Castlepines (IBM) Pty Ltd v Residential Housing Corporation Ltd - [2002] NSWSC 232

No judgment structure available for this case.

CITATION: Castlepines (IBM) Pty Ltd v Residential Housing Corporation Ltd [2002] NSWSC 232

CURRENT JURISDICTION: Equity

FILE NUMBER(S): SC 2202/99

HEARING DATE(S): 18/03/02-22/03/02

JUDGMENT DATE: 19 April 2002

PARTIES :

Castlepines (IBM) Pty Limited (plaintiff)
Residential Housing Corporation Pty Ltd (defendant; 1st x-claimant; defendant to 2nd x-claim)
Starr Investments (Australia) Pty Limited (1st x-defendant to 1st x-claim)
Robert Daniel McEwan (2nd x-defendant to 1st x-claim; x-claimant to 2nd x-claim)

JUDGMENT OF: Campbell J

COUNSEL : A Ogborne (plaintiff; 1st and 2nd x-defendants to1st x-claim; x-claimant to 2nd x-claim)
M S Henry (defendant; 1st x-claimant; defendant to 2nd x-claim)

SOLICITORS: The Bruce & Stewart Commercial Practice (plaintiff; 1st and 2nd x-defendants to 1st x-claim; x-claimant to 2nd x-claim)
Tzovaras Legal (defendant; 1st x-claimant; defendant to 2nd x-claim)

CATCHWORDS: CONTRACTS - construction and interpretation of contracts - construction of particular contract - no question of principle decided - EQUITY - rectification - whether particular agreement should be rectified - no question of principle decided

CASES CITED: L J Hooker Ltd v W J Adams Estates Pty Ltd (1977) 138 CLR 52
Johnson Matthey Ltd v A C Rochester Overseas Corp (1990) 23 NSWLR 190
Australian Co-Operative Foods Ltd v Norco Co-Operative Ltd (1999) 46 NSWLR 267
Seabridge Australia Pty Ltd v JLW (NSW) Pty Ltd (1991) 29 FCR 415
Lezam Pty Ltd v Seabridge Australia Pty Ltd (1992) 35 FCR 535
New Holland Mining NL v Weaver Oil & Gas Corporation Australia Ltd [1998] WASC 69
Skywest Aviation Pty Ltd v Commonwealth of Australia (1995) 126 FLR 61
State Rail Authority of New South Wales v Heath Outdoor Pty Ltd (1986) 7 NSWLR 170
Whittet v State Bank of New South Wales (1991) 24 NSWLR 146
Budget Stationery Supplies Pty Ltd & Dudley v National Australia Bank Ltd (1996) 7 BPR 14,891
TCN Channel 9 Pty Ltd v Hayden (1989) 16 NSWLR 130
Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337
Westpac Banking Corporation v Tanzone Pty Ltd [2000] NSWCA 25; (2000) 9 BPR 17,521
McDonald v Dennys Lascelles Ltd (1933) 48 CLR 457
Moneywood Pty Limited v Salamon Nominees Pty Limited (2001) 202 CLR 351

DECISION: Contract construed and parties required to bring in short minutes. Rectification refused.

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION
EQUITY LIST

CAMPBELL J

19 APRIL 2002

2202/99 CASTLEPINES (IBM) PTY LTD v RESIDENTIAL HOUSING CORPORATION PTY LTD

JUDGMENT

1 HIS HONOUR: Residential Housing Corporation Pty Ltd (“Resi”) carried on the business of making housing loans and other loans to consumers. On 10 December 1997 it entered into a written agreement with Robert Daniel McEwan, whereby it appointed Mr McEwan as its exclusive licensee for the marketing of those loans. The plaintiff (then known as Starr Investments (Australia) Pty Ltd) was also a party to that agreement, and undertook an imprecisely defined obligation to provide assistance to Mr McEwan in the sale and marketing of those loans.

2 The written agreement made provision for how Mr McEwan’s agency would work. It also made provision for the payment of two different types of commission. One type of commission was a flat fee, payable to Mr McEwan on settlement of a loan. The other was a commission called a “trailer” which was payable to the plaintiff each month, after a certain volume of loans had been written, on the then outstanding balance of some types of loans. The parties are in disagreement about the circumstances which require Resi to pay a trailer commission to the plaintiff. In this judgment, the first task is to construe the written agreement to resolve those differences about when the trailer commission is payable.

3 As well, if I come to a conclusion on construction which is different from that for which Resi contends, Resi seeks rectification of the term of the Agreement concerning trailer commission.

4 The hearing before me has been the trial of some questions for separate determination, relating to these matters.

The Agreement

5 The Agreement dated 10 December 1997 was made between Resi (called by that name) Robert Daniel McEwan, as Trustee of the McEwan Family Trust (called the “Agent”), Mr McEwan in his personal capacity (called the “Guarantor”), and the plaintiff as trustee of the Phoenix Trust (called “the Company”).

6 The following provisions of the Agreement are relevant:

“A. Resi is engaged in the business of being a home loans originator and in pursuit of that business markets a full range of home, business and commercial loan products.

B. The Agent has expertise in marketing and wishes to be appointed as agent to market the Products.

C. The Agent has developed a system for the marketing and distribution of home loans such as the Products and has designed a marketing plan for the distribution of the Products which is based on the Agent’s knowledge, method, techniques and expertise.

D. Subject to Clause 2.1 Resi has agreed to appoint the Agent as its exclusive licensee in Australia of the Products.

E. Subject to Clause 6.2 the parties have agreed that the Agent will have the right to appoint licensees to carry on the business of the distribution of the Products.

…

1.1 In this Agreement unless the context clearly indicates otherwise:

Application

Basis Point

Business

(a) the retail sale of the Products at retail premises, by mail order or by direct selling, and

Commencement Date

Customer

Fee Schedule

Licence

Licensee

Marketing Plan

Preferred Customers

Products

Term

Termination Date

Territory

Trailer

1.6 This Agreement contains the entire Agreement and understanding of the parties relating to the subject matter contained herein and merges all prior discussions between the parties. No party shall be bound by any previous agreement, negotiations, commitments or writings except those expressly embodied herein or as amended in writing and agreed by the parties hereafter. …

2.1 Resi hereby grants to the Agent, subject to Clause 2.4, an exclusive licence to distribute and promote the Products in the Territory, provided that Resi can service any area within the Territory through its own agents, introducers or employees working through Resi’s main office from time to time. …

3.1 Subject always to the provisions for early termination of this Agreement, this Agreement and the Licence shall commence on the Commencement Date and continue until termination pursuant to Clause 3.2.

3.2 The Licence may be terminated either by the Agent or Resi at any time upon that party giving to the other party six (6) months’ written notice terminating the Agreement.

3.3 As soon as practicable after the Termination Date the parties shall finalise all payments owing to or by the Agent, and shall do all other things, such as vacation of premises and return of business documents, necessary to end the Licence.

3.4 Termination of this Agreement by either parties pursuant to this Clause or by Resi pursuant to Clause 12 does not limit the obligation of Resi to continue to pay the Trailer. …

5.3 The Agent shall submit, and ensure that any Licensees submit, Applications to Resi in accordance with the procedures established and the requirements requested by Resi from time to time as provided for in the Procedures Manual. Resi shall keep the Agent and its Licensees fully informed of all procedures and shall not alter its Procedures Manual without first consulting with the Agent.

5.4 Resi will not charge the Agent, a Licensee or their Customers any fees or charges which exceed those which Resi charges the Preferred Customers. …

6.1 The Agent will use its best endeavours to conduct and operate the business profitably and to promote and sell the Products and to establish Licensees to sell the Products.

6.2 The Agent shall seek Resi’s prior written consent to the appointment of each Licensee, such consent not to be unreasonably withheld. …

6.7 The Agent shall participate in and co-operate with Resi in the conduct of general marketing campaigns and other promotion activities for the Products. …

6.9 The Agent’s duties shall be to:

(a) prepare all manuals,

(b) advertise, interview and establish licensees,

(c) conduct training,

(d) maintain quality control of Applications,

(e) control the sales team network, and

(f) account for all that is necessary to maintain the network thereby established. …

7.1 The Agent will seek to ensure that the persons it proposes to appoint as Licensees are persons of good character who are competent to handle properly and efficiently their duties as Licensees.

7.2 Each Licensee is an agent of the Agent and the Agent is responsible for the acts and omissions of his Licensees.

7.3 The Agent shall procure that the appointment of each Licensee, and the terms and conditions of that appointment, are properly and fully documented. Such conditions of appointment shall include the right of the Agent to terminate the appointment of the Licensee upon four (4) months notice at any time. Resi shall approve the general form of appointment of Licensees.

8.1 Resi will use its best endeavours to conduct and operate its business efficiently and profitably and to provide competitive customer friendly Products for the Agent to promote and sell.

8.2 Resi will regularly release to the media, statements about the competitive and customer friendly Products.

8.3 Resi will regularly make available to the Agent promotional material, brochures and themes in such quantities as the Agent requires from time to time.

