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Federal Court of Australia - Full Court Decisions |
Last Updated: 25 June 2004
FEDERAL COURT OF AUSTRALIA
BP Australia Pty Limited v Nyran Pty Limited [2004] FCAFC 163
CONTRACT – Interpretation – Extrinsic evidence –
Ambiguity – Whether ambiguity as to price
DECLARATORY RELIEF
– Whether sufficient factual background for making
declarations
Trade Practices Act 1974
(Cth)
Judiciary Act 1903 (Cth)
Federal Court of Australia
Act, 1976 (Cth)
Sale of Goods Act, 1895
(WA)
Petrotimor Companhia de Petroleos SARL & Anor v
Commonwealth of Australia & Ors [2003] FCAFC 83; (2003) 128 FCR 507
Environmental
Protection (Diesel and Petrol) Regulations 1999 (WA)
Fuel Quality
Standards Act 2000 (Cth)
O’Loughlin v Mount [1998] SASC 6672; (1998) 71 SASR
206
South Sydney Council v Royal Botanic Gardens (1999) 10 BPR
18961
Ginger Development Enterprises Pty Ltd v Crown Developments
Australia Pty Ltd [2003] NSWCA 296
Westpac Banking Corporation v
Tanzone Pty Ltd (2000) 9 BPR 17521; [2000] NSWCA 25
Australian
Broadcasting Commission v Australasian Performing Right Association Ltd [1973] HCA 36;
(1973) 129 CLR 99
Team Services PLC v Kier Management & Design Ltd
(1993) 36 ConLR 32
BP Refinery (Westernport) Pty Ltd v Shire of
Hastings [1977] HCA 40; (1977) 180 CLR 266
Pavey & Matthews Pty Ltd v Paul [1987] HCA 5;
(1986) 162 CLR 221
Bass v Permanent Trustee Co Ltd [1999] HCA 9; (1999) 198 CLR
334
Kockums AB v Commonwealth of Australia [2002] FCAFC
138
BP AUSTRALIA PTY LTD (ACN 004 085 616) v NYRAN PTY LTD
(ACN 056 571 530)
W 192 of 2003
CARR,
NORTH & SELWAY JJ
24 JUNE 2004
PERTH
ON APPEAL FROM A SINGLE JUDGE OF THE FEDERAL
COURT OF AUSTRALIA
|
BETWEEN:
|
BP AUSTRALIA PTY LIMITED (ACN 004 085 616)
(FORMERLY BP AUSTRALIA LIMITED) APPELLANT |
|
AND:
|
NYRAN PTY LIMITED (ACN 056 571
530)
RESPONDENT NYRAN PTY LIMITED (ACN 056 571 530) CROSS APPELLANT BP AUSTRALIA PTY LIMITED (ACN 004 085 616) (FORMERLY BP AUSTRALIA LIMITED) CROSS RESPONDENT |
|
DATE OF ORDER:
|
|
|
WHERE MADE:
|
PERTH
|
THE COURT ORDERS
THAT:
1. The appeal and cross appeal
are allowed to the extent that:
The orders made on 22 August 2003 be
varied as follows:
(a) by deleting pars 1(b) and (c);
(b) by
deleting pars 2(b), (c), (d), and (e);
(c) by inserting, instead of the
former par 2(b), the following:
(b) the respondent’s amended
cross-claim be dismissed;
(d) by re-lettering the sub-pars of par 2
accordingly.
2. The orders made on 14 November 2003 be varied by deleting the last word in par 1(a) and the whole of par 1(b) and adding the following order:
‘2. There be no order for costs in relation to the cross-claim’.
3. Otherwise the appeal be dismissed.
4. Otherwise the cross-appeal be dismissed with no order as to costs.
5. The appellant pay the respondent’s costs of the appeal save for the costs in relation to Ground 19 of the Notice of Appeal.
Note: Settlement
and entry of orders is dealt with in Order 36 of the Federal Court Rules.
ON APPEAL FROM A SINGLE JUDGE OF THE FEDERAL COURT
OF AUSTRALIA
|
AND:
|
REASONS FOR JUDGMENT
1 The appellant (BP) issued proceedings in this Court seeking declarations as to the proper interpretation of various clauses relating to the renegotiation of the price formula in a contract between it and the respondent (Gull) and, in the alternative, seeking rectification of the contract both at common law and pursuant to the Trade Practices Act 1974 (Cth) (‘TPA’) s 87. BP also sought damages pursuant to TPA s 82. The claims under the TPA were based upon alleged misleading behaviour of Gull said to be in breach of TPA ss 51A and 52. Gull, in its defence, disputed the interpretation of the contract as alleged by BP and disputed that its behaviour was misleading. It cross claimed seeking declarations as to the proper interpretation of other aspects of the price renegotiation clauses in the contract between it and BP and also seeking orders pursuant to the TPA for rectification of the contract and for damages by reason of the alleged misleading behaviour of BP.
2 At trial the claim for rectification and the various allegations and counter allegations of misleading behaviour by either party were withdrawn with the consequence that the alternative claims based upon the TPA were not pursued by either party. The result was that the case proceeded before the primary Judge as a dispute concerning the construction of the contract. The detail and background to that contractual dispute is discussed in more detail below. This Court does not have general jurisdiction to hear contractual disputes. However, it does have jurisdiction to hear such disputes if they are ‘associated’ with a matter arising under the TPA: see TPA s 86(1) and the Judiciary Act 1903 (Cth) s 39B(1A)(c) and the Federal Court of Australia Act 1976 (Cth) ss 19, 22 and 32. Neither party has disputed the jurisdiction of this Court to hear and determine the contractual dispute which remained after the TPA issues were withdrawn. They were correct to take that position. The accepted jurisprudence in this Court is that the resolution of the ‘federal issue’ upon which this Court’s jurisdiction was grounded does not result in the loss of jurisdiction to resolve what remains of the whole matter, assuming that the jurisdiction over the whole subject matter of the dispute was properly attracted in the first place: see Petrotimor Companhia de Petroleos SARL & Anor v Commonwealth of Australia & Ors [2003] FCAFC 83; (2003) 128 FCR 507 at 509-513, 515.
