Regreen Asset Holdings Pty Ltd v Castricum Brothers Australia Pty Ltd

SUPREME COURT OF VICTORIA

COURT OF APPEAL

S APCI 2015 0035

REGREEN ASSET HOLDINGS PTY LTD	Applicant
v
CASTRICUM BROTHERS AUSTRALIA PTY LTD	Respondent

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JUDGES:	WARREN CJ and KYROU and McLEISH JJA
WHERE HELD:	MELBOURNE
DATE OF HEARING:	16 September 2015
DATE OF JUDGMENT:	27 October 2015
MEDIUM NEUTRAL CITATION:	[2015] VSCA 286
JUDGMENT APPEALED FROM:	Tahiri v Castricum Brothers Australia Pty Ltd [2015] VSC 4 (Sifris J)

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CONTRACT — Implied term — Agreement between the applicant and the respondent for the sale of rendering equipment and separate earlier agreement between the respondent and the sole director of the applicant for the sale of the land on which the rendering equipment was situated — Whether there was an implied term of the equipment agreement that completion was subject to settlement of the land agreement — Whether the judge misapplied the principles in BP Refinery (Westenport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266 in concluding that the term should be implied — Whether the judge erred in taking into account evidence of pre-contractual conduct and in failing to take into account evidence of post-contractual conduct — Application for leave to appeal granted — Appeal dismissed.

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APPEARANCES:	Counsel	Solicitors
For the Applicant	Mr C W Harrison QC with Mr J M Selimi	AMC Law & Associates
For the Respondent	Mr J W S Peters QC with Mr S Rubenstein	MacPherson & Kelley Lawyers

WARREN CJ
KYROU JA
McLEISH JA:

Introduction and summary

This is an application for leave to appeal from a decision of a judge of the Trial Division dismissing the applicant’s claim for damages for conversion of rendering equipment it purchased from the respondent.

The judge held: that there was an implied term of the agreement for the sale of the rendering equipment that ‘completion was subject to settlement’ of a separate agreement for the sale of the land on which the equipment was situated (‘Implied Term’); that the Implied Term was a contingent condition which was not fulfilled; that the respondent was obliged to refund to the applicant $330,000, being the entire purchase price paid by the applicant for the rendering equipment; and that the respondent was not otherwise liable to the applicant.[1]
[1]Tahiri v Castricum Brothers Australia Pty Ltd [2015] VSC 4, [5], [65] (‘Reasons’).

It is common ground that settlement of the separate agreement for the sale of land did not take place and that the respondent later on-sold the relevant land and the rendering equipment to a third party.

The key issue for this Court is whether the judge erred in making the finding about the Implied Term.

For reasons that follow, we have concluded that the application for leave to appeal should be granted, that the appeal should be treated as having been instituted and heard at once, and that the appeal should be dismissed.

Facts

The proceeding below was listed for an initial hearing on the question of liability. By agreement of the parties, the liability hearing was confined to the issue of the existence of the Implied Term. Evidence was given solely by way of affidavit without any cross-examination. We will make further reference below to the manner in which the proceeding was conducted.

The rendering equipment and the land on which it was situated

The land on which the rendering equipment was situated was 342-368 Hammond Road, Dandenong South (‘Land’). The respondent bought the Land in 1981 and conducted various businesses upon it, including an abattoir, a meat processing business and a meat wholesale business. The Land had a number of improvements, including a processing building, livestock pens, a shop from which a meat wholesale business was conducted, amenities buildings, an office building, a workshop, a weighbridge, storage sheds, car parks and a building known as the ‘rendering building’ which housed the bulk of the rendering equipment.

The rendering equipment comprised plant and machinery which processed inedible parts of slaughtered animals, such as bones and offal, into other saleable products such as tallow and bone meal (‘Rendering Equipment’). The Rendering Equipment comprised various plant — including a raw material plant, a blood plant and an effluent plant — which operated as an integrated system. All the plant inside the rendering building (which had a floor area of approximately 970 m²) was located at floor level. Some of the equipment was located outside or adjacent to the rendering building, including the heat recovery and deodorisation plant, the tallow storage facility and the chemical storage facility.

The meat wholesale business, which was conducted out of the shop, was operated by Castricum Food Services Pty Ltd, a company that was related to the respondent. We will refer to the shop and those parts of the Land that were used for the purposes of the shop as ‘the shop premises’.

Gary Castricum was the managing director and chief executive officer of the respondent and Castricum Food Services Pty Ltd.

Sale of the Land and the Rendering Equipment

In 2011, all businesses being conducted on the Land, other than the shop and a small meat processing operation, ceased. At that time, the respondent decided to sell the Land together with the equipment that was located on it.

In March 2011, the respondent engaged Jones Lang LaSalle (‘JLL’) to sell the Land and the equipment. After it became apparent that it was unlikely that the abattoir and the meat wholesale business would be sold as a going concern, the respondent decided to sell the equipment associated with those businesses separately from the Land.

On 3 November 2011, the respondent appointed Grays (Aust) Holdings Pty Ltd (‘GraysOnline’) as its agent for the sale of the equipment other than the Rendering Equipment. Once items of equipment were sold, they were removed from the relevant buildings by the purchasers.

On 3 November 2012, after concluding that it was unlikely that the rendering business would be sold as a going concern, the respondent appointed GraysOnline to sell the Rendering Equipment. GraysOnline listed that equipment for sale on its website.

The GraysOnline website contained a document titled ‘GraysOnline and GraysOutlet User Agreement’ (‘GraysOnline User Agreement’), cl 8.1(i) of which relevantly provided as follows: ‘We reserve the right to sell the item … upon terms we determine to be reasonable, if you do not collect the item within 14 days of sale’. Clause 8.1(f) provided that, whenever the purchaser visited any place where goods were stored to collect them, the purchaser had to comply with any law relating to occupational health and safety (‘OH&S’). Clause 8.1(g) contained an acknowledgment from the purchaser that removal of goods from any location was at the purchaser’s risk.

The advertisement for the Rendering Equipment on the GraysOnline website stated that the rendering building was also available for sale. The advertisement envisaged that the Rendering Equipment and the rendering building could be disassembled, removed and then reassembled.

A contract of sale of the Land was signed by Bejtulla Tahiri, as purchaser, on 20 March 2013 and by the respondent, as vendor, on 26 April 2013 (‘Contract of Sale’). The parties treated the date of the contract as 2 May 2013, when exchange of contracts took place.

The key features of the Contract of Sale were as follows:

(a) The contract price was $8,250,000. Mr Tahiri paid the deposit of $825,000 by an initial payment of $20,000 and a further payment of $805,000 on 29 April 2013.

(b) Settlement was due to take place on 25 July 2013, upon which the balance of the purchase price of $7,425,000 was payable.

(c) The contract described the ‘Goods Sold with the Land’ as ‘[a]ll fixtures and fittings located on the [Land] BUT excluding the rendering equipment and tanks located within and adjacent to the rendering building’.

(d) Special Condition 5 was headed ‘Entire Agreement’ and contained a number of acknowledgments by the purchaser, including that the contract was the sole repository of the agreement between the parties.

(e) Special Condition 26 contained an acknowledgment by the purchaser that sale of the Land was subject to a lease between the respondent and Castricum Food Services Pty Ltd for the shop premises (‘Lease’). The Lease was for a period of 5 years to commence upon settlement and provided for annual rental of $50,000 subject to an initial rent free period of 12 months. Mr Tahiri had agreed to the rent free period in consideration for being granted additional time to pay the amount of $805,000 owing on the deposit of $825,000.

Mr Tahiri is the sole director, secretary and shareholder of the applicant. Garry Price held an indirect equitable interest in the applicant.

On 15 May 2013, Mr Tahiri and Mr Price attended the Land for an inspection with Mr Castricum. During the inspection, a conversation took place which was the subject of affidavit evidence. In an affidavit affirmed on 12 May 2014, Mr Tahiri deposed that the substance of the conversation was as follows:

[Mr] Castricum said: ‘We are having trouble removing the rendering equipment from this building. Would it be a problem if we have to damage this building in order to get the rendering equipment out?’ …
I said: ‘Yes, it would be a problem. We have plans for that building’.
[Mr] Castricum said: ‘Well, you had better buy the rendering plant then’.
[Mr] Castricum said: ‘It (the rendering plant) has been advertised for sale on GraysOnline’ …
[Mr] Castricum said: ‘If you are interested in purchasing it (the rendering equipment) you can speak to Tim Muir … of GraysOnline’.
[Mr] Castricum then gave me [Mr] Muir’s contact details.

In an affidavit sworn on 12 May 2014, Mr Price deposed that the substance of the conversation was as follows:

[Mr] Castricum said ‘I hope you don’t mind if we damage the building when we remove the rendering equipment?’ or words to that effect. I said ‘actually we do mind, as we have plans for the building’. I said ‘you’ll have to go to the expense of taking the roof off’. [Mr] Castricum appeared to my observation surprised at this and said ‘Then you had better buy the plant’. [Mr] Tahiri said ‘I’ll think about it’.

In an affidavit sworn on 28 May 2014, Mr Castricum did not dispute Mr Tahiri’s recollection of the discussion on 15 May 2013.

On 21 May 2013, after a discussion with Mr Muir from GraysOnline, Mr Tahiri met with Mr Castricum and discussed the sale of the Rendering Equipment. Mr Tahiri’s evidence was that, following an initial offer of $250,000 which Mr Castricum rejected, he made an offer of $300,000 which Mr Castricum accepted. According to Mr Tahiri, Mr Castricum told him to speak to Mr Muir to arrange payment. Mr Castricum’s evidence was that he rejected offers of $200,000, $250,000 and $300,000 from Mr Tahiri and that:

Mr Tahiri then offered to pay $300,000 and provide a further year of free rent in relation to the lease to be provided to Castricum Food Services [Pty Ltd], but that we had to throw in the lawn mower on the [Land]. I told Mr Tahiri that was acceptable.
I then said to Mr Tahiri words to the effect of ‘the sale is otherwise to be conducted through Graysonline and subject to their terms, conditions and processes.’[2]

[2]Emphasis in original.

