LIEF INVESTMENTS PTY LTD v CONAGRA INTERNATIONAL

Court of Appeal (NSW)|1998-06-17|Before: Mason P

LIEF INVESTMENTS PTY LTD v CONAGRA INTERNATIONAL FERTILISER CO

CONTRACT - terms of contracts - rectification - incorporation of terms by reference

The appellant is an Australian company which is 70 percent owned by Sinochem, a public authority of the Government of the Peoples Republic of China. It was engaged in international trade in fertilisers and entered into an agreement with the respondent, an American company, for the supply of urea.

The trial Judge held that the exchange of faxes by the parties constituted negotiations between the parties which did not merge into a contract until the written agreement was executed on 24 February 1997.

Whether the contract between the parties was concluded by the interchange of faxes and so included, by reference, the terms of Sinochem's standard contract.

If the contract was made upon the execution of the written agreement, whether the appellant was entitled to have the contract rectified.

Whether, in any event, the term including the terms of Sinochem's standard contract was in a form so uncertain that it did not enable the inclusion of other terms by reference.

Whether, even if the term enabled the incorporation of other terms and conditions of an identified Sinochem standard contract, an arbitration clause could be incorporated by general words and without express reference.

When an agreement has been made in writing it is to be treated, unless the parties are shown to otherwise intend, as the full expression of their obligations: Gordon v MacGregor (1909) 8 CLR 316, A & J Inglis v John Buttery & Co [1878] 3 App Cas 552, Maybury v Atlantic Union Oil Co Ltd (1953) 89 CLR 507.

There was no objective evidence which suggested that the parties did not intend that the formal executed contract would state all the terms of the contract. Therefore, the terms of the contract are to be found fully set out in the contract executed on 24 February 1997 which did not include a clause incorporating the terms and conditions of Sinochem's standard contract.

With respect to rectification, the onus was on the appellant to adduce convincing proof that the formal executed contract did not embody the final intention of the parties: Pulkallus v Cameron (1982) 180 CLR 447.

Before an order for rectification could be made the appellant had to show that intention expressed in the formal contract was displaced by a different intention of both parties which existed up until execution: Commissioner of Stamp Duties (NSW) v Carlenka Pty Ltd (1995) 41 NSWLR 329.

The trial Judge was correct in holding that there was no continuing intention of the parties to include the Sinochem standard terms in the formal executed contract. Therefore, the agreement executed on 24 February 1997 excluded the terms and conditions of Sinochem's standard contract.

Where the parties have chosen to incorporate terms by reference and there is some doubt as to the terms, the Court should do its best to identify the terms that were intended: Smith v South Wales Switchgear Co Ltd [1978] 1 WLR 165.

The appellant was unable to satisfactorily identify what were the terms and conditions of Sinochem's standard contract. Therefore, even if the contract between the parties was found to contain a clause including the other terms and conditions of Sinochem's standard contract, that term would be too uncertain to have any effect.

Where the parties to an agreement have agreed to incorporate by reference the terms and conditions of a standard contract, they are bound by any arbitration clause in the standard contract: Carob Industries Ltd (In Liquidation) v Simto Pty Ltd (unreported) Full Court of the Supreme Court of Western Australia, 22 May 1997; The Annefield [1971] P

In the present case, if the parties had agreed to the incorporation of readily identifiable terms and conditions of Sinochem's standard contract, they would have been bound by any arbitration clause in those terms.

A & J Inglis v John Buttery & Co [1878] 3 App Cas 552 ABC v XIV Commonwealth Games Ltd (1988) 18 NSWLR 540 Air Great Lakes Pty Ltd v K S Easter Pty Ltd (1985) 2 NSWLR 309 Aughton Ltd v M F Kent Services Ltd (1991) 57 BLR 6 Bremer Vulcan Schiffbau Und Maschinenfabrik v South India Shipping Corporation Ltd [1981] AC 909 Carob Industries Ltd (In Liquidation) v Simto Pty Ltd (unreported) Full Court of the Supreme Court of Western Australia, 22 May 1997 Commissioner of Stamp Duties (NSW) v Carlenka Pty Ltd (1995) 41 NSWLR Excess Insurance Co Ltd v Mander [1997] 2 LIR 119 Gordon v MacGregor (1909) 8 CLR 316 Hope v RCA Photophone of Australia Pty Ltd (1937) 59 CLR 348 Maralinga Pty Ltd v Major Enterprises Pty Ltd (1973) 128 CLR 336 Masters v Cameron (1954) 91 CLR 353 Maybury v Atlantic Union Oil Co Ltd (1953) 89 CLR 507 Merak [1965] P 223 Modern Building Wales Pty Ltd v Limmer & Trinadad Co Ltd [1975] 1 WLRPulkallus v Cameron (1982) 180 CLR 447 Smith v South Wales Switchgear Co Ltd [1978] 1 WLR 165 T W Thomas & Co Ltd v Portsea Steamship Company Ltd [1912] AC 1 The Annefield [1971] P 168

The appellant, Lief Investments Pty Ltd (Lief Investments), is an Australian company. Seventy percent of its shares are owned by Sinochem, a public authority of the Government of the Peoples Republic of China. In 1996 and 1997, Lief Investments was engaged in international trade in fertilisers. The respondent, ConAgra International Fertiliser Company (ConAgra), is an American-based company which in 1996 and 1997 was also extensively engaged in the international commodities trade.

On 21 February 1997 Lief Investments sent two faxes to ConAgra, each bearing dates in May 1996. The first made a "firm bid" for thirty thousand metric tons minimum/maximum of urea in bulk at a price of US$186 a metric ton and the second a "firm bid" for fifteen thousand metric tons at US$188 a metric ton,

WAGF INVESTMENTS PTY LTD v CONAGRA INTERNATIONAL FERTILISER CO (Shell JA)

both ex Huangpu Port. Each fax set out the specification and terms and conditions about packing, origin, payment and charges and cost and concluded "other terms and conditions as per Sinochem's standard contract'. Except to the extent that it showed that they were based on old precedents, nothing turned upon the wrong dating of the faxes.

