Franklins Pty Ltd v Metcash Trading Ltd - [2009] NSWCA 407

No judgment structure available for this case.

Reported Decision: 76 NSWLR 603

New South Wales

Court of Appeal

CITATION: Franklins Pty Ltd v Metcash Trading Ltd [2009] NSWCA 407
This decision has been amended. Please see the end of the judgment for a list of the amendments.

HEARING DATE(S): 23/3/09-26/3/09

JUDGMENT DATE:
16 December 2009

JUDGMENT OF: Allsop P at 1; Giles JA at 42; Campbell JA at 66

DECISION: For formal orders see para [686]
In brief-
(1) Trial judge's construction of formal Supply Agreement, whereby Wholesale Price for a Product requires deduction from Metcash's Wholesale 5 price of all allowances and discounts whatsoever, confirmed.
(2) Trial judge's order for rectification of formal Supply Agreement replaced by an order (a) inserting into the definition of Wholesale Price for a Product an exception not requiring five specified types of allowance or discount to be deducted from Metcash's Wholesale 5 Price; and (b) for greater caution, deleting words in parenthesis from clause 4.4(a).
(3) Metcash's contentions of estoppel and misleading and deceptive conduct rejected.
(4) Declaration made concerning extent of Franklins' contractual right of access to Metcash documents.
(5) Minor or consequential amendments made to trial judge's answers to specific questions.
(6) Proceedings remitted to court below.
(7) Metcash's cross-appeal otherwise dismissed.
(8) Metcash to pay Franklins' costs of appeal and cross-appeal.

CATCHWORDS: CONTRACTS – construction and interpretation of contracts – use of surrounding circumstances – whether ambiguity in the words of the contract is required before surrounding circumstances can be examined – businesslike or commercially sensible construction – relationship with surrounding circumstances – scope of admissible surrounding circumstances – CONTRACTS – construction and interpretation of contracts – subsequent conduct – whether the subsequent conduct of the parties can be examined to construe a written contract – relationship with objective theory of contract – extent of permissible use of evidence arising after the execution of a written contract – CONTRACTS – construction and interpretation of contracts – recitals – use of recitals as an aid to construction – EQUITY – equitable remedies – rectification – common intention of the parties – role of commercial context in determining the common intention of the parties – rationale for rectification – nature of the common intention required – standard of proof for common intention of the parties – test for appellate intervention – ESTOPPEL – equitable estoppel – whether the parties could be taken to have assumed or expected the existence of a binding agreement which differed the written agreement as executed – whether parties would be assumed to be free to withdraw from negotiations – estoppel by convention – need for a common assumption to be adopted by both parties – whether estoppel by convention can arise from pre-contractual negotiations

LEGISLATION CITED: Conveyancing Act 1919
Evidence Act 1995
Land Ordinance of 1899 of British New Guinea
Sale of Goods (Vienna Convention) Act 1986
Trade Practices Act 1974 (Cth)
Uniform Civil Procedure Rules 2005

CATEGORY: Principal judgment

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PARTIES: Franklins Pty Ltd (Appellant in 40253/07; Cross-Respondent in 40348/07)
Metcash Trading Ltd (Respondent in 40253/07; Cross-Appellant in 40348/07)

FILE NUMBER(S): CA 40253/07; 40348/07

COUNSEL: A Meagher SC; S Fendekian (for Franklins Pty Ltd)
J Simpkins SC; M Friedgut (for Metcash Trading Ltd)

SOLICITORS: Blake Dawson, Sydney (for Franklins Pty Ltd)
Freehills, Sydney (for Metcash Trading Ltd)

LOWER COURT JURISDICTION: Supreme Court - Equity Division

LOWER COURT FILE NUMBER(S): 50018/05

LOWER COURT JUDICIAL OFFICER: Palmer J

LOWER COURT DATE OF DECISION: 21 March 2007; 4 May 2007; 13 September 2007; 17 October 2007

LOWER COURT MEDIUM NEUTRAL CITATION: Franklins Pty Ltd v Metcash Trading Ltd [2007] NSWSC 242
Franklins Pty Ltd v Metcash Trading Ltd (No 2) [2007] NSWSC 446
Franklins Pty Ltd v Metcash Trading Ltd (NSWSC, Palmer J, 13 September 2007)
Franklins Pty Ltd v Metcash Trading Ltd (NSWSC, Palmer J, 17 October 2007)

CA 40253/07
CA 40348/07
SC 50018/05

ALLSOP P
GILES JA
CAMPBELL JA
16 DECEMBER 2009

FRANKLINS PTY LTD v METCASH TRADING LTD

METCASH TRADING LTD v FRANKLINS PTY LTD

HEADNOTE

(This headnote does not form part of the Court’s judgment)

On 14 September 2001, Franklins and Metcash entered into a written contract (the Supply Agreement) under which Metcash would supply products to Franklins for its supermarkets. At the time the agreement was entered, Franklins was a newcomer (known as “Pick ‘n Pay”) in the Australian retail grocery industry and Metcash was an established supplier. Nevertheless, Franklins wished to establish and control its own relations with manufacturers and negotiate its own pricing terms, with Metcash to operate primarily as a “box mover”, rather than being Franklins’ negotiating agent with suppliers.

The calculation of wholesale prices in the supermarket industry involved the deduction of certain discounts and allowances that suppliers would give to their purchasers, which could be of two kinds: published (which were shown on suppliers’ invoices or published trading terms) or confidential (which were individually negotiated between suppliers).

During the negotiations leading up to the Supply Agreement, the parties held a meeting (the “Pie Chart Meeting”) to discuss some of the allowances and discounts that Metcash was then collecting, which were set out in a pie chart diagram. The pie chart identified various specific discounts and allowances and noted that Franklins would be unable to collect several of them. Subsequently, Metcash produced a list, known as the “Laminated List”, (which was approved by Franklins) that divided up certain published and confidential allowances and discounts between Franklins and Metcash into ones that Franklins would collect, ones that Metcash would collect and pass on to Franklins, and five benefits that Metcash would collect and retain for itself. Metcash had in its internal computer system a method of calculating a wholesale price known as “Wholesale 5”, which it used to invoice some of its other clients, that only deducted a few specific published discounts.

A dispute arose between Franklins and Metcash over the price Metcash was charging Franklins for the products it was supplying. The dispute centred around the definition of “Wholesale Price” in the Supply Agreement (set out at para [97]), which included as part of the definition “… less all allowances and discounts (such as … [listing several examples] )…” . Franklins asserted that Metcash was required to pass on to Franklins all allowances and discounts whatsoever in calculating the Wholesale Price, and that it was entitled to exercise certain rights of inspection against Metcash. Metcash alleged that all that was required was the deduction of certain specified allowances and discounts. Further, Metcash brought a cross-claim seeking rectification of the contract, and also alleging that Franklins was estopped from asserting the construction it contended for.

The trial judge found in favour of Franklins on the construction of the agreement, holding that it required the deduction of all allowances and discounts whatsoever; but held that the contract should be rectified to deduct only published allowances and discounts. Both Franklins and Metcash appealed.

Held (per Allsop P, Giles JA and Campbell JA):

Construction of the contract

(1) Nature of construction: A written contract should be construed bearing in mind those facts at the time of the execution of the contract that the parties knew, or that it can reasonably be assumed they knew, that could impact upon the meaning of the words of the contract: [14] per Allsop P (Giles JA at [63] agreeing); [305], [322] per Campbell JA (Giles JA at [42]-[43] agreeing).

(2) Whether ambiguity is required: It is not necessary to find an ambiguity in the words of a written contract before the surrounding circumstances can be examined as an aid to construction: [14]-[18] per Allsop P (Giles JA at [63] agreeing); [239]-[305] per Campbell JA (Giles JA at [42]-[43] agreeing).

(3) Scope of admissible background: To be admissible, the evidence of surrounding circumstances must be relevant to a fact in issue and probative of the surrounding circumstances known to the parties, or of the purpose or object of the transaction, including its genesis, background, context and market in which the parties are operating. Evidence of negotiations, probative of the actual intentions of the parties, is inadmissible: [24] per Allsop P (Giles JA at [63] agreeing). Surrounding circumstances can be examined if they enable the meaning of the words used in the document to be ascertained as that meaning would appear to a reasonable person who knew the facts concerning those circumstances; declarations of subjective intention are not admissible: [337] per Campbell JA (Giles JA at [42]-[43] agreeing).

(4) A written contract is a legal act with a meaning which may transcend the initial parties or persons through whom they act, which provides a reason for caution in equating the scope of the admissible background with all that in ordinary communication a reasonable person would see as relevant. If there is an ordinary grammatical meaning of the words used in a written contract, that meaning must be given significant force, although read with the admissible evidence of surrounding circumstances. It falls to be determined in each case whether words would be understood otherwise in light of the context and purpose revealed by the admissible evidence: [49]-[53] per Giles JA.

(5) Objective theory of contract: The objective theory of contract is now firmly established in Australian law by High Court authority: [4]-[5] per Allsop P (Giles JA at [63] agreeing); [50] per Giles JA; [322] per Campbell JA (Giles JA at [42]-[43], [58] agreeing).

(6) Subsequent conduct of the parties for purposes of construction: The use of subsequent conduct is forbidden to prove any matter that cannot legitimately enter into the construction of a written contract in accordance with the objective theory of contract. In particular, it cannot be used to prove what the parties meant by particular terms they have used in their contract. However, events occurring after the time of the execution of the contract may be admissible as retrospectant evidence probative of the surrounding circumstances at the time the written contract was executed: [6]-[13] per Allsop P (Giles JA at [63] agreeing); [58] per Giles JA (Allsop P at [41] agreeing); [309]-[329] per Campbell JA (Giles JA at [42]-[43], [58] agreeing).

