HEADNOTE
The appellants are partners (or, in the case of the second appellant, a consultant) of a law firm, Gillis Delaney, which, between September 2009 and May 2010, commenced 24 separate proceedings on behalf of various former employees of St George Bank (St George) in relation to claims arising from the termination of their employment. On 1 March 2010 St George ceased to exist as a legal entity and the proceedings were thereafter either continued or commenced against the respondent, Westpac Banking Corporation (Westpac), as the successor in law of St George. Between May and October 2010 five of these claims settled. In December 2010 Westpac made an offer for the settlement of the remaining 19 claims, which included a proposed restraint against the appellants bringing further claims. Negotiations regarding this offer, and the proposed release, were concluded on 21 March 2011. Subsequently a deed of release was executed between the appellants and the respondent (in April 2011 for the first to eighth appellants, and on 11 May 2011 for the other appellants, and in each case the deed was made in relevantly identical terms). The deeds contained a restraint clause preventing the appellants from bringing claims on behalf of certain former employees of St George, but excluding from that restraint those persons listed in the deeds as "Applicants" or "Prospective Applicants".
In March 2013 the appellants commenced proceedings in the Local Court against Westpac on behalf of two former employees of St George who had been terminated by St George prior to 2010 and who were not included in the listed "Applicants" or "Prospective Applicants" in the deeds. A dispute then arose as to whether the deeds applied to restrain the appellants from continuing to act in those proceedings. Westpac commenced proceedings in the Equity Division of the Supreme Court, contending that, upon proper construction, clause 1(d) of the deeds operated to prevent the appellants from acting for any former employees terminated by "Westpac or any of its related bodies", including persons terminated by St George, and that the term "Westpac" in that clause should be read broadly to reflect that construction. Westpac sought declaratory and injunctive relief and, in the alternative, rectification of the deeds to reflect the construction which it contended for.
The primary judge:
1 found that there was ambiguity in the deeds on the basis that there was an anomaly in the chosen language. This anomaly was said to arise from the fact that one of the listed "Prospective Applicants" (Mr Poulos) did not fall within the restraint in cl 1(c) or (d) of the deeds if the word "Westpac" was read literally; that unless "Westpac" was read broadly there was no reason to exclude him from this restraint;
2 found that the word "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";
3 also found that there had been a mistake in the drafting of the deeds because its terms were intended to reflect a common intention that the appellants would be restrained from bringing claims on behalf of former St George employees whose employment was terminated by either St George or Westpac;
4 noted that, had he decided to order rectification, he would have inserted the words "or any of its related bodies corporate" after the word "Westpac" in paragraph (d) of cl 1 of the deeds;
5 found that, had he chosen to rectify the deeds in this manner, there would be no ambiguity because it would ensure that cl 1(d) would be 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.
Gillis Delaney appealed. They contended that, contrary to the primary judge's finding, the deeds were not ambiguous; that cl 1(d) contained a clear reference to Westpac alone; and that cl 1 (d) only operated to restrain actions in relation to former St George employees whose employment was terminated by Westpac after Westpac had assumed the role of employer in respect of them. Westpac also filed a cross-appeal (contingent upon Gillis Delaney succeeding on the construction issue) in which it sought an order that the deeds be rectified. The key issues on appeal were: 1) whether the primary judge erred in his approach to the question of contractual construction and whether he erred in concluding that "Westpac" should be construed broadly to include St George; 2) alternatively, whether the deeds should be rectified.
Appeal allowed and Cross-Appeal dismissed. The Court held, per Gleeson JA (Basten and Meagher JJA agreeing):
1 In approaching the task of contractual construction a Court is entitled to have regard "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" (as per Franklins v Metcash). The identification of ambiguity is not a precondition to examining legitimate surrounding circumstances. Rather a contextual approach should be taken to the construction of commercial contracts and "ambiguity" is to be evaluated having regard to surrounding circumstances and commercial purposes or objects (as per Franklins v Metcash; Mainteck v Stein Heurtey; Electricity Generation v Woodside; and Stratton Finance v Webb). However there is no licence for "judicial rewriting" of an agreement and the Court 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 be to give the contract an absurd operation: at [17], [23] and [86]-[91].
