Ryledar Pty Ltd v Euphoric Pty Ltd - [2007] NSWCA 65

No judgment structure available for this case.

Reported Decision: (2007) Aust Contract Reports 90-254

Appeal Outcome: Special leave refused with costs by the High Court - 16 November 2007

New South Wales

Court of Appeal

CITATION: Ryledar Pty Ltd & Anor v Euphoric Pty Ltd [2007] NSWCA 65
This decision has been amended. Please see the end of the judgment for a list of the amendments.

HEARING DATE(S): 13 February 2007

JUDGMENT DATE:
20 April 2007

JUDGMENT OF: Mason P at 1; Tobias JA at 2; Campbell JA at 257

DECISION: Appeal dismissed with costs.

CATCHWORDS: CONTRACTS – General contractual principles – Construction and interpretation of contracts - EQUITY – Rectification – Mistake as to the effect of the deliberately chosen words – Requirement of clear and convincing proof of a common intention inconsistent with the words deliberately employed – Whether objective evidence of common intention renders evidence of subjective intention irrelevant - ESTOPPEL – Estoppel by convention - ESTOPPEL – General principles – Whether an estoppel continues if the contract is renewed - CONTRACTS – General contractual principles – Options to renew – Whether the exercise of an option is conditionally valid but subject to defeasance if a party goes into breach of a condition precedent to the option after the exercise of the option but before the end of the original term

LEGISLATION CITED: Fair Trading Act 1987
Supreme Court Rules 1970
Trade Practices Act 1974 (Cth)

CASES CITED: Air Great Lakes Pty Limited v K S Easter (Holdings) Pty Ltd (1985) 2 NSWLR 309
Amalgamated Investment & Property Co Ltd v Texas Commercial International Bank Ltd (in liq) [1982] QB 84
Australian Broadcasting Corporation v XIVth Commonwealth Games Ltd (1988) 18 NSWLR 540
Australian Co-operative Foods Ltd v Norco Co-operative Ltd (1999) 46 NSWLR 267
Australian Hardwoods Pty Ltd v Commissioner for Railways [1961] 1 All ER 737
[1961] 1 WLR 425
Baker v Paine (1750) 1 Ves Sen
456
Ball v Storie (1823) 1 Sim & St 210
57 ER 84
Bishopsgate Insurance Australia Ltd v Commonwealth Engineering (NSW) Pty Ltd [1981] 1 NSWLR 429
Brambles Holdings Ltd v Bathurst City Council (2001) 53 NSWLR 153
Branir Pty Ltd v Owston Nominees (No 2) Pty Ltd (2001) 117 FCR 424
Calverley v Williams (1790) 1 Ves Jr 210
30 ER 306
Club Cape Schanck Resort Co Ltd v Cape Country Club Pty Ltd (2001) 3 VR 526
Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337
Commissioner of Stamp Duties (NSW) v Carlenka Pty Ltd (1995) 41 NSWLR 329
Commonwealth v Verwayen (1990) 170 CLR 394
Con-Stan Industries of Australia Pty Ltd v Norrich Winterthur Insurance (Australia) Ltd (1986) 160 CLR 226
Crane v Hegeman-Harris Co Inc [1971] 1 WLR 1390
Earl v Hector Whaling Ltd [1961] 1 Lloyd’s Rep 459
Elders Trustees & Executor Co Ltd v E G Reeves Pty Ltd (1987) 78 ALR 193
Equus Corp Pty Ltd v Glengallan Investments Pty Ltd [2006] QCA 194
Farrow Mortgage Services Pty Ltd (in liquidation) v Slade and Nelson (1996) 38 NSWLR 636
Fowler v Fowler (1859) 4 De G & J 250
45 ER 97
Frederick E Rose (London) Ltd v William H Pim Jnr & Co Ltd [1053] 2 QB 450
Gilbert J McCaul (Aust) Pty Ltd v Pitt Club Ltd (1959) 59 SR (NSW) 122
Green v AMP Life [2005] NSWSC 370
(2005) 13 ANZ Ins Cas 90-124
Grundt v Great Boulder Pty Gold Mines Ltd (1937) 59 CLR 641
Hooker Town Developments Pty Ltd and Another v The Director of War Service Homes (1973) 47 ALJR 320
The Indian Grace (No. 2) [1998] AC 878
In Re Butlin’s Settlement Trusts [1976] Ch 251
Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896
Joscelyne v Nissen [1970] 2 QB 86
Johnson Matthey Ltd v A C Rochester Overseas Corporation (1990) 23 NSWLR 190
Lion Nathan Australia Pty Ltd v Coopers Brewery Ltd (2005) 223 ALR 560
Mander v Clements (2005) 30 WAR 46
Maralinga Pty Ltd v Major Enterprises Pty Ltd (1973) 128 CLR 336
Magill v National Australia Bank [2001] NSWCA 221
MK & JA Roche Pty Ltd v Metro Edgely Pty Ltd [2005] NSWCA 39
Moratic Pty Ltd v Gordon [2007] NSWSC 5
Mortimer v Shortall (1842) 2 Dr & War 363
NSW Medical Defence Union Ltd v Transport Industries Insurance Co Ltd (1986) 6 NSWLR 740
Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451
Prenn v Simmonds [1971] 1 WLR 1381
Pukallus v Cameron (1982) 180 CLR 447
River Wear Commissioners v Adamson (1877) 2 App Cas 743
Simpson v Vaughan (1739) 2 Atk 31
26 ER 415
Slee v Warke (1949) 86 CLR 271
State Rail Authority of NSW v Heath Outdoor Pty Ltd (1986) 7 NSWLR 170
Taylor v Johnson (1983) 151 CLR 422
Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165
Tonitto v Basral (1992) 28 NSWLR 564
Transport Industries Insurance Co Ltd & Ors v NSW Medical Defence Union Ltd (1986) 4 ANZ Ins Cas 60-736
Trawl Industries of Australia Pty Ltd v Effem Foods Pty Ltd (1992) 27 NSWLR 326
The Vistafjord [1988] 2 Lloyds Reports 343
Walterman v Gerling Australia Insurance Co Pty Ltd (2005) 65 NSWLR 300
Westland Savings Bank v Hancock [1987] 2 NZLR 21
Whittet v State Bank of New South Wales (1991) 24 NSWLR 146

