Moresload Pty Limited v Hebden Quarries Pty Limited

Acceptance of the applicant's submission, clearly would require reconsideration by this court of what was said in Codelfa Construction Pty Ltd v State Rail Authority of NSW by Mason J, with the concurrence of Stephen J and Wilson J, to be the "true rule" as to the admission of evidence of surrounding circumstances. Until this court embarks on that exercise and disapproves or revises what was said in Codelfa, intermediate appellate courts are bound to follow that precedent. The same is true of primary judges, notwithstanding what may appear to have been said by intermediate appellate courts.

The position of Codelfa, as a binding authority, was made clear in the joint reasons of five Justices in Royal Botanic Gardens and Domain Trust v South Sydney City Council and it should not have been necessary to reiterate the point here. 58The principle established in Codelfa was stated by Justice Mason (at 353) as follows: The true rule is that evidence of surrounding circumstances is admissible to assist in the interpretation of the contract if the language is ambiguous or susceptible of more than one meaning. But it is not admissible to contradict the language of the contract when it has a plain meaning. Generally speaking facts existing when the contract was made will not be receivable as part of the surrounding circumstances as an aid to construction, unless they were known to both parties ... It is here that difficulty arises with respect to the evidence of prior negotiations. Obviously the prior negotiations will tend to establish objective background facts which were known to both parties and the subject matter of the contract. To the extent to which they have this tendency they are admissible. But in so far as they consist of statements and actions of the parties which are reflective of their actual intentions and expectations they are not receivable. The point is that such statements and actions reveal the terms of the contract which the parties intended or hoped to make. They are superseded by, and merged in, the contract itself. 59I proceeded to consider the terms of the contract in accordance with these principles. 60Definitions of relevance provided for in the contract were: Feed Rock means the rock or demolition materials, including concrete, brick, recycled ballast, recycled asphalt and steel furnace slag, provided by Hebden Quarries to Gilson to be the subject of the Services. Material means an aggregate crushed material that meets and complies with the Specification and is created from Feed Rock. Quarry means the quarries known as Hebden at Picton Lane Ravensworth and Steelstone at Onesteel Industrial site via Ingall Street Mayfield. Plant & Equipment means the plant and equipment used by Gilson to provide the Services. Services means the processing and crushing of Feed Rock to produce the Material. 61The term of the agreement upon which the plaintiff relied was clause 4. It provided: 4.QUANTITY 4.1Gilson will use its reasonable and best endeavours to produce a quantity of Material in accordance with that determined by the production committee. It is anticipated that the total quantity of material to be processed shall be in the approximate range of 200,000 to 300,000 tonnes per annum, between the two (2) sites referred to in this Agreement. For the avoidance of doubt, this clause 4.1 is not intended to be binding on the parties and Gilson is not required to produce a binding minimum quantity of Services to Hebden Quarries. 4.2Hebden Quarries will provide a forecast for its projected requirements for Materials for each month of the following six month period on a rolling six monthly basis. The forecasts supplied by Hebden Quarries will not be binding and are indicative only. 4.3Hebden Quarries acknowledges that Gilson will use the forecasts to assist Gilson with its inventory and other forward planning issues to enable Gilson to meet Hebden Quarries' expected future Orders. 4.4Hebden Quarries acknowledges and agrees that the ability of Gilson to provide the quantity of Services required under any Orders and under this clause is dependant on Hebden Quarries making sufficient Feed Rock available to Gilson for processing. 62The plaintiff's position was that under this clause the defendant was bound to provide it with Feed Rock in order that it could use its best endeavours to produce the tonnages of Material provided for. 63The defendant contended that the contract imposed no contractual obligation on it to provide the plaintiff with minimum or any quantities of Feed Rock. 64The defendant relied on a number of elements of pre and post contract conduct to support its contention. 65On receipt of the initial draft of the contract, Mr Gilson noted in handwriting may need to be deleted against the second sentence in clause 4.1. (Court book, p.56). He said he made this note because this sentence appeared to be inconsistent with the remainder of the clause. The next draft of the document contained substantial amendments to clause 4 (Court book p.79). These amendments were, however, not adopted and the original clause was reinstated. 66I noted that the sentence to which Mr Gilson originally took exception referred to Services, the definition of which I have already set out. This definition incorporated only the obligation of the plaintiff in the processing and crushing of Feed Rock. Therefore, even if this conduct could be taken into account, I did not consider that it advanced the defendant's contention. 