(7) State of the law relating to subsequent conduct: The law concerning the use of subsequent conduct of the parties to construe a written contract has been authoritatively stated by the High Court in Agricultural and Rural Finance Pty Ltd v Gardiner [2008] HCA 57; (2008) 83 ALJR 196; 251 ALJR 322 at [35]. It is no longer necessary to consider the effect of previous conflicting High Court, intermediate appellate court or Privy Council authorities: [10]-[13] per Allsop P (Giles JA at [63] agreeing); [307]-[318], [330]-[332] per Campbell JA (Giles JA at [43], [58] agreeing). However, this does not affect the law concerning the use of subsequent conduct for purposes other than the construction of a written contract: [13] per Allsop P (Giles JA at [63] agreeing); [323]-[327] per Campbell JA (Giles JA at [42]-[43], [58] agreeing).

(8) Construction of commercial contracts: The principle that commercial agreements should be given a businesslike or commercial construction that does not flout business commonsense is closely related to the requirement that contracts be construed in light of the surrounding circumstances at the time of the execution of the contract. The nature and extent of the commercial aims and purposes of the agreement are part of the surrounding circumstances, and are how the court comes to know what business commonsense is. The need for a businesslike construction also directs the approach to be taken when selecting the appropriate construction of the words used by the parties: [19]-[23] per Allsop P (Giles JA at [63] agreeing); [361]-[362] per Campbell JA (Giles JA at [42]-[43] agreeing).

(9) Recitals as an aid to construction: Recitals can be used as an aid to construction of an operative provision in an agreement without a need to find ambiguity in the words of the operative provisions. The recitals are a means by which the surrounding circumstances and purpose of the transaction can be ascertained: [379]-[390] per Campbell JA (Allsop P at [29] and Giles JA at [42]-[43] agreeing).

(10) The construction of the Supply Agreement: The trial judge’s construction of the Supply Agreement was correct upon consideration of the meaning of the words used, read as a whole, in light of the surrounding circumstances (including as stated in the recitals) and the requirement that the contract be given a construction that does not flout business commonsense, and excluding the evidence of the subsequent conduct of the parties: [60]-[62] per Giles JA (Allsop P at [41] agreeing); [337]-[358], [363]-[378], [391]-[398] & [399] per Campbell JA (Allsop P at [1], [28] and Giles JA at [42]-[43], [62] agreeing). The subjective intentions and expectations of the officers and agents of Franklins and Metcash are not available as surrounding circumstances for the purposes of construction, although they might assist in an action for rectification: [54], [57] per Giles JA (Allsop P at [41] agreeing); [337] per Campbell JA (Giles JA at [42]-[43] agreeing).

Rectification

(11) The trial judge’s decision: The trial judge’s finding of the common intention of the parties, for the purposes of rectification, that only published discounts were to be deducted had implicit in it that the parties would have considered the full range of discounts and reached a common understanding on which of them should be deducted. A rectification order should alter the contract to no greater extent than necessary to make it accord with the common intention of the parties at the time the written agreement was executed: [431]-[439], [448] per Campbell JA (Allsop P at [30] and Giles JA at [42] agreeing).

(12) Test for appellate intervention: A finding with respect to a continuing common intention is a mixed finding of fact and law, reviewable in accordance with the principles in Fox v Percy [2003] HCA 22; (2003) 214 CLR 118: [430], [432] per Campbell JA (Allsop P at [30] and Giles JA at [42] agreeing).

(13) Rationale for equitable intervention in rectification: The rationale of rectification is that it is unconscientious for a party to a written contract to seek to apply the contract inconsistently with what he or she knows was the common intention of the parties at the time the written contract was entered. That rationale requires a positive finding of what the common intention was at the time the written agreement was entered, concerning the subject matter of the terms in which it is sought to be rectified. That common intention must be sufficiently well-defined and clear to be able to be stated in words that can be incorporated in a contract, and that have sufficient certainty to be contractually enforceable: [443]-[450], [511], [514], [528] per Campbell JA (Allsop P at [30] and Giles JA at [42] agreeing).

(14) Standard of proof of common intention: Rectification will only be granted on clear and convincing proof of a continuing common intention, shown to have existed up to the point of execution of the written instrument. A court of equity would be cautious in finding that a written agreement mistakenly recorded the parties’ common intention in a situation where both parties were represented by solicitors who negotiated the terms of the contract, since there is an inherent unlikelihood that solicitors on both sides of the transaction would have each failed to grasp and express the intention of their clients, and both be mistaken in the same way. [451]-[461], [511] per Campbell JA (Allsop P at [30] and Giles JA at [42] agreeing).

(15) The parties’ common intention: The parties never turned their mind to the full range of potential discounts and allowances which could be received by Metcash and Franklins, and so cannot have had a positive common intention, at the time the contract was entered into, to deduct only published discounts to the exclusion of all others. The Laminated List explicitly reserved only five specific discounts and allowances to Metcash. The Supply Agreement should be rectified to allow Metcash to retain only those five discounts and allowances that the parties, in compiling the Laminated List and negotiating on that basis, specified it could retain: [435]-[439], [509]-[514], [539]-[540] per Campbell JA (Allsop P at [30] and Giles JA at [42] agreeing).

(16) Rectification for abundant caution: A clause which on its proper construction does not strictly need rectification may still be rectified ex abundanti cautela (for abundant caution) to make the meaning clear on the face of the document: [539] per Campbell JA (Allsop P at [26]-[27] and Giles JA at [48] agreeing).

Estoppel and Trade Practices Act Claims

(17) Equitable estoppel: The elements necessary to establish promissory estoppel were not made out. The mere fact that the parties conducted their business according to the Laminated List is not a basis for assuming that Franklins knew that Metcash was acting in reliance on at assumption that Franklins would be bound to purchase products at prices calculated in accordance with the Laminated List. An “entire agreement” clause would not prevent the operation of an equitable estoppel: [554]-[571] per Campbell JA (Allsop P at [32]-[33] and Giles JA at [42] agreeing).

(18) Estoppel by convention and Trade Practices Act claim: There was no common assumption adopted by the parties sufficient to establish an estoppel by convention. Johnson Matthey Ltd v AC Rochester Overseas Corp (1990) 23 NSWLR 190 discussed: [572]-[577] per Campbell JA (Allsop P at [32], [34] and Giles JA at [42] agreeing). Metcash’s claim under the Trade Practices Act was not made out: [635] per Campbell JA (Allsop P at [32] and Giles JA at [42] agreeing).

Right of Inspection

**********

CONTENTS

Para No.

ALLSOP P 1
The objective theory of contract 4
Later conduct and the construction and interpretation of written contracts 6
The lack of need for ambiguity before resort is had to legitimate
surrounding circumstances 14
The approach to the construction of commercial contracts 19
The extent of the materials available as surrounding circumstances 24
The balance of the reasons of Campbell JA 25
Clause 4.4(a) 26
Relevant surrounding circumstances 28
Recitals 29
Rectification 30
Estoppel and the Trade Practices Act claims 32
Right of inspection 35
Relief and Costs 39
The reasons of Giles JA 41

GILES JA 42
Franklins’ right of inspection 64

CAMPBELL JA 66
Nature of the Case 67
Issues on the Appeal and Cross-Appeal 83
“Wholesale 5” in the Metcash Computer System 81
Issues on the Appeal and Cross-Appeal 83
Summary of Conclusions 90

PART A – FACTUAL MATTERS

The Supply Agreement 92
The Course of Negotiation 106
20 April 2001 Meeting 108
1 May 2001 PowerPoint Presentation 110
The Oral Evidence Generally 114
Returning to the 1 May 2001 Meeting 119
8 May 2001 Draft Agreement 134
17 May 2001 Letter 137
24 May 2001 Letter 138
The Public Announcement 148
Blake Dawson Waldron 31 May 2001 Redraft 149
Mr Reitzer’s Letter 4 June 2001 156
Mr Stanbridge Replies 7 June 2001 160
The 14 June 2001 Letter Agreement 161
The 14 June 2001 Meeting 167
The Pie Chart Meeting – 12 July 2001
Purpose of the Meeting 171
The Pie Chart Itself 175
Discussion at the Meeting 181
The Laminated List 186
The Diversity of Benefits
The Finding Below Concerning Benefits 190
Other Types of Benefits 195
Mr Hunter’s 13 July Draft 202
Ms Ho’s 1 August 2001 Draft 208
Mr Hunter’s 7 August 2001 Reply 212
The 4 March 2003 Letter 218
The 6 March 2003 Meeting 228
Termination 233

PART B – CONSTRUCTION OF THE AGREEMENT 234

Subsequent Conduct as an Aid to Construction 306
The Operation of the Law of Precedent Concerning Subsequent Conduct 330
Royal Botanic Gardens Exemplifies Using Post-Contract Conduct? 333
Unhelpfulness of Subsequent Conduct Re Laminated List 336
Relevant Surrounding Circumstances to This Contact 337
Uncommerciality of the Trial Judge’s Construction? 359
The Significance of Clause 4.4(a) 367
Use of Recitals – Principles 379
Use of Recitals – Application 391
Conclusion Concerning Construction 399

PART C – RECTIFICATION

Metcash’s Pleaded Case 400
The Agreed Issue 407
Metcash’s Submissions Below on Rectification 408
The Judge’s Findings Concerning Rectification 411
Metcash’s Evidence on Subjective Intention 428
Test for Appellate Alteration of a Rectification Order 430
Correctness of the Judge’s Common Intention Finding? 431
Scope of Reconsideration of Rectification 440
Principles Concerning Rectification 443
The Standard of Proof for Rectification 451
Reconsideration of the Facts 462
The Finding about Mr Zelinsky’s Understanding of the Letter of 17 May 467
Mr Summers’ Evidence 472
The 31 May 2001 Change to “Wholesale Price” 476
Mr Perlov’s Evidence 478
The Pie Chart Meeting 479
Error Re Meaning of Asterisk in Pie Chart? 497
Pie Chart Meeting and Laminated List Not a Basis for Rectification? 509
Rectification Limited to Metcash Keeping Small-Value Benefits? 513
Metcash’s Case on Rectification 515
Segregate the Pricing and Benefits Aspects, and Rectify Only the
Price Clauses? 518
Rectify to Deduct Only Particular Identified Published Benefits? 525
Failure to Call Mr Hunter 533
Rectify Clause 4.4(a)? 539

PART D – ESTOPPEL 541

Metcash’s Estoppel Pleading 542
The Judgment Below on Estoppel 546
The Question and Answer 551
Equitable Estoppel? 553
Estoppel By Convention? 572
Follow Johnson Matthey? 577
Equuscorp Rules Out Estoppel from Pre-Contractual Events? 578
Franklins’ Estoppel Concession 583

PART E – FRANKLINS’ RIGHTS OF ISSUE 586

Question 19 587
Question 21 609

PART F – TRADE PRACTICES ACT 1974 628

PART G – ORDERS AND PROCEDURAL MATTERS

**********

CA 40253/07
CA 40348/07
SC 50018/05

ALLSOP P
GILES JA
CAMPBELL JA

16 DECEMBER 2009

FRANKLINS PTY LTD v METCASH TRADING LTD

METCASH TRADING LTD v FRANKLINS PTY LTD

Judgment

1 ALLSOP P: I have had the advantage of reading the reasons in draft of Campbell JA. I agree with his Honour’s view as to the proper construction of the definition of “Wholesale Price” in cl 1.1 of the Supply Agreement and with the orders he proposes as to rectification. I agree with his Honour’s analysis of the facts and I adopt his Honour’s conclusions and reasons in that respect. I would prefer to express my own reasons in relation to some of the legal issues in the case. I will deal with the balance of his Honour’s reasons after I have dealt with these legal issues.