Although Mr Tahiri made a further affidavit on 31 July 2014, he did not refer to Mr Castricum’s evidence about the meeting on 21 May 2013.

On 23 May 2013, the respondent’s lawyer, Peter Mason, wrote a letter to Mr Tahiri’s lawyer, Bruce McNab, (’Mason letter’) which stated:

We are instructed that our respective clients have entered into a separate arrangement for your client to purchase the rendering equipment. As part of this arrangement, your client has agreed to grant to … Castricum Food Services Pty Ltd a further rent free period of 12 months. This [means] the total rent free period will be 24 months from the date of settlement.
We suggest the best way to document this is for both of us to change special condition 26 by changing the number 12 months to 24 months. Please confirm if you agree this is the best way to proceed.

Mr McNab did not respond to the Mason letter.

In his affidavit of 12 May 2014, Mr Tahiri deposed that, on 30 May 2013, he telephoned Mr Muir and told him that he and Mr Castricum had agreed on a price of $300,000 plus GST for the Rendering Equipment. According to Mr Tahiri, in response to Mr Muir’s statement that he would send Mr Tahiri an invoice, he asked Mr Muir to address the invoice to the applicant.

On 30 May 2013, Mr Muir sent an email to Mr Tahiri attaching an invoice to the applicant dated 1 June 2013 for the Rendering Equipment (‘Invoice’). The email relevantly stated ‘[a]s discussed, we’ll require … 20% by COB Friday 14^th June with the balance to be paid by 5^th July.’ The Invoice provided that the amount payable was $330,000 inclusive of GST.

Also on 30 May 2013, Mr Muir sent an email to Mr Price attaching a list of the items which collectively comprised the Rendering Equipment (‘Inventory’). On the same day, Mr Price forwarded this email to Mr Tahiri and Mr McNab.

On 1 July 2013, the applicant paid $330,000 to GraysOnline. On the same day, Mr Muir emailed Mr Tahiri another version of the Invoice which showed that no balance was payable (‘Paid Invoice’). Mr Muir’s email stated: ‘Please see paid invoice for Castricum [plant and equipment].’

At the liability hearing, it was not in dispute that the applicant and the respondent had entered into an agreement for the sale of the Rendering Equipment by the respondent to the applicant (‘RE Agreement’). It was also not in dispute that the RE Agreement was not in the form of a single written contract but rather comprised, or was evidenced by, at least the Inventory, the Invoice, the Paid Invoice and the covering emails from Mr Muir attaching the Invoice and Paid Invoice. However, in their pleadings, the parties differed on the additional items that were said to form part of the RE Agreement. The pleadings are discussed at [50] to [53] below.

Based on the documents that the parties agreed formed part of, or evidenced, the RE Agreement, the express terms of that agreement were as follows:

(a) the parties to the agreement were the respondent as seller and the applicant as purchaser;

(b) the equipment being sold comprised the items in the Inventory;

(c) the price for the Rendering Equipment was $300,000 plus GST, making the total amount payable $330,000; and

(d) the price was payable by an instalment of 20 per cent by 14 June 2013 with the balance payable by 5 July 2013.

The Paid Invoice is properly to be characterised as evidence of compliance with the applicant’s payment obligations under the RE Agreement. Accordingly, the terms of that agreement were finalised on 30 May 2013 and the parties’ conduct after that day constitutes post-contractual conduct.

We discuss at [54] and [59] to [60] below the extent to which the parties’ conduct of the liability hearing departed from their pleadings.

Post-contractual conduct

Settlement of the Contract of Sale did not take place on 25 July 2013 as scheduled. On that date, following a request from Mr McNab on 24 July 2013 for an extension of the settlement date, Mr Mason wrote to Mr McNab to advise that the respondent was prepared to extend the settlement date to 26 August 2013 on the condition that Mr Tahiri agreed to a third rent free period of one year under the Lease. The letter warned that failure to settle on or before 26 August 2013 would result in a rescission notice being served.

Settlement did not take place on 26 August 2013. On 27 August 2013, Mr Mason served on Mr Tahiri a rescission notice, which provided that Mr Tahiri had 14 days within which to remedy the default, failing which the Contract of Sale would be rescinded.

On 10 September 2013, Mr Mason sent a letter to Mr McNab regarding Mr Tahiri’s ongoing attempts to obtain finance for the settlement of the Contract of Sale. In relation to the purchase of the Rendering Equipment, the letter relevantly stated:

In the case of the Contract [of Sale] being rescinded, which seems the most likely outcome, please obtain instructions from your client as to what he proposes in relation to the rendering plant and equipment which he has purchased but which is located on the [Land].

Mr Tahiri failed to comply with the rescission notice and the Contract of Sale was rescinded with effect from 12 September 2013.

On 30 September 2013, Mr McNab emailed Mr Mason to arrange access to the Land to allow an inspection of the ‘rendering plant’ to ‘assist [Mr Tahiri] in being able to finally secure funding with a view to making an acceptable proposal to [the respondent] concerning the [Land].’

On 1 October 2013, Mr Mason emailed Mr McNab and advised that an inspection of the ‘rendering plant’ had already been made.

On 17 October 2013, Mr Muir emailed a letter to the applicant which relevantly stated:

(a) the respondent required the applicant to remove the Rendering Equipment by 29 November 2013;

(b) prior to the removal of the Rendering Equipment, the applicant was required to submit insurance certificates for its contractors as well as job safety assessments in accordance with ‘all relevant current OH & S legislation’;

(c) the respondent would allow the applicant and its contractors access to the Land ‘at their own risk’ to make the necessary arrangements as well as 10 supervised days to ‘complete the relocation works’;

(d) all costs associated with the relocation of the Rendering Equipment and making good any damage to the Land would be borne by the applicant;

(e) in the event that the applicant elected to abandon the Rendering Equipment rather than remove it, the respondent had agreed to refund the amount paid to purchase the equipment less selling commission, relisting costs and any shortfall in realisable value; and

(f) confirmation of the applicant’s intentions was required by 8 November 2013.

The applicant did not respond to this letter and the Rendering Equipment was not removed from the Land by 29 November 2013. In his affidavit of 12 May 2014, Mr Tahiri deposed that he telephoned Mr Muir on or around 24 November 2013 and that, in response to his statement that he was still negotiating to complete the purchase of the Land, Mr Muir said words to the effect that, in view of the ongoing negotiations, the Rendering Equipment could be left where it was.

On 6 December 2013, Mr Muir emailed a further letter to the applicant which relevantly stated:

(a) as the applicant had not removed the Rendering Equipment by 29 November 2013, the respondent deemed that the applicant had abandoned the equipment; and

(b) the respondent would refund the amount the applicant had paid for the Rendering Equipment less all costs incurred.

On 19 December 2013, the respondent sent a letter to the applicant enclosing a cheque in the amount of $285,450, being a full refund of the net proceeds of sale received by the respondent from GraysOnline for the sale of the Rendering Equipment. It is common ground that the cheque was not presented.

On 29 January 2014, Mr Mason wrote to Mr McNab to inform him that the respondent had ‘resold’ the Land and the Rendering Equipment. The letter stated that the applicant had ‘abandoned’ the equipment, that the respondent had refunded the amount due to the applicant, and that the applicant had ‘no legal entitlement to the Rendering [Equipment]’.

In an email to Mr Mason dated 29 January 2014, Mr McNab denied that the applicant had abandoned the Rendering Equipment. In a further email to Mr Mason dated 30 January 2014, Mr McNab stated:

The only reason why my client had not removed the [R]endering [Equipment] (as had been requested) was because, as you well know, my client has been intending to complete a purchase of the [Land].

Given that the freehold is sold, my client will now remove the equipment and access to the site is required for that purpose. I am instructed that work can commence within the next few days and that my clients expect to have the work completed within 3 weeks provided that clear access is provided and there is no interference with the work.

Mr Mason responded to Mr McNab’s last email on the same day, stating that the RE Agreement has been legally terminated by the respondent and that the applicant had failed to remove the Rendering Equipment when it was previously given an opportunity to do so.

On 14 February 2014, the respondent executed a contract of sale of the Land, inclusive of the Rendering Equipment, with a third party for $9 million.

The manner in which the trial was conducted and the evidence adduced

On 6 March 2014, Mr Tahiri and the applicant commenced the proceeding below against the respondent. Mr Tahiri sought repayment of the deposit of $825,000 that he paid under the Contract of Sale. The applicant sought damages for breach of the RE Agreement or for conversion. On the day before the liability hearing, Mr Tahiri withdrew his claim and, accordingly, the hearing was confined to the applicant’s claim.

As stated at [31] above, the parties’ pleadings differed on the items that constituted the RE Agreement. Paragraph 20 of Mr Tahiri and the applicant’s amended statement of claim relevantly stated:

On or around mid May, 2013, the [respondent] agreed to sell and the [applicant] agreed to purchase the [Rendering] Equipment from the [respondent] for the sum of $330,000 (the ‘Equipment Agreement’).
Particulars
The Equipment Agreement was partly oral, partly in writing and partly to be implied.
Insofar as it was partly oral, it comprises conversations between [Mr Tahiri] and [Mr Castricum] … and also between [Mr Tahiri] and [Mr Muir] …
Insofar as it was partly in writing, it is evidenced by the following documents:
(a) [The Inventory].
(b)Email from [Mr] Muir … to [Mr Tahiri] dated 30 May 2013 and attached [Invoice].
(c)Email from [Mr] Muir … to [Mr Tahiri] dated 1 July 2013 and attached [Paid Invoice].