On the same day, ConAgra faxed not Lief Investments but Lief Resources Pty Ltd:

Thanks for your firm bid, we are pleased to confirm the following:"

There followed the name of the buyer, Lief Resources Pty Ltd, the name of the seller, ConAgra, the commodity, specifications, quantity, price, packing, discharging and bagging fees, origin, payment and charges and costs. At the end of these terms and conditions the fax stated "other terms and conditions as per Sinochem's standard contract".

The significance of Sinochem's standard contract in the present case was that it was said to contain an arbitration clause in the following terms:

"All disputes in connection with this contract or the execution thereof shall be settled by amicable negotiations. In case no settlement can be reached, the case under dispute can then be submitted to the Foreign Trade Arbitration Commission of the China Council for the Promotion of International Trade for arbitration. The arbitration shall take place in China and shall be executed in accordance with the Provisional Rules of Procedures of the said commission and the decision made by the commission shall be accepted as final and binding upon both parties for settling the disputes. The fees for arbitration shall be borne by the losing party unless otherwise awarded."

It is common ground that the reference to Lief Resources Pty Ltd as buyer was an error. Lief Investments should have been shown as the buyer. Nothing turns upon this.

On 24 February 1997 ConAgra and Lief Investments signed a contract number CFC-97AF. The buyers were wrongly shown as ConAgra and the sellers wrongly shown as Lief Resources Pty Ltd. The contract provided:

"This contract is made out by and between the Buyers and the Sellers, whereby the Sellers agree to sell and the Buyers to buy the undermentioned goods subject to terms and conditions as stipulated below:"

No point has been taken about the switching of the names of the buyers and sellers. Buyers must be read as Lief Investments and sellers as ConAgra.

Eight numbered terms and conditions were set out. No mention was made of any terms or conditions of "Sinochem's standard contract". Above the signatures of the companies appeared:

"This contract is concluded on 21 February 1997, and made out in two originals in English language, each party holding one as evidence thereof after signing."

On 24 February 1997 ConAgra sent a commercial invoice to Lief Resources Pty Ltd quoting the contract number CFC-97AF and showing the net invoice value of US$2,820,000 calculated by reference to 15,000 metric tons at US$188 per metric ton.

On 27 March 1997 Lief Investments wrote terminating the contract for alleged breach. On 28 March 1997 ConAgra by its Hong Kong solicitors wrote accepting what was said to be Lief Investments' repudiatory breach of the contract.

ConAgra brought proceedings against Lief Investments by summons in the Commercial Division to recover damages for breach of contract described in the amended summons as "a contract dated 24 February 1997 and executed by the Plaintiff and the Defendant". On 6 August 1997 Lief Investments filed an amended notice of motion for orders that the action be stayed pursuant to the arbitration clause in the contract or, alternatively, that the proceedings be stayed on the basis of forum non conviens. In support of the stay application Lief Investments relied on s7 of the International Arbitration Act 1974 (Cwth). On 24 September 1997 Lief Investments filed a cross-claim for rectification of what was described as "the document sued upon by the Plaintiff in the Amended Summons dated 24 February 1997" so as, relevantly, to add the words after cl8 "other terms and conditions as per Sinochem standard contract" and to append to the document "the Sinochem Standard Terms and conditions in the form identified in Annexure 'A' to the affidavit of Mr Zhenbang Yu sworn 13.8.97."

Rolfe J heard the notice of motion and cross-claim on 18 and 19 September and 7 and 8 October 1997. The parties thereafter filed further written submissions and on 27 October 1997 his Honour dismissed the amended notice of motion and the cross-claim. Pursuant to leave to appeal granted on 8 December 1997, Lief Investments appealed against that decision.

Mr Bathurst QC, who appeared with Mr King for Lief Investments on the appeal, limited the grounds of appeal to the following matters:

Whether the contract between the parties was concluded by the interchange of faxes on 21 February 1997 and so included the term "All other terms and conditions as per Sinochem's standard contract".

If alternatively the contract between the parties was made on 24 February 1997in the form signed by them, whether Lief Investments was entitled to have the contract rectified in the way claimed in its cross-claim.

Whether, in any event, the term "other terms and conditions as per Sinochem's standard contract" was in form so uncertain that it did not enable any other terms and conditions to be incorporated into the contract.

Whether, even if the term enabled the incorporation of other terms and conditions of an identified Sinochem standard contract, an arbitration clause could be so incorporated by general words and without express reference; T W Thomas & Co Ltd v Portsea Steamship Company Ltd [1912] AC 1.

Leaving aside for the moment any question of uncertainty about the expression "Sinochem's standard contract" and its consequences, it is necessary first to consider whether the parties made a binding contract by the interchange of faxes on 21 February 1997. Rolfe J held that the exchange of facsimile transmissions constituted the negotiations between the parties, which did not merge into a contract until the document of 24 February 1997 was executed.

The first reason which led his Honour to conclude that the parties had not gone beyond negotiating on 21 February 1997 was the fact "that the time for payment and the payment of certain charges had not been agreed". In order to understand this it is necessary to refer in greater detail to some of the terms of the faxes. The second fax that Lief Investments sent contained the following terms:

"8. Payment: 30 days after delivery order issued from the port to the party instructed by LIEF INVESTMENTS PTY LTD written authorisation.