Considered: Pacific Carriers Ltd v BNP Paribas [2004] HCA 35; 218 CLR 451; Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52; 219 CLR 165; Fitzgerald v Masters [1956] HCA 53; 95 CLR 420; Wyllie v Tarrison Pty Ltd [2007] NSWCA 184; Maggbury Pty Ltd v Hafele Australia Pty Ltd [2001] HCA 70; 210 CLR 181; Codelfa Construction Pty Ltd v State Rail Authority of New South Wales [1982] HCA 24; 149 CLR 337; Franklins Pty Ltd v Metcash Trading Ltd [2009] NSWCA 407; 76 NSWLR 603; Reardon Smith Line Ltd v Hansen-Tangen [1976] 1 WLR 989; Electricity Generation Corporation v Woodside Energy Ltd [2014] HCA 7; Mainteck Services Pty Ltd v Stein Heurtey SA [2014] NSWCA 184; Western Export Services Inc v Jireh International Pty Ltd [2011] HCA 45; 86 ALJR 1; Stratton Finance Pty Ltd v Webb [2014] FCAFC 110; McGrath v Sturesteps; Sturesteps v HIH Overseas Holdings Ltd (in liq) [2011] NSWCA 315; 81 NSWLR 690; Australian Broadcasting Commission v Australasian Performing Right Association Ltd (1973) 129 CLR 99; Communications Pty Ltd v Primus Telecommunications Pty Ltd [2008] NSWCA 5; Jireh International Pty Ltd t/as Gloria Jean's Coffee v Western Exports Services Inc [2011] NSWCA 137;
2 The scope of legitimate surrounding circumstances which may be taken into account in contractual construction is to be understood by reference to what the parties knew in the context of their mutual dealings. The absence of any relevant discussion between the parties regarding the objective background facts which were known to both parties does not prevent those circumstances from being considered on the construction issue. Here, it was relevant to take into account the circumstances relating to the exclusion of Mr Poulos from the restraint. This did not reveal any ambiguity in the deeds nor did it indicate that something had gone wrong in the language of the deeds. The purpose of the deeds was not to prevent Gillis Delaney from acting for those persons who were clients at the date of the deeds. The primary judge erred in the inference he drew as to the reason Mr Poulos was excluded from the operation of the restraint clause and in concluding that the term "Westpac" needed to be construed broadly so as to include St George: at [15], [17], [23] and [101], [110]-[125]
Considered: Halford v Price [1960] HCA 38; 105 CLR 23; Royal Botanic Garden and Domain Trust v South Sydney Council [2002] HCA 5; 240 CLR 45; Codelfa Construction Pty Ltd v State Rail Authority of NSW [1982] HCA 24; 149 CLR 337; Trawl Industries of Australia Pty Ltd v Effem Foods Pty Ltd (1992) 27 NSWLR 326; Manufacturers Mutual Insurance Ltd v Withers (1988) 5 ANZ Insurance Cases 60-853; QBE Insurance Australia Ltd v Vasic [2010] NSWCA 166; BHP Petroleum (Australia) Pty Ltd v Sagasco South East Inc [2001] WASCA 159; Perpetual Custodians Ltd as Custodian for Tamoran Pty Ltd as trustee for Michael Crivelli v IOOF Investment Management Ltd [2013] NSWCA 231; Chartbrook Ltd v Persimmon Homes Ltd [2009] 1 AC 1101; Maggbury Pty Ltd v Hafele Australia Pty Ltd [2001] HCA 70; 210 CLR 181; Fitzgerald v Masters [1956] HCA 53; 95 CLR 420; United Group Rail Services Ltd v Rail Corp (NSW) (2009) 74 NSWLR 618; Jireh International Pty Ltd t/as Gloria Jean's Coffee v Western Exports Services Inc [2011] NSWCA 137;
3 In considering a claim for rectification it is not necessary for there to be a concluded antecedent agreement or contract, however there must be shown to be an intention (common to both parties at the time of the contract) to include in their bargain a term which by mutual mistake is omitted therefrom. Accordingly the absence of an intention to enter into binding legal relations until the contract is executed is no obstacle to a successful rectification claim: at [22], [23], [171]
Considered: Ryledar Pty Ltd v Euphoric Pty Ltd [2007] NSWCA 65; 69 NSWLR 603; Maralinga Pty Ltd v Major Enterprises Pty Ltd [1973] HCA 23; 128 CLR 336;
4 A party seeking rectification must establish, by clear and convincing proof, what the actual or true common intention of the parties was which has failed to be embodied in the written contract. The consensual nature of the common intention requires a party to show that the purported common intention has been expressly manifested in the words or conduct of the parties (it cannot remain undisclosed). In this case Westpac failed to prove, and the primary judge erred in finding, that there was a common intention between the parties as to the meaning of the term "Westpac" (namely, that it included St George). Rather each party intended the deeds to give effect to their own differing actual intentions. Rectification is not available to make the deeds conform to a consensus which the parties had never actually reached: at [19]-[20], [23] and [168]-[192]
Considered: Equuscorp Pty Ltd v Glengallan Investments Pty Ltd [2004] HCA 55; 218 CLR 471; Maralinga Pty Ltd v Major Enterprises Pty Ltd [1973] HCA 23; 128 CLR 336; Ryledar Pty Ltd v Euphoric Pty Ltd [2007] NSWCA 65; 69 NSWLR 603; Pukallus v Cameron [1982] HCA 63; 180 CLR 447; Bishopgate Insurance Australia Ltd v Commonwealth Engineering (NSW) [1981] 1 NSWLR 429; Commissioner of Stamp Duties (NSW) v Carlenka Pty Ltd (1995) 41 NSWLR 329; NSW Medical Defence Union Ltd v Transport Industries Insurance Co Ltd (1986) 6 NSWLR 740.