Curtis & Anor v Tatachilla Winery

[1997] HCATrans 12

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Adelaide  No A27 of 1996

B e t w e e n -

CLAUDIO VIRGILIO CURTIS and EVELINA CURTIS

Applicants

and

TATACHILLA WINERY PTY LTD

Respondent

Application for special leave to appeal

BRENNAN CJ
DAWSON J
KIRBY J

TRANSCRIPT OF PROCEEDINGS

FROM ADELAIDE BY VIDEO LINK TO CANBERRA

ON MONDAY, 3 FEBRUARY 1997, AT 10.22 AM

Copyright in the High Court of Australia

MR D.E. CLAYTON, QC:   May it please the Court, in this matter I appear for the applicant.  (instructed by Von Doussas)

MR R.D. LAWSON, QC:   May it please the Court, I appear for the respondent.  (instructed by O’Loughlins)

MR CLAYTON:   There is a preliminary matter in this application, if the Court pleases.  The application for special leave was lodged one day out of time, and in this case of all cases.

BRENNAN CJ:   Oh dear.  Yes.

MR CLAYTON:   I am in the embarrassing position of having to seek an extension.

BRENNAN CJ:   What does Mr Lawson say about that?

MR LAWSON:   Other than to draw the Court’s attention to the undoubted irony, given subject matter of this appeal, there is no submission we would make in relation to the application.

BRENNAN CJ:   Mr Clayton, you will be pleased to know that the Court will extend the time.

MR CLAYTON:   I am indebted to the Court.  If the Court pleases, this application is concerned with the interpretation of an agreement for the sale and purchase of grapes.  The point that arises is whether the court, in interpreting such a contract, can ignore clear words in the contract and interpret the contract according to other matters.  The agreement in question was arrived at after extensive negotiation between the parties.  There were several drafts of the document prepared.  The final document was prepared by a person whom the learned trial judge referred to as an experienced solicitor, and the learned trial judge referred to extensive arm‑length negotiations.  The agreement is set out in the application book.

BRENNAN CJ:   Mr Clayton, the real problem you have is that whatever the merits might be in relation to the construction of this particular contract, it remains from start to finish a contract between two parties, and the question of its construction is, unless you can show us to the contrary, not one which raises a matter of principle justifying a grant of special leave.  What is the principle?

MR CLAYTON:   If the Court pleases, my submission is that where parties have negotiated a contract at arm’s length and deliberately chosen words to give effect to their intention, then in order to achieve commercial certainty it is important that the Court should have regard to the words which the parties have chosen.  If the Court is to ignore ‑ ‑ ‑

BRENNAN CJ:   That is the equivalent of saying pacta sunt observanda, and that is a fairly elementary proposition, is it not?

MR CLAYTON:   It is with respect, your Honour, yes.

BRENNAN CJ:   What is the principle that you say is involved?

MR CLAYTON:   The principle, if the Court pleases, is that in this case, there were express words chosen by the parties.  The court chose to interpret the agreement in such a way which as to be contrary to the express words which had been chosen by the parties and, in doing so, I submit with respect that the Full Court and the learned judge at first instance fell into error and the principle, if the Court pleases, is that where parties have chosen express words, then those words should be given their usual effect unless there is some ambiguity or some reason why the clear words in the contract should not be given their ordinary effect.

BRENNAN CJ:   That does not sound to me as though it is a novel proposition.  It sounds as though it is perfectly well established and that the court was unconscious of having departed from it.  It was simply that they interpreted the clause on which you rely as not being a clause which made the particular date the date on which a new regime should come into effect but simply a date which limited the time within which one party to the contract should be required to exercise its rights, rather like a contract for the sale and purchase of land.

MR CLAYTON:   Yes.  In interpreting the clause in that way, the court ignored the express words which the parties had chosen.  The agreement was not like a contract for the sale of land which contained a condition or which required settlement on a particular day.  The particular words of the clause in question, clause 7.5.1, is a clause which, on its face, is intended to confer rights on the grower, and by interpreting the contract in the way in which in the Full Court did, the express words which the parties have chosen to use are given no effect at all.

