Republic of Nauru v Reid

[1996] HCATrans 121

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Melbourne   No M70 of 1995

B e t w e e n -

THE REPUBLIC OF NAURU

Applicant

and

THOMAS JOHN REID & ORS (in accordance with the schedule)

Respondents

Application for special leave to appeal

GAUDRON J
McHUGH J
KIRBY J

TRANSCRIPT OF PROCEEDINGS

AT MELBOURNE ON TUESDAY, 16 APRIL 1996, AT 10.20 AM

Copyright in the High Court of Australia

MR P. BUCHANAN, QC:   If the Court pleases, I appear with my learned friend, MS M.L. WARREN, for the applicant.  (instructed by Russell Kennedy)

MR P.G. NASH, QC:   If the Court pleases, I appear with my learned friend, MR I.A. MILLER, for the respondents.  (instructed by Holding Redlich)

MR BUCHANAN:   Your Honours, in our submission, this case demonstrates the need for this Court to determine certain principles in the tug of war that exists between the operation of contractual documents which set out all the necessary terms of an agreement, and the effect of events which occur outside the documents, and are said to disclose an intention which is at odds with that disclosed by the terms of the document itself.

The May 1983 letter, which was signed by each of the respondents, contained a term as to salary that was plainly inconsistent with the term described as “Ansett plus 3 per cent”.

GAUDRON J:   That depends, does it not, on what meaning you give the shorthand expression “Ansett plus 3 per cent”?

MR BUCHANAN:   It does ‑ ‑ ‑

GAUDRON J:   On one view it may have been that what it meant was that the contracts, or that the salary rates were to be adjusted from time to time, so that overall there would be parity.

MR BUCHANAN:   That is so, your Honour.

GAUDRON J:   On that view, there is no inconsistency, is there?

MR BUCHANAN:   The term, which is contained in the letter itself, is not directly reproduced in the application book.  The nearest that the Court can come to it is what appears at page 155.

KIRBY J:   What page?

MR BUCHANAN:   Page 155 of the application book, your Honour, where, in the middle of the page is set out the condition in the February 1983 letter; the letter that was not signed, dealing with salary.  Your Honours can see from that the form which the term took.  It appears from the judgment of Mr Justice Brooking, from which that extract is taken, that the letter of May 1983 was in substantially the same terms as the February 1983 letter, except that the appointment offered was for a term of two years, not four, and the amounts which were specified in clause 3.1 were different.  That is what his Honour says on the next page, page 156 at line 17. 

It would seem that the document which was signed was one which contained the term set out in 3.1, 3.2 and 3.3 and, in our submission, that was inconsistent with a term that whatever the Ansett conditions were that applied to a pilot of the standing of the particular respondent during the course of his employment by Nauru, that would be the terms of his remuneration, and what he would be paid.  In our submission, they were truly inconsistent.

McHUGH J:   One difficulty about the matter, though, Dr Buchanan, is that it appears that the pre‑1983 documents were in similar terms to the document that you have taken us to, and yet the “Ansett plus 3 per cent” term operated in the face of those earlier documents.

MR BUCHANAN:   Yes, although one could say this about that, your Honour:  first of all, this letter, unlike, I think, just about all the other letters, was actually signed by the parties as an expression of their intention that, we would say, it was to be contractually binding upon them.  What occurred after the creation of the earlier documents was that Nauru, in fact, did pay under those contracts in accordance with “Ansett plus 3 per cent”, whereas, in the case of these documents, no such events occurred.  So it was possible, in respect of the earlier cases, to say that while initially the agreement had been one that there be remuneration at set rates and no more, in effect, what the parties did was, by their conduct, bury that first agreement, or the agreement set out in the document, to incorporate a different term, namely, “Ansett plus 3 per cent”.

McHUGH J:   I appreciate that, but then that sets the foundation for what the parties intended to do in May 1983.  This seems to me to be just about the last case for dealing with the question of principle that you seek to raise.  I must say when I first read these judgments I was impressed by Justice Brooking’s judgment, but when one reads Justice Ashley’s judgment, one sees this very unique factual setting, that you get this result which at first sight does seem unusual, to say the least.