2 A number of important propositions concerning the law of contract were canvassed in argument and are dealt with by Campbell JA: the objective theory of contract; the circumstances in which and the extent to which surrounding circumstances can be examined in the process of construction and interpretation of a written contract; the approach to construction and interpretation of a commercial contract; and whether post-contractual conduct can be utilised in aid of the construction and interpretation of a written agreement.

3 Binding and authoritative decisions provide the answers for all these questions for an Australian intermediate appellate court.

The objective theory of contract

4 There can be no doubt that until the High Court of Australia says otherwise the underpinning legal theory in the law concerning the formation, construction and interpretation of contracts is the so-called objective theory of contract: Taylor v Johnson [1983] HCA 5; 151 CLR 422 at 428-432 and especially 429 where Mason ACJ, Murphy J and Deane J said that “the clear trend in decided cases and academic writings has been to leave the objective theory in command of the field”; Ermogenous v Greek Orthodox Community of SA Inc [2002] HCA 8; 209 CLR 95 at 105 [25] where Gaudron J, McHugh J, Hayne J and Callinan J stated clearly that contract formation was to be objectively assessed; Pacific Carriers Ltd v BNP Paribas [2004] HCA 35; 218 CLR 451 at 461-462 [22] where the Court (Gleeson CJ, Gummow J, Hayne J, Callinan J and Heydon J) made clear the objective task of ascertaining of the meaning of documents; Equuscorp Pty Ltd v Glengallan Investments Pty Ltd [2004] HCA 55; 218 CLR 471 at 483 [34] where the Court (Gleeson CJ, McHugh J, Kirby J, Hayne J and Callinan J) referred with approval to the expression of the matter by Gleeson CJ in the New South Wales Court of Appeal in Australian Broadcasting Corporation v XIVth Commonwealth Games Ltd (1988) 18 NSWLR 540 at 549 that the “general test of objectivity … is of pervasive influence in the law of contract”; and Toll (FGCT) Pty Limited v Alphapharm Pty Limited [2004] HCA 52; 219 CLR 165 at 179-182 [40]-[46] where the Court (Gleeson CJ, Gummow J, Hayne J, Callinan J and Heydon J) reiterated the primacy of the objective theory in the determination of rights and liabilities in contract.

5 No further analysis of, or citation about, that basal proposition need therefore be undertaken. There may be residual debate about how the objective theory applies in particular cases: Air Great Lakes Pty Ltd v K S Easter (Holdings) Pty Ltd (1985) 2 NSWLR 309.

Later conduct and the construction and interpretation of written contracts

6 Much ink has been spilt over the last 30 years on this topic. It is intimately connected in analysis with the applicable underpinning theory of the determination of contractual rights and liabilities. If, as the above references make clear, the governing theoretical framework as to the determination of contractual rights and obligations is the objective theory, it is difficult to see how later conduct has a place in the ascertainment of the parties’ objectively assessed intentions. As the High Court made pellucid in Pacific Carriers v BNP Paribas at 461-462 [22], Equuscorp v Glengallan at 483 [34] and Toll v Alphapharm at 179 [40], the construction of a written contract is to be determined by what a reasonable person in the parties’ position would have understood it to mean in the circumstances and context in question. How parties later acted, probative of what they themselves thought their obligations were, is difficult to reconcile with the objective paradigm.

7 Of course, if another paradigm were to be put in place, no such difficulty would arise. For instance, Arts 4.1-4.3 of the UNIDROIT Principles of International Commercial Contracts (3^rd Ed) gives a primary role to the ascertainment of the actual common intention of the parties:

“ARTICLE 4.1 (Intention of the parties)

(1) A contract shall be interpreted according to the common intention of the parties.

(2) If such an intention cannot be established, the contract shall be interpreted according to the meaning that reasonable persons of the same kind as the parties would give to it in the same circumstances.

ARTICLE 4.2 (Interpretation of statements and other conduct)

(1) The statements and other conduct of a party shall be interpreted according to that party’s intention if the other party knew or could not have been unaware of that intention.

(2) If the preceding paragraph is not applicable, such statements and other conduct shall be interpreted according to the meaning that a reasonable person of the same kind as the other party would give to it in the same circumstances.

ARTICLE 4.3 (Relevant circumstances)

In applying Articles 4.1 and 4.2, regard shall be had to all the circumstances, including

(a) preliminary negotiations between the parties;

(b) practices which the parties have established between themselves;

(c) the conduct of the parties subsequent to the conclusion of the contract;

(d) the nature and purpose of the contract;

(e) the meaning commonly given to terms and expressions in the trade concerned;

(f) usages.”

8 Article 8 of the Vienna Convention on International Sale of Goods (1980) (the “CISG”) is to similar effect to Art 4.2 of the UNIDROIT Principles. It is unnecessary to discuss the effect, if any, which the adoption of the CISG into the laws of all States and Territories (see, as to New South Wales, the Sale of Goods (Vienna Convention) Act 1986) will have on the primacy of the objective theory. See generally, R Burnett and V Bath Law of International Business in Australia (Federation Press 2009) at 13-14 and in particular the United States cases at footnote 51; and see E A Farnsworth Farnsworth on Contracts (3^rd Ed Aspen Publishers 2004) at [7.12].

9 To a significant degree the approach to the construction and interpretation of contracts in the UNIDROIT Principles and the CISG reflects civil law principles: see Lord Hoffmann’s comments in Chartbrook Limited v Persimmon Homes Limited [2009] UKHL 38; [2009] AC 1101 at 1119-20 [39]. This underlying difference in basal framework explains the brevity of the reference to the civil law by Lord Hoffmann in his discussion of the admissibility of pre-contractual negotiations in Chartbrook Limited v Persimmon Homes Limited at 1119-20 [39] and the absence of any such reference in Lord Mance’s restatement of the principles of interpretation of a legal document in In re Sigma Finance Corporation [2009] UKSC 2 at [9]-[11].

10 In Agricultural and Rural Finance Pty Limited v Gardiner [2008] HCA 57; 83 ALJR 196, Gummow J, Hayne J and Kiefel J formed a majority of the Court and at 205 [35] clearly and unequivocally stated “the general principle [is] that ‘it is not legitimate to use as an aid in the construction of [a] contract anything which the parties said or did after it was made’”, citing James Miller & Partners Ltd v Whitworth Street Estates (Manchester) Ltd [1970] AC 583 at 603; and Administration of Papua and New Guinea v Daera Guba [1973] HCA 59; 130 CLR 353 at 446. Heydon J at 232 [163] was to the same effect as a matter of principle; to the contrary, Kirby J at 220-221 [115].

11 I note that in Australian Medic-Care Company Ltd v Hamilton Pharmaceutical Pty Limited [2009] FCA 1220 at [119], Finn J expressed the view that the present state of the law in Australia is not yet settled on whether it is possible to use post-contractual conduct as an aid to construction of a written document, though his Honour accepted that the “more favoured view” was that it is not. By reason of what was said in the High Court in Agricultural and Rural Finance v Gardiner, I would respectfully differ from Finn J. In regard to this question, I respectfully agree with Campbell JA that the expressed approach of the majority High Court judgment in Agricultural and Rural v Gardiner evidences a departure from statements in earlier High Court authorities to the contrary, being in particular Farmer v Honan and Dunne [1919] HCA 13; 26 CLR 183 at 197 where Isaacs J and Rich J expressly followed Watcham v Attorney-General of the East Africa Protectorate [1919] AC 533 at 540, being the Privy Council decision taken as authority for the use of the later conduct to construe a written agreement; Thornley v Tilley [1925] HCA 13; 36 CLR 1 at 11 where Isaacs J expressly referred to utilising later conduct in the process of construction; Sinclair Scott & Company Limited v Naughton [1929] HCA 34; 43 CLR 310 at 327 per Isaacs J; E.T. Fisher & Company Pty Limited v The English Scottish and Australian Bank Ltd [1940] HCA 42; 64 CLR 84 at 102 where Williams J applied Watcham; and White v Australian and New Zealand Theatres Limited [1943] HCA 6; 67 CLR 266 at 275 and 281 where Starke J and Williams J, respectively, expressly permitted later conduct to construe a document. These cases can be taken to have been departed from by Agricultural and Rural Finance v Gardiner.

12 By 1974, English law stood firmly against Watcham and any general principle of contractual interpretation permitting later conduct to construe a written agreement to be taken from it: L Schuler AG v Wickman Machine Tool Sales Ltd [1974] AC 235 at 252 (Lord Reid), 260 (Lord Morris), 261-262 (Lord Wilberforce), 265-270 (Lord Simon) and 272 (Lord Kilbrandon). Lord Wilberforce (at 261) called Watcham a precedent he had thought to be “nothing but the refuge of the desperate”. To the extent that prior to Agricultural and Rural Finance v Gardiner an absence of authoritative statement by the High Court to the contrary permitted that “refuge” to be availed of (albeit supported by earlier High Court authority), that is no longer so.

