Plaintiff v Second Plaintiff by Counterclaim Defendant by Counterclaim

Plaintiff v Second Plaintiff by Counterclaim Defendant by Counterclaim - [2016] VSC 528 - VSC 2016 case summary — Zoe

[60]

The rights and liabilities of parties under a provision of a contract are determined objectively,[44] by reference to its text, context (the entire text of the contract as well as any contract, document or statutory provision referred to in the text of the contract) and purpose.[45]
In determining the meaning of the terms of a commercial contract, it is necessary to ask what a reasonable businessperson would have understood those terms to mean.[46] That enquiry will require consideration of the language used by the parties in the contract, the circumstances addressed by the contract and the commercial purpose or objects to be secured by the contract.[47]
Ordinarily, this process of construction is possible by reference to the contract alone. Indeed, if an expression in a contract is unambiguous or susceptible of only one meaning, evidence of surrounding circumstances (events, circumstances and things external to the contract) cannot be adduced to contradict its plain meaning.[48]
However, sometimes, recourse to events, circumstances and things external to the contract is necessary. It may be necessary in identifying the commercial purpose or objects of the contract where that task is facilitated by an understanding "of the genesis of the transaction, the background, the context [and] the market in which the parties are operating".[49] It may be necessary in determining the proper construction where there is a constructional choice. The question whether events, circumstances and things external to the contract may be resorted to, in order to identify the existence of a constructional choice, does not arise in these appeals.
Each of the events, circumstances and things external to the contract to which recourse may be had is objective. What may be referred to are events, circumstances and things external to the contract which are known to the parties or which assist in identifying the purpose or object of the transaction, which may include its history, background and context and the market in which the parties were operating. What is inadmissible is evidence of the parties' statements and actions reflecting their actual intentions and expectations.[50]
Other principles are relevant in the construction of commercial contracts. Unless a contrary intention is indicated in the contract, a court is entitled to approach the task of giving a commercial contract an interpretation on the assumption "that the parties ... intended to produce a commercial result".[51] Put another way, a commercial contract should be construed so as to avoid it "making commercial nonsense or working commercial inconvenience".[52]
These observations are not intended to state any departure from the law as set out in Codelfa Construction Pty Ltd v State Rail Authority of New South Wales[53] and Electricity Generation Corporation v Woodside Energy Ltd.[54] We agree with the observations of Kiefel and Keane JJ with respect to Western Export Services Inc v Jireh International Pty Ltd.[55]

[76]

The question of construction comes down to this: The words of clause 2 are wide and general and clear and on their reading alone, without regard to any other circumstances or context, they are wide enough to include all the covenants in the previous lease, including the covenant for renewal. ... [But there is a general] principle of construction that wide words can be cut down if the context leads the court to conclude that the words must be construed more narrowly. What, then, are the circumstances and the context at which I am entitled to look to decide whether they should be cut down or whether their wide meaning should remain? It is common ground that I can look at the whole of the words used in the 1963 lease. It is also common ground that I can look at the 1957 lease because of the word "supplemental" in the first recital, which has the effect of bringing in the whole of the 1957 lease by way of recital into the 1963 lease. It has been submitted on behalf of the tenants that I cannot look at the letters which I have referred to, those of 21 June, 1963 and 3 July, 1963, but in my judgment they are clearly part of the surrounding circumstances and it is permissible for me to look at them. The effect of the letter of June 21, 1963, was to exercise the option which had been granted to the tenants by the 1957 lease, and that option was for seven years only, but a request was made that instead of taking it for seven years, as the option required, the term should only be for four years and that was agreed to by the then landlords. When I turn to the 1963 lease, and particularly recital (b), I find these words. " ... [I]n satisfaction of the tenant's rights of renewal which the landlords have agreed to do." The only right of renewal which the tenants had was once and once only, for seven years, and it was that option which they were exercising by the letter although they were asking for something less than that to which they were entitled under clause 4 (D) of the 1957 lease.

Taking all these things into consideration, that is to say, the former lease, the exercise of the option and the 1963 lease, I am constrained to hold that the covenants in clause 2 must be given a narrow construction so as not to include the covenant for renewal. I therefore propose to dismiss the action and, as rectification does not arise, to make no order on the counterclaim.

[104]

The High Court, in Slee v Warke[101] approved the view expressed by Clauson J, in Shipley Urban District Council v Bradford Corporation,[102] and Simonds J, in Crane v Hegeman Harris Co Inc[103] that if, in the course of negotiation, a firm accord has been expressly reached on a particular term of the proposed contract, and both parties continue minded that the written instrument should record that term, it matters not that the accord was not part of an antecedent concluded oral contract.