Insofar as it was partly to be implied, such implication arises from the fact that the [applicant] paid a cheque in the sum of $330,000 on [1] July 2013.

Paragraph 20 of the respondent’s amended defence relevantly stated:

It admits that on or around 1 June 2013, it agreed to sell and the [applicant] agreed to purchase the [Rendering] Equipment for the sum of $330,000, but says that such sale was subject to certain conditions. It admits that that agreement was made through [GraysOnline]. It states that the agreement:
(a) was wholly in writing and comprised by:
(i) [The Inventory];
(ii)Email from [Mr] Muir … to [Mr Tahiri] dated 30 May 2013 and attached [Invoice];
(iii)Email from [Mr] Muir … to [Mr Tahiri] dated 1 July 2013 and attached [Paid Invoice];
(iv)the [GraysOnline User Agreement] …[3]
[3]See [15] above.

(b) alternatively to sub-paragraph (a), the agreement was comprised by:
(i) [The Inventory];
(ii)Email from [Mr] Muir … to [Mr Tahiri] dated 30 May 2013 and attached [Invoice];
(iii)Email from [Mr] Muir … to [Mr Tahiri] dated 1 July 2013 and attached [Paid Invoice]; and
(iv)a term implied in fact that completion of the Equipment Agreement was dependent upon [Mr] Tahiri purchasing the [Land].

In its reply, the applicant stated that the RE Agreement was formed prior to the Invoice and the Paid Invoice and that those documents were emailed to the applicant for the purpose of enabling payment to be made.

Paragraph 23 of the amended statement of claim alleged that the RE Agreement was subject to an implied term in law that the respondent would co-operate with the applicant to enable the applicant to have the full benefit of the agreement, and an implied term in fact that the respondent would allow the applicant to enter the Land to remove the Rendering Equipment. The respondent’s amended defence denied the existence of the first alleged implied term and stated that the applicant ceased to be entitled to remove the Rendering Equipment upon failing to comply with the GraysOnline User Agreement.

During the course of the liability hearing, the parties advised the Court of the following:

(a) the respondent no longer relied on the allegation in para 20(a)(iv) of its amended defence that the GraysOnline User Agreement formed part of the RE Agreement, or on the allegation that the applicant had abandoned the Rendering Equipment;

(b) the parties had agreed that the only issue to be determined by the Court was the existence of the Implied Term, as alleged in para 20(b)(iv) of the respondent’s amended defence;

(c) the parties agreed that, if the Court found that the RE Agreement did not contain the Implied Term, the applicant’s claim for conversion would be made out. Conversely if the Court found that the RE Agreement did contain the Implied Term, the applicant’s claim would fail; and

(d) the parties relied exclusively on the affidavits they had filed and would not cross-examine any deponent.

The judge’s reasons indicate that the respondent agreed that, if the RE Agreement came to an end as a consequence of the Implied Term, it would reimburse the full purchase price of $330,000 to the applicant.[4]
[4]Reasons [5].

Large parts of the affidavits upon which the parties relied addressed issues that had ceased to be relevant as a result of the parties’ forensic decisions that are summarised at [54] above. In particular, the affidavits of Mr Tahiri and Mr Price dealt at some length with the question of whether the GraysOnline User Agreement formed part of the RE Agreement. In that context, Mr Tahiri stated:

Prior to this proceeding I had not seen the GraysOnline website or the User Agreement that is said to apply to purchases made on that site. …
Had I been asked by [Mr] Castricum to agree to permit GraysOnline to sell the Rendering Equipment if it was not ‘collected’ within 14 days I would have questioned how the equipment could be ‘collected’ in circumstances where I had purchased the [Land] on which the equipment was located (albeit the sale had not yet settled). If ‘collected’ was intended to mean ‘removed from the [Land]’, I would definitely not have agreed to such a term as it would have been quite contrary to what [Mr] Castricum and I had discussed, namely that the purpose of me purchasing the rendering equipment in the first place was to avoid the need for it to be removed from the [Land], which I had entered an unconditional Sale of Land Agreement to purchase. The cost of removing the Rendering Equipment within 14 days, relocating it, and re-installing it after settlement would have been in the order of many hundreds of thousands of dollars.[5]

[5]Emphasis in original.

The affidavits of Mr Tahiri, Mr Price and Mr Castricum also contained inadmissible evidence about the subjective intentions and expectations of the parties in entering into the RE Agreement. We will not set out that evidence.

In his affidavit of 12 May 2014, Mr Price stated that he had received a quote of $20,000 per day for approximately three weeks to remove the Rendering Equipment from the Land.

In his closing address, senior counsel for the respondent relied on Mr Castricum’s evidence set out at [23] above and the Mason letter set out at [25] above to support a submission that part of the consideration for the purchase of the Rendering Equipment was agreement to a second rent free period of 12 months to Castricum Food Services Pty Ltd for the shop premises. Counsel submitted that, in order to satisfy this component of the consideration for the purchase of the Rendering Equipment, Mr Tahiri would have to settle the Contract of Sale of the Land. Counsel emphasised that the Mason letter was not a contractual document but rather supporting evidence for Mr Castricum’s version of his conversation with Mr Tahiri on 21 May 2013.

Counsel for the applicant submitted that it was not open to the respondent to seek to support the implication of the Implied Term on the basis that part of the consideration for the purchase of the Rendering Equipment was a second rent free period. This was said to be because this alleged consideration was not pleaded by the respondent.

Decision of the trial judge

In his analysis of the facts, the judge made the following observation:

By letter dated 23 May 2013 to McNab, Mason confirmed the agreement for the sale of the rendering equipment and that, ‘[a]s part of this arrangement, [Tahiri] has agreed to grant [Castricum Food Services] a further rent free period of 12 months. This makes a total rent free period [of] … 24 months from the date of settlement’. He suggested that Special Condition 26 be amended to reflect the increased rent free period, extended from 12 months to 24 months.[6]

[6]Reasons [25].

The judge concluded that the Implied Term set out at [2] above should be implied into the RE Agreement and, accordingly, the applicant’s claim should be dismissed. He did so by applying the five conditions for implying a term in fact that were propounded by the majority of the Privy Council in BP Refinery (Westernport) Pty Ltd v Shire of Hastings[7] and adopted by Mason J (with whom Stephen and Wilson JJ agreed) in Codelfa Construction Pty Ltd v State Railway Authority (NSW)[8] (‘BP Test’). Those conditions are as follows:
[7](1977) 180 CLR 266, 282–3 (‘BP’).
[8](1982) 149 CLR 337, 347 (‘Codelfa’).

(a) the term must be reasonable and equitable;

(b) the term must be necessary to give business efficacy to the contract, so that no term will be implied if the contract is effective without it;

(c) the term must be so obvious that ‘it goes without saying’;

(d) the term must be capable of clear expression; and

(e) the term must not contradict any express term of the contract.

The judge concluded that the Implied Term was reasonable and equitable for the following reasons:

In my opinion the term is fair and reasonable. As submitted by [the respondent], it would in the converse case be most unfair to require removal. Both contracts were predicated on non-removal of the Rendering Equipment. There is nothing unfair in not permitting or requiring removal of the Rendering Equipment, provided of course the amount paid is returned. In such circumstances there is no burden or cost on [the applicant and Mr Tahiri]. What [the applicant and Mr Tahiri] sought to acquire as an indivisible unit — that is land and equipment — albeit under two agreements, did not happen. It is entirely fair and appropriate in the circumstances to judge the transaction as a composite transaction notwithstanding, as pointed out, its separate parts.[9]

[9]Reasons [51].

The judge concluded that the Implied Term was necessary to give business efficacy to the RE Agreement for the following reasons:

Neither contracting party wanted the Rendering Equipment removed. In fact the opposite was the case. The implied term gives effect to this intention and objective of the parties. But for this term, the very thing the parties wished to avoid — namely removal — would presumably be required. Accordingly in my opinion the term is necessary to make the contract work. Although the contract could theoretically work without the suggested implied term and notwithstanding the increased cost and inconvenience, this is not what the parties wanted.[10]

[10]Reasons [48].

The judge’s reasons for concluding that the Implied Term was so obvious that it went without saying, were as follows:

In my opinion a reasonable bystander would, at the time of the making of the [RE] Agreement, have said ’oh, of course!’. This reaction would have been entirely consistent with the contemplation and presumed intention of the parties.[11]

[11]Reasons [56].

The judge concluded that the Implied Term had been expressed clearly and observed that no argument was advanced by Mr Tahiri and the applicant to the contrary.[12]
[12]Reasons [57].

In respect of the condition that a term implied in fact must not contradict any express term of the contract, the judge observed that the only potentially contradictory term was cl 8.1(i) of the GraysOnline User Agreement.[13] However, as no party maintained that the GraysOnline User Agreement formed part of the RE Agreement, he concluded that the Implied Term was not contrary to any express term of the latter agreement.[14]
[13]See [15] above.
[14]Reasons [61]–[62].

The judge observed that the respondent’s post-contractual conduct demonstrated that it had clearly assumed that the Implied Term did not exist.[15] He stated that he did not need to resolve the issue as to whether such conduct could be taken into account for the purposes of determining the existence of the Implied Term. However, he stated that he considered that the better view was that such conduct may not be taken into account, as it was relevant to the construction of the contract rather than the existence of the contract.[16] In any case, he held that even if the conduct were taken into account, it would not affect the outcome of the case. This was said to be because the conduct merely represented the misguided and incorrect view of the respondent and did not obviate the need for the Court to decide whether the conditions in the BP Test were satisfied.[17]
[15]Reasons [63].
[16]Reasons [64]. The judge cited FAI Traders Insurance Company Ltd v Savoy Plaza Pty Ltd [1993] 2 VR 343 (‘FAI’).
[17]Reasons [65].