KIRBY J:   Yes.  You have said that now a couple of times and you said it to the Full Court, you said it to the primary judge.  You have had the argument on the merits on the appeal in the Full Court.  What is special that warrants special leave to appeal to this Court?  What is the important new point of principle, or elucidation of principle, that lifts it from simply another visitation to the point that you have now argued before four judges?

MR CLAYTON:   The important point, if the Court pleases, is that when commercial people draw a contract and choose to use particular words, then in order to give effect to commercial certainty, it is important that the words chosen by the parties should be given their usual meaning.  This is not a case where the words ‑ ‑ ‑ 

KIRBY J:   But I do not think - nobody disputes that.  The question is what was the ordinary meaning in this case?  The principle is clear.  We would not be adding to the great sum of human knowledge to repeat the principle with a lot of words addressed to the facts of this case.

MR CLAYTON:   As to that, if the Court pleases, my submission is that the words are quite clear, and if one has regard to the contract - and if I can quickly take the Court to one or two clauses, first, at the application book page 10, about line 45, clause 7.1:

Subject to clause 7.5 hereof the Grower shall supply the following grapes.

And there is then a series of clauses which, amongst other things, provide that:

During the 1995 Vintage the Grower shall supply 250 tonnes of Grapes.....to Tatachilla.

Then the relevant clause, clause 7.5, commences with the words - that is at page 14 of the application book, if the Court pleases:

Notwithstanding any other provision contained in this Agreement Tatachilla shall prior to each vintage (excluding the 1994 Vintage)

7.5.1   no later than the 1st day of February in each vintage confirm in writing to the Grower its commitment for the Grapes to be supplied during that Vintage.

Point 2 we need not worry about.  Then the important words:

and in the event that Tatachilla fails to make such commitment in writing or fails to deliver such Bank Guarantees to the Grower by such dates the Grower may at any time thereafter sell the Grapes to a Non Approved Winery and any such sale shall not be deemed to be a default by the Grower under this Agreement.

In my submission, the preliminary words “notwithstanding any other provision” and the words “may at any time thereafter”, which appear at about line 40 in the application book, are quite clear and those words confer an express right on the grower.  In my submission, the effect of the reasons of the Full Court and the judgment of the Full Court is to deprive the grower of the right which had been negotiated and is expressly contained in the agreement.

DAWSON J:   I would have thought you would have emphasised that point by saying, “This is not just a simple ‘time is of the essence case’, that on the failure to notify different obligations or different rights and obligation come into play.”  It is quite different from a case where simply by failure to observe some time the other party alleges that the contract is at an end.  In other words, that clause operates, if the dates are not observed, to introduce a new regime, and you cannot apply the “time is of the essence doctrine”.  It was not of the essence doctrine to that situation.  That is the argument I would have thought you would have put.

MR CLAYTON:   The primary submission put to both the learned judge at first instance and to the Full Court was to that effect, and the argument that time was of the essence was a secondary argument, which was in the alternative to the primary argument.

BRENNAN CJ:   One can readily understand the force of your argument, Mr Clayton.  But acknowledging the force of it, when a question comes - if it were to come before this Court, would this Court be required to do more than to set out clause 7.5, and to interpret it in the way that Justice Dawson has just put to you?

MR CLAYTON:   Well, no, with respect, your Honour.  But in doing so, this Court would be acknowledging the principle that the contract should be interpreted having regard to the express words used by the parties, and that is what the Full Court, in my respectful submission, has failed to do.

KIRBY J:   You say if this case stands there is a danger that there will be a drift from obedience to the express terms of commercial contracts?  It seems unlikely.  It is just a little contract between two particular parties.

