FEDERAL COURT OF AUSTRALIA

 

BP Australia Pty Limited v Nyran Pty Limited [2003] FCA 520

CONTRACT – interpretation – contract for sale and supply of fuel – pricing provisions – whether ambiguity in provision applicable to new prices following Subsequent Price Negotiation – whether new prices not agreed bind purchaser failing termination – whether ambiguity in provision relating to Clean Fuel Quality Premium – meaning of ‘charged’ and ‘any other customer in Western Australia’ – relevance and admissibility of surrounding circumstances – effect of applicant’s statement on evidence during course of trial

Trade Practices Act 1974 (Cth) ss 87

 

Sale of Goods Act 1895 (WA) s 8

Property Law Act 1969 (WA) ss 7, 8, 9, 10, 12, 16

The Macquarie Dictionary, Revised 3^rd ed., 2001

The New Shorter Oxford English Dictionary, 1993

G McMeel, ‘Prior negotiations and subsequent conduct – The next step forward for contractual interpretation?’, Law Quarterly Review, vol 119, p 272

DW McLauchlan, ‘A contract contradiction’, Victoria University of Wellington Law Review, vol 30, 1999, p 175

H King, ‘The admissibility of extrinsic evidence as an aid to contract interpretation:  pushing objectivity to absurd limits’, Corporate and Business Law Journal, vol 6(2), 1994, p 187

JW Carter, Carter on Contract, Butterworths looseleaf, 2002

S Charles, ‘Interpretation of ambiguous contracts by reference to subsequent conduct’, Journal of Contract Law, vol 4, 1991, p 16

Mehta & Anor v Commonwealth Bank of Australia (1990) ATPR 41-026 applied

Ketteman v Hansel Properties Ltd [1987] AC 189 cited

Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337 applied

Esso Australia Ltd v Australian Petroleum Agents’ & Distributors’ Association [1999] 3 VR 642 considered

Royal Botanic Gardens and Domain Trust v South Sydney City Council (2002) 186 ALR 289followed

Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896considered

Bank of Credit and Commerce International SA v Ali [2001] 1 AC 251 considered

Ray Brooks Pty Ltd v NSW Grains Board [2002] NSWSC 1049 disapproved

Prenn v Simmonds [1971] 1 WLR 1381 cited

Reardon Smith Line Ltd v Yngvar Hansen-Tangen (The Diana Prosperity) [1976] 1 WLR 51 cited

LMI Australasia Pty Ltd v Baulderstone Hornibrook Pty Ltd [2003] NSWCA 74 approved

Maggbury Pty Ltd v Hafele Australia Pty Ltd (2001) 185 ALR 152 considered

Ex parte Dawes; Re Moon (1886) 17 QB 275 followed

Bakker v Chambri Pty Ltd (1986) 4 BPR 9234 approved

Glynn v Margetson & Co [1893] AC 351 cited

Fitzgerald v Masters (1956) 95 CLR 420 cited

Punjab National Bank v De Boinville [1992] 1 WLR 1138 cited

Postle v Sengstock [1994] 2 Qd R 290 cited

Burger King Corp v Hungry Jack’s Pty Ltd [2001] NSWCA 187 cited

Brambles Holdings Ltd v Bathurst City Council (2001) 53 NSWLR 153 applied

Ankar Pty Limited v National Westminster Finance (Australia) Ltd (1987) 162 CLR 549 cited

Coghlan v S H Lock (Australia) Ltd (1987) 70 ALR 1 cited

BP AUSTRALIA PTY LIMITED v NYRAN PTY LIMITED

W144 of 2002

 

RD NICHOLSON J

28 MAY 2003

PERTH

IN THE FEDERAL COURT OF AUSTRALIA
WESTERN AUSTRALIA DISTRICT REGISTRY	W144 OF 2002

 

BETWEEN:	BP AUSTRALIA PTY LIMITED (ACN 004 085 616) (FORMERLY BP AUSTRALIA LIMITED) APPLICANT
AND:	NYRAN PTY LIMITED (ACN 056 571 530) RESPONDENT   NYRAN PTY LIMITED (ACN 056 571 530) CROSS CLAIMANT   BP AUSTRALIA PTY LIMITED (ACN 004 085 616) (FORMERLY BP AUSTRALIA LIMITED) CROSS RESPONDENT
JUDGE:	RD NICHOLSON J
DATE OF ORDER:	28 MAY 2003
WHERE MADE:	PERTH

 

 

THE COURT ORDERS THAT:

The matter be adjourned to a date to be fixed to enable counsel to consider the following draft orders:

‘1.        THE COURT DECLARES THAT:

(a)                    Upon a proper construction of the Restated Fuel Supply Agreement dated 19 February 2002 (‘the RFSA’), if new prices are not agreed during a price negotiation period, then the prices in existence at the time of the negotiations will continue to apply, subject to the respondent’s right to terminate under cl 47 of the RFSA;

(b)                   Upon a proper construction of cl 81 of the RFSA,

(i)                      the word ‘charged’:

(A)            carries its natural and ordinary meaning and requires an amount to be imposed or asked for as a Clean Fuel Quality Premium (‘CFQP’) (but without prejudice to the application of the provisions of cl 81 relating to the reduction having application in respect of a reduction to nil); and

(B)             does not therefore apply to a charge of nil value for the CFQP; and

(ii)                     such charge will be made when as a matter of substance it is imposed or asked for;

(c)                    Upon a proper construction of cl 81 of the RFSA, the words ‘any other customer in Western Australia’ carries their natural and ordinary meaning and include any person or body being a customer.

2.                       THE COURT ORDERS THAT:

(a)                    The applicant’s second further amended application be dismissed;

(b)                   The respondent’s amended cross-claim be allowed in part;

(c)                    The applicant pay to the respondent any amounts it has recovered from the respondent on account of CFQP in excess of the amounts to which it was entitled having regard to the proper construction of the RFSA;

(d)                   All necessary accounts and/or inquiries be taken for the purposes of the order in par 6 above;

(e)                    The applicant pay to the respondent interest pursuant to s 51A of the Federal Court Act 1976 on any amounts referred to in par 6;

(f)                     The applicant/cross-respondent pay the respondent/cross-claimant’s costs of the application and amended cross-claim.’

Note:    Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA
WESTERN AUSTRALIA DISTRICT REGISTRY	W144 OF 2002

 

BETWEEN:	BP AUSTRALIA PTY LIMITED ACN 004 085 616 (FORMERLY BP AUSTRALIA LIMITED) APPLICANT
AND:	NYRAN PTY LIMITED (ACN 056 571 530) RESPONDENT   NYRAN PTY LIMITED (ACN 056 571 530) CROSS CLAIMANT   BP AUSTRALIA PTY LIMITED (ACN 004 085 616) (FORMERLY BP AUSTRALIA LIMITED) CROSS RESPONDENT

 

JUDGE:	RD NICHOLSON J
DATE:	28 MAY 2003
PLACE:	PERTH

REASONS FOR JUDGMENT

1                     By a second further amended application the applicant seeks declarations in relation to the proper construction of a Restated Fuel Supply Agreement (‘the RFSA’) and a Deed of Restatement and Variation (‘the Deed’) entered into between it and the respondent in or about February 2002.  The proper construction for which the applicant contends is:

‘(a)      if new prices are not agreed during a price negotiation period then (except in the case of a failure to agree a new CFQP) the Respondent may, within 7 days of the date on which the next twelve months commenced give 90 days notice in writing of termination of the RFSA;

(b)             if new prices are not agreed during a price negotiation period then the prices specified by the Applicant during the price negotiation period will apply to the fuel to be supplied pursuant to the RFSA for the next twelve months; and

(c)             if a new CFQP payable as part of the prices of fuel is not agreed during a price negotiation period the CFQP specified by the Applicant during the price negotiation period will apply to the fuel to be supplied pursuant to the RFSA for the next twelve months, provided that the CFQP charged by the Respondent does not exceed the CFQP charged by any of the Applicant’s other customers in Western Australia.’

The ‘CFQP’ is a reference to ‘clean fuel quality premium.’  An alternative declaration is sought that there is no agreement between the parties as to the prices which the applicant is entitled to charge the respondent.  Damages and interest are also sought.