Proposed grounds of appeal

The applicant’s application for leave to appeal relies on the following proposed grounds of appeal:

1The learned judge erred in law and in fact by finding that there was an implied term of the [RE] Agreement that completion of that agreement was subject to settlement of the sale of the [Land] (‘the implied term’) and thereby misapplied the principles of law enunciated by the Privy Council in BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266, 283.
2The learned judge erred in law by taking into account pre-contractual discussions between the parties in determining whether to find that the implied term existed in fact.
3The learned judge erred in law by failing to take into account post-contractual conduct in determining whether to find that the implied term existed in fact.

In considering these grounds, we have borne in mind that, although the applicant alleged in its amended statement of claim that the RE Agreement was party oral, party in writing and partly to be implied,[18] the trial and the present application were conducted on the basis that there was no dispute about the express terms of the agreement and that the sole issue was the existence of the Implied Term. As will be seen below, the basis upon which the trial and the application were conducted informs the legal principles that are engaged in relation to the admissibility of evidence of pre-contractual and post-contractual conduct.
[18]See [50] above.

Grounds 1 and 2

As the second proposed ground of appeal was ancillary to the first proposed ground, we will consider them together.

Relevant legal principles

The implication of a term into a contract can be contrasted with rectification of a contract. A term implied into a contract is one which it is presumed that the parties would have agreed upon had they turned their minds to it, whereas rectification will occur where a term has been omitted which should have been included and was actually agreed upon by the parties. Thus, implication of a term is designed to give effect to the parties’ presumed intention, whereas rectification gives effect to their actual intention.[19] The courts are slow to imply a term.[20]
[19]Codelfa (1982) 149 CLR 337, 346; Grocon Constructors (Victoria) Pty Ltd v APN DF2 Project 2 Pty Ltd [2015] VSCA 190, [137] (‘Grocon’).
[20]Codelfa (1982) 149 CLR 337, 346.

An implied term can also be contrasted with an inferred term. The latter is a term which the parties actually intended to form part of their contract but did not reduce to writing or clearly articulate orally, thus requiring the court to infer it from the parties’ communications and course of dealing. As with rectification, the process of inferring a term gives effect to the parties’ actual intention rather than their presumed intention. While the line between inference and implication is not always easy to draw,[21] it is well established that, where the parties have not reduced all the terms of their agreement to a complete written form, the court must first identify all the actual terms by inference before considering whether any additional terms are to be implied.[22]
[21]Breen v Williams (1996) 186 CLR 71, 91 (‘Breen’); Kitching v Phillips (2011) 278 ALR 551, 562 [64]; Grocon [2015] VSCA 190, [176].
[22]Hawkins v Clayton (1988) 164 CLR 539, 570; Byrne v Australian Airlines Ltd (1995) 185 CLR 410, 422, 442 (‘Byrne’); Breen (1996) 186 CLR 71, 90–1; Grocon [2015] VSCA 190, [176]–[180].

As the process of inferring a term of a contract is informed by the parties’ communications and course of dealing, evidence of their pre‑contractual conduct is admissible on the question of whether a particular term is to be inferred. On the other hand, the admissibility of evidence of pre‑contractual conduct for the purpose of establishing that a term should be implied into a contract is more complicated.

In Codelfa, Mason J stated that the implication of a term into a contract raises an issue as to the meaning and effect of the contract because ‘it is an exercise in interpretation, though not an orthodox instance’.[23] He added that such implication is ‘an illustration of the process of construction, though differing from the more orthodox ascertainment of the meaning of a contractual provision’.[24] In Commonwealth Bank of Australia v Barker,[25] French CJ, Bell and Keane JJ referred to these statements as follows:

Implication of a term in fact in a contract, by reference to what is necessary to give it business efficacy, was described in [Codelfa] as raising issues ‘as to the meaning and effect of the contract’. Implication is not ‘an orthodox exercise in the interpretation of the language of a contract, that is, assigning a meaning to a particular provision’. It is nevertheless an ‘exercise in interpretation, though not an orthodox instance’. The implication of terms in fact was also characterised in Attorney-General (Belize) v Belize Telecom Ltd as an exercise in construction. Lord Hoffmann, delivering the judgment of the Privy Council, said:
[I]t is not enough for a court to consider that the implied term expresses what it would have been reasonable for the parties to agree to. It must be satisfied that it is what the contract actually means.

The distinction thus drawn is appropriate even though the scope of the constructional approach adopted by Lord Hoffmann has been debated.[26]

[23]Codelfa (1982) 149 CLR 337, 345.

[24]Codelfa (1982) 149 CLR 337, 353.

[25](2014) 253 CLR 169 (‘Barker’).

[26]Barker (2014) 253 CLR 169, 186 [22] (citations omitted).

Later in their judgment, French CJ, Bell and Keane JJ made further reference to the issue of whether implication of a term is to be regarded as an exercise in the construction of a contract without making any definitive pronouncement.[27] While the two processes have not been authoritatively equated, it is clear that they share some common features.
[27]Barker (2014) 253 CLR 169, 187–8 [24]–[25], 189 [29].

In the light of the above, the principles relating to the admissibility of evidence of pre‑contractual conduct for the purposes of construing a formal written contract are potentially applicable to implying a term into a contract. These principles, insofar as they are relevant to the present case, may be briefly summarised as follows:

(a) For the purposes of construing a contract, to the extent to which evidence of pre‑contractual negotiations has a tendency to establish objective background facts which were known to both parties and the subject matter of the contract, it is admissible.[28]
[28]Codelfa (1982) 149 CLR 337, 352. It is not necessary for us to discuss the current status of the ‘true rule‘ stated by Mason J in Codelfa, namely, that ‘evidence of surrounding circumstances is admissible to assist in the interpretation of [a] contract if the language is ambiguous or susceptible of more than one meaning.’ See also Grocon [2015] VSCA 190, [85]; Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd [2015] HCA 37, [52], [108]-[113], [118]-[120], [123].

(b) The meaning of the terms of a commercial contract is to be determined by what a reasonable businessperson would have understood those terms to mean and requires consideration of the language used by the parties, the surrounding circumstances known to them and the commercial purpose or objects to be secured by the contract. Appreciation of the commercial purpose or objects is facilitated by an understanding of the genesis of the transaction, the background, the context and the market in which the parties are operating.[29]
[29]Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640, 656–7 [35].

(c) Insofar as evidence of pre‑contractual negotiations consists of statements and actions of the parties which are reflective of their actual intentions and expectations, it is not admissible. Such evidence reveals the terms of the contract which the parties intended or hoped to make and which are superseded by, and merged in, the contract itself. However, such evidence is admissible in an action for rectification.[30]

(d) In making the inquiry whether a term is to be implied into a contract, the court is no more confined than it is when it construes the contract.[31]

(e) In determining whether to imply a term into a contract, it is legitimate to look at evidence that reveals a matter which was in the common contemplation of the parties yet was not a contractual provision actually agreed upon because it was a matter of common assumption.[32]

[30]Codelfa (1982) 149 CLR 337, 352.

[31]Codelfa (1982) 149 CLR 337, 353.

[32]Codelfa (1982) 149 CLR 337, 354.

A contractual term implied as a matter of fact is specific to the contract in question, and derives from the court’s view of the intention of the parties.[33]
[33]Cromwell Land Securities Ltd v Financial Ombudsman Service Ltd (2014) 288 FLR 374, 391 [60]; Grocon [2015] VSCA 190, [138].

We listed the five conditions in the BP Test for implying a term at [62] above. We will now consider those that are relevant to the present application in greater detail.

In relation to the condition that an implied term ‘must be reasonable and equitable’, in Grocon Constructors (Victoria) Pty Ltd v APN DF2 Project 2 Pty Ltd,[34] this Court noted that the High Court has refused to imply a term that would operate in a partisan fashion,[35] and that the application of the condition will often require consideration of the matrix of facts in which a contract was agreed.[36]
[34][2015] VSCA 190, [141].
[35]Byrne (1995) 185 CLR 410, 442.
[36]See, eg, BP (1977) 180 CLR 266, 284.

In Grocon, this Court stated the following in relation to the condition that an implied term ‘must be necessary to give business efficacy to the contract’:[37]

The condition … requires consideration of whether the term is necessary for the purposes of ‘giving to the transaction such efficacy as both parties must have intended that at all events it should have’,[38] making the agreement work or avoiding an unworkable situation.[39] Where the express terms of an agreement are sufficient to give it the business efficacy the parties intended it to have, it will not become necessary to imply additional terms.[40] However, a term may be commercially necessary, in order for the contract to be workable in a business sense, notwithstanding that it can operate without the term.[41] In Commonwealth Bank of Australia v Barker,[42] French CJ, Bell and Keane JJ stated that the requirement that a term implied in fact be necessary ’to give business efficacy’ to a contract can be regarded as a ‘specific application’ of the criterion of necessity which also supports the implication of a term in law. They also said that ‘[i]mplications which might be thought reasonable are not, on that account only, necessary.’[43]

[37]Grocon [2015] VSCA 190, [142].

[38]Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41, 66 (‘Hospital Products’), quoting The Moorcock (1889) 14 PD 64, 68.

[39]Hospital Products (1984) 156 CLR 41, 66.

[40]Hospital Products (1984) 156 CLR 41, 66.

[41]Sekisui Rib Loc Australia Pty Ltd v Rocla Pty Ltd (2012) 291 ALR 140, 153 [50].

[42](2014) 253 CLR 169.

[43]Barker (2014) 253 CLR 169, 188–9 [28]–[29].