3 The primary Judge accepted Gull’s position in relation to the claim brought by BP. He did not fully accept either party’s position in relation to the cross claim brought by Gull, although the practical effect (but not necessarily the legal effect) of the primary Judge’s decision on the cross claim would seem to be closer to BP’s position than to Gull’s. The primary Judge made declarations accordingly. This is discussed in more detail below. BP appeals from the primary Judge’s decision on both its claim and on Gull’s cross claim. Gull cross appeals.
4 BP operates the only oil refinery in Western Australia. Gull operates petrol stations in this State. BP supplied fuel from its oil refinery to Gull for resale by Gull in its petrol stations. BP also supplied fuel from its oil refinery to other fuel retailers in Western Australia. It also operates as a fuel retailer, selling fuel emanating from its refinery through its petrol stations.
5 During the relevant period the terms and conditions of the supply of fuel from BP to Gull were governed by written agreements. In 1998 the parties entered into the Fuel Supply Agreement (FSA). The primary Judge’s description of the effect of the FSA was not challenged and provides a convenient summary of that agreement:
‘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.’
6 The FSA was subsequently varied by correspondence between the parties, namely 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.
7 After the making of the FSA the Western Australian government made regulations to regulate fuel quality: the Environmental Protection (Diesel and Petrol) Regulations 1999 (WA). The Commonwealth subsequently enacted legislation for that purpose: the Fuel Quality Standards Act 2000 (Cth). It would seem that the parties accepted that their contractual arrangements needed to be varied at least to take account of these changes. Various variations to the contract were effected by correspondence between the parties. On 19 February, 2002 BP and Gull entered into the Deed of Restatement and Variation (DRV) which recited the existence of the FSA and the subsequent variations to it and then recorded the parties agreement that ‘On and from the date of execution of this Deed, the FSA is varied and restated as set out in the Restated Fuel Supply Agreement (RFSA), attached as Annexure A to this Deed’. It is clear from the Recitals to the DRV that the FSA had been varied by the correspondence referred to in the Recitals and that the RFSA both reflected the variations that had already occurred and made further variations to them.
8 The RFSA replaced the FSA with backdated effect. The primary Judge summarised and detailed the relevant provisions of the RFSA as follows:
‘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."
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.
[The RFSA provides for price negotiations in cll 20-24 ...
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."
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."
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."
Rights of termination are also provided for in cl 46 in situations of default and related circumstances of fault.
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."
[Cl 81 provides for reduction to the Clean Fuel Quality Premium] ...
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".’
9 It is also appropriate to note the apparent importance under the RFSA of identifying a ‘Regional Marker’. As at the date of the agreement the relevant marker was agreed to be ‘Platt’s Quotations’. The price was determined in cl 14 of the RFSA by applying a formula based upon ‘MOPS’ meaning the average mean of Platt’s Singapore quotations for the relevant grade of fuel. The effect of specifying the relevant price by reference to a market price is that variations in the price for which fuel was quoted in Gulf and Pacific/Asian markets were to be taken into account in the calculation of the price charged by BP to Gull. The practical effect was that Gull was to pay a price which reflected the price that it might otherwise obtain in the market place. The price formula provided for a degree of price flexibility (although the discounts contained within the formula were fixed). The parties agreed in cl 15 that if ‘Platt’s Quotations’ was no longer published then the parties would seek to agree a suitable replacement marker. Cll 15 and 82 of the RFSA also deal with the identification of a ‘Suitable Regional Marker’, being a marker relating specifically to the relevant quality of fuel in the event that Platt’s Quotations were no longer published or otherwise were no longer suitable for that purpose and with how price was to be determined in the absence of such a marker.
Clause 23
10 The first dispute concerned the ‘base-price’ payable by Gull for fuel after the first year of the RFSA. (The parties are agreed that the relevant price comprises both a ‘base price’ and a premium payable for specified quality. Variations in the relevant premium are governed by cl 81 and are considered later in these reasons). BP argued that even if Gull did not agree with new baseprices as proposed by BP under cl 23 of the RFSA Gull was nevertheless obliged to pay those new prices subject to Gull having the power to terminate the agreement under cl 47. Gull argued that the relevant provisions of the RFSA had the effect that if Gull did not agree with the new price proposed by BP then the former price regime continued to apply for a period of a further year. As already noted, that price regime included possible variations in price based upon market movements in the international price for fuel.
11 The relevant clauses of the RFSA are cll 20-24:
‘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;
for the remainder of the term.
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.’
12 BP argued that cl 23 of the RFSA was ambiguous and that it was necessary to refer to extrinsic material to make sense of that clause. In particular, it was argued that the term ‘for the remainder of the term’ within cl 23 was ambiguous. BP argued that those words had no meaning and should be treated as if they were ‘otiose’.
13 On the assumption that the written terms of the contract were ambiguous then BP argued that reference could be made to extrinsic material to support its interpretation.
