TRANSFIELD PTY LTD v FEIERSINGER

Court of Appeal (NSW)|1988-03-28|Before: Samuels JA, Brownie J

Hope, SAMUELS and MAHONEY JJA 28 March 1988 [1988] NSWCA 160

Contract - construction - appeal from Equity Division - no question of principle. ORDER Appeal dismissed with costs.

Samuels JA The appellant and the first and second respondents were co-venturers in the development of the Mount Blue Cow Ski Resort. They appear to have embarked upon the venture without any formal agreement but nonetheless on the footing that they would supply equally, either by cash or by guarantee, the funds which the vehicle for the development, that is, the third respondent, from time to time would require.

Disputes arose between the co-venturers, as I may call them, and proceedings were commenced in the Equity Division of the Court. These were compromised by an agreement made on 15 May 1986 in the form of a letter with a manuscript addition which, in the view I take, is of no significance. The terms of that agreement are set out in Brownie J's judgment from which the appeal comes and it is unnecessary to recapitulate them, or the provisions of the later agreement of 3 September 1986 to which I will come in a moment.

However, it is necessary to state in general terms that CL1 of the May agreement provided that the parties, that is the co-venturers, should contribute equally a basic sum of $2.5 million and provided also for further capital funds to be provided in various ways according to the exigencies of the budget or by request of the General Manager or Project Manager.

CL8 of the May agreement contained provisions for what was to happen if the funding requirements were not satisfied by the parties, prescribing sanctions which operated largely by diluting the shareholding of the defaulting party in the third respondent.

The operation continued but there were further disputes and proceedings, this time in the Commercial List of the Common Law Division, which were again compromised in September of 1986. On that day short minutes were brought in which are in these terms:

Note the agreement of the plaintiff and first defendant that on 15th May, 1986 they became parties to a valid and enforceable agreement upon the terms set out in Annexure A to the affidavit of Marco Belgiorno-zegno sworn 25th June, 1986 and filed herein.

Note the further agreement of the plaintiff and first defendant that the agreement referred to in paragraph | has been superseded and replaced by the further agreement entered into between them and other parties today (3rd September, 1986), such further agreement being in writing and bearing date 3rd September, 1986."

On the same day a deed was executed to which the co-venturers were parties. Once again in general terms it will suffice to say that that instrument provided for the subscription of capital to the venture and provided also for the provision of

further sums in addition to the basic figure of $2.5 million. In CL18 and CL19 it contained provisions for default to cover the situation which would arise if again one or other of the parties failed to satisfy the demands for cash or guarantee which the deed contemplated might be made.

The dispute which is now before us arises in this way. On 10 December 1985 the third respondent required the co-venturers to lodge certain guarantees in favour of the National Parks and Wildlife Service. It will be noted that this date was long before the first agreement, that is, the May agreement, but nonetheless it has been regarded by the appellant as constituting a failure by the first and second respondents to carry out their obligations under the engagement between the co-venturers. I need not go into any further detail as to how in fact the argument of breach arises or how the appellant seeks to make it good.

Then on 16 May 1986, the day after the May agreement was entered into, a contribution of $2 million was required from each of the co-venturers. The first and second respondents provided only $500,000 (until after execution of the deed on 3 September at all events) and it is contended that there was outstanding on 3 September a sum of $1.5 million together with the interest which both the May and September agreements demanded to be paid in the event that the first and second respondents were in default under a contribution which had been called.

The argument put by the appellant is that although these breaches, if I may call them that, had occurred before 3 September 1986, when the September agreement was executed, they were failures to respond to demands deemed, as it were, to have been made under the September agreement. Hence the failures to comply are to be regarded as breaches of the provisions of the September agreement. If that argument is correct then it would follow that those breaches attracted the default provisions of the September agreement which, in the proceedings below and before us, the appellant was seeking to enforce.

The argument involves the construction of the September agreement in the matrix of relevant surrounding circumstances, and depends upon the intention of the parties to be gleaned from the language which they used to express their agreement in the September instrument. That, I add, was drawn with the assistance of lawyers and therefore is vulnerable to rigorous analysis and to a construction more stringent, perhaps, than one would accord to a purely commercial document in which lawyers had no hand.

If one starts with the short minutes it may be that the use of the words in paragraph 1, that the May agreement is to be "valid and enforceable" notwithstanding the provisions of the second paragraph to the effect that the May agreement "has been superseded and replaced" by the September agreement, mean that the parties intended to declare that the May agreement should stand and should continue to govern transactions which had arisen under it, and that the September agreement should constitute the parties' agreement for the future. It is not necessary for the purposes of determining this case to express a final opinion upon the matter, but the interpretation I have advanced seems to me to be a sensible one which might very well have been what the parties had in mind. Even so, it would not of itself do the work that the appellant requires because it would not legitimately support the corollary that what had been done or not done under the May agreement should fall to be assessed by reference to the provisions of the September agreement.

If one then goes to that agreement there is, it seems to me, one general comment on the probabilities which is of some force in arriving at the parties' intention. If the appellant's argument is correct it would follow that instantly

URJ TRANSFIELD PTY LTD v FEIERSINGER (Mahoney JA) 3

upon execution of the September agreement the first and second respondents were in default under that agreement and vulnerable to the default provisions which it contained. That seems to me an extremely unlikely proposition.

Turning to the language of the September agreement counsel for the appellant has very frankly conceded that he faces the problem of overcoming the prima facie construction to be accorded to it. For example, CL9 which commences that section of the agreement which deals with funding is in these terms: "FPF and Transfield shall....." - I emphasise the word "shall" -

° eseseseeee contribute equally to the company $2,500,000.00......... and the second sentence of CL9 specifically gives credit for sums which have previously been advanced. The May agreement did likewise. I merely point to the distinction in CL9 between the use of the word "shall" and the express provision for credit to be given for sums expended in the past.

If the appellant's construction is correct, the word "shall" is not a word which has any chronological significance or which carries any notion of transactions to be completed in the future. It is merely, as was put, a word of obligation; it does not mean "shall" but it means something like "are under a present obligation" or some connotation of words of that kind.

If one goes on through the agreement, in particular in CL13 and CL14, the language conveys the notion to me that it is contemplating future events. For example, both CL13 and CL14 contain the words "In the event that" and their overwhelming implication is to cover future events rather than those which have already accrued or occurred.

CLIS and the provisions which follow, mesh with the meaning which I would seek to give to CL13 and CL14.

Then one goes to the default provisions in CL18 and CL19. CL18 commences: "In the event that any payment required to be paid as set out herein including under CL9, CL13, CL14 and CL16 of this agreement..."

CL19 is drawn in much the same way, with particular reference to the provisions of the September agreement.

In my view this language, and the agreement as a whole, overwhelmingly suggest that their purpose is to regulate the parties' dealings from and after its execution.

As Ihave said, there is express reference to credit to be given for past payment. That may not have great significance viewed alone, but it certainly is consistent with the construction I would give to the agreement and inconsistent to my mind with the meaning for which the appellant contends.

The language in particular of CL18 and CL19 is simply not apt to be regarded as default provisions which could work upon breaches which had already occurred. I see nothing in the surrounding circumstances, so far as they may relevantly be considered, which leads me to any contrary view. I see nothing in the agreement which amounts to an ambiguity which should attract careful analysis of relevant surrounding circumstances.

It seems to me that the construction put to us by the respondents is the correct one and that the appellant's view of the agreement must be rejected. I would therefore dismiss the appeal with costs.

HOPE JA: The order of the Court is that the appeal is dismissed with costs.

At a glance

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Judgment (31 paragraphs)

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