RMI Pty Limited v Spray Coupe Pty Ltd [2021] QCA 37

Court of Appeal (Qld)|2021-03-05|Before: Sofronoff P and Morrison and Philippides JJA

"Refer to Annexure D, RMI Pty Ltd will pay Spray Coupe Pty Ltd a monthly retainer of $40,000, in advance against their monthly spraying charges, for services supplied during the month."

[7] Annexure D consisted of a letter on RMI letterhead, dated 21 July 2016. It was addressed "To whom it may concern" and relevantly provided:

"The Carrington Cotton Corporation Group of Companies currently engages Spray Coupe Pty Ltd as our preferred ground spraying contractor for pesticide application and spray management of 18,000 hectares of our farming country.

We are currently in the process of drafting a formal agreement between the Carrington Group of Companies and Spray Coupe Pty Ltd, for their contracting services moving forward. This agreement will included, (sic) a monthly retainer of $40,000 to Spray Coupe Pty Ltd in advance against their monthly spraying charges, for services supplied during the month. This agreement will be formalised in the coming weeks."

[8] The letter contained in annexure D to the contract was provided to the ANZ Bank by Mr Sim when he applied for finance to acquire the equipment needed to service the contract.

[9] Before the learned primary judge the differing constructions advanced were as follows:

(a) Spray Coupe's contended that the payment of $40,000 was to be made in advance each month, and must be applied to reduce the liability of RMI to pay for spraying services in that month; however, if the payment exceeds that liability, Spray Coupe is entitled to retain the balance;

(b) RMI contended that clause 8 did not create a guaranteed minimum monthly payment, but rather, the monthly payment of $40,000 was only a payment on account for spraying services over the whole period of the contract; alternatively, RMI accepted that if services in a month were less than $40,000, Spray Coupe was entitled to retain the balance but in practice the parties would treat any such liability as part of a running account between them.

[10] The learned primary judge held that the proper construction of clause 8 was that the $40,000 each month was to be set against the monthly spraying charges in that month.[1] His Honour referred to a number of factors leading to that conclusion:

(a) the use of the word "retainer" signified an agreement to secure Spray Coupe's services;[2]

(b) the phrase "in advance" signified when the retainer amount was to be paid;[3]

(c) the words after the word "against" signified that there was to be some form of accounting between the $40,000 and the monthly spraying charges;[4] and

(d) the phrase "for services supplied in the month" focused on each month of the contract; clause 8 provided for a payment of a monthly retainer, and then expressly specified it to be in advance against spraying charges supplied during the month; that was "a powerful textual indicator that the monthly retainer goes against the charges in that month".[5]

[11] As will become clear I have reached the conclusion that his Honour erred in adopting that construction, and that clause 8 requires that each $40,000 was to be offset against charges for services in the months subsequent to any such individual payment.

[12] One must construe the words used in clause 8 to objectively determine the presumed subjective intentions of the parties when they recorded the agreement.[6]
[13] In Australian Broadcasting Commission v Australasian Performing Right Association Ltd,[7] Gibbs J said:

"It is trite law that the primary duty of a court in construing a written contract is to endeavour to discover the intention of the parties from the words of the instrument in which the contract is embodied. Of course the whole of the instrument has to be considered, since the meaning of any one part of it may be revealed by other parts, and the words of every clause must if possible be construed so as to render them all harmonious one with another. If the words used are unambiguous the court must give effect to them, notwithstanding that the result may appear capricious or unreasonable, and notwithstanding that it may be guessed or suspected that the parties intended something different. The court has no power to remake or amend a contract for the purpose of avoiding a result which is considered to be inconvenient or unjust. On the other hand, if the language is open to two constructions, that will be preferred which will avoid consequences which appear to be capricious, unreasonable, inconvenient or unjust, "even though the construction adopted is not the most obvious, or the most grammatically accurate", to use the words from earlier authority cited in Locke v. Dunlop ... which, although spoken in relation to a will, are applicable to the construction of written instruments generally; ... Further, it will be permissible to depart from the ordinary meaning of the words of one provision so far as is necessary to avoid an inconsistency between that provision and the rest of the instrument. Finally, the statement of Lord Wright in Hillas & Co. Ltd. v. Arcos Ltd. ... that the court should construe commercial contracts "fairly and broadly, without being too astute or subtle in finding defects", should not, in my opinion, be understood as limited to documents drawn by businessmen for themselves and without legal assistance ..."

[14] Further, as was said in Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd:[8]

"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. 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... 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". Put another way, a commercial contract should be construed so as to avoid it "making commercial nonsense or working commercial inconvenience"."