14 Before the primary Judge BP argued that the relevant extrinsic material relied upon by BP was of two sorts. First, BP referred to the history of the negotiations between the parties to support its interpretation of the relevant clauses. In order to understand that submission it is necessary to refer to that history:
(a) Cl 19 of the FSA expressly provided that if a new price was not agreed then the ‘original price’ was to continue to apply. (If agreement could not be reached in subsequent annual price negotiations the price reverted to the price payable in the immediately previous year: see cll 21 and 22 of FSA)
(b) BP argued that the course of negotiations prior to the making of the RFSA showed that BP was not satisfied with this arrangement and wished to change it. As the primary Judge put it:
‘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.’
(c) BP argued that the Recitals to the DRV recorded that the RFSA was to ‘vary and restate the FSA on the terms set out in this Agreement’. The recitals also recorded that the FSA had been varied including by the facsimile of 2 August, 2000. That facsimile impliedly deleted the provision in both cll 19.2 and 21.2 of the FSA which had formerly provided that the previous pricing regime would continue to apply in the absence of agreement during a price negotiation. The effect of the facsimile was that the words ‘the prices specified in cl 11 will continue to apply’ and the words ‘for the remainder of the term’ were deleted from cll 19.2 and 21.2 of the FSA. BP argued that the relevant words should similarly have been deleted from cll 21 and 23 of the RFSA.
15 The primary Judge described the effect of BP’s submissions as follows:
‘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.’
16 The second sort of extrinsic material relied upon by BP before the primary Judge was the actual practice of the parties following receipt of the 2 August 2000 facsimile. The primary Judge referred to BP’s argument in that regard as follows:
‘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.’
17 BP submitted to the primary Judge that the consequence of the consideration of the extrinsic evidence to which it had referred was that the words ‘for the remainder of the term’ in cl 23.2 of the RFSA were ‘otiose’ or that they had been included by mutual mistake. BP submitted that the document should be interpreted as if those words were not present. So interpreted BP argued that cl 23 should be interpreted on the basis that if agreement was not reached then the price nominated by BP was the applicable price subject to Gull having the right to terminate the agreement.
18 Gull put the following answering submissions:
(a) The RFSA was not ambiguous. Clauses 14 and 24 of the RFSA, in particular, had the effect that the existing price specified in cl 14 was to continue to apply until a new price was identified. Consequently, extrinsic evidence was not admissible for the purpose of construing the contract.
(b) If the RFSA was ambiguous the relevant evidence sought to be relied upon by BP should not be received as it was contrary to the way in which BP conducted its case. This issue was discussed by the primary Judge in his reasons:
‘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.
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".’
Gull argued that the attempt to use the surrounding circumstances to establish that the parties intended not merely to delete the relevant words in cl 21.2 of the FSA (as had been identified in the October 24 statement), but also that each party had the objective and/or subjective intention to achieve other commercial advantages or purposes (such as those identified in cll 5 and 6 of the six propositions) was contrary to the manner in which BP had chosen to present its case.
(c) In any event, if the RFSA was ambiguous the relevant evidence should not be received because the evidence did not establish that the parties had a mutual understanding of the terms agreed.
Overall the primary Judge accepted and adopted the Gull submissions. The primary Judge referred to a number of cases on the use of extrinsic materials in the interpretation of contracts, most particularly the reasons of Mason J in Codelfa Construction Pty Ltd v State Rail Authority of NSW [1982] HCA 24; (1982) 149 CLR 337 (Codelfa) at 352. His Honour summarised the legal position as follows:
‘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.
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.
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.
I accept the submission for the applicant that the presence of cl 68 [the "entire agreement" clause] 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.’
19 The primary Judge held that the words ‘for the remainder of the term’ in cl 23 were not ambiguous. His Honour would seem to have proceeded on the basis that the meaning of these words was the only possible ground of ambiguity relevant to a determination of the case. This would seem to reflect the way in which BP presented its case before him. In any event the primary Judge concluded that extrinsic material was not admissible as to the meaning of that phrase in cl 23 of the RFSA:
‘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.’
20 However, in case he was wrong in this conclusion, the primary Judge also dealt with the other issues raised by the parties. The primary Judge agreed with the submission that BP should be limited to the October 24 statement:
‘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.
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.
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.
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.’
21 Finally, the primary Judge also adopted Gull’s submissions that the extrinsic material did not establish that the parties had reached a mutual understanding of the agreement, or even (it would appear) that the agreement had been relevantly varied:
‘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 [Esso Australia Pty Ltd v Australian Petroleum Agents’ & Distributors’ Association [1999] 3 VR 642 ] at 647.
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.
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.
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.
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. 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.
...
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.
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] NSWCA 61; (2001) 53 NSWLR 153, at 163 - 164 per Heydon JA relied on in LMI [LMI Australasia Pty Ltd v Boulderstone Hornibrook Pty Ltd [2003] NSWCA 74] 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.
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.’
22 In the result the primary Judge adopted the interpretation of cl 23 submitted by Gull such that, if a new price formula was not agreed during a price negotiation period, then the price formula in existence at the time of the negotiations would continue to apply, subject to Gull’s right to terminate under cl 47 of the RFSA.
23 The primary Judge made the following declaration:
‘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’
24 BP has appealed. It says that the approach of the primary Judge was in error. The grounds of appeal can be summarised as follows:
(a) The primary Judge was in error in holding that there was no ambiguity in the words in cl 23.2 of the RFSA
(b) The primary Judge was in error as a matter of law in holding that evidence of intention was only admissible if it established mutual intentions of both parties
(c) The primary Judge was in error in holding that the evidence did not establish that the parties had a mutual understanding that cl 19.2 of the FSA had been significantly varied in cl 23.2 of the RFSA in particular by the omission of the express provision that in the absence of any agreement as to a new price the then existing price arrangements were to continue to apply.
