination level needs to be within EPA guidelines for Service Station & workshop and not just that it can operate as Service Station & workshop. Please go ahead with the preparation of the Trust.
5. There was no evidence that Mr Kane was copied into the ensuing exchange of emails between Ms Simpson and Mr Lyons concerning SC 22 (see [72] and [73] above). But at 5:37pm the following evening (23 November), after the submission of a marked-up version of the contract at Mr Lyons' request (see [72] above), Ms Simpson emailed Mr Kane: I have verbally spoken to the vendors solicitor who said he thinks our amendments "should be ok" but will come back to me if he has any issues. I have not received any formal response accepting our amendments however.
6. Following receipt of Mr Lyon's further email attaching the "final draft", Ms Simpson emailed Mr Kane at 6:50pm: Please see attached contract. From my high level review it appears all our requested amendments have been accepted.
7. I have now referred to all of the pre-contractual documentary evidence bearing on the parties' intentions. There was, however, one piece of documentary evidence which post-dated the contract and upon which counsel for KCN relied. This was JBS&G's fee proposal for the purposes of preparing the Environmental Report. The proposal was dated 28 November. It was emailed to Mrs Davidson and later that day she responded, authorising JBS&G to proceed "with the works quoted".
8. As I understood counsel's submission, the proposal could be used as a basis for inference as to what Idolbox's intention was at the time the contract was entered into. Counsel referred to the following passages, submitting that they contained no reference, at least expressly, to the use of the site as a service station: Under the heading "Introduction and Background" It is understood that the site has recently been sold and the client requires a contamination assessment to be completed for the site prior to settlement. … This proposal has been prepared at the request of the client and in accordance with relevant NSW EPA endorsed guidelines. Under the heading "Objectives" The objective of this investigation is to complete a contamination assessment to determine if there are any contamination impacts associated with the site's current and historic use as a service station and mechanic workshop. Under the heading "Reporting" Following receipt of laboratory certificate of analysis, a contamination assessment letter report will be prepared in accordance with relevant EPA guidelines and analytical results will be compared against relevant NEPC (2013 National Environment Protection (Assessment of Site Contamination)) land use criteria.
9. The remaining documentary evidence which needs to be mentioned in this context is a note made by Mrs Davidson of a conversation between Mr Davidson and Mr Kane which took place on 17 March last year, after Mr Kane had caused KCN to issue its notice of rescission. The file note was tendered by counsel for Idolbox on the footing that it represented an admission by Mr Kane as to his state of mind at the time of the auction (and, by inference, during the course of preparation of the contract leading up to the auction).
10. Mrs Davidson's note reads: [Mr Kane] says 'the site is polluted, you need to refund my deposit', that pollution could be running down the street'. [Mr Davidson] says 'I don't accept that, we are doing further investigations, the report is not conclusive. George from JBS&G has stated to me, Carmen and my solicitor that the pollution is not serious and does not impact on the properties suitability to operate as a Service Station or Mechanical Workshop. If it is running down the Street Dimitri, the further investigation will determine that, we are drilling the footpath'. [Mr Kane] says 'my legal team are pushing me to go to court' [Mr Davidson] says 'Dimitri, that is putting the cart before the horse, you should wait for the final investigations and that will put your mind at rest. Save yourself the money Dimitri'. [Mr Kane] says 'when are you drilling and doing this investigation?' [Mr Davidson] says 'It is already done, we are just waiting on the final report, I am confident, the site is good and I welcome any authority to check it out'. [Mr Kane] says 'no Steve, you don't want that, you don't the EPA looking at it, they will shut you down' [Mr Davidson] says 'I welcome it, the site is good, both JBS&G and Geo-Environmental Engineering have said so, I do not accept your opinion about the property just because you want to get out of it, come on Dimitri'. [Mr Kane] says, 'I did get carried away at the Auction, I put my hand up too many times, the banks won't loan me money for the site'. [Mr Davidson] says 'Dimitri, if you need funding, my banker has said to me to pass on his number, Westpac would happily loan you the money for the site, as they have for me. Dual tenancy and an excellent yield is no problem for Westpac. They have seen the JBS&G report and are fine with it.
11. Mr Kane's evidence: According to Mr Kane, through his experience in petrol retailing he was "acutely aware of the risks that can be posed by contamination at petrol station sites". He stated that, to "the best of [his] recollection" he instructed Mr Casimatis and Ms Simpson in the following terms: I need to make sure the site isn't contaminated. If it is, it is not worth buying it. I will only bid on the property if I can rescind if an environmental report shows the contamination exceeds the EPA Guidelines.
12. Mr Kane did not identify with any more precision what he meant by the "EPA Guidelines". Nor did he say anything about his understanding of the legal and regulatory regime which applies to contaminated sites. He did however say that he knew Mr Brown of Aurora because Mr Brown had done work for him in the past. Mr Kane said that he read the Aurora letter and spoke directly to Mr Brown about it. He suggested to Mr Brown that the soil testing would need to take place under the floor of the workshop. And that this would be the best place to install monitoring wells. This evidence does suggest that Mr Kane was familiar, at least in general terms, with the procedures which applied to the assessment of contamination at petrol station sites.
13. Mr Kane stated that he read all of the emails which passed between the parties concerning the wording of the contamination clause in the contract. He stated: …My main concern was that the contamination levels needed to be within the EPA Guidelines for me to consider purchasing the property. This was my ultimate concern because of my experience in the industry. Once the contamination levels exceed the EPA Guidelines, they can become difficult to manage and expensive to deal with, and present future risks.
14. Mr Kane referred in particular to his instruction to Mr Casimatis and Ms Simpson on 22 November that the contamination levels needed to be within EPA guidelines, not merely sufficient to allow the site to operate as a service station (see [79] above). He stated that the distinction was critical for him: I did not want to buy a property that had contamination but may [sic] still be suitable (at the time of purchase) for continued use as a Service Station and Mechanical Workshop. I know contamination can become worse or guidelines can change. I did not want to purchase a property with contamination.
15. According to Mr Kane: At the time I bid on the property I understood and intended clause 22(b) to mean that [KCN] had the right to rescind the contract and have the deposit returned if an environmental report indicated that the property did not fall within the NSW Environment Protection Authority Guidelines in relation to the contamination levels in, or under the property. I did not understand that right to depend on or be affected by whether or not the property could be used as a service station.
16. In his reply affidavit, Mr Kane gave his own version of the conversation with Mr Davidson on 17 March last year (see [85] above). On Mr Kane's version, he told Mr Davidson that he "liked and wanted the site and paid a lot of money for it". But Mr Kane denied that he had been carried away at the auction, or that he had been unable to obtain bank finance for the purchase. According to Mr Kane, he was trying to pull out of the deal because he was not satisfied with the contamination report, and only for that reason.
17. Mr Kane's cross-examination was not extensive. He acknowledged that his plans for the site involved continuing to use it as a service station. Although the site was tenanted, Mr Kane intended to take advantage of a clause which permitted him to terminate the tenancy and he would thereafter operate the service station himself. He confirmed, based on his experience, that there was a potential for contamination on the site as a result of past and ongoing service station activities. He insisted that he had not been carried away when bidding for the property as Mr Davidson claimed. Counsel did not ask Mr Kane about his knowledge of EPA Guidelines or his evidence about his intentions concerning SC 22(b).
18. Mr Casimatis' evidence: Mr Casimatis stated in his affidavit that he had substantial experience as a solicitor. He has been in practice for over 40 years. He has acted for corporate clients in the petroleum industry since 1989 and since then has acted on the acquisition, sale and leasing of contaminated sites.
19. In his affidavit, Mr Casimatis states that he has known Mr Kane, and has acted for him, for over 20 years. He described Mr Kane as a "sophisticated client".
20. Mr Casimatis gave the following evidence about the instructions which he received from Mr Kane on the afternoon of 21 November 2022: … Ms Simpson and I had discussions with Mr Kane where we highlighted that the draft contract provided that a purchaser could not take objection to contamination issues after entering into the contract and that there was no contamination report attached to the contract. Mr Kane said something to the effect that he required a clause providing that the contract was conditional upon a contamination report, or that he could rescind if the property was contaminated.
21. Mr Casimatis referred to the email instruction he and Ms Simpson received from Mr Kane at 6:02pm on 22 November about the environmental clause needing to do more than state that the property could be used as a service station and workshop. He stated: I understood this email to be an instruction that Mr Kane wanted a right to rescind the contract if an environmental report indicated that the property did not fall within the NSW environment Protection Authority Guidelines in relation to the contamination levels in, or under the property. I understood that Mr Kane did not want that right to be conditional upon whether or not the property could be used as a service station.
22. Mr Casimatis referred to Mr Lyons' email to Ms Simpson of 23 November at 2:34pm which stated, for "clarification", that "if there is any contamination" either party should be entitled to rescind the contract. He stated that he understood that Idolbox was no longer insisting that the right to rescind would be conditional on the property not being able to be used as a service station.
23. Not surprisingly, under cross-examination, and without assistance from any file notes, Mr Casimatis lacked detailed recollections about the drafting of SC 22. It seemed that the clause was prepared by Ms Simpson (or at least, Mr Casimatis had no recollection of making any contribution to it). Nor could he recall, without reference to his file, whether there had been any change to the form of SC 22(b) after the instruction from Mr Kane on the evening of 22 November (in fact there was no substantial change). Also, when asked about his reference to the "EPA Guidelines", Mr Casimatis said that he would have been unable to identify any particular document which corresponded to those guidelines if asked at the time.
24. Mr Casimatis was also cross-examined about the evidence in his affidavit that he had drawn comfort from Mr Lyons' email to Ms Simpson stating that either party might rescind if there was "any contamination". In fact, the email was not copied to him. In the end, Mr Casimatis was unable to state affirmatively that he had even seen the email before the contract was signed. I was left with the impression that Mr Casimatis' evidence on this point might, no doubt inadvertently, have involved a degree of reconstruction.
25. Mr Davidson's evidence: In his affidavit, Mr Davidson dealt with his understanding of how SC 22(b) was to operate. He stated: I understood and believed at all times that contract for the sale of the Service Station could only be rescinded by the purchaser if it proved to be unable to be used as a service station and that it was on this basis that the first defendant offered the Service Station for sale to the plaintiff.
26. The only other topic addressed in Mr Davidson's affidavit was the conversation he had with Mr Kane on 27 March last year which was the subject of Mrs Davidson's file note. Mr Davidson gave a direct speech version of the conversation which closely tracked the file note.
27. In cross-examination, counsel asked Mr Davidson about the fact that he had not referred to any of the correspondence between the parties in his affidavit. It emerged that Mr Davidson does not have an email address and does not read emails; all emails go through Mrs Davidson. Similarly, Mr Davidson accepted that it was Mrs Davidson who gave instructions on behalf of Idolbox to Mr Lyons.
28. As to the conversation of 27 March, Mr Davidson acknowledged that the version in his affidavit had been prepared from Mrs Davidson's file note. But he stoutly maintained that Mr Kane did tell him that he (Mr Kane) had got carried away at the auction and had been unable to obtain bank finance for the purchase. He rejected the version of the conversation presented by Mr Kane in his affidavit as "100%, incorrect".
29. Factual conclusions: The documentary evidence, in the form of Mr Kane's email to Mr Casimatis and Ms Simpson at 6:02pm on 22 November 2022, clearly establishes that, in his own mind, Mr Kane drew a distinction between rescission on the basis that the contamination contravened the "EPA Guidelines" and rescission on the basis that the contamination did not permit the site to be used as a service station. Mr Kane's explanation of this distinction, and the justification for it, as set out in his affidavit, were not challenged.
30. There might have been a question about how that understanding squared with the words of SC 22(b), which expressly referred to the continued use of the property as a service station, given that Mr Kane claimed to have read all of the correspondence about the clause. In the paragraph of his affidavit in which he set out his understanding of the clause, Mr Kane simply repeated the wording of the clause, including its clumsy phraseology, up to the reference to EPA Guidelines and then omitted the remaining words of the clause which dealt with continued use as a service station.
31. But Mr Kane was not cross-examined about this subject. I therefore accept that that Mr Kane's subjective understanding was as he stated.
32. I am less clear that the solicitors at Sparke Helmore were as alive to the distinction as Mr Kane was, or that they took it into account in formulating SC 22(b). As already noted, Ms Simpson appears to have been the author of the clause and she did not give evidence at all. I am not sure that Mr Casimatis considered it closely either. But, on the view I take, Mr Casimatis' state of mind was not ultimately relevant and I do not propose to pursue the question any further.
33. So far as Mr Davidson's subjective intention was concerned, there was no direct challenge to the evidence he gave in his affidavit that rescission would only be permissible if the contamination report showed that the site could not be used as a service station. It may be accepted that it was Mrs Davidson who dealt with the emails and sent the instructions on behalf of Idolbox to Mr Lyons, but that does not necessarily mean that Mr Davidson had no input into the terms of the sale on a commercial level. In the absence of direct challenge, I accept, if it be relevant, that Mr Davidson's subjective intention was as stated in his affidavit.
34. As already noted, both Mr Kane and Mr Davidson adhered to conflicting versions of what was said in their telephone conversation of 27 March last year. But on the view I take, it is not necessary to resolve this conflict in the evidence.

