Newey v Westpac Banking Corporation

Background to the deeds 48As already noted, the parties entered into the deeds as part of a settlement of certain proceedings involving clients of Gillis Delaney. The events preceding the entry into these deeds, in particular the details of the prior negotiations, are primarily relevant for the rectification claim. In addition, the background to the deeds is relevant insofar as it may provide legitimate contextual surrounding circumstances which can be taken into account in considering the construction issue. 49Between September 2009 and May 2010 Gillis Delaney commenced 24 separate proceedings on behalf of former St George employees. These proceedings were either commenced in or transferred to the Federal Court of Australia. As St George had ceased to exist on 1 March 2010, the claims relating to terminations of employment prior to that date were either continued, or thereafter commenced, against Westpac as the successor in law of St George: s 22 of the Transfer Act. 50A mediation between those former employees and Westpac was held in May 2010. Subsequently five of the claims settled between May and October 2010. On 17 November 2010 Gillis Delaney made an offer to Allens, solicitors for Westpac, to settle the remaining 19 claims (Blue 1/5-6). 51On 10 December 2010 Allens wrote to Gillis Delaney outlining the basis upon which Westpac was prepared to settle 14 of the claims (the December offer) (Blue 1/7-8). A condition of that offer was a proposed restraint against Gillis Delaney referred to as "Condition D". The terms of Condition D need to be read together with Condition C of the offer which contained a definition of the expression "the Westpac Group". Conditions C and D of the December offer were in the following terms: "C Each of the 14 applicants will enter into a separate deed of release with our client. Each deed will include confidentiality and non disparagement obligations in favour of the Westpac Group (Westpac). We will provide you with a draft deed as quickly as possible and as soon as its terms have been agreed between us we will provide you with draft deeds for all 14 applicants. D Each of the partners of Gillis Delaney undertake not to bring or otherwise aid, abet, counsel or procure the bringing of any claim against any member of Westpac on behalf of: (i) any person formerly employed by St. George Bank Limited (St George) who at any time worked in what was known as the Institutional & Business Banking Division, and prior to about 1999 the Treasury & Capital Markets Division; or (ii) any former employee of St. George whose employment was or is terminated by Westpac at any time up to the date on which the last of the claims listed in your letter dated 17 November 2010 is resolved by settlement of final judgment (including in respect of any appeal), other than the current applicants who are listed in your letter dated 17 November 2010. Our client will require the partners of Gillis Delaney to enter into a deed which records this agreement." 52The next steps in the negotiations are summarised in the primary judge's reasons as follows: "21 Gillis Delaney replied on the same day, purporting to accept the settlement offer but without Condition D, which was said to give rise to questions 'of potential breaches of the Trade Practices Act, 1974 (restraint of trade) and an attempt to induce a breach of contract'. 22 On 14 December 2010, Allens replied indicating that it was not open to Gillis Delaney to treat Condition D as a nullity and to purport to accept an offer that was never made. In addition, Allens explained the justification for Condition D as follows: Condition D represents a reasonable attempt by Westpac to protect the confidentiality of commercially sensitive information as to the basis of which the proceedings have settled (if that were to occur). The restraint in condition D represents a legitimate means of achieving this objective and is one that is frequently utilised in the settlement of class actions where the circumstances are analogous to this situation. 23 Subsequently there was correspondence between Gillis Delaney and Allens concerning an application to be brought by Gillis Delaney on behalf of its clients seeking a declaration that a binding settlement agreement had been reached between Westpac and its clients. 24 Eventually, on 17 February 2011, Gillis Delaney advised Allens that the firm and each of the partners of Gillis Delaney were willing to enter into an undertaking as set out in Condition D, subject to 4 additional employees, namely Elvio Bechelli, Lucky Poulos, Paul Smith and Wayne Fowler being included and described as the 'Prospective Applicants'. The Prospective Applicants were former St George employees for whom Gillis Delaney held instructions to act but who had not yet commenced proceedings. 25 On 25 February 2011, Allens responded with Westpac's final settlement offer. That letter defined 'Westpac' to mean 'Westpac Group' in Condition C and contained a slightly modified version of Condition D to take into account the Prospective Applicants (changes underlined): Each of the partners of Gillis Delaney undertake not to bring or otherwise aid, abet, counsel or procure the bringing of any claim against any member of Westpac on behalf of: (i) any person formerly employed by St George Bank Limited (St George) who at any time worked in what was known as the Institutional & Business Banking Division, and prior to about 1999 the Treasury & Capital Markets Division; or (ii) any former employee of St George whose employment was or is terminated by Westpac at any time up to the date on which the last of the claims listed in your letter dated 17 November 2010 is resolved by settlement of final judgment (including in respect of any appeal), other than the current applicants who are listed in your letter dated 17 November 2010 and Elvio Bechelli, Lucky Poulos, Paul Smith and Wayne Fowler. Our client will require the partners of Gillis Delaney to enter into a deed which records this agreement." 53On 2 and 4 March 2011 Gillis Delaney, on behalf of the 14 Applicants, accepted Westpac's offer on the terms stipulated in the 25 February 2011 letter (the February offer) (Blue 1/45-49). 54On 4 March 2011 Allens sent a template deed of release in relation to the Applicants in the Federal Court proceedings and a draft deed of release for execution by the partners of Gillis Delaney and David Collinge (Blue 1/238-261). The latter deed was stated to be subject to review by Westpac. Clause 1 of the latter deed did not contain the words "or Prospective Applicant" after the words "brought by an Applicant" in cl 1(d) (Blue 1/253V). 55On 9 March 2011 Allens sent Gillis Delaney a final version of the template deed of release and a final version of the deed containing the restraint clause (Blue 1/262-284). In this version the words "or Prospective Applicant" had been added after the words "brought by an Applicant" in cl 1(d) (Blue 1/276W). On 16 March 2012 Allens sent Gillis Delaney further revised versions of both deeds (Blue 1/309-332). Gillis Delaney objected to the inclusion of additional words in the restraint clause (Blue 1/333). On 17 March 2011 Allens responded to Gillis Delaney by email stating: "It is clear from earlier correspondence leading up to our letter dated 25 February 2011 that the substance of the agreement between the parties is that pursuant to condition D(ii) Gillis Delaney will not act for any employee of St George whose employment was or is terminated up to the date on which the last of the claims by Bechelli, Poulos, Fowler and Smith, as well as the Applicants in the current proceedings, is resolved ... there is no settled agreement between Westpac and your clients until deeds have been signed. Consequently, the words "or Prospective Applicant" should remain in clause 1(d) of the Gillis Delaney Deed." [Emphasis added.] (Blue 1/335). 56Gillis Delaney replied by email to Allens on the same day stating that they did not see the relevance of earlier communications, noting the terms of the February offer, and confirming that their clients had accepted the February offer and that the partners of Gillis Delaney were prepared to enter into a deed recording the terms of the undertaking set out in the February offer (Blue 1/336). 57Ultimately on 21 March 2011 Gillis Delaney agreed that the additional words which had been added by Allens would remain in cl 1(d) (Blue 1/344). As already mentioned, the deed in the case of some of the appellants is dated April 2011, and in the case of others it is dated 11 May 2011.

A dispute arises 58In March 2013, Gillis Delaney commenced proceedings against Westpac on behalf of two former employees of St George in the Local Court of New South Wales (Blue 1/113-132). The plaintiffs, Michael Pastega and Carolyn Colley, had not been identified as Prospective Applicants in the recitals to the deeds. Mr Pastega claimed that his employment with St George was terminated by St George on 11 December 2009. Ms Colley claimed that her employment with St George was terminated by St George on 9 January 2009. 59A dispute then arose as to whether the restraint clause in the deeds applied to preclude Gillis Delaney from acting on behalf of those plaintiffs against Westpac. Notably the construction of the deeds initially advanced by Westpac differed somewhat from the position later taken in the proceedings below. In a letter to Gillis Delaney dated 8 April 2013, Allens contended that "Westpac" in cl 1(d) must, by virtue of s 22(2) of the Transfer Act, be a reference to the same legal entity as St George, which was the entity which terminated Mr Pastega and Ms Colley (Blue 1/143S). This contention was not thereafter pressed by Westpac. 60Westpac commenced proceedings against Gillis Delaney and Mr Collinge seeking declaratory and injunctive relief and, in the alternative, rectification of the deeds. The primary judge found that the word "Westpac" in cl 1(d) of the deeds should be construed as "Westpac or any of its related bodies corporate": at [17]. 61His Honour made the declarations sought by Westpac on the construction issue, and granted Westpac final injunctive relief restraining the appellants from continuing to act against Westpac in the two Local Court claims brought by Mr Pastega and Ms Colley. His Honour noted that had he not been satisfied on the construction issue, he would have rectified the deeds in the manner sought by Westpac: at [49]. 62The appellants challenge his Honour's decision on the construction issue and his reasoning concerning rectification. 63Westpac seeks to uphold his Honour's decision on the construction issue. Alternatively, by a notice of cross-appeal, Westpac seeks to uphold his Honour's reasoning on the rectification issue, and have the deeds rectified in the manner sought at trial.