WAGF INVESTMENTS PTY LTD v CONAGRA INTERNATIONAL FERTILISER CO (Shelleés JA)

Charges and Costs: All charges and cost prior to the delivery order issuing date shall be borne by the Sellers and thoses [sic] after that date shall be borne by the Buyers. Bag cost and bagging charges shall be paid by the Buyers directly to the port according to normal rate."

By contrast, in ConAgra's responding fax, payment was to be before 26 March 1997 and all other charges and costs prior to 24 February 1997. However, Mr Yu, Lief Investments' general manager, whose duties included negotiating and concluding contracts for fertiliser trading and the execution of those contracts and who sent the faxes in question, gave evidence that after he sent the second fax he had a discussion with a director of ConAgra's Hong Kong subsidiary, Madam Ku Chi Chen. Relevantly he said:

"....1 discussed with her the date of this thirty days, from which date. I said it shouldn't start from a Friday, that date, till the thirty days, the payment should start on Monday, and we agreed on that."

21 February 1997 was a Friday, 24 February a Monday. His Honour did not refer to this evidence. It was uncontested. Thirty days from 24 February 1997 was 26 March. This conversation explained the change in the terms relating to payment and charges and costs in ConAgra's fax. The changes confirmed ConAgra's acceptance of Mr Yu's request.

Rolfe J was also of opinion that the evidence made it clear that Lief Investments contemplated that it would, as it had done in the past and did so thereafter, enter into a contract in the form of the document, which ultimately bore date 24 February 1997. His Honour said:

"Secondly, the defendant regarded the entry into such a contract as a matter of importance and, when the document dated 24 February 1997 was received, Mr Yu read it carefully before he executed it on behalf of the defendant. The evidence of Mr Yu and Mr Ouyang, to which I have referred, satisfies me that the defendant required that there should be a formal contract, and that Mr Yu, in entering into this contract, was complying with that requirement. Accordingly, he read the document of 24 February 1997 carefully before he executed it. He noted the absence of a reference to the standard Sinochem terms and conditions and to any such document being annexed. In my opinion he, on behalf of the defendant, had no intention of entering into the contract until he signed the document of 24 February 1997.

His evidence was that he expected Sinochem terms and conditions to be affixed to the hard copy of the document notwithstanding the failure to make reference to them. In my opinion the proper interpretation of the evidence, viewed objectively, is that the communications of 21 February 1997 were negotiations leading up to the formation of the contract on 24 February 1997. The reference to the contract having been concluded on 21 February 1997 is, in my view, a reference [to] the date from which the contract was to operate. The words of the document of 24 February 1997 make it clear that the terms and conditions were contained in that document. For these reasons I am satisfied that the contract was entered into on 24 February 1997. The evidence of Mr Lee, when read in totality and in the light of the preparation of the document of 24 February 1997, supports this conclusion."

Although his Honour said that the proper interpretation of the evidence "viewed objectively" was that the communications on 21 February 1997 were negotiations, the evidence to which he referred, in part, at least, seems to be of the subjective intentions or requirements of Lief Investments or its officers. His Honour rejected a submission, which Mr King, who appeared for Lief

Investments at the hearing, made, that in the summons ConAgra filed before amendment it asserted that the contract had been entered into on 21 February 1997.

An examination of the objective evidence up to the time when the interchange of faxes on 21 February 1997 was complete leads, I think inevitably, to the conclusion that the parties had reached a binding contract; see generally Air Great Lakes Pty Ltd v K S Easter Pty Ltd (1985) 2 NSWLR 309, particularly at 337. Of the three classes of case referred to by the High Court in Masters v Cameron (1954) 91 CLR 353 at 360, where parties who have been in negotiation reach agreement upon terms of a contractual nature and also agree that the matter of their negotiation shall be dealt with by formal contract, if that was the position here, the first was apposite. The parties had reached finality in arranging all the terms of their bargain and intended to be immediately bound to the performance of those terms, but at the same time proposed to have the terms restated in the form which would be fuller or more precise but not different in effect.

The first part of the last paragraph of the form of contract signed on 24 February 1997 ("This contract is concluded on 21 February 1997") at first sight tends to support this conclusion. The conduct of the parties after the interchange of faxes was complete can be looked at in determining whether objectively they intended by that interchange. to make a binding contract. In ABC v XIVth Commonwealth Games Ltd (1988) 18 NSWLR 540 at 547-8 Gleeson CJ, with whom Hope and Mahoney MA agreed, said:

"There is ample authority for the proposition that reference may be made to the correspondence between the parties subsequent to [the date when the agreement relied on was said to have been entered into] for the purpose of showing that 'it was not in the contemplation of either party that they were to be bound until all the essential preliminaries had been agreed to, nor until a formal contract had been drawn up embodying all the matters incidental to a transaction of such a nature': Barrier Wharfs Ltd v W Scott Fell & Co Ltd (1908) 5 CLR 647 at 669 per Griffiths CJ; see also Howard Smith and Co Ltd v Varawa (1907) 5 CLR 68; Hussey v Horne-Payne (1879) 4 App Cas 311; B Seppelt and Sons Ltd v Commissioner for Main Roads (1975) 2 BPR 9147 and Film Bars Pty Ltd v Pacific Film Laboratories Pty Ltd (1979) 1 BPR 9251."

"The case involves the objective determination of the intention of the parties from a consideration of a series of communications exchanged by them in the context of their dealings over a period of time. In those circumstances it is both appropriate and necessary to have regard to the commercial circumstances surrounding the exchange of communications and, in particular to the subject matter of those communications: Allen v Carbone (1975) 132 CLR 528 at 531.2. Furthermore, as was noted earlier, it is proper to have regard to communications between the parties subsequent to the date of the alleged contract to the extent to which those communications throw light upon the meaning of the language which is being considered for the purpose of determining whether it expresses an intention one way or the other upon the critical matter. At the least, such subsequent communications will often form part of the context in which the particular exchanges in question are to be evaluated."