13 This clearing of the ground in respect of contractual construction and interpretation leaves untouched the role, if the facts admit, of “later” conduct in: (a) ascertaining whether there was a contract formed and when it was formed: Howard Smith and Company Limited v Varawa [1907] HCA 38; 5 CLR 68 at 78; Barrier Wharfs Limited v W Scott Fell & Company Limited [1908] HCA 88; 5 CLR 647 at 668-669 and 672; and ABC v XIV Commonwealth Games at 547-548 and cases there cited; (b) revealing probative evidence of antecedent surrounding circumstances; and (c) revealing probative evidence of facts relevant to rectification, estoppel or any other legal, equitable or statutory rights or remedies that may impinge on an otherwise concluded, construed and interpreted contract.

The lack of need for ambiguity before resort is had to legitimate surrounding circumstances

14 The state of the law in this respect is to be ascertained from a number of High Court cases: Maggbury Pty Limited v Hafele Australia Pty Limited [2001] HCA 70; 210 CLR 181 at 188 [11]; Pacific Carriers v BNP Paribas at 461-462 [22]; Zhu v Treasurer of the State of New South Wales [2004] HCA 56; 218 CLR 530 at 559 [82]; Toll (FGCT) v Alphapharm at 179 [40] and International Air Transport Association v Ansett Australia Holdings Limited [2008] HCA 3; 234 CLR 151 at 160 [8] and 174 [53]. These cases are clear. The construction and interpretation of written contracts is to be undertaken by an examination of the text of the document in the context of the surrounding circumstances known to the parties, including the purpose and object of the transaction and by assessing how a reasonable person would have understood the language in that context. There is no place in that structure, so expressed, for a requirement to discern textual, or any other, ambiguity in the words of the document before any resort can be made to such evidence of surrounding circumstances.

15 As Campbell JA points out, the approach to construction of the documents in question by the High Court in Agricultural and Rural Finance v Gardiner at 205 [38] and in Park v Brothers [2005] HCA 73; 80 ALJR 317 at 325 [39] did not involve any consideration of ambiguity.

16 Further, intermediate appellate courts have been clear in their expression of view that these recent decisions of the High Court are to the effect that the identification of ambiguity is not a precondition to examining legitimate surrounding circumstances: Lion Nathan Australia Pty Ltd v Cooper Brewery Ltd [2006] FCAFC 144; 156 FCR 1 at 10-12 [45]-[52] (Weinberg J), 22 [100] (Kenny J) and 48 [238] (Lander J) agreeing with Finn J at first instance [2005] FCA 1812; 223 ALR 560 at 573 [78]; Ryledar Pty Ltd v Euphoric Pty Ltd [2007] NSWCA 65; 69 NSWLR 603 at 626 [107]-[109] (Tobias JA, with whom Mason P and Campbell JA agreed); Synergy Protection Agency Pty Ltd v North Sydney Leagues’ Club Limited [2009] NSWCA 140 at [22] (myself, with whom Tobias JA and Basten JA agreed) and Masterton Homes Pty Ltd v Palm Assets Pty Ltd [2009] NSWCA 234; 261 ALR 382 at 384-385 [1]-[3] (myself with whom Basten JA agreed) and see also to like effect [113] (Campbell JA).

17 None of the above High Court decisions discussed what some have seen as the tension in Sir Anthony Mason’s reasons in Codelfa Constructions Pty Limited v State Rail Authority of New South Wales [1982] HCA 24; 149 CLR 337 between what was written at 348-351 and the expression of the “true rule” at 352. That what was said in Codelfa at 352 can be taken to conform with the apparent width of the principle expressed at 348-351 can, if it arose for consideration, be taken from:

(a) an acceptance of the views of Spigelman CJ expressed in South Sydney Council v Royal Botanic Gardens [1999] NSWCA 478; 10 BPR 18,961 at 18,966 [35] and in Gardiner v Agricultural and Rural Finance Pty Ltd [2007] NSWCA 235; (2008) Aust Contracts R ¶90-274 at 90,340 [7]-[13] (otherwise unaffected by the High Court decision) and extra-judicially in “From text to context: contemporary contractual interpretation” (2007) 81 Australian Law Journal 322;

(b) a recognition that the phrase used by Mason J in Codelfa at 352 “ if the language is ambiguous or susceptible of more than one meaning ” does not mean that the susceptibility of the language to more than one meaning must be assessed without reference to the surrounding circumstances or extrinsic material;

(c) a recognition of the width of the guiding authorities that Mason J discussed at 348-351, in particular Prenn v Simmonds [1971] 1 WLR 1381 at 1383-1384; Utica City National Bank v Gunn 118 NE 607 (1918); Reardon Smith Line Ltd v Hansen-Tangen [1976] 1 WLR 989 at 995-997; and DTR Nominees Pty Ltd v Mona Homes Pty Ltd [1978] HCA 12; 138 CLR 423 at 429; and

Lake v Simmons

commercial contracts are to be interpreted with regard to the circumstances of commerce with which they deal, the language used by those who are parties to them, and the objects with which they are intended to secure

McCann v Switzerland Insurance Australia Limited

IATA v Ansett

18 In any event, whether or not aspects of the reasons of Mason J require, as a matter of theory, any exegesis, the High Court has clearly stated the position conformably with the cases referred to at [17 (c)] above and discussed by Mason J in Codelfa at 348-351. This can be taken from the clarity of the expression of principle in the later High Court cases to which I have referred, as well as from the references in Pacific Carriers v BNP Paribas at 461-462 [22], Zhu at 559 [82] and IATA v Ansett at 160 [8] to Codelfa at 350 and 351, and not 352. The issue is therefore not one for resolution otherwise than by application of current High Court authority.

The approach to the construction of commercial contracts

19 The essential character of the task of construction of commercial contracts can be seen in a number of authoritative decisions of the High Court, and of other courts authoritatively endorsed by the High Court. A commercial contract should be given a businesslike interpretation: McCann at 589 [22]. Thus, the nature and extent of the commercial aims and purposes of the agreement or parts thereof are part of the essential background circumstances: “the genesis of the transaction, the background, the context, the market in which the parties are operating”: Codelfa at 350 quoting Reardon Smith at 995-996 cited by the Court in Zhu at 559 [82] and see Lake v Simmons at 509 cited by Gleeson CJ in McCann at 589 [22] and IATA at 160 [8]. The need for a businesslike construction not only informs the nature and extent of the extrinsic material legitimately of assistance, but it also directs the approach to be taken to the ascription of meaning to the words used by the parties. The words should be given a construction so as “to avoid … [making] commercial nonsense or is shown to be commercially inconvenient”: Hide & Skin Trading Pty Ltd v Oceanic Meat Traders Ltd (1990) 20 NSWLR 310 at 313-314 (Kirby P) cited by the Court in Zhu at 559 [82]. This is not only a reflection of the place of the informing surrounding circumstances, it is also a requirement not to approach words in a business contract pedantically or in a manner prone to defeat the evident commercial purpose. They should be read “fairly and broadly, without [the court] being too astute or subtle in finding defects”: Hillas & Co Limited v Arcos Limited (1932) 147 LT 503 at 514 per Lord Wright cited in Australian Broadcasting Commission v Australasian Performing Right Association Limited [1973] HCA 36; 129 CLR 99 at 109-110. Similar expressions of the correct approach eschewing detailed semantic and syntactical analysis to lead to a construction contrary to business commonsense can be seen in what Lord Diplock said in Miramar Maritime Corporation v Holborn Oil Trading Ltd [1984] AC 676 at 682 and Antaios Compania Naviera SA v Salen Rederierna AB [1985] AC 191 at 201. As Gleeson CJ, Gummow J and Hayne J said in Maggbury at 198 [43] in the context of citing the relevant passage from Lord Diplock’s speech in Antaios, what is “business commonsense” is an objectively ascertained matter and thus referable to the evidence, and a matter about which there may be dispute. (It is not to be forgotten that shipping cases such as Miramar and Antaois were dealt with by judges of great stature and experience in the context of markets and practices with which they were intimately familiar.)

20 It may be, as here, that there is a real contest about the appropriate commercial perspective to take from the surrounding circumstances. This may be a function of contested evidence and produce the need for findings of fact to be made in those contested areas. It may also be a reflection of the fact that the parties brought evidently different commercial aims and purposes to the bargain. In neither case is the evidence of the commercial aims and purposes thereby necessarily unhelpful.

21 In many cases, the reality of commercial life and bargaining can be seen to underpin and explain the objective theory. Sometimes, beyond platitudes and obvious commercial aims, negotiating parties may well be at pains not to expose what they want from the terms and operation of an agreement. To do so may damage their bargaining position. In such cases, as in many cases, the bargaining that takes place is over what words are acceptable and the commercial aims and objects of negotiation give a framework and context to understanding what the bargained-for words mean.

22 The requirement of giving a business meaning for a business contract is not a new principle. Lord Mansfield observed in 1761 in Hamilton v Mendes (1761) 2 Burr 1198 at 1214; 97 ER 787 at 795 in speaking of the notion of business sense: “The daily negociations and property of merchants ought not to depend upon subtleties and niceties; but upon rules, easily learned and easily retained, because they are the dictates of common sense, drawn from the truth of the case.” Lord Halsbury LC in Glynn v Margetson & Co [1893] AC 351 at 359 said “a business sense will be given to business documents.” I have already referred to Viscount Sumner in Lake v Simmons.

23 It goes without saying that these statements of approach do not provide licence for “judicial rewriting” of the agreement: see Kooee Communications Pty Ltd v Primus Telecommunications Pty Ltd [2008] NSWCA 5 at [27] per Basten JA (with whom Giles JA and Tobias JA agreed). Nevertheless, the necessity to approach the construction and interpretation of commercial documents with these statements of principle in mind is real. The importance of these statements of principle in the approach to construction of commercial documents can be seen eloquently in Homburg Houtimport BV v Agrosin Private Ltd (The ‘Starsin’) [2003] UKHL 12; [2004] 1 AC 715. Judges may disagree about the result in any particular case, but the principles are clear.