PARTIES: Ryledar Pty Limited t/as Volume Plus
Azir Magar Sidhom
Euphoric Pty Ltd t/as Clay & Michel

FILE NUMBER(S): CA 40067/06; 40068/06

COUNSEL: A: B. W. Rayment QC / M Sahade
R: B. Coles QC / M Ashhurst / S Docker

SOLICITORS: A: Mallesons Stephen Jaques (Sydney)
R: Cowley Hearne Lawyers (Sydney)

LOWER COURT JURISDICTION: Supreme Court - Equity Division

LOWER COURT FILE NUMBER(S): SC 50070/01; SC 50071/01

LOWER COURT JUDICIAL OFFICER: Palmer J

LOWER COURT DATE OF DECISION: 6/6/05
10/10/05
11/10/05
30/1/06

LOWER COURT MEDIUM NEUTRAL CITATION: Euphoric Pty Ltd v Ryledar Pty Ltd [2006] NSWSC 2

CA 40067/06
CA 40068/06
SC 50070/01
SC 50071/01

MASON P
TOBIAS JA
CAMPBELL JA
Friday 20 April 2007

RYLEDAR PTY LTD t/as VOLUME PLUS & ANOR v EUPHORIC PTY LTD

RYLEDAR PTY LTD t/as VOLUME PLUS v EUPHORIC PTY LTD

Headnote

FACTS

The parties entered into a two year supply agreement under which Euphoric, a distributor of Mobil petroleum products, would supply petroleum products to Ryledar’s service stations. In the Supply Agreement, Euphoric contracted to supply a “contractual rebate” of 6.2 cents per litre “for Sydney Metro locations” and 6.0c per litre “for Wollongong, Central Coast and Newcastle Locations”. This meant that the rebate applied to all of Ryledar’s locations at the time the Supply Agreement was entered into. The qualification as to the locations for the 6.0c per litre rebate was added late in the drafting process (previously it had referred simply to “Outside Sydney Metro locations”), as had a provision regarding the calculation of freight, which said “Deliveries outside areas defined under the Contractual Rebate will be charged freight as per Mobil’s Price Book less the freight applicable to Newcastle.”

Subsequently, Ryledar opened a large number of new locations and Euphoric applied a 6.0 cents per litre rebate to all of those, even though many of them were not in Wollongong, Central Coast or Newcastle. There were ongoing disputes about the method of calculating the final price of the products, the calculation of freight, the fact that Ryledar was consistently and considerably in arrears and other matters. In 1999 the parties entered into a Variation to the Supply Agreement which, among other changes and in terms suggested by Ryledar, varied the 6.0 cents per litre rebate area to “Wollongong, Central Coast and Newcastle locations and any town on or east of a straight line connecting Newcastle-Bilpin-Katoomba-Bowral-Wollongong but exluding the Sydney Metro locations.” Euphoric continued to apply the rebate to locations outside of the newly defined area. The variation also extended the term of the Supply Agreement until 17 November 2000.

On 6 July 2000, after a change of General Manager, Euphoric notified Ryledar that it intended to return to the letter of the Supply Agreement and the 1999 Variation and cease applying the rebate to locations outside of the area described. Ryledar objected to this and claimed that the agreement had always been that the rebate applied to all New South Wales locations outside the Sydney Metro area. Ryledar refused to repay the full amounts invoiced, instead withholding the equivalent of 6.0 cents per litre. The disputes involving price calculations, freight, credit and other matters continued.

On 21 August 2000 Ryledar purported to exercise an option to renew the Supply Agreement, which was due to expire on 17 November 2000. Euphoric claimed that the option was not validly exercised as Ryledar had not “…at all times during the Term duly observed and fulfilled its obligations under this Agreement and all other agreements with Euphoric”, as required by the clause of the Supply Agreement which created the option. Ryledar disputed that they were in breach and alleged that the refusal to grant the option amounted to an anticipatory breach. An interim agreement was entered into when the original term expired but the relationship was eventually terminated on 24 May 2001.

Pimarily, the dispute before the Court turned on whether or not Ryledar was entitled to the 6.0 cents per litre rebate to all locations in NSW outside the Sydney Metro area. This appeal raised a number of issues:

1. whether, on its true construction and read as a whole, the terms of the Supply Agreement were that the 6.0 cents per litre rebate should apply to all locations in NSW outside Sydney Metro locations;

2. if the answer to 1 was no, whether the Supply Agreement should be rectified because it did not reflect the common intention of the parties at the time it was made,

3. in the alternative, whether Euphoric was estopped by convention from denying Ryledar’s entitlement to the rebate to all locations in NSW outside the Sydney Metro locations,

4. whether Euphoric had made misleading representations to Ryledar that the 6.0 cents per litre rebate applied to all locations outside Sydney Metro, entitling Ryledar to damages under s 87 of the Trade Practices Act 1974 (Cth) and s 72 of the Fair Trading Act 1987 (NSW),

5. whether the terms of the Option to Renew in the Supply Agreement meant that the option was not validly exercised if Ryledar breached its obligations under the Supply Agreement after exercising the option by serving notice but before the expiry of the original term,

6. appropriation, and

7. whether Ryledar was entitled to equitable set-off for Euphoric’s alleged anticipatory breach in refusing to accept as valid Ryledar’s exercise of the option

HELD, dismissing the appeal on all grounds

(1) (Tobias JA, Mason P and Campbell JA agreeing) The words of the 1999 Variation to the Supply Agreement where clear, unambiguous and not inconsistent with the purpose and object of the transaction and there was no evidence capable of justifying the construction contended for by Ryledar which would involve nothing less than a re-writing of the parties’ contract.

(2) (Campbell JA, Mason P and Tobias JA agreeing) The common intention that is required for a grant of rectification is subjective. Proof of the subjective intention of the parties to the contract is fundamental to the grant of rectification.

(3) (Tobias JA, Mason P and Campbell JA agreeing) For rectification to be granted where the parties have purposely and deliberately chosen the words of their contract, there must be clear and convincing proof that the parties held a common intention which is contrary to those words and that those words were chosen by mistake. It is less likely that the parties were mistaken as to the meaning of the words where they are clear and unambiguous, or where they had a common intention which was fundamentally inconsistent with the words they had deliberately employed.