MR BUCHANAN:   And, we would say, at second sight, too.  What occurred here was this, we would say, and it is common from the judgments:  until May 1983 there were documents brought into existence which said nothing of “Ansett plus 3 per cent”, but the parties did, by their conduct, display, clearly enough, an intention that “Ansett plus 3 per cent” would operate in respect of those contracts.

That was the position that existed in May 1983.  There was, in fact, “Ansett plus 3 per cent”, and a document was brought into existence which we would say deliberately had in it a term which was different.  It was not as if Nauru thought “Ansett plus 3 per cent” was to be expressed in the form of that provision 3.1, 3.2, 3.3.  On the contrary, we would say that that clause was a clear enough expression of an intention that whatever had gone before, from this point forward there would be a fixed scale that was set out in the agreement, and not some tying to another salary range applicable in another place.

McHUGH J:   Does not the subsequent conduct of the parties tell against it to some extent, at least of your client?  I appreciate what you say about that, but the appropriation Acts, for example, seem to have been passed on the basis that “Ansett plus 3 per cent” was available.

MR BUCHANAN:   We would say that that squarely raises, as your Honour identifies, an important matter of principle for this Court to straighten out.  There is, as the Court is aware, a difference of opinion between the Courts of Appeal of New South Wales and Victoria as to the use which may be made in the construction of a contract of events that occur after the contract is made.  The Court of Appeal in New South Wales in the case of Hide and Skin Trading v Oceanic Meat Traders in 1990 somewhat cautiously, we would say, expressed the view that the acts of the parties after the making of an agreement can give assistance in ascertaining what the intention of the parties was at the time of the agreement.

McHUGH J:   But it does not go to construction, does it?  It goes to what the agreement was, and that is what the judges did in this particular case.

MR BUCHANAN:   Your Honour is quite right.  In the case I have just cited, what the court was concerned with was what the words which undoubtedly form part of the contract meant.  Again, in the Court of Appeal’s decision in Victoria in the FAI Traders Insurance Company Limited Case, the court was concerned with the construction of words in a contract.  There was no controversy as to what the words were that were in the contract.  The only controversy was what they meant.  This case is different because here what we are concerned with is the question, “What, indeed, were the terms of the contract?”.

We would say that this case involves an extension, but a logical one, of what flows from the FAI Traders Insurance Case, and just as, in our submission, logically and properly, one ought not to have resort to what the parties later do and say in order to find out what they meant by earlier words, so too, in our submission, you ought not to have regard to what parties do and say after making of a contract in order to determine what that contract was.

McHUGH J:   You cannot lay that down as a general principle.  For example, because it would be open for one party to prove admissions made as to the contract or what was agreed on.

MR BUCHANAN:   His Honour Mr Justice Brooking, in the FAI Traders Case, dealt with that in the context of construction, and we would say that what he says is equally applicable to the case of omission with respect to what the terms were.  His Honour pointed out that the status of what the parties did or said as an admission, while theoretically it might seem helpful, is indeed not, because the parties’ subjective intentions is not what determines the true construction of the contract.  That is to be done according to an objective interpretation of what they said or wrote. 

Equally, in our submission, what in fact were the terms that the parties agreed upon and thought were part of their contract is to be determined, not subjectively, but objectively.  That is, just as a party could not later, we would submit, in a trial say, “I intended that this particular event or term or document would be part of the terms of the contract”, he would not be allowed to say that because it is not his area to say it, it is for the court ‑ ‑ ‑

McHUGH J:   But he could make admission as to facts which form the objective theory.

MR BUCHANAN:   Yes, and if there had been controversy in the present case as to whether an appropriation Act had been made, for example, or whether a memorandum had come into existence dealing with “Ansett plus 3 per cent”, then in that context, yes, we would say, an admission could be proved against Nauru.  But, not an admission dealing with the ultimate fact which the Court has to determine; namely, what were the terms of the contract which were agreed upon when the parties signed the letter they did.

GAUDRON J:   You keep saying that, but I venture to suggest, Dr Buchanan, that that is not the ultimate fact with which you are concerned.  You are concerned with the fact whether the letter embodied all the terms of the contract.

MR BUCHANAN:   With respect, that is right.

GAUDRON J:   And that is not purely a construction question at all.

