Murray Goulburn Co-operative Co Ltd v Cobram Laundry Service Pty Ltd [2001] VSCA 57

Court of Appeal (Vic)|2001-05-09|Before: BROOKING, BATT and CHERNOV, JJ.A.

CONTRACT - Amendment to extend period of contract - Construction of commercial documents in accordance with commercial reality and business commonsense - Use of surrounding circumstances to resolve ambiguity - What constitutes relevant surrounding circumstances.

This is an appeal from the decision of a judge of the Supreme Court who awarded damages against the appellant in favour of the respondent for repudiation of a contract. The case involved the interpretation of a written contract between the parties and the appeal is confined to challenging her Honour's decision as to the proper construction of it. There is no appeal in relation to her Honour's quantification of the damages.

The written contract which the respondent claims was repudiated by the appellant was made on 6 November 1996 and was amended on 26 March 1998. The respondent conducts the business of supplying uniforms, laundry and associated services ("the services") which it has provided to the appellant's dairy processing facility at Cobram since approximately 1990. I will mention later the contracts pursuant to which the respondent supplied the services to the appellant prior to November 1996, but it is convenient to set out first the relevant terms of the agreement which the parties signed on 6 November 1996 ("the 1996 agreement"). Its relevant terms are:

(a) Clause 2 speaks of the agreement establishing an ongoing "Supplier/Purchaser" relationship based on "mutual goodwill, trust and the desire to have a mutually satisfactory long-lasting business relationship".

(b) Clause 3 sets out with some particularity the garments and the services that the respondent was required to provide to the appellant.

(c) Clause 5 deals with the charges that the respondent was entitled to make in respect of the various garments and services provided by it under the agreement.

(d) Clause 6 is in the following terms:

"This Agreement shall cover the supply and servicing by the Supplier to the Purchaser of the items specified in the Schedule and other items subsequently supplied by the Purchaser [sic] at the request of the Purchaser. Supply shall continue under this contract for an initial period of three (3) years from the date the items are first supplied to the Cobram Plant and shall continue thereafter until three (3) months after written notice of termination has been given by either party."

(Since, for the most part, only the second sentence of clause 7 is relevant for the purposes of this appeal, I shall refer hereafter to that sentence simply as "clause 7" unless I specifically mention the two sentences.)

(f) Clause 8 provides, under the heading "REVIEW PERIOD" that "the prices above are fixed for the period of the Contract being 3 years".

(g) Clauses 15 and 16 give each party the right to terminate "this agreement" on the occurrence of any of the specified events.

There were two earlier written agreements pursuant to which the respondent supplied the appellant with its services. The first was dated 26 October 1990 and, so far as is relevant, contained the following provisions:

(a) Clause C dealt with, inter alia, the prices that the respondent would be entitled to charge for its services.

(b) Clause D, in effect, fixed those charges for the first twelve months of the contract period.

(c) Clause F was in the following terms -

"F.0 PERIOD OF CONTRACT F.1 1 July 1990 to 30 June 1994".

"G.0. TENURE G.1 The contract shall remain in force for the above period subject only to price variations as agreed."

G.2 gave the appellant the right to cancel the agreement for cause, on proper notice. The second contract, which is dated 12 August 1993, is relevantly identical to the 1996 agreement, its "Period" being 1 September 1993 to 31 August 1996. It introduced clause 7, the over-holding provision of which did not form part of the 1990 agreement. The first part of clause 7, however, broadly coincided with clause G.

By letter dated 18 December 1997 the respondent sought the appellant's agreement on two matters. The first was an extension of the 1996 agreement to "a 6 year term commencing on 1st February 1998". The second matter on which agreement was sought was expressed as follows:

"Prices as outlined in Amendment Contract S40/96[1] dated 13/5/1997 will remain fixed for the original period of contract up until 1/11/1999. A price review will then take place for the remaining four year period".

The letter went on to say, in effect, that the extension was sought because the respondent was about to construct new premises which called for the outlay of a considerable capital expenditure and thus, it wished to have the security of an extended contract period. In the result, the parties agreed by a document dated 26 March 1998 to amend the 1996 agreement ("the 1998 amendment") as follows:

(a) Clause 5 was amended by reducing the charges in relation to two items, introducing a new item to which a specific charge was to apply and otherwise confirming the prices set out in the 1996 agreement (other than the "Labour Charges"). The amendment went on to provide that "the above prices are fixed until 1st November 1999".