The Environmental Report

1. JBS&G issued the Environmental Report on 17 February 2023 via email to Ms Davidson. Subsequently, on the same day, she forwarded the Report to Mr Kane.
2. The Environmental Report began by stating that, based on a review of the Aurora's compliance letter, JBS&G understood: …that the site comprises an operational service station (Randwick Petroleum) at Clovelly Road ground level with a western portion of the service station constructed on a suspended slab. A mechanic workshop operating as a separate business (Clovelly Autos), accessed off Bligh Place, is located beneath the service station. The service station is understood to include four petroleum storage systems (PSS) contained beneath a suspended concrete slab, with all petroleum infrastructure such as pipelines are understood to be encapsulated within concrete pits and or sealed trenches. Aurora (2022) also stated that the site previously operated as a service station under Caltex Australia (now Ampol) in the 1970s and 1980s. Prior to divestment by Caltex, previous petroleum infrastructure was removed by Caltex, and the current infrastructure was installed by the current owner.
3. JBS&G continued by identifying the object of the Report: The objective of this investigation is to complete a contamination assessment to determine if there are any contamination impacts associated with the site's current and historic use as a service station and mechanic workshop.
4. The Report then described the sampling which had been undertaken. There were three types: soil sampling; groundwater sampling; and soil vapour sampling. For the soil sampling six boreholes were dug and samples taken. Three of those boreholes incorporated groundwater monitoring wells which were used to sample groundwater. Soil vapour sampling was undertaken at four different sub-slab locations.
5. The Report then described in detail the results which had been obtained, by reference to various different environmental criteria. The different sample types were analysed for different contaminants. The soil samples were analysed for heavy metals; TRH [already defined above]; benzene, toluene, ethylbenzene and xylenes ("BTEX"), all particular types of hydrocarbons; polycyclic aromatic hydrocarbons ("PAHs"), another family of hydrocarbons; volatile organic compounds ("VOCs"), asbestos, and others.
6. The conclusion began by stating: Based on the findings of this investigation and subject to the limitations in Attachment 1, the following conclusions are presented:
7. The Report went on to set out dot points which summarised the test results. The soil sampling results were summarised in the following way: Soil analytical results from soil samples collected identified elevated TRH impacts within BH01 at 0.4-0.5 m below the surface at a concentration above [ASC NEPM] management limits for Commercial/industrial land use. The impact identified may be associated with leaking concrete encased PSS located in the northern portion of the site and north of location BH01; Soil analytical results also identified elevated TRH and B(a)P [benzo(a)pyrene, one of the PAHs] at location BH06 at a depth of 0.9-1.0 m below the surface. TRH concentrations exceeded [ASC NEPM] management limits for Commercial/industrial land use, B(a)P concentrations exceeded [ASC NEPM] health investigation levels for commercial/industrial land use. TRH impact at this location may be associated with PSS located in the northern portion of the site and/or associated with waste oil disposal tank nearby location BH06. PAH impacts identified may also be associated with the nearby waste oil tank but may be attributed to fill materials at the site; More minor concentrations of TRH and PAHs which did not exceed applicable criteria were also noted at other locations indicating PAH impact within fill materials and potential TRH impact with ongoing petrol station and mechanic workshop use;
8. Next the groundwater sampling results were summarised: Groundwater analytical concentrations were reported generally within the adopted criteria. Elevated metals are considered to be associated with background concentrations within the disturbed urban setting. Minor amounts of TRH were also noted in groundwater considered to be associated with ongoing petrol station and mechanic workshop use.
9. Finally, the soil vapour results were summarised: Soil vapour analytical results from sub slab soil vapour samples collected reported concentrations within the [ASC NEPM] human health criteria adopted with the exception of SV04 which reported F1 (C6-C10 minus BTEX) and F2 (C10-C16 less Naphthalene) at concentrations above [ASC NEPM] HSL D criteria for Soil Vapour in sand at a depth of 0-1m; and 1,1,2,2-tetrachloroethane in soil vapour was also reported to exceed USEPA RSLs for industrial air in SV04.
10. Nothing more appeared in the conclusions. In particular the Report did not say anything about any constraints on the need for any further investigations, or identify any constraints on the use of the land in the future.

Expert evidence

1. For KCN, an expert report was obtained from Dr Daniel Martens in July 2023. Dr Martens described his qualifications and experience in the following way: I am a civil, environmental and geotechnical engineer and environmental scientist with some 30 years' experience. I am a certified practicing engineer (CPEng), a registered member of the National Engineers Register (NER) and a Fellow of the Institution of Engineers Australia (FIEAust). My relevant fields of expertise include environmental engineering, hydrology, flood modelling, flood risk management, stormwater management, civil and geotechnical engineering. I have over the course of my career prepared or supervised the preparation of many contaminated land investigations and have presented as an expert witness in matters concerning contaminated land investigations.
2. Dr Martens was asked the following questions: a. Whether the Environmental Report indicates that the property does not fall within the NSW Environmental Protection Authority Guidelines in relation to the contamination levels in, on or under the property? In responding to this question, would you please identify the precise NSW Environmental Protection Authority Guidelines you consider applicable (Question 1) and b. What the Environmental Report means, or ultimately concludes, for the property's use or otherwise as a service station (Question 2).
3. As to question 1, Dr Martens began by assuming that the intended use of the property was as a service station. He continued: The [ASC NEPM Schedule B1] guideline (and other schedules released as part of the National Environmental Protection Measure) is approved by the NSW EPA pursuant to [s 105 of the CLM Act]. [ASC NEPM Schedule B1] provides soil, soil vapour and groundwater criteria that be used to assess potential risk to human health and the environment from site contamination. Therefore, I consider [ASC NEPM Schedule B1] to be the most appropriate guideline for assessing the suitability of a site, in terms of potential contamination risk, to operate as a service station.
4. Dr Martens noted that the Environmental Report recorded exceedences "including" TRH and B(a)P in soil sampling and TRH in soil vapour. He continued: On this basis, the Environmental Report indicates that the property did not fall within the NSW Environmental Protection Authority Guidelines in relation to contamination levels under the property.
5. As to question 2, Dr Martens noted that there was no "formal conclusion" in the Environmental Report concerning service station use. He continued: I note that [ASC NEPM Schedule B1] states that the selection and use of investigation and screening levels (Tier 1 or otherwise) should be considered in the context of the iterative development of a conceptual site model (CSM). In my review of the JBS&G Report, I have not identified an appropriate CSM as defined by [ASC NEPM Schedule B2]. Without a robust CSM it is difficult to definitively assess the implications of the Tier 1 exceedences. This position is in line with Section 3.2.2 of [ASC NEPM Schedule B1] which states that the magnitude of Tier 1 exceedences 'should be considered in the context of the CSM'. I am therefore unable to provide a definitive statement regarding the property's use or otherwise as a services station.
6. Dr Martens finished by saying: I am however of the opinion, based on the environmental data provided in the JBS&G Report, that there is likely some level of risk to either human health and or the environment present at the site. The extent of this risk and its implications to any form of future land use (service station use or otherwise) would need to be further qualified and quantified through additional site assessment work. On that basis, relying solely on the levels of contamination documented in the JBS&G Report, I cannot conclude that site use as a service station would be permitted without further site assessment works.
7. Idolbox's expert was Stephen David McCormack. He is a consultant geotechnical and environmental engineer with experience in undertaking and supervising field investigations and reports, among other things.
8. Mr McCormack had earlier prepared a report entitled "detailed site contamination investigation report" in April 2023. This was not prepared for the purposes of the proceedings. According to the report, the investigation had been requested by a potential buyer to evaluate whether the site was suitable for continued operation as a petrol station and vehicle workshop. It seems that the potential buyer was KCN, but although the report was said to have been requested by that buyer, it was presumably commissioned on behalf of Idolbox, perhaps in an attempt to persuade KCN to continue with the purchase.
9. The report came into the proceedings as a result of Mr McCormack making an affidavit in September 2023 which annexed it. In his affidavit, Mr McCormack stated that he had read, understood and agreed to be bound by the expert witness code of conduct. It seems unlikely that he did so before preparing the report, but no point was taken about this.
10. The report documented a detailed investigation undertaken by Mr McCormack's firm. This involved: the review of previous investigations and the site history; a site inspection; development of a CSM; field investigations, including soil sampling, ground water sampling and soil vapour sampling; and an analysis of the sampling results with the sampling data, including the data which had been obtained by JBS&G.
11. The report set out, in detail, the environmental criteria which had been adopted for the purposes of the investigations. These included health screening levels for commercial and industrial sites; petroleum hydrocarbon management limits for soil; for ground water, investigation levels for aquatic ecosystems and human health (other than through the effect of drinking water); and for soil vapour, HSL's and health investigation levels ("HILs") for volatile organic chlorinated compounds ("VOCCs").
12. The report recorded two exceedences of the criteria for soil contamination (these appear to have been the same as in the Environmental Report): no exceedences for ground water; and for soil vapour, two exceedences of TRH and one exceedence of VOC.
13. In discussing the significance of these results, Mr McCormack pointed out that all of the criteria adopted were investigation levels. Exceedence did not necessarily mean that there was a significant risk to health or significant contamination, only that further investigation was required. For the soil samples, Mr McCormack pointed out that the relevant areas of the site were entirely sealed by concrete and accordingly that there was no "exposure pathway" whereby contaminants could affect ordinary workers on, or visitors to, the site. He made the same point about the soil vapour exceedences, noting that additional indoor air samples had been undertaken which had not shown any of the compounds of potential concern identified in the underground soil vapour tests being present in the atmosphere. There was therefore no significant risk.
14. Mr McCormack's conclusion was: Based on observations made during the field investigations, the sampling and analysis program conducted at the site, the proposed land-use and with respect to relevant statutory guidelines, it is concluded that the site is suitable for ongoing use as a service station and vehicle repair centre. This conclusion is made while noting some low-level impacts on soil, groundwater and soil vapour contained within the site boundary that are consistent with current - or legacy -impacts from fuel storage and dispensing operations.
15. In the course of the opening, I raised with counsel for both parties' questions about the relevance and admissibility of the expert evidence. In the end, neither party objected to the other's expert report, and I considered it best to admit the evidence despite my doubts. I discuss the issues of admissibility and relevance in more detail later in the judgment.