(4) (Tobias JA, Mason P and Campbell JA agreeing) The Court cannot simply ignore the parties’ true intention and rely solely upon the relevant common intention being established by correspondence and/or conduct. The whole of the objective and subjective evidence must be considered for the purpose of determining whether the party claiming rectification has established the actual and true common intention of the parties by clear and convincing proof.

(5) (Tobias JA, Mason P and Campbell JA agreeing) It is a requirement for conventional estoppel that departure from the relevant mutually held assumption will occasion detriment to the party asserting it. No such detriment can exist if, in fact, that party is found not to have any belief that any such assumption exists. (6) (Tobias JA obiter, Mason P and Campbell JA agreeing) There is much to be said for the view that even if there is a conventional estoppel it did not, without more, extend to any renewal of the Supply Agreement through the exercise of an option.

(7) (Tobias JA, Mason P and Campbell JA agreeing) There was no evidence which would give rise to the orders sought under the Trade Practices Act 1974 (Cth) or Fair Trading Act1987 (NSW).

(8) (Tobias JA, Mason P and Campbell JA agreeing) It was unnecessary to consider the issue of appropriation in the present case, where Ryledar conceded that if it was found that it was not entitled to the rebate then it was not in a position to establish that it was not in beach of its obligations.

(9) (Tobias and Campbell JJA, Mason P agreeing) Where an option to renew has as a condition that a party “at all times during the Term duly observed and fulfilled its obligations under this Agreement” then any breach of that condition by the party before the expiration of the term invalidates any exercise of the option, irregardless of whether the breach occurred after notice of exercise of the option had been given.

(10) (Tobias JA, Mason P and Campbell JA agreeing) As there was no anticipatory breach by Euphoric, the question of equitable set-off did not need to be considered.

CA 40067/06
CA 40068/06
SC 50070/01
SC 50071/01

MASON P
TOBIAS JA
CAMPBELL JA
20 April 2007

RYLEDAR PTY LTD t/as VOLUME PLUS & ANOR v EUPHORIC PTY LTD

RYLEDAR PTY LTD t/as VOLUME PLUS v EUPHORIC PTY LTD

Judgment

1 MASON P: I agree with Tobias JA and with the additional reasons of Campbell JA.

2 TOBIAS JA: The first appellant (Ryledar) at the relevant times carried on business as a reseller of petroleum products under the name “Volume Plus” at service station sites owned or occupied by it or by its licensees. The respondent (Euphoric) distributed Mobil petroleum products in New South Wales.

3 On 18 May 1998 the parties entered into a Supply Agreement (the 1998 Agreement) whereby Euphoric agreed to supply Mobil petroleum products to Ryledar. The 1998 Agreement was varied on 31 March 1999 (the 1999 Variation).

4 Relevantly to the issues in the appeal Euphoric pursuant to both the 1998 Agreement and the 1999 Variation, supplied petrol (or gasoline) and automotive distillate to service station sites (the sites) operated by Ryledar or an associated company (whose name does not matter for present purposes) from 18 May 1998 until the termination of their relationship on 24 May 2001.

5 The initial term of the 1998 Agreement was two years expiring on 18 May 2000. It was extended for a further six months by the 1999 Variation so that expired on 17 November 2000. However, the 1998 Agreement contained an option for three “Renewal Periods” of one year each.

6 The primary dispute between the parties relevant to the appeal revolved around two issues. The first was whether Ryledar was entitled to a rebate of 6¢/litre for gasoline and automotive distillate supplied to its sites located outside what were referred to in the 1998 Agreement and the 1999 Variation as the “Sydney Metro locations”. The second was whether Euphoric breached the 1998 Agreement by denying Ryledar’s entitlement to exercise the option for the first renewal period. The primary judge, Palmer J, determined each of those issues in favour of Euphoric.

The nature of the proceedings

7 The primary judge had two sets of proceedings before him, both instituted by Euphoric. The first, SC 50070/01 (CA 40067/06) were proceedings against Ryledar and Azir Magar (Mr Magar) (a director of Ryledar who gave guarantees and indemnities in respect of Ryledar’s obligations under the 1998 Agreement) in which it sought a declaration that Ryledar was indebted to Euphoric in the sum of $9,812,941.37 in respect of goods sold and delivered under the 1998 Agreement (including the 1999 Variation). An order for the payment of that sum was also sought. Ryledar filed a cross-claim which raised the issues debated on the appeal. I shall detail them below.

8 A number of the issues in those proceedings were referred to a referee for determination under Pt 72 of the Supreme Court Rules 1970. The ultimate question to be answered by the referee was what total sum, if any, was overdue for payment by Ryledar to Euphoric as at 17 November 2000 for goods supplied by Euphoric to Ryledar in accordance with the 1998 Agreement as varied by the 1999 Variation.

9 The determination of that question was relevant to whether Ryledar was entitled to exercise the option to renew the 1998 Agreement for the first renewal period. Euphoric filed a notice of motion seeking the adoption of the referee’s report whereas Ryledar filed a notice of motion seeking its rejection.

10 The issue which relevantly arose on the hearing of those notices of motion related to whether or not Ryledar had, on or prior to 17 November 2000, appropriated payments made by it to Euphoric in the sum of $1.6 million in respect of certain specific invoices referred to in the proceedings as the “NAM invoices”. The referee determined in his report dated 31 March 2005 that those payments had been so appropriated and in an ex tempore judgment delivered on 6 June 2005 the primary judge accepted the referee’s findings and adopted his report. Ryledar appeals against that decision contending in Ground 19 of its Amended Grounds of Appeal that in adopting the referee’s report his Honour erred in treating the relevant payments made by Ryledar to Euphoric as appropriated to the NAM invoices rather than as payments applicable to the earliest unpaid invoices of a running trading account between the parties. If that contention is correct, then Ryledar was not in breach of the pre-condition (or condition subsequent) to the valid exercise by it of the option.