8.4 Resi will provide product training to the Agent and the Licensees. This product training will be provided jointly by Resi and the Agent in accordance with procedures approved by Resi.

8.5 Resi will provide to the Agent within 7 days after the end of each calendar month during the Term a monthly report in such form as is agreed between the parties from time to time and which shall include:

(a) a list of all Applications then received by Resi,

(b) whether the Application is approved and if so on what date, and

(c) whether the loan advance for an approved Application has been settled and if so on what date. …

10.1 Resi will pay to the Agent fees upon settlement of a loan as detailed in the Fee Schedule. Changes to such fees may be made by Resi upon 7 days written notice to the Agent if Resi, acting reasonably, resolves that changes are necessary or desirable to meet market conditions prevailing from time to time in the housing loan industry.

10.2 From the date during the Term that loans advanced by Resi to Customers of the Agent and the Licensees in excess of $20,000,000 have been settled a fee shall be paid by Resi to the Company which is a trailer commission representing 10 Basis Points of all new business on loans as identified in the Fee Schedule. This trailer shall be paid by Resi to the Company on a monthly basis on the reducing balance of a loan and calculated monthly.

10.3 The Agent and Resi may from time to time and in respect of any particular loan or class of loans agree that:

(a) the Trailer shall not be payable, or

(b) the Trailer shall be calculated as an agreed number of Basis Points other than 10.

10.3 Resi will not be required to pay Trailer commission on loans that:

(a) have been paid out in full from the date of such payout, or

(b) are in arrears provided that should a loan which previously was in arrears be brought up to date in respect of payments, then such Trailer will recommence on that loan from the date the default is cured such that Resi will not be liable to pay such Trailer on the loan in respect of the period that loan was in arrears.

10.5 If Resi sells its portfolio the Agent will be reimbursed equivalent to whatever money is paid to Resi in proportion to the amount for the Agent. Resi will also allow the Agent to locate another funder and will assist in this regard.

11.1 The Company undertakes to provide to the Agent services in respect of sales and marketing of the Products pursuant to such arrangements as the Agent and the Company may establish from time to time, the fee for such services being the receipt of the Trailer from Resi as provided for in Clause 10.2. …

16.2 This Agreement does not constitute a partnership and/or joint venture between the Agent and Resi. …

FEE SCHEDULE

Loan Product

Retail Rate
(as at 13/11/97)
Loan Amount ($000)

Agent’s Fee

Trailer

Standard Variable
6.25% Variable

50-100
$500
10 Basis Points

100-150
$800
“

150-250
$1000
“

250-350
$1200
“

above 350
$1500
“

Line of Credit
6.89%

75-500
$650
Nil

Home Start
5.89%

50-500,000
$200
Nil

Fixed Rate

2 year
6.75%

No limit

Same as standard variable

10 Basis Points

3 year
7.05%

5 year
7.65%

Do All Loans Which Resi Makes Attract Trailer Commission?

7 The plaintiff contends that clause 10.2 entitles it to receive a trailer commission on all loans advanced to customers of Resi, whether or not Mr McEwan, or one or more of his Licensees, has played a part in Resi writing all of those loans.

8 Under clause 10.2, once the $20m trigger point has been passed, a trailer is payable on, “all new business on loans as identified in the Fee Schedule”. The plaintiff contends that, “all new business” is the whole or entirety of the new business which Resi writes and which consists of loans identified in the Fee Schedule. The plaintiff contends that this is the ordinary meaning of the expression, that the ordinary meaning of the expression should not be displaced without good reason, and that there is no good reason to do so.

9 The plaintiff points out that the expression, “all new business on loans…” does not use the defined term “Business”, but rather the generic expression “all new business”. This shows, says the plaintiff, that it was not intended that commission should be payable only in relation to loans introduced to Resi in accordance with the Marketing Plan which the Agent was to devise.

10 The plaintiff also points out that the parties have used different expressions to describe, on the one hand, the loans that trigger the obligation to pay the trailer (ie “loans advanced by Resi to customers of the Agent and the Licensees”) and, on the other hand, the loans by reference to which the trailer is calculated (ie “all new business on loans as identified in the Fee Schedule”). The fact that different expressions have been used indicates, it is submitted, that different loans are involved. If it had been intended that a trailer commission was payable only on loan advances by Resi to Customers of the Agents and the Licensees, it would have been easy and natural for the parties to have provided for a, “trailer commission representing 10 Basis Points of such loans…”, thereby referring back to the “loans advanced by Resi to Customers of the Agent and the Licensees” earlier in the clause.

11 Next, the plaintiff submits that it is hard to see what the purpose was of including the word “all” in the expression “all new business” if it was not to mean that the trailer was also payable on loans advanced to customers who were served directly by Resi. What other work, the plaintiff asks rhetorically, does the word “all” do in the expression “all new business”? The plaintiff says that the subject matter of the Agreement is important, and in particular the fact that the Agreement explicitly recognises and provides for business conducted directly by Resi, as well as business conducted through the Agent. The plaintiff says that if the expression “all new business” had referred only to loans advanced by Resi to customers of the Agent and Licensees, then the word “all” would have been otiose; the expression “the new business” would have been sufficient.

12 The plaintiff also submits that the construction for which it contends is consistent with the business dynamics underlying the Agreement. The Agent was more than just introducing loans to Resi. A complete marketing structure was being created which would have flow-on benefits to the business being conducted directly by Resi, and could stand intact even if the Agent were to be replaced.

13 Finally, the plaintiff submits that, to the extent to which there is ambiguity in the Agreement, that ambiguity should favour the plaintiff, in accordance with the contra proferentem rule.

14 I do not accept the conclusion that clause 10.2 provides for the trailer to be paid on all loans advanced to customers of Resi.

15 Clause 10.2 is part of a remuneration package for an entity which, so far as the Agreement discloses, acts in some ways like a commission agent – it is a remuneration package for a commission agent’s assistant. The only function or responsibility which the Company has under the Agreement, arises from clause 11.1. The scope of the functions which the Company is to undertake under clause 11.1, when it “provide[s] to the Agent services in respect of sales and marketing of the Product” needs to be understood by reference to those functions which the Agent itself has concerning sales and marketing of the Products.

16 In my view, if someone appoints a commission agent and says to them, ‘I will pay you X percent commission on all new business”, the ordinary meaning of that statement is that the commission is paid on all new business that the agent has some sort of connection with. Further assistance from the context would be needed to work out precisely what sort of connection was intended to give rise to the right to receive commission. However, I do not accept that, “all new business” means that a commission is to be paid on all new business of the entity which appoints the agent.

17 When one takes into account the entire context of the agreement within which clause 10.2 operates, this conclusion is reinforced. It is a fundamental feature of the Agreement that Resi had an existing business of marketing loans (recital A) and intended to continue that business. The definition of “Preferred Customers” showed that there were customers who (as I construe it, from time to time in the course of the operation of the Agreement) would be served directly by Resi in its normal course of trading. Resi agreed, under clause 5.4, that it would not discriminate unfavourably against the Agent’s customers, by comparison with the Preferred Customers, so far as fees or charges were concerned. The grant of an exclusive right to the Agent in clause 2.1 was subject to the proviso that Resi could service any area within the Territory through its own agents, introducers and employees working through Resi’s main office from time to time. Further, the grant of the exclusive license to the Agent in clause 2.1 was made subject to clause 2.4, which enabled Resi to appoint its own representative to operate within a particular area if a Licensee within that area did not perform satisfactorily. The Agreement thus covered a range of possibilities, from the situation where the Agent generated practically all the business which Resi wrote, to the situation where the Agent generated only a very small part of the business which Resi wrote.

18 When that is the context in which clause 10.2 must operate, this reinforces the conclusion that, “all new business” should not refer to all new business which Resi writes. It would be very odd indeed for Resi to pay to the agent’s assistant a commission on the whole of the business which Resi wrote, in circumstances where the Agent generated only a very small part of the business which Resi wrote. Yet, clause 10.2 must have the same meaning in all the different circumstances in which the Agreement could possibly operate.

19 Further, if the Agent was entitled to receive a commission on all new business which Resi wrote, this would be giving it an interest which was, in some ways, akin to a right in the business of Resi. Yet clause 6.3 of the Agreement requires the Agent to take steps aimed at keeping its business well distinguished within the public mind, from the business of Resi. Resi has a right of veto over the Agent appointing any Licensee (though its consent cannot be unreasonably withheld) under clause 6.2, and the terms on which a Licensee is appointed by the Agent must be approved by Resi under clause 7.3, yet the Agent has no analogous rights of intervention in the business of Resi. Clause 16.2 expressly negatives any partnership and/or joint venture between the Agent and Resi. It would be odd for that to be the situation concerning the Agent and Resi, yet for the Agent’s assistant to have a right to a commission on all business which Resi wrote.