The extent of the materials available as surrounding circumstances

24 The High Court authorities to which I have referred and in particular Pacific Carriers v BNP Paribas and Toll, and the recognition of the significance of the objective theory assist in appreciating the scope of the evidence that is admissible. The evidence, to be admissible, must be relevant to a fact in issue, probative of the surrounding circumstances known to the parties or of the purpose or object of the transaction, including its genesis, background, context and market in which the parties are operating. What is impermissible is evidence, whether of negotiations, drafts or otherwise, which is probative of, or led so as to understand, the actual intentions of the parties. Such evidence might be legitimate, however, if directed to one of the legitimate aspects of surrounding circumstances. The distinction can be subtle in any particular case. As Macfarlan JA and I said in Kimberley Securities Limited v Esber [2008] NSWCA 301 at [5]:

Prenn v Simmonds

Codelfa

to establish objective background facts which were known to both parties and the subject matter of the contract’,

‘in so far as they consist of statements and actions of the parties which are reflective of their actual intentions or expectations

The balance of the reasons of Campbell JA

25 As I have said, I agree with the factual analysis of Campbell JA. Against that background, I can be brief as to the issues upon which I wish to say something.

Clause 4.4(a)

26 I do not consider that cl 4.4 (a) strictly requires rectification. Set against the context described by Campbell JA and the definition of “Wholesale Price” construed and rectified in the way his Honour does, clause 4.4(a) can be seen as a shorthand for “Wholesale Price” in a provision dealing with calculation. Any reading of the text which led to a doubling of any subtraction would be uncommercial and contrary to business convenience, and commonsense. The “Wholesale Price” in cl 4.4(a) is to be understood by reference to its definition in cl 1.1 not by reference to the shorthand in the right hand column.

27 Nevertheless, as Campbell JA points out, an order for rectification can be made out of an abundance of caution. Given the time and money the parties have thusfar spent on this dispute, I agree that the order as proposed by Campbell JA should be made in the interests of good order, clarity and finality.

Relevant surrounding circumstances

28 I agree with the analysis by Campbell JA of the relevant surrounding circumstances to the construction of the Supply Agreement and, in particular, the definition of “Wholesale Price” in cl 1.1 and of his construction of that definition.

Recitals

29 I agree with Campbell JA that the approach to documentary interpretation which eschews the need to discern textual or other ambiguity before having resort to extrinsic material supersedes many older authorities which appear to restrict the use of recitals in the construction of operative provisions to cases where the operative provision is ambiguous. I also agree with his Honour’s analysis of the recitals to the Supply Agreement in the construction of the definition of “Wholesale Price” in cl 1.1.

Rectification

30 Subject to one comment, I agree with the conclusions and reasons of Campbell JA in respect of the rectification of the definition of “Wholesale Price” in cl 1.1.

31 I was initially attracted to the submission put forward by Mr Meagher that the parties should be taken to have intended that the definition in cl 1.1 should operate in its construed width, leaving the parties from time to time to debate, by reference to the law of estoppel, whether what was being done fitted into the concessions or permissions given by Mr Zelinsky at the “Pie Chart Meeting”. For the reasons given by Campbell JA, and the clear desirability of quelling the controversy before the Court, resolution of such issues is more appropriate in the manner suggested by Campbell JA by rectification. This approach is reinforced by the underpinning and informing equitable consideration in relation to rectification of the need for conscientious behaviour – a matter that would also underpin any estoppel in the manner of reconciliation posited by Mr Meagher.

Estoppel and the

Trade Practices Act

claims

32 Subject to the following comments, I agree with the conclusions and reasons of Campbell JA on Metcash’s estoppel and Trade Practices Act claims.

33 I agree with Campbell JA that the entire agreement clause would not prevent the operation of an equitable estoppel. This was the view I tended to favour (Drummond J and Mansfield J agreeing) in Branir Pty Ltd v Owston Nominees (No 2) Pty Ltd [2001] FCA 1833; 117 FCR 424 at 543-544 [444]-[449].

34 I also agree with Campbell JA that the relationship between an entire agreement clause, the parol evidence rule, estoppel by convention and the correctness of Johnson Matthey Ltd v AC Rochester Overseas Corp (1990) 23 NSWLR 190 and the cases which apply it may require a close examination of the character of estoppel by convention, including the question as to whether it is a common law or equitable doctrine. This is unnecessary to decide here. What can be said, however, if the estoppel employed is equitable in character, is that the common law parol evidence rule will not impede its proper operation.

Right of inspection

35 Subject to one comment, I agree with the reasons of Campbell JA in relation to the right of inspection.

36 As to the question of confidentiality affecting the terms of any order, I would only add that such a limitation may need to find its source in the contract. If the contract gives a right of access, that right should be able to be vindicated in full by an order of the Court. Nevertheless, the business commonsense of some reasonable recognition of the character of the information might be seen to inhere in the right of access in the interpretation of the agreement: cf Gordon & Gotch Australia Pty Limited v Horwitz Publications Pty Limited [2008] NSWCA 257 at [35]-[39].

37 Alternatively, there may also be a foundation for the limitation based on confidentiality in any requirement (if present) to exercise contractual rights in good faith for their limited contractual purposes.

38 It is unnecessary to make any further comment on possible sources of a restriction of the kind foreseen in Campbell JA’s reasons.

Relief and Costs

39 I agree with Campbell JA’s reasons under the heading “G Orders and Procedural Matters”.

40 I agree with the orders proposed by Campbell JA.

The reasons of Giles JA

41 I also respectfully agree with the reasons of Giles JA concerning the construction and interpretation of the definition of “Wholesale Price” in cl 1.1 and of the extent of the relevance of the surrounding circumstances in this case to that task.

42 GILES JA: I have had the considerable benefit of reading the reasons of Campbell JA in draft. I agree that the trial judge was correct in his construction of the Supply Agreement. I agree that he was incorrect in the manner in which he rectified it, and that it should instead be rectified in the manner proposed by Campbell JA. I agree with his Honour’s conclusions on the other issues in the appeal and cross-appeal.

43 Subject to the following observations, which are concerned with the construction of the Supply Agreement and Franklins’ right of inspection, I agree with his Honour’s reasons for his conclusions. My observations assume familiarity with the reasons.

44 For convenience, I repeat the critical definition of Wholesale Price in cl 1.1 of the Supply Agreement –

Wholesale Price

45 This definition is taken up in the definition of “Purchase Price”, as the commencing integer variously adjusted for case deals, ullage allowances, profit margin and service fees. The Purchase Price is then the price at which, in the operative cl 4.3(a), Franklins will purchase the Products from Metcash.

46 Clause 4.4 then states how Metcash will invoice Franklins for Products, setting out a pro forma calculation of a Purchase Price. It commences with the integer of the Wholesale Price, accompanied by words in parentheses which, again for convenience, I repeat –

“Wholesale Price (ie ‘Wholesale 5’ for the State or Territory in which the Business is located, less warehouse allowances and trade, distributor, and cash discounts to provided to Metcash by that supplier)”

47 There is disconformity between Wholesale Price as defined in cl 1.1 and Wholesale Price as described in the words in parentheses in cl 4.4(a). However, it is plain that in the construction of the Supply Agreement the former prevails, and not only because it is the defined phrase taken up in the definition of Purchase Price which is in turn the subject of the operative clause 4.3(a). As Campbell JA notes, there is “some textual incoherence” in cl 4.4(a), and irrationality in apparent double deduction of warehouse allowances and trade, distributor and cash discounts. The description also omits the important temporal element, to which I later refer, that the wholesale list price be the price at the time of Metcash’s delivery of the Product to Franklins.

48 As Campbell JA also notes, cl 4.4 is a machinery provision dealing with invoicing, and in my view the words in parentheses descriptive of Wholesale Price were no more than the draftperson’s incomplete and inaccurate reminder of the definition in cl 1.1, signified as such by the introductory “ie”, not themselves carrying a contractual meaning of Wholesale Price. For that reason, it is strictly not necessary to rectify the Supply Agreement by deletion of the descriptive words; they remain as an incomplete and inaccurate reminder of Wholesale Price as defined in the now rectified definition. However, I agree that there should be rectification for more abundant caution.

49 I agree that, as the law has developed, it is not necessary to find ambiguity in the words of a written contract before going to context and purpose in the construction of the contract. The question is the scope of the material to which regard may be had in ascertaining the “meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of contract” (Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896 at 912; [1998] 1 All ER 98 at 114, adopted in Maggbury Pty Ltd v Hafele Australia Pty Ltd [2001] HCA 70; (2001) 210 CLR 181 at 188 [11]).

50 In Royal Botanic Gardens and Domain Trust v South Sydney City Council [2002] HCA 5; (2002) 76 ALJR 436; 186 ALR 289 at [39], the High Court said that Codelfa Construction Pty Ltd v State Rail Authority of NSW [1982] HCA 24; (1982) 149 CLR 337, rather than the arguably broader view of the admissible “background” taken in decisions of the House of Lords to which reference was made, should be followed. There is, with respect, good reason for caution in equating the material to which regard may be had with all that in ordinary communication a reasonable person would see as relevant, as is the thrust of the House of Lords decisions. A formal contract is not a conversation, or a letter, between persons who understand it to accord with some prior course of communications and seek the subjective intention of the speaker or writer. It is a legal act, to be approached according to the objective theory of contract, with its meaning transcending the immediate parties in the event of assignability and assignment; and even absent assignment, commonly a written contract will fall to be understood and obeyed through persons other than those engaged in its negotiation and privy to all that passed between the negotiators. In the present case, the Supply Agreement could have had a long life, and be acted upon by Franklins and Metcash long after Messrs Summers, Robbins, Zelinsky, Reitzer, Jablonski and others had left the respective companies.

