Bernadini Pty Ltd v Whitegum Petroleum Pty Ltd [2011] HCATrans 92
[2011] HCATrans 92
[2011] HCATrans 092
IN THE HIGH COURT OF AUSTRALIA
Office of the Registry
Perth No P1 of 2011
B e t w e e n -
BERNADINI PTY LTD
Applicant
and
WHITEGUM PETROLEUM PTY LTD
Respondent
Application for special leave to appeal
KIEFEL J
BELL J
TRANSCRIPT OF PROCEEDINGS
FROM CANBERRA BY VIDEO LINK TO PERTH
ON FRIDAY, 8 APRIL 2011, AT 1.48 PM
Copyright in the High Court of Australia
MR B. DHARMANANDA: May it please the Court, I appear for the applicant. (instructed by Gadens Lawyers)
MR J.A. THOMSON: May it please the Court, I appear for the respondent. (instructed by Holborn Lenhoff Massey)
KIEFEL J: Thank you.
MR DHARMANANDA: Your Honours, the special leave question raised in this application is whether a self‑executing or unilateral notice served under the requirements of an agreement to exercise a right conferred by the agreement has to clearly and unequivocally give the required notice or is the test something more flexible.
KIEFEL J: Now, a difficulty for you on this application is simply that there is no new point of law involved. This is a question of applying settled principles established in decisions such as Ballas v Theophilos(No 2) (1957) 98 CLR 193 to the particular documents in this case. It is simply a question of construction.
MR DHARMANANDA: Your Honours, in our submission, no, for this reason. When one looks at the judgment of Justice Buss, what one gathers is a statement of the principles established at the beginning, but when his Honour came to apply those principles, as I will seek to demonstrate, he in fact applied a slightly more flexible test. That, we say, creates now an issue for the courts below as to whether there is flexibility or not in the applicable test.
KIEFEL J: No, no, it does not alter established principle, it might mean that there is an error which you rely upon to justify special leave, but it does not mean that there is any question of new principle involved. It means that your application for special leave is limited to showing that there has been an error in the application by a judge below which requires this Court to correct it.
MR DHARMANANDA: Your Honour, we rely on that second ground, but what I am endeavouring to say is in relation to the matter of principle, what I would seek to demonstrate in a moment is when one analyses it – the test has been enunciated in many different ways, clearly and unequivocal, or what is the recipient failing to understand?
KIEFEL J: It is whether they unequivocally manifest an intention to exercise the option?
MR DHARMANANDA: That is so, your Honour, but the failing to understand articulation of the test is, in our submission, ambiguous, and what has happened here is that that ambiguity has been played on by the court below to reach an outcome which could not have been reached. Let me try and develop that in this way? First, your Honours are familiar that there are two provisions that had to be complied with in order to exercise the option. The first is to give a notice of intention and the second is to give notice of the actual exercise of the option, and that is in the application book 85 to 86, the relevant clause being clause 5.10(b). The two provisions were (i) and (iv).
The first point to make is that those two subclauses draw a clear demarcation between a notice of intention to exercise the option and notice of the actual exercise of the option. Viewed reasonably and objectively the respondent would be treated as being clearly aware and cognisant of that distinction and the simple difference between the two types of notice. Viewed reasonably and objectively a notice that gave notice of the respondent’s intention only to exercise the option could not unequivocally convey the message that the respondent was actually exercising the option.
As Justice Newnes in dissent in the court below said at paragraph 100 in application book 49, there is a conceptual difference between a notice of intention and a notice of exercise in this context. When the two notices given here by letters of 25 August and 26 August are considered, and they are at application book 95 and 97, it is readily apparent that each of them was a notice giving only notice of an intention to exercise the option.
Neither of them was a notice that unambiguously conveyed the message to a reasonable reader that the option was actually exercised. Just because the second letter came a day after the first letter is no reason for the second letter being treated reasonably contrary to its plain words as a notice of the actual exercise of the option. Now, if I may say this first about the two ways the test has been articulated, and those two ways were in fact articulated by Chief Justice Dixon in Ballas v Theophilos.
