Discussion
27 In the judgment of the Full Court in the appeal relating to this matter Jacobson, Lander and Foster JJ identified the general principles relating to the construction of contracts in these terms:
56 The proper approach to construction of cl 7.4(a) of the contract is to construe it by reference to the principle of objectivity stated by the High Court in Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451 at [22] and Toll (FGCT) Pty Ltd Alphapharm Pty Ltd (2004) 219 CLR 165 at [40].
57 That approach requires the Court to ascertain the intention of the parties by reference to what a reasonable person would understand the language of the contract to mean. It:
… normally, requires consideration not only of the text, but also of the surrounding circumstances known to the parties, and the purpose and object of the transaction.
See Toll at [40]; and also see Pacific Carriers at [22].
58 It is well accepted that a commercial contract such as the present is to be construed fairly and broadly but the Court has no power to remake a contract for the purpose of avoiding a result which may be considered unjust Australian Broadcasting Commission v Australasian Performing Right Association Ltd (1973) 129 CLR 99 (ABC v APRA) at 109.
59 That said, in approaching the construction of the contract, if a detailed, semantic and syntactical analysis of words in a commercial contract will lead to a conclusion that flouts business common sense, it must be made to yield to business common sense: Maggbury Pty Ltd v Hafele Australia Pty Ltd (2001) 210 CLR 181 at [43] citing Antaios Companios Naviera SA v Salem-Rederiesna AB [1985] AC 191 at 201; see also ABC v APRA at 109.
60 Nevertheless, orthodoxy requires that evidence of prior negotiations is ordinarily to be excised from the process of construction: Royal Botanical Gardens and Domain Trust v South Sydney City Council (2002) 240 CLR 45 at [39]; Western Export Services Inc v Jireh International Pty Limited (2011) 282 ALR 604 at [2] - [4] (application for special leave to appeal per Gummow, Heydon and Bell JJ, query whether this constitutes a binding precedent, see O'Brien, D, Special Leave to Appeal (2nd Ed, Supreme Court of Queensland Library, 2007) at pp 46-50); see also Australian Medic-Care Company Ltd v Hamilton Pharmaceutical Pty Ltd (2009) 261 ALR 501 at [118].
28 The growers also stressed the observations in Schwartz at [86] that:
The correct approach to the construction of a commercial contract, such as the Deed, is discussed in Franklins Pty Ltd v Metcash Trading Ltd [2009] NSWCA 407; 76 NSWLR 603, esp at [19]. The underlying task remains one of construing the words which the parties have used. In construing the language in question, regard must be had to the other parts of the text so that, as far as possible, the various provisions are given a consistent or congruent operation: Australian Broadcasting Commission v Australasian Performing Right Assn Ltd [1973] HCA 36; 129 CLR 99 at 109; Wilkie v Gordian Runoff Ltd [2005] HCA 17; 221 CLR 522 at [16]). The meaning to be ascribed to the language adopted by the parties is to be assessed objectively, in the sense that it is not governed by the subjective beliefs or understandings of the parties, but rather by what a reasonable person would understand by the use of that language: Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52; 219 CLR 165 at [40]. In a commercial context that usually requires that the preferred meaning is that which makes commercial sense and gives effect to the aims and purposes of the parties, to the extent that they can be identified legitimately from the text and context. Of course, minds may differ as to what constitutes "business common sense" in a particular case: Maggbury Pty Ltd v Hafeli Australia Pty Ltd [2001] HCA 70; 210 CLR 181 at [43]. In the end, it remains the position that the meaning ascribed to the language must be an available one, albeit adopting an approach to construction which is not "narrow or pedantic". Reference to notions of commercial or business common sense does not permit "judicial rewriting" of an agreement in disregard of the language which the parties have adopted: Australian Broadcasting Commission v Australasian Performing Right Assn Ltd at 109; Codelfa Construction Pty Ltd v State Rail Authority of NSW [1982] HCA 24; 149 CLR 337 at 352; Jireh International Pty Ltd v Western Exports Services Inc [2011] NSWCA 137 at [55].