2                     The respondent contends for a declaration that, upon the proper construction of the RFSA, if new prices are not agreed during a price negotiation period, then the prices in existence at the time of the negotiations will continue to apply, subject to the respondent’s right to terminate under cl 47 of the RFSA.

amendment of pleadings

3                     During the hearing leave was given to the applicant to amend its pleadings to delete claims for rectification and for misleading and deceptive conduct. 

4                     At commencement of the trial the respondent also brought a cross-claim for misleading or deceptive conduct based on representations by the applicant said to be to the effect that it was not intending to use the introduction of clean fuel legislation as an occasion to amend the original Fuel Supply Agreement (‘the FSA’) so as to cause a departure from existing provisions in the FSA to the effect that if prices were not agreed in the course of negotiations undertaken pursuant to the terms of the FSA, then prices were to remain the same as those then prevailing under the FSA and that it had incorporated no such departure in the amendments proposed and made to the FSA.  The representations were said to be misleading and deceptive because the applicant had a contrary intention.  The respondent sought towards the end of the trial to abandon this aspect of the cross-claim.  The question arises whether leave is necessary.  For the respondent it was submitted that when the applicant had sought to abandon its rectification and its misleading and deceptive conduct cases and to amend the pleadings to delete such claims, leave was sought and granted.  Based on that, the respondent sought that its abandonment be dealt with in the same way.  For the applicant it is submitted the Court should decline leave and give judgement against the respondent on the relevant aspect of the cross-claim.  It is asserted in support that this course is justified because the respondent’s case will still assert that the fact the omission was never drawn to its attention was misleading, although no reliance will be placed upon it for relief.  It is contended for the applicant that there are consequently serious allegations that entitle it to dismissal rather than a grant of leave.  Although the respondent’s submissions are to the effect that absence of drawing of attention to the omission was misleading, nothing turns on it; the Court will not be required to make any finding to that effect in the absence of the cross-claim.  Furthermore there is authority that ‘it is not a relevant type of prejudice that allowance of the amendment will, or may, deprive the other party of a success which it would achieve were the amendment refused’: Mehta & Anor v Commonwealth Bank of Australia (1990) ATPR 41-026 at 51,421 citing Ketteman v Hansel Properties Ltd [1987] AC 189 at 203 per Lord Keith.  Consequently I cannot see why the respondent’s deletion of portion of its pleading should not be treated in the same manner as the applicant’s changes to its pleading during the trial.  Persons who may have been affected by an adverse finding on the cross-claim are fully vindicated by abandonment of the allegations there made as by dismissal.  Accordingly, I grant leave to the respondent to amend its pleadings by deleting its cross-claim so far as it relates to misleading and deceptive conduct by the applicant. 

the agreements

The original FSa (‘FSA’)

5                     On 22 December 1998 the applicant and the respondent entered into the FSA taking effect from 1 April 1998 for a term of three years to 1 April 2001.  By cl 4 the applicant as seller and the respondent as buyer agreed to supply and purchase fuel.  The price of the fuel was set out or determined in accordance with cll 11-14.  Annual price negotiations were provided for in cll 18-22.  If new prices were agreed they were applicable for the remainder of the term: cll 19.1 and 21.1.  If new prices were not agreed, the prices specified in cl 11 were to continue to apply for the remainder of the term: cll 19.2 and 21.2.  The precise terms of cl 21.2 were:

’21.      The Second Price Negotiation will be deemed to have concluded on the Second Year Anniversary and:

21.1          if new prices have been mutually agreed by the parties, these new prices will take effect from the Second Year Anniversary;

21.2          if new prices have not been agreed, then the prices specified in clause 11 will continue to apply;

for the remainder of the Term.’

Additionally it was provided in cl 42 that if the parties had not mutually agreed new prices during the period defined as Price Negotiation, the respondent as buyer was entitled to give 90 days notice in writing of the termination of the FSA at the expiration of that period of notice.

the Deed of restatement and variation (‘the deed’)

6                     On 19 February 2002 the applicant and the respondent entered into the Deed.  It recited that the parties were parties to the FSA which had been varied by emails dated 30 March 1999, 10 December 1999, a facsimile dated 2 August 2000, and further emails dated 29 August 2000 and 5 May 2001 (‘the FSA variations’).  It was further recited that the parties had now agreed to further vary and restate the FSA on the terms set out in the RFSA.  The parties then agreed the FSA was varied and restated as set out in the RFSA annexed to the Deed.

The restated fuel supply agreement (‘rfsa’)

7                     The RFSA is also dated 19 February 2002.  By cl 6 the applicant as Seller agreed to supply and the respondent as Buyer agreed to purchase the Fuel during the Term in accordance with the RFSA.  The Term is defined as the period of 7 years from the Commencement Date of 2 April 1998.  The quantity of fuel agreed to be purchased by the respondent was provided for in cl 8.  In relation to re-negotiation of quantities of fuel cl 9 provides:

‘9.  The parties undertake to re-negotiate the quantities required to be purchased by the Buyer from the Seller at the expiration of each 6 months from the Commencement Date, but if no mutual agreement is reached within 30 days of that time, then the parties will continue to trade on the terms that were in force at the time the relevant negotiations commenced.’

8                     The price applicable to the purchase is provided for in cl 14.  It varies in accordance with whether the fuel is unleaded motor spirit, automotive diesel fuel or premium unleaded motor spirit.  In the case of the first and third of these fuels, the base price is supplemented by a Clean Mogas Quality Premium.  This premium is specified in cl 80 and is, by the definition of Clean Fuel Quality Premiums, included in that description.  In cl 81 the applicant as Seller guarantees that the Clean Fuel Quality Premium referred to in cll 14.1, 14.3 and 80 will be equal to that charged to any other customer in Western Australia.  Additionally it is there guaranteed that if a reduction of that premium were agreed with another WA customer at a later date within the term of the RFSA, the Seller will as soon as possible pass on the same reduction to the Buyer effective immediately from the date that the reduction applied to the other customer.  Clause 15 provides a mechanism for agreement in the event the marker for any of the fuels ceases to be published and in cl 16 arbitration is provided for in the absence of agreement in that respect.

9                     On the issue of price negotiations the RFSA provides as follows:

‘20.      On the day following the expiry of 11 months from the Commencement Date, the parties shall commence the First Price Negotiation with the aim of agreeing new prices for the Fuel to be supplied for the remainder of the Term.

 21.      The First Price Negotiation will be deemed to have concluded on the First Year Anniversary and:

21.1          if new prices have been mutually agreed by the parties, these new prices will take effect from the First Year Anniversary;

21.2          If new prices have not been agreed, then clause 47 will apply;

 22.      After the First Year Anniversary on the day 30 days before each Subsequent Year Anniversary, the parties shall commence the Subsequent Price Negotiation with the aim of agreeing new prices for the Fuel to be supplied for the remainder of the term.

 23.      Any Subsequent Price Negotiation will be deemed to have concluded on the relevant Subsequent Year Anniversary and:

23.1          if new prices have been mutually agreed by the parties, these new prices will take effect from the relevant Subsequent Year Anniversary;

23.2          If the new prices have not been agreed, then clause 47 will apply;

for the remainder of the term.

 24.      The new prices agreed in a Price Negotiation will, as at the time of the agreement, replace the prices specified in clause 14 for the remainder of the Term.’

10                  Clause 47 reads:

‘47.      If new prices (excluding the Clean Fuels Premium) have not been mutually agreed by the parties during a Price Negotiation the Buyer is entitled, within 7 days of the First or relevant Subsequent Year Anniversary as the case may be, to give 90 days notice in writing of the termination of this Agreement at the expiration of that 90 day period.’

11                  A further right of termination is provided for in cl 48 which reads:

‘48.      If new prices have not been mutually agreed by the parties during a Component Negotiation, then this Agreement will terminate:

48.1          at the expiry of 90 days from the date of notification under clause 17; or

48.2          on the date that the change in the components in the Fuel comes into effect;

whichever is the later.’

12                  A ‘Component Negotiation’ is a reference to a negotiation between the parties pursuant to cll 18 and 19.  In their context those clauses read:

‘17.      In the event that any Relevant Australian Legislation necessitates a change or changes to the components of the Fuel to be supplied under this Agreement, the Seller shall notify the Buyer of such change to the Contracted Specification.