67The defendant also relied on the conversation that Mr Newman said took place between him and Mr Gilson before the contract was signed. There was a conflict on the evidence as to whether a conversation in these terms in fact took place. Mr Gilson was asked a number of times in cross examination if Mr Newman told him that minimum tonnages were not guaranteed. He denied that he did so, he said he did not recall that he did so, he said he did not think it was possible that he had forgotten that he did so. 68I preferred the evidence of Mr Gilson on this point for the following reasons: 1Mr Newman insisted that it was fundamental to his execution of the contract that the defendant would not be bound to provide a minimum tonnage of Feed Rock. He gave evidence of a conversation in which he told Mr Gilson this three times. This conversation was said to have taken place after Mr Newman reviewed the contract and made amendments to it. He returned it to the defendant's solicitors for revision in accordance with those amendments. He amended the document once more to change the name of the contracting party. He returned it once more to the solicitors for amendment. It was more than apparent that he gave the document detailed consideration. It was not credible in those circumstances to suggest that, rather than requiring further amendment to make his position clear, he relied on his conversation with Mr Gilson as some kind of condition precedent to or clarification of the terms of the contract. 2Similarly, having regard to the importance that Mr Newman claimed that he attached to the question of a minimum tonnage, I did not consider it credible that he did not confirm the terms of the conversation in the emails he sent to Mr Gilson immediately prior to and at the time of transmission of the signed contract. 3The contention that the defendant was not bound to a minimum tonnage was inconsistent with the letter of intent that, according to Mr Hanley, was the basis upon which the parties worked to the time of execution of the contract. 4It was commercially inconsistent. In the absence of commitment to the provision of Feed Rock, the contract would appear to serve little purpose. Further, it imposed significant obligations on the plaintiff to provide, maintain and repair plant and equipment of substantial value as well as to provide insurances for the term of the contract. 5The defendant relied on Mr Gilson's post contract conduct in refusing to supply a copy of the signed contract to Mr Carter. It was claimed that this indicated that he understood that the contract did not provide for a guaranteed minimum supply of Feed Rock and that he produced only the letter of intent because it was more supportive of the plaintiff's position. Mr Gilson was not a particularly satisfactory witness and I accepted that he did not adequately explain his obstinacy in refusing to give Mr Carter a copy of the contract. I did not consider, however, that the interpretation of the terms of the finalised contract were to be determined by reference to this conduct on the part of Mr Gilson. I noted that a copy of the contract was to have been provided on 26 September 2008 at the meeting that was cancelled by Mr Carter. 69Having rejected the defendant's contention that this conduct should be taken into account in interpreting the terms of the contract, there remained the issue of what, objectively construed, were the obligations of the defendant concerning the provision of Feed Rock. 70There was no clause in the contract that clearly provided for a minimum tonnage. Clause 4.1 provided for an approximate range of 200,000 to 300,000 tonnes per annum of Material to be processed. The contract also contained the following provisions: RECITALS E.Hebden Quarries agrees to provide Gilson with shot rock for crushing, water for dust suppression, site amenities and fuel upon the terms set out in this agreement ("Agreement"). ... 23.6Each party must: (a)use its best endeavours to do all things necessary or desirable to give full effect to this Agreement; and (b)refrain from doing anything which might hinder performance of this Agreement. 71Clause 4.1 of the contract recognised that the plaintiff was not required to provide any minimum level of Services (that is, the processing and crushing of Feed Rock to produce the Material). It made no provision that diminished the defendant's obligation to provide Feed Rock. To the contrary the defendant acknowledged and agreed in clause 4.4 that the plaintiff's capacity to perform its part of the bargain depended upon the defendant's continued supply of sufficient Feed Rock. 72Although not an operative provision, Recital E lent further support to the proposition that the defendant accepted an obligation under the contract to provide Feed Rock. Other provisions in the contract were inconsistent with the defendant's proposition that it was under no obligation to do so. Clause 3 provided for monthly orders to be placed, clause 4.2 required the defendant to issue monthly rolling forecasts. 73Under clause 15 the plaintiff's plant and equipment was required to remain at the Hebden Quarry until the contract expired or was terminated. Interpreting the contract in the manner suggested by the defendant would have the result that plant and equipment of considerable value could be required to remain idle and unproductive in terms of income for the plaintiff for up to two years. 74Read against the background described by Mr Gilson and Mr Hanley in which the parties were operating on the basis of the letter of intent and with the intention of putting in place a long term arrangement that secured the interests of both parties, I concluded that the contract, interpreted objectively, imposed on the defendant the obligation to provide to the plaintiff between 200,000 and 300,000 tonnes of material from the Hebden Quarry or Steelstone for crushing.