There were other grounds of appeal alleging that the primary Judge was in error in holding that the six propositions contained in the BP submissions were inconsistent with the October 24 statement, but those grounds were abandoned at the hearing of the appeal.
25 The first question is whether the RFSA is relevantly ‘ambiguous or susceptible of more than one meaning’ to adopt the words of Mason J in Codelfa at 352. Both parties agree that reference cannot be made to extrinsic evidence (including, for this purpose, the FSA and the correspondence which reflected agreed variations to the FSA) for the purpose of interpreting the RFSA unless the RFSA is relevantly ‘ambiguous or susceptible of more than one meaning’. In particular, both parties agree that the Recitals to the DRV, and the documents referred to in those Recitals, cannot be referred to for this purpose unless the relevant provisions of the RFSA are ambiguous or susceptible of more than one meaning: see Lander J in O’Loughlin v Mount [1998] SASC 6672; (1998) 71 SASR 206 at 217-219.
26 As already noted, at trial BP’s argument in relation to ambiguity seems to have been directed primarily if not solely to the alleged ambiguity inherent in the use of the words ‘the remainder of the term’ in cl 23 of the RFSA. The primary Judge’s reasons are directed to that argument. In this Court BP put a different argument or, at least, one that was differently focussed. BP argued that the RFSA is ambiguous or susceptible to more than one meaning in respect of what price is payable for fuel in the circumstance where no price has been agreed in a price renegotiation and Gull has not elected to terminate the contract under cl 47. BP argued that cl 23 only refers to those two circumstances and not to that which actually occurred - that is the circumstance where there was no agreement and the contract was not terminated. BP argued that the contract is ambiguous as to what is to occur in that circumstance and extrinsic evidence can be referred to for the purpose of seeking to resolve that ambiguity.
27 Gull argued that it is inappropriate and may be misleading to concentrate on cl 23 for this purpose. It said that cll 6, 8 and 14 of the RFSA make it clear that the price formula specified in the RFSA is intended to apply throughout the term of the RFSA. It drew attention to the fact that that price formula involves a flexible price based upon ‘parity pricing’, and that, given the retrospective operation of the RFSA, it was only intended to operate for a period of 4 years from the date it was agreed. It said that its understanding of the effect of cll 6, 8 and 14 was confirmed by cll 25 and 26 which impose the obligation upon Gull to make payments to BP. Under cl 24 of the RFSA provision is made for agreed prices to replace those in cl 14, but otherwise the then existing price formula under cl 14 is to continue to apply. Gull said that there is no ambiguity in these provisions or in their effect.
28 Gull said that cl 23 does not have the central role that BP argues that it has. Gull said that cl 22 provides for the renegotiation of price and that cl 23 is effectively a machinery provision: cl 23.1 provides for the date of effect of any agreement and cl 23.2 draws attention to, and reinforces, the right conferred on Gull to terminate the agreement if no agreement is reached. Gull argued that when cl 23 is viewed in this way it is then clear why it does not expressly deal with the question of what happens when there is no agreement to a price change. It does not need to. Gull said that that issue is resolved elsewhere, particularly by the combined effect of cll 14 and 24 of the RFSA. Gull also said that its interpretation is supported by the words ‘for the remainder of the term’ in cll 23 and 24 of the RFSA.
29 There would seem to be only one two possible difficulties with the interpretation proferred by Gull. The first is that cl 22 identifies the mutual object (‘aim’) of the price renegotiation as being ‘agreeing new prices for the Fuel to be supplied for the remainder of the term’. Cl 22 plainly infers that the parties intended that the annual price negotiation would result in a new agreed price which was then to be applied in lieu of the price formula then contained in cl 14 pursuant to cll 23.1 and 24. This does not mean that the contract requires the parties to reach an agreed price. An ‘aim’ is different from a contractual condition. On the other hand, it might at least be expected that a draftsman, faced with such an ‘aim’ in cl 22, would have made it clear in cl 23 or elsewhere what was to occur if that aim was not realised.
30 The other difficulty is the one that was pursued before the primary Judge - the meaning of the words ‘for the remainder of the term’. To the extent that Gull relies on those words to support its interpretation it can be said that the literal meaning of the words cannot have been intended. On any view the words cannot mean that an agreement under cl 22 is to apply for the remainder of the term of the contract. Cl 22 itself provides that the parties ‘aim’ to agree a new price in the next annual renegotiation. It is clear that the term must be understood as meaning ‘until a new price is payable or for the remainder of the term’. This is how the primary Judge construed the words (see par 20 above). So construed the words do not assist the Gull argument, because they leave it to other provisions in the RFSA to identify when and how a new price might be payable. It is also clear that the words ‘the term’ used in the phrase ‘the remainder of the term’ (and elsewhere in the RFSA) must be understood as meaning ‘The period of 7 years commencing on the Commencement date’ (which is the defined meaning) subject to any earlier termination under the provisions of the RFSA, including under cl 47. However, when the words ‘for the remainder of the term’ are understood in this way, they do not throw any light on the issue of whether there is any ambiguity as to the price regime applicable if there is no agreement during a price renegotation.
31 Notwithstanding the expectation that may exist that the draftsman should have made specific provision in cl 23 or elsewhere to deal expressly with the situation where there had been no agreement during a price renegotiation, the question still remains whether any of the relevant provisions give rise to any ambiguity or are susceptible to more than one meaning so as to permit reference to extrinsic material. In South Sydney Council v Royal Botanic Gardens (1999) 10 BPR 18961 at 18966; [1999] NSWCA 478 at [35] Spigelman CJ explained the meaning of the word ‘ambiguity’ in this context:
‘ ... in this context the word ‘ambiguity’ - ironically a word not without its own difficulties - does not refer only to a situation in which the words used have more than one meaning. A broader concept of ambiguity is involved: reference to surrounding circumstances is permissible whenever the intention of the parties is, for whatever reason, doubtful.’