 18.      Upon receipt of notification in accordance with clause 17, the parties undertake to enter into a Component Negotiation for new prices for the Altered Fuel, but if no agreement is reached prior to the component changes coming into effect, then clause 48 will apply.

 19.      During the Component Negotiation the parties will endeavour to agree new prices for the Altered Fuel that will only reflect the change in components and the Seller’s additional reasonable costs required to meet the specification laid down in the Relevant Australian Legislation.’

13                  Rights of termination are also provided for in cl 46 in situations of default and related circumstances of fault.

14                  An entire agreement provision appears in cl 68 in the following terms:

‘68.      All previous agreements between the parties relating to the subject matter of this Agreement, if any, are terminated.  Subject to this Agreement, this Agreement embodies the entire understanding of the parties and there are no promises, terms, conditions or obligations, oral or written, express or implied other than those contained herein.  This clause shall not have the effect of excluding any warranties or conditions implied by statute including, without limitation, the conditions and warranties implied by the Trade Practices Act 1974.’

15                  The precise terms of cl 81 are:

‘The Seller guarantees that the Clean Fuels Quality Premiums as referred to in clauses 14.1, 14.3, and 80 will be equal to that charged to any other customer in Western Australia (“WA customer”) and furthermore, that if a reduction of that premium were agreed with another WA customer at a later date within the term of this Agreement, then the Seller will as soon as possible pass on the same reduction to the Buyer effective immediately from the date the reduction applied to the other customer.

The Seller will advise the Buyer of any change in Clean Fuels Quality Premium resulting from a change in terms with other W.A. customers as soon as reasonably practicable.’

16                  The RFSA is expressed to be governed by and construed in accordance with the laws of Western Australia: cl 56.  It was, like the Deed, executed as a deed: cf Property Law Act 1969 (WA) ss 8, 9,10 and 12.

construction issue concerning clause 23 of the rfsa

17                  As appears at the opening of these reasons, the applicant contends that the effect of cl 23 of the RFSA is that if the respondent does not agree with the new prices, those prices apply to future supply of fuel subject to the respondent’s right to terminate the RFSA in accordance with cl 47.  The case for the applicant seeks to support this principal contention in two ways.

18                  The first is by reference to the course of negotiations leading to the RFSA.  The need to do so is based on a comparison of cl 23 with the terms of cl 21.2 of the FSA which provided for the construction now contended for by the respondent.  It is submitted that the change in wording is consistent with an intention to allow the applicant to move away from the position for which the FSA provided.  Support for this is sought in the evidence of discussions between Mr Green of the respondent and Mr Lawson of the applicant during the period from late April to 3 August 2000.  It is alleged that during those discussions Mr Lawson told Mr Green that if the applicant could not increase the base price of fuel, it would not agree to extend the term of the FSA from 3 to 7 years.  It is said that the effect of those discussions (including, critically, the removal of the respondent’s right to insist upon a continuation of existing prices) was recorded in a facsimile dated 8 May 2000 the terms of which were later amended in a facsimile of 2 August prepared by Mr Lawson and given by him to Mr Green.  That variation is said to have deleted cl 21.2 of the FSA and substituted cl 23.2 of the RFSA.  It is contended the manifest purpose of the amendment was to give the applicant the right under cl 23.2 of the RFSA to increase the base price of fuel.  It is further contended this was a common assumption of the parties.

19                  The second way the applicant seeks to support its case is by the submission that the respondent’s conduct is consistent with the construction contended for by the applicant.  It is said that after receipt of the 2 August 2000 facsimile, the respondent never queried the operation of cl 23; insisted that the supply contract was for seven years until 2 April 2001; sought confirmation on 11 July 2001 that the 8 May 2000 facsimile set out the then current contract arrangements and was told on 12 July 2001 that the 2 August 2000 facsimile was the latest version of the agreed amendments; took fuel after 2 April 2001 in the knowledge of the applicant’s offer as recorded in the 2 August 2000 facsimile and so exercised a choice to take supply.  Additionally from 1 May 2001 it took fuel on which the applicant had increased the base price.

construction issue concerning clause 81 of the RFSA

20                  Two issues are raised by the respondent’s cross-claim concerning the interpretation of cl 81 of the RFSA.

21                  The first is whether the words ‘any other customer in Western Australia’ have their ordinary meaning and so refer to any customer of the applicant, as is contended for the respondent, or whether they are confined to ‘into terminal’ customers of the applicant, including the applicant’s marketing division, in Western Australia, as the applicant contends.  The second issue is what is the meaning of the word ‘charged’ including the question whether the clause permits the applicant to continue charging the respondent for a premium for clean fuel even if the applicant makes no such charge to some or all of its other customers in Western Australia.

22                  It is conceded for the applicant that it sells fuel to certain other customers, via its internal marketing division (BP Marketing), without charging them a clean fuel premium.  It follows that if the respondent succeeds in the contention that the words ‘any other customer’ bear their ordinary meaning, the only remaining issue under cl 81 is whether an absence of any charge to other customers invokes the guarantee. 

LAW RELATING TO CONSTRUCTION OF CONTRACTS

In Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337, Mason J said at p 352:

‘The true rule is that evidence of surrounding circumstances is admissible to assist in the interpretation of the contract if the language is ambiguous or susceptible of more than one meaning. But it is not admissible to contradict the language of the contract when it has a plain meaning. Generally speaking facts existing when the contract was made will not be receivable as part of the surrounding circumstances as an aid to construction, unless they were known to both parties, although, as we have seen, if the facts are notorious knowledge of them will be presumed.’

23                  It is common ground that the law to be applied is that stated by Mason J in Codelfa at 352 with which Stephen J agreed, as did Wilson J who also expressed agreement with Aickin J.  The effect of this approach is that evidence consisting of ‘statements and actions of the parties which are reflective of their actual intentions and expectations …are not receivable’: Codelfa at 352. 

24                  Relevantly to this case Mason J advanced one proposition tentatively in the following terms (at 352 - 353):

‘There may perhaps be one situation in which evidence of the actual intention of the parties should be allowed to prevail over their presumed intention.  If it transpires that the parties have refused to include in the contract a provision which would give effect to the presumed intention of persons in their position it may be proper to receive evidence of that refusal.  After all, the court is interpreting the contract which the parties have made and in that exercise the court takes into account what reasonable men in that situation would have intended to convey by the words chosen.  …It is possible that evidence of mutual intention, if amounting to concurrence, is receivable so as to negative an inference sought to be drawn from surrounding circumstances.’

25                  In Esso Australia Ltd v Australian Petroleum Agents’ & Distributors’ Association [1999] 3 VR 642 at 647 Hayne J considered that ‘the trend of authority is in favour of receiving evidence of the fact of deletion of an expression if to do so would negative an inference sought to be drawn from surrounding circumstances that the contract bears a meaning positively rejected by the deletion.’  He continued: ‘ in the case of a contract it is possible to examine the facts to see whether there was an actual intention of the parties evidenced by their concurrence in rejecting the deleted words.’

26                  The authority of Codelfa was recently reaffirmed by the High Court in Royal Botanic Gardens and Domain Trust v South Sydney City Council (2002) 186 ALR 289 at 301 when in the reasons for judgement of Gleeson CJ, Gaudron, McHugh, Gummow and Hayne JJ it was stated that Australian courts, if they discern any inconsistency between recent English decisions and Codelfa should continue to follow Codelfa until the High Court makes a determination on that issue.  The authorities referred to were the speeches of Lord Hoffmann in Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896 at 912-913 and Lord Bingham and Lord Hoffman in Bank of Credit and Commerce International SA v Ali [2002] 1 AC 251.  The possible point of inconsistency is whether their Lordships would take a broader view of the admissible ‘background’ than was taken in Codelfa.  In Royal Botanic Kirby J said at par [104] that accepting the law on the availability of contextual materials and extrinsic evidence has advanced somewhat in Australia as elsewhere, the position remains that stated by Mason J in Codelfa. 

27                  In Investment Compensation Scheme at 912-913 Lord Hoffman relevantly said:

‘I do not think that the fundamental change which has overtaken this branch of the law, particularly as a result of the speeches of Lord Wilberforce in Prenn v. Simmonds [1971] 1 W.L.R. 1381, 1384-1386 and Reardon Smith Line Ltd. v. Yngvar Hansen-Tangen [1976] 1 W.L.R. 989, is always sufficiently appreciated.  The result has been, subject to one important exception, to assimilate the way in which such documents are interpreted by judges to the common sense principles by which any serious utterance would be interpreted in ordinary life.  Almost all the old intellectual baggage of “legal” interpretation has been discarded.  The principles may be summarised as follows:

(1)          Interpretation is the ascertainment of the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract.