A similar view commended itself to the Court of Appeal in Joscelyne v Nissen,[104] although the court was there strongly pressed to reach the contrary conclusion. The defendant in that case was encouraged so to contend, not only because of support gained from the earlier cases, but also from what was said by Denning LJ, as a member of the Court of Appeal in Frederick E Rose (London) Ltd v William H Pim Junior & Co Ltd.[105] His Lordship, in the course of his judgment, used language that might well be thought to suggest that an antecedent complete concluded agreement is necessary. What, however, Denning LJ, does make clear is that, in determining whether an accord has been reached:[106] "You look at their [the parties'] outward acts, that is, at what they said or wrote to one another in coming to their agreement, and then compare it with the document which they had signed. ... He [the plaintiff] is allowed to prove, if he can, that they agreed something different ... but not that they intended something different."

Hudson J, in Re Streamline Fashions Pty Ltd[107] expressed the requirement in these terms - "It must be taken, therefore, that the common intention which it is necessary to establish as a basis for rectification is an intention that has been manifested in the words or conduct of the parties and not merely an intention which was not disclosed in the course of the negotiations."

With this formulation of what is necessary to be established I would respectfully agree.

Faced with the binding authority of the decision of the High Court in Slee v Warke,[108] the defendant submitted, first, that there had not been shown to be an outward expression of accord and, secondly, that, if there was an accord, it did not continue concurrently in the minds of the parties down to the time of the execution of the formal contract.

[106]

The critical question is whether there was also a consensus between the parties, which they had communicated to each other, with respect to the date from which interest was to run. It will be appreciated from the statement of the facts set out earlier that there had been no explicit communication between the parties on this point, but the learned trial Judge nevertheless found as a fact that there was a common communicated intention between the parties, by 19 November 1973 or thereabouts, that the interest should run from the date possession was given to the appellant, which was to be 1 May 1974.

He arrived at this conclusion, in essence, as we understand his reasons for judgment, upon the basis that both parties did in fact take it for granted that the purchaser was to pay interest from the time he obtained possession of the property sold, on so much of the purchase money as was then unpaid. His Honour's view was that, as it was agreed that the purchaser was to be entitled to possession of the land sold before it had paid the whole of the purchase money, the parties could only have understood the agreement to pay interest at 8 per cent on the purchase money then outstanding as an agreement to pay such interest from that time, as, from then on, the purchaser and not the vendors had the benefits of possession. His Honour clearly thought that the parties, as persons bargaining for the sale and purchase of land, proceeded upon the assumption that, whereas a purchaser is normally required to pay the whole of the purchase price to be entitled to possession, when he is to be allowed an extended time for the payment of the purchase price and is to be allowed into possession upon payment of part of the price, then he has to pay interest on the balance during the period for which it is outstanding as a quid pro quo to the vendor, who otherwise has ceased to be entitled to the rents and profits and yet has not got all his purchase money.

His Honour said that he had no doubt that the parties understood the bargain they had made to mean that the interest was payable from the time when, as he expressed it, the vendors made a loan to the purchaser of the amount of the balance of the purchase money. He added that "it was unnecessary to spell out in actual words the obvious, namely, that when you borrow money on interest, that interest accrues over the whole currency of the loan".

It is true that his Honour said that no other meaning was possible for a term of this nature, but, in our opinion, in saying that, he was not regarding himself as merely attributing an intention to the parties, by a process of construction or otherwise, whether it accorded with the parties' actual intention or not, but correctly addressed himself to a consideration of what was the parties' actual intention with respect to the date from which interest should be paid. And, in our opinion, he was amply justified in coming to the conclusion he did.

Therefore, the respondents established the starting point for their case, ie that they formed a consensus, a common intention, communicated to each other, that interest at the rate of 8 per cent, with yearly rests, was to be payable on the balance of the purchase money, from 1 May 1974, that being the date upon which the purchaser was to be entitled to possession of the property sold.

The evidence shows that this continued to be the intention of the respondents up to and including the time when the executed parts of the contract of sale were exchanged on 9 April 1974. The evidence is that the respondents were unaware until after that date that condition 1 of the contract of sale provided for payment of interest from 1 May 1975, although possession was to be given on 1 May 1974. The learned Judge accepted the respondents evidence on these matters, and as we have said, this finding was not challenged on appeal. Thus, the finding was that the respondents executed the contract in the mistaken belief that it provided for interest to be paid from 1 May 1974. There was nothing to suggest that, up to the time when its director received the contract on or about 4 April 1974, the appellant departed from the intention that interest should run from 1 May 1974.

...

Counsel for the appellant accepted that rectification of a written document could be granted by the Court where there was either a concluded binding antecedent agreement between the parties or where the parties had reached a common intention before the execution of the written contract and that common intention continued up to the time of the execution of the written document, and he was clearly correct in so doing.[110]

[117]

The "intention" that is relevant to rectification of the contract is the subjective intention of the parties, sometimes called the actual intention.[139] 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.[140] Campbell JA explained in Ryledar[141] 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.")
[I]n Ryledar,[142] 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".[143]
In Carlenka[144] Mahoney A-P 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 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".[145]
McLelland AJA added the further observation in Carlenka[146] 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:

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