Purchaser's right to rescind

1. I have set out earlier in the judgment the course of negotiations between the parties with respect to the terms of SC 22 and the other relevant special conditions. For convenience, I now set out the relevant portions of those special conditions as they appeared in the contract as signed.
2. The terms are set out verbatim. I have emphasised the critical provisions appearing in SC 22(b): 7 Purchaser Warranties 7.1 The purchaser warrants to the vendor that subject to … special condition clause 22: (a) It has satisfied itself as to: (i) the property and its state of repair and contamination; (ii) the neighbourhood in which the property is located; (iii) the fitness or suitability for any use or purpose of the property; … (b) It has relied entirely on its own enquiries and inspection of the property made by or on behalf of the purchaser relating to the condition of the property and that it has sought independent legal advice on and is satisfied as to its rights and obligations in this contract … 7.2 The purchaser acknowledges that the vendor has, in entering into this contract, relied on the purchaser's warranties given herein. 18 Contamination a. The Purchaser acknowledges that the premises have been over many years and continue being used for the purposes of a motor vehicle garaged, workshop and the sale of fuel and ancillary products. The Vendor discloses that there in currently no outstanding work orders in relation to the property. b. Subject to … clause 22 of these special conditions the Purchaser accepts all risks of any contamination and warrants to the Vendor that the Purchaser has made its own enquiries and has either obtained independent expert advice in this regard or made such other searches and enquiries as the Purchaser considers necessary and appropriate or that the Purchaser has otherwise declined to avail itself of the opportunity to seek such advice. … f. This clause shall not merge on completion. 22 Contamination Report (a) The vendor must contribute $10,000 to obtain and provide a copy of an Environmental Report for the property within eight weeks from the contract date. All other costs due and payable for the Environmental Report are to be paid by the Purchaser; (b) If the Environmental Report indicates that the property does not fall within the NSW Environment Protection Authority guidelines in relation to the contamination levels in, on or under the property and which permits the property to be used as a Service Station then either party may rescind this contract by notice in writing to other party which clause 19 of the contract will apply. (c) "Environmental Report" in this clause means a Phase 2 Contamination Report for the property prepared by JBS&G Sydney Environmental Consultants and must test a minimum of six core holes in the workshop area. (d) This clause is for the benefit of purchaser and may be withdrawn by only the purchaser by notice in writing to the vendor at any time.
3. In The Property Investors Alliance Pty Ltd v C88 Project Pty Ltd [2022] NSWSC 1081, as in this case, issues of rectification as well as construction arose. Rees J addressed rectification first, on the ground that it was necessary to determine what the terms of the contract to be construed were before embarking on the question of construction. White JA, on appeal, referred to this with apparent approval (The Property Investors Alliance Pty Ltd v C88 Project Pty Ltd [2023] NSWCA 291 at [15]). I will follow the same approach.