MR CLAYTON:   The matters which the Full Court took into account in arriving at their interpretation of the agreement appear at the appeal book page 58 and following, and they include reference to the commercial

environment, the fact that it was a commercial agreement, general principle, the intentions of the parties and, at page 61, line 45 and following, the court had regard to what was called an exclusivity payment of $300,000, a proportion of which would have been forfeited if the purchaser lost its rights with respect to the 1995 crop, and his Honour Justice Williams said at about line 50:

In my opinion such a result for a trivial breach in formality would be harsh.  I do not consider that the parties can have intended such rigidity.

That statement, with respect, is not supported by any of the evidence, and in arriving at ‑ ‑ ‑

DAWSON J:   But what you are really saying is that the Court of Appeal misunderstood the “time is of the essence” doctrine and the danger is that, if they misunderstood it in this setting, other courts may, if this decision stands.  That is what you are putting, is it not?

MR CLAYTON:   That is one of the submissions, if the Court pleases. 
The other submission is that the court took into account extraneous matters such as that at 61 line 50 and, if the Court is to take into account such matters, there is a real risk that commercial contracts will be interpreted other than in the traditional way.

BRENNAN CJ:   Yes.

MR CLAYTON:   They are my submissions, if the Court pleases.

BRENNAN CJ:   Yes, Mr Clayton.  Mr Lawson.

MR LAWSON:   May it please the Court.  The principle upon which the Full Court operated was well established and clear.  There is no suggestion, in my submission, on a proper interpretation of the whole of the agreement that the court misunderstood the time of the essence doctrine which was briefly set out by Justice Williams in his judgment at page 61 of the application book at line 30 and following.  That is an elementary‑ ‑ ‑ 

KIRBY J:   Yes, but what do you say about Justice Dawson’s question that the Full Court misled itself into putting this into the category of a time of the essence case, whereas this is really a different regime case.  It is a question of what the contractual obligations were, not whether or not, in the particular circumstances, there was to be relief from a particular provision on the time of the essence doctrine.  The parties had established their different regimes.  That seems to me the best argument for the error that it said the Full Court fell into, and they have done so apparently ‑ ‑ ‑ 

MR LAWSON:   Yes, I will come to the regimes in a moment, your Honour ‑ ‑ ‑ 

KIRBY J:   Apparently they did so as commercial parties who were advised, and they got an experienced solicitor and they drew up their document.  This is not just something they jotted down on paper, this is something they agreed, and the suggestion is that unless we intervene, the approach that will be taken in commercial contracts, perhaps in South Australia, will be to simply misunderstand the application of the time of the essence doctrine and of the duty of parties to conform to their written contracts.

MR LAWSON:   But there is no suggestion that the court has said that my clients, giving the written notice out of time, amounted to compliance with the contract.  The court accepted that my client had failed to give notice within due time.  The consequence of that, and the regime to be followed was to be derived by examining the contract as a whole.  My learned friend draws the attention of the Court to the opening words ‑ ‑ ‑ 

DAWSON J:   It certainly was, that is right, examining the contract as a whole, but on examining it you find that failure to comply meant that the rights and obligations of the parties had altered.  It was not a matter of simply relieving someone from compliance.  The contract had operated to produce that itself.

MR LAWSON:   This was put to the court below and the two arguments addressed by the defendant in the court below were, namely, that time was of the essence - and this appears at the bottom of page 58 of the application book in the judgment of Justice Williams - and that this clause was to be regarded as, in effect, an option.

DAWSON J:   Can I put it to you this way?  It is not a matter of your client being in default.  What happened on the failure to give the notice was that the situation changed by reason of the contract.

MR LAWSON:   Yes, your Honour, and an examination of the whole of the contract sees a timetable for the performance of giving of various notices.  There are, I think, five particular dates by which matters such as notices are to be given; guarantees delivered; price mechanisms resolved upon.  The applicant would argue that the failure to comply with any of those which the court held were, and in my submission are, only machinery provisions, relieved the defendant of certain obligations.  The court examined in ‑ ‑ ‑

DAWSON J:   How can the court do that when the contract has already defined the obligations in that situation?  If there is no default, how can you relieve your client against the default?