20 I do not find that the failure to use the capitalised term “Business” in clause 10.2 provides me with any assistance in construction. The “Business” as defined, is, it seems to me, the process or enterprise of selling the Products in accordance with the Marketing Plan. While it is true that the Marketing Plan is a plan of the Agent, and would relate only to sales of Products which were carried out under auspices of the Agent, rather than as part of Resi’s ongoing business, the definition of the expression “Business” is not suitable to describe the writing of a particular loan. If one tries the exercise of substituting the definition of “Business” for the word “business” in clause 10.2, making the sort of minor changes which are needed to accommodate the definition to its context, one comes up with a form of words which is comprehensible (“…a fee shall be paid by Resi to the Company which is a trailer commission representing 10 Basis Points of all new retail sale of the Products at retail premises, by mail order, or by direct selling, and wholesale sale of Products, each in accordance with the Marketing Plan, on loans as identified in the Fee Schedule”). However it is a strained and unnatural use of language. I do not find the failure to use the defined expression “Business” of assistance in resolving this question of construction.

21 In my view, the fact that the opening phrase of clause 10.2 uses the expression “loans advanced by Resi to Customers of the Agent and the Licensees” while the fee which defines the commission uses a different expression “loans as identified in the Fee Schedule”, has a different significance to that which the plaintiff contends for. In my view, the ordinary English meaning of the opening phrase of clause 10.2 is that, every single loan which is advanced by Resi to Customers of the Agent and the Licensees counts towards the achievement of the $20m trigger figure. However, once that trigger figure has been exceeded, it is not every loan advanced by Resi to Customers of the Agent and the Licensees which will count for the purposes of trailer commission. It is only loans “as identified in the Fee Schedule”, and on “new business” which will require the payment of trailer commission. The Fee Schedule lists various types of loan Products, and provides an “Agent’s Fee” in relation to each of them. This “Agent’s Fee” is the commission which is payable to the Agent under clause 10.1. However, the Fee Schedule provides that it is only some categories of loan which count for the purpose of payment of trailer – the trailer for ”line of credit” and “Homestart” is said in the Fee Schedule to be “nil”.

22 In my view, the function of using the word “all” in “all new business” in clause 10.2 is to convey the idea that prior to the date that the $20m trigger point is achieved, no trailer commission is payable, but from the date the $20m figure is achieved, all new business (not merely some of it) of those types of loans which are identified in the Fee Schedule as having trailer paid on them, will attract trailer commission. However, the frame of reference within which clause 10.2 is talking is not one where there is any reason to suppose that anything other than the ordinary arrangements for payment of a commission agent will apply, namely that the commission agent’s assistant gets paid commission on those transactions the commission agent has something to do with. The notion that the Company would receive a trailer commission on every single new loan which Resi wrote is simply outside the frame of reference with which clause 10.2 is dealing, and the word “all” should be taken as operating within the frame of reference of clause 10.2.

23 That this is so can be seen from the way that the Agreement operates. I have earlier shown how the Agreement is quite indeterminate about the proportion of the total business written by Resi will be generated by the Agent. Clause 10.1 makes provision for a commission to be paid to the Agent ‘upon settlement of a loan as detailed in the Fee Schedule”. It is not contended (and could not be contended) that the Agent was entitled to a fee under clause 10.1 in relation to every single loan that Resi wrote, of a type described in the Fee Schedule, whether or not the Agent had had anything to do with Resi writing that loan. Clause 10.2 provides for the trailer commission to be paid, not to the Agent, but to the Company. The sole role of the Company, under the Agreement, is that provided for by clause 11.1, namely to provide services in respect of the sales and marketing of the Products to the Agent. The clear implication from clause 11.1 is that the only payment which the Company is to receive for providing those services to the Agent, is that Resi will pay it the Trailer under clause 10.2. Whatever the activities of the Company might be in providing services to the Agent concerning the sales and marketing of the Product, I cannot see a sensible business reason, within the confines of the Agreement, why Resi would be paying a trailer commission to the Company for the writing of business which did not earn the Agent a commission.

24 I do not find the plaintiff’s arguments that, if a particular meaning was intended, it would have been easy to have adopted a clear way of expressing that meaning, very persuasive. It is often easy, when a document is being construed with the full glare of hindsight being applied to it, to see ways in which the parties might have expressed themselves more clearly. The Court’s task is to construe those words which the parties actually used.

25 Nor do I find the plaintiff’s submission that the Agent was doing more than just introducing loans to Resi, a persuasive one. It is true that the Agent had various functions, most particularly under clause 6.7 and 6.9, which might go beyond dealing with its own licensees, and procuring loans through those licensees. However, I cannot see any basis in the agreement for the submission that the Agent was creating a complete marketing structure which could stand intact even if the Agent’s relations with Resi came to an end. The only rights which the Agent’s licensees had, were in the nature of a sub-license of the rights which the Agent itself was granted. If the Agent’s license were to be terminated, it would be quite fortuitous whether Resi would be able to obtain any benefit from the business arrangements, or business contacts, which the Agent had established. Further, even if it were the case that the Agent did more than introducing loans to Resi, that is hardly a reason for paying the plaintiff (as opposed to the Agent) a commission.

26 In the present case, I do not find the contra proferentem rule a useful aid to construction. The Agency Agreement is one which evolved through several drafts, between firms of solicitors. The final form of agreement which was executed, is one which was engrossed by the solicitors for the plaintiff and Mr McEwan (so, in a sense, the agreement is one which was proffered by the plaintiff and Mr McEwan). Clause 10.2 itself is a work of joint authorship of the two firms of solicitors.

27 Norton on Deeds, 2nd edition page 127-128 says that:

“The reason for the rule is that “the principle of self interest will make men sufficiently careful not to prejudice themselves by using words of too extensive a meaning, and all manner of deceit is hereby avoided in deeds: for people will always affect ambiguous expressions, if they were afterwards at liberty to put their own construction on them”: Cruise Dig. Tit 32, c. 19, s. 13; and to the same effect is Shep. Touch. 87”

28 In the circumstances in which clause 10.2 in this Agreement evolved, that rationale has no role to play.

29 While I reject the plaintiff’s submission that clause 10.2 enables a trailer to be paid on every single loan written by Resi, of a type identified in the Fee Schedule, a question remains of what are the loans which attract the trailer. The defendant submits that they are those loans which were introduced to Resi by the Agent or licensees of the Agent. The background against which this submission is made is that, since the agreement was entered into, Resi has on occasions engaged in advertising campaigns. On occasions, someone whose initial interest was aroused by the advertising campaign has approached the Agent, or a Licensee of the Agent, and actually taken out a loan. In the course of so doing the Agent or Licensee has had to maintain the initial interest, and carry out whatever functions are ones for the Agent or Licensee to perform in obtaining and submitting a loan application, and otherwise bringing the loan to settlement. Resi contends that commission is not payable in those circumstances, because the introduction was effected by its own advertising.

30 In L J Hooker Ltd v W J Adams Estates Pty Ltd (1977) 138 CLR 52, at 66 Gibbs J said:

Luxor (Eastbourne) Ltd v Cooper

31 The usual common law rule is that an agent is entitled to commission if it is an effective cause of the sale: (L J Hooker Ltd v W J Adams Estates Pty Ltd (1977) 138 CLR 52 at 61, 67, 76; Moneywood Pty Limited v Salamon Nominees Pty Limited (2001) 202 CLR 351 at 360-361, 375-377, 408). I would not regard this contract as needing to be construed in any different way. Whether a particular Agent or Licensee is, or is not, an effective cause of a sale is a question of fact. That question of fact is approached without any presupposition that there can be only one effective cause of a sale. The question of fact needs to be answered in relation to each particular loan. It cannot be answered as a matter of construction of the contract. Under this contract, if a particular loan is written by Resi after the $20m trigger point has passed, is a loan of which the Agent or a Licensee is an effective cause, and is of a type identified in the Fee Schedule as attracting trailer commission, then trailer commission will be payable in respect of that loan, subject to the second clause in the agreement which is numbered 10.3.

Once the $20 Million is Passed, is Trailer Payable on the First $20 Million of Loans?

32 There is a discrete construction question concerning whether, once the $20m trigger for payment of trailer has passed, commission is payable on loans which are included in that first $20m.

33 The plaintiff contends that the expression “all new business” should be construed as speaking from the date when the Agreement was entered, 10 December 1997. The plaintiff says that this view is consistent with the usual rule, whereby a document is construed as at the date it is entered.

34 Further, it is submitted that the Agreement should be construed with a predilection for avoiding an unfair outcome, such as would be involved if the Company were not paid a commission on loans which had been introduced by the Agent, and were included in that first $20m. The plaintiff submits that there were some start-up costs to Resi, and therefore it might be sensible to defer payment of the commission of the first $20m of loans, but it would not be commercially sensible to go beyond that.

35 In my view, it is more appropriate to construe the “all new business” phrase by reference to its immediate context in clause 10.2, than by reference to the Agreement as a whole. The opening phrase in clause 10.2 (“from the date during the Term that the loans advanced by Resi to Customers of the Agent and the Licensees in excess of $20m have been settled”) not only fixes a point of time, but also (by use of the word “from”) indicates that that point of time is the commencement of an event or activity. That event or activity is the payment of the trailer commission. That trailer commission is payable on all loans which count as “new business” of the type identified in the Fee Schedule. Further, it is business which is “new” in the period commencing from the time when the $20m trigger has been achieved. Thus, in my view, commission is not payable on loans included in the first $20m.