Rectification

1. KCN's statement of claim sought rectification of SC 22(b) so that either party would be entitled to rescind if: "the Environmental Report indicates that the property does not fall within the NSW Environmental Protection Authority Guidelines in relation to the contamination levels in, on or under and which notwithstanding it permits the property to be used as a Service Station".
2. Counsel for KCN put the rectification case as one based on common mistake. There was no suggestion that Idolbox had taken advantage of a unilateral mistake by KCN so as to bring the principles in Taylor v Johnson (1983) 151 CLR 422 into play. Counsel accepted that it was necessary to demonstrate that both parties had a common intention to contract on the rectified basis.
3. Counsel's contention was that, for the purposes of determining the intention of KCN, it was Mr Kane's intention which was relevant. Counsel contended however that, for Idolbox, the relevant intention was that of Mr Lyons. This was because, in counsel's submission, Mr Lyons was the person who was responsible for conducting the correspondence on Idolbox's behalf. Counsel pointed out that there was no dispute that he was authorised to do so.
4. Central to counsel's argument was the instruction given by Mr Kane to Mr Casimatis and Ms Simpson in his email at 6:02pm on 22 November ([79] above) that SC 22 should "state that the contamination level needs to be within EPA Guidelines for service station & workshop and not just that [the property] can operate as service station and workshop". Counsel submitted (and I have found) that this represented Mr Kane's subjective intention at the time the contract was signed.
5. Counsel submitted that Mr Kane's instruction was taken up in Ms Simpson's email to Mr Lyons at 6:38pm on 22 November ([72] above) in which she stated that she was "instructed to press that the contamination levels (giving either party a right to rescind) be in line with the EPA Guidelines for service stations and workshops in line with our wording in proposed clause 22(b)". According to counsel, Mr Lyons expressly accepted this in his email at 2:34pm on 23 November in stating, "for clarification", that "if there is any contamination then either party shall be entitled to rescind the contract ab initio" ([71] above).
6. Counsel noted that Mr Lyons' "clarification" contained no reference to use as a service station. In counsel's submission, at this point the common intention was complete.
7. Counsel emphasised that this exchange took place against a background where Idolbox's position had first been that there should be no right to rescission on the grounds of contamination at all, and had then shifted to the parties only being entitled to rescind if the Report showed that the property could not be used a service station and workshop. In counsel's submission, the later exchange between the parties indicated that this position had not been accepted by KCN and Idolbox had made a further concession, agreeing that it would be sufficient for rescission if the Report showed that EPA investigation levels were exceeded.
8. Counsel submitted that Mr Lyons' intention was clear on the face of his email, but, that if any doubt arose, a Jones v Dunkel inference should be drawn against Idolbox because of its failure to call Mr Lyons (or Mrs Davidson, who was instructing him).
9. Counsel also submitted that the instructions given to JBS&G as to the preparation of the Environmental Report showed that Mrs Davidson, on behalf of Idolbox, did not contemplate that the Report would express any opinion on whether the property could be used as a site for a service station. It was said to follow that Idolbox's understanding of the agreement between the parties was the same as that of Mr Kane.
10. An initial question arises as to whether a party's internal communications, such as Mr Kane's email to Mr Casimatis and Ms Simpson setting out his instructions, are relevant to establishing the existence of a common intention, and if so, how.
11. The issue arose in Bishopsgate Insurance Australia Ltd v Commonwealth Engineering (NSW) Pty Ltd (1981) 1 NSWLR 429, where counsel for the defendant argued that there must be some communication of the parties' intentions to each other. Yeldham J referred to the judicial and academic debate about whether, in a case where rectification is sought on the basis of the parties' common intention, that intention must be manifested by "some outward expression of accord". His Honour considered that there is no such requirement. But he added (at 431D-E): What many of the cases do make clear, however, is that the firm accord or common intention which must be established as a basis for rectification must be one that has been manifested in the words or conduct of the parties and not merely one which remained undisclosed in the course of the negotiations. But this is a different thing from a requirement that the respective intentions must be communicated…
12. In Ryledar Pty Ltd v Euphoric Pty Ltd (2007) 69 NSWLR 603, a similar argument was put to, and rejected by, the Court of Appeal. Campbell JA accepted (at [267]-[280]) that rectification ultimately involves the enforcement of a subjective intention. But it must be a common subjective intention. In this context, in his Honour's view, it is not always clear what the expression "outward expression of accord" means.
13. His Honour stated (at [281]): In my view, when the fundamental requirement for granting rectification is a continuing common intention of the parties, it is of more assistance to concentrate on what is needed before an intention of the parties to a negotiation counts as a common intention. In my view, when that intention relates to the terms upon which they will contract with each other, it is still necessary for them to know enough of each other's intentions for it to be said that there is a common intention. They might come to know of each other's intentions in this way through those intentions being directly stated, or they might come to know of them through the various other means by which one person's intention can become known to another person. Those means can sometimes involve a process of conscious and deliberate inference. Those means can sometimes involve simply perceiving a gestalt in a series of events.
14. His Honour then gave some illustrations (also at [281]): Those means can depend to some extent on the people involved sharing a common understanding of how particular bodies of knowledge or markets or social institutions they are operating in work - the experienced surgeon, or the experienced chess player, can sometimes see what another surgeon, or chess player, is seeking to do, in a way that an inexperienced person cannot. What matters for present purposes is that for a negotiating party to perform actions or say words from which the other party can gather his or her intention is itself a form of communication. Negotiation of any contract takes place in a context in which various facts are known or assumed by the negotiating parties. Sometimes, for example, if a contract is negotiated in a context where there are well understood business practices and conventions, and nothing is said about those practices and conventions not applying, it can be legitimate to conclude that both parties to the contract intended to act in accordance with those practices and conventions, even if they did not expressly communicate to each other that they intended to act in accordance with those practices and conventions.
15. He went on to quote the passage from the judgment of Yeldham J in Bishopsgate which I have set out above. He added (at [285]): From the distinction that Yeldham J here draws between an intention being "disclosed" and being "communicated", it appears that he is restricting "communicated" to communicated by express statement.
16. Later, Campbell JA returned to the issue when discussing the rationale for equity's intervention in the case of a common mistake, namely to counter unconscientiousness if a party to a contract were to seek "the benefit of those legal rights he would have if the document contained the agreement that the parties had made, when the document does not accurately state the common intention that the parties had" (at [310]). His Honour stated (at [315]): That the rationale for granting rectification is to avoid unconscientious departure from the common intention, assists in deciding what is required for there to be a "common intention". If two negotiating parties each had a particular intention about the agreement they would enter, and their intentions were identical, but that intention was disclosed by neither of them, and they later entered a document that did not accord with that intention, what would be the injustice or unconscientiousness in either of them enforcing the document according to its terms?
17. Tobias JA gave the leading judgment in Ryledar. His Honour rejected the submission that the court must confine itself to the correspondence between the parties "including any relevant conduct". He stated at [182] and [185]: …first, the common intention which must be established by clear and convincing proof to justify rectification must be the actual or true common intention of the parties. Second, evidence of that intention may be ascertained not only from the external or outward expressions of the parties manifested by their objective words or conduct but also from evidence of their subjective states of mind. … …where the correspondence and/or conduct positively establishes the necessary common intention, then assertions by the party opposing rectification of his or her subjective state of mind which is inconsistent with that party's outward manifestation of his or her intention, being unexpressed and uncommunicated, is unlikely to trump his or her expressed intention. But this is because that party is unlikely to be believed.