(c) The 1998 amendment concluded with the following words:

"All other terms and conditions remain the same".

On 15 December 1999 the appellant wrote to the respondent advising it, in effect, of its termination of the agreement "in early April 2000" which was later changed to 28 April 2000. The respondent treated the termination as a repudiation of the 1996 agreement as amended and issued these proceedings on 3 May 2000 and, by later amendment, claimed damages for breach of contract.

By its amended Defence, the appellant admitted the 1996 agreement and the terms of the 1998 amendment, but denied repudiation on the ground that clause 7 entitled it to terminate the agreement upon due notice. Its case at trial was that the 1998 amendment preserved clause 7 by virtue of the words "all other terms and conditions remain the same". Therefore, it was said for the appellant, the initial period of the contract ended on 3 November 1999 after which each party was entitled to give notice to terminate the agreement. The respondent, on the other hand, contended that the 1998 amendment extended the period of the 1996 agreement to 3 November 2002; and that the "initial period" in clause 7 was extended to that date by necessary inference. The issue between the parties at trial was whether the "initial period" in clause 7 was, by necessary inference, extended to coincide with the new period in clause 6 or whether it continued to operate after the 1998 amendment as it did prior to it.

The learned trial judge concluded that, upon the proper interpretation of the 1996 agreement as amended, the appellant was not entitled to terminate the agreement as it purported to do on 15 December 1999. Her Honour considered that the parties intended by the 1998 amendment to revise the fee structure and to extend the 1996 contract by a period of three years. Her Honour said that the parties, by the terms of the 1998 amendment, evinced an express intention to extend the term of the contract by three years and in doing so they effectively rejected the entitlement contained in clause 7 to terminate the agreement under that provision (until after the expiration of the extended period). Her Honour considered that, unless clause 7 was severed from the 1996 agreement as amended or unless it was treated as being effective from the date of the amendment, namely, 26 March 1998, "the intention of the parties to continue their business arrangement by a further three year period would be inexplicable if not a nonsense". The judge held that "the preferred approach [was] to sever clause 7 entirely from the agreement and to treat the 1998 contract as a new contract". Thus, her Honour concluded, the appellant's action on 15 December 1999 amounted to a repudiation of the 1996 agreement as amended, thereby entitling the respondent to damages which were assessed at $416,474.35.

The appellant has appealed against the finding on liability on a number of grounds, but essentially, it was contended on its behalf that her Honour erred in her construction of clauses 6, 7 and 8 of the 1996 agreement. In summary, the appellant's primary case on appeal, which had not been put below, was that it was clause 7 and not clause 6 that marks out the period of the contract. The two clauses, it was said, deal with different matters and there was no necessary coincidence between the respective periods that are referred to in them. Thus, it was said that clause 6 effectively prescribes the price "review period" for the purposes of clause 8 while clause 7 deals with the contract period, namely, the "initial period". It was argued for the appellant that the "initial period" commenced shortly after the agreement was executed, namely, on approximately 7 November 1996. Consequently, it was claimed, the period of the contract was between approximately 7 November 1996 and 6 November 1999. The "review period" under clause 8, however, was between 4 November 1996 and 3 November 1999. Mr. Young, who appeared with Mr. Anderson for the appellant, argued that the 1998 amendment was only concerned with amending certain contract prices and the period during which they were to be fixed. Thus, it was said for the appellant, the new clause 5 changed some contract prices and changed the period during which they and the remaining prices (other than Labour Charges) were to remain fixed. On the other hand, the new clause 6 only amended the review period in clause 8, changing its end date from 3 November 1999 to 3 November 2002. But, said Mr. Young, the 1998 amendment did not deal with the contract period; clause 7 remained unaltered and, therefore, the initial period for the purposes of clause 7 ended on 6 November 1999 entitling the appellant thereafter to terminate the agreement on proper notice, which it did.

It was also submitted on behalf of the appellant that her Honour erred in a number of ways. First, it was put that her Honour wrongly concluded that clause 6 stipulated the contract period and that the 1998 amendment had the effect of extending it. It was next argued that her Honour wrongly concluded that, by necessary implication, clause 7 was amended so that the "initial period" was extended to coincide with the new period in clause 6. Counsel contended that her Honour further erred in holding that there was ambiguity in the language of the 1998 amendment such as to entitle her to have regard to extrinsic evidence for the purposes of construing the documents. It was argued for the appellant that, even if it were permissible to have regard to surrounding circumstances, her Honour wrongly took into account the letter of 18 December 1997. Mr. Young submitted that the letter was no more than an expression of a subjective intention on the part of the respondent to have the 1996 agreement amended and consequently, it was not permissible to have regard to it for construction purposes. Mr. Young also attacked her Honour's severance of clause 7 and her Honour's alternative finding that the parties intended "to start again" on 26 March 1998.