11 In the second set of proceedings No. SC50071/01 (CA40068/06) Euphoric sought a declaration that pursuant to the terms of the 1999 Variation, a 6¢/litre Contractual Rebate (as defined) applied only to the supply by Euphoric of Relevant Mobil Petroleum Products (as defined) to only those of Ryledar’s retail service station facilities located in Wollongong, Central Coast, Newcastle and any town on or east of a straight line connecting Newcastle, Bilpin, Katoomba, Bowral and Wollongong (the Rebate Area). It sought a further declaration that Ryledar derived a benefit and had been unjustly enriched at the expense of Euphoric in the amount of $1,872,024 and for an order for the payment of that sum. That amount represented the total of a 6¢/litre rebate which Euphoric had in fact allowed Ryledar in respect of the supply of gasoline and automotive distillate to its service station sites located outside the Rebate Area.

12 In his judgment delivered in respect of both proceedings on 30 January 2006, the primary judge made the first declaration sought by Euphoric in proceedings SC50071/06 but refused the second upon the basis ultimately conceded by it during the course of the hearing, that the discount had been intentionally allowed as a consequence whereof no question of unjust enrichment arose.

13 In proceedings SC50070/01 (CA40067/06) the primary judge entered judgment for Euphoric against Ryledar and Mr Magar in the amount of $9,033,567.17 together with interest and costs. In so doing he dismissed Ryledar’s amended cross-claim with costs. Relevantly, in its defence and amended cross-claim, Ryledar had contended that:

(a) On the true construction of the 1999 Variation it was entitled to a 6¢/litre rebate on all petroleum products sold by Euphoric and delivered to Ryledar’s service station sites located outside the area defined in Item 4 of the Reference Schedule to the 1999 Variation being the area referred to in the declaration granted by his Honour in proceedings SC50071/01: that is, the Rebate Area;

(b) If the 1999 Variation could not be so construed, then Item 4 of the Reference Schedule should be rectified so as to entitle Ryledar to the 6¢/litre rebate in respect of all locations in New South Wales outside the Sydney Metropolitan area;

(c) If rectification was refused, then the 1999 Variation should be amended pursuant to s 87 of the Trade Practices Act 1974 (Cth) and s 72 of the Fair Trading Act 1987 (NSW) upon the basis that from mid-August 1998 until 29 June 2000, Euphoric represented to Ryledar in correspondence and by conduct that the 6¢/litre rebate applied to petroleum products delivered to all of Ryledar country locations;

14 As the primary judge rejected each of these contentions, they formed the primary issues on the appeal. In this respect, of the 20 grounds of appeal all but two related in one form or another to these issues.

The history of the 1998 Agreement and the 1999 Variation

15 Although Ryledar relied on the negotiations between the parties both written and oral prior to the execution of the 1998 Agreement on 18 May 1998 and of the 1999 Variation on 31 March 1999 in support of its contention referred to in [13(a)] above, Euphoric was not called upon to respond to Ryledar’s submissions with respect to the construction of Item 4 of the Reference Schedule either to the 1998 Agreement or the 1999 Variation. For reasons to which I shall later refer, the construction adopted by the primary judge was correct and as a result the 6¢/litre rebate did not apply outside the Rebate Area.

16 However, as much reliance was placed by Ryledar upon the documentary material which preceded 18 May 1998 and 31 March 1999 respectively, as well as Euphoric’s conduct with respect to applying the 6¢/litre rebate to petroleum products supplied to locations outside the Rebate Area up to 6 July 2000, it is convenient at this point to set out the history leading up to the making of both the 1998 Agreement and the 1999 Variation as well as the relevant provisions of each.

17 At all material times negotiations on behalf of Ryledar were conducted by Mr Magar Sidhom (Mr Magar). From May 1997 to January 1998 Mr Rosenberg, as General Manager of Euphoric, conducted negotiations on behalf of Euphoric. After January 1998 those negotiations were conducted by Mr Rosenberg’s successor, Mr Hobbs. Both Messrs. Magar and Hobbs gave evidence but Mr Rosenberg did not.

18 According to Mr Magar’s evidence, Ryledar commenced purchasing petroleum products from Mobil from 1997 onwards. Negotiations for a supply agreement appear to have commenced in early 1997. As at 18 May 1998 when the 1998 Agreement was executed, Ryledar relevantly operated some 19 service station sites of which all but two would appear to have been located in the Sydney metropolitan area. Of those two, one which was located in Port Kembla (regarded as part of Wollongong) and the other at The Entrance (on the Central Coast).

19 Between May 1998 and 31 March 1999 (when the 1999 Variation came into effect), a further seven service station sites were opened by Ryledar of which five were located outside the Sydney metropolitan area at Wandandian (a town on the South Coast between Nowra and Ulladulla), Port Macquarie, Tuncurry, Wellington and Belmont (the last-mentioned being within the Newcastle area). Between 31 March 1999 and 6 July 2000 a further 31 sites were opened in country locations outside the Rebate Area. A total of 33 country sites outside the Rebate Area were opened between 6 July 2000 and January 2003 of which seven were opened between 6 July 2000 and 17 November 2000 (being the date upon which the term of the 1999 Variation expired) and five were opened between 17 November 2000 and 24 May 2001 when Euphoric ceased to supply petroleum products to Ryledar.

20 According to Mr Magar he first met with Mr Rosenberg in early May 1997. His written evidence as to that first conversation was as follows:

Can I have an agreement to supply New South Wales?

We will give you an agreement for long term supply Australia wide

No I just need New South Wales

21 It would appear that further conversations took place between him and Mr Rosenberg in which the latter offered an incentive rebate of 5.5¢/litre off the invoice price of certain of Mobil’s petroleum products, rising to 5.8¢/litre on certain conditions. Mr Magar’s evidence was that at that time Ryledar’s business consisted largely of sales in metropolitan Sydney although it had plans to expand the Volume Plus branded network into country New South Wales. In late 1997 Mobil was providing a rebate to Ryledar of 6.5¢/litre for supplies to its sites in the Sydney area.

22 In May 1997 Mobil’s Brisbane solicitors on behalf of Euphoric prepared and forwarded a draft supply agreement to Ryledar’s solicitors. Relevantly for present purposes, it is the content of Item 4 of the Reference Schedule to that draft upon which Ryledar relies. However, in order to put that item of the Reference Schedule into context, it is convenient at this point of the narrative to set out the relevant provisions of the 1998 Agreement as executed on 18 May 1998 in which Ryledar is referred to as the “Customer”. It commenced with the following recitals:

“A. Customer carries on (or proposes to carry on) business as a reseller of petroleum products at the Sites.