18. What his Honour said at [185] does not, in my view, contradict the principles stated by Campbell JA. Tobias JA was dealing with a case in which a defendant was using its own alleged subjective intention to resist rectification. It by no means follows that an uncommunicated subjective intention can establish rectification for a plaintiff. Mason P (at [1]) expressly agreed with Campbell JA's additional analysis. In my view, that analysis is authoritative.
19. On his Honour's analysis, the position is clear. Evidence from a party seeking rectification as to that party's subjective intention may be admissible. It is not necessary that that intention be expressly communicated to the other party. But it must be perceived in some manner (and, of course, agreed to) by the other party. Purely internal communications which manifest the first party's subjective intention but which are not so perceived cannot justify rectification on the basis of common intention.
20. But counsel for KCN did not, it seems, necessarily agree. They accepted that the most "weighty evidence" is an "objective understanding of what [the parties'] subjective views may have been, expressed by conduct". But they referred me to the later High Court decision in Simic v New South Wales Land and Housing Corporation (2016) 260 CLR 85 and submitted that it: … takes on Ryledar and says that the stated subjective views of people are not irrelevant and in fact where the evidence may be equivocal in terms of the objective view, it should be taken into account.
21. Counsel would appear to have been referring to the judgment of Keifel J in Simic, with whose reasons French CJ agreed. At [41]-[49], her Honour discussed the proof of common intention required for rectification. She began by stating that what had to be shown was "actual intention" of each of the parties, often referred to as "subjective intention". Her Honour continued (at [42]-[43]): What is necessary to be shown is the actual intention of each of the parties. This has often been referred to by intermediate appellate courts as the subjective intention of the parties. A court, in determining whether the burden of proof is discharged, may be said to view the evidence of intention objectively, in the sense that it does not merely accept what a party says was in his or her mind, but instead considers and weighs admissible evidence probative of intention. It is in this sense that statements such as that of Hodgson J in Bush v National Australia Bank Ltd [(1992) 35 NSWLR 390 at 406], that common continuing intention "must be objectively apparent from the words or actions" of each party, may be understood. It is not to be expected that parties to contractual negotiations will express themselves in terms of their intentions. It is therefore to be expected that proof to the necessary standard will usually require some manifestation of the intention of each party by their words or conduct and that the requisite common intention will be a matter of inference for the court from that evidence. As Yeldham J pointed out in [Bishopsgate], it would not be sufficient for proof of intention to refer to a party's state of mind which remained undisclosed in the course of negotiations.
22. Taken on its own, [42] might suggest that the only relevant question is what was in the party's mind, and that "objective" analysis cannot permissibly go beyond considering contemporaneous manifestations of what the party's state of mind actually was. But I do not agree that this has in some way qualified what Campbell JA said in Ryledar. Her Honour only referred to Ryledar as one of the cases in which the term "subjective intention" had been used; there is no indication that she disagreed with the analysis in that case. Indeed, at [43], she expressly adopted what Yeldham J had said on the subject in Bishopsgate (and which had been approved by Campbell JA).
23. The remainder of her Honour's reasoning does not alter this conclusion. That reasoning addressed was directed to the suggestion by Lord Hoffman in Charterbrook Ltd v Persimmon Holmes Ltd [2009] AC 1101 that the common intention had to be found in a purely objective analysis of the communications between the parties, rather like the analysis used in the construction of a contract. The validity of that proposition is a completely different matter (and it had in fact been rejected by Campbell JA: see at [262-268]).
24. Even if I am wrong in my interpretation of it, her Honour's was only a concurring judgment. The majority (Gageler, Nettle & Gordon JJ at [104]) stated that the issue might be approached by asking what was the actual or true common intention of the parties. For this proposition, they cited Tobias JA's judgment in Ryledar at [182] and [185]. They continued: There is no requirement for communication of that common intention by express statement, but it must at least be the parties' actual intentions, viewed objectively from their words or actions, and must be correspondingly held by each party.
25. I see nothing in this statement of principle to qualify Campbell JA's analysis. In fact, in support of the proposition about there being no requirement for communication, their Honours cited the statement by Yeldham J from Bishopsgate to which Campbell JA referred.
26. The principles stated by Campbell JA in Ryledar have continued to be quoted by the Court of Appeal in this State: see, for example, SAMM Property Holdings Pty Ltd v Shaye Properties Pty Ltd [2017] NSWCA 132 at [113]-[119]; Cherry v Steele-Park [2017] NSWCA 295 at [116]; Property Investors at [160], [162] and [165]. They were also quoted as authoritative by the Full Federal Court in Liberty Mutual Insurance Company Australia Branch v Icon Co (NSW) Pty Ltd (2021) 396 ALR 193 at [313]-[314]. The Full Court upheld the findings of the trial judge that the parties came to know of each other's intentions as a process of inference. See also at [270].
27. In Liberty, the insurance contracts in question were negotiated between market participants in the context of well understood business practices and conventions which operated in that market. The present case is quite different. The parties here were negotiating the terms of a bespoke conveyancing contract. They were doing so in the conventional way, with iterations of the draft contract passing back and forth between solicitors who would obtain instructions and respond. In these circumstances, uncommunicated intentions (including instructions provided by Mr Kane which remained within KCN's camp) cannot be used as a basis for rectification. Any such basis must, rather, be found in the communications exchanged between the parties.
28. The critical communications are the email from Ms Simpson to Mr Lyons on 22 November at 6:38pm, and Mr Lyons' email back to Ms Simpson at 2:34pm on the following day. But I do not think that these communications are nearly as clear on the rectification issue as counsel for KCN contended.
29. Ms Simpson's reference to the contamination levels which would trigger a right to rescind being "in line with the EPA Guidelines for service stations and workshops" may have been prompted by the instructions from Mr Kane which drew a distinction between contamination levels exceeding EPA investigation levels, on the one hand, and contamination levels which would prevent the site from being used as a service station, on the other. But the distinction did not clearly appear, if it appeared at all, in the email itself.
30. First, Ms Simpson referred not to EPA investigation levels, but to "EPA guidelines for service stations and workshops". But there is no relevant EPA investigation level specifically for service stations or automotive workshops. If the intention had been to identify the trigger for rescission as being the exceedence of EPA investigation levels, then the correct terminology would have been "EPA guidelines for [one or other of the three specified types of residential, or commercial / industrial] use".
31. The other point is that Ms Simpson did not simply say that the right to rescind should depend upon exceedence of "EPA guidelines for service station and workshops". She added that this was "in line with" the wording of SC 22(b) as it was then proposed (and ultimately adopted by the parties). There was no indication that what KCN was pressing for involved some different, or potentially different, idea from what was expressed in that clause.
32. In my view, the only conclusion which is clearly and unequivocally conveyed by Ms Simpson's email is that KCN was pressing SC 22(b) in its existing, proposed, form. With the knowledge which we now have of Mr Kane's instructions, we can now see that she may, subjectively, have had more than that in mind. But Mr Lyons was unaware of that context and only had the email itself to go on.
33. It may be accepted that, in a proper case, one party's subjective intentions may be inferred or otherwise perceived by the other party without being stated explicitly. But I do not think that Mr Lyons could have divined from Mr Simpson's email the instructions which lay behind it.