That concept was not referred to by the High Court on appeal: see [2002] HCA 5; (2002) 186 ALR 289. Although the concept identified by Spigelman CJ has been adopted by the Court of Appeal in NSW in subsequent cases: see, for example, Ginger Development Enterprises Pty Ltd v Crown Developments Australia Pty Ltd [2003] NSWCA 296 (Ginger Developments) at [20], it was submitted to us that the concept as stated by Spigelman CJ is broader than that contemplated in Codelfa. For present purposes it may be unnecessary to reach any final view on that question. If the concept as stated by Spigelman CJ is broader, but the relevant provisions of the RFSA are nevertheless not ‘ambiguous’ within that concept, then it may be accepted that extrinsic evidence cannot be referred to.
32 When the provisions of the RFSA are considered in context it is difficult to see that the intention of the parties can be described as ‘doubtful’. Clauses 23.1 and 24 relate to an agreed price - they have no application where a price is not agreed. On the face of it, clause 22 establishes the procedure by which that price is to be agreed. Whatever the expectation of the parties might have been, it does not seem that ‘the new prices agreed’ for the purpose of cl 24 or the ‘new prices’ that have been ‘mutually agreed’ for the purpose of cl 23.1 can be anything other than the ‘new prices’ that the parties are ‘agreeing’ pursuant to cl 22. Once this is accepted it is difficult to identify any relevant ambiguity. In particular, cl 23.2 does not expressly or impliedly provide that there is any price effect of a failure to agree. In the absence of any such provision the price regime in cl 14 is not varied (contrast cl 24). Gull is required to make payments under cll 25 and 26 based upon the cl 14 price (as varied under the RFSA). The intention of the parties as to the price regime applicable in the event of a failure to reach an agreement during a price renegotiation cannot be said to be ‘doubtful’. Cl 14 is not varied and continues to apply.
33 This is not to say that there may not be some ambiguity in some of the words or phrases within cll 20-24 of the RFSA or elsewhere within that document. Plainly enough there is. However, such ambiguity as may or does exist does not affect the question raised in these proceedings, namely what price regime is applicable in the event that the parties have failed to reach agreement during a price negotiation and Gull has not exercised its right to terminate the contract.
34 It follows that extrinsic evidence cannot be referred to for the purpose of understanding the meaning of the relevant provisions of the RFSA.
35 BP also referred the Court to various authorities on the construction of contracts to avoid absurd consequences: see, for example, Westpac Banking Corporation v Tanzone Pty Ltd (2000) 9 BPR 17521; [2000] NSWCA 25 at [19]- [21]. Notwithstanding that we were referred to those authorities, Mr Smith QC, who appeared for BP, did not contend that the interpretation of the contract in the manner suggested by Gull would result in absurd consequences. He was correct not to do so. The RFSA is plainly not absurd when interpreted in the manner suggested by Gull. In particular, reference can be made to the flexibility in the price formula contained in cl 14, the relatively limited period of the RFSA from the time it was entered into and the benefits to both parties in some certainty in their commitments relating both to price and quantity. It may be, as Mr Smith QC submitted, that the contract, interpreted in the manner suggested by Gull, left BP at some commercial disadvantage. But even if that were the case, it would not be sufficient to permit the Court to depart from the plain meaning of the contract: see Australian Broadcasting Commission v Australasian Performing Right Association Ltd [1973] HCA 36; (1973) 129 CLR 99 at 109-110.
36 Consequently we are of the view that there is no relevant ambiguity in the meaning of the relevant provisions of the RFSA. Properly construed the effect of the RFSA is that if there is no agreement as to a new price during a price renegotiation then, subject to the right of Gull to terminate under cl 47, the then existing price regime under cl 14 is to continue to apply.
37 This is the result reached by the primary Judge. The reasons for his doing so are ultimately the same as ours. To the extent that the reasons are differently expressed this would seem to be because the arguments put to the primary Judge differed at least in focus from those that were put to us on appeal.
38 This is sufficient to dispose of BP’s appeal in relation to the meaning of cl 23. However, the parties presented full and detailed argument as to the other grounds of appeal on this issue. It is appropriate to say something in relation to those arguments in case the matter should go elsewhere. Before doing so it is important to highlight the assumption that must be made as a pre-condition to the following discussion - the assumption is that the intention of the parties as to what price is payable if there is no agreement during a price renegotiation is doubtful. On that assumption it must be allowed as a possibility that the RFSA can be interpreted as meaning that the previous price regime is not applicable. On that assumption the following propositions can be stated:
(a) Extrinsic evidence can be referred to for the purpose of establishing the objective framework in which the contract came into existence and to the presumed intention of the parties (see Codelfa at 257);
(b) The parties were agreed that such evidence included the fact that cl 21.2 of the FSA expressly provided that the existing price was to continue to apply whereas cl 23.2 of the RFSA (which was its successor) did not (see Ginger Developments at [20]);
(c) Although the parties disagreed as to the manner in which the primary Judge dealt with the evidence given by various witnesses and the conclusions he drew from that evidence, they were agreed that there was no evidence before the Court which established that there was any mutual agreement between the parties as to the meaning or effect of the changes in the wording of what became cl 23.2 of the RFSA. On that basis the parties were agreed that the evidence of the subjective intent of particular witnesses (assuming that such evidence could be identified) could not be referred to for the purpose of interpretation of the RFSA.