36 I cannot see how the plaintiff’s arguments about construing the clause so as not to achieve an unfair outcome can be given effect to. I accept that if a contract is open to two constructions, it should receive that construction which will avoid consequences which are capricious, unreasonable, unjust or inconvenient (TCN Channel 9 Pty Ltd v Hayden (1989) 16 NSWLR 130, at 146). However, in the field of commission agency, it is well recognised that contracts are often entered which have the effect that not all exertion is rewarded. As Stephen J said in L J Hooker Ltd v W J Adams Estates Pty Ltd (1977) 138 CLR 52, at 78:

“Rightly or wrongly the law, as it has evolved, has made the earning of an agreed commission an all or nothing affair, on the one hand denying to agents any reward despite substantial labour on their part and on the other handsomely rewarding agents who with little effort manage to effect a sale.”

37 Further, I simply do not have the evidentiary material to enable me to form a view about whether denying the Company trailer commission on the first $20m, but allowing trailer commission at the rate of 10 Basis Points on all qualifying loans thereafter, is, or is not, an unfair arrangement.

Is a “Basis Point” Expressed as a Percentage Per Annum, or Per Month?

38 The plaintiff submits that the definition of “Basis Point” is expressly the definition of a percentage, not of a percentage per annum. The plaintiff says that there is nothing in the words of the definition to suggest the contrary. Clause 10.2 is quite clear in requiring that the trailer commission shall be paid on a monthly basis, and calculated monthly. Hence, the plaintiff submits, that calculation should be done so that, each month, 10 Basis Points (ie 0.1%) of the then outstanding balance of a loan is payable as a trailer commission.

39 I do not accept this submission.

40 The Fee Schedule, in the column headed “Retail Rate”, sets out certain percentages applicable to various loan products. Those percentages are clearly intended to be percentages per annum, for interest. Likewise, it seems to me, when the column headed “Trailer” says that 10 Basis Points is payable on certain types of loan, that is also referring to a percentage per annum.

41 There is some extrinsic evidence which assists in reaching this conclusion. In late July Mr Gross gave Mr James a document which set out a proposed basis for agreement. That document included as a recital:

“(I) Resi is a home loans provider receiving a margin between 0.35% p.a. and 0.45% p.a. between its costs of funds (supplied largely by Interstar) and the return received…

(v) the Phoenix Trust will receive any payment by Resi as outlined below and share of commission from AIS as outlined below.

It is agreed:

“trailer”

2. Resi will pay this trailer for the full term or life of the loan, even if converted into another entity/lender controlled by, influenced by, or paying to Resi.

3. Should Resi’s margin fall below 0.35% p.a. or rise above 0.45% p.a. (prior to costs) it will notify Phoenix immediately and Phoenix will immediately adjust its receipts from Resi upwards or downwards to be a figure of 25% of the margin received by Resi.”

42 Consistently with the decision of Mason J in Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337 at 352, this evidence of prior negotiation between the parties is admissible as an aid to construction only to the extent that the language of the contract is ambiguous, and to the extent that the prior negotiations establish objective background facts which were known to both parties and the subject matter of the contract. Using the evidence in that way, there is, it seems to me, an ambiguity about whether the effect of clause 10.2 of the contract plus the Fee Schedule is that a trailer is payable at 0.1% per annum, or per month. I cannot take into account, as an aid to construction, that the actual proposal which was put by Mr Gross in this document of July 1997 was for a trailer of 0.1% per annum – to do so would be to take into account a statement which showed the actual intention of Mr Gross. Likewise, the provision whereby, if Resi’s margin fell below 0.35% per annum or rose above 0.45% per annum Phoenix’s trailer would be adjusted to become a figure of 25% of the margin received by Resi. That also is a statement of the actual intention of Mr Gross which cannot legitimately be used as an aid to construction. However, I can take into account, as an objective background fact known to the parties, that the margin Resi was receiving was between 0.35% per annum and 0.45% per annum. If the Company were to be paid a trailer of 0.1% per month, having the Agent obtain business for it would inevitably mean that every single loan which the Agent wrote would result in a significant loss for Resi. Out of its margin of between 0.35% per annum and 0.45% per annum, Resi would have to pay to the Company a trailer of 0.1% per month, would have to pay to the Agent commissions under clause 10.1 upon the settlement of each new loan, and would have to pay whatever its own overhead expenses were. It is absurd that Resi would agree to any such arrangement. Thus, the construction of the contract which leads to such absurdity, must be rejected (Westpac Banking Corporation v Tanzone Pty Ltd [2000] NSWCA 25; (2000) 9 BPR 17,521.

How is Trailer Commission Payable After Termination of the Agreement?

43 On 8 March 1999 the solicitors for Resi sent to the Company a letter saying:

“Re: RESIDENTIAL HOUSING CORPORATION PTY LIMITED: MCEWAN: PRODUCT DISTRIBUTION AGREEMENT

notice

44 On 23 March 1999 Resi’s solicitors sent a letter in identical terms to Mr McEwan.

45 The case was conducted on the basis that these letters, whatever their effect might be, were efficacious only from 23 September 1999.

46 The plaintiff submits that clause 3.4 of the Agreement clearly provides that termination does not limit the obligation to continue to pay the Trailer. The plaintiff submits that the clause must mean more than that, whatever obligation Resi had come under to pay trailer at the date of termination, would not cease by reason of the termination – the plaintiff says that if that were the construction of the clause, it would have been otiose (McDonald v Dennys Lascelles Ltd (1933) 48 CLR 457).

47 Further, the plaintiff submits that the termination which has occurred is one pursuant to clause 3.2 of the Agreement, and clause 3.2 permits only the Licence to be terminated, not all obligations under the Agreement. The Licence is defined as being the licence granted by Resi to the Agent pursuant to clause 2.1. Termination of that Licence, it is submitted, is not enough to terminate rights of the Company to receive trailer commission under clause 10.2.

48 I would not regard the fact that clause 3.4 articulated a consequence of termination which would have followed as a matter of law even if clause 3.4 had not been in the Agreement, as a reason to adopt a construction of the Agreement different to that which the wording of clause 3.4 would otherwise suggest. Clause 16.1 contains an express choice of New South Wales law as the governing law of the Agreement, yet without clause 16.1 there could be no real doubt that the Agreement was governed by New South Wales law. Further, the Agreement is one whereby people in commerce articulate what their obligations are. I see nothing unusual in the parties to this agreement choosing to state a particular matter expressly, even if, without that statement, that matter would have followed as a matter of law.

49 Once the Licence is terminated pursuant to clause 3.2, the right of the Agent to use Resi’s Trade Marks and Names, under clause 4.1, will cease (as clause 4.2 expressly states). The right of the Agent to distribute and promote the Products in the Territory (under clause 2.1) will cease. Further, once the Licence is terminated the Agent will cease to be the Agent, and the Licensees will cease to be the Licensees, for the purpose of construing clause 10.2. If, before the date of termination, a loan has settled, of a type identified in the Fee Schedule as attracting trailer commission, then, subject to the restrictions imposed by the second clause numbered 10.3, Resi will be obliged to pay the Company trailer commission every month that that loan remains outstanding. Further, if, by the date of termination, the Agent or a Licensee has carried out functions which make it an effective cause of a loan of the type identified in the Fee Schedule settling after the termination date, the Company is entitled (again, subject to the second clause numbered 10.3) to receive a trailer commission each month that that loan remains outstanding. The Company has no more extensive right to receive trailer commission, after termination, than this.

Rectification

50 By its Second Further Amended Cross-Claim, Resi asserted that the parties to the Agency Agreement, or alternatively Resi and the plaintiff, at the time of executing the Agency Agreement, had a continuing common intention that:

“(1) the trailer payable by the Cross-Claimant to the First Cross-Defendant by reason of clause 10.2 of the Agency Agreement (“the Trailer”) was only payable in respect of loans introduced to the Cross-Claimant by the Second Cross-Defendant or licensees appointed by the second Cross-Defendant under the Agency Agreement (“Licensees”);

(2) the Trailer was only payable in respect of loans introduced to the Cross-Claimant by the Second Cross-Defendant or the Licensees which were advanced after the date upon which the second Cross-Defendant and the Licensees had introduced to the Cross-Claimant $20,000,000 worth of loans and those loans had settled;

(3) the Trailer was only payable by Cross-Claimant to the First-Cross Defendant in relation to loans introduced to the Cross-Claimant by the Second Cross-Defendant or the Licensees during the term of the Agency Agreement; and

(4) the Trailer would be calculated in such a way that the percentages referred to at Clause 1.1 of the Agency Agreement were per annum percentages;”

51 I have already held that the correct construction of clause 10.2 is in accordance with the fourth item on this list, so no further consideration needs to be given to whether rectification should be granted in that respect.