Construction 64His Honour considered that there was an ambiguity in the deeds because there was an anomaly in the chosen language: at [13]. The anomaly identified by his Honour (at [14]) arose from the exclusion from the operation of the restraint in cl 1(c) and (d) of both "the Applicants" and "the Prospective Applicants". His Honour noted that one of the "Prospective Applicants", Lucky Poulos, was not covered by cl 1(c) as he had not worked in the IBB Division of St George nor, if read literally, by cl 1(d) because his employment was terminated in September 2009 by St George, not by Westpac. His Honour reasoned that Mr Poulos only fell within cl 1(d) if "Westpac" were construed to mean "Westpac Group" or "Westpac or any of its related bodies corporate". His Honour concluded that unless "Westpac" is to be read broadly, there was no reason to exclude Mr Poulos from the restraint clause. 65His Honour found that "Westpac" in cl 1(d), having regard to its lexical, grammatical, and syntactical context, and the known objective fact of the status of Mr Poulos, should be construed to mean "Westpac or any of its related bodies corporate": at [17].

Rectification 66Having reviewed the prior negotiations of the parties (at [19]-[26]), his Honour concluded (at [27]) that there had been a mistake in the drafting of the deeds because the terms of the deeds were intended to reflect the acceptance by Gillis Delaney of the terms of the February offer. Relevantly his Honour found that the substance of the parties' agreement immediately prior to the execution of the deeds was that Gillis Delaney would be restrained from bringing claims on behalf of former St George employees whose employment was terminated by either St George or Westpac. 67His Honour considered that the consensus recorded in the antecedent exchange of communications reflected in the February offer represented the best evidence of the parties' subjective intentions and that this evidence "was clear and convincing": at [30]. His Honour found that the negotiations between the parties concluded in late February 2011: at [31]. (This was not correct. Further negotiations ensured in relation to the terms of the deed in March 2011: see [54]-[56] above.) 68His Honour saw no ambiguity in the language of the February offer and found that no reasonable reader could have failed to appreciate that the proposed restraint on Gillis Delaney was intended to extend to former St George employees whose employment was terminated by St George: at [32]. His Honour found that Mr Gillis and Mr Collinge were reasonable persons and accordingly it was unlikely that, when agreeing to the terms of the February offer, "they were obtuse or distracted or for some other reason unable to read and comprehend simple English": at [33]. 69In consequence of these findings his Honour did not accept the evidence of Mr Gillis and Mr Collinge of their subjective belief as to the scope of the proposed restraint. Their evidence was that they did not intend that the deeds prevented Gillis Delaney from acting in respect of persons whose employment had been terminated by St George, other than those covered by clause 1(c) of the deeds. His Honour found their evidence implausible (at [33]) and unconvincing (at [34]), but held back from finding that they gave knowingly false evidence. He considered it was more likely that they had convinced themselves of the intentions they said they had at the time of entering into the deeds: at [33]. 70At trial the form of order of rectification sought in the summons was the addition of the words "or any of its related bodies corporate (within the meaning of s 50 of the Corporations Act 2001 (Cth))" after the word "Westpac" in paragraph (d) of cl 1 of the deeds. The respondent raised an alternate form of rectification in its written submissions to replace "Westpac" with the words "any member of the Westpac Group", but acknowledged that this would leave the expression "Westpac Group" undefined (Black 96W). If it had been necessary to decide the issue, his Honour thought that the appropriate correction would be effected by inserting the words "or any of its related bodies corporate" after the word "Westpac" in paragraph (d) of cl 1 of the deeds: at [49]. 71His Honour rejected the contention by Gillis Delaney that the Court should not order rectification in the form sought by Westpac because to do so would create an ambiguity. The appellants had argued that it would create a temporal uncertainty as to whether the proposed words to be added in cl 1(d) could refer to Westpac's related bodies corporate at the time of termination of employment, or at the time of execution of the deeds. His Honour found that, if rectified in the manner he had contemplated, the restraint in cl 1(d) was capable of only one reasonable construction, namely, that it referred to Westpac's related bodies corporate at the time of termination of employment of the relevant person: at [40].

The issues in the appeal 72The issues raised in the appeal and the cross-appeal may be summarised as follows: (1)Whether the primary judge was wrong to construe "Westpac" in cl 1(d) of the deeds as meaning "Westpac or any of its related bodies corporate" (appeal ground 1). (2)Whether the primary judge erred in holding that the reference to "Westpac" was ambiguous, so that it was appropriate to have regard to surrounding circumstances, including the employment status of Mr Poulos (appeal ground 2). (3)Whether the primary judge erred in taking into account the surrounding circumstances of the position of Mr Poulos in the absence of evidence that those circumstances were known to all parties to the deeds (appeal ground 3). (4)Whether the primary judge erred in failing to find that the parties included the reference to Mr Poulos and the other Prospective Applicants only for the purpose of avoidance of doubt or as a harmless superfluity (appeal ground 4). (5)If "Westpac" in cl 1(d) is constructed as "Westpac or any of its related bodies corporate", does it include St George in circumstances where St George was no longer a related body corporate of Westpac (appeal ground 6). (6)If the appellants are successful on the construction issue, whether the deeds should be rectified consistently with the primary judge's provisional view on that issue (appeal grounds 7 - 10 and 12, cross-appeal ground 1). 73The appellants did not press appeal grounds 5 and 11, and that part of 12 which depended on ground 5.

(1) The construction issue 74Appeal grounds 1-4 are directed to the appellants' primary construction argument - that the restraint in paragraph (d) of cl 1 is limited to those former employees of St George whose employment was terminated by Westpac, and does not extend to those whose employment was terminated by St George. Appeal ground 6 is directed to the appellants' alternative construction argument - that, even if the word "Westpac" is given an expanded meaning of either the "Westpac Group" or "Westpac and its related bodies corporate", it would not include St George, because St George had ceased to exist as a separate legal entity on 1 March 2010. 75It is convenient to deal first with the appellants' primary construction argument.

Appellants' submissions 76The appellants submitted that the word "Westpac", when used in paragraph (d) of cl 1, is an unambiguous reference to Westpac alone and should not be construed to include any of its related bodies corporate. It was said that the wider reference to "Westpac or any of its related bodies corporate ..." in the chapeau to paragraphs (c) and (d) of cl 1, in contrast to the use of the defined term "Westpac" in paragraph (d), indicated a deliberate choice in the use of the defined term in paragraph (d). 77Next it was submitted that paragraphs (c) and (d) of cl 1 deal with different situations and different classes of ex-employee. Paragraph (c) was said to deal with ex-employees, whenever and by whomever terminated, provided they worked in the relevant division of St George, the IBB Division. Paragraph (d) was said to deal with the class of ex-employees whose employment was terminated by Westpac after Westpac had assumed the role of employer in respect of them. 78In oral argument it was contended that the relevant limitation imposed by the opening words of paragraph (d) has two aspects - first, the temporal context which is directed to the point of termination of the person's employment, and secondly, the identity of the body by whom the termination is effected which is stated to be Westpac alone. It was contended that the primary judge failed to give proper weight to the opening words "former employee" in paragraph (d) and the fact that St George had ceased to exist at the time of the deeds. 79It was also submitted that the primary judge should not have had regard to extrinsic evidence because no doubt or multiple meanings emerged from the "four corners" of the document. In the alternative, the appellants submitted that if it were permissible to have regard to extrinsic evidence regarding the employment status of Mr Poulos, his Honour should not have treated that matter as a "known objective fact". It was contended that the evidence established only that each party privately knew a fact (namely, that Mr Poulos was terminated by St George in September 2009) and that neither party had raised the matter in negotiations as being relevant. 80The appellants further submitted that his Honour failed to have regard to the discussions between the parties in which Mr Gillis identified his concern about a conflict of interest (because he had instructions from and had agreed to commence proceedings on behalf of a number of former St George employees) and that this clearly indicated to both sides of the negotiations the reason why Mr Poulos was being specifically excluded from the restraint clause. 81In oral argument it was contended that the reference to Mr Poulos and the other Prospective Applicants in the concluding words of the restraint clause did no more than relevantly identify those in respect of whom a claim might be brought against Westpac by Gillis Delaney.

Respondent's submissions 82The respondent's construction argument relied upon two main propositions. First, that the meaning of "Westpac" in cl 1(d) is ambiguous and susceptible to more than one meaning because there is an incongruity between "claim" being widely defined by reference to Westpac or any of its related bodies corporate in the chapeau to paragraphs (c) and (d) of cl 1, but "termination" being narrowly defined by reference to Westpac alone on a literal construction of paragraph (d). The respondent submitted that the ambiguity was to be resolved by giving the reference to "Westpac" in paragraph (d) of cl 1 a wider meaning to correspond to the width of claims referred to in the chapeau to paragraphs (c) and (d). 83Secondly, that the primary judge was entitled to have regard to the extrinsic evidence, in particular the employment status of Mr Poulos who was terminated by St George not Westpac. In oral argument the respondent contended that the fact that Mr Poulos only fell within the restraint in paragraph (d) if the word "Westpac" was given a wider meaning, tilted the scales sufficiently strongly in favour of the beneficial construction adopted by his Honour.

