Tattersall's Sweeps Pty Ltd v Veetemp Pty Ltd & Ors [2006] VSCA 276

The appellant's contentions

14 Tattersall's contends that the judge was wrong to conclude that there was no express qualification of Tattersall's obligation to meet the expenses of the upgrade by reference to clause 13.1 or otherwise. In Tattersall's submission, textual analysis of clause 13.1.3 shows that the obligation is expressly limited to "such upgrading" and that, in that context, "such upgrading" is reasonably to be understood as a summary description of the text used in clause 13.1. [1]

15 According to Tattersall's, clause 13 proceeds in stages, by: (a) identifying Tattersall's desire to upgrade its lottery terminal network; (b) describing the ambit of that which is comprehended by the upgrade process;[2] (c) identifying that this upgrade will be to the existing lottery terminals, associated software or peripheral equipment; and (d) specifying the consequences for the parties. Consequently, if Tattersall's determines to upgrade its network, the clause provides for three specified consequences, namely: (i) the Accredited Representative coming under an obligation to co-operate in the upgrading (clause 13.1.1); (ii) the parties acknowledging that the property substituted or added will be subject to the terms of the Agreement (clause 13.1.2); and (iii) Tattersall's becoming subject to an obligation to bear the expense of "such upgrading" (clause 13.1.3).

16 It follows, in Tattersall's submission, that upon consideration of the structure of clause 13 as a whole it is to be seen that the only "upgrading" referred to in clause 13.1.3 is the upgrading which is provided for by clause 13.1 and that there is nothing in the structure of clause 13.1 or otherwise which implies that the obligation to bear the expense of "such upgrading" should be given some wider operation. In short, "such upgrading" is confined by reference to the context in which it appears, and by reference to the commercial purpose it was intended to serve,[3] to the expense of implementing an upgrade of the kind referred to in clause 13.1.

17 The same result is said to follow from application of the maxim expressio unius est exclusio alterius. The express reference in clause 13.1 to the substitution or addition of hardware, software or other equipment of a technically superior nature is said to show that other matters not referred to (in particular, power supply) are excluded. According to Tattersall's, it would run counter to that indication to read into clause 13.1 words which did not appear in it. Thus, it is said, the judge erred by reading in the words "a necessary and direct cost or expense of the upgrade" and thereby enlarging Tattersall's obligations for the expense of its upgrade.[4] So to do involved the court in making a better or different contract than that which the parties had entered,[5] in circumstances in which it was inherently unlikely that Tattersall's would have agreed to any expansion of liability.[6]

18 Finally, it is contended that the judge's construction of the Agreement involves a wholesale departure from business commonsense.[7] It amounts to saying that, although Veetemp is expressly liable for power costs for any lottery terminal, its obligation is subject to an unexpressed exception that liability passes to Tattersall's where an upgrade occurrs. In Tattersall's submission, such a construction is plainly repugnant to the parties' plain intention to hold Veetemp liable for any form of expense arising during an upgrade beyond that which is specified by clause 13.

The respondents' contentions

19 Veetemp contends to the contrary that the judge's construction of the Agreement accords with business common sense. According to Veetemp, the Agreement draws a clear distinction between the addition and substitution of terminals on an outlet specific basis, under clause 3.5 of the Agreement, and the addition and substitution of terminals or other equipment as part of upgrading the lottery terminal network, under clause 13 of the Agreement. According to Veetemp, it may be accepted that clause 3.5 empowers Tattersall's to install additional or substitute terminals as Tattersall's determines to be appropriate for Veetemp on an outlet specific basis and, in that event, it is acknowledged that Veetemp is liable under clause 3.6 at its own cost to install and maintain such additional power points as may be necessary to provide a dedicated power supply for the substituted and additional terminals. If, however, Tattersall's determines to install substitute or additional terminals as part of upgrading the network, clause 13 is engaged to the exclusion of clauses 3.5 and 3.6, with the result that the costs of any additional power points necessitated by the installation of additional or substituted terminals must be borne by Tattersall's under clause 13.1.3 as part of the expense of upgrading.

20 More particularly, it is said, clause 13 upon engagement unambiguously allocates to Tattersall's the liability for the expense "of[8] such[9] upgrading" without limiting it to "the expense of the new equipment." On that basis, the cost of the upgrade must include the costs incurred by Veetemp in installing the additional power points required by the upgrade and hence clause 13.1.3 should be construed as having that effect.