52 I have also held that the correct construction of the Agreement is in accordance with items 1, 2 & 3, save only that the correct construction involves the Trailer being payable in respect of loans of which Mr McEwan or Licensees appointed by him, were, during the term of the Agency Agreement, an effective cause¸ rather than on loans introduced to Resi by Mr McEwan or Licensees appointed by him.

53 On the final day of the hearing, I granted Resi leave to file a Third Amended Cross-Claim, which widened the ambit of the claim for rectification by alleging an additional continuing common intention, that:

“The cross-claimant would only become liable to pay the Trailer from the date upon which $20 million worth of Standard Variable and Fixed Rate loans (as described in the Fee Schedule to the Agency Agreement) had been introduced to the cross-claimant by the second cross-defendant or the Licensee, and those loans had settled.”

54 This widening of the rectification claim needs to be understood bearing in mind the evidentiary and procedural background against which it took place.

55 On 21 May 1999 an accountant instructed on behalf of the Company, sent to the Company’s solicitor a report on investigations he had made, from Resi’s records, about the amount of trailer commission which should be paid. That report said:

“Settlement – by introducer”

“all loans settled”

“Danbuster”

The software system that tracks all loans, and introducers appears to be sophisticated, up to date, detailed and very flexible in its recording function.”

56 Annexed, was a table containing three columns headed “Mth End” “Mthly Total” and “Progressive”. The “Mth End” column listed the last day of each month from May 1998 to and including April 1999. The “mthly Total” line showed, I infer, the loans settled during that month. The “Progressive” column showed, in relation to any month, what was the total of “Mthly Total” amounts for that month and all previous months in the table. The “Progressive” column showed 19,141,950 (a figure which I infer is a number of dollars) for the month ending at the end of February 1999, and a figure in excess of 25 million at the end of March 1999.

57 The report calculated the payment due in April 1999 in a way consistent only with recognising that $19,141,950 of loans had been written up to the end of February 1999, an additional amount of $858,050 of loans would therefore need to have been written in March before the $20m was exceeded, subtracting that $858,050 from the monthly total of loans written in March (to come up with a figure of $5,086, 025), taking 0.1% of that figure, and dividing by 12. The payment due in May 1999 was calculated by adding together that figure of $5,086.025 and the entire monthly total for April (to come up with a figure of $11,306,925), taking 0.1% of that figure, and dividing by 12. This method of working is consistent only with those loans which count for the purposes of payment of trailer being of the same type as those loans which count for the purpose of deciding whether the $20m trigger has been reached or not.

58 Mr Peter James, one of the directors of Resi, and the person who had been primarily responsible for negotiating the Agency Agreement on Resi’s behalf, had sworn an affidavit on 20 April 2000. He deposed to saying to Mr McEwan, in about September or October 1997, and in the context of the commission which Mr McEwan would be paid for introduction of the loan,

“Homestart”

59 Mr James also gave evidence in his affidavit sworn 20 April 2000, of a meeting attended by Mr Gross, Mr McEwan and himself, where Mr Gross had requested a trailer of 20 basis points on all business introduced by Mr McEwan’s network of licensees. Mr James said that he left the meeting and spoke briefly with Mr Christie and that both he and Mr Christie came into the meeting. His evidence continued, in paragraph 16 of that affidavit:

“The discussion proceeded in words to the following effect:

JAMES: “We can pay a trailer but only on certain conditions. The first thing is that the trailer will be 10 basis points, not 20. It will only apply to the loans that have full margins; not the “Homestart” loan or the line of credit. To cover our operational costs the trailer will not kick in until Dan’s network has written $20 million of qualifying loans, that is, loans on which a trailer can be paid. And the trailer only gets paid on qualifying loans written by Dan’s network over the $20 million dollars.”

GROSS: “No, I think that’s unrealistic.”

McEWAN: (interrupting and turning to David Grose):

“No, this is my business; it’s a fair deal and we are going to go ahead with it”.

At that point Dan McEwan stated words to the following effect:

“The terms are clear. Let me instruct our solicitor to prepare the first draft and I’ll have it sent to your solicitor for comment.”

At that point the meeting concluded.”

60 Mr James also gives evidence that he wrote to his solicitor, Mr Dimitri, in about October 1997 giving instructions for the drafting of an agreement. That letter included the following:

“…we will remunerate the company as follows

All loans settled we will pay the equivalent of .5% (half percent) up to a maximum of $1000 for loans up to $200,000 in value and $1200 for loans in excess of $2000000

Once loans in excess of $20m have been settled then a further income representing 10 basis points of all new business will be paid on a monthly basis

There will be various conditions placed on the arrangements such as

The trailer will only be paid on the standard Variable Loan or other loans that are agreed on from time to time…”

61 The reader will observe that, while the account that Mr James gives in his affidavit and which I have quoted in paragraph 59 above is quite explicit that it is only ”qualifying loans, that is, loans on which a trailer can be paid” which count towards the $20m figure, that concept is missing from his letter of instructions to Mr Dimitri.

62 Mr James gave evidence in the affidavit sworn 20 April 2000, that he later had a conversation with Mr Dimitri in which he said:

“Look, these the are the terms of our agreement which I want you to make sure are covered. First of all territory. Resi already has an introducer base and a team of sales representatives. This agreement must allow us to continue with those activities. Secondly, I want to make sure that the $20 million needs to be identified as $20 million in settled loans sourced by their sales representatives and qualified as loans which attract trailers. For the loans that do attract trailers, the trailer is not payable once the loan terminates or if the loan is in arrears. The remuneration structure may change from time to time so it is better to set that out as an attachment.”

63 Mr James also gave evidence in that affidavit:

“It was always my understanding up to and including the time I executed the final agreement that under the 10 December 1997 agreement, trailers would only be paid after Dan McEwan’s licencees had introduced $20 million in qualifying loans (i.e. loans which were specified in the Fee Schedule as capable of attracting a trailer) and only on the loans settled in excess of $20 million. Further, it was always my understanding up to and including the time I executed the final agreement on 10 December 1997 that the trailer was only payable on the qualifying loans introduced by Dan McEwan’s licencees.

Had I been advised by Mr Van Dimitri that the 10 December 1997 agreement meant that Resi was liable to pay a trailer commission on all loans settled by Resi (whether or not the loans were generated by Dan McEwan’s licencees) once $20 million in qualifying loans had been settled by Dan McEwan’s licencees then I would not have signed the agreement. Similarly, had I been advised by Mr Van Dimitri that the 10 December 1997 agreement meant that Resi was liable to pay a trailer commission on all loans introduced by Dan McEwan’s licencees (whether or not the said loans were of the type identified in the Fee Schedule as attracting a trailer) once $20 million in qualifying loans had been settled by Dan McEwan’s licencees then I would not have signed the agreement.

Finally, I have always believed that when $20 million dollars in qualifying loans had been reached by Dan McEwan’s licencees Resi was only liable to pay trailer on loans introduced by Dan McEwan’s licencees which were in excess of the $20 million and which were those types of loans which were identified in the Fee Schedule as attracting a trailer. Had I been advised by Mr Van Dimitri that the 10 December 1997 agreement could be interpreted differently then I would not have signed it.

On about March 1998 Dan McEwan’s licencees had introduced (and Resi had settled) $20 million in qualifying loans. Payment of trailer commissions made to date pursuant to clause 10.2 of the 10 December 1997 agreement are $25,303.94.”

64 Mr Christie swore an affidavit on 10 April 2000 which included the following:

“It was always my understanding up to and including the time of execution of the final agreement that trailers would only be paid after Dan McEwan’s sales team had introduced $20 million in qualifying loans (i.e. loans which were specified in the Fee Schedule as capable of attracting a trailer) and only on the loans settled in excess of 20 million. Further, it was always my understanding up to and including the time of execution of the final agreement that the trailer was only payable on the qualifying loans introduced by Dan McEwan’s sales team. It was always my understanding up to and including the time of execution of the final agreement that Resi’s introducer base and business (which was already well established) would not be affected by the agreement executed on 10 December, 1997.”

65 Thus, Mr Christie in his affidavit evidence, also supported the notion that it was only, “qualifying loans (ie loans which were specified in the Fee Schedule as capable of attracting a trailer)” which counted towards the $20m figure. However, nothing in the body of Mr Christie’s affidavit gave any basis for that belief. He did not depose to any conversation with Mr Gross or Mr McEwan which led to that belief. Nor did he depose to any conversation with Mr James which led to that belief. Indeed, he deposes to a conversation where Mr James said to him, “I have ensured that the first $20 million worth of business introduced by Dan McEwan’s sales team will not be paid a trailer commission”, and that he said, at a meeting where Mr Gross and Mr McEwan were present, “it is my understanding that a trailer commission of 0.1% is payable on introduced business above the first $20 million”.

66 On 14 May 2001 Mr McEwan swore an affidavit in which he replied to Resi’s affidavits. In relation to paragraph 16 of Mr James’ affidavit, Mr McEwan said:

“I recall this conversation but I deny it proceeded as set out by Mr James. I recall that Mr James said words to the effect:

“The trailer will only apply to loans that have full margins, not the basic loan. To cover operational costs, the trailer will not kick in until Dan’s network has written $20 million of qualifying loans.”