Intention of the parties 84The objective approach to construction requires that the meaning of the terms of a contractual document is to be determined by what a reasonable person would have understood them to mean. Subjective beliefs or understandings of the parties are not relevant to the question of construction: Pacific Carriers Ltd v BNP Paribas [2004] HCA 35; 218 CLR 451 at [22]; Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52; 219 CLR 165 at [40]. 85The respondent relied upon the statement of Dixon CJ and Fullagar J in Fitzgerald v Masters [1956] HCA 53; 95 CLR 420 at 426-427 that "words may generally be supplied, omitted or corrected, in an instrument, where it is clearly necessary in order to avoid absurdity or inconsistency". Nonetheless, putting aside the claim for rectification, any question of absurdity or inconsistency must be identified according to established principles, by reference to the text of the agreement as understood in its factual and legal context: Wyllie v Tarrison Pty Ltd [2007] NSWCA 184 at [46] (Basten JA; Giles and Campbell JJA agreeing) citing Maggbury Pty Ltd v Hafele Australia Pty Ltd [2001] HCA 70; 210 CLR 181 at [11] (Gleeson CJ, Gummow and Hayne JJ). Here that knowledge would include (a) that some employees of St George had been terminated by St George prior to 1 March 2010 and some had transferred to Westpac on that date; and (b) at least one matter of law, namely, that St George had ceased to exist as a legal entity at the time the parties had negotiated and entered into the deeds.

Proper approach to the evaluation of ambiguity 86The respondent accepted on appeal (as it did at trial) that it is essential to identify ambiguity in the language of the contract before the Court may have regard to the surrounding circumstances. Such a requirement was said to arise from the statement of Mason J (Stephen and Wilson JJ agreeing) in Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (Codelfa) [1982] HCA 24; 149 CLR 337 at 352. As explained below, this approach overlooked what Mason J said at 350 in Codelfa. It also ignored authority in this Court, based upon a review of the High Court cases up to 2009, that the identification of ambiguity is not a precondition to examining legitimate surrounding circumstances: Franklins Pty Ltd v Metcash Trading Ltd (Franklins) [2009] NSWCA 407; 76 NSWLR 603 at [14]-[18] (Allsop P; Giles JA agreeing) and [305] (Campbell JA). 87The High Court authorities referred to in Franklins included Pacific Carriers Ltd v BNP Paribas where the plurality said at 462 [22] that the construction of a contract "requires consideration, not only of the text of the documents, but also the surrounding circumstances known to [the parties], and the purpose and object of the transaction". The plurality went on to observe that in Codelfa at 350 Mason J set out, with evident approval, the statement of Lord Wilberforce in Reardon Smith Line Ltd v Hansen-Tangen [1976] 1 WLR 989 at 995-996: "In a commercial contract it is certainly right that the court should know the commercial purpose of the contract and this is turn presupposes knowledge of the genesis of the transaction, the background, the context, the market in which the parties are operating." 88In the most recent statement of the High Court on contractual construction, Electricity Generation Corporation v Woodside Energy Ltd (Woodside) [2014] HCA 7 at [35], the majority (French CJ, Hayne, Crennan, and Kiefel JJ) said: "[T]his Court has reaffirmed the objective approach to be adopted in determining the rights and liabilities of parties to a contract. The meaning of the terms of a commercial contract is to be determined by what a reasonable businessperson would have understood those terms to mean. This approach is not unfamiliar. As reaffirmed, it will require consideration of the language used by the parties, the surrounding circumstances known to them and the commercial purpose or objects to be secured by the contract. Appreciation of the commercial purpose or objects is facilitated by an understanding 'of the genesis of the transaction, the background, the context [and] the market in which the parties are operating'. As Arden LJ observed in Re Golden Key Ltd, unless a contrary intention is indicated, a court is entitled to approach the task of giving a commercial contract a businesslike interpretation on the assumption 'that the parties ... intended to produce a commercial result'. A commercial contract is to be construed so as to avoid it 'making commercial nonsense or working commercial inconvenience'." [Footnotes omitted.] 89As subsequently observed by Leeming JA (Ward and Emmett JJA agreeing) in Mainteck Services Pty Ltd v Stein Heurtey SA (Mainteck) [2014] NSWCA 184 at [71], Woodside endorses and requires a contextual approach to the construction of commercial contracts and "ambiguity" is to be evaluated having regard to surrounding circumstances and commercial purposes or objects. To the extent that what was said in the reasons of three members of the High Court when refusing special leave in Western Export Services Inc v Jireh International Pty Ltd (Jireh) [2011] HCA 45; 86 ALJR 1 supports the contrary proposition, Jireh should be regarded as inconsistent with what was said in Woodside at [35], for the reasons explained in Mainteck at [72]-[86]. See also Stratton Finance Pty Ltd v Webb (Stratton Finance) [2014] FCAFC 110 at [41] where the Full Court of the Federal Court of Australia (Allsop CJ, Siopis and Flick JJ) agreed with the conclusion in Mainteck and with the reasons given there in elaboration at [72]-[86]. 90Nonetheless it is also important to bear in mind the extent to which context and legitimate surrounding circumstances can be used as an aid in the construction of a written agreement. In McGrath v Sturesteps; Sturesteps v HIH Overseas Holdings Ltd (in liq) [2011] NSWCA 315; 81 NSWLR 690 at [17]-[18] Bathurst CJ (Macfarlan JA and Sackville AJA agreeing) said: "[17] ... Whilst it is correct in my opinion that context and the surrounding circumstances known to both parties can be taken into account (see Codelfa Construction Pty Ltd v State Rail Authority of New South Wales at 350, 352) even in cases where there is an absence of apparent ambiguity (Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd at [40]; International Air Transport Association v Ansett Australia Holdings Ltd [2008] HCA 3; (2008) 234 CLR 151 at [8]; Park v Brothers [2005] HCA 73; (2005) 80 ALJR 317 at [39]; Franklins Pty Ltd v Metcash Trading Ltd at [14], [63], [305]) that does not permit the Court to depart from the ordinary meaning of the words used by the parties merely because it regards the result as inconvenient or unjust: Australian Broadcasting Commission v Australasian Performing Right Association Ltd (1973) 129 CLR 99 at 109. [18] This does not mean that there are not exceptional cases where, to use the words of Lord Hoffmann, something has clearly gone wrong with the language so as to interpret it in accordance with the ordinary rules of syntax makes no commercial sense: see Chartbrook Ltd v Persimmon Homes Ltd [2009] UKHL 38; [2009] 1 AC 1101 at [15]-[16]; Jireh International Pty Ltd v Western Exports Services Inc [2011] NSWCA 137 at [55], [60]. In such a case, in my opinion, a court is entitled to depart from the ordinary meaning to give effect to what objectively speaking the parties intended ... ." 91The reference in McGrath v Sturesteps at [17] to the well-known observation of Gibbs J in Australian Broadcasting Commission v Australasian Performing Right Association Ltd at 109, is a strong reminder that there is no licence for "judicial rewriting" of an agreement: Kooee Communications Pty Ltd v Primus Telecommunications Pty Ltd [2008] NSWCA 5 at [27] (Basten JA; Giles and Tobias JJA agreeing); Franklins at [23] (Allsop P). The ability of courts to give commercial agreements a commercial and business-like interpretation is constrained by the language used by the parties. If, after considering the contract as a whole and the background circumstances known to both parties, a court concludes that the language of a contract is unambiguous, the Court must give effect to that language unless to do so would give the contract an absurd operation: Jireh International Pty Ltd v Western Exports Services Inc at [55] (Macfarlan JA; Young JA and Tobias AJA agreeing).

(a) The defined meaning of "Westpac" does not give the deeds an absurd or inconsistent operation 92I have concluded that reading paragraph (d) of cl 1 in accordance with the defined meaning of the expression "Westpac" does not involve any obvious level of absurdity. Nor does it involve internal inconsistency within paragraph (d), or the other parts of cl 1. Rather a consequence of the construction proposed by the respondent would be inconsistency between the opening words of paragraph (d) and the expanded reference to "Westpac". My reasons for these conclusions are as follows.

The class of persons covered by paragraphs (c) and (d) 93The expression "Westpac" was defined in the deeds to mean "Westpac Banking Corporation". This expression was used on two occasions only - both in cl 1. In the first reference, in the chapeau to paragraphs (c) and (d) of cl 1, "Westpac" was used in conjunction with the words "or any of its related bodies corporate", giving it an expanded meaning. The context concerned the entities against whom the appellants agreed not to bring any "claim" on behalf of two classes of former St George employees. Nonetheless the expanded concept of Westpac when used in the chapeau did not include St George as it had ceased to exist and no "claim" could be made against a non-existent entity. So much was accepted by the respondent. 94The other reference to "Westpac", in paragraph (d) of cl 1, used the defined meaning of that word. Here the context concerned one class of former St George employees the subject of the restraint against the appellants bringing any claims on their behalf. Another class of former St George employees the subject of the restraint was identified in paragraph (c), but without reference to any required connection with "Westpac". It is necessary to say something further concerning these two classes which the appellants submitted, correctly in my view, deal with different situations and different persons. 95First, the persons identified in paragraph (c) must answer the description of having been formerly employed by St George at any time within its IBB Division or its predecessor division. It is the status of such persons alone which determines whether they answer that description. It is not necessary that their employment has been terminated, whether by St George or Westpac, or for that matter, by any other member of the Westpac Group who might be their present employer. The use of the expanded concept of "Westpac" for the purpose of identifying a "claim" in the chapeau to paragraphs (c) and (d) may be seen as accommodating the width of the class of persons identified in paragraph (c). 96Secondly, the persons identified in paragraph (d) must answer the description of a "former employee of St George" whose employment was or is terminated by "Westpac" at any time up to the specified date. In determining whether a person answers that description it is an error, in my view, to focus solely on the meaning of the word "Westpac". The intention of the parties to a contract "is to be ascertained from the instrument as a whole": Fitzgerald v Masters at 437 (McTiernan, Webb and Taylor JJ). In construing the words which the parties have used regard must be had to the other parts of the text so that, as far as possible, the various provisions are given a consistent or congruent operation: Australian Broadcasting Commission v Australasian Performing Right Association Ltd at 109; Wilkie v Gordian Runoff Ltd [2005] HCA 17; 221 CLR 522 at [16]. Here it is necessary to consider the temporal context of paragraph (d).