"In cross-examination he agreed that it was part of the Lief Group policy always to obtain a formal document styled contract, when a contract was entered into with a contract number, and that if he set out a list of current contracts he

WAGF INVESTMENTS PTY LTD v CONAGRA INTERNATIONAL FERTILISER CO (Shellét JA)

would do so by reference to those numbers. The facsimile transmissions of 21 February 1997 did not have a number. He agreed that it was essential in the international commodity business to know precisely the terms of an agreement and that that was the reason for the policy requirement of a written contract. He could not remember entering into an international commodity contract where he failed to obtain a written formal contract document, and he said that to do so would be contrary to Lief policy."

"On 24 February 1997 the Plaintiff faxed to the Defendant a copy of the formal contract and asked me to sign it and return it by facsimile, which I did on that day. When I signed the faxed copy I noticed that it did not have attached to it the Sinochem terms and conditions. However I was not concerned at this because I expected those standard terms and conditions which at the time I believed were well known to both parties and customary in the trade to be attached to the executed copies of the original contracts when prepared by the Plaintiff and forwarded to me in due course. The terms to which I refer are those attached to the contract which is Annexure 'A' to my Affidavit sworn 20 June 1997. I was not concerned that this may have been overlooked by the Plaintiff because in this case there has been an exchange of facsimile transmissions on 21 February 1997 from both the Plaintiff and the Defendant which expressly referred to those terms. Furthermore normally when we exchange contracts by facsimile transmission it is not customary to include the standard terms and conditions which comprise an extra series of pages in standard form known to the parties."

The terms attached to the contract annexure 'A' to Mr Yu's earlier affidavit of 20 June 1997 dealt with matters under the following clause headings: Insurance Terms of Payment Terms of Shipment Discharge Conditions Advice of Shipment Shipping Documents Inspection Penalty for late delivery . Force Majeure

The arbitration clause was as I have quoted it. The terms of payment were quite different from those in the exchanged faxes or the formal agreement and cl3, cl4, cl5, cl6, cl7 and cl8 if not cl9 were all concerned with the sea carriage of goods and not applicable to this contract.

In evidence was an undated letter from Sinochem International Fertiliser Trading Company to Lief Investments which stated as follows:

"As you know China National Chemicals Import & Export Corp (SINOCHEM) is a state-owned company, which has been appointed by the Chinese government to be the sole agent for all fertiliser import to China. Sinochem International Fertiliser Trading Company is an immediate subsidiary of SINOCHEM and is authorised by SINOCHEM to have the exclusive right to sign all contracts for fertiliser import to China before customs clearance.

Also known to all manufacturers and trading companies in the fertiliser industry related with China market. Sinochem standard contract terms and conditions must apply to all fertiliser import contracts to be signed by us for China market. Especially major terms like inspection, arbitration, and documents

requirement etc have to follow Sinochem standard contract terms and conditions which have been stipulated in compliance with China government regulations.

Enclosed please find the Sinochem standard contract terms and conditions for your reference."

The enclosed standard contract terms and conditions had the same headings as those to which Mr Yu referred but some were different at least in form if not effect. The arbitration clause was identical. Mr Yu was cross-examined about the differences between various terms and conditions annexed to various contracts to which Lief Investments or its associate companies was party.

Mr Ouyang was the general manager of the Corporate Affairs Division of Lief Investments. He said that in his experience a Sinochem standard contract, regardless of the version in which it appeared, always contained an arbitration clause which was the same or substantially the same as cll10 which I have set out. Mr Lee, the deputy general manager of ConAgra International (Hong Kong) Ltd gave evidence. He said it was not the standard practice of ConAgra to annexe Sinochem terms and conditions. Most of the terms and conditions contained in the various versions of the Sinochem standard terms and conditions contemplated and related to ocean carriage of goods and were not applicable to the sale of goods ex warehouse.

"At Tp 77 Mr Lee said there were no standard terms as every sale is different and changes are made. Although he was pressed as to the terms and conditions, on the basis that he said he was considering annexing the standard terms and conditions, he said that many versions were used 'of the so-called Sinochem contract'. I think, in fairness, it is necessary to record what Mr Lee said at Tp 76:

'Q. Did you consider whether or not to attach any terms and conditions to the contract? A. I have considered and decided not to.

Q. Why did you decide not to? A. Because I do not think those attachments are applicable to the sale.

Q. Why is that? A. Because they cover ocean carriage cargoes.'

Accordingly, Mr Lee did not refer to the standard form and his evidence at Tp 78 has to be appreciated in the light of the evidence he had given earlier.

Mr Lee was cross-examined about the words on the facsimile transmissions of 21 February:-

"Other terms and conditions as per Sinochem's standard contract.'

He agreed that were certain changes between the facsimile transmission received from the defendant and the response.

At Tp 83 I asked Mr Lee what were the documents which comprised 'the contract concluded on 21 February 1997' and he replied:-

'The contract, the firm bid and our confirmation of the telephone conversations which confirmed the business.'

At Tp 84 he said the contract was the facsimile bid, the confirmation of 21 February 1997 and any discussions with Mr Yu. On the same page he said it was not a mistake, but intentional, that the other terms and conditions as per Sinochem's standard form contract were not included."

Mr Lee was cross-examined about disadvantages to ConAgra in having the dispute arbitrated in China. He said he had not given the matter too much thought, but he considered that an American company and an Australian company would find it inappropriate to bring the case in China. He said he was

WAGF INVESTMENTS PTY LTD v CONAGRA INTERNATIONAL FERTILISER CO (Shell JA)

not concerned about the validity of the certificates, nor did he realise, when he sent off the contract on 24 February 1997, that there was a possibility of a dispute about the goods. He was asked:

"Q. You just left out the reference to the Sinochem clause because you didn't want the case arbitrated in China, did you? A. Should we have a case we would always, as an American company, not want to have an arbitration in a country, for example, like China."