21 Alternatively, it is said, in circumstances where clause 13 is engaged it is so obvious as to go without saying that the parties intended that Tattersall's wear the costs of power points. Hence, it should be treated as an implied term of the Agreement that Tattersall's wear those costs. Veetemp recognises that it is not open to imply a term which is inconsistent with an express term. But it submits that there is no inconsistency once it is understood that, upon engagement, clause 13 operates to the exclusion of clause 3.6

22 In the further alternative, Veetemp contends that, even if clause 13.1 upon engagement does not operate to the exclusion of clauses 3.5 and 3.6, the construction of clause 13.1.3 for which Tattersall's contends would render clause 13.1.3 otiose. The clause would have to be read as confined to the costs of the additional and substitute equipment and, according to Veetemp, that would add nothing to obligations elsewhere in the Agreement imposed on Tattersall's to install, maintain and remove its terminals and associated equipment at its own cost.[10] In Veetemp's submission, such a construction should be avoided in accordance with the principle that a contract is to be construed so as to give effect to all its parts and thereby avoid treating some parts as inoperative or surplus.[11]

23 Finally, Veetemp argues that honest and reasonable business people faced with the construction of the Agreement would surely reason that the meaning of it is that Veetemp had a responsibility to get the outlet ready for the lottery terminals covered by the Agreement (which I take to mean the lottery terminals first or initially installed under the Agreement), including ensuring power was available to be supplied to those lottery terminals, and that Tattersall's had a responsibility to supply those terminals and associated equipment. But then, if Tattersall's decided to upgrade its lottery terminal network, and that generated a need for more power points at the outlet, the installation of those power points was to be seen as a cost of the upgrade and so to be borne by Tattersall's.

24 I note for the sake of completeness that counsel for Veetemp abandoned a further contention that clause 3.6 should be construed as limited to the installation and maintenance of a "power supply" necessitated by an upgrade, in contradistinction to "power points" needed to deliver the supply for the upgrade, and that clause 13.1 alone should be seen to deal with the costs of the additional power points necessitated by the upgrade.

The construction of clause 13.1

25 In my view there is force in Tattersall's contentions. The starting point as I see it is the nature of an upgrade. Clause 13 is concerned with upgrades of the network. As appears from the terms of clause 13.1, an upgrade may consist of the substitution of new terminals for existing terminals or the addition of new terminals to existing terminals. It may also consist of the substitution or addition of software or other equipment (although for present purposes that may be ignored). Accordingly, when clause 13.3 provides for "such upgrading" to be at the expense of Tattersall's, it is to be understood as providing that the costs of substituting new terminals for existing

terminals or of adding new terminals to existing terminals shall be borne by Tattersall's.

26 Prima facie, the costs of additional power outlets necessitated by the substitution or addition of terminals are not costs of the substitution or addition of the terminals. They are costs of providing a power supply for the terminals. And that is so even though those costs may be conceived of as necessitated by or as flowing directly from the replacement or addition of the terminals.

27 The prima facie perception is then reinforced by the combined operation of clause 3.6 and the definition of "lottery terminal" in clause 1.1 of the Agreement. Clause 3.6 requires Veetemp to maintain at its own expense a power supply for any lottery terminal installed at the Outlet, and clause 1.1 defines "lottery terminal" as including any computer terminal installed at the Outlet "from time to time". Hence, according to the natural and ordinary meaning of the terms of the Agreement, the Agreement implicitly recognises the possibility of replacement terminals and additional terminals "from time to time" creating a need for additional or replacement power outlets, and it expressly provides that, in those circumstances, Veetemp shall be responsible for providing the additional power outlets at its expense.

28 I do not accept that clause 13 operates to the exclusion of clauses 3.5 and 3.6. The idea of it requires one to assume that clause 13 was drafted with an informed comprehension of the effect of clauses 3.5 and 3.6 and an advised intention of carving out of them a precisely delineated area of exclusive operation. In reality, however, the Agreement shows all of the signs of a scissors and paste pastiche that has evolved haphazardly over time. In the scheme of things, the chance that any of its draftsmen ever thought about the extent of overlap between clauses 6 and 13 is meagre and, even if they did, the result is still an instrument so lacking in precision and coherence as logically to exclude application of the maxim expressum facit cessare tacitum. [12]

29 Furthermore, the lack of precision within clause 13 itself strongly implies that the clause cannot have been intended to operate distributively according to whether improvements were outlet specific or network wide. For what is meant by the notion of "upgrading their lottery network" which must to be taken to exclude so much improvement to the network as may be occasioned by the outlet specific addition or substitution of lottery terminals? Is it, for example, that clause 13.1 applies only when the whole of the network is upgraded in one fell swoop, or does it operate when the network is upgraded in stages according to an overall plan or simply as the exigencies of circumstance dictate? Why need there be any plan beyond isolated substitution or addition? It is not averse to common sense or ordinary acceptation to speak of a power utility or telephone company upgrading its network by replacing or improving facilities at only some or even one of its locations. Why should it be any different with an organisation like Tattersall's?

30 In any event, what does it mean to upgrade the whole of the network as opposed to improving the whole of the network by upgrading part of it? And, if there is a distinction, how is it to be defined for the purposes of clause 13? Does it mean, for example, that, in order to constitute an upgrading of the whole of the network, every component in the network must be upgraded? Or does it suffice that there be a significant number of components upgraded? If so, how does one assess what is "significant" for that purpose? Or does one recognise that, in the context of a network, any improvement is bound to be significant?

31 In truth, it is most unlikely that parties to this Agreement considered that they were agreed upon those circumstances in which clause 13 was to operate to the exclusion of clauses 3.5 and 3.6. The undefined conception of a network upgrade is plainly too protean to allow for that sort of consensus. It is much more likely that the parties intended clauses 3.5 and 3.6 and 13.1 to operate together, according to the natural and ordinary meaning of their terms, and so to the exclusion of each other only to the extent of any necessary inconsistency. On that basis, clause 13.1.3 has nothing to say about the matters for which clause 3.6 provides.