B. Customer wishes to purchase Mobil Petroleum Products from Euphoric for that purpose.

C. Euphoric has agreed to supply and Customer has agreed to purchase Mobil Petroleum Products on the terms and conditions set out in this Agreement.”

23 The word “Sites” was defined in cl 1.1 of the 1998 Agreement to mean:

"… the petrol retailing facilities, the names and locations of which are set out in Item 8 of the Reference Schedule. If during the Term Customer acquires or licences any additional petrol retailing facilities, then such facilities shall be included in this definition at Euphoric’s discretion. If additional retailing facilities are not included in this definition Euphoric must provide just cause.”

24 Item 8 of the Reference Schedule was as follows:

25 The expression “Mobil Petroleum Products” was also defined in cl 1.1 to mean:

“… petroleum products marketed by Mobil and distributed by Euphoric as a Distributor of Mobil and supplied to Customer under this Agreement and includes Relevant Mobil Petroleum Products.”

26 The expression “Relevant Mobil Petroleum Products” was in turn defined in cl 1.1 to mean:

“… petrol and automotive distillate purchased (and paid for) by Customer pursuant to the terms of this Agreement which attract the Contractual Rebate, being the products set out in Item 4 of the Reference Schedule.”

27 Of particular relevance is the expression “Contractual Rebate” which was defined to mean:

“…the rebate described as such in Item 4 of the Reference Schedule expressed in a cents per litre amount off Mobil’s List Price for Relevant Mobil Petroleum Products.”

28 The expression “Mobil’s List Price” was relevant defined to mean:

“…Mobil’s Price Book Price plus any applicable freight …”

29 Finally, the expression “Mobil’s Price Book Price” was defined to mean:

“… the price stipulated in Mobil’s standard price book as the price to be charged for that product to resellers at the time and place for delivery …”

30 The relevant operative provisions of the 1998 Agreement were as follows:

Sale and Purchase of Mobil Petroleum Products

(a) Not less than the Minimum Quantity and not more than the Maximum Quantity of Customer’s requirements of petrol and automotive distillate for resale at or from the Sites; and

…

Price

31 Relevant to the issue concerning whether Ryledar had validly exercised the option to renew the 1998 Agreement for the renewal periods were the following provisions:

3. PERIOD OF AGREEMENT

Commencement and Duration

Options for Renewal

Exercise of Options

(a) Customer has, at all times during the Term duly observed and fulfilled its obligations under this Agreement and all other agreements with Euphoric;

(b) Customer has given written notice to Euphoric exercising the opinion not more than 120 days nor less than 60 days before the expiration of the Term.

Provisions of Supply Agreement for Renewal Periods

32 The expression “Commencement Date” was defined in cl 1.1 to mean the date described as such in Item 1 of the Reference Schedule which was 18 May 1998 and the expression “Term” was defined to mean the period specified as such in Item 3 of that Schedule, namely, two years later increased in the 1999 Variation to two and a half years.

33 Of particular significance to Ryledar’s entitlement to the Contractual Rebate described in Item 4 of the Reference Schedule was cl 4.1 of the 1998 Agreement which provided as follows:

4.1 Contractual Rebate

34 It is at this point that the history of Item 4 of the Reference Schedule is of particular significance. I have already referred to Mobil’s Brisbane solicitors preparing a first draft of the 1998 Agreement in May 1997. Item 4 of the Reference Schedule to that draft provided as follows:

Contractual Rebate:

35 In a further draft dated 24 July 1997 Item 4 of the Reference Schedule was in the same terms as the first draft. The same observation is made with respect to a further draft dated 22 October 1997.

36 The first change to the wording of Item 4 appears in a draft dated 11 February 1998 in which Item 4 of the Reference Schedule reads as follows:

Contractual Rebate

37 According to Mr Magar’s evidence, he had a meeting with Mr Rosenberg after receiving the draft dated 22 October 1997 in which he said words to the effect: “I would like the rebate in Sydney to be larger”. Mr Rosenberg then said words to the effect: “What about 6.2¢/litre in Sydney Metro and 6¢/litre for areas outside the Sydney Metro?”. Mr Magar replied: “I agree, please put that in the 1998 Agreement”. Hence the change to Item 4 contained in the 11 February 1998 draft.

38 According to Mr Hobbs, who had by late February 1998 taken over from Mr Rosenberg, Euphoric did not at that time supply any sites outside Sydney except for a few sites in and near Wollongong. Other Mobil distributors supplied sites outside Sydney and Wollongong and Euphoric had no depots outside Sydney and Wollongong. According to Mr Hobbs’ oral evidence he did not interpret Item 4 of the Reference Schedule at that time as entitling Ryledar to a 6¢/litre rebate everywhere else in New South Wales notwithstanding the plain wording of Item 4. When asked what it was about the words of Item 4 which caused him to think that they did not mean what they appeared to mean, Mr Hobbs responded:

“Euphoric Pty Ltd traded in a certain market area. The State was split up into distributors and they supplied certain areas and market areas. It was highly abnormal to be trading outside that area. So when I looked at this in the 1998 Agreement, it would have seemed highly abnormal to provide a rebate on the whole of NSW which was outside Euphoric’s trading area.”

39 However, he conceded that he did not mention that fact to Mr Magar, nor did he discuss with him his interpretation of Item 4 as it was then drafted.

40 In a further draft dated 24 April 1998, Item 4 of the Reference Schedule provided as follows:

Contractual Rebate:

41 In the meantime, an issue arose between the parties with respect to freight charges which ultimately resulted in the insertion in the Reference Schedule draft dated 24 April 1998 of a new Item 5 in the following terms:

Freight

Deliveries outside areas defined under the Contractual Rebate will be charged freight as per Mobil’s Price Book less the freight applicable to Newcastle.”

42 This item was carried through into the 1998 Agreement as executed. However, no amendment was made to the operative provisions of the 1998 Agreement to give effect to that item. In one sense it was inconsistent with cl 2.2 of the 1998 Agreement which I have set out in [30] above, as the expression “Mobil’s List Price” was relevantly defined in the 1998 Agreement and in the earlier drafts thereof as being Mobil’s Price Book Price (in turn defined to mean the price stipulated in Mobil’s standard price book as the price to be charged for that product to resellers at the time and place for delivery) “plus any applicable freight”.