[15] In construing a commercial agreement the document must be construed as a whole and each word or part of the agreement should, to the extent possible, be given some work to do.[9]
[16] In construing clause 8 it must be recalled that it appears in a commercial contract between Spray Coupe and RMI. The material before the learned primary judge showed a number of mutually understood facts:[10]

(a) Spray Coupe had supplied spraying services to RMI since 1996 and was its preferred contractor;

(b) RMI expected Spray Coupe to be available to perform ground spraying services when required;

(c) RMI's requirement for spraying work was not consistent from month-to-month and would vary depending on, inter alia, seasonal and weather conditions and the type of crops planed by RMI;

(d) there would be months where no spraying was done, but historically Spray Coupe was paid well in excess $480,000 per year on such services;[11]

(e) RMI wanted Spray Coupe to acquire new and different equipment to handle the intended spraying;

(f) RMI told Spray Coupe the specifications of the equipment it thought necessary to handle the spraying demands;

(g) the two sides eventually agreed on the equipment required;

(h) Spray Coupe could not afford to acquire the equipment without bank finance;

(i) in order to get the finance Spray Coupe had to show the bank that it had a guaranteed monthly income;

(j) RMI agreed to provide a letter setting out the $40,000 monthly retainer so that it could be given to the bank, to assist Spray Coupe's obtaining finance for the purchase of the equipment it required to perform the works under the contract;

(k) by that process the bank could be satisfied and lend Spray Coupe the money to upgrade the equipment; and

(l) neither side referred to the retainer as a gift.

[17] The contract was a "Ground Spraying Services Agreement",[12] for five years with annual reviews.[13] Under it Spray Coupe agreed to: (i) provide particular equipment;[14] (ii) "provide contract groundrig Spraying services" in nominated areas and under specified conditions;[15] (iii) ensure each agronomy group had at least one spray rig available to it at all times;[16] (iv) charge a "contract spraying price" at specified dollar rates depending on the type of land, and concentration of herbicide and insecticide spray per hectare water volume;[17] (v) on completion of each job, send a "completion" to the relevant farm manager, agronomist and RMI;[18] and (vi) levy charges applicable to each calendar month.[19]
[18] Those features of the spraying contract show that the contract was a commercial contract made between two commercial parties, albeit they had a longstanding relationship under which one had provided similar services to the other.
[19] That is the context in which clause 8 falls to be construed.
[20] The first thing to note is that clause 8 records an agreement to pay a "retainer". The ordinary dictionary meaning of a retainer is a fee paid to secure services, or to make sure the payee is available to do work.[20]
[21] Secondly, the retainer is to be paid "monthly". Absent any other qualification this would normally refer to a calendar month. And since the agreement was for five years it must refer to each calendar month during the life of the agreement. Support for that construction is derived from Annexure D where RMI said that the agreement was for Spray Coupe's "contracting services moving forward".
[22] Thirdly, two commas separate the phrase "in advance against their monthly spraying charges" from the balance of the clause. Where punctuation has been used consciously and not haphazardly it can be material in construing a clause.[21] The respondent did not contend that the use of the commas was haphazard. Given the alteration between the letter in Annexure D and clause 8 itself, it seems they may have been deployed consciously. The balance of the clause, i.e. read without the separate phrase, provides: "a monthly retainer of $40,000 for services supplied during the month". On the face of those words clause 8 records an agreement to pay a retainer each month for services supplied in that month. So much is signified by the fact that the retainer is "monthly" and for services supplied during "the month", a reference to the month for which the $40,000 is paid.
[23] Fourthly, the retainer was agreed to be paid "in advance", which plainly means paid before the month to which it relates. Thus, consistently with the dictionary meaning of a "retainer", it was agreed to be paid to ensure Spray Coupe was available to supply spraying services. In my view, under clause 8 it would not matter that no services were, in fact, supplied, as the $40,000 payment is a retainer designed to ensure Spray Coupe was available to supply services in each month for which it was paid.
[24] Fifthly, the retainer was paid "against their monthly spraying charges". It is notable here that the parties did not use words such as "against their charges for the month", or "against their charges for that month", each of which would have tied the payment of the retainer to the charges for the particular month in respect of which it was paid. Instead they said that the retainer was against Spray Coupe's "monthly spraying charges". Plainly that phrase refers to charges for spraying services carried out.
[25] Given the mutually understood background facts, one of which was that spraying needs were affected by seasonal demands which meant that in some months there would be no services required, the parties must be presumed to have recognised that in some months there would be no charges for services actually supplied. By using the words "monthly spraying charges" the parties must be taken to have intended that to be referrable to the charges actually levied in the months following the retainer payments.
[26] Sixthly, accepting that to be so, the qualifying word "against" in the phrase "against their monthly spraying charges" must be given effect. The word "against", when used in the context of a payment against something, bears the dictionary meaning of "in anticipation of" that thing,[22] or "in exchange for; in return for".[23] A related meaning is to offset one thing so as to reduce or cancel another thing, in the sense that a debt might be offset by payments, the one against the other.[24]
[27] In my view this is the sense in which the word "against" was used in the phrase "in advance against their monthly spraying charges". It meant that the $40,000 each month was agreed to be in anticipation of, or offset against, the actual charges for spraying in the months subsequent to that payment.
[28] The commercial sense of that construction is obvious. Spray Coupe needed to demonstrate a regular $40,000 per month income in order to secure the finance it needed to buy the upgraded equipment required to perform the services for which it would then levy charges. RMI was prepared to cooperate with Spray Coupe's requirements to obtain finance, but it would be irrational to think it would gift the payments of $40,000, or even the unearned part of them. Clause 8 provided what Spray Coupe needed, i.e. a steady monthly income, but no more. When charges for the services were levied the two would be offset.
[29] In my respectful view, the error on the part of the learned primary judge was to treat the phrase "for services supplied during the month" as restricting the payments of $40,000 to only those services in the month of payment, which gave no real effect to the phrase "against their monthly spraying charges". The effect of his Honour's approach was to read the phrase "in advance against their monthly spraying charges", as qualified by the following words, "for services supplied during the month".
[30] The correct construction of clause 8 is that each payment of $40,000 was a payment to be offset against the charges that Spray Coupe might levy in the months subsequent to each such payment.