(2)          The background was famously referred to by Lord Wilberforce as the “matrix of fact,” but this phrase is, if anything, an understated description of what the background may include.  Subject to the requirement that it should have been reasonably available to the parties and to the exception to be mentioned next, it includes absolutely anything which would have affected the way in which the language of the document would have been understood by a reasonable man.

(3)          The law excludes from the admissible background the previous negotiations of the parties and their declarations of subjective intent.  They are admissible only in an action for rectification.  The law makes this distinction for reasons of practical policy and, in this respect only, legal interpretation differs from the way we would interpret utterances in ordinary life.  The boundaries of this exception are in some respects unclear.  But this is not the occasion on which to explore them.’

In Bank of Credit at 269 he clarified his second proposition as referrable to anything which a reasonable man would have regarded as relevant. The English developments have recently been considered in an article by McMeel (‘Prior negotiations and subsequent conduct – The next step forward for contractual interpretation’, Law Quarterly Review, vol. 119, 2003, p 272) in which the author advocates liberalisation of interpretive approaches.

28                  In Ray Brooks Pty Ltd v NSW Grains Board [2002] NSWSC 1049 Palmer J said the effect of dicta from the majority in Royal Botanic is to leave it to inferior Courts to puzzle out whether the decision in Codelfa is consistent or inconsistent with the contextual approach adopted in West Bromwich.  Palmer J had earlier drawn a distinction between ‘the two competing schools of thought’ as to the point in time at which the Court may look at extrinsic evidence in order to construe a contract.  One, ‘the literal approach’, gives primacy to the words of the document so that the starting point in the task of construction is always the text.  The competing approach he described as ‘the contextual approach’ which holds that the words of a document, being no more than symbols of language, can never be reliably understood in isolation from the context in which the words were used.  After analysing the reasoning of Mason J in Codelfa , Palmer J concluded that the approach of Mason J would be in complete sympathy with the contextual approach promoted by Lord Hoffman in West Bromwich.  He said at par [59]:

‘His Honour is not saying: evidence of surrounding circumstances is admissible only if it first appears that the language of the contract is ambiguous.  His Honour is saying: evidence of surrounding circumstances is admissible only for the purpose of explaining ambiguous language in the contract and not for the purpose of changing the meaning of clear words.’

29                  On the issue of the point of time in the exercise of construction at which reference to extrinsic evidence is permissible, Palmer J was of the view that Mason J agreed with Lord Wilberforce’s approach in Prenn v Simmonds [1971] 1 WLR 1381 and in Reardon Smith Line Ltd v Yngvar Hansen-Tangen (The Diana Prosperity) [1976] 1 WLR 51, the pith of which he considered was that the time has passed when contracts are isolated from the matrix of facts in which they were set and interpreted purely on internal linguistic considerations.  Palmer J also referred to the trend of authority on the issue in New Zealand which he considered showed an endorsement and application of the approach in West Bromwich:  cf. DW McLauchlan, ‘A contract contradiction’, Victoria University of Wellington Law Review, vol 30, 1999, p 175.

30                  I am unable to agree with Palmer J that Codelfa and the passages in West Bromwich can be viewed as entirely consistent.  That is not the way in which I understand the relevant portions of Codelfa have been understood and applied in relation to the issue of whether ambiguity is not to be found until the contract in issue has been considered in the matrix of facts in which it is set.  In LMI Australasia Pty Ltd v Baulderstone Hornibrook Pty Ltd [2003] NSWCA 74 the New South Wales Court of Appeal accepted that Australia had kept while England had discarded the concept that ambiguity is necessary to be shown before one looks at the surrounding circumstances: per Young CJ in Eq, Meagher JA and Hodgson JA agreeing.  Academic writing has regarded Codelfa as falling far short of Lord Wilberforce’s apparent position in Prenn on the issue of admission of surrounding circumstances to determine ambiguity:  H King, ‘The admissibility of extrinsic evidence as an aid to contract interpretation:  pushing objectivity to absurd limits’, Corporate and Business Law Journal, vol. 6(2), 1994, p 187.  Yet the law on this is arguably not clear-cut given that in Maggbury Pty Ltd v Hafele Australia Pty Ltd (2001) 185 ALR 152 at 155 at par [11] Gleeson CJ, Gummow and Hayne JJ relied upon the statement by Lord Hoffman in Investors Compensation at 912 that the interpretation of a written contract involves ‘the ascertainment of the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract’ and referring by footnote in that context to the reasons of Mason J in Codelfa at 350-352 and Lord Bingham in Bank Credit at 739.  Furthermore, it has been said by one Australian text author that ‘the practice of the courts is to have regard to surrounding circumstances in the form of the factual matrix in virtually all cases’ on the ground that most English words are susceptible of more than one meaning so that difficulty of interpretation is sufficient for that reference to be made: JW Carter, Carter on Contract, Butterworths looseleaf, 2002 at p 28,096 at 12-050.

31                  In LMI the Court of Appeal accepted, however, that the Codelfa doctrine appeared ‘to be not only that a court uses the surrounding circumstances to aid its interpretation and to put itself in the armchair of the parties to look to see what each knew when it was making the contract, but also that inferences can be drawn from the surrounding circumstances virtually to add terms’: at par [45] citing Codelfa at 353.  Of such circumstances the Court of Appeal stated at [44] that ‘the approach in the Royal Botanic Gardens case itself shows that there is, in fact, a tendency to glean much more from negotiations as surrounding circumstances in Australia than would be permitted in England.’  It may be that there is good reason for the approach in Codelfa to be re-examined both in terms of the appropriateness of the approach and in the light of developments in other common law jurisdictions on the issue.  However, given the unequivocal statement by the majority in the High Court in Royal Botanic and the factors I have just referred to, I consider I should proceed on the basis there is not consistency between Codelfa and West Bromwich. 

32                  At the risk of repeating what is said in Codelfa, it follows that the issues arising in this matter should be approached in the following manner.

33                  It is necessary firstly to determine whether the contract has a plain meaning or contains an ambiguity.  If the contract has a plain meaning, evidence of ‘surrounding circumstances’ will not be admissible to contradict the language of the contract.  If the language of the contract is ‘ambiguous or susceptible of more than one meaning’ evidence of ‘surrounding circumstances’ is admissible to assist in the interpretation of the contract.

34                  The concept of ‘surrounding circumstances’ is to be understood to be a reference to ‘the objective framework of facts’.  It will include evidence of prior negotiations so far as they tend to establish objective background facts known to both parties and the subject matter of the contract.  It will also include facts so notorious that knowledge of them is to be presumed.  Additionally it will include evidence of a matter in common contemplation and constituting a common assumption.  From the evidence of that setting the parties’ presumed intention may be taken into account in determining which of two or more possible meanings is to be given to a contractual provision.  What cannot be taken into account is evidence of statements and actions of the parties which are reflective of their actual intentions and expectations.  Objective background facts can include statements and actions of the parties which reflect their mutual actual intentions.  That is, evidence of the mutual subjective intention of the parties to a contract may be part of the objective framework of facts within which the contract came into existence.  It is the mutuality which makes the evidence admissible.

35                  I accept the submission for the applicant that the presence of cl 68 does not preclude the application of the above principles and takes effect only in relation to the contractual obligations when the extent of them is known as a consequence of the interpretation of the contract in issue.

evidence

36                  Evidence for the applicant was given by Mr B K Mumme, an employee of the applicant from January 1986 and the Product Manager of BP Refinery Kwinana from late 1997; Mr R R Cape, Managing Director of the applicant from 1999 to 2001 and previously Managing Director and Business Unit Leader of BP Refinery Kwinana; Mr P R Lawson, an employee of the applicant from 1987 to 2001, Senior Business Analyst from 1999 to 2000 and its Commercial Contracts Manager at BP Kwinana from 2000 to 2001; and Ms K M Lucas, Commercial Manager/Business Growth Leader 2000 to 2001 and Business Unit Leader and Refinery Manager as well as director of the applicant in 2002.