34. Nor can I see why he should have been expected to do so. Mr Lyons did not act for KCN. Ms Simpson did. Why should Mr Lyons have had to concern himself with (and, presumably, report to his own client on) what, if any, instructions he thought might have been given to Ms Simpson on behalf of KCN? To impose obligations of that kind on a solicitor acting for a client on the drafting of a commercial agreements would not only be intolerable for the solicitor. It would deprive the client of much of the practical benefit of retaining a solicitor to handle the matter in the first place.
35. As to Mr Lyons' email of 23 November, I agree with the submission by counsel for Idolbox that the email must be read in its context. A critical part of the context was that Mr Lyons was not purporting to state his, or Idolbox's, position in the negotiations. He was asking for a set of proposed amendments on the express basis that he would obtain instructions.
36. In the circumstances, I think that Mr Lyons' reference to rescission being available "if there is any contamination", without specifying the nature of the contamination, is too slender a basis to support the submission made by counsel for KCN. Idolbox's previous position had been that contamination had to prevent the use of the site as a petrol station and mechanical workshop for rescission to be available. KCN's position was that contamination would justify rescission if it satisfied the terms of SC 22(b) (or, at best, if it exceeded "EPA guidelines for service stations and workshops"). Just what Mr Lyons was trying to clarify cannot, in my view, be objectively determined on the correspondence. He may not have perceived a difference between the parties. But in any case, it does not matter. He was not purporting to negotiate the terms of the contract, but only soliciting a draft for the seeking of instructions.
37. The evidence shows that this is how it was understood by Ms Simpson. Her subsequent email at 3:49pm ([73] above) highlighted the terms of proposed SC 22 as something upon which Mr Lyons needed to obtain instructions. In her email to Mr Kane at 5:37pm ([80] above) she made it clear that despite Mr Lyons having told her that he could see no problem with her proposal (including SC 22), he had not obtained instructions and the terms of SC 22 were therefore still under negotiation. The parties only reached a negotiating consensus when, presumably after having obtained instructions, Mr Lyons sent the "final draft" of the contract at 6:20pm that evening ([75] above).
38. It is a fundamental rule that rectification is only available where the evidence that the contract does not reflect the parties' common intention is clear and compelling. I do not think the evidence of what passed between the parties in their negotiations satisfies this requirement. Mr Kane may have been clear in his own mind that he wanted to have a right to rescind in the event of a contravention of "EPA guidelines for service stations and workshops" (noting the difficulty with that phrase referred to at [167] above) whether or not the contamination was such as to make the site impermissible to for this use. But in my view, that position was not conveyed to Idolbox's representative, Mr Lyons, much less, agreed to.
39. In my view, the claim for rectification fails at this point. But even if I were wrong about that, KCN would face another hurdle.
40. It is clear from the authorities to which I have referred that to obtain rectification it would be necessary for KCN to prove that Idolbox intended to contract on the terms as KCN did. As already noted, KCN's case is that the relevant intention was that of Mr Lyons, or, alternatively, of Mrs Davidson. As neither of them gave evidence, that conclusion could only be reached by inference, including, if available, the Jones v Dunkel inference for which counsel contended.
41. Determining whose intention is relevant for the purposes of a rectification claim, in circumstances where a lawyer is involved in formulating the contract in question, can be tricky. The starting point must be that the intention is that of the client who will be the party to the contract, not the lawyer. But in some situations, the client may delegate the wording of the contract, or parts of it, to the lawyer. In such a case, the client's intention may properly be understood as an intention to contract on terms to be settled by the lawyer. If so, then, generally speaking, within the scope of the authority so delegated, the lawyer's intention will be determinative.
42. I found counsel's submission rather illogical that the intention of Mr Kane, was the relevant intention for KCN, but that of Mr Lyons was the relevant intention for Idolbox. Clearly, counsel did not suggest that the intentions of Mr Casimatis and Ms Simpson, as the solicitors acting for KCN, were relevant. Why then should Mr Lyons' be? There is no evidence of any delegation to him. Indeed, the evidence is to the contrary. As already noted, Mr Lyons' correspondence refers repeatedly to taking instructions, including, specifically, on SC 22.
43. For these reasons, I do not think that Mr Lyons' state of mind is relevant. It follows that no Jones v Dunkel inference can arise from the failure to call him. The question is one of the intention of Mr Lyons' client, Idolbox.
44. On the face of it, the intention of Idolbox, as a corporate entity, would have been constituted by the collective intention of its two directors, Mr and Mrs Davidson. I have found that Mr Davidson's intention was not, in fact, consistent with the rectification which KCN seeks. Of itself, that may be enough to dispose of the claim. But, for completeness, I will go on and address counsel's argument on the footing that the relevant intention was that of Mrs Davidson alone.
45. It is clear from the decision of the Court of Appeal in the Property Investors case that the intention of a defendant in a rectification case may be the subject of a Jones v Dunkel inference. But that does not mean that every time rectification is alleged, the defendants are obliged to go into evidence about their internal thinking about the contract at the peril, if they do not do so, of having an inference drawn against them that it was the same as the plaintiff's alleged intention. The inference cannot be used so as to plug a hole in the plaintiff's case: Property Investors at [131], [145].
46. All the evidence relevantly shows is that, through its lawyers, KCN pressed for the inclusion of SC 22(b) in its originally drafted form, and Idolbox agreed to that. There is no reason to think that Mrs Davidson, any more than Mr Lyons, ought to have looked behind KCN's stated position in the negotiations for the purpose of working out what instructions KCN was giving its lawyers, or that she would have been able to divine KCN's instructions if she had done so.
47. Nor can any inference be drawn from Idolbox's position in the negotiations. There might have been many reasons why Mrs Davidson (assuming it was exclusively her intention which was relevant) ultimately accepted SC 22(b). She may have considered that, on its true construction, SC 22(b) meant that rescission would not be available unless the property could not be used as a service station. She may not even have been aware at all of the distinction between investigation levels and action levels for the purpose of applying the relevant EPA guidelines. It cannot simply be assumed that she must have seen the matter in the way in which Mr Kane saw it in his own mind.
48. I do not think the terms of the JBS&G retainer (assuming, for the sake of argument, that they can be relied upon to determine Mrs Davidson's intention as at the date the contract was entered into) assist KCN's argument. The wording in the retainer is that of JBS&G. Just because Mrs Davidson was prepared to accept the retainer does not mean that she accepted whatever view of the terms of the contract (if any) was implicit in the retainer. Furthermore, I do not think that it is clear from the terms that the use of the site as a petrol station was irrelevant. The passage I have quoted from the section "Objectives" specifically refers to the former and continuing use of the site for that purpose.
49. In my view, no adverse Jones v Dunkel inference arises or, if it does, it does not affect the outcome. I am not satisfied that KCN has established, let alone clearly established, that Idolbox shared KCN's intention about the operation of SC 22(b).
50. It may be possible to reach the same conclusion in a different way. Rectification is a doctrine which depends upon a mistake having been made in the expression of the relevant instrument. It has been said that the parties need not have agreed on the precise formulation of the amendment required because of the mistake (Liberty Mutual Insurance at [284]). But this cannot be pressed too far. It remains essential that for the court to be satisfied, not only that a mistake has been made, but that the parties agreed on some other formulation instead.
51. In the present case, it might have been contended for KCN that there had been a mistake in failing to ensure that the clause reflected Mr Kane's instructions. Internal evidence from KCN might have then identified how the mistake came to be made. But there was no such evidence in the present case. The critical witness would have been Ms Simpson. She did not give evidence at all, and Mr Casimatis did not touch on the question. KCN's case should arguably be rejected on the simple basis that it has not been demonstrated that the ultimate formulation of SC 22(b) involved any mistake on KCN's part at all.