(d) The parties were agreed that the issue before this Court on this appeal (assuming that there was relevant ambiguity) was what inferences could properly be drawn from the changes in the wording of what became cl 23.2 of the RFSA.
(e) In the circumstances it is unnecessary for this Court to deal with the detailed criticisms made by BP of the primary Judge’s analysis of the evidence of particular witnesses. However, we note that some aspects of His Honour’s analysis of the facts seem to be related to the arguments that were put to him in support of the ‘six propositions’ and in support of the argument by BP that the practice of Gull and BP prior to them entering into the RFSA (see par 17 above) could be relied upon in the interpretation of the RFSA. We note that neither of those arguments has been pursued on this appeal.
(f) Gull accepted that the relevant inference to be drawn from the change in the drafting of what became cl 23.2 of the RFSA was that the parties intended to change the pre-existing agreement that existing prices were to continue to apply in the absence of any agreement as to a new price, but nevertheless argued that that inference then had to be understood in the context of the agreement as a whole. Gull argued that the agreement as a whole made it clear that the existing prices were to continue to apply.
(g) The problem with the Gull submission is that this issue only arises on the assumption referred to above, namely that the intention of the parties as to what price should be paid is doubtful. On that assumption the effect of the inference would seem to confirm the view already existing as a possibility within the contract itself that the pre-existing price is not or may not be intended to apply.
(h) On the other hand BP submitted that the inference to be drawn from the change in cl 23.2 of the RFSA, combined with the protection afforded to Gull by cl 47 of the RFSA is that the ‘new price’ is that price nominated by BP during the price negotiation.
(i) There are also significant problems with the BP submission. Simply as a matter of logic it is not possible to infer a particular meaning from a change in the words, unless that meaning is the only meaning that is available or unless the change is strongly confirmatory of some other meaning otherwise identified. There are examples where that is the case: see, for example, Ginger Development at [18]; Team Services PLC v Kier Management & Design Ltd (1993) 36 ConLR 32. On the other hand, where the change in wording may be explained by other factors, or where there are other alternative meanings available then the change in wording cannot be used to infer a particular meaning. In this case the mere fact that the parties have agreed not to make provision that pre-existing prices are to apply, does not result in any necessary inference that the ‘BP price’ should apply. There are other alternatives. A ‘reasonable price’ could apply. A price ‘nominated by BP being no greater than that payable by Gull’s competitors’ could apply. The ‘highest (or lowest) price nominated by either party’ could apply. Each of these alternatives may be more or less reasonable than that proposed by BP. However, none of them would seem to be any more ‘absurd’ that the proposal by BP that Gull is obliged to pay whatever price is nominated by BP subject to Gull’s right of termination (which itself may be subject to various market constraints, such as arranging import of large quantities of fuel from overseas) and subject to whatever legal constraint may exist under the TPA or elsewhere. More fundamentally, as the RSFA makes no reference to a ‘BP price’, or even requires that BP nominate a price, there is no obvious basis under the RFSA to prefer an interpretation based upon a BP price than to any other possible price that might be conceived. Indeed, it would seem quite possible under the contract for there to be no new ‘BP price’ in the sense that it was Gull that was the moving party for a change in price and BP wished to retain the existing price arrangements unchanged;
(j) Having reached the view that the RFSA is relevantly ambiguous and having considered what inference should be drawn from the change in the wording of cl 23.2, one possible result is that whilst the parties intended the contract to continue in operation, even in the absence of an agreement as to a new price, that they did not intend the previous price formula to apply, but that they made no provision as to what price should be payable when a new price was not agreed. In such a circumstance the relevant price is to be determined under the Sale of Goods Act, 1895 (WA) s 8(2):
‘Where price is not determined in accordance with [the contract] the buyer must pay a reasonable price. What is a reasonable price is a question of fact dependant on the circumstances of the particular case.’
(k) Both parties submitted to us that it was not in the commercial interest of either party for the price to be left to be determined under the Sale of Goods Act. They said that such a result could not have been intended. If their separate subjective intentions were relevant then that may be conceded. Subject to what follows, however, it would seem that the application of the Sale of Goods Act to imply a requirement that a ‘reasonable price’ is payable is the inevitable result of the failure of the parties to make provision for the price, assuming of course, that the RFSA is relevantly ambiguous. It is not for the Court to identify what the parties should have agreed, or even what they would have agreed, if they had negotiated sensibly. Notwithstanding that either party has argued that for such an interpretation the Court is not constrained in the proper interpretation of the contract by what the parties submit to it: see Ginger Development at [17].
(l) This construction, like that proposed by BP, would both necessitate significant redrafting of the contract. Either clause 24 or clause 26 would need to be redrafted to reflect the new price arrangements. It would also be necessary to make some provision for a commencement date for the new prices (see, for example, cl 23.1 in relation to agreed prices). For this purpose it may be necessary to imply terms into the contract to make it effective. Neither party has submitted to us that terms could be implied into the contract. Nor is it apparent that the relevant tests for implying terms into written contracts have been met in this case: see BP Refinery (Westernport) Pty Ltd v Shire of Hastings [1977] HCA 40; (1977) 180 CLR 266 at 282-283.