43 As at 24 April 1998 Ryledar only operated two sites outside the Sydney metropolitan area, namely, one in Wollongong and one at Tumbi Umbi on the Central Coast. Mr Magar was cross-examined with respect to the change in wording in Item 4 which in the 24 April 1998 draft deleted the reference in the earlier drafts to a Contractual Rebate of 6¢/litre for outside Sydney Metro locations and replaced it with 6¢/litre for Wollongong, Central Coast and Newcastle locations.

44 When taxed with respect to that change, Mr Magar agreed that the reference to Wollongong, Central Coast and Newcastle locations was inserted in Item 4 at his request but said it was only

“to make sure that the price of fuel delivered there did not include any freight to these areas.”

45 Mr Magar maintained the position that the only purpose of changing the wording with respect to the 6¢/litre rebate in Item 4 and inserting Item 5 with respect to “Freight” was to achieve a result whereby deliveries to Wollongong, Central Coast and Newcastle locations would be freight-free, whereas deliveries to areas outside Wollongong, Central Coast and Newcastle would be charged freight as per Item 5. He denied that there was any intention in the changing of the wording of Item 4 to depart from his agreement with Mr Rosenberg, reflected in the terms of Item 4 in the earlier drafts, that the contractual rebate of 6¢/litre was to apply to all locations in New South Wales outside the Sydney Metro sites.

46 In this respect, Mr Magar asserted that Items 4 and 5 were to be read together for the purpose of dealing with the freight issue and that they did not relate to separate topics. Accordingly, when cross-examined further on this issue, Mr Magar maintained, in effect, that notwithstanding the plain words of Item 4, his understanding at all times was that the 6¢/litre rebate applied to the whole of New South Wales outside the Sydney Metro locations.

47 The difficulty with Mr Magar’s evidence and which I have already noted in [42] above, is that cl 2.2 of the 1998 Agreement, as well as the same clause in the two previous drafts, provided that the price payable by Ryledar for Mobil Petroleum Products (as defined) was to be the Mobil List Price which was relevantly defined to be Mobil’s Price Brook Price plus “any applicable freight”. Prima facie therefore, gasoline and automotive distillate delivered to Wollongong, Central Coast and Newcastle locations would attract “any applicable freight” over and above Mobil’s Price Book Price whereas deliveries outside those areas would be charged freight as per Mobil’s Price Book but with a rebate of the freight applicable to Newcastle deliveries.

48 On the other hand, according to Mr Magar, the only purpose of inserting in Item 4 the reference to Wollongong, Central Coast and Newcastle was that those locations were “meant to be as a free delivery area” and he wished to make sure when adding Item 5 that those areas “did not include any freight”.

49 To Mr Magar therefore, these changes concerned only the question of freight and were never intended to confine the Contractual Rebate for deliveries outside Sydney Metro locations to Wollongong, Central Coast and Newcastle locations rather than the whole of New South Wales. As he said on numerous occasions, it was always his “understanding” that the Contractual Rebate was not so confined.

50 The following exchange took place:

“Q. And apart from most matters, you were of the opinion yourself that this agreement recorded exactly what you wanted in the supply arrangements with Euphoric; is that right?

A. Yes, of the understanding between us and Euphoric.”

51 Mr Magar agreed that so far as Item 5 of the Reference Schedule was concerned, he intended to pay freight as per Mobil’s Price Book less the freight applicable to Newcastle. Later on the same page he seemed to recant from that answer, asserting that he did not understand the reference in Item 5 to the freight applicable to Newcastle to be that listed in the Mobil Price Book. He was asked a number of questions to each of which he gave the non-responsive answer “No, I just wanted the freight to Newcastle”.

52 Ultimately, the following exchange with Mr Magar occurred:

“Q. I am suggesting to you the only clear statement in the agreement as to the locations to which the contractual rebate of 6 cents per litre is applicable is the statement contained in item 4 of that reference schedule?

A. If you ask me that question now, I will tell you yes, but at the time, at the time when we signed this agreement, the understanding was and it was so clear, the freight wasn’t to the rest of the state and the only reason that came into here [sic – was] to determine the free delivery area.

Q. And there was, as you understood it at the time you signed that agreement, no mechanism in that agreement to adjust the contractual rebate for deliveries outside Sydney, Wollongong and the Central Coast and Newcastle; was there?

A. No, there was a mechanism because item 4 and item 5 were altogether.

Q. Neither of those items talk about adjusting the contractual rebate area; do they?

A. Because at the time the understanding was so clear.

Q. Wasn’t it your intention to record the true understanding in the agreement?

A. Sorry, can you say that again?

Q. I want to suggest to you the understanding was very clear indeed and it was made so by the terms of the written document; do you agree with that?

A. No, the understanding is so clear about the rebates were to apply (sic), okay, which is how much, 6.2 in Sydney metro and 6 cents outside Sydney Metro.”

there was an understanding

53 In his written evidence, Mr Magar asserted in pars 199-200 that he informed Mr Hobbs that his agreement with Mr Rosenberg was for a rebate of 6.2¢/litre in Sydney Metro and 6¢/litre everywhere else in New South Wales. Mr Hobbs denied any such conversation. When he asked Mr Magar about his understanding with Mr Rosenberg, the former replied:

“That if we own or lease a site anywhere in New South Wales that Clay & Michel will supply. We had lot of conversations with Mr Rosenberg to that effect.”

54 Mr Hobbs’ evidence as recorded by his Honour (at [42]) was that when he read the words “6¢/litre for outside Sydney Metro locations” in Item 4 of the Reference Schedule to the earlier drafts of the 1998 Agreement, he interpreted them as applying only to Ryledar’s then existing location outside Sydney, namely, Wollongong, and that if additional sites were acquired by Ryledar within the Sydney Metropolitan Area and Wollongong, the Contractual Rebate would not apply to those sites.