Interpretation of contract

1. There was no dispute about the principles to be applied in interpreting the contract. The parties agreed that, in accordance with what the High Court said in Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104 at [46], it was to be interpreted by reference to its text, context and purpose. The context includes "any contract, document or statutory provision" referred to in the contract. I will refer further to this below.
2. The argument for both parties focussed on the words "and which permits the property to be used as a service station" appearing at the end of the part of SC 22(b) which defined when the parties were entitled to rescind. I will refer to those words as the "service station usage phrase". For convenience, I will abbreviate the words "NSW Environment Protection Authority guidelines" in SC 22(b) to "EPA guidelines".
3. Counsel for KCN submitted that, as a matter of proper interpretation, the service station phrase had the same meaning as the words KCN sought to substitute in it by rectification: "and which permits" was to be read as "notwithstanding it permits", or, alternatively, "irrespective of whether it permits". In counsel's submission, the phrase operated "for the avoidance of doubt". It was there to make it clear that "what is relevant is the level of contamination, not whether that contamination impacts on a particular use of the property".
4. Later in the argument, counsel picked up a suggestion made by counsel for Idolbox that, as a matter of language, the clause created two conditions for rescission, one triggered by exceedence of the guidelines and the other by exceedence of levels which would permit the property to be used as a service station. Counsel for KCN argued that the clause could have strange and capricious results if the two conditions operated independently of each other.
5. Counsel for KCN also relied on a further consideration, which he described as part of the matrix of fact, but which was really a matter of text (or context). Counsel submitted that the language of SC 22(b) was broad. The state of contamination disclosed by the Environmental Report was defined by reference to what the Report "indicates", which was wider than "states". In counsel's submission, the reference to contamination "in, on or under" was also wide. Counsel submitted that this breadth was a reason to give the circumstances in which contamination would trigger a right to rescission a broad meaning as well.
6. Apart from textual considerations, counsel identified several other matters which, in counsel's submission, formed part of the matrix of fact within which the transaction took place. First, counsel submitted that it is a notorious fact that petrol stations may potentially be contaminated. It was similarly notorious, counsel submitted, that such contamination was known to have significant effects on the value of properties so affected. Expenditure might be required on the site on account of contamination (for instance, in reporting) even if that contamination did not prevent the site from continuing to be used.
7. Counsel further noted, against this background, that although the parties would have known that the site was potentially contaminated, they did not know whether in fact it was, or, if so, to what extent. Contamination was thus a known possibility, but an unknown quantity.
8. Counsel next pointed to the zoning of the property. Counsel submitted, by reference to the information memorandum published by PPSA ([24] above), that the site had been advertised as having a potential for residential redevelopment. Counsel submitted that, in the circumstances, it would be "uncommercial" to assume that the purchaser was only interested in continuing the use of the land as a service station. This was particularly significant, as guidelines for residential use, in the event of residential redevelopment, would be more stringent than for continued industrial or commercial use.
9. Counsel also referred to the statement made on behalf of KCN in Ms Simpson's email of 12:56 pm on 22 November ([68] above) that KCN would not be bidding at the auction unless SC 22, as proposed on behalf of KCN, was included in the contract. Counsel submitted that this reinforced the conclusion that the right to rescind was important to KCN as purchaser.
10. I deal first with textual considerations. The wording of SC 22(b) is somewhat convoluted. But on any view the words "and which" at the beginning of the service station usage phrase are a reference back to something. I think that, as a matter of ordinary usage, the reference is to contamination levels on the site (or, perhaps, the EPA guidelines). Grammatically, that is the thing (or those are the things) by reference to which the property "does not fall" if rescission is to be permitted.
11. One apparent problem with this analysis is that the word "permits" is singular, but the contamination levels (and the EPA guidelines) are plural. But SC 22(b) is the type of sentence which "produces constant blunders" of this sort: see 'Number' art 5 in Fowler's Modern English Usage, 2nd ed (1983). I think the word "permits" should be read as "permit" to agree with the subject of the phrase. I did not understood counsel for KCN to dispute this reading.
12. I therefore do not accept that, textually, the service station usage phrase introduces a separate or alternative condition for rescission. Rather, the phrase forms part of a composite test which must be satisfied before rescission is permissible. That composite test refers (directly, or by reference to EPA guidelines, indirectly) to contamination levels at the site.
13. On this construction of SC 22(b), it would be a radical change to read the words "and which permits" as "notwithstanding it permits" (if, as I have suggested, "and which permits" should be read as "and which permit", the reading would be "notwithstanding they [the contamination levels] permit"). The effect would be to change the service station usage phrase from a requirement imposed by a conjunction ("and") to something irrelevant ("notwithstanding"). As counsel for Idolbox pointed out, it would be the same in substance as simply deleting the phrase entirely. In my view, there would need to be a compelling justification for adopting an interpretation which would, in effect, neuter the ordinary meaning of the language chosen by the parties.
14. It was, as I understood it, common ground that the "EPA guidelines" in SC 22(b) referred to the EPA Guidelines for Consultants Reporting on Contaminated Land ([57] above). In turn, those Guidelines pick up the ASC NEPM ([39] above) as most recently amended in 2013. I likewise understood the parties to agree that the Guidelines and the Measure form part of the interpretative context in accordance with the passage I have quoted from Mount Bruce Mining. This means that those documents may be taken into account even though it is at best questionable that the clause was drafted with their text in mind (see [98] and [167] above)
15. To the extent that the "EPA guidelines" in SC 22(b) require reference to actual numerical measures of contamination, the reference must be to the investigation or screening levels in schedule B1 ([44] above), as they are the only numerical levels specified in the Measure. It might be argued that this supports the idea that, on its true interpretation, SC 22(b) provides for a right of rescission if no more than investigation levels are exceeded.
16. If SC 22(b) did not contain the service station usage phrase, the argument might have force. But the phrase has been included in SC 22(b), and must be given some meaning if that is possible. A site investigation report under the ASC NEPM does not, of course, directly permit or prohibit anything. But such a report may, in accordance with the Measure, express an opinion as to whether remediation or other action is or may be required for the site to be used for a specified purpose. The word "permits" in the service station usage phrase is perfectly capable of being read in that way.
17. In my view, this conclusion is supported by other contextual considerations. SC 22(b) operates as an exception. What the Environmental Report must do for rescission to be permitted is to "indicate" that the site does not fall within (ie, exceeds) relevant contamination levels. There is no certainty, and no requirement, that the Report will contain an affirmative conclusion about that. If not, the general provisions of SC 18, which prohibit the purchaser from rescinding or claiming compensation on account of contamination, apply.
18. For these reasons, I do not consider that SC 22(b) should be interpreted in the way sought by counsel for KCN.
19. In my view, the natural and ordinary meaning of the clause is clear, and it is not necessary to consider the matrix of fact. In any event, I do not think that the considerations identified by counsel have much, if any, value in resolving the present dispute.
20. It is evident that the parties were aware of the potential for contamination and sought to deal with it by providing for an environmental report to be obtained and for the parties to have a right of rescission depending upon what that report might show. The difficulty is in deciding what the language used by the parties to describe the relevant contingency actually meant. General observations about the potential importance of contamination do not assist in making the relevant constructional choice. In particular, the mere fact that contamination could be important for a purchaser is, in my view, no reason to read the rescission clause more or less widely than its language fairly requires.
21. Nor, in my view, would the importance of rescission to KCN be of assistance. The statement made on KCN's behalf by Ms Simpson that KCN would not bid at the auction unless SC 22 was included in its proposed form did not of course oblige KCN to carry through on its threat. How seriously KCN meant the threat and what effect it had on Idolbox (given that there seem to have been other potential bidders) cannot realistically be assessed. In any event, the rule is that the negotiating positions taken by the parties are not admissible; they show the terms on which the parties individually may have hoped to contract, but do not reveal anything about the proper interpretation of the terms on which the parties in fact contracted: Codelfa Construction Pty Ltd v State Rail Authority (NSW) (1982) 149 CLR 337 at 352. Furthermore, in the present case KCN's negotiating position was expressed in the terms of SC 22(b) as ultimately included in the contract. Even if admissible for the purpose, that position would not cast any light on making the constructional choice about the meaning of the clause.
22. Nor, I think, does the argument by KCN about potential residential redevelopment of the property assist KCN's case. If anything, it seems to me to point the other way.
23. Counsel's argument was founded on the fact that, under the ASC NEPM guidelines, investigation levels for residential properties are usually different from, and lower than, those which apply to commercial or industrial sites. What this points up, though, is that the relevant investigation levels for a site can only be determined in the context of some assumption about its future use.
24. Although I think this is clear from the terms of the Measure itself, and is thus available on Mount Bruce Mining principles, it is confirmed by the evidence in the present case. Both the experts who gave evidence in the case began by noting that relevant investigation levels were based on the continued use of the site for its existing purposes, namely commercial or industrial. The same was so for the Contamination Report by JBS&G itself.
25. KCN's preferred interpretation is that SC 22(b) gives a right to rescind if the "EPA guidelines" (ie, investigation levels) are exceeded. But on that interpretation, as counsel's own argument demonstrates, there would be no specification of which set of environmental criteria were to be used for the assessment. The clause would be unworkable. On this view, the service station usage phrase, rather than being surplusage inserted for more abundant caution, performs a vital role in specifying an essential element in the assessment to be conducted.