In my view, the critical question raised by the appellant in this appeal is whether, on its proper construction, clause 6 of the 1996 agreement specifies the contract period or whether this period is to be found in clause 7. If the period in clause 6 is not the contract period but, as the appellant contends, relates only to the price review period, then there is probably little substance in the contention that clause 7 was amended by necessary implication so as to extend the "initial period" to 3 November 2002 simply because the period of clause 6 was extended to that date. On the other hand, if clause 6 does deal with the contract period, there is considerable force in the claim that its extension by the 1998 amendment correspondingly extended, by necessary implication, the "initial period" in clause 7. It is necessary, therefore, to examine the meaning and operation of the 1996 agreement and in particular clauses 6, 7 and 8 of it in order to determine the matters to which I have just referred.

The intention of the parties is to be ascertained from the words they have used in the document and the court is confined in its search for that intention to the four corners of the document except where resort may be had to evidence of circumstances surrounding the making of it[2]. Restricting myself to the four corners of the 1996 agreement, I have come to the conclusion that, on its proper construction, it is clause 6 and not clause 7 that marks out the contract period for the purposes of the agreement. In my view, the following matters point to this conclusion. First, the agreement itself, in clause 8, describes the period in clause 6 as "the period of the Contract". (It is common ground that the period in clause 8 is that which is set out in clause 6.) Secondly, the fact that the parties have considered it necessary to include in the agreement clause 8 as well as clause 6, each with a different heading, shows that they intended that the operation of clause 6 not be confined to prescribing the period for the purposes of clause 8. If that were the only function of clause 6, there would be no point in having it in the agreement; clause 8 would simply provide that the review period was from 4 November 1996 to 3 November 1999. It is more likely that the reason for the presence of clause 6 in the agreement, with its heading "Period", is for it to prescribe the relevant period for the purpose of clause 7 (and, in the context of the 1996 agreement, for clause 8). Next, it is only in clause 6 that a period is marked out by reference to dates; the periods in clauses 7 and 8 have to be deduced. Such drafting is consistent with the intention that clause 6 should define the contract period for the purposes of the agreement and in particular, clauses 7 and 8. It is unlikely that the parties, who took care to define the period in clause 6 with some specificity, would have intended to mark out the contract period by the somewhat ambiguous formula in clause 7.

Clause 7 is not well expressed. It provides that the "initial period" is to commence on a date when "the items are first supplied to the Cobram Plant". Read literally, this would date the commencement of the initial period back to 1990 when the respondent first supplied its services to the appellant. It will be recalled that the respondent has supplied its services to the appellant since at least the beginning of the 1990 agreement so that, unless some qualification is read into the relevant part of clause 7, the initial three year period would begin in about 1990. Clearly, that is not what the parties intended by that clause. In order to avoid this result, words such as "under this contract" should be implied in clause 7 immediately after the words "first supplied" or after "Cobram Plant". But even if the clause were construed to include those words, it would still be necessary to determine when the supply was first provided "under this contract". Clause 7, however, contains no specific date, therefore making it difficult to determine when supply ceased under the 1993 agreement and was first provided under the 1996 agreement. As I have said, it is unlikely that, having marked out the "Period" in clause 6 by reference to specific dates, the parties would have chosen to mark out the contract period, not by reference to those dates, but by reference to the formula in clause 7.

Furthermore, in my view, on its proper characterisation, the essential purpose of the whole of clause 7 (the terms of which are set out in [4] above) is not to prescribe the contract period, but to regulate any dealings the parties might have that are not otherwise covered by the agreement. Thus, the first sentence provides for the terms on which items, not specified in the agreement, are to be supplied "subsequently" by the respondent at the appellant's request. Its second sentence states what is to occur after the "initial period" and to that extent, the clause operates as an over-holding provision. The remainder of the clause merely puts into terms what is, in any event, already clear from the remainder of the agreement, namely, that the agreement "covers" the supply of the items specified in it and that this supply would continue "under this contract" for "the initial period".