51 Regard can not be had to evidence of “the antecedent oral negotiations and expectations of the parties” in order to construe the contract: Secured Income Real Estate (Australia) Ltd v St Martins Investments Pty Ltd [1979] HCA 51; (1979) 144 CLR 596 at 606, taken up by Mason J in Codelfa Construction Pty Ltd v State Rail Authority of NSW at 352. His Honour there said, in part of a passage cited by Campbell JA –

“… Obviously the prior negotiations will tend to establish objective background facts which were known to both parties and the subject matter of the contract. To the extent to which they have this tendency they are admissible. But in so far as they consist of statements and actions of the parties which are reflective of their actual intentions and expectations they are not receivable. The point is that such statements and actions reveal the terms of the contract which the parties intended or hoped to make. They are superseded by, and merged in, the contract itself. The object of the parol evidence rule is to exclude them, the prior oral agreement of the parties being inadmissible in aid of construction, though admissible in an action for rectification.

Consequently when the issue is which of two or more possible meanings is to be given to a contractual provision we look, not to the actual intentions, aspirations or expectations of the parties before or at the time of the contract, except in so far as they are expressed in the contract, but to the objective framework of facts within which the contract came into existence, and to the parties’ presumed intention in this setting. We do not take into account the actual intentions of the parties and for the very good reason that an investigation of those matters would not only be time consuming but it would also be unrewarding as it would tend to give too much weight to these factors at the expense of the actual language of the written contract.”

52 This was preceded by his Honour’s observation that evidence of surrounding circumstances is not admissible to contradict the language of a contract when it has a plain meaning. Although ambiguity need not be found before going to context and purpose in the construction of the contract, I do not think that what his Honour said in the words extracted above has been displaced.

53 Consistently with this, if there is an ordinary grammatical meaning of the words used in a written contract, that meaning must be given significant force although read with the admissible evidence of surrounding circumstances. Words are ordinarily used in a conventional and grammatical way, and a formal written contract prepared over a period, with drafts exchanged, referred for instructions and varied as in the present case, has considerable claim to adherence to the ordinary grammatical meaning. It comes down to a determination in each case whether the words are to be understood otherwise in the light of the context and purpose revealed by the admissible evidence, including whether they are intractable and do not admit of departure from the conventional and grammatical use. I take the adjective from the judgment of Mason and Wilson JJ in Cooper Brookes (Wollongong) Pty Ltd v Federal Commissioner of Taxation [1981] HCA 26; (1981) 147 CLR 297 at 320, a case of statutory construction in which their Honours described the rules of construction as rules of common sense designed to ascertain the legislative intention by reference to the language of the instrument viewed as a whole but postulated that the language may be “intractable”.

54 The words “all allowances and discounts” in the definition of Wholesale Price, shown to mean “all” by the following words “such as …”, are explicit. The descriptive words in cl 4.4(a) of the Supply Agreement must then be taken into account, and could be said to give rise to ambiguity, but they are to be explained in the manner I have earlier set out. Beyond that, as appears from the reasons of Campbell JA, there is very little in the circumstances surrounding entry into the Supply Agreement supporting that, in the document as finally executed, the words should not have the amplitude they bear on their face. The negotiations in which Wholesale 5 was referred to as the price at which goods would be supplied, and the subjective intentions and expectations of (for example) Messrs Summers, Zelinsky and Reitzer, are not available as surrounding circumstances.

55 The fact that Metcash had a Wholesale 5 price, produced by its computer system, which deducted only four or five published discounts, did not say much of the Wholesale Price agreed between the parties when it was plain that other adjustments could readily enough be made (for example, to reflect case deals made by Franklins). It was known that many other allowances and discounts could be negotiated referable to Franklins’ volume, and as the discussion at the Pie Chart Meeting and the production of the Laminated List show, the parties were aware that confidential benefits could be obtained by Metcash on Franklins’ volume and at least as to the term adherence/volume benefit it was agreed that Franklins should get it. There is nothing uncommercial in confidential benefits going to Franklins rather than Metcash. The purpose of the Supply Agreement included that each of Metcash and Franklins would make a profit from the supply of the Products under it, but that does not translate to what confidential discounts should be retained by Metcash or should go to Franklins and it was not shown by evidence that one or other construction of the Supply Agreement would bring unprofitability to one or other of the parties.

Trade Practices Act

632 The judge answered those:

“Because the supply agreement is to be rectified, this question does not arise.”

633 Metcash’s written submission in the appeal concerning the Trade Practices Act was that Metcash’s Trade Practices Act case had been based on the same factual material as its estoppel case, which the judge rejected on the basis of the Johnson Matthey line of cases. Metcash submits that a private agreement cannot oust the operation of the statutory remedy under the Trade Practices Act.

634 Metcash’s oral submission scarcely mentioned its Trade Practices Act claims.

635 I have rejected Metcash’s estoppel arguments for reasons not dependent upon the Johnson Matthey line of cases. I am not persuaded that the Trade Practices Act provides Metcash with any remedy.

PART G – ORDERS AND PROCEDURAL MATTERS

4 May Declarations and Orders

636 On 4 May 2007, the judge made orders that not only gave answers (or expressly declined to give answers) to the 21 questions posed, but also made a declaration about the rights of the parties “upon the true construction of the Supply Agreement (in its unrectified form)”. That declaration immediately followed the order for rectification that his Honour made concerning the Supply Agreement.

637 In judgment 2, his Honour explained why he had taken that step:

“Franklins has appealed against the rectification order which I have made. Metcash may cross-appeal against the answers to the separate questions concerned with the construction of the unrectified Supply Agreement. The making of the declarations as sought will enable the Court of Appeal to find in one convenient place the construction which I have placed on the relevant clauses of the Supply Agreement, in its unrectified form. If Franklins’ appeal against the rectification order succeeds and there is no cross-appeal by Metcash, or if Metcash’s cross-appeal fails, the declarations as to the construction of the unrectified Supply Agreement will facilitate the determination of the remaining issues in the proceedings, which depend upon ascertainment of the terms of the Supply Agreement. Accordingly, the declarations have utility and tend to promote the just, quick and cheap resolution of the issues in the proceedings.”

638 His Honour made that declaration after receiving written submissions 17 pages in length from Metcash opposing its making, and written submissions 14 pages in length from Franklins supporting its making.

639 By the time the judge came to make his orders, the procedures of the Court were governed by the Uniform Civil Procedure Rules 2005 (“UCPR”). UCPR 28.3 and 28.4 provided:

28.3 Record of decision

If any question is decided under this Part, the court must, subject to rule 28.4, either:

(a) cause the decision to be recorded, or

(b) give or make such judgment or order as the nature of the case requires.

28.4 Dismissal of proceedings

(1) This rule applies if the decision of a question under this Division:

(a) substantially disposes of the proceedings or of the whole or any part of any claim for relief in the proceedings, or

(b) renders unnecessary any trial or further trial in the proceedings or on the whole or any part of any claim for relief in the proceedings.

(2) In the circumstances referred to in subrule (1), the court may, as the nature of the case requires:

(a) dismiss the proceedings or the whole or any part of any claim for relief in the proceedings, or

(b) give any judgment, or

(c) make any other order.”

640 While no formal order for separate determination of the 21 questions had been made, the parties and the court were clearly proceeding as though such an order had been made.

641 Metcash makes particular complaint about the following declaration that was made concerning the construction of the Supply Agreement (in its unrectified form):

“6. The plaintiff was and is entitled to have produced to it, to inspect and to make copies of all records of transactions which relate to those allowances, discounts and rebates to the benefit of which the plaintiff is entitled under the Supply Agreement and being records which it might reasonably require in order to satisfy itself that all such allowances, discounts and rebates have been allowed or paid when due.”

642 Like the answer to question 19 (para [590] above), the wording of that declaration is drawn at least in part from clause 4.3(b) of the Supply Agreement. The wording of the declaration related not only to past rights, but present rights of Franklins. Metcash points out that the judge had not made any decision that, even under the unrectified Supply Agreement, Franklins would have had any present rights of inspection under clause 4.3(b). Metcash contends that the making of a declaration that Franklins had a present entitlement to have documents produced to it, to inspect them and to make copies of them, foreclosed the sort of argument to which I have adverted in para [627] about the basis upon which any inspection should take place.

643 I do not accept that that is so. However, there is a different problem with the declarations in question.

644 An order of the court for rectification, once made, relates back so that the rights of the parties are treated as having always been in accordance with the contract as so rectified: Malmesbury v Malmesbury at Beav 418; ER 1200; Craddock Brothers v Hunt [1923] 2 Ch 136 at 151, 160; Bosaid v Andry [1963] VR 465 at 468, 473; Issa v Berisha [1981] 1 NSWLR 261 at 265; Wongala Holdings Pty Ltd v Mulinglebar Pty Ltd (1994) 6 BPR 13,527 at 13,533–4; [1995] ANZ ConvR 29 at 31-2; [1994] NSW ConvR ¶55-920 (60,145) at 60,151; Baird v BCE Holdings Pty Ltd (1996) 40 NSWLR 374 at 387-8; Spathis v Hanave Investment Co Pty Ltd [2002] NSWSC 304 at [107]–[111]; Re Jay-O-Bees at [93].

645 When the judge made that declaration he had already ordered that the Supply Agreement should be rectified. Thus, a declaration about the true construction of the Supply Agreement in its unrectified form involved the court formally pronouncing upon rights that no person then had, or had ever had. For that reason I would set aside the declaration. Declarations should be made only for the purpose of solving live controversies. When the judge, quite reasonably, took the view that the Court of Appeal might possibly be assisted by his views about what the agreement in its unrectified form meant, that could just as easily have been stated in a paragraph of reasons for judgment.

646 Various of the answers that the judge gave to questions concerning the agreement in its unrectified form ended with the words “and there should be a declaration accordingly”. The orders included such declarations. For the same reasons, I would delete those concluding words from the relevant answers, and set aside the declarations that were made.

647 I would add, however, that I do not see how the making of the declarations has actually done anyone the slightest harm, or caused any confusion.

Orders and Declarations Concerning Supply Agreement in its Rectified Form?