(m) The potential problems in implying terms into the contract to make a requirement for a ‘reasonable price’ effective may suggest than the other available alternative should be adopted. That is that the contract was terminated either by the failure of the parties to agree the price, that being viewed as a condition precedent to the continued performance under the contract, or by the contract having been frustrated by the relevant failure of the parties to reach agreement as to the new price. There are various legal and factual problems with this analysis which need not detain us. This approach would have the advantage of forcing the parties back to the negotiation table. Any dispute between the parties as to the proper price to be paid for fuel supplied subsequent to the failure of the parties to reach any agreement on price would then need to be determined in an action for restitution: see Pavey & Matthews Pty Ltd v Paul [1987] HCA 5; (1986) 162 CLR 221. However, neither party advocated this result. Both contended that the contract was intended to subsist throughout its term and that it was appropriate for the Court to identify the price payable.
39 Ultimately it is unnecessary for us to determine whether the contract, assuming it is ambiguous, should be construed as having a continuing operation, but with a reasonable price payable if agreement upon a new price is not reached, or as having been terminated upon a failure to reach such an agreement with the price for further fuel supplied by BP to Gull to be determined on equitable principles. As we have already found, the RFSA is not relevantly ambiguous and it is not necessary to construe the contract in the way set out in par 39(j). However, if we are wrong in that conclusion then it would seem to us to be at least likely that the proper legal analysis of the consequent issues is unlikely to result in the interpretation contended for by either party. Neither party appeared to desire that consequence.
40 For the reasons given above we are of the view that the declaration made by the primary Judge as to the price regime applicable if there was no agreement during a price renegotiation as to the new price was correctly made, at least if ‘the prices’ are understood as referring to the price regime then applicable (which may involve the application of a variable formula). BP’s appeal from the making of that declaration, and from the dismissal of its Amended application in relation to that issue, must be dismissed.
Clause 81
41 The second dispute between the parties relates to that part of the price for fuel described in the RFSA as the ‘Clean Fuels Quality Premium’. Both parties were agreed that this part of the price was not included in the price negotiations referred to in cll 20-24. The Clean Fuels Quality Premium was specified in cl 80 of the RFSA as $0.0085. There was no specific provision for its variation, save only for cl 81 which provided:
‘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 that 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.’
42 The parties disagreed as to the effect of cl 81, particularly in relation to the words ‘charged to any other customer in Western Australia’. BP argued that cl 81 only had application in respect of amounts greater than nil which BP had separately identified, described as a ‘CFQP’ and charged as part of the price of fuel. This had the practical or (perhaps) the legal effect that the only other customers who were charged the CFQP were competitors of Gull who were also supplied at the BP terminal. Gull, on the other hand, drew attention to what it described as ‘the object’ of cl 81 to ensure commercial equality for Gull and argued that if BP charged any of its customers for fuel where no amount which could, in substance be identified as a charge for CFQP, then the charge that could be imposed on Gull had to be reduced to nil. Both parties sought declarations that were apparently intended to reflect their respective interpretations.
43 The Gull argument was described by the primary Judge as follows:
‘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.
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 3rd 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.
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.
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.’
44 The primary Judge explained BP’s position as follows:
‘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] HCA 15; (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.
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 3rd ed. 2001 at p 304, namely `to impose or ask as a price.’
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.
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.
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.
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.’
45 The primary Judge referred to the terms of the RFSA and to the dictionary meanings of the word ‘charged’ to conclude that it was not intended that there should be a charge of a nil value. The conclusion reached by the primary Judge was that the word ‘charged’, and indeed the other words of cl 81, carried their normal meaning:
‘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.
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’.
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.
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.’
46 The primary Judge accepted, for the same reasons he had given in relation to cl 23 that he could not refer to extrinsic evidence in interpreting cl 81 and to this extent he rejected the submissions of BP in so far as they were based upon that evidence. However, it would not seem that the extrinsic evidence would have provided any significant assistance in the interpretation of cl 81 even if it had been admitted.
47 The effect of the primary Judge’s analysis in relation to the actual positions put by the parties and the issues between them would seem to be as follows:
(a) The question whether a CFQP had been ‘charged’ to any other customer was a matter of substance, not form. Consequently, whether BP separately identified and described the charge as a CFQP would not be conclusive. Ultimately it would be a question of fact whether or not a CFQP had been charged;
(b) There was no legal limitation upon the class of ‘any other customers’ of BP referred to in cl 81, providing that the customers had been relevantly charged a CFQP.
(c) If there was no separate charge which as a matter of substance and fact could be described as a CFQP then the customer had not been ‘charged’ for the purposes of cl 81.
(d) If the separate charge was expressed as a ‘nil’ charge there would not be a charge;
(e) On the other hand, the amount of any CFQP was also a matter of fact and substance. This would seem to have the effect, for example, that where a charge was in fact imposed, but some allowance was made that had the effect of reducing the charge (even to nil) the result as a matter of substance was that there was a charge and that the amount of it was the reduced amount (even if that amount was nil).
48 In the result the primary Judge made the following declarations in relation to the meaning of cl 81:
‘Upon a proper construction of cl 81 of the RFSA,
(1) 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
(2) such charge will be made when as a matter of substance it is imposed or asked for;
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.’
The primary Judge also made the following order:
‘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.’
49 Both parties have appealed from the primary Judge’s decision in relation to cl 81 of the RFSA. Gull complains that the primary Judge erred in law in his interpretation of cl 81 and argues that the interpretation it contended for at trial was the proper interpretation of the RFSA. BP also complains that the primary Judge erred in law in his interpretation of cl 81 and also argues that the interpretation it contended for at trial was the correct interpretation of the RFSA.
50 BP also says that declaration (2) of the declarations made by the primary Judge is inappropriate even accepting the reasoning of the primary Judge. It says that the words ‘as a matter of substance’ in that declaration are unnecessary and/or confusing given that the word ‘charge’ bears its normal and usual meaning.