The appellant contended that the clause 7 period has a different span of time to that defined in clause 6. As I have already mentioned, it was put for the appellant that the two clauses deal with completely different periods, clause 6 with the price review period and clause 7 with the contract period. In part, this submission was based on the argument that, since the 1996 agreement was executed on 6 November 1996, its terms applied only to supplies that were made after that date. In my opinion, however, this conclusion does not follow from the mere fact that the contract was executed on 6 November 1996. It is common place that parties act on the basis of the terms of an agreement reached between them before the instrument which embodies them is executed. In such circumstances, the contract, when signed, has, either in terms or by necessary implication, retrospective effect so as to apply to the work done or the goods or services supplied before the execution of the instrument[3]. In this case it seems to me that that is what the parties intended, namely, that the (continuing) services supplied by the respondent would be governed by the terms of the 1996 agreement as from 4 November 1996 notwithstanding that it was executed on 6 November1996. From its terms, it is apparent that the 1996 agreement was prepared on 1 November 1996 (a Friday) and, given that the commencing date in clause 6 was 4 November 1996 (a Monday), it can be assumed that the parties intended it to operate as from that date. No doubt, it was expected that the document would be executed on or shortly after 1 November 1996 and, substantially, that is what occurred. The mere fact that it was signed two days after 4 November 1996 did not prevent the terms of the agreement applying to supplies provided on and after 4 November 1996.

Thus, in my opinion, on the proper construction of the 1996 agreement, and without regard to extrinsic evidence, it is clause 6, and not clause 7, that prescribes the contract period.

This conclusion gains support from the fact that it produces a result that is more consistent with commercial reality and business commonsense than is the case with the construction that is put forward for the appellant. As her Honour noted, in construing commercial documents, the construction that is consistent with achieving "commercial reality" or "business commonsense" is to be preferred to one which leads to uncommercial or unreasonable consequences[4]. In my view, the appellant's construction of the relevant clauses, particularly if regard is had to the submission as to the operation of the 1998 amendment, produces seemingly uncommercial results which were unlikely to have been intended by the parties. Thus, for example, on the appellant's case, the contract period (in clause 7) would have come to an end on 6 November 1999, yet the review period in respect of the Labour Charges would have ended a few days earlier, namely, on 3 November 1999 so that, presumably, new rates for Labour Charges would have been fixed as at that date. All the other charges, however, would have been re-negotiated some days earlier, namely, as at 1 November 1999 because, according to the new clause 5, they would have been fixed only until then (and not until 3 November 1999 as is provided for by clause 8 of the 1996 agreement). According to the appellant, the charges as determined as at 1 November 1999 would remain fixed until 3 November 2002 (by reason of the amendment to clause 6) when they would be reviewed again. Thus, on the appellant's analysis, notwithstanding the short contract period, the various prices would be re-fixed on different dates and would be thus regulated until early November 2002. On the face of it, it is difficult to accept that this is what would have been required by business persons seeking to achieve a commercial and sensible arrangement as to the supply of services and the regulation of their prices.

If, contrary to my conclusion, there is relevant ambiguity in the 1996 agreement, then, in accordance with the well-known passage in the judgment of Mason, J. in Codelfa[5], it would be permissible to have regard to the relevant surrounding circumstances and in particular, to the history of the parties' dealings with one another in the form of their pre-1996 agreements. Thus, it would be relevant to consider the correspondence between the relevant provisions of the 1990 and 1993 agreements. It will be recalled that the 1996 agreement is relevantly identical with the form of the 1993 agreement. As I have said:

(a) Clause F of the 1990 agreement, which was headed "PERIOD OF CONTRACT", stated the dates of the contract period.

(b) Clause G was headed "TENURE" and specified that the contract would remain in force for the "above period" (which was obviously a reference to the period stipulated in clause F).

(c) Clause D, however, fixed the rental charges, not for the period of the contract as clause 8 does, but only for the first 12 months.