The temporal context of paragraph (d) 97Viewed in its temporal context, the opening words of paragraph (d) are directed to those persons answering the relevant description at the point of termination of their employment. The temporal context has two aspects. One is that the person is a "former employee" of St George. The other is that at the point of termination the terminating party is "Westpac". As a matter of ordinary language, a "former employee" of St George at the point of termination of their employment could not be terminated by St George because St George would not be their present employer. 98The respondent sought to avoid this conclusion in two ways. First it was said that the expression "former employee" is not to be taken as applying at the point of termination because upon termination their employment is over. The difficulty with this argument is that it conflates the designated characteristic of the person at the point of termination with their position after termination. In my view the language of paragraph (d) is directed to the characteristic which a person must bear at the point of termination not after termination. 99Secondly, it was contended that the use of the word "former" before the words "employee of St George" in paragraph (d) was simply emphatic. There are difficulties with this submission. The first is that it treats the word "former" as superfluous or redundant. Such an approach to construction should not be lightly taken. 100The second difficulty is that it seeks to give an inconsistent operation to the temporal context of paragraph (d). On the one hand, the respondent accepts that the temporal context of the reference to "Westpac" in paragraph (d) is at the point of termination of the relevant person's employment. On the other hand the respondent contends that the reference to "former employee" of St George has no temporal context and does not describe the characteristic of the relevant person at the point of termination. In my view the temporal context revealed by the language of paragraph (d) does not support the drawing of such a distinction.

(b) Surrounding circumstances 101The primary judge (at [13]-[14]) used the surrounding circumstances concerning the employment status of Mr Poulos as the basis to depart from the defined meaning of "Westpac" in paragraph (d) of cl 1. In doing so his Honour expressed himself (at [13]) as having taken the approach, which both parties accepted at trial, that it was necessary to identify ambiguity in the text before the Court may have regard to the surrounding circumstances known to both parties. (As already noted at [86]ff above, this approach did not accord with the decision of this Court in Franklins or the High Court's subsequent decision in Woodside, although this was not available at the time of the trial.) 102The ambiguity in the text identified by his Honour seems to have been the inclusion of Mr Poulos in the definition of Prospective Applicants, in circumstances where reference to him was not needed if he did not fall within paragraph (d) because he was not terminated "by Westpac" (it being common ground that Mr Poulos did not fall within paragraph (c)): at [13]-[14]. The anomaly which his Honour identified was not in fact an ambiguity in the text of the deeds. Rather it was an anomaly said to arise from the surrounding circumstances themselves.

Whether ambiguity in the language of the deeds 103The respondent accepted that it was bound by the way it had run its case at trial concerning the need to identify ambiguity before having regard to surrounding circumstances. However, as already noted, such a requirement does not arise on a proper understanding of the law. Accordingly, appeal ground 2 proceeded on a false premise, as did the parties' arguments on this ground. The issue raised by appeal ground 2 does not arise, because the Court may have regard to legitimate contextual surrounding circumstances on the construction question without first needing to find ambiguity in the text. Nonetheless insofar as the primary judge thought there was such a requirement his Honour did not follow this approach: see [102] above. Moreover, if (contrary to the proper approach) there was such a requirement then, contrary to the appellants' submissions, it was satisfied in the present case. In this regard, the respondent pointed to two matters in support of its contention that the reference to "Westpac" in paragraph (d) was susceptible to more than one meaning. 104First the respondent said that the reference to "Westpac" is to be understood in its ordinary and colloquial meaning as referring to the "Westpac Group" as a whole. The respondent referred to Halford v Price [1960] HCA 38; 105 CLR 23 at 33 (Fullagar J) in support of the proposition that there is no rule of law or construction that requires a contractual definition to be applied uniformly where the context or intent derived from the document construed as a whole indicates a contrary intention. 105Secondly, the textual matter which the respondent relied upon as suggesting ambiguity was the width of the expression "claim" in the chapeau to paragraphs (c) and (d) (being a claim against "Westpac or any of its related bodies corporate"), in contrast to "termination" being narrowly defined by reference to "Westpac" in paragraph (d). 106The appellants accepted that ambiguity includes a situation where the meaning is doubtful in the sense that the words are susceptible of more than one meaning: Royal Botanic Garden and Domain Trust v South Sydney Council [2002] HCA 5; 240 CLR 45 at [9] and [39]; Codelfa at 352. However the appellants say that the use of the defined meaning of the provision in paragraph (d) is unambiguous. 107Whether a statement is ambiguous is very much a matter of impression: K Lewison and D Hughes, The Interpretation of Contracts in Australia (2012, Lawbook Co) at 347. However, as Clarke JA said in Trawl Industries of Australia Pty Ltd v Effem Foods Pty Ltd (1992) 27 NSWLR 326 at 358, "in many, if not most, cases in which the court is seeking to construe a particular term or terms of a contract there will be sufficient uncertainty as to the meaning of the relevant term as to enable the admission of evidence of surrounding circumstances". Clarke JA observed that this had been earlier recognised by McHugh JA in Manufacturers Mutual Insurance Ltd v Withers (1988) 5 ANZ Ins Cas 60-853 at 75,343 where his Honour said: "... few, if any English words are unambiguous or not susceptible of more than one meaning or have a plain meaning. Until a word, phrase or sentence is understood in the light of the surrounding circumstances, it is rarely possible to know what it means. In my view evidence of surrounding circumstances will generally be admissible if it is known to both parties or sufficiently notorious to be presumed to be within their knowledge." 108In the present case it may be accepted that the meaning of the word "Westpac" in paragraph (d) is doubtful in the sense of being susceptible to more than one meaning, because of the textual matter relied upon by the respondent. Although the word "Westpac" is defined narrowly in the parties' section of the deed, it is susceptible to a wider meaning in paragraph (d) of cl 1 depending upon the identity of the terminating party (if other than Westpac), particularly in light of the wider concept of Westpac against whom a "claim" may be made as referred to in the chapeau to paragraphs (c) and (d). 109As already mentioned, the anomaly which the primary judge identified did not in fact give rise to an ambiguity in the text. Nonetheless the conclusion that the reference to termination "by Westpac" in paragraph (d) is susceptible of more than one meaning is available on the textual ground identified by the respondent. If it had been necessary to decide this issue I would reject appeal ground 2 on this basis.

Scope of surrounding circumstances 110The scope of the legitimate surrounding circumstances, knowledge of which is to be attributed to a reasonable person in the position of the contracting parties, is to be understood by reference to what the parties knew in the context of their mutual dealings. Whilst it does not involve a species of constructive notice, "the reasonable person may be taken to know of things that go beyond those that the parties thought to be important or those to which there was actual subjective advertence by the parties": QBE Insurance Australia Ltd v Vasic [2010] NSWCA 166 at [35] (Allsop P; Giles and Macfarlan JJA agreeing). 111Here it was common ground that the surrounding circumstances concerning the employment status of Mr Poulos (who was terminated by St George before 1 March 2010 but never worked in the IBB Division) were objective background facts known to both parties. Contrary to the appellants' submissions, the absence of any relevant discussion between the parties does not render this circumstance inadmissible on the construction issue. Mr Poulos' employment status was a relevant matter known to both parties. 112Accordingly appeal ground 3 must be rejected. The primary judge did not err in taking into account the surrounding circumstances relating to Mr Poulos' employment status known to both parties. 113However, as explained below, the surrounding circumstances relating to Mr Poulos were not limited to this matter alone. Also relevant were the mutually known circumstances in which the appellants, to the knowledge of the respondent, had requested and the respondent had agreed to the exclusion of Mr Poulos and the other Prospective Applicants from the operation of the restraint clause.