37                  The witnesses called for the respondent were Mr F W Rae, Chairman of the Board of Directors of the respondent; Mr N D Rae, Executive Director of the respondent and Mr M I Green, Director of the respondent; and Mr W L Ferrell, who was engaged by the applicant from 1984 to 2001, being located in Melbourne from 1996 to 2001, and who in 2001 became the respondent’s Executive Manager-Supply and Business Development.  The Messrs Rae and Mr Green also described themselves as directors of the ‘Gull Group of Companies.’

admissibility of evidence of surrounding circumstances

Course of the trial

38                  When the matter came on for hearing it involved the applicant’s claim for rectification based on a claim for misleading and deceptive conduct.  That was a case of alleged actual subjective intention entitling evidence to be called in that behalf.  Following the cross-examination of Mr Lawson and part way through the cross-examination of Ms Lucas, that aspect of the applicant’s case was abandoned.

39                  The question then arose of to what extent the evidence which had that far been received would be admissible in relation to the construction questions.  The result was that senior counsel for the applicant reduced to writing what was relied upon.  That statement (‘the October 24 statement’) read:

‘1.        EVIDENCE RELIED UPON BY THE APPLICANT ON  THE QUESTION OF CONSTRUCTION OF THE PRICE NEGOTIATION CLAUSE:

            All evidence which tends to establish the fact when entering into the RSFA the parties intended by the RSFA to delete the underlined words in clause 21.2 of the FSA – “if new prices have not been agreed, then the prices specified in clause 11 will continue to apply”.

            (Precise evidence to be provided)

 2.        EVIDENCE RELIED UPON BY THE APPLICANT ON THE QUESTION OF CONSTRUCTION OF CLAUSE 81:

 

            All evidence which tends to establish the fact known to each party prior to execution of the RSFA that the CFQP would be charged when an amount separately identified and described as a CFQP was imposed or asked for as part of the price of fuel.

            (Precise evidence to be provided)’

The trial proceeded on that basis.  In closing submissions, however, senior counsel for the applicant made written and oral submissions concerning the material surrounding circumstances.  In the written submission reference was made to the objective framework of facts within which the Deed and RFSA are said to have come into existence.  It was submitted that the presumed intention of the applicant and the respondent was as set out in the following six propositions:

‘1.        The transaction in question was the amendment of the FSA based upon oral discussions, written communications and the execution of the Deed and RFSA.

2.         The parties to the transaction were two substantial oil companies, the distinction between BP and Gull being that BP is engaged in the refining, wholesaling and retailing of fuel whereas Gull is primarily concerned with the retailing of fuel from service stations located in Perth.

3.         The primary purposes of the transaction were as follows:

(a)   to accommodate the consequences of the introduction of regulations altering the specification of fuels from 1 January 2000 and the extension of the term of the FSA from 3 years to 7 years;

(b)   to amend the Price Negotiations clauses in the FSA by deleting those provisions to the effect that if new prices were not agreed then old prices would continue to apply;

(c)    to agree to changes to the basis for termination of the fuel supply arrangements;

(d)   to agree to the terms referable to payment of a clean fuels quality premium to be charged by BP in consequence of the introduction of the regulations.

4.         The mutual concern of BP and Gull was that Gull should compete on a level playing field with Shell, Caltex, Mobil and BP Marketing in a commercial environment altered by reason of BP’s exit from its refinery exchange arrangements with Shell, Caltex and Mobil, which involved the swapping of fuel in different locations to commercial buy/sell agreements.

5.         BP’s concern was that the extension of the FSA from 3 to 7 years should not be upon terms whereby it could not alter the base price of fuel; Gull’s concern was that it should not be financially prejudiced by BP imposing an increase in the base price.

6.         Gull’s awareness post 3 August 2000 of BP’s contention that it could impose an increase in the base price, which awareness continued up to and including the date upon which Gull executed the Deed and RFSA (19 February 2002) and the conduct of BP and Gull post 3 August 2000.’

The written submission then set out relevant facts said to support a finding in terms of the six propositions.

objections on ground of trial history

40                  Objection was taken by senior counsel for the respondent to the six propositions on two bases.  The first was that to receive them would be to act inconsistently with the way in which the trial was conducted.  The second was that they are not admissible in conformity with the Codelfa  principles.

41                  On the first ground of objection I accept the submission for the respondent that for evidence to be received on any basis other than that set out in the October 24 statement would be contrary to the basis on which the trial was permitted to proceed as a consequence of the making of that statement by senior counsel for the applicant.  It was accepted for the applicant that following the production of the October 24 statement the trial was to proceed in conformity with it so that any extrinsic evidence called in respect of the question of construction of the price negotiation clause would fall within the description in par 1 of that statement.  The consequence was that it was accepted for the applicant that its case was no longer one of actual subjective intention but rather of advertent knowledge of the deletion and objective inference of what can be drawn from such deletion.  On that basis certain objections to affidavits of the respondent’s witness statements were accepted.  It is therefore contended it is not open to the applicant’s case to now rely on evidence of subjective intention. 

42                  The question then is to what extent the six propositions objected to are, in the light of the evidence relied upon to make them out, outside the permitted scope of the evidence.  For the respondent it is contended that although the propositions are couched in language apt not to reveal fully the reliance on subjective intention, that is nevertheless what they do.

43                  Examination of the propositions and the evidence upon which they rely shows that to be the case.  For the Court to now turn to this evidence would be for it to enter into fields of evidence precluded at trial and so productive of unfairness to the respondent whose case was conducted on the basis of the applicant’s acceptance and reliance on the October 24 statement.  Whatever the law on surrounding circumstances is or may be held to be, I would allow the respondent’s objection to the six propositions and supporting evidence because to do otherwise would be a denial of the way the respondent was occasioned to lead its case as a consequence of the applicant’s statement.

44                  There are two related matters to which objection is also taken on the same ground.  In relation to par 10 of the applicant’s submissions on the construction issues, objection is taken to reliance on evidence going beyond distillation of intention from the four corners of the RFSA.  In relation to par 46 it is said the applicant can only rely on sub-pars (b) and (c).  In relation to cl 81, pars 54 to 58 are said to be an attempt to bring in surrounding circumstances different to those in proposition 2 of the October 24 statement.  I accept these objections.

inadmissibility on codelfa grounds

45                  The respondent’s case also objects to the same propositions on the ground that the evidence sought to be relied upon as a consequence of the October 24 statement is inadmissible because it is not of the character which falls within the Codelfa principles.  To be so admissible, it is submitted, the extrinsic material must be a mutually known objective background fact and not material reflective of actual intentions and expectations.  For this purpose it is said that subjective intention communicated to the other party does not thereby become mutual but remains disparate and so subjective.  Reliance is placed on the tentative formulation of Mason J in Codelfa  at 353 as accepted by Hayne J in Esso Australia at 647. 

46                  I accept the submission for the respondent that communication of a subjective intention by one party to another in the course of contractual negotiations does not of itself result in the subjective intention becoming a mutually known objective background fact of the type qualifying for admission.  What is needed in addition to the fact of communication is the element of concurrence.  It is the concurrence which creates the mutuality.

47                  I also accept the submission for the respondent that there is not in this case evidence of such concurrence.  The evidence of Mr Lawson led the applicant’s case to abandon the claim for rectification precisely because of his inability to explain why words which existed in the FSA were left out of the RFSA.  In particular, he could give no evidence of a communication resulting in concurrence in that course of action.  (This reliance on the evidence of Mr Lawson is led in response to assertions of mutuality of intention, not as an aid to construction).  Consequently the applicant’s case continued with no element of concurrent intention.  As has been stated, evidence of knowledge of the intention of the other party to omit words is no more than proof of knowledge of an intended omission; knowledge of the intention does not amount to concurrence in the effect of the omission.  Evidence of the parties concurring in the meaning of the omission would entitle the application of rectification.  In the absence of such evidence the communication by one party of its subjective intention in that regard cannot create the conditions for reliance on extrinsic evidence.

48                  The objection to the evidence of the six propositions in terms of proposition 1 of the October 24 statement is therefore that no evidence coming within the description in that proposition could be admissible because it does not contain an element of concurrence concerning the meaning of the omission of the words.  It follows I would allow that objection.