It seems clear enough that clause G did not operate to mark out the contract period; that was the function of clause F. In my view, given the correspondence in the wording of the relevant provisions of the 1990 and the 1993 agreements, it is apparent that the structure and operation of the earlier agreement were, in substance, reproduced in the later document notwithstanding that some changes were made to the wording of the new clauses so as to accommodate the circumstances that prevailed when they were made. Thus, clause 8 coincided with clause D, although it fixed the prices for "the period of the Contract", namely, the period in clause 6 (as the appellant itself contends), unlike clause D which fixed the prices only for the first 12 months. Similarly, notwithstanding the minor change in its wording, the operation of the first part of clause 7, namely, that which precedes the over-holding provision, substantially corresponded with clause G. Similarly, there was substantial correspondence between clause 6 and clause F, notwithstanding the change to the heading of that clause. This change is probably explicable by the fact that clause 6 was to have a wider operation than clause F in the sense that the period defined by it was to be referable not only to clause 7, but also to clause 8. In the case of clause F the period in it could only have been referable to clause G; it could not have been applicable to clause D because that clause fixed the prices for the shorter period**.** Hence, it is understandable that the heading of clause 6 was not confined to "Period of Contract" but was widened to "Period".

Consequently, in construing the meaning and operation of clauses 6 and 7 of the 1996 agreement, whether one is confined to its four corners, or whether one also has regard to the context in which it was made, it is clause 6 and not clause 7 that specifies the period of the contract.

Given this conclusion, it follows from the four corners of the 1998 amendment that, by agreeing to vary clause 6 in terms of that document, the parties necessarily extended the period of the contract by three years. Hence, contrary to the appellant's submission, her Honour did not err in finding that it was the parties' intention as expressed in the 1998 amendment to extend the contract for a period of three years.

As I understood Mr. Young, he agreed that, if contrary to his submissions, the court found that the parties intended by the 1998 amendment to extend the contract period it followed that, in order to give a sensible meaning to that intention, it must be necessarily inferred that the "initial" supply period contemplated by clause 7 was correspondingly extended.

But in case I have misunderstood Mr. Young and the appellant's position is that, notwithstanding the parties' intention to extend the contract by three years, the concluding sentence of the 1998 amendment demonstrates that they did not agree to make a corresponding amendment to clause 7, I am of the view that a literal reading of that sentence would produce absurdity and obvious inconsistency between clauses 6 and 7 and, perhaps more importantly, such a construction would render nugatory the intention of the parties to extend the period of the contract to 3 November 2002. A literal reading of the sentence in question would produce the result that the amended clause 6 would operate to extend the contract period for three years while (the unamended) clause 7 would, inconsistently with that operation, enable either party effectively to revert to the original contract period by giving a notice of termination after 3 November 1999. This would set at nought the parties' intention to extend the contract period. It would also give clause 7 a function other than what was intended in the 1996 agreement, namely, to operate as an over-holding clause; there was no agreement between the parties so to change the function of clause 7.

Similarly, if the concluding words were given their literal meaning, clause 8 would have to be read as providing for a review period which was to end on 3 November 1999 notwithstanding the change to the period of clause 6. There would also be an inconsistency between the periods of review in the (unamended) clause 8 and the new clause 5.

Generally, where the intention of the parties to a written agreement is clear but the instrument contains provisions which, on their face, lead to absurdity or to inconsistency between its terms so as to render the real intention of the parties contractually ineffective, the courts seek to give effect to that intention by construing the agreement so as to avoid such absurdity or inconsistency. Thus, words are supplied, omitted or corrected in an instrument where it is necessary to avoid absurdity or inconsistency and in order to give effect to the real intention of the parties. Business contracts in particular are interpreted so as to accord with "commercial reality" or "business commonsense".[6]

In my opinion, the parties in this case could not have intended that the sentence in question be read literally (so as to produce the absurdity and the inconsistencies to which I have referred). As I have said, they intended the 1998 amendment to extend the contract period and in order to give effect to that intention and give business efficacy[7] to the 1998 amendment words such as "save to the extent necessary to give effect to the above amendments" should be implied into the last sentence of the 1998 amendment. If such words were implied into the sentence in question, it would follow that the supply period in the first part of clause 7 would be extended by necessary inference to 3 November 2002. The balance of the clause would then continue to operate as an over-holding clause. Similarly, a corresponding amendment would be necessarily implied into clause 8 so as to reduce the relevant period to 1 November 1999.

In the circumstances, therefore, her Honour correctly concluded that the appellant was not entitled to terminate the agreement pursuant to clause 7 and its conduct constituted a repudiation of the 1996 agreement as amended.