Surrounding circumstances do not reveal suggested ambiguity in the deeds 114In evaluating the suggested ambiguity in cl 1 of the deeds it is appropriate to keep in mind that as a general proposition "the deliberate use of defined words is not to be lightly passed over, even where the definition leaves open the possibility of another meaning for a defined phrase": BHP Petroleum (Australia) Pty Ltd v Sagasco South East Inc [2001] WASCA 159 at [24]; Perpetual Custodians Ltd as Custodian for Tamoran Pty Ltd as trustee for Michael Crivelli v IOOF Investment Management Ltd [2013] NSWCA 231 at [86] (Leeming JA; McColl and Gleeson JJA agreeing). 115The primary judge thought (at [14]) that unless "Westpac" was read broadly in paragraph (d), there was no reason to exclude Mr Poulos from the restraint. This led the primary judge to conclude (at [17]) that the definition of "Prospective Applicants" (which included Mr Poulos), suggested that something had gone wrong with the language in paragraph (d). There are difficulties with this reasoning. 116The first difficulty is that the primary judge seems not to have considered the significance of the words "former employee" in the opening words in paragraph (d). Giving the expression "Westpac" in paragraph (d) a wider meaning so as to include St George would be internally inconsistent with the opening words "former employee of St George". In short, the present employer at the point of termination of a "former employee of St George" cannot be St George itself. In these circumstances applying the defined meaning of the provision in paragraph (d) could not be considered to be at variance with the context or with a general intent to be gathered from the whole of the deeds: Halford v Price at [33]. 117The second difficulty is that it is premised on an inference that the parties' objective intention was that Mr Poulos was necessarily excluded from the restraint because he otherwise fell within paragraph (d), it being common ground that he did not fall within paragraph (c). 118However a lesser inference which is available is that the Prospective Applicants, including Mr Poulos, were specifically excluded from the restraint to address the conflict issue confronting Gillis Delaney if they agreed to the restraint provision, because some of their clients, including Mr Poulos, had not yet but intended to make a claim against Westpac arising from the termination of their employment. 119This inference can be drawn from the objective background facts which were known to both parties. In a telephone conversation in December 2010 Mr Gillis told Mr Drinnan of Allens that Gillis Delaney were not prepared to give an undertaking not to bring a claim against Westpac on behalf of their current clients who had not yet commenced proceedings, when settling the claims of their clients who had already commenced proceedings. Mr Drinnan requested that Mr Gillis identify these clients (Blue 381V-382K). Mr Gillis did so in a letter to Mr Drinnan dated 16 December 2010 (Blue 391). Subsequently by letter dated 17 February 2011, Mr Gillis indicated to Mr Arthur of Allens that Gillis Delaney, and each of the partners, were prepared to give an undertaking as set out in Condition D of the December offer subject to four specified persons, including Mr Poulos, being added to the clients who were excluded from the restraint (Blue 393). The February offer, as subsequently drafted by Allens, incorporated those four named persons as persons who were excluded from the proposed restraint (Blue 44). 120The primary judge did not address whether these prior negotiations tended to establish objective background facts, which were known to both parties and the subject matter of the contract: Codelfa at 352. Instead his Honour focused on the explanation given by Mr Gillis in his evidence that when responding to the December offer he did not focus on whether Mr Poulos might be caught by the category of persons described in paragraphs (c) or (d) of cl 1, he just wanted him excluded: at [15]. His Honour found Mr Gillis' explanation unconvincing, reasoning that as a sophisticated and experienced commercial litigator he would have subjected the language of the deeds to careful scrutiny: at [16]. 121There are two difficulties with his Honour's use of this evidence on the construction issue. First, the proposition that at the time of negotiating the proposed restraint Mr Gillis directed his mind to whether Mr Poulos fell within the class of employees described in either paragraph (c) or (d) of cl 1, was not put to Mr Gillis in cross-examination. 122Secondly, the subjective belief of Mr Gillis was not relevant on the construction issue. Statements and actions of the parties which were reflective of their actual intentions and expectations during prior negotiations, are not admissible on the question of construction: Codelfa at 352. This is because such statements and actions can only reveal the terms of the contract which the parties, in this case Mr Gillis, intended or hoped to make. They are superseded by, and merged in, the contract which the parties in fact made: Codelfa at 352. 123The preferable inference to that drawn by his Honour, is that the Prospective Applicants were excluded from the restraint because the purpose of the deeds was not to prevent Gillis Delaney acting for those persons who were clients as at the date of the deeds. 124In my view, the present case is not to be considered as an exceptional case where "something has gone wrong with the language so as to interpret it in accordance with the ordinary rules of syntax makes no commercial sense": Chartbrook Ltd v Persimmon Homes Ltd at [15]-[16]; Maggbury Pty Ltd v Hafele Australia Pty Ltd at [43] (Gleeson CJ, Gummow and Hayne JJ); Fitzgerald v Masters at 426-427 (Dixon CJ and Fullagar J); United Group Rail Services Ltd v Rail Corp (NSW) [2009] NSWCA 177; 74 NSWLR 618 at [86] (Allsop P; Ipp and Macfarlan JJA agreeing); and Jireh International Pty Ltd v Western Exports Services Inc at [55], [60]. 125Accordingly, appeal ground 4 should be upheld. The primary judge erred in the inference he drew as to the reason Mr Poulos was excluded from the operation of the restraint clause. 126It follows also that appeal ground 1 is made out. There was no warrant for his Honour to depart from the meaning of the defined term "Westpac" in paragraph (d). The provision operates perfectly well when restricted in its application to former employees of St George (not otherwise within paragraph (c)) who have been or are terminated by Westpac after Westpac assumed the role of their employer. There is nothing absurd or inconsistent about its operation in that way. In my view, the primary judge erred in rewriting the provision by a process of construction to have it operate in what he considered to be a more beneficial approach to the whole of cl 1.

Appellants' alternative construction argument 127In light of the above conclusion, appeal ground 6 does not arise. However, I will deal with it briefly against the possibility that others are of a different view in relation to the appellants' primary construction argument. 128The appellants' alternative construction argument was that even if the word "Westpac" is a reference to "Westpac or its related bodies corporate", it would not include a reference to St George because St George had ceased to exist as a separate legal entity on 1 March 2010, and was not a related body corporate of Westpac at the times the deeds were entered into. 129As already noted, it was common ground that the reference to "Westpac or any of its related bodies corporate" when used in reference to any "claim" in the chapeau to paragraph (c) and (d) of cl 1 of the deeds, did not refer to entities that may once have been related bodies corporate but were no longer (such as St George). The appellants submitted that it would be odd to read any expanded concept of "Westpac" in paragraph (d) differently. 130The respondent submitted that on an ordinary reading of paragraph (d), an expanded reference to "Westpac" as meaning "Westpac or its related bodies corporate" is an ambulatory one - that is, the related bodies corporate of Westpac may change from time to time. It was argued that paragraph (d) was directed to the question of whether the person's employment "was or is" terminated by an entity which at the time of termination is a related body corporate of Westpac. 131The difficulty with the respondent's construction, which the primary judge accepted, is that, even if an ambulatory meaning is given in paragraph (d) to an expanded concept of "Westpac or its related bodies corporate", these words could not be read to include St George because at the point of termination the employer of a "former employee of St George" could not be St George itself for the reasons already given at [99]-[100] above. Accordingly, an expanded concept of "Westpac" in paragraph (d) (to include St George) would not result in the restraint precluding the appellants from bringing a claim on behalf of persons who were terminated by St George prior to 1 March 2010. 132If it were necessary to decide the alternative argument, I would uphold appeal ground 6.

(2) The rectification claim 133In broad terms there are three parts of the appeal relating to the rectification claim. 134The first part concerns a challenge to his Honour's finding (at [20] and [26]) that it was "clear" that the proposed restraint (in the terms contained in the December offer and repeated in slightly modified terms in the February offer) applied where a person's employment was terminated by either St George or Westpac (grounds 7 and 8). There is a related challenge to his Honour's rejection of the evidence of Mr Gillis and Mr Collinge of their subjective intentions that the deeds would not apply to persons whose employment was terminated by St George rather than Westpac (ground 9). This challenge raises for consideration the constraints on appellate review of the primary judge's factual findings. 135The second part concerns a challenge to his Honour's finding (at [32]) that there was a common intention between the parties as to the restraint clause in the deeds (ground 10(b)). If the appellants are successful on this issue then it will be unnecessary to address the related challenge directed to the sufficiency of the evidence of the respondent's intention as to the deeds (having regard to its failure to call a witness who was said to be the relevant decision-maker) (ground 10(a)), or the issue of whether Mr Gillis' intention is to be imputed to the other partners of Gillis Delaney, who signed the deeds but were not privy to the detail of the negotiations between Mr Gillis and Allens (on behalf of the respondent) (ground 10(c)). 136The third part concerns a challenge to his Honour's finding (at [40]) that the restraint in cl 1(d), once rectified, is capable of only one reasonable construction and, accordingly, that his Honour would have exercised his discretion in favour of granting rectification, if it had been necessary to do so absent his conclusion on the construction issue (ground 12). This issue only arises if the respondent makes out its rectification claim.

(a) Whether the scope of the proposed restraint in the offers was "clear" 137The appellants submitted that, contrary to the primary judge's findings, it was not "clear" that the December offer and February offer applied where a person's employment was terminated by either St George or Westpac. They emphasised that St George had ceased to exist at the time of the letters containing these offers, and that the letters contained express reference to St George in Condition D(i) and (ii) where the letters intended to refer to it. This was said to support the view that the reference in the opening words of Condition D in the offers to "any claim against any member of Westpac" was very unlikely to be a reference to St George, because St George no longer existed. 138The respondent sought to uphold the primary judge's reasoning that the scope of the proposed restraint was "clear" because the reference to "Westpac" in Condition D of the February offer was "expressly and with abundant clarity" defined to mean the "Westpac Group": at [31]. The same was said to be true of the December offer, which had preceded it.