49                  With respect to proposition 2, this again only addresses mutual knowledge and not the element of concurrence in relation to the mutually known facts.  It follows this objection should also be allowed.

50                  So far as the applicant’s case contends for mutual concurrence evidenced by recital A of the RFSA, this is addressed below in relation to the construction of cl 23.2.

failure of evidentiary effect

51                  The final line of attack by the respondent’s case on the evidence of surrounding circumstances sought to be relied upon for the applicant in the form of the six propositions is that even if the evidence is admitted, it fails to assist the applicant’s case.

52                  In the case of the evidence which would have arisen under the applicant’s approach to proposition 1, the submission is that the evidence does not support a conclusion that the respondent was aware of the omission in any event.  I agree that the evidence of the respondent’s witnesses did not contain any evidence that the fact of omission was mutually known.  I also agree there is no evidence to suggest the respondent thought that was the position.

53                  With regard to evidence which would have arisen under the applicant’s approach to proposition 2, it is submitted that such evidence could not affect the meaning of ‘charged’ because it could not confine the meaning of that word.  This will be considered in relation to the construction of cl 81.

construction of cl 23 of the rfsa

is there an ambiguity?

54                  For the respondent it is contended that cl 23 is capable of plain reading.  For the applicant the contention is that the words ‘for the remainder of the term’ make no sense in the context of the clause. 

55                  At first reading the words ‘for the remainder of the term’ in cl 23 read in relation to cl 23.2 may be thought to suggest that the right to terminate in respect of a particular non-agreement of new prices continues even when there has been further Subsequent Price Negotiation resulting in mutually agreed new prices.  That consideration, however, compels consideration of the meaning of the words ‘for the remainder of the Term’ in their context.  They are used in cll 20 and 21 in relation to the First Price Negotiation and significantly for a Subsequent Price Negotiation, in cl 22.  The aim of the Subsequent Price Negotiation agreed in pursuance of cl 22 is to arrive at new prices for the Fuel to be supplied for the remainder of the term.  That, however, is subject to the obligation arising 30 days before each Subsequent Year Anniversary for the parties to commence a further Subsequent Price Negotiation.  If the new prices are mutually agreed on that further negotiation, a new remainder of the term is substituted for their application.  That is, the remainder of the Term in cl 23 takes its colour from the performance of the obligations and the achievement of agreement under cl 22.  So understood, the words have no ambiguity in relation to their application to either cl 23.1 or cl 23.2.

56                  In case the correct view is that ambiguity is present, I nevertheless proceed to consider the evidence of surrounding circumstances on which the applicant’s case seeks to rely.

are the recitals to the deed relevant?

57                  For the respondent it was submitted that regard should not be had to the recitals to the Deed in interpreting the RFSA because the recitals record facts and so are irrelevant to interpretation.  The applicant’s case relies on the proposition that where the operative part of a deed is unclear the recitals may be used to govern the proper construction of the deed: Ex parte Dawes; Re Moon (1886) 17 QB 275 at 286; Bakker v Chambri Pty Ltd (1986) 4 BPR 9234.

58                  The Deed describes the RFSA as an annexure to the Deed.  The Property Law Act 1969 (WA) s 16 provides that any instrument directed to be read as an annexure to a previous instrument, shall, as far as may be possible, be read and have effect as if there was a full recital of it contained in the previous instrument.  The word ‘instrument’ is defined to refer to a deed: s 7.  However, no such direction appears in the RFSA so that I do not consider s 16 can assist the applicant’s contentions in this respect. 

59                  Nevertheless, if it is the case that any of the recitals evidence surrounding circumstances in which there has been mutual concurrence, I agree reference could be made to it in accordance with the principles in Ex parte Dawes.

Applicant’s submissions

60                  The first contention for the applicant is that when resort is had to the recital, it is established that the words ‘for the remainder of the term’ should be rejected as inconsistent with the parties’ agreement.

61                  This argument runs to the effect that the recital discloses the object of the RFSA is to record variations made to the FSA by, relevantly, the facsimile of 2 August 2000.  That was sent by Mr Lawson to Mr Green and was expressed to be confirmatory of the changes there set out to the FSA effective from 1 January 2000.  In the facsimile it was stated that in respect of cl 21.2 (as well as 19.2) of the FSA, they were amended in each case to read ‘subject to clause 73, 74 and 76, if the new prices have not been agreed, then clause 42 will apply.’  (Clause 21.2 of the FSA became cl 23.2 of the RFSA and cl 42 became cl 47).  It is submitted those changes relevantly effected two amendments to the sub-clause, namely they deleted the words ‘the prices specified in clause 11 will continue to apply’ and the words ‘for the remainder of the term.’  Attention is directed in this respect to the punctuation which shows cl 21.2 concluding with a full stop in contradistinction to the amendments to cl 21 and 21.1 which concluded with a colon and semi-colon respectively.  It is submitted that the full stop could only be understood to record the intended deletion of the words ‘for the remainder of the Term’ from where those words previously resided at the end of cl 21 of the FSA.

62                  From this the applicant’s case draws the proposition in relation to cl 23.2 in the RFSA that it contains provisions inconsistent with the main object of the RFSA as divined from recital A, that recital recording the purpose of the RFSA being to vary the original FSA to give effect to the terms of the 2 August 2000 facsimile.  It is submitted that the fact of the deletion demonstrates that the parties did not intend that the 2 August 2000 amendments to cl 21.2 would have the effect that if new prices were not agreed, the old prices would continue.  It is said it cannot be the case that the amended cl 23.2 could have been intended to have the same effect as the prior sub-clause because if that had been the intention there would have been no reason for the parties to amend the sub-clause.  Therefore, it is submitted, the words ‘for the remainder of the term’ in the sub-clause should be rejected as inconsistent with the parties’ agreement, contrary to the main object of the RFSA and so otiose.  Clause 23.2 should therefore be construed, it is said, as indicating that the parties did not intend the amendment agreed to in respect of the sub-clause to permit the respondent to remain in the position where, if new prices were not agreed, old prices would continue.  The consequence contended for is that if new prices are not agreed and the respondent does not exercise its cl 47 right to terminate, the new prices apply.

63                  The authority upon which the applicant’s case relies for regarding the words ‘for the remainder of the term’ as otiose is Glynn v Margetson & Co [1893] AC 351 at 357.  Reliance is placed also on Fitzgerald v Masters (1956) 95 CLR 420 at 426 for the submission that words may generally be supplied, omitted or corrected, in an instrument, where it is clearly necessary in order to avoid absurdity or inconsistency.

64                  The argument then runs that it is permissible for the Court on an issue of construction of a contract to have regard to the fact of deletion.  That issue has already been referred to in the circumstances of the tentative conclusion of Mason J in that respect in Codelfa at 352-353.  The applicant’s case relies also upon Punjab National Bank v De Boinville [1992] 1 WLR 1138 at 1149 where Staughton LJ (Mann and Dillon LLJ agreeing) held that if the parties to a concluded agreement subsequently agree in express terms that some words in it are to be replaced by others, one can have regard to all aspects of the subsequent agreement in construing the contract, including the deletions, even in a case which is not, or not wholly, concerned with a printed form.  It is then said that Punjab approach has been applied by two Courts of Appeal in Australia.  The first occasion is Postle v Sengstock [1994] 2 Qd R 290.  There Punjab was cited in support of the proposition that although printed terms were deleted in the context then under examination because they were not relevant, ‘it is permissible to refer to them as an aid to the meaning of ambiguous words in a printed term which remains.’  The second occasion was in Burger King Corp v Hungry Jack’s Pty Ltd [2001] NSWCA 187 at par [137] where it was stated by Sheller, Beazley and Stein JJA that it is an accepted principle of construction that deleted words in a standard form contract can be referred to as an aid to the meaning of ambiguous words in a term which remains.  The contentions for the applicant argue that in Esso Hayne J reached the same result by different means.  Reliance was placed on his statement (at 647) that ‘in the case of a contract it is possible to examine the facts to see whether there was an actual intention of the parties evidenced by their concurrence in rejecting the deleted words.’ 

65                  The second contention for the applicant is that if the words ‘for the remainder of the term’ are not treated as otiose, they remain ambiguous and still remain to be considered or construed in a manner consistent with the main object of the contract in the light of admissible surrounding circumstances.  It is submitted that regard can be had to the recital and resort to it makes apparent that the evident intention of the parties was that cl 23.2 should provide that if new prices are not agreed in a price negotiation and if the respondent does not terminate but accepts supply, then the new prices should apply. 