648 On 29 July 2005, Bergin J had ordered:

Supreme Court Rules

649 Her Honour made other interlocutory directions on the same day, including:

“8. The parties are to attempt to reach agreement in relation to a Statement of Issues by 2 December 2005.

9. The proceedings be stood over for further directions on 9 December 2005”

650 Her Honour annexed to the Short Minutes of Order two proposed lists of questions for determination at a separate trial – one proposed by Metcash’s solicitors, the other proposed by Franklins’ solicitors. The Short Minutes conclude:

“Her Honour noted that she had been advised the parties are close to settling the proposed questions, and that pursuant to order 8 above the parties should be ready by 9 December 2005 to provide to the Court the settled questions, or to request the Court to settle any differences.”

651 By the time the trial began the parties had neither agreed on a specific list of questions, nor asked the court to settle their differences about the questions.

652 At the start of the second day of the hearing counsel for Franklins, Mr LG Foster SC (as his Honour then was) handed the judge a list of questions that counsel were still discussing. The following exchange occurred:

SIMPKINS: I flag one difficulty that we are currently grappling with; the original existing order for separate determination made by the court on 29 July, we would prefer to leave that order in place and have the current document as the parties’ identification of the issues necessary to resolve.

…

HIS HONOUR: What I am principally interested in is whether the parties have agreed upon the questions I should answer.

SIMPKINS: Mr Foster and I are agreed that the questions which your Honour will answer, regardless of precise formulations, are the ones on that document. The only current point of difficulty is whether those separate issues are issues that your Honour notes as the parties’ agreement as to whether your Honour wants to make a separate order for determination.

…

FOSTER: I am just not sure what my friend is on about. The order her Honour made has no content. Her Honour made an order that there be, in general terms, a determination of all issues other than breach and damage. She sent the parties away to agree on specific questions.

HIS HONOUR: That’s what they have done.

FOSTER: Precisely. To make it clear there should be no tension whatsoever between what happened last year and what is now happening. My client doesn’t want a circumstance to arise whereby somebody says, well, I know they were the issues that were before Palmer J, but the thing we rely on is the order last year and there is a gap between them and your issue is estopped, or whatever. The critical matter from our point of view is that there is no room for an argument that what your Honour was deciding was anything other than what’s in that document. In our submission, given the way her Honour dealt with the matter, which was not to put any content into that order. It was a general order with the parties directed to go away and agree on something, which they never did. This is the proper way to regularise the matter.

HIS HONOUR: I don’t know whether people are being unnecessarily apprehensive, but as I understand the order which her Honour made it was that the parties, in effect, should define within the broad parameters outlined by her Honour the issues for separate determination.

FOSTER: I would accept that.

HIS HONOUR: Her Honour made an order for separate determination hiving off a broad area for later determination and said within the area to be determined at trial you will go away and agree upon the issues which I apprehend this document is about to do. When the document is finally approved by both sides it will be in fulfilment of her Honour’s order and these will be the questions to be answered pursuant to her Honour’s direction for separate trial.

FOSTER: As long as there is no misunderstanding.

HIS HONOUR: Is that your understanding of the position?

SIMPKINS: Yes, your Honour. What your Honour is saying, the order of separate determination remains, but the document provides the questions your Honour has to address. We agree with that.

HIS HONOUR: It is on record, you don’t have to get apprehensive.”

653 At the start of the fourth day of the hearing Mr Foster told the judge:

“Your Honour, it has now been agreed between the parties that your Honour should proceed by consent upon the basis that the questions for determination at this hearing are those set out in the document that I handed up to your Honour on Tuesday morning and that the adumbration of those questions in that document gives content to the order made by her Honour Justice Bergin in, I think June or July last year.”

654 Mr Simpkins did not dissent from that statement. The judge marked the agreed facts and questions as “MFI 2”. The case thereafter proceeded by reference to that list of questions, and the judgment likewise was given by reference to that list of questions.

655 The questions that the parties agreed the judge should answer defined the expression “the formal Supply Agreement” as meaning, in effect, the document the parties executed on 14 September 2001, in its unrectified form. Many of the questions were posed by reference to “the formal Supply Agreement”.

656 The list of questions for determination concluded with notes. One of them was that certain contentions of the plaintiff (in, presumably, its Amended Summons) were reserved for subsequent hearing and determination by the court if necessary in the light of the determination of the questions. There was also a note that said:

“Irrespective of the outcome of this separate determination, there will remain for determination a question of liability concerning inconsistencies between the description or classification of discounts, allowances and rebates in trading terms between the defendant and its suppliers during the term of the Supply Agreement and the benefit or service provided by the defendant to its supplier which triggered the defendant’s entitlement to receive those discounts, allowances and rebates, further details of which are set out in the letter from Blake Dawson Waldron, solicitors for the plaintiff, to Freehills, solicitors for the Defendant, dated 30 June 2005.”

657 The letter from Blake Dawson Waldron to Freehills dated 30 June 2005 stated some concerns that Blake Dawson Waldron continued to have about the procedure of separate questions. One of those concerns was:

the classification issue

The classification issue was the subject of evidence of Mr Hugo Loneragan of Deloitte before the Court last Friday, and in respect of which [Metcash] has raised concerns about alleged breach of the confidential undertakings. … the position taken by [Metcash] in respect of confidentiality (both in relation to Mr Loneragan’s affidavit and generally) has prevented [Franklins] from fully agitating the classification issue. [Franklins] fully reserves its rights in respect of the classification issue.”

658 Mr Loneragan, referred to in that letter, is an accountant who Blake Dawson Waldron had engaged to inspect certain records of Metcash relating to, at first, 14 suppliers, then an additional 19 suppliers. To preserve confidentiality, he referred to particular suppliers, and the rate at which benefits were provided to Metcash by that supplier, in code. An affidavit he made gave an example of a supplier, identified only as “B”, whose trading terms included a note:

“Please note: ‘DD’% settlement discount is not costed into price as per Agreement dated 6/7/99. This is treated as Prompt Payment for 14 days.”

659 According to the Laminated List, a “settlement discount” was one of the types of benefit that Metcash was obliged to pass on to Franklins. Mr Loneragan said that that:

“… raises a question as to whether the ‘Settlement Discount’ provided by supplier ‘B’ was, as suggested by the note, actually ‘treated’ by the parties as a ‘Prompt Payment’ discount, in which case [Metcash] … did not pass on the discount to [Franklins].”

660 His affidavit also reported on comparing the trading terms of a particular supplier, and the terms in which that supplier issued invoices to Metcash. There was a discrepancy between the way in which the discount was referred to in the trading terms and on the invoice. He concluded:

“(a) There is a strong possibility that in respect of at least some of the suppliers, there is an inconsistency between the description or classification of the discount on the face of the trading terms as between [Metcash] and a particular supplier and the actual benefit or service provided by [Metcash] to the supplier which triggers [Metcash’s] entitlement to receive the discount from that particular supplier.

(b) There would appear to be no uniform practice in relation to the description or recording of the types of discounts negotiated between [Metcash] and particular suppliers.”

661 On 18 April 2007, Metcash filed a Notice of Motion (the “Metcash Motion”) that sought, inter alia:

“1. A Declaration that the ‘published allowances and discounts’ referred to in the clause 1.1 definition of ‘Wholesale Price’ in the Supply Agreement executed by [Franklins] and [Metcash] on or about 14 September 2001 means the following published discounts and allowances (if available): trade discounts, warehouse allowances, distributor allowances, quantity buy allowances, and settlement discounts.

2. An order that judgment be granted in favour of [Metcash] against [Franklins] .”

662 Metcash later filed written submissions in support of that Notice of Motion, and in support of what it claimed were additional orders and declarations “required in the light of the orders and declarations made on 4 May 2007”.

663 The additional orders sought were ones that would require enumeration of which particular benefits were, and which particular benefits were not, to be deducted from the supplier’s list price in ascertaining the Wholesale Price.

664 Broadly, Metcash’s contention was that all the particular types of benefit that Franklins was complaining about not having received were confidential benefits and, even taking into account the rectification that the judge had ordered should be made, the evidence before the judge should enable him to conclude that the only published discounts and allowances that Metcash had received were the specific types it had enumerated in para [1] of the Metcash Motion. Further, Metcash contended that the judge ought be able to conclude, on the basis of the evidence before him, that Metcash had actually paid to Franklins every cent it had received from suppliers, so far as those particular benefits were concerned. It submitted that the judge should answer certain of the questions that had been submitted to him to state what the rights of the parties were under the agreement as the judge had rectified it. Further, once the judge came to the conclusion that Franklins had been given every benefit it was entitled to, the proceedings should be dismissed, with costs.

665 The judge declined to proceed in the way Metcash invited him. He said (Judgment 3, at [5]-[8]):

“Franklins says that there are indeed inconsistencies between descriptions of discounts and allowances used by various suppliers so that it is not clear that Metcash has correctly deducted all published discounts in calculating prices under the Supply Agreement. It refers to some evidence in this regard given by Mr Loneragan in an affidavit of 21 June 2005.

The precise identification and classification of discounts allowed by various suppliers was not an issue directly for determination by me in the proceedings thus far. I do not propose to accept Metcash’s invitation to determine it now by revisiting the evidence and drawing inferences.

The identification and classification of discounts is a matter to be determined in the next stage of these proceedings as indicated in my reasons for judgment. It will then be a matter for determination as to whether that identification reveals whether or not Metcash has committed a breach of the Supply Agreement in calculating the prices.

It is not appropriate for this Court to engage in the exercise of ascertaining which various discounts and allowances provided by various suppliers fall within the description published discounts or outside that description. I think that is a matter really for the application of some expertise. It is a matter ripe for determination by a referee and I think that an order for reference out should be made. I say that, not only for the reason that I have given, that is that it is really a question which would benefit from the application of some expert knowledge, but also because the exercise is likely to be protracted and convoluted. Every other issue in this proceedings fits that description.”

666 I am not persuaded that, even on the basis of the rectification order that the judge had decided was appropriate, he was in error in taking that course.