The condition that an implied term ‘must be so obvious that “it goes without saying”’ requires consideration of whether, at the time that the parties were making their bargain, the suggestion of insertion of the implied term into the agreement by an ‘officious bystander’ would have been met ‘with a common, “Oh, of course”’ from the parties.[44]
[44]BP (1977) 180 CLR 266, 283–4, quoting Shirlaw v Southern Foundries (1926) Ltd [1939] 2 KB 206, 227. See Grocon [2015] VSCA 190, [143].

As the condition that an implied term ‘must be capable of clear expression’ was not in contention at trial or upon the hearing of the present application, we need not discuss it.

In the light of our conclusions at [129] to [130] below, it is also not necessary for us to analyse the final condition, namely, that an implied term must not contradict any express term of the contract.

Parties’ submissions on Grounds 1 and 2

The applicant did not make any oral submissions on Ground 2. The only written submission it made on that ground was in these bland terms:

Such pre-contractual discussions are inadmissible and ought not have been relied upon in supporting the implication of the alleged term: Codelfa Construction Pty Ltd v State Rail Authority of New South Wales [1982] HCA 24; (1982) 149 CLR 337.

Before discussing the parties’ submissions in relation to Ground 1, we will set out the parties’ submissions on the issue of whether the RE Agreement included a term that Mr Tahiri would agree to a second rent free period of 12 months in favour of Castricum Food Services Pty Ltd under the Lease.

The respondent contended that para 25 of the Reasons[45] constitutes a finding by the judge that the second rent free period was a term of the RE Agreement. This was said to be because the judge stated that the Mason letter had ‘confirmed’ that the parties entered into the RE Agreement and that, as part of this arrangement, Mr Tahiri had agreed to the second rent free period. The respondent contended that the judge was entitled to make such a finding in the light of Mr Castricum’s unchallenged evidence on that issue and the contents of the Mason letter. In the alternative, the respondent argued that if the second rent free period was not found to constitute a term of the RE Agreement, it constituted part of the factual matrix in which the parties agreed to the RE Agreement and was therefore evidence that the RE Agreement and the Contract of Sale were interlinked.
[45]See [61] above.

According to the applicant, para 25 of the Reasons was not framed in such unequivocal terms as to constitute a finding that the second rent free period was a term of the RE Agreement and, instead, it merely constituted a summary of the Mason letter. The applicant further contended that it was not open to the judge to treat the second rent free period as a term of the RE Agreement because the respondent’s pleadings did not allege that such a term existed.[46] The applicant also contended that there was doubt as to whether such a term was enforceable because it was a promise made by Mr Tahiri, who was not a party to the RE Agreement and, alternatively, because the only documentation of the term was the Mason letter, which arguably did not satisfy the formalities for dealing with an interest in land. The applicant conceded that, if this Court found that the second rent free period was a term of the RE Agreement, the RE Agreement and the Contract of Sale would be interlinked and this would strengthen the case for the existence of the Implied Term.
[46]See [51] above.

In relation to Ground 1, the applicant contended that the Contract of Sale and the RE Agreement were — and were intended by the parties to be — separate and unconnected agreements and that in implying the Implied Term into the RE Agreement, the judge erroneously converted them into inextricably linked interdependent arrangements. In support of this proposition, the applicant referred to the following circumstances which existed at the time that the agreements were entered into:

(a) the contracts were entered into at different times — the Contract of Sale was entered into on 2 May 2013 and the RE Agreement was entered into several weeks later;

(b) the purchaser for each contract differed in that, whereas Mr Tahiri was the purchaser in the Contract of Sale, the applicant was the purchaser in the RE Agreement;

(c) separate agents — JLL and GraysOnline — were engaged to sell the Land and the Rendering Equipment;

(d) the Contract of Sale contained an entire agreement clause;[47]

(e) the Contract of Sale specifically excluded the Rendering Equipment;[48] and

(f) the Mason letter stated that Mr Mason was instructed that the applicant and the respondent had ‘entered into a separate arrangement’ for the purchase of the Rendering Equipment.

[47]See [18(d)] above.

[48]See [18(c)] above.

The applicant also submitted that, having regard to the commercially valuable nature of the Rendering Equipment, it could not be contended that the applicant impliedly agreed to relinquish its proprietary rights in the equipment under the RE Agreement merely because a separate legal person, Mr Tahiri, was financially unable to settle the Contract of Sale.

The applicant argued that the Implied Term was not reasonable or equitable because it had the effect of depriving it of the opportunity to operate the Rendering Equipment — which was said to be worth much more than the purchase price of $330,000 — if the Contract of Sale was rescinded, notwithstanding the fact that the equipment was paid for in full.

The applicant submitted that the Implied Term was not necessary to give business efficacy to the RE Agreement because the Rendering Equipment was commercially valuable wherever it was located or put into operation and therefore the agreement did not depend upon the Contract of Sale for its efficacy. The applicant submitted that, although it was desirable for Mr Tahiri to settle the Contract of Sale and thereby enable the applicant to conduct operations from the Land, this was not essential or necessary to give business efficacy to the RE Agreement. The applicant emphasised that commercial desirability could not be equated with business efficacy.

According to the applicant, the business purpose of the RE Agreement was not to avoid removal of the Rendering Equipment as found by the judge[49] but instead was to ‘enable the [a]pplicant an opportunity to operate the rendering line and equipment to make a profit wheresoever it was located’.
[49]See [64] above.

The applicant sought to impugn the judge’s conclusion that the intention and objective of the parties was to avoid the Rendering Equipment being removed on two bases. First, the fact that the Contract of Sale specifically quarantined the Rendering Equipment from the ‘Goods Sold with the Land’ was said to demonstrate that the parties recognised that the Rendering Equipment had a value that was independent of the Land.

Secondly, the evidence of the pre-contractual conduct summarised at [12] to [14] above was said to demonstrate that the respondent had initially intended that the Rendering Equipment would be sold separately from the Land. Even if it was possible to infer from the discussion between Mr Tahiri, Mr Price and Mr Castricum on 15 May 2013[50] that Mr Tahiri’s purpose in buying the Rendering Equipment was to avoid damage being caused to the rendering building, the applicant contended that this purpose was distinct from that of the respondent, who did not regard retention of the Rendering Equipment on the Land as a critical or necessary condition for the sale of the Land. According to the applicant, it was not possible to reconcile the competing purposes of Mr Tahiri and the respondent and, accordingly, the judge had erred in relying on a single ‘purpose’ of the RE Agreement.
[50]See [20]–[22] above.

The applicant submitted that the RE Agreement was completed upon the payment of the purchase price on 1 July 2013 and therefore the Implied Term was not required to give the agreement business efficacy.

In relation to the absence from the RE Agreement of provisions dealing with the liabilities of the parties for the costs of making good any damage caused during removal of the Rendering Equipment, the applicant contended that the RE Agreement contained an implied term which imposed upon the parties a duty of good faith. The effect of this was said to be that it would be incumbent upon the applicant to pay for any damage that was caused in removing the Rendering Equipment.[51]
[51]In support of this proposition, the applicant referred to Mackay v Dick (1881) 6 App Cas 251.

The applicant submitted that the Implied Term was not so obvious that ‘it [went] without saying’ on the basis of the post-contractual conduct of the respondent which is set out at [142] below. The applicant also relied on the fact that the Implied Term was not raised by the respondent until it amended its defence.

The applicant contended that the Implied Term was inconsistent with the entire agreement clause in the Contract of Sale[52] and the exclusion of the Rendering Equipment from the Contract of Sale.[53] The applicant also contended that the Implied Term was inconsistent with cl 8.1(i) of the GraysOnline User Agreement.[54]
[52]See [18(d)] above.
[53]See [18(c)] above.
[54]See [15] above.

The respondent submitted that, as the RE Agreement did not expressly address what would occur if the Contract of Sale did not settle, two possibilities existed. The first possibility was that the parties did not intend that the RE Agreement be enforced separately from the Contract of Sale and, accordingly, it contained the Implied Term. The second possibility was that the parties intended that the RE Agreement operate separately and independently from the Contract of Sale. The respondent contended that this Court must determine which possibility was to be preferred objectively based on the presumed intention of the parties. According to the respondent, on the basis of this approach, the first possibility was clearly more probable due to the following considerations:

(a) the discussion between Mr Tahiri, Mr Price and Mr Castricum on 15 May 2013,[55] which was said to demonstrate that the RE Agreement was formed because Mr Tahiri had entered into the Contract of Sale and did not want the rendering building damaged by removal of the Rendering Equipment;
[55]See [20]–[22] above.

(b) the purchase price for the Rendering Equipment pursuant to the RE Agreement was $330,000 whereas the cost of removal of the Rendering Equipment, as deposed by Mr Tahiri, would have been ‘in the order of many hundreds of thousands of dollars’;[56]

(c) the RE Agreement and the Contract of Sale were linked in that part of the consideration for the sale of the Rendering Equipment pursuant to the RE Agreement was a second rent free period of 12 months under the Lease, which was contained within the Contract of Sale; and

(d) although the Contract of Sale and the RE Agreement were separate agreements, the above matters made them interdependent.

[56]See [56] above.

The respondent argued that the Implied Term was reasonable and equitable having regard to the matters set out at [100] above. The respondent further contended that, as the Implied Term operated as a contingent condition which, having not been satisfied, required the respondent to refund to the applicant in full the purchase price that it had paid for the Rendering Equipment, it could not be said to be unreasonable or inequitable.

According to the respondent, the Implied Term was necessary to give business efficacy to the RE Agreement because the business purpose underlying the sale of the Rendering Equipment was to avoid removal of that equipment from the Land and, accordingly, without the Implied Term, the parties would be required to do the very thing that they had sought to avoid. In support of this proposition, the respondent observed that the RE Agreement arose in circumstances including: the express concerns of the parties about the damage to the rendering building upon the removal of the Rendering Equipment; the impact the damage to the building would have on Mr Tahiri’s specific ‘plans’ for it; and the cost of removal.