The language of the February offer was ambiguous 139The term "Westpac" was used in Condition D of the February offer (and also the December offer) as the shorthand meaning of "Westpac Group". Notably however, the expression "Westpac Group" was not itself defined in either of the offers. The primary judge did not refer to the absence of a definition of "Westpac Group" in the offers. His Honour seems to have assumed that this expression must have been intended to include St George: at [32]. His Honour did not explain why he thought this was so. There are a number of difficulties with his Honour's findings that the offers were "clear". 140First, no attention was given by his Honour to the temporal context of the reference to the "Westpac Group" when first used in Condition C of the offers. Condition C was concerned with confidentiality and non-disparagement obligations in favour of the "Westpac Group". The context was clearly prospective. Such obligations did not concern St George because it had ceased to exist. Thus there was room for uncertainty as to whether the shorthand expression "Westpac", when later used in Condition D, was intended to have the same meaning as "Westpac Group" when used in Condition C (which clearly did not include St George), or was intended to have an ambulatory meaning so as to include St George within the range of potential terminating parties. 141Secondly, his Honour seems to have ignored the fact that St George no longer existed at the time of these offers. As a matter of ordinary language, the expression "Westpac Group" would not likely include the non-existent St George, unless the context indicated otherwise. His Honour did not consider why the context might be thought to indicate otherwise. 142Thirdly, his Honour also seems to have ignored the fact that the shorthand expression "Westpac" for "Westpac Group" in Condition D(ii), when referring to the entity terminating the employment of a "former St George employee", was susceptible of more than one meaning as to who was intended to be included as the "terminating party". The uncertainty arises because, as already noted, the expression "Westpac Group" was not defined and St George no longer existed. His Honour did not consider the temporal context of the expression "Westpac Group" at the point of termination of a "former St George employee". When Condition D is considered in this light, one may readily conclude that there was ambiguity in the language of the offers giving rise to uncertainty as to whether the proposed restraint extended to employees of St George who were terminated by St George. 143In my view, his Honour erred in finding that it was "clear" that the proposed restraint would prevent Gillis Delaney from bringing any claim on behalf of former St George employees whose employment was terminated by either St George or Westpac. Appeal ground 7 is made out.

(b) Whether the evidence of Mr Gillis and Mr Collinge should have been rejected 144The appellants challenge his Honour's rejection of the evidence of Mr Collinge and Mr Gillis of their subjective states of mind in relation to the December offer and February offer. The appellants say that, had his Honour accepted this evidence, he could not have concluded that the parties had a mutual common intention as to the deeds because the parties had inconsistent intentions. 145The respondent seeks to uphold his Honour's rejection of this evidence and pointed to the difficulties of setting aside this finding having regard to the hurdles identified in Fox v Percy [2003] HCA 22; 214 CLR 118 at [28]-[29].

The intention and belief of Mr Gillis and Mr Collinge 146Mr Gillis and Mr Collinge each gave affidavit evidence that in executing the deeds they did not intend or believe that paragraph (d) of cl 1 of the deeds prevented Gillis Delaney from acting in respect of a person (other than one covered by paragraph (c)) whose employment had been terminated by St George (Blue 230N-P and 385I-K). Their evidence was to the effect that they did not understand the word "Westpac" in Condition D of the offers to include St George, because St George had ceased to exist and was not within the "Westpac Group" at the time of those offers. 147There was no challenge in cross-examination to Mr Collinge's evidence that he understood the reference to the Westpac Group in the December offer as being a reference to the group at the time of the correspondence (Black 23Q-24S). The cross-examiner was content to let the matter rest with the concession by Mr Collinge that he never discussed his understanding with anyone at Allens (Black 24O-P). The significance of this undisclosed intention is considered below in the context of whether the alleged common intention was manifested in the words or conduct of the parties prior to entering into the deeds: see [162]ff below. 148Mr Collinge gave similar evidence in cross-examination of his understanding of Condition D in the February offer (at Black 25I-S): "Q: You understood Westpac group to mean the Westpac Banking Corporation and its related bodies corporate? A: As at 25 February 2011, yes. Q: That second aspect that you have added wasn't something you ever discussed with Allens, correct? A: No. Q: Then in item D, Westpac is referred to in the second line again you understood that was intended to refer back to the definition in item C, is that right? A: Yes, I read it as, any member of the Westpac Group. Q: Yes, similarly in item D(ii) in the second line, the word 'Westpac' you read that as meaning, in my opinion, any member of the Westpac group ... a reference to any former employee of St George whose employment was or is terminated by the Westpac group, correct? A: Yeah, as at 25 February 2011. Q: Again, what you have added by way of reference to that date is something you never discussed with Allens, correct? A: I didn't see the need to Mr Jackman." 149Again Mr Collinge was not challenged on his evidence that he believed the reference to "Westpac" in Condition D(ii) of the February offer to be a reference to any member of the Westpac Group as at the date of that offer, and thus did not include St George. 150The cross-examiner did challenge Mr Gillis on his evidence that he believed the reference to "Westpac" in the February offer meant the Westpac Group at the date of that letter (Black 34P-Q). It was put to Mr Gillis that he understood that if St George had terminated an employee before 1 March 2010 who was not in the IBB Division, such a person would be picked up in Condition D(ii) of the February offer. Mr Gillis disagreed with this proposition (Black 35H). When asked to explain why, Mr Gillis gave the following evidence: "Q. If St George had terminated an employee before 1 March 2010 who wasn't in the IBB division you understood that employee, was being picked up in item D(ii), correct? A. No. Q. Why do you disagree with that proposition? A. Well, as I said before, Westpac group as at the time of this letter did not include St George Bank Limited. There were a number of employees, as I understood it, that had been terminated by Westpac after the - sorry, former St George Bank employees that had been terminated by Westpac after 1 March 2010. In fact, I was acting for one of them. He was an IBB employee. And I also go to the wording, as I read it, of condition D, that it talks about bringing any claim against any member of Westpac, and then it goes on to say 'any person formerly employed by St George'. I didn't see in the words 'any former member of Westpac group' because St George Limited was a member of the Westpac group prior to 1 March 2010. Q. Right. Now you have agreed with the proposition that the expression 'was terminated by Westpac,' meaning Westpac group, must have been a reference to events before 25 February 2011, correct? A. Between, yes, between 1 March of 2010 and 25 eleven. Sorry, 25 February 2011. Q. And you must accept that if you understood the words 'was terminated by Westpac' to be a reference to events before 25 February then the reference to Westpac group could not possibly have been limited to the Westpac group as at 25 February 2011, correct? A. No, because Westpac group from 1 March did not include St George. And Westpac Banking Corporation had terminated St George Bank employees from 1 March 2010. And I was acting for one of those people, who, in my view, had been poorly treated by Westpac Banking Corporation and so I was critically aware of the treatment that he received at the hands of Westpac Banking Corporation compared to him being terminated by St George Bank Limited employees. Q. Which person are you referring to there? A. Stuart Moore." 151Mr Gillis also gave affidavit evidence that he believed the word "Westpac" (as used in Condition D of the offers) referred to "Westpac Group" (which was defined as "Westpac" in Condition C), but that it was only Westpac Banking Corporation which had relevantly become the employer of former St George Bank employees (Blue 381P-R and 383Q-R). This evidence was not challenged.

The primary judge's reasons 152The primary judge did not accept the evidence of Mr Gillis and Mr Collinge regarding their subjective states of mind. His Honour reasoned that it was not likely that, as reasonable persons when agreeing to the terms of the February offer, Mr Gillis and Mr Collinge were "obtuse or distracted or for some other reason unable to read and comprehend simple English": at [33]. His Honour did not expressly state that his views relied upon the witnesses' demeanour. It can be inferred however that demeanour was not entirely excluded by his Honour's description of their evidence as not being plausible, in light of his finding that they were reasonable and intelligent persons. His Honour's conclusions must be regarded as at least in part credit based, attracting the need for the appellants to surmount the hurdle identified in Fox v Percy at [28]-[29] in order to challenge his Honour's conclusion successfully. 153The respondent contended that his Honour's finding was not contrary to "incontrovertible facts" or "compelling inferences": Fox v Percy at [28] - [29]. However, as this Court said in Commonwealth Financial Planning Ltd v Couper [2013] NSWCA 444 at [67]: "Those terms are convenient descriptive labels or guidelines, but in truth no definitive test is possible to specify those (rare) occasions when appellate review of a credit-based finding of fact is warranted: Xu v Jinhong Design & Constructions Pty Ltd [2011] NSWCA 277 at [15]. All that can be done is to look at all of the evidence, testimonial and documentary, while at the same time being conscious of the advantages of the primary judge, including the necessarily incomplete character of his or her reasons: Biogen Inc v Medeva plc [1996] UKHL 18; [1997] RPC 1 at 45." 154As Giles JA noted in Shimokawa v Lewis [2009] NSWCA 266 at [181], credit based findings may be set aside, consistently with Fox v Percy, if the findings are made "for reasons which in whole or in part do not truly go to the reliability or veracity of the relevant evidence, or without taking account of an important consideration or considerations material to evaluation of the credibility or veracity". To this may be added that, for the finding to be vitiated, the error that the trial judge made must be an important one which was material to the judge's evaluation of the reliability or veracity of the relevant evidence: Davis v Veigel [2011] NSWCA 170 at [42] (Macfarlan JA; Hodgson and Young JJA agreeing). See also Xu v Jinhong Design & Constructions Pty Ltd at [16] (Basten JA) and [66] (Macfarlan JA). 155Here the objective reasons given by his Honour for taking an unfavourable view of the evidence of Mr Gillis and Mr Collinge were that the terms of the proposed restraint were "clear" and did not give rise to uncertainty because there was no ambiguity in the offers, and that no reasonable reader of the letters containing those offers could have failed to appreciate the scope of the proposed restraint. The appellants challenged this reasoning. First, they say that his Honour adopted an incorrect view of the language of the proposed restraint in the offers. Secondly, and related to the first, they say that his Honour adopted an incorrect view of how a reasonable reader would have understood the proposed restraint at the time. 156These submissions should be accepted. First, contrary to his Honour's finding, the scope of the proposed restraint was not "clear". The language of the restraint was, at least, uncertain and capable of being understood in the way in which Mr Gillis and Mr Collinge said they did. Secondly, the premise of his Honour's characterisation of the reasonable reader as having only one possible understanding of the proposed restraint was incorrect. Once it is accepted, as it should be, that the language of the restraint was at least uncertain and capable of being understood in different ways, it was erroneous for his Honour to characterise the reasonable readers of the proposed restraint as being incapable of having different understandings of the provision. 157Notwithstanding the deference to which his Honour's reasons and the undoubted advantages at trial warrant, I am persuaded that his Honour's reasons for rejecting the evidence of Mr Gillis and Mr Colinge are flawed. I would not regard their evidence as being either implausible or unconvincing. It was not otherwise suggested by the respondent that the primary judge's rejection of their evidence could be upheld in the absence of the objective reasons given by the primary judge for his conclusion. In my view appeal ground 9 is made out.