29 The first observation to make having regard to these principles is that there are two standard contracts. The first is the written contract which, other than for one grower, operated between 30 August 2004 and 30 June 2009 (the first contract). The second is the renewed contract which came into existence by reason of the offer Steggles was bound to make under cl 21(b) and which each of the growers accepted (the renewed or second contract). The first contract is a circumstance which was known to the parties at the time the second contract came into existence. Accordingly, the first contract is part of the context which it is permissible to consider irrespective of any ambiguity in the language of the second contract (Schwartz at [85]).
30 The relevant point about the first contract in this regard is that the provisions of cl 21, including the use of the End Date, gives rise to no potential anomaly. In the context of the first contract (and leaving aside the grower with a different Start Date), the Start Date is 30 August 2004, the End Date is 30 June 2009, the Term is the period commencing on the Start Date and ending on the End Date, and all of the obligations expressed by reference to these defined terms operate harmoniously, including cl 21 itself. The same is true for the grower with the different Start Date - the dates may be different but the position remains the same (and, contrary to the growers' submissions, that grower need not be considered further for this reason). By cl 21(a), a party wishing to enter into negotiations for a new contract to start on the End Date (30 June 2009), must give notice by no later than seven months before the End Date, which each of the growers did. By cl 21(b), Steggles was bound to offer a new contract for a term of not less than five years from the End Date within 30 days of receiving the notice of intent (which Steggles did not do but ultimately accepted it was bound to do). Steggles did not require common amendments to the contract as set out in cl 21(d) other than those matters identified in the declaration to which the growers agreed. In accordance with cl 21(d), the second contract includes those amendments but, as implicitly contemplated by cl 21(d) and made express in the declaration, the second contract is otherwise on the same terms as the first contract.
31 The anomalies identified by the parties arise only in respect of the second contract. Clause 21 is not the source of the anomalies. Even if cl 21 were not part of the second contract, the anomalies would remain because the Start Date is still defined to be 30 August 2004, the End Date is still 30 June 2009, and the Term is still the period from the Start Date to the End Date. Clause 21(a) contemplates negotiations for a new contract and cl 21(d) permits common amendments to specifications or requirements of any provision of the contract. Accordingly, it is possible that the parties could have resolved the anomalies through that process. In that event, however, the function of cl 21 would nevertheless have remained in issue between the parties because Steggles contends that it contemplates a single option and the growers contend that, as cl 21 must be part of each renewed contract, it provides a form of perpetual option at each grower's election. Implicit in the growers' position is that Steggles could not require, as a common amendment, the deletion of cl 21 because cl 21(d) permits such common amendments only to "specifications or requirements" and cl 21 itself is not a specification or requirement. Whether this is so or not is not an issue in the cross-claim.
32 The lack of anomalies in the first contract does not mean that cl 21, as it appeared in the first contract, was free from ambiguity. Apart from the operation of cl 21(d), it is important to recognise that the second contract is the result of the obligations imposed by the first contract. Whatever those obligations are, they are obligations imposed in and by the first contract. That is to say, if there is a single five year option it was created by cl 21 of the first contract. If there is a form of perpetual five year option, it too was created by the first contract.
33 These considerations indicate that the first contract is relevant. In the context of the first contract there are numerous indications that cl 21 provides to the growers the option to require Steggles to offer a single further contract of five years. In cl 21 itself the language used contemplates a (single) notice and a (single) new contract. The new contract is to be for a term of not less than five years from the End Date. No words are used that might indicate that there was intended to be a form of perpetual or rolling option for five year contracts at the discretion of the grower. If that had been intended, then cl 21, which refers to a single new contract running for not less than five years from the End Date, is an extremely strange way to achieve it. There is simply nothing on the face of cl 21 which, in the context of the first contract, would support the growers' construction. The other provisions of the first contract also all work in harmony with this approach to cl 21. For example, it is apparent that the depreciation arrangement in cl 20.6 reflects a contract with a five year term and a five year option. By the end of 10 years, depreciating at the specified $525 per month, the entire amount of $63,000 will have depreciated to zero. The notion that the renewed or second contract under cl 21 should take a new Start Date and a new End Date so that, wherever those words appear in the second contract they are to be read as 30 June 2009 and 30 June 2014 respectively, undermines the operation of cl 20.6 - a clause which has plainly been devised to reflect a contract for five years with one five year option. No other provision is in conflict with this construction of cl 21. Moreover, no reasonable person would understand from the language of cl 21 that the parties had agreed to provide a grower with a form of perpetual, as opposed to a one-off, five year option. Recourse to commercial practicalities is unnecessary to reach this conclusion; but, if permissible to consider commercial considerations on the state of the evidence in this case, the question Steggles posed is telling - what possible commercial justification would there be for Steggles to have granted a perpetual option to the growers? No justification is apparent.