MR LAWSON:   The particular contract was a highly unusual one because, as the defendant conceded at trial, my client, the winery, was obliged, whether or not it gave this notice, to take these particular grapes.  It was not a case, as one might expect, and as the defendants sought to argue, where my client had an option each year to give a notice and if it failed to exercise that option my learned friend’s clients were relieved of the obligation.  The defendant conceded that irrespective of whether my client gave the notice, it could be required to take the grapes because it had agreed at the outset, year by year to purchase the total tonnages of grapes, and the full mechanism for the determination of price, quality, tonnages and the like, was laid down in the contract itself.

DAWSON J:   Well, now, what is this argument?  This argument is that it was a harsh and unconscionable contract.

MR LAWSON:   No, indeed.  The argument was that this was not an option which so changed the regime that my client was deprived of its opportunity to have the grapes, because my client was obliged to take the grapes in any event, whether it gave the notice or not.

DAWSON J:   That is right but it is very big change for the other side, it could sell the grapes for a higher price to someone else.

MR LAWSON:   It could, according to the contract.  My learned friend says the words “notwithstanding any other provision in the agreement” which commence clause 7 are of great significance.  However, those words were not in the context of this particular agreement of grave significance because the same words appear in a number of clauses - I think in some six clauses of the agreement.  This clause did not have the paramountcy in the context of this particular agreement that the defendant would seek to assert.

At page 59 of the application book Justice Williams examines this question especially in the light of the concession made by the defendant at trial that this agreement had been drawn upon the basis which required my client, during the whole of the term of the agreement, to accept the grapes season by season.  This agreement did not ‑ ‑ ‑

BRENNAN CJ:   Could I just interrupt you for a moment, Mr Lawson?  It seems to me that your argument, curiously enough, is raising a point that might just make this case one for special leave, and for this reason:  if it is right to say that by reason of the obligation of your client to take and pay for grapes whether or not it gave a notice, it is then appropriate to introduce concepts of time being of the essence.  The question is whether that doctrine, applicable as it is to contracts for the sale of land should, in contracts of this kind, be applied to the sale of future unascertained goods.

MR LAWSON:   The principle about time of the essence applies of course, as your Honour would well appreciate, not only to contracts of land.  It very often finds its application there.  But in the passage from Halsbury relied upon by the defendant at trial and referred to in the judgment, it is clear from the cases cited that it applies in certain circumstances in commercial contracts.  The issue in many of the cases is whether or not it applies to mercantile contracts, or spring contracts for the international trading of commodities is quite another issue.  That does not arise in this particular case.  But the particular argument that I was addressing in response to Justice Dawson was really on the question of the changed regime.  There was a change in the regime but was the change irredeemable?

DAWSON J:   Let me put it this way to you:  there was no obligation on your client to give a notice.

MR LAWSON:   There was a contract obligation, yes, if the Court pleases.

DAWSON J:   No, there was no obligation at all.  Its failure to do so produced certain consequences.  But where is the room for application of the “time being of the essence” doctrine there to relieve him of the obligation of doing it on the precise date?

MR LAWSON:   The court did not seek to relieve my client.  The language of the contract, if your Honour pleases, was “confirm in writing the commitment”.  On the facts, the commitment had been confirmed and there was no doubt about it.  However, there was no confirmation in writing by the due date.  The confirmation came after the due date and before the date for the next step in the contractual procedure and, more importantly - and, in my submission, critically - before the defendant had sought to sell the grapes to a third party which on the defendant’s argument it could have done.  But it did not do that.  It did not do that before the notice was given and it did not do it before the next step in the contractual timetable was arrived at.  The court, in my submission, was correct to categorise my client’s failure to give written confirmation of the commitment which was simply a procedural defect, as was noted by Justice Williams at page 59 of the application book.  This was a ‑ ‑ ‑

KIRBY J:   How much is at stake in this litigation?  What are we talking of in terms of the amounts?

MR LAWSON:   I think it is 50 or $80,000.

KIRBY J:   And that is it, it is a one-off.

MR LAWSON:   If the Court pleases, yes, that is the difference between the higher price the defendant could obtain in this year for its grapes than if it paid the contractual amount.