Although in view of my conclusions it is not necessary to decide whether her Honour erred in having regard to the letter of 18 December 1997, if the 1998 amendment was relevantly ambiguous, the letter probably was admissible to a limited extent as part of the relevant surrounding circumstances. The extent to which such matters may be taken into account as part of the matrix of facts, was considered by Mason, J. in Codelfa where his Honour said[8] that what was admissible by way of evidence of surrounding circumstances included:

(a) Facts existing when the contract was made, if they were known to both parties or are so notorious that knowledge of them will be presumed; and

(b) Evidence of prior negotiations, but only to the extent that this establishes:

(i) objective background facts which were known to both parties; and

(ii) the subject matter of the contract.

Such evidence will not be admissible, however, where it "consists of statements and actions of the parties which are reflective of their actual intentions and expectations".

This approach was recently applied in Acorn Consolidated Pty. Ltd. v. Hawkslade Investments Pty. Ltd.[9] at first instance, and in Maddestra v. Penfold Wines Pty. Ltd.[10]. In the latter case, in construing a deed of guarantee, the court held that it could have regard to the relevant credit application and an affidavit in which the process of the application was described. The court said[11] that "although [this evidence] might be said to go to the nature of the negotiations that preceded the agreement recorded in the Deed, [it] establishes `objective background facts which were known to both parties and the subject matter of the contract'".

Arguably, a more liberal view of the extent to which regard can be had to extrinsic evidence for the purpose of ascertaining the intention of the parties to an agreement was adopted by Lord Hoffmann in Investors Compensation Scheme Ltd. v. West Bromwich Building Society[12] who relevantly said:[13]

"(1) Interpretation is the ascertainment of the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract. (2) The background was famously referred to by Lord Wilberforce as the `matrix of fact', but this phrase is, if anything, an understated description of what the background may include. Subject to the requirement that it should have been reasonably available to the parties and to the exception to be mentioned next, it includes absolutely anything which would have affected the way in which the language of the document would have been understood by a reasonable man. (3) The law excludes from the admissible background the previous negotiations of the parties and their declarations of subjective intent. They are admissible only in an action for rectification. The law makes this distinction for reasons of practical policy and, in this respect only, legal interpretation differs from the way we would interpret utterances in ordinary life. The boundaries of this exception are in some respects unclear. But this is not the occasion on which to explore them ..."[14]

The other members of the House of Lords, except Lord Lloyd of Berwick who dissented on the principal issue, approved Lord Hoffmann's speech. His Lordship's approach to this issue, therefore, allows the court, in construing a document, to have regard to the "background" which would objectively and reasonably have been available to the parties at the time of entering into the relevant agreement. Such evidence would include "absolutely anything which would have affected the way in which the language of the document would have been understood by a reasonable man", but would not include evidence of "the previous negotiations of the parties and their declarations of subjective intent". In Hillboi Nominees Pty. Ltd. v. Evenwood Pty. Ltd.[15] Ipp, Owen and Steytler, JJ., in the context of discussing the principles applicable to construction of documents, referred[16] to Investors as being one of the more recent English authorities which might be interpreted as taking rather a more liberal view of the extent to which regard can be had to extrinsic evidence. Their Honours did not find it necessary, however, to have regard to the surrounding circumstances for the purpose of construction.

In Bank of Credit and Commerce International SA v. Ali[17] Lord Hoffmann's above principles were approved in the sense that they were applied in some of the speeches[18], considered with tacit approval in another[19] and were explained by Lord Hoffmann[20]. In the article by Gerard McMeel,[21] the author cites[22] Lord Hoffmann's principles enunciated in Investors as illustrative of the "modern approach" to the construction of commercial instruments. This approach, with its "insistence on objectivity and context"[23], is described in the article as a "commercial (or commonsense) approach to interpretation", and is said to lead to "a more realistic result"[24].

It is not necessary to decide for the purposes of this appeal whether there is any and if so what material difference between Lord Hoffmann's test and that of Mason, J. in Codelfa as to what might constitute a relevant "background" for the purpose of construing a document.[25] If it were necessary to decide the point, in my view, the letter in question would probably be admissible under the Codelfa test (and the Investors test) as part of the extrinsic material in this case, not for the purpose of establishing the subjective intention of the respondent as to what changes it sought to the 1996 agreement, but to establish as a background fact that, in the context of the dealings between the parties, a request for change to the period of the agreement was sought.