(c) Whether the parties had a common intention as to the deeds 158The appellants challenged the primary judge's finding that the parties had a common intention as to a particular subject matter of the contract - namely the operation of the restraint clause. The first key issue raised by this challenge were: first, whether the absence of an intention to enter into binding legal relations until the deeds were executed (which the respondent accepted was the appropriate characterisation of the negotiations in the present case), is an obstacle to the rectification claim. 159As to this issue, the appellants contended that his Honour's finding (at [31]) that the negotiations concluded in late February 2011 was incorrect. They pointed to the further negotiations after this date in relation to the terms of the deeds and the fact that both parties had adopted the position that there was no concluded agreement until the deeds were signed. It was said that this was not a case where an antecedent agreement was being reflected in the deeds, but rather the deeds themselves represented what was ultimately agreed, and hence the respondent had failed to establish a common intention inconsistent with the effect of the deeds. 160The respondent contended that it was sufficient that there was an antecedent consensus and an intention that it be carried into the document as executed. The respondent said that the February offer represented the expression of an antecedent consensus and that this consensus was reaffirmed in March 2011, after the renegotiation of the terms of the deeds to add the additional words "or Prospective Applicants" in cl 1(d). It was said that, having regard to the outwardly expressed consensus, it was clear that something had gone wrong in the form of the deeds. 161The second issue concerns the characterisation of the common intention relied upon by the respondent for its rectification claim. Did the parties have a common intention to use particular words in the deeds, as the respondent contends, or did the alleged common intention concern the meaning or effect of the words used in the deeds on which the parties had inconsistent intentions, as the appellants contend? 162The third issue concerns the evidence from which the alleged common intention is to be ascertained. As noted already, the primary judge limited himself to the prior communications reflected in the December offer and February offer as being the best evidence of the parties' common intention. His Honour considered that this evidence was "clear and convincing" and disregarded as "retrospective and self-serving" the evidence of the parties' subjective states of mind with respect to their understandings of the effect of Condition D of the February offer and paragraph (d) of cl 1 of the deeds. 163The appellants challenged this approach to the evidence. They contended that evidence of the parties' intention may be ascertained not only from the external or outward expressions of the parties manifested by their objective words or conduct, but also from evidence of their subjective states of mind. They say that the outward expression of the parties' intention in the February offer is at best inconclusive, and that such evidence must be taken in conjunction with the evidence of the subjective states of mind of Mr Gillis, Mr Collinge, and Mr Johnston to determine whether the necessary common intention has been established. They say that when this is done it may be seen that the evidence of Mr Gillis and Mr Collinge is inconsistent with the subjective state of mind of Mr Johnston (of the respondent). Accordingly the required common intention for the rectification claim had not been established. 164The respondent contended that if, contrary to its primary position, the evidence of Mr Gillis and Mr Collinge of their subjective states of mind was accepted, it made no difference because it was merely evidence that they had a particular subjective view about the meaning of mutually agreed language - being the reference to "Westpac Group" in the February offer. The respondent did not suggest that evidence of common intention could never be ascertained from evidence of a party's subjective state of mind. Rather it was said that evidence of this type was irrelevant in the present case because here rectification was sought only to correct mistaken words used in the deeds, not to correct a mistake as to the effect of the words deliberately used. 165The respondent also pointed to the evidence of Mr Gillis and Mr Collinge - that they subjectively understood the reference to "Westpac" in Condition D of the February offer as meaning the "Westpac Group" and that the deeds executed by the parties reflected the previous correspondence between the parties - as support for the antecedent consensus which they said was expressed in the February offer. 166The appellants said that regardless of whether the word "Westpac" in the deeds refers to the "Westpac Group", Mr Gillis and Mr Collinge had a different intention to that of Mr Johnston as to the legal and factual operation of the word "Westpac" in paragraph (d) of cl 1 of the deeds, namely, that it did not include St George. They therefore argued that this showed that the parties had inconsistent intentions as to the effect of the deeds. 167Before turning to these issues it is necessary to say something about the relevant principles that govern claims for rectification, particularly the meaning of the term "intention" in the context of rectification.

Relevant principles - rectification 168A written document executed by the parties is presumed to be the true record of their agreement: Equuscorp Pty Ltd v Glengallan Investments Pty Ltd [2004] HCA 55; 218 CLR 471 at [33]. However if there is clear evidence of a mistake in the recording of their agreement the equitable remedy of rectification is available to reform the parties' document, but not to reform the parties' bargain: Maralinga Pty Ltd v Major Enterprises Pty Ltd (Maralinga) [1973] HCA 23; 128 CLR 336 at 350 (Mason J); JW Carter, E Peden, GJ Tolhurst, Contract Law in Australia (5th ed 2007, LexisNexis Butterworths) at [21-02]. 169The rationale of rectification of a written document in equity is that it is unconscientious for a party to the contract to seek to apply the contract inconsistently with what that party knows to be the common intention of the parties at the time the written contract was entered: Ryledar Pty Ltd v Euphoric Pty Ltd (Ryledar) [2007] NSWCA 65; 69 NSWLR 603 at [315] (Campbell JA; Mason P agreeing). 170The principles which govern the rectification of the contract were not in dispute on the appeal. The authorities were considered by this Court in Franklins, and again in detail in Ryledar. It is uncontroversial that the onus on the party seeking rectification is a heavy one. Various expressions have been used to describe the standard of proof required to establish the parties' common intention. The common theme in the authorities is that the party seeking rectification must advance "clear and convincing proof" that the written contract does not embody the final intention of the parties: Pukallus v Cameron [1982] HCA 63; 180 CLR 447 at 452 ("convincing proof"); Bishopgate Insurance Australia Ltd v Commonwealth Engineering (NSW) (Bishopgate) [1981] 1 NSWLR 429 at 431 (Yeldham J) ("clear and strong evidence"); and Commissioner of Stamp Duties (NSW) v Carlenka Pty Ltd (Carlenka) (1995) 41 NSWLR 329 at 345 (McLelland AJA) ("clear and convincing proof"). 171There need not be a concluded antecedent agreement or contract, but there must be an intention (common to both parties at the time of contract) to include in their bargain a term, which by mutual mistake is omitted therefrom: Ryledar at [259] (and the authorities there cited including Maralinga at 350). It follows that, contrary to the appellants' submission, the absence of an intention of the parties in this case to enter into binding legal relations until the deeds were executed is no obstacle to the rectification claim. 172No issue arises in this case about whether it is necessary for there to be an "outward expression of accord" before rectification can be granted. As Campbell JA observed in Ryledar at [273], this issue is noted but not resolved in Pukallus v Cameron at 452 (Wilson J, with whom Gibbs CJ agreed). Here however it is common ground that the February offer was an outward expression of the parties' intentions. 173In Ryledar at [176]-[186], Tobias JA (Mason P and Campbell JA agreeing) considered the question of whether the Court was entitled to determine the common intention of the parties objectively by confining itself to the correspondence between them including any relevant conduct and ignoring as irrelevant any inconsistent evidence which established that, subjectively speaking, no such common intention was held. Although the observations were obiter the following statements of the Court provide assistance to the approach which should be taken in a case such as the present: "[182] It follows from the foregoing that first, the common intention which must be established by clear and convincing proof to justify rectification must be the actual or true common intention of the parties. Second, evidence of that intention may be ascertained not only from the external or outward expressions of the parties manifested by their objective words or conduct but also from evidence of their subjective states of mind. ... [185] Fifth, it follows that where the correspondence and/or conduct positively establishes the necessary common intention, then assertions by the party opposing rectification of his or her subjective state of mind which is inconsistent with that party's outward manifestation of his or her intention, being unexpressed and uncommunicated, is unlikely to trump his or her expressed intention. But this is because that party is unlikely to be believed. [186] Sixth, where as in the present case, the outward expression of the parties' common intention is at best inconclusive, then establishing that the subjective states of mind of the parties evinces the relevant common intention becomes critical if the necessary standard of proof to support an order for rectification is to be achieved." 174The respondent did not seek to argue that these obiter statements in Ryledar were incorrect. As already noted, the respondent sought to distinguish the present case by arguing that evidence of the subjective states of mind of Mr Gillis and Mr Collinge could not be relevant because the mistake was only as to words deliberately used in the deeds, not as to the meaning of the words used. This argument is considered below.