KIRBY J:   The agreement remains on foot for the subsequent years?

MR LAWSON:   It does, if the Court pleases.

KIRBY J:   And that, of course, means that the regime that has been enunciated by the Full Court remains on foot, but I imagine that there will be a great attention to the time in the future.

MR LAWSON:   Yes, and the procedures generally, if the Court pleases.  In my submission, this is not a case in which, as the applicant alleges, the court ignored the clear language of the contract.  The court did not ignore the language of the contract.  It sought to apply the language of the contract viewed as a whole, and this contract must be viewed not only in the context of itself, but of another contract which was referred to in the contract and the execution of which was a condition precedent to the application of this particular contract.  So there are two contracts involved.

The court did not ignore the language, it applied it, and when my learned friend says ignored the clear language of the contract, it is my submission that the language of the contract derived from the whole of the contract makes it clear that the language was not as clear as it might first appear when one takes into account the whole of the procedural regime laid down by the court.  This was not a case where the defendant had in fact exercised what it now claims to have been the right that it derived from my client’s failure to comply with the procedural requirements.

KIRBY J:   I think that brings you back to where you started.  I think that is how you commenced your submissions.

MR LAWSON:   Yes, if the Court pleases.  I think the point should also be made that the claim that time was of the essence was the applicant’s claim, and the applicant led a good deal of evidence and mounted many arguments on the question why time was of the essence.  The applicant’s evidence on this subject, namely as to viticultural practices and the like, was all not accepted by the court and the trial judge had found that this was, as the court might well expect, merely an opportunistic exercise by the applicant to obtain a higher price for its grapes.  In my submission, no special leave point arises.  May it please the Court.

BRENNAN CJ:   Yes, thank you, Mr Lawson.  Yes, Mr Clayton.

MR CLAYTON:   If the Court pleases there is one matter by way of reply.  My learned friend submitted that the clause was a machinery provision.  The Full Court had found that the clause was a machinery provision.  In my respectful submission, that finding is wrong.  That is one of the findings which is challenged on this application, and to ‑ ‑ ‑

BRENNAN CJ:   Do you accept that Tatachilla was obliged to pay for the grapes if your client chose to deliver the grapes, although no notice had been given?

MR CLAYTON:   Yes, I do, if the Court pleases, and the appeal proceeded on the basis that there was a binding obligation on the part of Tatachilla to take the grapes.

BRENNAN CJ:   So Tatachilla had to take the grapes no matter what.

MR CLAYTON:   Yes.

BRENNAN CJ:   But if the notice was not given on a due date, your client was relieved of the obligation to deliver and was able then to sell elsewhere.

MR CLAYTON:   Yes, to enjoy the rights conferred by 7.5.1. 

BRENNAN CJ:   How do you distinguish that from a contract from the sale of land?

MR CLAYTON:   The express words of 7.5.1 to confer a right on the growers which has no equivalent in a contract for the sale of land.

BRENNAN CJ:   If there was a contract which required settlement on a due date and in default of settlement, the vendor is at liberty to resell?

MR CLAYTON:   If the words were in those terms, then the vendor would have no right.  But if the words which were used were as strong as the words which had been used in this case, such as the opening words of clause 7.1, the opening words of 7.5, and the words which provide that the grower can sell at any time, then in the case of a contract for the sale of land the vendor would have the right, in my respectful submission, to sell even though there was no provision which made time of the essence.  If the Court pleases.

BRENNAN CJ:   Yes.  Whatever the merits of the parties’ respective cases may be, this application raises for consideration no more than the construction of a particular contract.  No question of general principle is involved.  Accordingly, there is no special leave point and special leave should be refused.

MR LAWSON:   I seek an order for costs, if the Court pleases.

BRENNAN CJ:   You do not have anything to say about that, Mr Clayton?

MR CLAYTON:   I cannot resist that, if the Court pleases.

BRENNAN CJ:   It will be refused with costs.

AT 10.55. AM THE MATTER WAS CONCLUDED