I do not recall David Grose saying any words to the effect set out by Mr James nor that I responded in the manner Mr James sets out.”

67 When cross-examined about this statement, the substance of Mr McEwan’s evidence was that, when he there referred to “qualifying loans”, he was referring to all loans.

68 Mr Gross, in an affidavit sworn 30 May 2001, denied paragraph 16 of Mr James’ affidavit, but did not give any alternative version of that conversation.

69 In May 2000 the plaintiff filed an Amended Summons. That Amended Summons sought declarations of liability of the defendant to pay trailer commission. There were four alternative constructions advanced. In each of those constructions, the date from which the liability to pay, of the various alternative constructions, was not asserted to be a date when loans (of any description) had passed $20m. Rather, each of the alternatives was stated by alleging that the defendant was obliged “and since 28 February 1999 has been obliged” to pay the trailer commission in accordance with some particular construction. In other words, this document proceeded on the basis that 28 February 1999 was the time when the trigger of $20m had been passed, and no question of construction needed to be resolved to conclude that the trigger had been passed by 28 February 1999.

70 The plaintiff’s case on construction, was later articulated in Points of Claim dated 29 August 2000. Those Points of Claim pleaded four alternative constructions of clause 10.2. The first of those alternatives included the allegation that:

“Customers”

“…the defendant agreed that, from the date that all loans advanced by the defendant to Customers of Mr McEwan, or to Customers of any person appointed by Mr McEwan, reached a total of $20,000,000.00 the defendant would pay to Starr each month…”

71 It will be seen that each of these pleadings did not allege that a loan had to be of a type which would itself earn trailer before it counted towards the $20m trigger point. Further, acceptance of 28 February 1999 as the date by which the trigger point was reached was not implicit in this pleading.

72 The fourth of the alternatives which was pleaded was that:

“…from the date that all loans advanced by the defendant to Customers of Mr McEwan, or to Customers of any person appointed by Mr McEwan, reached a total of $20,000,000.00, the defendant would pay to Starr each month a fee calculated as one thousandth (0.001) of the total of the monthly balance of each Standard Variable and of each Fixed Rate loan (as those terms were used in the fee schedule to the Agreement) advanced by the defendant to Customers of Mr McEwan, or to Customers of any person appointed by Mr McEwan, after the date on which all loans advanced by the defendant to Customers of Mr McEwan, or to Customers of any person appointed by Mr McEwan, reached a total of $20,000,000.00.”

73 It will be seen that this alternative is one which confined entitlement to a trailer commission to loans advanced to Mr McEwan or his Licensees (rather than all loans made by Resi) and alleged that if a loan was written prior to the $20m trigger point being reached, that loan would not attract a trailer, even after the trigger point had been passed.

74 None of the alternatives pleaded in the Points of Claim addressed the question of whether the rate at which the trailer was paid, was a rate per annum, or a monthly rate. Neither did any of those alternatives address the question of on what loans trailer was payable once the Agreement was terminated. Those two issues had been exposed as ones on which the parties disagreed, and were tacitly consented to be litigated in addition to those in the Points of Claim, by the time of counsel’s opening the case to me.

75 By its Points of Defence and Cross-Claim, the defendant denied that the Agreement dated 10 December 1997 was capable of the interpretations attributed to it in the first three alternatives pleaded in the Points of Claim. No issue was taken with the fourth alternative construction, which was thus impliedly admitted. Thus, Resi did not contend, in those Points of Defence, that only some loans written for Customers of Mr McEwan or the Licensees, counted towards the $20m trigger. The Points of Claim which I have been discussing, were still current at the commencement of the hearing before me. So were the Points of Defence (although Resi had amended its Cross-Claim by that time.)

76 By paragraph 5 of its Points of Claim, the plaintiff alleged:

“At least by 28 February 1999, the total of all loans advanced by the defendant to Customers of Mr McEwan or to Customers of any person appointed by Mr McEwan, had reached $20,000,000.00.”

77 The Points of Defence and Cross-Claim did not admit paragraph 5 of the Points of Claim.

78 The Points of Defence and Cross-Claim contained a first version of a pleading for a rectification claim. It alleged a common intention in the parties that clause 10.2:

“4.1.1.1 applied only to new loans introduced by the Second Cross-Defendant and his agents, and that

4.1.1.2 payment referred to in Clause 10.2 of the Agreement was payable only after the Second Cross-Defendant and his agents had generated $20 million in value of the work specified in the Agreement”,

79 On 13 October 2000 Resi filed a Further Amended Cross-Claim seeking rectification. Paragraph 3(a)(2) of that document alleged a continuing common intention that clause 10.2 of the Agency Agreement, “applied only after loans introduced by the Cross-Defendant (or, in the alternative, any loan) which had been settled exceeded $20m in amount advanced.” This allegation is inconsistent with only some loans introduced by the cross-defendant counting towards achievement of the $20m figure.

80 As part of his affidavit sworn 20 April 2000 Mr James had sworn (paragraph 42):

“I have searched the records of Resi and caused Resi’s computer to generate a file identifying the loans which had been settled by Dan McEwan’s licensees as at 4 March 1999. The amount of the loans which had been settled by Dan McEwan’s licensees as at 4 March 1999 was approximately $21,500,000.00.”

81 The trial of the matter occupied five days, running from Monday to Friday. When counsel for the plaintiff opened the matter, on the Monday morning he said:

“If your Honour looks at paragraph 2 of the Points of Defence, your Honour will see that the allegation in paragraph 5 isn't admitted as to the figure of $20 million reached by the end of February. In fact, there is no substantial dispute there because the evidence of the defendant is that within three or four days thereafter, namely, 4 March 1999, approximately $21,500,000 had been settled.

As I understand it, there is either no issue or, if there is any issue, there might be perhaps a day between 28 February and 4 March. It doesn't really come down to much.”

82 At the beginning of the hearing, the plaintiff and the defendant had been unable to agree on the precise formulation of the separate question to be tried, although there was substantial agreement about the substance of it.

83 On the first day of the trial, counsel for the plaintiff and for Resi presented different drafts of questions for determination. The draft of questions for separate determination propounded by Resi made provision for an agreement that:

“The parties agree that, for the purposes of clause 10.2 as properly construed, the date that loans advanced by Resi to Customers of the Agent, or to Customers of any person appointed as a Licencee, or to both, in excess of $20 million had been settled was 4 March 1999”.

84 The draft questions then put forward were in the form:

“On the proper construction of clauses 10.2 and 3.2 and 3.4 of the Agreement and in the events which have happened, has Resi been obliged since 4 March 1999 to pay to the Company each month a commission equal to: ...” (a list of alternative constructions then followed).

85 At the close of the hearing on the Tuesday, it appeared as though agreement on the form of the questions was very close. The following exchange occurred:

“OGBORNE: Just while we are on the questions, and your Honour would probably pick this up pretty quickly as your Honour goes through it, but just to complete the dates, your Honour will see frequent references to 4 March and your Honour will see towards the top of page two your Honour may recall there was a slight debate over when the $20 million amount of loans was introduced.

HIS HONOUR: Had been passed.

OGBORNE: Had been passed.

HIS HONOUR: There is evidence it had been passed by 4 March 1999.

OGBORNE: Correct and we have not been able to get the defendants to do final numbers but the plaintiffs are prepared to accept --

HIS HONOUR: It is implicit.

OGBORNE: So that is the reason for that date in the questions. I think apart from that you will have to wait for some elaborations on submissions.”

86 At the beginning of the hearing on Wednesday there was further discussion about the form of the questions. In relation to the questions concerning construction, counsel for the plaintiff said, “I think we agree that they seem to cover the possible permutations of various constructions.” There were, however, two difficulties in the drafting which I had seen, and mentioned to counsel, neither of which had any bearing on which loans counted for the purpose of reaching the $20m trigger point.

87 It was also early on the third day of the hearing that Resi filed a Second Further Amended Cross-Claim. I have quoted its terms earlier in this judgment at paragraph 50 above. That Second Further Amended Cross-Claim did not seek any rectification on the topic of which types of loans counted towards the $20m trigger point.

88 On the Wednesday afternoon, counsel for the plaintiff cross-examined Mr James about the way in which Resi had been calculating trailer commission.

89 The steps in the calculation were then gone through in more detail.

“Q. First of all, loans introduced by Mr McEwan or his licensees?
A. Yes.

Q. Secondly, that they are within the qualifying loans in the schedule?
A. Yes.

Q. Thirdly, only those loans that were introduced prior to 23 September 1999?
A. Yes.

Q. And then fourthly, deduct from that figure $20 million?
A. Of the qualifying loans, yes.

Q. Of qualifying loans, quite right. And then the net figure that one has arrived at there?
A. Yes.

Q. One multiplies ten basis points?
A. Yes.

Q. And arrives at an amount which is --
A. No, one more calculation.

Q. What is that?
A. Divide it by 12.

90 By the morning of the final day of the hearing, these various matters, which I have referred to in paragraphs 55 and following of this judgment had been exposed by argument. Counsel for Resi said that if there were to be any departure from the position which it had put forward as an agreement in its draft of the questions for determination (see paragraph 83 above), it would be prejudiced. Counsel for the plaintiff told me:

“…it was only when I was going through the exercise with Mr James in the witness box that it first came to the plaintiff’s attention that it was only the qualifying loans that had been introduced by customers of the agent and the licensees that were included in that $21 million figure.”