I mention for completeness that the appellant contended that her Honour wrongly took into account in construing the 1998 amendment that subjective intention of the respondent as expressed in the letter in question. In my view, however, it is most unlikely that her Honour did this. Her Honour did not say that she did so and I do not accept that this judge of the Commercial List would have made the fundamental error contended for by the appellant. It is trite that, as the law stands at present[26], the subjective intention of the parties is irrelevant for the purpose of ascertaining the intention of the parties to a written agreement and in my view, it may be assumed that her Honour was well aware of this principle.

Consequently, whether the 1996 agreement as amended is construed in isolation from the surrounding circumstances or whether regard is had to the letter of 18 December 1997 to the extent to which I have mentioned for the purpose of assisting the ascertainment of the parties' real intention as to the ambit of the amendment, it is apparent that they intended to extend the period of the contract to 3 November 2002 and, as her Honour correctly concluded, they manifested that intention in the terms of the 1998 amendment to clause 6 of the 1996 agreement.

It follows, therefore, that, in my view, the appeal should be dismissed.

[1] The Amendment Contract S40/96 was not part of the material that was before the court and was not the subject of any submissions on appeal or, as I understand it, before the learned trial judge.

[2] Australian Broadcasting Commission v. Australasian Performing Rights Association (1973) 129 C.L.R. at 109-110 per Gibbs, J.; Codelfa Construction Pty. Ltd. v. State Rail Authority of N.S.W. [1982] HCA 24; (1982) 149 C.L.R. 337 at 352 per Mason, J.

[3] See, for example, Trollope & Colls Ltd. v. Atomic Power Constructions Ltd. [1963] 1 W.L.R. 333 at 339; Chitty on Contracts 28th ed. para.2-114.

[4] See Regal Life Insurance v. Pacific Financial Resources Pty. Ltd., unreported, 16 December 1994 where the authorities dealing with the approach taken by the courts in construing commercial documents are conveniently summarised by Batt, J. at 35-36. See also Vroon BV v. Fosters Brewing Group Ltd. [1994] VicRp 53; [1994] 2 V.R. 32 at 67-68 which is one of the cases on which her Honour relied.

[6] See Regal Life Insurance Ltd. v. Pacific Financial Resources Pty. Ltd., unreported, 16 December 1994 where the relevant authorities are conveniently summarised by Batt, J. at 35-37. See also Vroon BV v. Foster's Brewing Group Ltd. [1994] VicRp 53; [1994] 2 V.R. 32 at 67-68; NGL Properties Pty. Ltd. v**.** Harlington Pty. Ltd. [1979] VicRp 11; [1979] V.R. 92 at 95 per Kaye, J.; Acorn Consolidated Pty. Ltd. v. Hawkeslade Investments Pty. Ltd. [2000] WA SCA. 322 at [5] per Ipp, J.; Chitty on Contracts (28th ed.) at 616; Halsbury's Laws of Australia Vol.6, paras.110-2242.

[7] See, for example, Codelfa at 346 and Narni Pty. Ltd. v. National Australia Bank Ltd. [2001] VSCA 31 at [16].

[9] (1999) 21 W.A.R. 425 per Owen, J. (whose decision was upheld on appeal [2000] WASCA 322.)

[14] The remaining paragraphs in this passage have been omitted, as they relate to the question of construction, rather than the nature of extrinsic evidence that can be received by the court for the purpose of such construction.

[18] By Lord Bingham (with whom Lord Browne-Wilkinson agreed) at 739 and Lord Clyde at 761-2.

[20] At 749 ( who dissented in that case).

[21] "The Rise of Commercial Construction in Contract Law" (1998) LMCLQ 382.

[25] I note, that, as Owen, J. pointed out in Acorn at 436, in Commonwealth v. Western Australia [1999] HCA 5; (1999) 196 C.L.R. 392, Gummow, J. cited at 427 Investors and Codelfa "as authority for the proposition that the proper approach was to construe an instrument in the light of the surrounding circumstances". The only decision of an intermediate appellate court in Australia where I have found that reference is made to Investors (apart from Hillboi) is Government Insurance Office of N.S.W. v. Council of the City of Penrith [1999] N.S.W.C.A. 42 where Beazley, J.A. in her dissenting judgment in the case which was concerned with the interpretation of a professional indemnity insurance policy, merely cited Investors as authority for the principle that "it is relevant to have regard to the background against which the policy was entered into in determining whether a claim fell within its terms".

[26] Codelfa at 348 and 352 per Mason, J.; Investors at 913 per Lord Hoffmann.

At a glance

Court

Decision date

Before

Source

Judgment (69 paragraphs)

Parties