51 This second argument by BP raises the question of the appropriateness of making declarations at all in the circumstances in which the relevant issues have arisen in relation to cl 81 of the RFSA. Apart from the obvious fact that the parties are in dispute as to the meaning of cl 81, there were no facts before the primary Judge, or before this Court, which identify the parameters or background to an actual or real dispute. There is, for example, no evidence that any particular person has paid any particular charge. There is no evidence before the Court of an instance where BP says that no charge has been imposed, whilst Gull says that it has. There is no example where BP says that a customer has been charged $y on account of CFPQ whilst Gull says it has been charged $z.
52 This is to be contrasted with the issues discussed above in relation to cl 23 of the RFSA and the declaration made in relation to those issues. In that context the constructional dispute has given rise to a real factual dispute which is based upon it and which arises out of it. Not only are the parties in disagreement as to the meaning of the contract, it is clear what the consequences of that dispute are - Gull has continued to obtain fuel but has only paid a price calculated in accordance with the previous price regime and not the price claimed by BP. Large amounts of money may, or may not, be due and owing. Those amounts can be calculated and identified. The factual context and consequences of the dispute were explored in the evidence and were understood by the primary Judge. That is not the case in respect of the dispute as to cl 81. In order to understand the effect and parameters of the dispute between the parties as to the meaning of cl 81 it has been necessary for the parties and the Court to postulate various hypothetical situations to which that dispute might apply. This has been supplemented by various statements made from the bar table both at trial and before us as to the practical effect of the arguments made by the parties and the declarations made by the primary Judge. Whether those hypotheses or statements are ultimately established is a matter for conjecture.
53 Both parties have submitted to us that it is convenient to the parties that declarations be made to answer the dispute between them as to the construction of cl 81. It is said, for example, that the answer to the relevant questions of construction will assist the parties in narrowing the issues between them and will assist in identifying what material should be discovered in any litigation relating to the application of cl 81. That may be the case. However, that convenience is dependent, at least in part, upon the capacity of the Court to construct declarations that are meaningful and correct. The absence of a factual background to the construction dispute renders this capacity at least problematic. At least for this Court, there may be constitutional objections to the exercise of declaratory relief in these circumstances. The problem in this case is highlighted by the order made by the primary Judge directing that the applicant repay to the respondents amounts on account of the CFQP ‘in excess of the amounts to which it was entitled’. Plainly enough compliance with that order depends upon the capacity of the parties and the Court to interpret the declarations that were made as well as factual conclusions that have not yet been made. Failure of BP to comply with that order could have most serious consequences. Nevertheless it is not clear that BP could sensibly do so.
54 These issues were explored and explained by the majority of the High Court in Bass v Permanent Trustee Co Ltd [1999] HCA 9; (1999) 198 CLR 334 at 354-360. That reasoning has been subsequently referred to and applied in this Court: see, for example, Kockums AB v Commonwealth of Australia [2002] FCAFC 138 [37]-[49]. On the basis of that reasoning it seems to us that, notwithstanding that the parties asked him to do so, it was not appropriate in this case for the primary Judge to attempt to analyse cl 81 given the limited factual material that the parties put before him. It was also not appropriate to make the declarations that were made as to the meaning and effect of cl 81 or the order that was made consequent upon those declarations. For this reason we are of the view that both the appeal and the cross appeal should be allowed in relation to the interpretation of cl 81 for the purpose of setting aside the declarations made by his Honour and the orders that are consequent upon those declarations. In lieu thereof the appropriate answer to BP’s application for declarations as to the CFQP payable and to Gull’s cross claim for declarations in relation to the CFQP, was ‘inappropriate to answer’.
55 Of course, nothing in these reasons should be understood as expressing any view on the correctness or otherwise of the primary Judge’s analysis of the meaning of cl 81 of the RFSA. We do note, however, that the submissions made in this Court would seem to suggest that the parties are significantly closer in their respective understandings of cl 81 than they seem to have been when arguing their respective positions before the primary Judge. To this extent at least the analysis by the primary Judge has been of some benefit to the parties. However, as we have said above, convenience and utility to the parties are not the only pre-conditions for the making of declarations in these circumstances.
CONCLUSION
56 For the foregoing reasons the appeal in relation to the first declaration made by the primary Judge should be dismissed. The declarations in relation to cl 81 of the RFSA should be set aside. Consequentially the orders made in favour of the respondent on the amended cross-claim should be set aside. There does not appear to be any reason to interfere with the directions made in his Honour’s first set of orders. The cross-appeal has been decided on a point not argued by either party. In those circumstances, so it seems to us, there should be no order in relation to the costs of the cross-appeal. In view of the fact that the appeal is to be dismissed, par 1 of his Honour’s costs orders of 14 November 2003 should remain in force and the appellant should pay the respondent’s costs of the appeal save for the costs in relation to the interpretation of cl 81.
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I certify that the preceding fifty-six (56) numbered paragraphs are a true
copy of the Reasons for Judgment herein of the Honourable
Justices Carr, North
and Selway.
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Associate:
Dated: 24 June 2004
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Counsel for the Applicant and the Cross Respondent:
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R M Smith SC with P R Whitford
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Solicitor for the Applicant and the Cross Respondent:
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Messrs Clayton Utz
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Counsel for the Respondent and the Cross Appellant:
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C L Zelestis QC with G H Murphy SC
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Solicitor for the Respondent and the Cross Appellant:
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Messrs Freehills
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Date of Hearing:
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10 – 12 May 2004
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Date of Judgment:
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24 June 2004
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URL: http://www.austlii.edu.au/au/cases/cth/FCAFC/2004/163.html