Effect of Environmental Report

1. The remaining issue is whether the Environmental Report "indicates" that the property did not fall within the EPA guidelines in the relevant sense. This gave rise to some questions which the parties sought to address in their expert evidence.
2. It will be recalled that Dr Martens was asked, in the preparation of his report, to identify the relevant guidelines for the purposes of the Environmental Report in the present case. Dr Martens identified the ASC NEPM guidelines as the relevant ones. As I have indicated, there is no dispute about that. But for completeness it should be noted that I do not consider that the guidelines' identification was a matter for expert evidence. Ultimately, the question is what document or documents the parties were referring to. This is a matter for the Court to determine, as a matter of interpretation of the contract.
3. SC 22(b), as a matter of language, draws attention to what the Environmental Report "indicates". It is therefore not a matter of what the contamination levels actually were, or what consequence those levels might actually have had for the use of the property. Accordingly, Mr McCormack's conclusions on those questions, based on his further investigations and his interpretation of the results, were, in my view, irrelevant.
4. A further question arises about the use of expert evidence on the issue. The court's decision on whether a contractual condition of the present type was satisfied might, in some circumstances, be assisted by evidence, in generalised form, of scientific concepts or regulatory practice. Ultimately, however, the question here is one of interpretation of the Environmental Report and of SC 22(b) itself. That is exclusively a matter for the Court, and it must be undertaken by reference to submissions, not evidence, from the parties. It follows that Dr Martens' answers to the questions which were posed to him (see [121] above) were, strictly speaking, not admissible.
5. The Report did identify some exceedences of NEPC investigation levels at the site. But on my interpretation of SC 22(b) this was insufficient to give KCN a right of rescission.
6. The Report plainly did not contain any express opinion on whether the site could be used as a service station based on the information collected. Nor, in my view, did it contain any statement or information which could be read as indicating a view on that question. It simply did not say one way or another.
7. The onus lies on KCN to demonstrate that it had a right of rescission. That requires KCN to demonstrate affirmatively that the Environmental Report "indicated" that the contamination levels presented in the Report were such that the property could not be used as a service station. KCN has failed to prove this and accordingly its claim to be entitled to rescind on the basis of SC 22 fails.

Conclusions and orders

1. I have concluded that: 1. KCN's claim to have the wording of special condition 22 rectified fails; 2. KCN's contention as to the construction of the existing language of SC 22 should be rejected; and 3. as a result, KCN's claim to rescind the contract based on the findings of the Environmental Report fails.
2. As already indicated, the only issue posed in these proceedings was whether KCN was entitled to rescind. There is no cross-claim for specific performance. In the circumstances, it seems to me that the appropriate course is to dismiss the proceedings. Any further dispute between the parties about enforcement of the contract which requires consideration by the Court can be brought forward in separate proceedings.
3. I see no reason why costs should not follow the event. Any application for any further or different order can be made in accordance with the Rules.
4. The orders of the Court are: 1. Order that the plaintiff's claims be dismissed. 2. Order that the plaintiff pay the defendants' costs of the proceedings.

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DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 18 April 2024