KIEFEL J: I think you can take it that we are familiar with those tests. Can you take us to where you say the error in the application of those principles ‑ ‑ ‑
MR DHARMANANDA: Yes, your Honour. The starting point is paragraph 46 on page 34 of Justice Buss’s judgment. So your Honours will see there that his Honour said that if the second letter was considered in isolation then it “did not clearly and unequivocally express an election” by the respondent to exercise the option. So he starts there. Then the error is shown – if one looks at paragraphs 48 to 55, and in paragraph 48 his Honour changed the language in the application of the test. He has moved from the unequivocal and clear language to language of “fairly understand” in paragraph 48. Then in paragraph 49 he maintains that language ‑ ‑ ‑
KIEFEL J: I am sorry, where is the “fairly understand”?
MR DHARMANANDA: “Fairly understand” is in 48 in the fourth line:
The critical question . . . is whether a hypothetical reasonable person who received the letter, and was aware of the circumstances of its receipt including the dealings between the parties, would fairly understand Whitegum to have elected -
Now, “fairly understand,” in our submission, is open to an ambiguity that the unequivocal and clear articulation of the test is not ‑ ‑ ‑
BELL J: Is that to be seen in the light of his Honour’s further finding at application book 36, paragraph 53, that:
the hypothetical reasonable person would be left in no reasonable doubt that Whitegum was, then and there, binding itself to acquire a new lease on the terms of the second option.
I mean, how in practical terms do you say that this is watering down the effect of the Ballas test?
MR DHARMANANDA: Because, in our submission, on no view can that assertion at paragraph 53(b) have been made in that the reasonable basis for the notice not being clear and being equivocal is simply this. You had twin requirements under the lease. One was language of intention to exercise and the other was exercise. The notice provider used the same language, namely, intention to exercise twice. To say that it cannot be said on a reasonable basis that the second document was only a notice of intention to exercise the option, in our submission, and with the greatest of respect, is no more than an assertion. There is no rational foundation for that.
KIEFEL J: Just coming back to the question that Justice Bell took up with you about his Honour’s conclusions and what you say was a misapplication of the test in Ballas v Theophilos, at paragraphs 35 and 36 his Honour sets out the passage from Ballas v Theophilos at 204 and 205 and then states what is required. His Honour is under no misunderstanding of what has to be addressed and what follows in his Honour’s reasons must be read in light of what his Honour has indicated is the test to be applied.
MR DHARMANANDA: That is so, save for this, your Honours. If I can take your Honours to paragraph 55 of the judgment where his Honour says that:
In my respectful opinion, the trial judge misconstrued the Second Letter and arrived at the incorrect conclusion. His Honour’s division of the applicable test into a two‑stage process, with two distinct questions to be addressed, appears to have imposed a greater burden on Whitegum than that inherent in the critical question I have formulated in accordance with the settled principles.
Now, if one turns back to what the trial judge in fact did, and that is at paragraph 28 of the trial judge’s judgment at page 10, his Honour there identified the two key questions as he saw it. The first of them was:
(a)would a reasonable recipient of the First Letter . . . and then the Second Letter . . . understand that the lessee had sent two par (i) notices of intention on consecutive days, or that the Second Letter was, notwithstanding the language ‘intention to exercise’, meant as a notice of exercise under par (iv) -
So his Honour was articulating issues of construction. Then the second question his Honour identified was:
(b)would the reasonable recipient be left in reasonable doubt in this regard, or was the intention revealed by the Second Letter unequivocal?
That is, in our submission, a precise statement of the Ballas test.
KIEFEL J: Where do you get that from Ballas, that it is split up in this way - split up in that way and avoids the central and elementary test about what is conveyed to the reader. Posing it in the way that the trial judge did is apt to skew that test and as Justice Buss points out liable to create what appears to be a further component to Ballas v Theophilos.
MR DHARMANANDA: In our submission, no, because the Ballas test is ‑ ‑ ‑
KIEFEL J: Perhaps you should take us to that part of Ballas v Theophilos which you say warrants this two‑stage test?