55 At [43] his Honour recorded that in later negotiations Mr Magar requested that Newcastle and sites between Sydney and Newcastle be added as rebate locations to which he agreed. It was for that reason that Mr Hobbs changed Item 4 as it appeared in the draft agreement which he inherited from Mr Rosenberg and inserted the wording which appeared in the 1998 Agreement as executed on 18 May 1998.

56 The primary judge accepted Mr Hobbs’ evidence and rejected that of Mr Magar for the reasons he set out in [46]-[51] of his judgment. He concluded (at [54]) that:

“Mr Hobbs intended that the [1998] Agreement should reflect what he himself understood to be the agreement reached by the parties. If Mr Hobbs mistakenly thought that his intention was the same as Mr Rosenberg’s intention, that is beside the point. If Mr Magar ’s evidence of his own understanding of what was agreed and intended by Item 4 is accepted, then his understanding did not coincide with Mr Hobbs’ understanding at the time that the Supply Agreement was executed.”

57 Between 18 May 1998 and 31 March 1999 Ryledar opened four service station sites in locations outside the Rebate Area, namely at Wandandian (opened 28 July 1998), Port Macquarie (opened 12 February 1999), Tuncurry (opened 23 February 1999) and Wellington (opened 27 February 1999). It was common ground that the 6¢/litre rebate was applied to gasoline and automotive distillate delivered to those locations.

58 Mr Hobbs was aware from the monthly volume reports that the rebate was being applied to each new site added by Ryledar, his evidence being that he assumed that the rebate was applicable and did not go back to the 1998 Agreement to check whether the Contractual Rebate applied or not.

59 Mr Hobbs was cross-examined with respect to the changes he made to Item 4 and the insertion of Item 5 to the Reference Schedule. When asked why he inserted a reference to the Central Coast, he responded that his

“recollection of the discussions were that he [Mr Magar] was looking at sites in the Newcastle area and between Sydney and Newcastle, so it made sense to define it as Central Coast and Newcastle. My experience in previous jobs was that often Newcastle got spoken about and the Central Coast was left out and it created confusion.”

60 The following exchange then occurred:

“Q. When you took those words out [that is, the words ‘outside Sydney’ in Item 4], you didn’t intend for a moment, did you, to reduce the area to which the rebates were applicable, to an area that was less than that which was indicated by the words you took out?

A. It was not my intent to change the original agreement just to define – further define where it was applicable.

Q. It was plain to you when you stared at those words, as you must have done when you took them out, that is the words ‘For outside Sydney Metro locations’, it was plain to you that the agreement to that point was, when you looked at those words, that the 6 cent discount would apply outside Sydney Metro locations?

A. As I stated earlier, when I looked at it at the time my interpretation was it applied to where they had existing sites.”

61 In answer to a question from the primary judge, Mr Hobbs agreed that at the date of the revised draft changing the wording of Item 4, he understood that Ryledar would be expanding its operations outside the Sydney Metropolitan area not just confined to Wollongong but also to Newcastle and the Central Coast. The following exchange then took place with senior counsel for Ryledar:

“Q. You did not intend, in any redraft that you did, to subtract from whatever had been agreed between Mr Rosenberg and Mr Magar?

A. No.

Q. You are agreeing with me?

A. Yes.”

62 However, Mr Hobbs gave the following evidence:

“Q. …Was it your intention when you redrafted item 4, is this your evidence, that that rebate should only apply to the areas of Wollongong, Newcastle and the Central Coast which were referred to in it?

A. As I stated earlier, the aim was to further define the area in which it applied. So yes.

…

Q. Is this your evidence Mr Hobbs, that when the May agreement was executed that it was your intention that the rebate should only apply to the Wollongong, Newcastle and Central Coast locations?

A. At the time it was not something that I consciously thought about, outside areas. I was defining the areas to be the areas in the contractual rebate, as defined in the contractual rebate.

Q. Is this your evidence Mr Hobbs, that your understanding and intention in this agreement when you executed it was that if there was a delivery, say for example to a town south of Wollongong, that the rebate would not be attracted?

A. At the time it was not something that I turned my mind to.

HIS HONOUR: Q. I think Mr Biscoe has been asking virtually the same question on a number of occasions. I do not know whether you have understood it correctly, but can I give you this example. Assume the day after you had signed this agreement with Mr Magar , Mr Magar had come to you and said ‘We would like to open a site at Ulladulla’ for example, ‘Can we have the rebate for the petrol delivered to Ulladulla?’. What would you have said?

A. At the time?

Q. Yes?

A. I would have probably applied the rebate.

Q. You would not have said ‘Well, our contract says you don’t get it for Ulladulla, you only get it for Wollongong”.

A. No.

Q. Why would you have applied the rebate to Ulladulla?

A. Well, there are examples of where sites were picked up outside the area and I applied the rebate. It was not something I put my mind to. It was good business for us and if it was one or two sites outside that trading area I would not have been very concerned about giving that rebate away. So if he came and said he would have one site and it would be at Ulladulla, would I have applied the rebate at the time? Yes, I would have applied the rebate at the time.

Q. Despite the fact that the agreement did not provide for it?

A. Yes.

…

Q Is this your evidence, that you weren’t concerned about one or two sites that were reasonably not too far past Wollongong, Newcastle or the Central Coast?

A. I wasn’t concerned about sites in those trading areas, and I probably would not have been concerned if there were one or two sites a long way outside those areas at that time.

Q. You never suggested at any time whilst you were general manager of the company that the expansion of this company to sites well outside these areas did not attract the rebate, did you?

A. No.

Q. In fact quite the opposite, didn’t you?

A. Correct.

Q. And that was because you well understood that that was the contractual intention of both you and Mr Magar when you entered into the agreement?

A. No, I didn’t refer back to the agreement. There were a few sites at the time outside that area and I didn’t have a problem providing the rebate to those sites at that time.

Q. Because you understood that that was what you both intended when you entered the agreement?

A. As I said, I didn’t refer back to the agreement. I took it on face value that there was a customer and I provided the rebate at the time. I didn’t refer to what was written down or had been agreed at the time, I was happy to provide that rebate.”

63 The primary judge accepted Mr Hobbs’ evidence concluding (at [55]) that in allowing the rebate Mr Hobbs was not intending either to implement or vary the terms of the 1998 Agreement: rather, his decision was made without regard to the terms of the Agreement and was concerned solely with fostering the commercial relationship with Ryledar as a customer of Euphoric.