91 I ruled that the only way of dealing with the question of which loans counted towards the $20m figure was to allow anyone who wanted to, to re-open on that issue. Counsel for Resi also sought leave to further cross-examine any other witness, and that leave was granted. (I mention that the transcript of exchanges between counsel and myself on this matter is, in some respects incomplete, and includes some misattribution of which counsel was speaking at which time.)

Was There a Continuing Common Intention About Commission being Payable on Business “Introduced” by Mr McEwan or his Licencees?

92 In late July, Mr Gross gave Mr James the document which I have earlier referred to at paragraph 41 above. Clause A1 of that document said:

“trailer”

93 Mr James gives evidence of Mr Gross in October 1997 asking for a trailer of 20 basis points of all business introduced by Mr McEwan’s network. That proposal was rejected and, according to paragraph 16 of Mr James’ affidavit, (set out in paragraph 59 above) a counter proposal put. While that counter proposal did not expressly use the expression “introduction” in saying that “the trailer will be 10 basis points, not 20” the concept of “introduction” was still maintained.

94 When Mr James wrote to Mr Dimitri, in what he says was about October 1997, he did not use the concept of “introduction”. Instead, he said:

“Once loans in excess of $20 million have been settled then a further income representing 10 basis points on all new business will be paid on a monthly basis.”

95 Mr James gives evidence of giving instructions in conference with Mr Dimitri, where he says:

“Secondly, I want to make sure that the $20 million needs to be identified as $20 million in settled loans sourced by the sales representatives and qualified as loans which attract trailers.”

96 The first draft agreement was an agreement which Mr Dimitri prepared (Exhibit B). It bears a note in handwriting “changes made 18/8”. It has two payment provisions which bear on trailer commissions.

“9.2 Once loans in excess of TWENTY MILLION DOLLARS ($20,000,000.00) have been settled then a further income representing ten (10) basis points of all new business will be paid on a monthly basis.

10.1 It is acknowledged by all the parties that payment to the Agent forms only part of the full arrangement between the parties and includes a Zero decimal one per centum (0.1%) per annum (one-tenth (1/10) of One per centum (1%) per annum) trailer or margin on all residential and investment loans introduced by the Agent to be paid to the Phoenix Trust.”

“introduction”

97 The next draft, (Exhibit C), was also prepared by Mr Dimitri. It contains clause 9.1, in terms identical to clause 9.2 of the first draft, and clause 10.1, in identical terms to clause 10.1 of the first draft.

98 Mr Christie gives evidence of attending a meeting in October 1997 with Mr Gross and Mr McEwan, where he said:

“I understand that the agreement relates to introduced business by Dan McEwan and his sales team, and that it is my understanding that a trailer commission of 0.1% is payable on introduced business above the first $20 million, such trailer commission is not paid on our Basic Product.”

99 He gives evidence there was no objection to this by any person present. He gives evidence that it was always his understanding that trailer was only payable on qualifying loans introduced by Mr McEwan’s sales team.

100 On 2 October 1997 Mr Dimitri wrote to Colin Biggers & Paisley (who by that time were acting for Mr McEwan and Starr in connection with the Agreement.) He said of clause 11.2 of the then draft:

“This clause is one and the same as clauses 10.2 and 10.3 being that Resi will pay to the agent .1% in respect of all business introduced by the Agent which exceeds $20 million.”

101 The first draft agreement produced by Colin Biggers & Paisley contained a clause 10.2 (which did not differ in substance from Mr Dimitri’s clause 9.2 in the first draft) and a clause 11.2 (which did not differ in substance from clause 10.1 of Mr Dimitri’s first draft).

102 On 10 October 1997 Colin Biggers & Paisley sent Mr Dimitri their second draft. It omitted the old clause 11.2, and redrafted clause 10.2 to read:

“From the date during the Term that loans advanced by Resi to Customers of the Agent and the Licensees in excess of $20,000,000 have been settled a fee shall be paid by Resi to the Company which is a trailer commission representing 10 Basis Points of all new business on loans as identified in the Fee Schedule. This trailer shall be paid by Resi to the Company on a monthly basis on the reducing balance of a loan and calculated monthly.”

103 Mr Dimitri gives evidence concerning this draft as follows:

“At the time I received this draft, I understood it to mean that Clause 10.2 incorporated the terms of Clause 11.2 of Exhibit AA1 and Clause 10.2 of Exhibit AA1 into the one new clause being Clause 10.2 of Exhibit AA2. I understood Clause 10.2 of Exhibit AA2 meant that the trailer would be payable by Resi to the Company only on qualifying loans which had been introduced by the agent after the total of loans introduced by the agent or licencees had reached the minimum figure of $20,000,000 and that the trailer would be payable only on the loans accruing in excess of $20,000,000.

Had I known that it would be contended that pursuant to clause 10.2 of the 10 December 1997 agreement that once the qualifying loans advanced by Resi to customers of Dan McEwan and his licensees exceeded $20,000,000 then Resi was liable to pay a trailer commission on all loans settled by Resi irrespective of whether Dan McEwan’s agents had introduced the loans or whether Resi’s other sales representatives had introduced the loans and irrespective of whether or not the loans were loans on which a trailer was payable under the Fee Schedule, I would have advised this to Peter James and sought instructions from him as to whether that accurately reflected the agreement between the parties.”

104 On 31 October 1997 Mr Dimitri wrote back to Colin Biggers & Paisley saying, concerning clause 10.2:

are put to

105 That letter starts by saying; “We refer to your letters dated 10 and 16 October 1997 and advise we have now had the opportunity of a conference with our client Corporation in respect of the further draft as forwarded. We are instructed to reply as follows.”

106 There is no evidence which informs me about the content of that conference between Mr Dimitri and his client concerning Colin Biggers & Paisley’s draft. While there was a third draft prepared by Colin Biggers & Paisley before the version of the agreement which was executed, clause 10.2 in that third draft did not differ from clause 10.2 in the second draft, or in the agreement as eventually executed.

107 The notion of loans “which are put to Resi by the agent” in that letter of 31 October, is not the same as loans “introduced” by the Agent.

108 The evidence of Mr Gross and Mr McEwan is contrary to that put forward by Resi’s witnesses. Mr McEwan denies that Mr Christie said the words which he attributes to himself and which I have set out in paragraph 98 above. Mr Gross gives a different account, to that of Mr Christie, of the only meeting where he recalls Mr Christie being present. Mr McEwan denies that any meeting proceeded in the way which Mr James deposes to in paragraph 16 of his affidavit (set out in paragraph 59 above), as does Mr Gross.

109 Both Mr Gross and Mr McEwan were witnesses who were, in some respects, unsatisfactory. Mr McEwan accepted that he had some difficulties in recollection about these events. Mr Gross contradicted himself, and retracted answers he had earlier given, in the course of his cross-examination.

110 The main target of Mr Gross’ cross-examination, concerning which loans attracted a trailer, was to attack the understanding he said he had, that all loans written by Resi would attract a trailer. In the course of that cross-examination, however, Mr Gross was cross-examined about whether he did, or did not, accept that a trailer was to be paid only on loans introduced by the Agent or its Licensees, to Resi. On occasions in his cross-examination, he accepted that proposition, and on other occasions he did not.

111 Even bearing in mind the unsatisfactoriness of Mr Gross as a witness, I am not persuaded that it was his intention, at the time the agreement was entered, that trailer commission would be payable only on loans “introduced by” Mr McEwan, or his licensees.

112 When I am not satisfied about Mr Gross’ intention in this respect, it is not possible to find that there was a continuing common intention of the parties to the agreement that trailer commission would be payable in relation to loans introduced to Resi by Mr McEwan or his licensees.

113 Another factor to which I have given some weight in concluding that I am not satisfied that there was a continuing common intention, of the type just referred to, is that the agreement is one which was negotiated between solicitors, through several drafts. This is a circumstance which makes it less likely that the parties failed to correctly express their intention than would be the case if they were negotiating directly between themselves, or if (at least in relation to a transaction of the complexity of this one) they executed the first draft which was written. I have also given some weight to the fact that the agreement contains an “Entire Agreement” and “No previous representations” clause, in clause 1.6. This is a factor which I have taken into account at the factual level, in reaching a conclusion about whether there was a continuing common intention. No submission was put to me about whether the “entire agreement” clause had the effect of making rectification unavailable, by analogy to the argument that an “entire agreement” clause prevents, as a matter of law, there being any estoppel arising from precontractual communications about the obligations undertaken in a written agreement – (Johnson Matthey Ltd v A C Rochester Overseas Corp (1990) 23 NSWLR 190 per McLelland J; Australian Co-Operative Foods Ltd v Norco Co-Operative Ltd (1999) 46 NSWLR 267 at 279 per Bryson J, Seabridge Australia Pty Ltd v JLW (NSW) Pty Ltd (1991) 29 FCR 415 at 421-422 per Beaumont J, Lezam Pty Ltd v Seabridge Australia Pty Ltd (1992) 35 FCR 535 at 541-542 per Sheppard J (with whom Hill J agreed); New Holland Mining NL v Weaver Oil & Gas Corporation Australia Ltd [1998] WASC 69; Skywest Aviation Pty Ltd v Commonwealthof Australia (1995) 126 FLR 61 at 102-106; c.f. State Rail Authority of New South Wales v Heath Outdoor Pty Ltd (1986) 7 NSWLR 170 at 177, 181, 193-194, Whittet v State Bank of New South Wales (1991) 24 NSWLR 146; Budget Stationery Supplies Pty Ltd & Dudley v National Australia Bank Ltd (1996) 7 BPR 14,891 at 14,941.)