MR DHARMANANDA: Yes, your Honour. In the book of authorities the Ballas test from Chief Justice Dixon is at page 196 at about point 8 on the Chief Justice’s judgment, so if I could read from slightly above that:
The clause contains no express provision saying how he is to do it and any definitive communication of an election would suffice. But it was necessary that the communication should express clearly and unequivocally the fact that the surviving partner, the plaintiff, then and there elected to acquire the deceased’s interest upon the terms of the clause.
So the test is whether the message conveyed is clear and unequivocal as to the exercise of right.
KIEFEL J: Well that, one, does not support any two‑phase test that the primary judge suggested, and secondly, it requires in the approach that Justice Buss took that the second letter be read not in isolation but in the context of the other dealings and the other circumstances affecting the second letter. That is how you determine whether or not an election has been made.
MR DHARMANANDA: Yes, your Honours. If I could deal with the two points this way? First, what the trial judge did, although he separated it out into two questions, was still targeting the exact relevant inquiry. Is the notice clear and unequivocal to a reasonable recipient?
BELL J: The trial judge came to a different factual conclusion to Justice Buss’ conclusion. Justice Buss applied the Ballas test – I do not understand you to be suggesting this Court would be revisiting that test – what is it that this Court would be concerned to determine were special leave granted?
MR DHARMANANDA: This Court would be concerned to reiterate the Ballas test ‑ ‑ ‑
BELL J: Why would there be a need to do that given that Justice Buss applied the Ballas test to arrive at a different conclusion factually?
MR DHARMANANDA: In our submission – and if I could address Justice Kiefel’s second question a moment ago which will answer your Honour Justice Bell’s question I think – in our submission, the failure to understand language allows a degree of flexibility. It is true that the second letter came after the first letter, and that is it is true a relevant contextual matter in the application of Ballas.
However, in our submission, no matter how one applies Ballas, which requires clearness and unequivocal communication, it is not possible logically to regard the second letter, which uses precisely the same words as the first letter “when a reasonable tenant would be treated as knowing the precise difference in the lease agreement” it cannot be said that the second
letter could rationally convey a different meaning. So to the extent that his Honour Justice Buss has reached that conclusion he must be applying a more flexible approach. He is not, in our submission, applying a test of unequivocalness or unambiguity but rather the words are clear, they express an idea “intention to exercise” ‑ ‑ ‑
KIEFEL J: I think you are perhaps going over the same ground now.
MR DHARMANANDA: Yes, your Honour, but he has treated it as actual exercise.
KIEFEL J: I think we understand the point.
MR DHARMANANDA: There is one other point, your Honours, that is worth making. It is relevant to appreciate why the test is as it is, and that is because this is a unilateral self‑executing document. It is not like interpreting a contract where you cannot ‑ ‑ ‑
KIEFEL J: I think you can take it that we understand the policy reasons behind the requirement set up in Ballas v Theophilos and the circumstances to which they are directed.
MR DHARMANANDA: May it please, your Honours. The next point is the approach that we are contending for and the error that, in our submission, Justice Buss fell into is exposed by looking at Catley v Watson (1983) V ConvR 54-003. In that case Justice Brooking drew a distinction between what might be a preferable interpretation of a notice and the test which is it has to be unequivocal, and his Honour concluded that if it is not unequivocal it is not a notice that satisfies the requirement, and that is at ‑ ‑ ‑
KIEFEL J: That is not adding anything to the test. That does not take it any further.
MR DHARMANANDA: It shows, in our submission, that what has happened is Justice Buss has taken a preferable route rather than an unequivocal route, and that is the point of principle, in our submission, that arises. Separately we do say that if one looks at Justice Newnes’ judgment and the judgment of the trial judge there is significant doubt, in our submission, in the interests of justice that this Court should reconsider the decision. May it please the Court, those are our submissions.
KIEFEL J: Thank you. We do not need to trouble you, Mr Thomson.
This matter does not have sufficient prospects of success to warrant special leave to appeal. Special leave is refused with costs.
The Court adjourns to Tuesday, 3 May at 10.15 am.
AT 2.07 PM THE MATTER WAS CONLUDED