32 I reject the idea that such a construction renders clause 13.1.3 otiose. As I see it, its function it is to provide expressly for the allocation of cost which may otherwise have been left in doubt. As counsel for Veetemp properly and frankly conceded, the function of clause 13.1.2 is plainly to avoid doubt. Logically, it may be assumed that clause 13.1.3 has the same objective. Like a lot of the rest of the Agreement, a large part of clause 13 is confirmatory of what is provided elsewhere in the Agreement.

33 I also reject the notion that the construction for which Tattersall's contends is against the weight of the effect which it may be supposed that honest and reasonable business people would have given to clause 13.1.3 and its interrelationship with clause 3.6.

34 Much was made in the course of argument about the improbability that honest and reasonable business people would construe clause 3.6 as imposing an obligation on Veetemp to pay for the cost of power points necessitated only by the unilateral determination of Tattersall's to upgrade its network. The thrust of the argument, as I understood it, was that an upgrade of the network is something which is essentially for the benefit of Tattersall's, as opposed to Veetemp, and therefore that it would be counter-intuitive to infer that honest and reasonable business people might envisage that Veetemp should pay for the privilege of an upgrade. But that sort of argument simply ignores the terms of the Agreement. For by clause 4.17 of the Agreement, Tattersall's covenants continually to seek to implement improvements to the computer network, and that plainly conceives of such improvements being of benefit to Veetemp.

35 More generally, I see nothing surprising about the idea that clause 13.1.3. should be read as meaning that "such substitute of additional equipment shall be at the expense of Tattersall's" and that the cost of installing and maintaining such additional power outlets as may necessitate should be borne by Veetemp under clause 3.6. The general thrust of the Agreement is that facilities at the Outlet should be the responsibility of Veetemp, whereas facilities forming part of the network should be the responsibility of Tattersall's. Thus, under clause 3.1, Veetemp is responsible for the preparation of the Outlet; under clause 3.2, Veetemp is responsible for facilities for purchase of subscriptions; under clause 3.5, Veetemp is responsible for the installation and maintenance of a dedicated power supply; and, under clause 15.2, Veetemp is responsible for initial shop fit out and up to one major refit in any one term of the Agreement. Contrastingly, under clause 3.6, Tattersall's is responsible for installation of lottery terminals and maintenance and replacement of lottery terminals and, under clause 13.1, Tattersall's is responsible for implementation of Network Upgrade. In short, Veetemp is to bear the costs associated with the outlet and Tattersall's is to bear the costs associated with the network and it accords with that general scheme of approach that Veetemp should be responsible for the costs of power points necessitated by an upgrade.

36 Finally, another way of looking at the matter perhaps is that the Authorised Distributor Agreement is something like an agreement between a transport company and a contract driver, under which the transport company is under an obligation to provide the driver with the vehicles necessary to carry goods sold by the company and the driver is under an obligation to provide a fuel supply at his premises suitable for such vehicles as the transport company might provide to him from time to time. If such an agreement contained provisions that the transport company may from time to time update its fleet by replacing or adding to the vehicles supplied to the driver, and in that event would bear the costs of the upgrade, it would be natural to assume that the costs of upgrade would include all that was necessary to put the substitute or additional vehicle into the hands of the driver, ready for use. But the cost of installing and maintaining fuelling facilities on site for the replacement or additional vehicles would be a separate and additional cost, for which the driver would be responsible; albeit that those additional costs were necessitated by the substitution or addition of vehicles by the transport company. To my way of thinking, logic and common sense imply that in the same way as the driver would be responsible for the additional costs of fuelling facilities necessitated by a fleet upgrade, Veetemp is responsible for the costs of additional power points necessitated by an upgrade of the network.

37 It was said in the course of argument that it is inevitable that views may reasonably differ about the correct construction of a commercial instrument like the agreement. Perhaps that is so. The fact that a member of VCAT and a judge of the Common Law Division have construed it in one way and that I take a different view tends to suggest that it is. But it remains that a written contract is in the first place to be construed in accordance with the plain and ordinary meaning of its terms, and that the plain and ordinary meaning of the terms of this Agreement is that Veetemp is to bear the costs of providing the "power supply" for each terminal from time to time supplied. Consequently, unless "power supply" is to be read down as excluding the power points - and, as noted, that suggestion was abandoned - or unless clause 13 operates exclusively in the case of an upgrade - which in my view is untenable - the question of construction the subject of appeal really resolves itself.

38 In the result, in my view, Veetemp was bound by clause 3.6 to pay the costs of installing and maintaining the additional power outlets necessitated by the upgrade.

Conclusion

39 It follows that I would allow the appeal and set aside the judgment below. In lieu thereof I would order that Tattersall's appeal from the decision of VCAT dated 1 February 2005 be allowed, and that Veetemp's application to VCAT be dismissed.

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At a glance

Court

Decision date

Before

Source

Judgment (21 paragraphs)

Parties