The respondent observed that the RE Agreement did not: provide the applicant with a right of access to the Land to remove the Rendering Equipment; address the liabilities of the parties for the costs of making good any damage caused during removal; or set out any insurance and OH&S requirements for those works. The parties’ failure to expressly deal with these issues was said to demonstrate that the RE Agreement was not intended to operate separately from the Contract of Sale. Further, according to the respondent, in the absence of such express provisions, the applicant would need to rely upon a raft of implied terms in respect of those matters in order for the RE Agreement to operate separately from the Contract of Sale.

The respondent also observed that, if, as contended by the applicant, the RE Agreement was intended to be enforceable even if the Contract of Sale had not settled, this would remove the benefit of the second rent free period of 12 months under the Lease, which was negotiated by the parties.

The respondent submitted that the Implied Term was so obvious that ‘it [went] without saying’. In support of this proposition, it relied on the evidence of Mr Tahiri that he had communicated to Mr Castricum that the purpose of ‘purchasing the [R]endering [E]quipment in the first place was to avoid the need for it to be removed from the [Land]’[57] and the evidence set out at [100(b)] above.
[57]See [56] above,

The respondent submitted that the Implied Term was not inconsistent with any express term of the RE Agreement.

Decision on Grounds 1 and 2

We can dispose of Ground 2 quickly. As the applicant did not specify either the evidence of pre-contractual conduct which the judge was said to have wrongly taken into account or the particular principle in Codelfa that was said to have thereby been infringed, Ground 2 cannot be upheld.

It is true that the judge referred to inadmissible evidence of the parties’ subjective intentions and expectations. However, he can hardly be criticised for doing so as the parties conducted their case by including such evidence in their affidavits without objection and by placing reliance on that evidence. In any event, the judge’s conclusions are amply supported by the admissible evidence.

We will consider Ground 1 without regard to the parties’ post-contractual conduct. That conduct will be discussed under Ground 3.

The evidence of the surrounding circumstances known to both parties — including the parties’ pre-contractual discussions other than their communications about the express terms of the RE Agreement — was admissible in accordance with the principles summarised at [77] above. That evidence established the objective background facts which were known to both parties and the subject matter of the contract, the genesis of the RE Agreement and the commercial purpose to be secured by it. The evidence also revealed matters which were in the common contemplation of the parties but which did not become contractual provisions that were actually agreed upon because they were matters of common assumption.

The evidence of the surrounding circumstances known to both parties established the following:

(a) The respondent placed the Land and the Rendering Equipment on sale separately.

(b) Mr Tahiri controlled the applicant.

(c) Mr Tahiri signed the Contract of Sale to buy the Land knowing that ownership of the Rendering Equipment would not pass to him because it was excluded from that contract. At the time he signed that contract, he did not express any interest in buying the Rendering Equipment.

(d) As a result of the discussions on 15 May 2013, the parties became aware: that Mr Tahiri had plans for the rendering building; that removal of the Rendering Equipment from that building would damage the building and be very expensive because it would require removal of the roof; and that, for those reasons, Mr Tahiri would consider purchasing the Rendering Equipment.

(e) Between 21 and 30 May 2013, Mr Tahiri had discussions with Mr Muir and Mr Castricum and email communications with Mr Muir which resulted in the formation of the RE Agreement. During this process, Mr Tahiri did not disclose any change in his purpose for acquiring the Rendering Equipment which, at his behest, was purchased by the applicant.

(f) During the pre-contractual discussions between Mr Tahiri and Mr Castricum on 21 May 2013, Mr Tahiri made an offer to pay $300,000 and to provide a second rent free period of 12 months in relation to the Lease, which Mr Castricum accepted.

In relation to the discussion referred to at [111(f)] above, we note that Mr Castricum’s version of the discussion was not contradicted by Mr Tahiri in his affidavit of 31 July 2014[58] and the Mason letter, which corroborated that version, was not the subject of any response by Mr Tahiri or Mr McNab. We also note that Mr Mason’s subsequent letter to Mr McNab dated 25 July 2013[59] proposed a third rent free period of 12 months on the basis that Mr Tahiri and the respondent had already agreed to a second rent free period of 12 months. However, we agree with the applicant’s submission that it was not open to the judge to treat the second rent free period as a term of the RE Agreement because the respondent’s pleading did not allege that it was such a term and, when it was raised for the first time in the respondent’s final address, it was the subject of objection. We also agree with the applicant’s further submission that para 25 of the Reasons[60] is merely a summary of the Mason letter rather than a finding that the second rent free period was a term of the RE Agreement. Nevertheless, in our opinion, the discussion on 21 May 2013 was admissible as a surrounding circumstance known to both parties and as disclosing a matter within the common contemplation of the parties which did not become a term of the RE Agreement.[61]
[58]See [24] above.
[59]See [35] above.
[60]See [61] above.
[61]See the principles summarised at [77] above.

The discussion on 21 May 2013 is significant because it demonstrates that, from that day, the parties contemplated that the sale of the Land and the Rendering Equipment, although effected by separate contracts, would be intricately connected in order to fulfil the commercial purpose discussed earlier on 15 May 2013. That purpose was to enable Mr Tahiri to achieve his plans for the rendering building by preventing the damage that would be caused to that building by the removal of the Rendering Equipment. The parties contemplated that the two contracts would be linked because Mr Tahiri’s offer of a second rent free period of 12 months would be meaningless unless the Contract of Sale settled and Mr Tahiri became the owner (and thus the landlord) of the Land. There can be no doubt that the parties contemplated that both agreements would be fully performed.

Until the discussion on 21 May 2013, the respondent was prepared to sell the Land and the Rendering Equipment to separate purchasers and to permit the purchaser of the equipment to remove it in accordance with the GraysOnline User Agreement, which included terms that such removal was at the purchaser’s risk and that the purchaser had to comply with any applicable OH&S law.[62] However, during that discussion, the respondent agreed on a particular transaction with Mr Tahiri, a key feature of which was that there would be a common purchaser of the Land and the equipment in order to achieve the purchaser’s objective of not causing any damage to the rendering building. Not all the terms of the RE Agreement were agreed on 21 May 2013. Those terms were finalised between that day and 30 May 2013. Although the applicant rather than Mr Tahiri became the purchaser, the two can be equated because, as the sole director, secretary and shareholder of the applicant, he was its alter-ego.
[62]See [15] above.

The matters discussed at [111] to [114] above set out the factual matrix that existed on 30 May 2013, when all the express terms of the RE Agreement were finalised. As at that date, the RE Agreement and the Contract of Sale, although separate, were intricately linked because the parties contemplated that the Contract of Sale would be completed and that the Rendering Equipment would remain on the Land. The parties did not turn their minds to what would happen if the Contract of Sale was not completed and did not provide for that contingency in the RE Agreement. The question of whether the Implied Term satisfied the conditions in the BP Test must be considered in the context of the factual matrix that we have outlined.

We now turn to consider the conditions in the BP Test.

In our opinion, the condition that the Implied Term must be reasonable and equitable was satisfied. As the commercial purpose of the RE Agreement was to enable Mr Tahiri to use the rendering building, without any damage to it, after settlement of the Contract of Sale, it was reasonable and equitable for both parties to be relieved of their obligations under the RE Agreement once Mr Tahiri ceased to be the purchaser of the Land. The judge correctly found that the Implied Term was a contingent condition and thus the applicant was entitled to a full refund of the purchase price of $330,000 once the condition was not fulfilled. In these circumstances, we agree with the judge that the Implied Term imposed no burden or cost on the applicant and, consequently, was not unreasonable or inequitable.

Further, for the reasons set out at [114] above, we reject the applicant’s characterisation of Mr Tahiri as an unrelated party to the RE Agreement. Accordingly, no unreasonableness or inequity arises as a result of the Implied Term depriving the applicant of the Rendering Equipment as a consequence of Mr Tahiri’s conduct.

We reject the applicant’s submission that the commercial purpose of the RE Agreement was to enable the applicant to make profitable use of the Rendering Equipment independently of its location on the Land. The admissible evidence relating to the pre-contractual conduct of the parties disclosed only one commercial purpose, namely, to ensure that no damage was done to the rendering building by the removal of the Rendering Equipment. Even if it is accepted that the applicant’s subjective purpose was to use the Rendering Equipment outside the Land, such a purpose was never communicated to the respondent and therefore evidence of such purpose would not have been admissible.

We also reject the applicant’s submission that the Contract of Sale and the RE Agreement could not be treated as being linked because they were entered into by different parties at different times through different selling agents. For the reasons set out at [113] to [114] above, the two agreements were intricately linked and the fact that the purchaser of the Land was Mr Tahiri and the purchaser of the Rendering Equipment was the applicant is immaterial.

In our opinion, the condition that the Implied Term must be necessary to give business efficacy to the RE Agreement was also satisfied. We agree with the judge’s conclusion that, as the commercial purpose of the agreement was to prevent damage to the rendering building, the absence of the Implied Term would result in precisely the very harm which the agreement sought to avoid.

The fact that it would have been physically possible, at great cost and inconvenience, for the Rendering Equipment to be removed from the rendering building is beside the point. This is because the ‘business efficacy’ condition is not concerned with whether it is theoretically possible for a contract to operate without the postulated implied term, but whether the contract would be commercially workable without it.[63]
[63]See [81] above.