He agreed that under different circumstances there was agreement to arbitrate in China but he thought it was inappropriate to attach any of the standard terms especially for ex warehouse cargo.

The terms of the formal contract of 24 February 1997 were the same as those in ConAgra's fax of 21 February 1997 except that payment was to be "By T/T", telegraphic transfer, and of course the term about Sinochem's standard contract was omitted. This was a deliberate omission. Mr Lee said that he did not consider the terms and conditions appropriate. Mr Yu, having read the document carefully, knew that the term was not there but signed the document as the formal contract.

Traditionally, the Courts have recognised the importance of treating the formal contract, particularly in a commercial context, as the final and full expression of the agreement. Dr Bell, who appeared for the respondent, referred to that part of the judgment of Isaacs J in Gordon v MacGregor (1909) 8 CLR 316 at 323-4 where his Honour set out and approved the following passage from the judgment of Lord Gifford in the Court of Session which Lord Blackburn quoted and agreed with in A & J Inglis v John Buttery & Co [1878] 3 App Cas 552 at 577:

"Now, I think it is quite fixed - and no more wholesome or salutary rule relative to written contracts can be devised - that where parties agree to embody, and do actually embody, their contract in a formal written deed, then in determining what the contract really was and really meant, a Court must look to the formal deed and to that deed alone. That is only carrying out the will of the parties. The only meaning of adjusting a formal contract is, that the formal contract shall supersede all loose and preliminary negotiations - that there shall be no room for misunderstanding which may often arise, and which do constantly arise, in the course of long, and it may be desultory conversations, or in the course of correspondence or negotiations during which the parties are often widely at issue as to what they will insist on and what they will concede. The very purpose of a formal contract is to put an end to the disputes which would inevitably arise if the matter were left upon verbal negotiations or upon mixed communings partly consisting of letters and partly of conversations. The written contract is that which is to be appealed to by both parties, however different it may be from their previous demands or stipulations, whether contained in letters or in verbal conversation. There can be no doubt that this is the general rule, and I think the general rule, strictly and with peculiar appropriateness applies to the present case."

In Maybury v Atlantic Union Oil Co Ltd (1953) 89 CLR 507 at 517 Dixon CJ, Fullagar and Taylor JJ said:

"Once an agreement is made in writing it is treated, unless the parties are shown otherwise to intend, as the full expression of their obligations."

That statement applies to the situation in this case.

Though Mr Yu noticed before signing the formal contract that the condition about Sinochem standard terms and conditions was not mentioned and no such terms and conditions were attached, he not only signed the document having, as he said, at the time the particular responsibility of negotiating and concluding

contracts for fertiliser trading and the execution of those contracts, but made no complaint to ConAgra about the omission. Moreover, in later correspondence Lief Investments described the contract between the parties as the signed contract CFC97AF. Nowhere in the correspondence did Lief Investments suggest that the contract was as constituted by the earlier exchanges of faxes. To this must be added Mr Yu's evidence that the manner of payment was an important consideration in international commodity trading. While Mr Yu qualified this by saying that "all the transaction nowadays is by T/T" this change in the terms from no provision as to the mode of payment to payment by telegraphic transfer can point only towards the formal contract as intended to be the final and full expression of the parties' agreement.

There are two ways of characterising the relationship between the parties. One is to treat the formal contract as evidence that the interchange of faxes did not result in a binding contract, which awaited the execution of the formal contract. The other is that a binding contract was made on 21 February 1997 but that on 24 February the parties made a different agreement which replaced it. This result may have been achieved simply by ConAgra proffering varied terms, the inclusion of the requirement that payment be by telegraphic transfer and the omission of the reference to the Sinochem standard terms and conditions, and Lief Investments either agreeing to these proposals or acquiescing in them. The statement "This contract is concluded on 21 February 1997", while syntactically ambiguous, can be read as backdating the contract to that date.

The respondent relied upon the general proposition expressed by Latham CJ in Hope v RCA Photophone of Australia Pty Ltd (1937) 59 CLR 348 at 357 that there are exceptional cases "where the parties to a contract have not expressed all the terms of their contract in writing, and, accordingly, parol evidence is admitted to complete the written contract". The authors of Carter and Harland, Contract Law in Australia, 3 ed, at para707 see no reason for describing this process as exceptional. "In truth, it is merely part of the process of discovering the terms of the bargain. In fact, many of the cases which have hitherto been treated as exceptions to the parol evidence rule should now be treated as part of the process of term identification."

However, the authors recognise that a contractual document may be executed with the intention of superseding entirely all prior negotiations in relation to the subject matter dealt with by the document. The effect of such a document is to integrate the bargain in written form. "Such a document discharges any prior oral agreement, evidence of which becomes inadmissible because of the parol evidence rule." In the present case there is nothing to suggest, in any objective way, that the parties did not intend that the formal agreement would state all the terms of the contract. However important the provisions about payment may have been, the variation of this term and its acceptance support this conclusion.

In my opinion, the terms of the contract are to be found fully set out in the form executed on 24 February 1997.

Rolfe J held that the appellant's application for rectification, which at trial was put in part on the basis that there was a unilateral mistake on the part of Mr Yu, must fail. His Honour said:

"As I have said I do not consider, on the facts of this case, that there was any misunderstanding by Mr Yu as to what the document of 24 February 1997 stated. Further, it was not his belief that it would include a term in the terms of paral0

WAGF INVESTMENTS PTY LTD v CONAGRA INTERNATIONAL FERTILISER CO (Shellét JA)

of the facsimile transmissions. Therefore, the first basis on which rectification was sought must fail. He said his belief was that there would be annexed to the hard copy the standard terms and conditions. Thus, even on the case propounded by the defendant, Mr Yu did not expect to find within the document he signed those words. He did not assert that he was led to believe by the plaintiff that they would be there and, when they were not, he realised this and made no complaint. There is no evidence that there was any discussion between Mr Yu and Mr Lee that there would be any such annexation. Finally Mr Lee denied, for reasons I accept, that he ever intended to annex any terms. Thus the necessary agreement to support rectification was not present."