[31] The orders below were made as a consequence of an erroneous construction of clause 8 and must be set aside. RMI previously had a claim against Spray Coupe for $100,000 but that claim was abandoned on the appeal. Each party accepted that costs would follow the event if it was determined that the construction found by his Honour was wrong.
[32] I propose the following orders:
1. Appeal allowed.
2. Set aside the orders made on 24 March 2020.
3. Dismiss the plaintiff's claim.
4. The respondent pay the costs of and incidental to the proceedings below and of the appeal.
[33] PHILIPPIDES JA: I agree with the orders proposed by Morrison JA for the reasons given by his Honour.

[1] Spray Coupe Ltd v RMI Pty Ltd [2020] QDC 78, at [38].

[6] Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337, 352; Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52, (2004) 219 CLR 165, 178 [36].

[7] [1973] HCA 36; (1973) 129 CLR 99, at 109; internal citations omitted.

[8] [2015] HCA 37; (2015) 256 CLR 104, at 116-117; internal citations omitted.

[9] Ex parte The Hoyts Corporation Pty Ltd & Ors [1993] HCA 40; (1993) 178 CLR 379, 386-7; Australian Broadcasting Commission v Australasian Performing Right Association Ltd [1973] HCA 36; (1973) 129 CLR 99.

[10] Reference to such facts is permissible as they are extrinsic material showing the surrounding circumstances when the contract was made, and aid in the construction of ambiguous terms: Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337, 352; Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd [2015] HCA 37; (2015) 256 CLR 104, 117 [50]; Cherry v Steele-Park [2017] NSWCA 295; (2017) 96 NSWLR 548, 562-4 [57]-[67].

[11] Appeal Book (AB) 119; this was the case from 2002 to 2013, then the next three years exceeded $400,000 but not $480,000 (2014, $413,507; 2015, $454,970; and 2016, $418,465).

[16] Clause 2.2; the agronomy groups were in Annexure B to the contract (AB 140).

[17] AB 139, referring to "Broadacre" and "Row Crop".

[18] Clause 2.2; the "completion" referred to was a "Ground Rig Job Completion Advice", i.e. notification that the work had been done but not an invoice: see, for example, AB 304.

[20] Macquarie Dictionary, Australian Oxford Dictionary, Collins Dictionary.

[21] AMCI Investments Pty Ltd v Rio Doce Australia Pty Ltd [2008] QCA 387, [31]; Mainteck Services Pty Ltd v Stein Heurtey SA [2014] NSWCA 184; (2014) 89 NSWLR 633, 659-70 [105]-[106].

[22] Australian Concise Oxford Dictionary; Collins Dictionary.

[24] Oxford English Dictionary. For example, rental income can be offset against tax, or interest can be offset against rental income.

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