667 Now that it is in my view appropriate to make a different rectification order to that which the judge made, it is quite apparent that further proceedings will be necessary.

668 Metcash has expressed its concern that such a course means that the original intent of the order of Bergin J has not come to fruition. That is so. However, the proceedings in the court below proceeded on the basis, by consent, that the judge’s task was to answer specific identified questions, and he has done so. If the effect is that the original intent of Bergin J in ordering separate determination has not been fully carried through, and the answers to the questions do not determine all matters in dispute in the proceedings, that is a risk always inherent in the procedure of having determination of specific questions.

669 The argument on this topic has drawn attention to the fact that the answers to some of the questions were framed in terms of “the Supply Agreement” rather than “the formal Supply Agreement”. While I have no doubt what the judge meant, it would be preferable for the court’s orders to state unambiguously that the answer relates to the formal Supply Agreement.

Franklins’ Application for Leave to Amend

670 In para [8] of its Amended Summons, Franklins alleged there were implied terms in the Supply Agreement that:

(a) [Metcash] would do all things reasonable and necessary to give [Franklins] the benefit of the Agreement; and/or

(b) [Metcash] would act in good faith in its dealings with [Franklins] under the Agreement.”

“implied by law”

671 The Amended Summons defined the term “Discounts” as:

“payment to be made by the Supplier to [Metcash], or deductions or credits to be allowed by the Supplier to [Metcash] by way of discounts, allowances or rebates from or in respect of that supplier’s wholesale list price for its Product or Products …”

672 A subcategory of Discounts was “Volume Discounts”, which were defined as being Discounts “referable to the volume of Product acquired by [Metcash] from the Suppliers which were on-supplied by [Metcash] to [Franklins].”

673 The Amended Summons alleged:

14. During the term of the Agreement [Metcash] failed to deduct the value of all Discounts, or alternatively the Volume Discounts, which it received from the Suppliers in calculating the Wholesale Price payable by [Franklins] under the Agreement.

15. By reason of paragraph 14 above, [Metcash] has:

…

(b) failed to give [Franklins] the benefit of the Agreement in breach of the term of the Agreement referred to in paragraph 8(a) above [para [670] above].

(c) failed to act in good faith towards [Franklins] under the Agreement in breach of the term of the Agreement referred to in paragraph 8(b) above [para [670] above].”

674 By its letter of 30 June 2005 (referred to at para [657] above), Franklins had flagged its desire to run a case that it was entitled to receive what were in substance benefits of a type that, under the Supply Agreement it was entitled to receive, even if Metcash and a supplier had applied a different name to that particular benefit.

675 Among the questions that the parties agreed the judge should answer were questions 17 and 18:

“17. Whether it was an implied term of the formal Supply Agreement that:

(a) [Metcash] would do all things necessary to give to [Franklins] the benefit of the formal Supply Agreement; and/or

(b) [Metcash] would act in good faith in its dealings with [Franklins] under the formal Supply Agreement.

18. If Question 17 is answered yes, whether such implied terms (or either of them) obliged [Metcash] to deduct the Discounts or Volume Discounts (both as defined in the Amended Summons) in the calculation of the price payable by [Franklins] to it under the formal Supply Agreement.”

676 The answer the judge stated to each of those questions in his reasons for judgment was:

“Because the Supply Agreement is to be rectified, this question does not arise.”

677 The Court’s formal order concerning each of questions 17 and 18 was simply “This question does not arise”.

678 Franklins did not include in its Notice of Appeal any ground relating to the answers the judge gave to questions 17 and 18. On the final day of argument of the appeal Mr Meagher mentioned to us the matters I have just set out. He said:

“It seems that the trial judge has taken the view that the question only addressed the formal supply agreement as distinct from the rectified supply agreement and, on that basis, has not answered the question.”

679 Mr Meagher’s supposition about the judge’s reasoning for not answering the questions seems to me to be clearly right. The question was, in its terms, addressed to the “formal Supply Agreement” and so obviously would not arise if the formal Supply Agreement was to be rectified. Some of the questions that the judge had earlier answered were similarly cast in terminology involving the “formal Supply Agreement”. For example, question 7 asked the court to choose between three alternatives for the manner of calculating the Purchase Price “upon the true construction of the formal Supply Agreement”. Deciding the construction of the document, in the form the parties had executed it, was necessary – if the document was not rectified, the answer to that question of construction would govern the price that was payable by Franklins – and as a necessary part of deciding whether the document should be rectified the court would need to ascertain the true construction of the document, to see whether, and if so in what ways, the true construction was inconsistent with the common intention of the parties.

680 Mr Meagher explained to us his reason for raising the matter so late in the appeal:

“As I understand it, my friend seeks to argue the answer ‘doesn’t arise’ precludes us arguing for the implied term forever. If we need a notice of appeal to have that order reversed or changed, then we would ask for that but I must say I had assumed if this Court dealt with the matter in that way – I suppose if this Court dealt with the matter by saying the trial judge was right – then we would still have to go back and have an argument with the trial judge about this implied term because it has not been dealt with; and, if this Court says his Honour was wrong about rectification or wrong about construction, then the matter would go back and his Honour would have to deal with this implied term question.”

681 As protection against such an argument being raised if the matter were remitted to the court below, Mr Meagher seeks leave to amend the Notice of Appeal to appeal against the orders the trial judge made in response to questions 17 and 18.

682 Mr Meagher was granted leave to file a Notice of Motion seeking that amendment, and the parties were granted leave to make written submissions concerning it, on the basis that the Court would deal with the application for leave to amend in its reasons.

683 I have already rejected at [664]-[666] above Metcash’s argument that the questions posed to the trial judge were ones that, once he had granted rectification of the Supply Agreement, he should then have answered by reference to the Supply Agreement as so rectified. Any of the questions to which the judge addressed himself that were framed in terms of “the formal Supply Agreement” related to the Supply Agreement in its unrectified form. The answers that the judge gave to questions 17 and 18 were right, and will not preclude Franklins from arguing, on remission of this matter, that the Supply Agreement as rectified contains implied terms of the kind it has pleaded, or that those terms (if found to exist) have been breached. For that reason, I would dismiss Franklins’ Notice of Motion seeking leave to amend its Notice of Appeal.

684 As the Notice of Motion was responsive to an argument of Metcash that has failed, Metcash should pay the costs of the Notice of Motion.

Costs

685 The orders that I propose to make involve what looks at first glance to be major surgery to the orders of the judge below. However, in substance Franklins has succeeded on the appeal. If a plaintiff sues for breach of contract and obtains an award of nominal damages, that empty victory usually does not bring with it an entitlement to costs, as the plaintiff usually is not to be regarded as the successful party in the action: Anglo-Cyprian Trade Agencies Ltd v Paphos Wine Industries Ltd [1951] 1 All ER 873 at 874; Alltrans Express Ltd v CVA Holdings Ltd [1984] 1 WLR 394; [1984] 1 All ER 685; Oshlack v Richmond River Council [1998] HCA 11; (1998) 193 CLR 72 at 98 [70] per McHugh J; Ng v Chong [2005] NSWSC 385; Mid-City Skin Cancer & Laser Centre v Zahedi-Anarak [2006] NSWSC 1149 at [47]-[52]. In my view, in substance Metcash has not succeeded on any issue. For that reason it should pay the costs of the appeal and of its cross-appeal.

Orders

686 I propose the following orders:

In proceedings 40253/07:

(1) Appeal allowed.

“the Supply Agreement”

“the formal Supply Agreement”

“and by further holding that a declaration to that effect should be made.”

(c) substituting for the answer to question 14:

“Yes”

“Order that the formal Supply Agreement dated 14 September 2001 entered into between the plaintiff and the defendant be rectified by:

(a) inserting into the definition of Wholesale Price for a Product in Clause 1.1 immediately after the words “provided to Metcash by that Supplier” the words “other than any allowance or discount that is a direct, cross docking, early payment discount, centralisation/redistribution allowance, or slow moving rebate”; and

(b) deleting the words beginning “(ie ‘Wholesale 5’” and ending “to Metcash by that Supplier)” immediately following “Wholesale Price” in clause 4.4(a) thereof.”

(f) setting aside each of the declarations made in paras 3-6 of those orders.

(3) Remit the proceedings to the court below.

(4) Dismiss the Notice of Motion of the Appellant seeking leave to amend its Notice of Appeal.

(5) Respondent to pay costs of the Appellant of the appeal, and of the said Notice of Motion.

In proceedings 40348/07 (the Cross-appeal):

(1) Save to the extent provided for in Order 2 of proceedings 40253/07, dismiss the Cross-appeal.

(2) Cross-appellant to pay costs of the Cross-respondent of the Cross-appeal.

Postscript

687 Having read the reasons of Allsop P and Giles JA, I should explain what I meant in para [627] when I referred to discretion in the crafting of an order to enforce the contractual rights of inspection. An order enforcing the contractual rights of inspection is in the nature of an equitable order for specific enforcement of that contractual right. Any equitable order is discretionary, in the sense that the judge must craft the precise order that will rectify, in so far as is practicable, the particular departure from the requirements of equitable principle that have been shown to have occurred in the instant case, but go no further. Specific enforcement of contractual rights is granted only in those circumstances where damages are not an adequate remedy. Concerning such a contractual right, the departure from equitable principle that the order seeks to remedy is failure to perform the contract. The relevant discretion concerns how, in the circumstances of any particular breach that might have been proved, the objective of obtaining as close as is practicable to proper contractual performance is to be achieved. In at least some cases, it also concerns whether there is any recognised discretionary defence to the granting of the equitable relief, and on what (if any) terms (themselves derived in accordance with equitable principle) the equitable order should be granted.

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02/11/2010 - Replacement of the words "previous negotiations" at the end of the para [301] with the words "surrounding circumstances".Removal of superfluous "is" from the second sentence of para [446]. - Paragraph(s) 301; 446

21/12/2010 - Correction of citation references. - Paragraph(s) 328; 330

Citations

Franklins Pty Ltd v Metcash Trading Ltd [2009] NSWCA 407

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