Common intention must be consensual 175The "intention" that is relevant to rectification of the contract is the subjective intention of the parties, sometimes called the actual intention: Ryledar at [267]. Before rectification of the contract is granted, the actual intention needs to exist in circumstances where it can be seen that there is a common intention of all those entering into the contract: Ryledar at [279]. Campbell JA explained at [281] in Ryledar the importance of concentrating on what is needed before any intention of the parties to a negotiation counts as a common intention. When that intention relates to the terms upon which the parties will contract with each other, his Honour noted that it is still necessary for them to know enough of each other's intentions for it to be said that there is a common intention. How might the parties come to know each other's intentions? His Honour explained that this could occur where those intentions are directly stated, or through the various other means by which one person's intentions can become known to another person. His Honour noted that those means sometimes involve a process of conscious and deliberate inference and could also involve simply perceiving a gestalt in a series of events. (The word "Gestalt" is of German origin and is defined in the Online Oxford English Dictionary as "a 'shape', 'configuration' or 'structure' which as an object of perception forms a specific whole or unity incapable of expression simply in terms of its parts.") 176At [282] - [293] in Ryledar, Campbell JA reviewed the authorities which emphasised the consensual nature of the common intention. The "common intention which must be established as a basis for rectification must be one that has been manifested in the words or conduct of the parties and not merely one which remain undisclosed the course of negotiations": Bishopgate at 431 (Yeldham J) applying the principle expressed by Street J in Australasian Performing Right Association Ltd v Austarama Television Pty Ltd [1972] 2 NSWLR 467 at 473. 177In Carlenka Mahoney A-P (at 331) emphasised the necessity in a rectification claim of establishing the intention of the parties as to what the written document should effect and the failure of it to effect that intention. His Honour noted (at 332) that, in the context of rectification, intention "refers to what was subjectively seen as to be brought about and the consequences of it. It refers to that which is subjectively foreseen and intended to be effected by the document". 178McLelland AJA added the further observation in Carlenka (at 345) that in general the remedy of rectification is available where, at the time of execution of the instrument, the relevant parties may have had an actual intention as to the effect which the instrument would have which was inconsistent with the effect which the instrument as executed did have in some clearly identified way. His Honour said that: "... in this context 'effect' means the legal and factual operation of the instrument according to its true construction, but does not include legal or factual consequences of the operation of the instrument of a more remote, or collateral, kind ...". 179The issue in Carlenka was whether rectification was available where a document contained words which the parties had purposely used under the mistaken belief that the words had a different legal effect. This Court said that rectification will not be refused merely because the common mistake of the parties is as to the legal effect of the words used, rather than as to the actual words used: at 332 (Mahoney A-P), 344 (Sheller JA) and 345 (McLelland AJA). 180Carlenka (at 343) approved Clarke J's decision in NSW Medical Defence Union Ltd v Transport Industries Insurance Co Ltd (1986) 6 NSWLR 740 in which his Honour accepted (at 747) that there was a line of authority that rectification is available in circumstances where the parties have used words which they intended to use but which, when properly construed, do not express their true intention. Clarke J concluded (at 748) that rectification is available when the error results from a mistaken belief as to the meaning of a word.

What did the parties intend as to the deeds? 181The first question to be addressed is what was the alleged common intention of the parties which the respondent needed to establish to support its rectification claim. The present case proceeded without the benefit of pleadings. It is necessary therefore to examine the respondent's contentions and evidence at trial. In its outline of written submissions at trial, the respondent contended that its intention conveyed by the December offer and February offer was that the partners of Gillis Delaney would be restrained from acting for any former employee of St George terminated by a member of the Westpac Group (Black 92V-X). The primary judge recorded the respondent's contention (at [28]) that the alleged common intention was: "That the restraint on Gillis Delaney was intended to extend to former St George employees whose employment was terminated by St George, and was not intended to be confined to those who were terminated by Westpac." 182The respondent did not take issue on appeal with his Honour's statement of its case. Expressed in this manner, the alleged common intention was as to the effect of paragraph (d) of cl 1 of the deeds. The evidence relevant to the ascertainment of that alleged common intention included both the external or outward expressions of the parties, manifested by their objective words or conduct, and also evidence of their subjective states of mind: Ryledar at [182], [281] and [291]-[293]. It follows that the approach which the primary judge took to the relevant evidence was erroneous in two respects. First, his Honour treated the prior communications in the correspondence, in particular the February offer, as positively establishing the necessary common intention when, for the reasons given above (in relation to appeal grounds 7 and 8), this outward expression of the parties' common intention was at best inconclusive. Next, his Honour erred in disregarding whether the subjective states of mind of the parties evinced the relevant common intention relied upon by the respondent to support its rectification claim. 183Nonetheless the respondent contended that his Honour was correct to disregard the evidence of the subjective states of mind of Mr Gillis and Mr Delaney. The premise of this contention was that the present case simply involved rectification of an agreement to correct mistaken words, not to correct a mistake as to the meaning of the words deliberately used. The respondent said that the parties had mistakenly used the word "Westpac" rather than the words "Westpac Group" in paragraph (d) of cl 1 of the deeds. It is useful to start with a consideration of this premise. 184On the respondent's side, the evidence of Mr Johnston was that he believed that the terms and effect of the draft deed which he reviewed on 4 March 2011 were as outlined in the February offer. In particular he believed that the reference to "Westpac" in cl 1(d) of the deed included a reference to all companies in the Westpac Group, including St George (Blue 150T-W). Mr Johnston described his understanding of the "concept of the companies in the Westpac Group" as being the same "concept" as "Westpac and any of its related bodies corporate, within the meaning of s 50 of the Corporations Act" (Blue 150W-151D). 185Notably however Mr Johnston did not say in his affidavit evidence that he was mistaken as to the words actually used in cl 1(d) of in the deeds. His affidavit evidence reflected an intention and belief by him at the time of the deeds that the word "Westpac" in paragraph (d) encompassed the broader concept of the "Westpac Group", including St George, as he understood that expression. Mr Johnston's affidavit evidence is consistent with a mistake by him as to the meaning of the words deliberately used in the deeds. 186In cross-examination Mr Johnston conceded that when he reviewed the deeds after the dispute had arisen he thought there was an error. He identified the error as being that the deeds no longer referred to the "Westpac Group", as it had in the February offer (Black 14S-V). To this extent Mr Johnston was also mistaken as to the words used in the deeds. However Mr Johnston did not give evidence which qualified his affidavit evidence that his intention at the time of the deeds was that the word "Westpac" in paragraph (d) included all companies in the Westpac Group including St George. 187Contrary to the respondent's contentions, Mr Johnston's evidence is not properly viewed as simply a mistake as to the words used in the deeds. His mistake as to the meaning of the words used in the deeds meant that his intention - that the restraint applied to Gillis Delaney whether a person was terminated by either St George or any other member of the Westpac Group - was not reflected in the deeds. 188On the appellants' side the relevant states of mind may be taken to be those of Mr Gillis, on behalf of himself and the other partners of Gillis Delaney, and Mr Collinge, a consultant to that firm. (It is convenient at this point to proceed on this assumption although also noting that appeal ground 10(c) challenged the imputation of Mr Gillis' intention to the other partners of Gillis Delaney.) 189Both Mr Gillis and Mr Collinge gave unchallenged evidence that at the time they reviewed the terms of the final deed they did not go back and review the previous correspondence, including the December offer and February offer (Blue 384N-O: Mr Gillis; and Blue 230H-I: Mr Collinge). Whilst they both believed that the deed was consistent with what had been the subject of the previous correspondence, it was not their intention that Gillis Delaney be precluded from acting in respect of employees of St George whose employment had been terminated by St George, unless covered by paragraph (c) of cl 1. 190Neither Mr Gillis nor Mr Collinge discussed with Mr Johnston their different intentions and understandings of the meaning of the expression "Westpac Group" in the February offer. In particular there was no discussion as to whether each of the parties intended the reference to the "Westpac Group" to include St George. 191The present case is one in which the parties had conflicting intentions as to the effect of the deeds. Mr Gillis' and Mr Collinge's actual intention as to the effect which the deeds would have was different to Mr Johnston's actual intention (on behalf of the respondent) as to the effect which the deeds would have. There was never an actual common intention that the expression "Westpac Group", when used in the February offer, included St George. Hence there was never a common intention that the shorthand reference to "Westpac" in Condition D(ii) included St George. Furthermore the parties did not manifest by their words or conduct an actual intention, common to all of them, that Gillis Delaney be precluded from acting in respect of employees of St George whose employment had been terminated by St George, unless covered by paragraph (c) of cl 1 of the deeds. 192It should be accepted that what each party subjectively foresaw and intended to be effected by the deeds was different. Each party intended the deeds to give effect to their differing actual intentions. Rectification is not available to make the deeds conform to a consensus which the parties never reached. 193It follows that appeal ground 10(b) is made out. Accordingly the respondent's claim for rectification must fail. 194In the circumstances it is unnecessary to consider the other grounds of appeal relied upon by the appellants in opposition to the rectification claim.

Conclusion and orders 195The appellants' challenge to his Honour's construction of the deeds has succeeded. The respondent's cross-appeal seeking rectification of the deeds has not succeeded. I propose the following orders: (1)To the extent necessary, grant leave to appeal and grant leave to cross-appeal. (2)Appeal allowed. (3)Cross-appeal dismissed. (4)Set aside the declarations and orders made by the primary judge on 5 July 2013. (5)In lieu thereof, order that the proceedings be dismissed and the plaintiff pay the defendants' costs. (6)Respondent to pay the appellants' costs in this Court.

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