In the present case, leaving aside the fact that the absence of the Implied Term would undermine the very purpose for which the RE Agreement was entered into, there were a number of crucial matters upon which the parties needed to reach agreement before the Rendering Equipment could be removed. Accepting for present purposes that the applicant would have had a right to enter the Land to remove the equipment[64] and that it would have been obliged to make good any damage caused by the process of removal,[65] the parties at no time on or before 30 May 2013 discussed the period within which the applicant would be given access to the Land, the identity of the contractors who would remove the Rendering Equipment and the applicant’s capacity to meet the OH&S requirements relating to the removal process. Without agreement on these issues, the absence of the Implied Term rendered the RE Agreement commercially unworkable.
[64]See Vopak Terminals Australia Pty Ltd v Commissioner of State Revenue (2004) 12 VR 351, 372 [48]; TEC Desert Pty Ltd v Commissioner of State Revenue(WA) (2010) 241 CLR 576, 592 [52] n 71; Epic Energy (Pilbara Pipeline) Pty Ltd v Commissioner of State Revenue (2011) 185 LGERA 169, 199 [172]–[173].
[65]It is well established that a tenant has an obligation at common law to make good any damage caused by the removal of any tenant’s fixtures: Mancetter Developments Ltd v Garmanson Ltd [1986] 1 QB 1212, 1219. In our brief research, we have not been able to locate any direct authority for the proposition that a person who purchases fixtures separately from the purchase of the land upon which they are affixed is obliged to make good any damage caused by the removal of the fixtures.

The applicant’s submission that the Implied Term was not necessary to give business efficacy to the RE Agreement because that agreement was fully completed upon payment of the purchase price on 1 July 2013 misapprehends the nature of the Implied Term. That term was not said to be necessary to give effect to the express terms of the RE Agreement but to provide for its cessation in the event that the condition that was essential to the effectuation of its business purpose — settlement of the Contract of Sale — was not fulfilled.

In our opinion, the condition that the Implied Term must be so obvious that ‘it goes without saying’ was also satisfied. As we have already noted, the genesis and commercial purpose of the RE Agreement was the avoidance of damage to the rendering building resulting from removal of the Rendering Equipment. Accordingly, if an officious bystander who observed the discussions between Mr Tahiri and Mr Castricum on 15 and 21 May 2013 had asked them: ‘Is the RE Agreement to come to an end if the Contract of Sale does not settle?’ they would have responded: ‘Oh, of course’.

The applicant’s submissions in relation to this condition focused on the separate nature of the two agreements and on the fact that the respondent’s post-contractual conduct was inconsistent with the Implied Term. We have already addressed the first issue. As will be seen from [154] to [158] below, the respondent’s post-contractual conduct does not affect our conclusions on the application of the conditions in the BP Test. It follows that the respondent’s rhetorical questions — including: ‘If the Implied Term was so obvious, why was it not raised until the respondent amended its defence?’ — were not of any assistance.

As we stated at [83] above, the condition that the Implied Term must be capable of clear expression was not in contention.

The final condition, that the Implied Term must not contradict any express term of the RE Agreement, was only faintly pressed by the applicant. This is not surprising, as the trial was conducted on the basis that there was no dispute about the express terms of the agreement and that the only issue was whether the Implied Term was applicable.

The express terms of the RE Agreement are set out at [32] above. When those basic terms are considered, it becomes immediately obvious that there is no possibility of any inconsistency between them and the Implied Term.

The applicant’s submissions that the Implied Term was inconsistent with the entire agreement clause in the Contract of Sale[66] and cl 8.1(i) of the GraysOnline User Agreement[67] must be rejected for the simple reason that the entire agreement clause was not a term of the RE Agreement but of the earlier Contract of Sale and the parties conducted the trial on the basis that the GraysOnline User Agreement was not part of the RE Agreement. The applicant’s submission that the Implied Term was inconsistent with the exclusion of the Rendering Equipment from the Contract of Sale must also be rejected because such exclusion was not inconsistent with the Implied Term.
[66]See [18(d)] above.
[67]See [15] above.

It follows from the above that Ground 1 must be rejected.

Ground 3

It will be recalled that the third proposed ground of appeal was as follows:

The learned judge erred in law by failing to take into account post-contractual conduct in determining whether to find that the implied term existed in fact.

Principles relating to admissibility of post-contractual conduct for an implied term

It is well established that evidence of the parties’ post-contractual conduct is not admissible for the purpose of construing the provisions of a formal written contract.[68]
[68]FAI [1993] 2 VR 343, 351; Ryan v Textile Clothing and Footwear Union of Australia [1996] 2 VR 235, 237–8, 261–2; Brambles Holdings Ltd v Bathurst City Council (2001) 53 NSWLR 153, 164 [26] (‘Brambles’); Agricultural and Rural Finance Pty Ltd v Gardiner (2008) 238 CLR 570, 582 [35]; County Securities Pty Ltd v Challenger Group Holdings Pty Ltd [2008] NSWCA 193, [161] (‘County’); Masterton Homes Pty Ltd v Palm Assets Pty Ltd (2009) 261 ALR 382, 407 [114]. Cf Shepparton Projects Pty Ltd v Cave Investments Pty Ltd [2013] VSCA 152, [95] n 27.

It is also well established that, where no formal written contract exists, such evidence is admissible for the purpose of determining whether a contract was formed, who the parties to the contract are and whether a particular term should be inferred.[69] Similarly, in the case of an oral contract, when the issue is not interpreting words but determining the subject matter of the contract as a fact, the court may have regard to post-contractual conduct.[70]
[69]Brambles (2001) 53 NSWLR 153, 163–4 [25]; County [2008] NSWCA 193, [17]–[27], [161]; Filadelfia Projects Pty Ltd v Entirity Business Services Pty Ltd [No 2] [2011] NSWSC 116, [38].
[70]County [2008] NSWCA 193, [17].

However, the question of whether evidence of post-contractual conduct is admissible for the purpose of determining whether a term should be implied into a contract remains unsettled.

In Arthurson v Victoria,[71] Gillard J held that, in limited circumstances, evidence of post-contractual conduct may be admissible in relation to the implication of a term. He said the following:

Whilst it is accepted that a party may make an admission of law, it would indeed be a very rare case, that a court could admit into evidence a party's statements or conduct, on the question of whether or not the Court should imply a term into a contract. This must be so, because the implication of a term is the result of the presumed intention of the parties, and is a question of law. It follows that it is difficult to place any probative value on any statements or conduct. First, the party may have an erroneous view as to what the contract meant. Secondly, the party may have an erroneous view as to the effect of the contract. Thirdly, the admission of such evidence would not be permitted if it involved the question of construction, and the implication of a term is a question closely allied to the question of what a contract means. It would be difficult in practice, in most cases, to keep the questions separate. Finally, any such evidence would have to be clear and unequivocal, leading to a clear conclusion that it was the presumed intention of the parties.
In my opinion, as a matter of strict principle, the conduct of the parties subsequent to an alleged contract may be admissible to determine what the terms of the contract were, including an implied term. This would be because their conduct may establish the presumed intention of the parties at the date the contract was made. It must follow again, on principle, that one party to the agreement may make an admission which accords with the presumed intention of the parties. But in considering the evidence, it must be borne in mind that it is not admissible on the construction of the term. Although the evidence of an admission may be admissible, it would be a rare case that any weight could be given to the admission.[72]

[71](2001) 140 IR 188 (‘Arthurson’).

[72]Arthurson (2001) 140 IR 188, 224 [314]–[315]. See also County [2008] NSWCA 193, [161]–[165].

Gyles J has also supported the proposition that evidence of post-contractual conduct is admissible in relation to the implication of a term. In Sydney City Council v Goldspar Australia Pty Ltd,[73] he stated:

I can see no difficulty in regarding subsequent conduct as relevant to the question as to whether a term is necessary to give business efficacy to the contract. Indeed, if a contract has been performed without adhering to, or without inconsistency with, the claimed term, without complaint or commercial difficulty, that would be powerful evidence that the term is not necessary. The law prefers facts to prophecies … It would be odd to imply a term as necessary where such a conclusion would be contrary to the facts as they later appeared. If conduct may be relevant to negative the implication of a term as being necessary then it should also be relevant to support the implication of a term on the same basis.[74]

[73](2006) 230 ALR 437 (‘Goldspar’).

[74]Goldspar (2006) 230 ALR 437, 498 [164] (citations omitted).

In ACN 074 971 109 Pty Ltd v The National Mutual Life Association of Australasia Ltd,[75] this Court cited Goldspar for the proposition that evidence of post-contractual conduct ‘might be admissible in support of the existence of an implied term.’[76] The Court did not give any reasons for this statement because the possibility of an implied term of the type postulated in that case was excluded by the express inconsistent provisions of the contract under consideration.
[75](2009) 21 VR 351 (‘ACN’).
[76]ACN (2009) 21 VR 351, 373 [88].

In Fenridge Pty Ltd v Retirement Care Australia (Preston) Pty Ltd,[77] Hargrave J held that it was impermissible for the defendant in that case to rely on evidence of the plaintiff’s subsequent conduct for the purpose of determining whether a particular term should be implied in the contract under consideration. He cited FAI in support of this conclusion. In Intermail Explorenet Pty Ltd v Vardanian [No 2],[78] Moore J held that, as implication of a term arises because the parties have not addressed the subject matter to which the postulated implied term relates, it is difficult to see how subsequent conduct can be taken to be a manifestation of the parties acting conformably with the term.[79]
[77][2013] VSC 464, [177].
[78](2009) 82 IPR 281, 300 [54].
[79]See also Winslade Partners Pty Ltd v Steri-Flow Filtration Systems (Aust) Pty Ltd [2011] SASC 157, [87].