66                  Finally, in the course of reply it was emphasised for the applicant that the concurrence necessary for consideration of deletion is to be found in recital A of the Deed and the reference to the facsimile of 2 August 2000.  The concomitant submission was that it is impermissible for the respondent to rely on Mr Lawson’s evidence, itself being evidence of surrounding circumstances, to arrive at an interpretation contrary to the presumption arising from the four corners of the RFSA read with the Deed. 

Respondent’s submissions

67                  For the respondent it is submitted that there is no evidence of actual intention by the parties in rejecting the deleted words.  Firstly, it is submitted, there is no evidence that the fact of omission was mutually known.  It was common cause that the omission of the words was never expressly conveyed by the applicant to the respondent.  I accept that the respondent’s witnesses were unshaken in their denial of knowledge of the omission and their belief that there had been no material change since January 2000.  The acceptance of this evidence is supported by the absence of anything in the documentary evidence to the contrary. 

68                  Next the submissions for the respondent contend it should be found there was no united rejection of the respondent’s construction.  It is said the relevant amendment occurred in the facsimile of 8 May 2000 (said by the applicant to be reflected in the facsimile of 2 August) by way of amendment to the 10 December 1999 facsimile.  The latter facsimile had proposed that cl 21.2 be amended to read ‘subject to clauses 42, 73 and 74, if the new prices have not been agreed, then the prices specified in clause 11, will continue to apply.’  Amendments to clause 11 to establish the new prices had been proposed in the 10 December 1999 facsimile.  In the facsimile of 8 May 2000 (relevantly in the same form as the facsimile of 2 August 2000) it was proposed that clause 21.2 be amended to read ‘subject to clause 73, 74 and 76, if the new prices have not been agreed, then clause 42 will apply’.  It is submitted for the respondent that the omission thus proposed of the words ‘the prices specified in cl 11 will continue to apply’ was in reference to cl 11 as it read in the 10 December 1999 facsimile and not to cl 11 as it stood in the FSA.

69                  In this context, it is said to be important to note the changes which have been made to cl 11 of the FSA in the 10 December 1999 facsimile.  Relevantly, under the latter document, cl 11 referred to ‘the Clean Mogas Quality Premium’ (cll 11.1 and 11.4).  That in itself was then defined in cl 73 of the 10 December 1999 document to be a specified amount prior to 31 December 2000 (cl 73.1), and as an amount to be agreed, either as a specified amount or by the agreement of a ‘Suitable Regional Marker’, for the period from 1 January 2001 (cl 73.2).  Similarly, in relation to diesel, cl 11, referred to ‘Clean Diesel Quality Premium’ (cl 11.3).  That was defined in cl 74 and specified at a price subject to agreement on a ‘Suitable Regional Marker’.  Clause 76 of the 10 December 1999 document, in relation to a ‘Suitable Regional Marker’, was also referred to cl 11 of the document.

70                  The 8 May 2000 document introduced in this context a number of changes to clauses of the 10 December 1999 document relating to cl 11.  Changes were also made to cll 19.2 and 21.2 (being the changes the applicant now relies upon), cll 73, 74 and 76 (providing for arbitration in the event of disagreement) and the introduction of the amended cl 42.  It is submitted for the respondent that the common theme of these changes was that there should be no termination if the parties failed to agree on the clean fuel premium.  It is contended this was achieved by disconnecting cl 42 from the opening words ‘subject to’ in cl 21. 2 (and 19.2) and dropping it to the end of the sentence in each case.  Also reference to cl 76 was added.  Clauses 73, 74 and 76 now provided for arbitration rather than termination in the event of failure to agree the clean fuel premium.  The same objective was also addressed in cl 42 by adding the words ‘excluding the Clean Fuels Premium’.  The result was that under the amended cl 21.2 (and 19.2) any right in the respondent to terminate if price had not been agreed in respect of clean fuel was removed whilst at the same time its existing right under the FSA to terminate if base price were not agreed was preserved.

71                  For the respondent it is submitted that to the extent the 8 May 2000 facsimile is capable of revealing any unifying idea as to the parties’ intentions, it is that the parties ‘united in rejecting’ terms in the 10 December 1999 facsimile that either party could terminate in the event of a failure to agree on the clean fuel premium.  Therefore it is submitted the applicant’s suggestion that it reveals a unity in rejecting the meaning of cl 11 as it stood originally in the FSA is not only wholly erroneous but lacks even any superficial attraction.

72                  Turning to the evidence of Mr Lawson, it is submitted that it is now clear that he did not omit words from cl 23.2 for the purpose of giving the applicant the unilateral right to increase base prices.  He could give no explanation for the change to cl 23.2 so that it is said it is impossible to find he made the change intentionally.

reasoning

73                  In the context of these submissions it would be entirely artificial to accept the reference in recital A of the Deed to the facsimile of 2 August 2000 (if reflective of the facsimile of 8 May 2000) as evidence of mutual concurrence concerning the effect of the deletion of words in arriving at the present form of cl 23.2.  In the first place, the inferences from the four corners of the RFSA, even reading with the Deed, do not, in the light of the respondent’s submissions, establish concurrence in effect of the deletion.  Secondly, the great weight of evidence is to the contrary of the existence of concurrence in respect of the effect of the deletion.  That evidence goes considerably beyond the evidence of Mr Lawson.  Resort to it is both necessary and permitted to establish whether there were actual intentions amounting to a mutual intention signifying concurrence in the effect of the deletion.

74                  Nor does the respondent’s conduct in taking fuel assist the applicant.  So far as it is subsequent to the agreement it cannot be used to aid in interpretation of the contract:  Brambles Holdings Ltd v Bathurst City Council (2001) 53 NSWLR 153, at 163 – 164 per Heydon JA relied on in LMI at pars [56] – [57].  In any event it is consistent with the respondent’s ignorance of the effect of cl 23.2 maintained by the applicant.

75                  I therefore conclude on this issue that the words ‘for the remainder of the term’ in cl 23.2 should not be rejected as otiose.  I therefore consider they have the effect apparent on a plain reading as earlier set out.

construction of clause 81 of the rfsa

respondent’s submissions

76                  The respondent’s cross-claim (otherwise abandoned so far as it related to allegations of misleading and deceptive conduct) raises the two issues of construction of cl 81.  On the construction of the words ‘any other customer in Western Australia’ it is submitted for the respondent there is nothing in the context to impose a limitation on the ordinary meaning so that those words should be given their effect.  So far as a reasonable understanding of the context in which the clause is to operate is relevant, it is submitted that both parties compete in the Western Australian market for the sale of fuel, sourcing their fuel from the only refinery in Western Australia, the applicant’s Kwinana refinery.  It is contended the manifest object of cl 81 is to ensure the respondent should not be disadvantaged in competing in that market with the applicant on account of the introduction of clean fuel specifications.  It is said that is achieved by requiring the applicant not to charge the respondent a premium for clean fuel if it is not charging such a premium to the customers in Western Australia for whose business it competes with the respondent.

77                  In relation to the second issue, the meaning of the word ‘charged’, it is submitted the word should be given its ordinary meaning, namely the holding of somebody liable for payment – The Macquarie Dictionary Revised 3^rd ed. 2001 at p 304.  It is contended the clause is concerned with substance and not with form so that there will be a ‘charge’ if in substance there has been a charge in that someone has been held liable for payment.  For example, if an amount of premium included in a price is invoiced and a rebate, credit or some similar or other adjustment is given or made (either before or after the invoiced sum), the respondent accepts there will not be in substance a charge.  If the applicant holds another customer liable for payment for the premium then it is to be taken as charged.  It is accepted in these contentions that whether or not it does so is a question of fact and not an issue of construction.  Therefore it is submitted cl 81 is to be construed as referring to any amount included in the price at which the applicant supplies fuel to any other customer in Western Australia on account of the ‘clean quality’ of the fuel supplied and for which the applicant in substance holds that customer liable for payment.