34 There are undoubtedly anomalies in the second contract. That the parties might have been able to negotiate a form of second contract without those anomalies does not alter the fact that the second contract exists and has to be construed in accordance with its terms, including cl 21. Finding a construction of the second contract which harmonises all provisions is not easy. But nothing commends the growers' construction other than some of the anomalies if considered in isolation from the overall context. In the context of the second contract, cl 21 still refers to the End Date as defined (30 June 2009). The fact that the second contract contains cl 21 and that cl 21 has no work to do is only anomalous if it is assumed that the first contract, by cl 21, created a form of perpetual option. As I have said, I am unable to see any reason supporting that construction of the first contract. Given that the second contract is simply the contract required by the first contract, the continued presence of cl 21 in the second contract as a dead letter is not particularly anomalous. Nor are the other anomalies on which the growers relied. When analysed, the growers' argument boils down to a single proposition which happens to have a fortuitous consequence for them. The proposition is that because the contract uses the Term to identify the period within which obligations are imposed and the Term operates by reference to the Start Date and the End Date, the second contract must be construed so that Start Date means 30 June 2009 and End Date means 30 June 2014. The fortuitous consequence is that End Date in cl 21 thus becomes 30 June 2014 and the growers get a perpetual option. I describe this consequence as fortuitous because, as I have said, there is simply nothing in the first contract to suggest that such a consequence was ever intended by reason of the second contract.
35 The growers' case about the second contract requires the defined terms, Start Date, End Date and Term to be read as meaning something different from what has been defined. The justification for doing so is that unless this is done the second contract will not operate as intended given that various obligations operate during the Term. The consequence of doing so is said to be the perpetual option in cl 21 because (newly) defined terms should take the same meaning wherever used. The case is internally logical but, in my view, specious and opportunistic. It is as if the plain intent of cl 21 as it appeared in the first contract has somehow been transformed because of a lack of foresight about how the defined terms would operate in the second contract. No doubt the provisions of the second contract need to be construed so as to be as congruent and consistent as the language permits, but achieving congruence and consistency in a manner which would transmogrify what was a one-off five year option in cl 21 in the first contract into a perpetual option in the second contract is inconsistent with the basic obligation to give effect to the words the parties have used. In short, if there is tension between achieving congruence and consistency on the one hand and giving effect to the objective intention of the parties when they entered into the first contract which included cl 21 and the obligation to enter into the second contract, then the objective intention must prevail even if the price is some incongruence and inconsistency.
36 Not that I find the resulting incongruence and inconsistency overwhelming in the growers' favour. For every clause that the growers can point to in the second contract which appears to favour them (such as cl 4.1) there is another which appears to favour Steggles (such as cl 20.6). In any event, it is plain from cl 21(b) that the term of the renewed or second contract is five years from the End Date. Given that only limited common amendments were made why would cl 4.1 not be read as applying throughout the term (small "t" as opposed to capital "T")? What possible reason would there be for construing cl 4.1 as not applying throughout the second contract merely because it uses "Term" instead of "term"? The same conclusion applies to cl 8.3(b) and cl 16.7(b), as well as cl5.2(c) of Appendix A. It is true that cl 17 and cl 20.1 are redundant but it is plain from cl 21(b) that the term of the second contract is five years commencing on 30 June 2009 so these provisions were always going to be redundant in the second contract. Clause 20.2 is more of a problem but can also be treated as redundant and if the parties wish to agree to apply it to the second contract they may do so at any time during the term. Clause 21 is redundant but, consistent with the views expressed above, redundancy does less violence to this contract than the growers' case. Clause 25(d) is also redundant. End Date and Start Date otherwise retain their defined meanings of 30 August 2004 and 30 June 2009 which enables cll 8.9, 14.4, 20.6 and cl 4 of Appendix A to operate in the second contract as intended.