Lief Investments' submissions proceeded on the basis that the parties wrongly recorded the terms of the bargain that had been made between them. Mr Lee was asked what were the documents which comprised "the contract concluded on 21 February 1997" and replied:

"The contracts, the firm bid and our confirmation of the telephone conversations which confirmed the business."

It was submitted that Mr Yu believed that the Sinochem terms were to be incorporated in the contract and that the written document, as it would ultimately be prepared, would include those terms.

The onus was on the appellant to advance "convincing proof" that the formal contract executed on 24 February 1997 did not "embody the final intention of the parties": Pukallus v Cameron (1982) 180 CLR 447 at 452. Before an order for rectification can be made Lief Investments needed to satisfy the Court by convincing evidence that the intention expressed in the formal contract had previously been displaced by a different intention of both parties which continued up to the time of execution; see generally Commissioner of Stamp Duties (NSW) v Carlenka Pty Ltd (1995) 41 NSWLR 329 at 344.

Clearly enough, if the term in question had been carelessly omitted and its omission overlooked, rectification would be available but only to the extent that the wording of the document as rectified expressed the true intention of the parties; see In re Butlin's Settlement Trusts [1976] Ch 251 at 260-1. In Maralinga Pty Ltd v Major Enterprises Pty Ltd (1973) 128 CLR 336 at 343 Barwick CJ, who dissented in the result, identified the question for decision in the present case; if a binding agreement was indeed reached on 21 February 1997, was it the common intention of the parties in signing the formal agreement to record the agreement they had already concluded or, to the contrary, did they intend to make a new and different contract by the writing which they signed? In my opinion, for the reasons which Rolfe J has set out in the passage I have quoted, the conclusion can only be that they reached an agreement on 24 February 1997 which excluded any reference to the terms and conditions of Sinochem's standard contract. Put another way, there was no continuing intention to include those terms and conditions as part of the contract between the parties any more than there was a continuing intention to leave open the manner of payment.

In his judgment Rolfe J asked the question "Were there standard Sinochem terms and conditions?" Lief Investments contended that Sinochem's standard terms and conditions were those enclosed with the undated letter to Lief Investments from Sinochem International Fertiliser Trading Company. In his Honour's opinion this contention faced a substantial factual difficulty because the evidence indicated, first, that there were various forms of that contract, secondly,

that there were various adaptations of it depending on the commercial nature of the contract and, thirdly, the terms and conditions Mr Yu intended to be included were "based upon" the terms and conditions in the standard Sinochem contract.

In the forefront of his argument in this appeal, Mr Bathurst relied upon the decision of Smith v South Wales Switchgear Co Ltd [1978] 1 WLR 165. A maintenance contract between a motor manufacturing company (the purchaser) and an electrical company (the supplier) for maintenance work to be carried out at the purchaser's factory was expressed to be "subject to our general conditions of contract obtainable on request." At the time of the contract there existed three versions of the conditions, the original and two others which included revisions at particular dates. The supplier did not request a copy but in 1970 received from the purchaser the earlier of the revised versions. The House of Lords rejected the argument that none of the versions had been incorporated because the contract did not refer to any particular one. In a context where the purchaser had sent one version to the supplier which had raised no question about its terms and a few days afterwards proceeded with the work, the House of Lords resolved the doubt by the comparatively simple process of identifying the conditions as those contained in the version most recently revised before the date of the contract. The result was sensible, logical and right. Where parties have chosen to incorporate terms, the Court should do its best to identify the terms intended if there is some doubt. But for the reasons which Rolfe J gave such identification is not so readily made in the present case.

The appellant's argument proceeded on the basis, contrary to the view that I have expressed, that the terms and conditions of Sinochem's standard contract were incorporated in the contract between the parties or should be so incorporated by the process of rectification. Assuming that to be so and assuming that the Court would rectify a contract to include a term that was uncertain, Mr Yu identified terms and conditions which were different from those the appellant relied on at the hearing. I do not think that evidence that on other occasions different contracts were used or that on other occasions variations were made to what might be regarded as standard forms assists one way or the other. If the evidence was that the terms and conditions of Sinochem's standard contract could be identified, those were the terms and conditions that should be incorporated. But Lief Investments failed to identify such standard terms and conditions to the satisfaction of the trial Judge and to my satisfaction. Mr Yu conceded in evidence that the terms and conditions he intended to be included were "based upon" the Sinochem terms and conditions. Mr Ouyang said there were a number of versions "of Sinochem contracts for the sale and purchase of fertilisers". The trial Judge said that the evidence established that the terms and conditions differed as circumstances differed and depending on the particular traders with the Lief Groups. He said:

"T have referred to the evidence, which, in my opinion, makes it abundantly clear that there was no one document, even at any one time, which could be identified as the terms and conditions in the standard Sinochem contract, nor which incorporated that contract."

I do not think that this Court should disturb this finding. It is not enough to refer to the terms and conditions enclosed with Sinochem's undated letter. The evidence from Lief Investments' own officers was inconsistent with an intention to incorporate those terms and conditions.

WAGF INVESTMENTS PTY LTD v CONAGRA INTERNATIONAL FERTILISER CO (Shell JA)

In the result, even if the conclusion could be reached that the contract between the parties included the term "other terms and conditions as per Sinochem's standard contract", the term itself would be too uncertain to have any effect.