Was There a Continuing Common Intention that Only Qualifying Loans Would Count Towards the $20m Trigger Figure?

114 At paragraph 60 above I have set out the terms of the letter of instructions from Mr James to Mr Dimitri. That letter of instructions contains no articulation of the notion that it is only qualifying loans which count towards the $20m. No draft agreement, no letter passing between the solicitors, and no other contemporaneous document supports the notion that only qualifying loans counted towards the $20m. Further, when the Points of Defence, which were never amended, did not assert that, on the correct construction of the Agreement, only some loans written by Mr McEwan and his Licensees counted towards the $20m, and rectification was not sought (until the filing of the Third Amended Cross-Claim) of the Agreement in that respect, I would be entitled to treat with some reserve the evidence of Mr Christie, and of Mr James, about their understanding on this topic. However, when they were not specifically cross-examined to challenge their evidence about their understanding in this respect, I should not find their evidence in this respect to be incorrect.

115 Before Resi can succeed in establishing that there was a continuing common intention that only some loans would count towards the $20m trigger figure, it must show that Mr Gross had such an intention. There is no contemporaneous evidence of documents which were before him on, or in the period leading up to, 10 December 1997, from which one can infer that he had such an intention. He does not admit that he had such an intention. Even if I accept Mr James’ evidence in paragraph 16 of his affidavit of 20 April 2000, that does not compel a conclusion about Mr Gross’ intention as at 10 December 1997, on this topic. The evidence in Mr James’ affidavit of 20 April 2000 at paragraph 16, is perfectly consistent with Mr Gross not having heard, or not having appreciated the subtlety of, the distinction which Mr James says he was making about qualifying loans. Given the way that Mr Gross had difficulty in cross-examination in, on occasions, following the thrust of questions which were put to him, this seems to me to be a realistic possibility, and I am not satisfied that it did not apply.

116 As well, the cross-examination of Mr Gross included the following:

117 When Mr Gross was further cross-examined on the final day, he did not accept that it had been his intention that only loans of a type which would attract trailer commission would count towards the $20m trigger. He did not accept that he gave the accountant who had prepared the report referred to in paragraph 55 above instructions to calculate by reference to Resi’s documents the date upon which Mr McEwan and the Licensees had introduced $20m worth of qualifying loans to Resi. Rather, Mr Gross’s evidence was that it was his solicitor who was involved in giving instructions to the accountant.

118 In all these circumstances, I am not satisfied that there was a continuing common intention that loans would counts towards the $20m trigger only if they were of a type which would, after that trigger had been passed, have trailer commission payable on them.

119 In these circumstances, the rectification cross-claim fails.

120 I should here record, two arguments which were put, and upon which I have not needed to decide. The first is an argument put by Resi, that Mr McEwan’s intention is not relevant for the purpose of deciding whether there is a continuing common intention concerning clause 10.2 such as to justify rectification. In the reasoning process I have gone through concerning rectification, I have assumed, without deciding, that that submission is correct.

121 The second argument which I have not needed to consider, is one put by the plaintiff. The plaintiff submitted that cross-examination showed that Mr James and Mr Christie were of the view that there was a common intention to the effect that trailer commission would not be payable during times when advertising campaigns were being run by Resi. It was submitted that this intention is one which Mr Gross and Mr McEwan did not share, and that, because there was disconformity between the intentions of Resi on the one hand and Mr Gross and Mr McEwan on the other, concerning this matter relating to advertising, there was no common intention at all concerning the subject matter of clause 10.2 of the agreement. Hence, it was submitted, rectification of clause 10.2 was not possible, even if there were some other respects in which there might have been strands of common intention concerning the subject matter of clause 10.2.

1. The Third Further Amended Cross-Claim is dismissed insofar as it seeks rectification of the Agency Agreement made 10 December 1997 between the plaintiff, the defendant, and the second cross-defendant.

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Last Modified: 05/14/2002

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Citations

Castlepines (IBM) Pty Ltd v Residential Housing Corporation Ltd [2002] NSWSC 232

Most Recent Citation

Mr David Maynard v Inner West Towing Pty Ltd [2017] FWC 1491

Cases Citing This Decision

5

Castlepines (IBM) Pty Ltd v Residential Housing Corporation Ltd [2006] NSWSC 1418

Castlepines (IBM) v Residential Housing Corporation [2003] NSWSC 398

NSW Medical Board v Dinakar [2009] NSWMT 8

Cases Cited

13

Statutory Material Cited

0

LJ Hooker Ltd v WJ Adams Estates Pty Ltd [1977] HCA 13

Moneywood Pty Ltd v Salamon Nominees Pty Ltd [2001] HCA 2

CITATION:	Castlepines (IBM) Pty Ltd v Residential Housing Corporation Ltd [2002] NSWSC 232
CURRENT JURISDICTION:	Equity
FILE NUMBER(S):	SC 2202/99
HEARING DATE(S):	18/03/02-22/03/02
JUDGMENT DATE:	19 April 2002
PARTIES :	Castlepines (IBM) Pty Limited (plaintiff) Residential Housing Corporation Pty Ltd (defendant; 1st x-claimant; defendant to 2nd x-claim) Starr Investments (Australia) Pty Limited (1st x-defendant to 1st x-claim) Robert Daniel McEwan (2nd x-defendant to 1st x-claim; x-claimant to 2nd x-claim)
JUDGMENT OF:	Campbell J

COUNSEL :	A Ogborne (plaintiff; 1st and 2nd x-defendants to1st x-claim; x-claimant to 2nd x-claim) M S Henry (defendant; 1st x-claimant; defendant to 2nd x-claim)
SOLICITORS:	The Bruce & Stewart Commercial Practice (plaintiff; 1st and 2nd x-defendants to 1st x-claim; x-claimant to 2nd x-claim) Tzovaras Legal (defendant; 1st x-claimant; defendant to 2nd x-claim)
CATCHWORDS:	CONTRACTS - construction and interpretation of contracts - construction of particular contract - no question of principle decided - EQUITY - rectification - whether particular agreement should be rectified - no question of principle decided
CASES CITED:	L J Hooker Ltd v W J Adams Estates Pty Ltd (1977) 138 CLR 52 Johnson Matthey Ltd v A C Rochester Overseas Corp (1990) 23 NSWLR 190 Australian Co-Operative Foods Ltd v Norco Co-Operative Ltd (1999) 46 NSWLR 267 Seabridge Australia Pty Ltd v JLW (NSW) Pty Ltd (1991) 29 FCR 415 Lezam Pty Ltd v Seabridge Australia Pty Ltd (1992) 35 FCR 535 New Holland Mining NL v Weaver Oil & Gas Corporation Australia Ltd [1998] WASC 69 Skywest Aviation Pty Ltd v Commonwealth of Australia (1995) 126 FLR 61 State Rail Authority of New South Wales v Heath Outdoor Pty Ltd (1986) 7 NSWLR 170 Whittet v State Bank of New South Wales (1991) 24 NSWLR 146 Budget Stationery Supplies Pty Ltd & Dudley v National Australia Bank Ltd (1996) 7 BPR 14,891 TCN Channel 9 Pty Ltd v Hayden (1989) 16 NSWLR 130 Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337 Westpac Banking Corporation v Tanzone Pty Ltd [2000] NSWCA 25; (2000) 9 BPR 17,521 McDonald v Dennys Lascelles Ltd (1933) 48 CLR 457 Moneywood Pty Limited v Salamon Nominees Pty Limited (2001) 202 CLR 351
DECISION:	Contract construed and parties required to bring in short minutes. Rectification refused.

FEE SCHEDULE
Loan Product	Retail Rate (as at 13/11/97)	Loan Amount ($000)	Agent’s Fee	Trailer
Standard Variable	6.25% Variable	50-100	$500	10 Basis Points
100-150	$800	“
150-250	$1000	“
250-350	$1200	“
above 350	$1500	“
Line of Credit	6.89%	75-500	$650	Nil
Home Start	5.89%	50-500,000	$200	Nil
Fixed Rate
2 year	6.75%	No limit	Same as standard variable	10 Basis Points
3 year	7.05%
5 year	7.65%