MR BUCHANAN:   No, it is not, no.

GAUDRON J:   Different considerations may well apply when you ask that question.

MR BUCHANAN:   Yes, I agree with your Honour.  If I had been thought to say that this was a question of construction, I want to correct the impression.  It is wrong, it is not.  As your Honour correctly points out, the question is what were the terms of the contract which might be expressed and accurately expressed, we think, in, “Did the parties intend that the document which they signed, the letter of May 1983 - did they intend that to embody all the terms of their contract?”

GAUDRON J:   I do not know that that is a matter of intention, as such.  “Did it embody all the terms?”

MR BUCHANAN:   It is, but we would say that ultimately it is to be determined objectively, that is, whether the parties did indeed intend that document to embody all the terms or whether they were to be found, notwithstanding the document, outside it, is a matter which ultimately does not turn upon what might have been going through, subjectively, the mind of a party.  It turns on what he did and what he said at the time and then that being assessed by the court.  That is our submission.

McHUGH J:   I am not sure.  I think there is quite a deal of learning on what is meant by objectivity in contract.  Is it a reasonable person in the position of the offeree or is it a bystander or whatever?

MR BUCHANAN:   Yes, there is, your Honour.  But whatever it be, we would say it is the same in dealing with what the meaning is of the word which parties actually said or wrote and what the intention was as to particular words actually being brought into the contract.  It could not be, we would submit, different.  Just as his Honour Mr Justice Brooking in the FAI Traders Case said that that objectivity or that objective test was a good and sufficient reason for rejecting use of subsequent conduct to construe the agreement, so we would say it follows that, equally, it should oust subsequent conduct in telling what the contract was.

We should point out this, I think, your Honours, although it is obvious enough in a sense.  This was not a case where the parties, at the time or around about the time they executed the document, had a conversation in which they agreed that a particular term or terms set out in the document would not apply but, rather, there would be some other arrangement or perhaps that part of the document would not be operative.  That is the usual case, we would have thought, where the exception to the parole - well, not so much exception to the parole evidence rule but the application of the rule comes into existence because that is a case where the parties did not intend the document to embody all the terms.

This is a case where what is relied upon to vary the agreement set out in the document is not something that takes place contemporaneously with the document itself or even remotely near it.  It is earlier events taking place in respect of other contracts.  In our submission, it is a remarkable result to find that a document crafted and prepared - and unambiguously, we would say, expressed - which is contrary to the terms of earlier contracts should nevertheless import into it - have imported into it, because that is what the parties intended, something which comes from an earlier time.  It was historical and, we would say, that was the end of it.

Now, it is in that context that, in our submission, the use by the court, that is, by the majority of the court, of events that occurred after the making of the contract, forms peculiar importance.

McHUGH J:   Mr Justice Ashley referred to “an implied contractual term” but he cannot mean that, I do not think, can he?

MR BUCHANAN:   Yes, in our written outline, your Honours, we do say you cannot have a term implied under the BP Refinery test which is inconsistent.  Well, on reflection, I think that your Honour is right and what his Honour meant by “implication” was implication from the conduct as distinct from being said or written and not implication in terms of the court using the presumed intention of the parties to create a term.  So that we do not press that argument.

In our submission, it is a case which directly raises, and it lies really at the heart of this decision, this question of whether it is legitimate at all or, perhaps, to some limited extent to use events and what is said and written after the making of a contract in (a), construing the contract and in (b), determining what the content of the contract was in terms of what the words were that comprised it.  If the Court pleases.

GAUDRON J:   We need not trouble you, Mr Nash.

The question raised by this application is whether signed contracts of employment contained all terms and conditions on which the respondents were employed or whether earlier agreements as to salary adjustment were to continue.  The answer to that question turns very much upon the circumstances in which the contracts came into existence.  That being so, the case is not a suitable vehicle for the elucidation of any point of general principle.  Special leave is refused.

MR NASH:   If the Court pleases, we would ask for costs.

GAUDRON J:   What do you say to that, Dr Buchanan?

MR BUCHANAN:   Nothing, your Honour.

GAUDRON J:   Special leave is refused with costs.

AT 10.39 AM THE MATTER WAS CONCLUDED