ConAgra relied upon the decision of the House of Lords in TW Thomas & Co Ltd v Portsea SS Co Ltd for the submission that the arbitration clause in the Sinochem terms and conditions could only be incorporated by express reference to it. That case concerned a bill of lading on the margin of which were written the words:

"Deck load at shipper's risk, and all other terms and exceptions of charter to be as per charterparty, including negligence clause."

The House of Lords, in dismissing an appeal from an order setting aside a stay of proceedings in the action, held that an arbitration clause in the charterparty expressed to be "in respect of any dispute or claim arising out of the conditions of this charter" was not incorporated in the bill of lading. At 9 Lord Gorell said:

"The effect of deciding to stay this action would be.... that either party is ousted from the jurisdiction of the Courts and compelled to decide all questions by means of arbitration. Now I think, broadly speaking, that very clear language should be introduced into any contract which is to have that effect, and I am by no means prepared to say that this contract, when studied with care, was ever intended to exclude, or does carry out any intention of excluding, the jurisdiction of the Courts in cases between the shipowner and the bill of lading holder."

In his judgment, Rolfe J reviewed a considerable number of cases before reaching the conclusion that the weight of authority and the demand for certainty was too great to enable him, sitting at first instance, to give effect to the view he preferred that the proper approach was to construe the incorporating and incorporated words in each contract and to see, whether, as a matter of construction, the arbitration clause was part of the contract.

Unfortunately, it was not brought to his Honour's attention that one of the cases cited and relied upon by ConAgra, Carob Industries Ltd (In Liquidation) v Simto Pty Ltd (unreported) Supreme Court of Western Australia, Scott J, 17 April 1996, had been overruled on 22 May 1997 by the Full Court. The appeal turned on the issue whether, for the incorporation into a sub-contract of an arbitration clause in a construction head contract, a specific reference to the arbitration clause itself was required, or whether a general reference to the conditions of contract of the head contract was sufficient. In support of the submission that the arbitration clause was incorporated, the appellant relied upon the decision of the English Court of Appeal in Modern Building Wales Pty Ltd v Limmer & Trinadad Co Ltd [1975] 1 WLR 1281, another case about a construction contract in which it was held that an arbitration clause was incorporated by general terms. A different view was reached by the Court of Appeal, differently constituted, in another construction case Aughton Ltd v M F Kent Services Ltd (1991) 57 BLR 6, to which Rolfe J referred. His Honour had observed that in Modern Building none of the authorities which he referred in his judgment, notably TW Thomas & Co Ltd v Portsea SS Co Ltd, were relied on or cited.

In Aughton at 16-17 reference was made to the following passage in the judgment of Brandon J in The Annefield [1971] P 168 at 173:

"First, in order to decide whether a clause under a bill of lading incorporates an arbitration clause in a charterparty it is necessary to look at both the precise words in the bill of lading alleged to do the incorporating, and also the precise

terms of the arbitration clause in the charterparty alleged to be incorporated. Secondly, it is not necessary, in order to effect incorporation, that the incorporating clause should refer expressly to the arbitration clause. General words may suffice, depending on the terms of the latter clause. Thirdly, when the arbitration clause is, by its terms, applicable only to disputes under the charterparty, general words will not incorporate it into the bill of lading so as to make it applicable to disputes under the contract contained in, or evidenced by, that document. Fourthly, where the arbitration clause by its terms applies both to disputes under the charterparty and to disputes under the bill of lading, general words of incorporation will bring the clause into the bill of lading so as to make it applicable to disputes under that document."

In the particular case, an action in rem against the ship, Brandon J dismissed an application by the shipowner, based on the incorporation into the bills of lading of the arbitration clause in the charterparty, to strike out or stay further proceedings. The Court of Appeal dismissed an appeal; [1971] P 187. At 187 Cairns LJ said that he thought there was a special rule of construction which applied in these cases - "a rule to be derived from T W Thomas & Co Ltd v Portsea SS Co Ltd and the Merak [1965] P 223."

In Aughton at 18-19 Ralph Gibson LJ said that the propositions stated by Brandon J were not in his judgment intended to be a statement of rules applicable to the incorporation of an arbitration clause from one document or contract into another contract by words of reference in the case of all or any sorts of contract and in all sorts of circumstances. However, at 20 his Lordship said that he had no doubt that the propositions stated by Brandon J were authoritative guides to construction in any case where the court was considering whether an arbitration has been incorporated by reference. The other member of the court, Sir John Megaw took a different view, saying at 30 that the case was governed by the decision in TW Thomas & Co Ltd v Portsea SS Co Ltd which:

"....held that, when a bill of lading purported to incorporate into the contract between the bill of lading holder and the shipowner the terms of the pre-existing charterparty contract between the charterer and the shipowner, a so called 'arbitration clause' in the charterparty contract was not incorporated into the bill of lading contract in the absence of an express reference in the bill of lading, not merely to the terms of the charterparty, but specifically, to the arbitration clause."

The principle behind the House of Lords decision in TW Thomas & Co Ltd v Portsea SS Co Ltd at 9 was that very clear language was needed to oust parties from the jurisdiction of the Courts and compel the decision of all questions between them by means of arbitration. In Bremer Vulcan Schiffbau Und Maschinenfabrik v South India Shipping Corporation Ltd [1981] AC 909 at 980 Lord Diplock mentioned another factor that the status of an arbitration clause included in a contract is different from other types of clauses because it constitutes a "self contained contract collateral or ancillary to" the substantive contract.