37 Contrary to the growers' submissions, I do not see the declaration as having any particular significance for the resolution of the preferred construction of the renewed or second contract. The declaration reflects the agreement between the parties that Steggles was bound to offer the renewed or second contract and that this contract was to be on the same terms as the first contract subject to limited common amendments. The fact that those terms include cl 21 does not resolve the issue of construction between the parties. As discussed, there was always ambiguity in cl 21, including ambiguity about how it would operate in the second contract. Accordingly, that Steggles agreed the second contract should be on the same terms as the first contract says nothing about the resolution of the ambiguity. It is for these reasons that I can see no substance in the growers' vague and never fully articulated contentions about res judicata or issue estoppel. The declaration did not resolve the ambiguity created by cl 21. The presence of cl 21 in the second contract is a result of that ambiguity and not the resolution of it. The proper construction of cl 21 was in no way part of or necessary for the making of the declaration. It follows that the proper construction of cl 21 as it appears in the second contract cannot give rise to any inconsistency with the declaration and cannot found any res judicata or issue estoppel in that regard.
38 The growers' Anshun estoppel submission, also never fully articulated, is equally ill-founded. It may be accepted that Steggles could have raised the proper construction of cl 21 before the declaration was made. However, whether they should have done so is another question. Even if I take the evidence of Andrew Stevenson, one of the growers who attended a meeting with Steggles' representatives on 9 July 2009, at its highest, it means only that Steggles should have been aware at that time that the growers' position was that cl 21 operated to vest in them a form of perpetual option for contracts of not less than five years. But that was not the issue requiring urgent resolution in July 2009. The issue in July 2009 was the fact that Steggles was refusing to comply with the obligation to renew the contract at all and the growers were all growing chickens without a contract (as required by law) being in place. In these circumstances it is hardly surprising that Steggles was not focused on what might happen in 2013 before the expiry of the second contract. One of the growers' submissions made this point inadvertently. The submission was that this cross-claim is premature because the time had not yet arrived for the growers to give their notices of intent. I do not accept this submission of prematurity because the dispute already exists, but it is difficult to see how a claim can be both the subject of an Anshun estoppel for not having been raised at an earlier time and premature.
39 Assuming, moreover, that there is any scope for the operation of an Anshun estoppel in the circumstances of this case (which I doubt given that the cross-claim is brought in the same proceedings), I am unable to see any basis upon which it could be said to be unreasonable for Steggles not to have raised the issue earlier. The inference that should be drawn from the evidence, even accepting everything Mr Stevenson said for the purposes of resolving this aspect of the case, is that Steggles raised the issue as soon as it became aware of what the growers were truly contending and its significance. There would also be gross injustice to Steggles if it is estopped from prosecuting the cross-claim if this would have the result for which the growers contend. But in any event, the lack of scope for any Anshun estoppel is demonstrated by the fact that if and when the growers came to serve a notice under cl 21 on the basis of their construction of the second contract, Steggles would no doubt refuse to offer a third contract and the issue would still remain for resolution. The declaration, as I have said, does not resolve it. The issue might then be whether the growers' would be subject to an Anshun estoppel themselves, for the same reason that Steggles' maintains that the growers' defence on the construction issue is an abuse of process - that is, because it is inconsistent with the growers' earlier claims resolved in the growers' favour and by reason of which Steggles has paid the growers money by way of damages. All of this shows why there cannot possibly be any Anshun estoppel against Steggles in all of the circumstances.
40 For these reasons I accept Steggles' construction. The contract which is in existence is the renewed or second contract. This second contract is not in writing. The second contract came into existence on 30 June 2009 and expires on 30 June 2014 in accordance with the offer (and acceptance) contemplated by cl 21(b) of the first contract. The second contract is on the same terms as the first contract except for limited amendments as noted in the declaration. The second contract thus includes cl 21. Clause 21, however, does not give the growers a right to serve any notice or impose any obligation on Steggles to offer a new contract for a term of not less than five years because the End Date, as it appears in cl 21, remains 30 June 2009. Clause 21 has thus been exhausted. To the extent that this creates anomalies elsewhere in the second contract they are to be resolved as I have indicated. They are not to be resolved by changing the meaning of End Date to 30 June 2014. Steggles is entitled to a declaration which accurately reflects this construction of cl 21 of the second contract. The terms of the declarations Steggles proposed in its cross-claim do not accurately reflect this construction. The parties should be given the opportunity to consider these reasons for judgment and the terms of any appropriate orders, including declarations.