As discussed at [75] above, in Barker,[80] French CJ, Bell and Keane JJ referred to the view of Mason J in Codelfa[81] that the implication of a term is an instance — albeit not an orthodox instance — of the construction of a provision of a contract. However, despite the similarities in the two processes, the law on the admissibility of evidence of post‑contractual conduct has not developed with the same clarity for both processes. Fortunately, for the reasons set out at [152] to [158] below, it is not necessary for us to seek to reconcile the authorities relating to the admissibility of evidence of post-contractual conduct on the implication of a term, or to express a view on this issue.
[80](2014) 253 CLR 169.
[81](1982) 149 CLR 337.

Parties’ submissions on Ground 3

The applicant relied on the reasoning of Gillard J in Arthurson and Gyles J in Goldspar[82] for the proposition that post-contractual conduct is admissible in relation to the implication of a term. It contended that cases such as FAI[83] upon which the respondent relied were distinguishable because they dealt with the admissibility of post-contractual conduct for the purpose of construction of a contract as distinct from the purpose of implying a term.
[82]See [136] and [137] above.
[83][1993] 2 VR 343.

On the premise that post-contractual conduct is admissible in relation to the implication of a term, the applicant sought to rely on the following conduct of the respondent in support of its contention that the judge erred in implying the Implied Term into the RE Agreement:

(a) Mr Mason’s letter dated 10 September 2013 to Mr McNab requested him to obtain instructions from Mr Tahiri as to what he proposed in relation to the Rendering Equipment if the Contract of Sale was rescinded;[84]
[84]See [37] above.

(b) in his letter dated 17 October 2013, Mr Muir advised the applicant that the respondent required the applicant to remove the Rendering Equipment by 29 November 2013 and that, in the event that the applicant elected to abandon the equipment rather than remove it, the respondent would refund to the applicant the purchase price less costs incurred;[85]
[85]See [41] above.

(c) in his email dated 6 December 2013, Mr Muir advised the applicant that, as it had not removed the Rendering Equipment by 29 November 2013 it was deemed to have abandoned the equipment and the respondent would refund the purchase price less costs incurred;[86]

(d) in his email dated 29 January 2014, Mr Mason reiterated to Mr McNab that the applicant had ‘abandoned’ the Rendering Equipment;[87] and

(e) the respondent maintained its position that the applicant had abandoned the Rendering Equipment until after litigation had commenced, when it amended its defence to allege the existence of the Implied Term.

[86]See [43] above.

[87]See [45] above.

According to the applicant, the above conduct demonstrated that the judge had erred in concluding that the Implied Term satisfied the third condition in the BP Test, namely, that the term was so obvious that ‘it [went] without saying’. To the contrary, so it was said, the post-contractual conduct was consistent with a belief by the respondent and its agent, GraysOnline, that the applicant had a right to remove the Rendering Equipment notwithstanding the rescission of the Contract of Sale.

The applicant also emphasised that its own post-contractual conduct was consistently to the effect that rescission of the Contract of Sale did not affect the continuation of the RE Agreement and the applicant’s right to take possession of the Rendering Equipment under that agreement. According to the applicant, both parties had a common intention that the RE Agreement would subsist and sought to give effect to that common intention. Their conduct was said to have been entirely inconsistent with the existence of the Implied Term and strongly pointed against its implication.

The respondent contended that implication of a term was akin to contractual construction and, therefore, in accordance with the authorities set out at [133] above, post-contractual conduct was not admissible for the purposes of determining whether the Implied Term should be implied into the RE Agreement. According to the respondent, implication of a term in fact was different to identification of the subject matter of an oral contract or inferring a contractual term, both of which were established instances in which the Court may have regard to post-contractual conduct.[88] This was said to be because these instances required the Court to make findings of fact as opposed to engaging in a process of construction.
[88]See [134] above.

In the event that this Court decided that post-contractual conduct was admissible in relation to the implication of a term, the respondent made two alternative submissions.

First, the respondent contended that the post-contractual conduct relied upon by the applicant merely reflected the respondent’s misapprehension of the legal effect of the RE Agreement and, accordingly, should be given little, if any, weight for the purposes of determining whether the Implied Term satisfied the conditions in the BP Test.

Secondly, the respondent contended that the post-contractual conduct of the parties pointed to a gap in the RE Agreement upon which neither of the parties could reach agreement — that is, who would bear the cost of making good any damage caused during removal of the Rendering Equipment and the insurance and OH&S requirements for removal. In support of this proposition, the respondent relied upon Mr Muir’s letter of 17 October 2013[89] to the applicant in which Mr Muir advised it that the respondent required removal of the Rendering Equipment by 29 November 2013 subject to the terms set out at [41(b)] to [41(d)] above. The respondent observed that these terms were never agreed to by the applicant.
[89]See [41] above.

According to the respondent, having regard to the parties’ inability to agree to terms regarding the removal of the Rendering Equipment, it was clear that the RE Agreement was unworkable in circumstances where the Contract of Sale did not settle. Accordingly, so it was said, the post-contractual conduct of the parties demonstrated that the Implied Term was so obvious that ‘it [went] without saying’.

Decision on Ground 3

As the trial and the present application were conducted on the basis that there was no dispute about the express terms of the RE Agreement and that the sole issue was the existence of the Implied Term,[90] the principle discussed at [134] above —that evidence of post-contractual conduct is admissible for the purpose of determining the terms actually agreed by the parties — is not applicable.
[90]See [54] and [70] above.

It follows that the admissibility of evidence of post-contractual conduct must be considered as if the express terms of the contract set out at [32] above were in writing or evidenced in writing. As is apparent from [136] to [140] above, the question of the admissibility of such evidence in a case such as the present is unsettled. If the correct position is that such evidence was not admissible then Ground 3 must fail. However, as the correctness of this position is subject to doubt, we will consider Ground 3 on the assumption that the parties’ post-contractual conduct was admissible.

At [33] above, we concluded that the RE Agreement was finalised on 30 May 2013 and that the parties’ conduct after that date constitutes post-contractual conduct. That conduct is relevantly set out at [37] to [47] above and indicates that both parties subjectively considered, and acted on the basis, that the RE Agreement remained in force notwithstanding the rescission of the Contract of Sale and that the applicant continued to be entitled to remove the Rendering Equipment. Although no final agreement was reached by the parties as to the period within which, and the terms upon which, the respondent would permit the applicant to have access to the Land for the purpose of removing the equipment, it is clear that some aspects of the parties’ conduct in the period from June 2013 until January 2014 were inconsistent with the existence of the Implied Term.

In analysing the legal implications of the evidence of the above post-contractual conduct, it must be borne in mind that no issue was raised in the present case that the conduct gave rise to a variation of the RE Agreement, a waiver of any of its terms, an estoppel of any type or an admission against interest. Accordingly, the relevance of the evidence related solely to the conclusions, if any, that could be drawn from it about the presumed — rather than subjective — intention of the parties when they finalised the RE Agreement between 21 and 30 May 2013, rather than at any later time.

In our opinion, the evidence of the parties’ post-contractual conduct provides no assistance concerning the presumed intention of the parties at the time they made the RE Agreement in May 2013. That evidence has very little probative value in relation to the issue of the parties’ presumed intention at that time because their position after that time kept shifting as events unfolded. The parties were pre-occupied with the applicant’s attempts to keep the Contract of Sale alive, and to revive it once it had been rescinded, rather than with the RE Agreement. While the parties’ conduct at a particular point in time after 30 May 2013 may indicate their intentions as at that time, it says little, if anything, about their presumed intention as at May 2013.

In any event, the parties’ post-contractual conduct needs to be considered in the light of the fact that there were so many outstanding issues about the removal of the Rendering Equipment[91] that the parties did not at any time reach consensus as to how the final step in the implementation of the RE Agreement — the taking of possession of the Rendering Equipment by the applicant — would be achieved. Consensus was not reached precisely because the rescission of the Contract of Sale gave rise to serious legal and practical obstacles that made removal of the Rendering Equipment unworkable. This militates against a conclusion that the presumed intention of the parties as at May 2013 was that the RE Agreement would continue irrespective of whether the Contract of Sale settled. Rather, it suggests that the presumed intention of the parties at that time was that the RE Agreement would come to an end if the Contract of Sale did not settle.
[91]See [123] above and the correspondence discussed at [41] to [46] above.

The admission of the evidence of the parties’ post-contractual conduct did not alter the position that the existence of the Implied Term depended on an objective analysis of whether the conditions in the BP Test were satisfied. The application of those conditions in the light of the evidence that both parties believed during the second half of 2013 that the applicant had a right to remove the Rendering Equipment would result in the same conclusions as we have reached on those conditions in the absence of that evidence. Fundamentally, that belief cannot alter the fact that, in May 2013, the parties expressly made known that the commercial purpose for which the RE Agreement was entered into was to ensure that the rendering building, ownership of which would pass to Mr Tahiri upon settlement of the Contract of Sale, would be free of damage. That purpose crystallised when the agreement was formed and post-contractual conduct could not change it.

We agree with the observations of Gillard J in Arthurson[92] about the risks of giving any weight to evidence of post-contractual conduct in determining whether to imply a term. For the reasons stated by Gillard J, the parties’ conduct may be explicable by various considerations — such as a misapprehension by the parties of the legal effect of the contract — that say nothing about the parties’ presumed intention at the time that they entered into the contract. In the present case, much of the respondent’s post-contractual conduct can be explained by the mistaken view it and its lawyers and selling agent held that the GraysOnline User Agreement formed part of the RE Agreement, a position which both parties disavowed at trial.
[92]See [136] above.

It follows that the judge was correct in his conclusion that, even if the evidence of the parties’ post-contractual conduct was admissible, the conditions in the BP Test would still have been satisfied.

Accordingly, Ground 3 has not been made out.

Conclusion

For the reasons set out above, the application for leave to appeal will be granted, the appeal will be treated as having been instituted and heard at once, and the appeal will be dismissed.

[2015] VSCA 286

27 October 2015