78                  In support of these submissions the case for the respondent places weight on the presence in cl 81 of the concept of guarantee.  This, it is said, evinces an intention that the respondent should not be any worse off than any other customers of the applicant in the Western Australia.  Additionally it is submitted that the words concerning the benefit of a reduction also support the position that the clause is intended to ensure that the respondent is not in the position of not receiving the benefit of a reduction while it continued to pay the premium whilst other customers were not charged for it.

79                  Finally it is submitted that even if the language is not clear there is no commercial uncertainty in the construction advanced for the respondent.  It is said the parties clearly intended that the respondent would enjoy parity in the market place with the applicant in relation to clean fuel.  If the RFSA can be said to have placed the respondent in a better position than the other oil companies in their dealings with the applicant in relation to clean fuel, that should be seen merely as a consequence of the bargain struck by the respondent with the applicant.

applicant’s submissions

80                  The contentions for the applicant commence by stating that the effect of the submissions for the respondent are that if no amount is payable as a CFQP by a customer, the respondent will say that customer has been charged a CFQP of nil to which it is entitled to equal treatment.  It is submitted there is no basis for that construction because there is no express obligation on the applicant to charge every Western Australian customer a CFQP nor can such an obligation be implied.  It is said that express words would be necessary because in a contract of guarantee the liability of the surety (the applicant in this case) is construed strictly and any ambiguity should be construed in favour of the surety: Ankar Pty Limited v National Westminster Finance (Australia) Ltd (1987) 162 CLR 549; Coghlan v S H Lock (Australia) Ltd (1987) 70 ALR 1 at 5.  Implication is therefore said to be a commercially unrealistic result.

81                  Therefore the applicant’s case is that the word ‘charged’ should be read as requiring an amount to be imposed or asked for as a CFQP as part of the price for fuel so that the clause has no application where that is not the case.  This submission is supported by reference to the fifteenth meaning in the definition of ‘charge’ in The Macquarie Dictionary Revised 3^rd ed. 2001 at p 304, namely ‘to impose or ask as a price.’

82                  These submissions are also said to find support in the terms of cl 81 and the reference which it contains to ‘a reduction of that premium.’  It is submitted that the obligations in the clause only work if an amount is imposed or asked for as a CFQP as part of the price of fuel which can be reduced or changed.  Reduction to a charge of nil is said simply not to be open.

83                  Additionally it is submitted that the construction contended for on behalf of the applicant is consistent with cll 15 and 82.  The latter clause provides that both parties agree to meet if either party believes that a ‘Suitable Regional Marker’ has come into existence.  That description is defined as a marker which reflects the quality parameters defined in the Regulations and can be used to reasonably determine the absolute value of the fuel or differential value of the fuel from the existing quoted grades.  The price of fuel as provided for in cl 14 is based on those quoted grades plus CFQP.  Clause 82 provides that both parties agree they intend to replace the existing marker (the grades) and the CFQP with the Suitable Regional Marker.  It is said for the applicant that this suggests the CFQP is an amount which will be replaced when the Marker comes into application so that it cannot simply be a charge of nil and requires to be imposed or asked for as a CFQP.  Clause 15 is also relied upon in this context.  It recognises the possibility that a Suitable Regional Marker may come into existence which is only a marker for the CFQP; that is, an amount specified by a Marker is found to replace the CFQP, a specified amount.

84                  A further submission is to the effect that the submissions for the respondent lead to a commercially nonsensical result.  This is said to arise where a consumer buys fuel from any of the applicant’s service stations in Western Australia and is not charged a CFQP, the respondent would be entitled to claim equal treatment on the ground the consumer is a Western Australian customer.  This claim could be made, it is submitted, whilst all of its competitors (Shell, Caltex, Mobil and BP Marketing) are charged a CFQP.  That is a result which it is said the parties could not have intended.

85                  The applicant’s case also contends that its view of the operation of cl 81 is consistent with admissible surrounding circumstances.  Firstly it is said that the evidence establishes that when the applicant proposed the CFQP, the respondent sought and received an assurance that, upon the introduction of the CFQP, the level playing field between the respondent and its competitors would be maintained.  Secondly, it is argued it is consistent with the dealings between the applicant and the respondent.  The applicant commenced the sale of complying fuel on 1 January 2000.  From that date it rendered invoices to the respondent that included a specific amount described as the CFQP.  The respondent paid that amount.  The method of charging was consistent with the discussions that occurred at the end of 1999.  The RFSA was executed some more than 2 years after this method of charging commenced.

reasoning

86                  I approach this aspect of construction on the same understanding of the way in which the trial proceeded and the law as applied in connection with the earlier issue of construction concerning cl 23.1.  It follows that I allow the objection by the respondent to reference to extrinsic evidence brought by the applicant save so far as it may be admissible to resolve an ambiguity and falls within the admissible type of surrounding circumstances on which I have set out my understanding above in referring to the law.

87                  The description ‘Clean Fuel Quality Premiums’ is defined in the RFSA to refer:

‘to the price payable under this agreement for the incremental value of fuel due to the difference in fuel quality between the specifications included in the Regulations and those grades used for Platts Quotations and includes the clean Mogas Quality Premium which relates to the incremental value of the specific type of Fuel.’

‘Clean Mogas Quality Premium’ is defined to have the meaning in cl 80, namely ‘0.0085 $Apl.’  ‘Platts Quotations’ is defined to mean ‘the average of the Mean of Platts Singapore Quotations for Platt’s Asia-Pacific/Arab Gulf Markets.’  It is in the context of these definitions relating to something more than a nil value that the word charged is used.

88                  I consider that the submissions for the applicant are correct in suggesting that the reference to reduction in cl 81 and the provisions of cll 15 and 82 are supportive of this inference from the relevant context in the RFSA.

89                  The definitions of the word itself in both The Macquarie Dictionary and in The New Shorter Oxford English Dictionary 1993 at p 374 of the verb ‘charge’ do not admit of a charge of nil value.  At the foundation of the word is the concept of creation of liability; that cannot occur with a charge of nil value.

90                  The result is that I agree with the submission for the respondent that the word ‘charged’ carries its normal meaning and with the submission for the applicant that the consequence is that it does not apply to an absence of charging, that is to a nil value for the CFQP. 

91                  The further result is that I agree with the submission for the respondent that it is a question of fact whether or not the applicant has charged to any other customer in Western Australia the CFQP.  Neither cl 81 nor the use of the word ‘charged’ mandates any particular form of charging.  I therefore accept that cl 81 refers to any amount included in the price at which the applicant supplies fuel to any other customer in Western Australia on account of the ‘clean quality’ of the fuel supplied and for which the applicant in substance holds that customer liable for payment. However, it should be noted that if there is a later reduction of the CFQP to nil within the terms of cl 81, those provisions would nevertheless have application because they are not dependent on the operation of the word ‘charged’ but rather on the application of the word ‘reduction’.

92                  There is nothing in the words ‘any other customer in Western Australia’ or in the context in which they are used or other provisions of the RFSA to suggest that the words should not be given their normal meaning.  This understanding of the words would not have commercially unreasonable result if the applicant does not charge the CFQP to consumers at its petrol stations because a nil charge will not be a charge of the CFQP and so will not give rise to any rights in the respondent within the terms of cl 81.

93                  My view therefore is that the plain meaning of the words in issue in cl 81 is clear and no ambiguity or alternative susceptibilities of meaning properly arise.  On a reading of Codelfa that would preclude reference to surrounding circumstances.  In any event, if there was such reference, the first line of evidence relied on for the applicant that there was a mutuality in the desire to preserve a level playing field, it would arguably not lead to a different result to that which I have arrived at.  The second line of evidence, if not precluded by the rule relating to admissibility of evidence subsequent to contract, would not be determinative because the method of charging employed from time to time does not preclude acceptability of other methods of charging. 

CONCLUSION

94                  For these reasons I consider the applicant’s second further amended application should be dismissed and the amended cross-claim allowed in part.

I certify that the preceding ninety-four (94) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice RD Nicholson.

Associate:

Dated:              28 May 2003

Counsel for the Applicant:	Mr R Smith SC with Mr S Goodman
Solicitor for the Applicant:	Clayton Utz
Counsel for the Respondent:	MR CL Zelestis QC with Mr GM Murphy
Solicitor for the Respondent:	Freehills
Dates of Hearing:	14 – 18 October 2002, 21 – 25 October 2002, 8 November 2002, 22 November 2002 and 29 November 2002.
Date of Judgment:	28 May 2003