In Carob, Malcolm CJ, with whose reasons for judgment the other members of the Court agreed, remarked that the approach adopted by Sir John Megaw was followed in later English cases. We were referred in particular to the decision of Coleman J in Excess Insurance Co Ltd v Mander [1997] 2 LIR 119. That case concerned a retrocession which incorporated "all terms, clauses, conditions and warranties" in a reassurance treaty. The case was special in the sense that at the time the retrocession was entered into there was no binding arbitration agreement which could be incorporated. Coleman J concluded by saying:

WAGF INVESTMENTS PTY LTD v CONAGRA INTERNATIONAL FERTILISER CO (Shelle&s JA)

"There being no special circumstances in this case which would displace the general approach to construction where general words of incorporation are used, the arbitration clause, being collateral to the subject matter of the XOL treaty and not yet in existence at the time when the retrocession was entered into, was not incorporated into the retrocession."

"In my view the fact that a submission to arbitration is a collateral self contained contract within a more comprehensive agreement between the parties is no justification for denying it incorporation by reference when parties engaged in the industry for which the standard form contract has been developed expressly agree to contract on the terms of the standard form, which includes an arbitration clause. It would be bizarre if that principle were to apply even where the standard form was physically incorporated in the signed agreement of the parties.

As is apparent from the judgment in Lexair Ltd (In Administrative Receivership) v Edgar W Taylor Ltd (1993) 65 BLR 87 at 99, the view held by Sir John Megaw and followed in the subsequent cases contradicts the proposition in Mustill & Boyd on Commercial Arbitration (2"" ed) at 106 that:

'In principle an arbitration clause may be included by reference to a Standard Form of Contract or the particular terms of another contract in which the clauses is set out, even without express reference to the clause. But it must be clear that the parties intended the arbitration clause to apply."

The Chief Justice thought that one explanation for the different results arrived at in Modern Building and Aughton might be found in the nature of the proceedings. In the former, the head contractor sued the sub-contractor for damages for breach of contract and the sub-contractor relied on the arbitration clause to seek a stay. In the latter, it was the sub-contractor who sued and the party in a position of head contractor who pleaded the clause. His Honour concluded:

"There can be no doubt that the weight of authority in England favours the approach adopted by Sir John Megaw that a specific reference to the arbitration clause in another contract is required in order to incorporate by reference. This balance of authority is reinforced by the decision in Goodwins, Jardine & Company Ltd v Charles Brand & Son [1905] SC 995. In my opinion, however, the approach adopted in England has resulted in the adoption of too strict a test. However, it seems to me that a provision that the Project General Conditions form [and] should be read and construed as part of the Sub-Contract does not of itself go far enough to incorporate the arbitration clause. The arbitration clause could only be incorporated on the basis that it was required to be read as if the references in cl50.4 to 'the Contract' meant something other than 'the Contract' as defined in the general conditions.......

There is no provision in the sub-contract agreement similar to the provision in cl9 of the sub-contract in O'Neill and Clayton v Ellis and Clark Pty Ltd (1978) 2 SASR 132 which provided that:

"Subject to the provisions of this agreement, the Conditions of the Building Contract shall be incorporated in this agreement in so far as such conditions are applicable hereto and for that purpose the said Condition shall be read and construed as if the Builder and Sub-contractor were respectively named therein as the Proprietor and the Builder.'

In this case the Project General Conditions were physically incorporated in the package of documents which constituted the sub-contract. In my view the policy considerations referred to by Sir John Megaw do not apply to the present case in which the sub-contractor is relying on the documents constituting the sub-contract as prepared and proffered by the head contractor. The present contract goes further than a mere general incorporation by reference because of the specific provision that 'All contractual conditions between Principal and Main Contractor will be deemed to apply between the Main Contract and the Sub-Contractor'. This implies that cl50.4 and cl50.5 should be read and construed as applying between Simto and Carob.

The reference in Aughton to the desirability that a party should not become bound to an arbitration clause by implication or inference rather than express agreement is related to the legislative requirement for a written agreement. This in turn reflects the desirability of a party agreeing expressly to become a party to an agreement which may preclude him or her from bringing the dispute before a court. Arbitration is, however, an extremely common means of dispute resolution in the building and construction industry. The attitude of the courts in Australia is much more favourable towards the resolution of disputes by arbitration and the exclusion of the right to sue than in former times: Qantas Airways Ltd v Dillingham Corporation (1985) 4 NSWLR 113 at 122 and IBM Australia Ltd v National Distributor Services Ltd (1991) 100 ALR 361 at 366 per Kirby P. The policy of the Commercial Arbitration Act is to facilitate arbitration.

In my opinion, the sub-contract agreement in this case incorporated the arbitrated provisions in cl50.4 and cl50.5 of the Project General Conditions on the basis that they applied as between Simto as the Main Contractor and Carob as the Sub-Contractor as 'the parties' and that 'the Contract' was the sub-contract. It follows that the sub-contract contained a valid arbitration clause."

In the present case, we are concerned with an international contract rather than a domestic one where the attitude of Australian courts would be significant. The respondent pressed upon us the need for certainty and uniformity of approach by courts in different countries. However, such uniformity is not easily found in the English decisions and the approach taken by Malcolm CJ conforms with the approach and the propositions put forward by Brandon J, which I regard as having great force. I think this Court should take the same approach. That being so, if the parties had agreed to the incorporation of the terms and conditions of Sinochem's standard contract and these could have been identified with certainty, there was no textual or policy consideration which would prevent the incorporation of the arbitration clause into the contract of sale.

However, for other reasons, which I have set out, I do not think an arbitration clause was incorporated into the contract of 24 February 1997 between ConAgra and Lief Investments.

CONCLUSION The appeal should be dismissed with costs.

Appeal dismissed with costs. Counsel for the appellant: T F Bathurst QC/P E King

WAGF INVESTMENTS PTY LTD v CONAGRA INTERNATIONAL FERTILISER CO (Beazley JA)

At a glance

Court

Decision date

Before

Source

Judgment (149 paragraphs)

Parties

Cases Cited (15)

Cited By (1)