64 I return now to the chronological narrative upon which Ryledar places particular significance as providing objective evidence of a common intention on the part of both parties that the 6¢/litre Contractual Rebate was applicable to all Ryledar sites both within and outside the Rebate Area.

65 On 9 July 1998 a meeting was held at which Mr Magar, Mr Beckwith (a consultant to Ryledar) and Mr Hobbs were present. When dealing with the issue of freight, Mr Hobbs in a file note relating to that meeting observed that the relationship between the parties seemed to have changed since Mr Beckwith had become involved. He referred to Euphoric’s willingness to use Nowra freight rates for deliveries to Wandandian saving Ryledar 0.7¢/litre off the contract price. He also referred to Euphoric’s extending credit to Ryledar until a bank guarantee was put in place when the latter increased its trading balance.

66 In response to Mr Beckwith observing that “the 1998 Agreement is clear”, Mr Hobbs’ file note recorded the following statement by him:

“Let’s forget the 1998 Agreement for a moment and I’ll make you an offer to think about in the spirit of compromise. When the supply agreement was negotiated Eddie [Magar] had sites in Sydney and Wollongong. The 6.0 discount was then a reference to Wollongong. If you agree I am willing to use Wollongong freight as the applicable freight instead of Newcastle. With Wollongong freight being .9 CPL.”

67 By letter dated 11 August 1998, Ryledar wrote to Euphoric referring to two matters that it asserted required immediate attention. The letter then proceeded in these terms:

the Agreement states clearly the mechanism to adjust the Contractual Rebate for deliveries in areas outside Sydney, Wollongong, Central Coast and Newcastle

68 Mr Beckwith drafted this letter although it was signed by Mr Magar. Mr Beckwith was cross-examined on the letter. When taxed with the proposition that that part of the quote from the letter which I have emphasised did not accord with Item 4 of the Reference Schedule, he agreed that he had not paid particular attention to the words of Item 4 but had just had regard to the commercial logic and business sense of how he thought the system should operate. He was then referred to the words “[a]s you are aware the Agreement states clearly”. The following exchange took place:

“Q. You were not intending to suggest by that statement anything other than the clear expressed words of the contract supported your position, that is what you intended?

A. No, what it was was my interpretation of how the contract applied.

….

Q. What you were attempting to portray by those words I suggest to you was that the agreement itself clearly stated that the mechanism to adjust the contractual rebate was as you set out, that is what you were attempting to convey, weren’t you?

A. The way I have set that out is, there was a contractual rebate with an adjustment for at that stage freight cost, so the answer is yes.

Q. You knew at the time you did this example that Coffs harbour was outside of Wollongong, Central Coast and Newcastle didn’t you?

A. Yes.

Q. And you knew it was outside of that area defined in item 4 of the contractual rebate?

A. Yes.

Q. You understood at the time you wrote this document that in accordance with item 4 of the contractual rebate you would not be receiving – Ryledar would not receive the rebate for such a site, didn’t you?

A. No because the contract said six cents plus the incremental freight.

Q. Mr Beckwith, where in the contract does it expressly say that Ryledar was to get six cents per litre for every site in New South Wales outside of those sites designated in item 4?

A. Where in the contract?

Q. Yes?

A. It is the interpretation of the word – you have to marry items 4 and 5 together.

Q. Which words in items 4 and 5 do you rely upon to say that the agreement expressly states that you are to get a six cent rebate in every site in New South Wales?

A. Its basically there, its assumed to be an incremental freight cost from Wollongong, Central Coast and Newcastle because it refers to ‘applicable to Newcastle’ and so really the interpretation is, deliveries outside will be charged, the contractual rebate will be charged for freight as per Mobil less freight applicable to Newcastle. There is no misunderstanding from my point of view that is how the industry worked on incremental freight costs.”

69 The primary judge dealt with this evidence at [62]-[64] of his judgment, concluding that it was “very unsatisfactory”. In particular, he found that Mr Beckwith conceded that he did not pay any particular attention to the words of the 1998 Agreement or of Item 4 in particular when he drafted the letter but rather set out how he thought the pricing system should operate; he “assumed” that the Contractual Rebate would apply to sales to all sites in country New South Wales notwithstanding that, clearly, Item 4 did not support such an assumption.

70 By letter dated 14 August 1998 Mr Hobbs responded to Mr Beckwith’s letter in the following terms:

“The pricing mechanism for areas outside the Metropolitan, Wollongong, Central coast and Newcastle is also clear. Freight will be charged as per Mobil’s Price Book less the freight applicable to Newcastle. This calculation mechanism is based on Mobil’s Price Book, hence the reference. An example for Gasoline:

Over the last few months we have been discussing the applicable rebate for your new site at Wandandian the applicable Freight at this location is 2.5 CPL. We agreed, as a gesture of good faith to use Nowra Freight as the benchmark, which is 1 CPL lower than Wandandian. We also agreed to use Wollongong as the reference point rather than Newcastle, saving a .3 CPL for Gasoline and .5 CPL for Diesel. All up the saving to you versus the letter of the Supply Agreement is 1.3 CPL for gasoline.”

71 At [66] his Honour found that in this letter Mr Hobbs was concerned with the calculation of freight charges which was then a contentious issue between the parties as was demonstrated by the correspondence which then ensued. Ryledar relied heavily on the fact that in this and other pricing examples in the correspondence which followed, Euphoric had without exception applied the 6¢/litre rebate to sites outside the Rebate Area.

72 By letter dated 26 August 1998 Mr Magar relevantly responded to Mr Hobbs’ letter of 14 August in the following terms:

“3) Contrary to your letter of the 14th August, no final agreement had been reached between ourselves on the contractual rebate for Wandandian. Your advice is not consistent with our supply agreement. The Agreement states clearly the freight applicable to Newcastle from Sydney is to be used as the reference freight for all areas outside the designated areas in New South Wales. We would not have included this matter in our letter of the 11th August if this matter had been resolved.”

73 It is noteworthy that although the letter asserts that the 1998 Agreement states clearly that the freight applicable from Sydney to Newcastle is to be used as the reference for all areas outside the designated areas in New South Wales, it is not asserted that the 1998 Agreement stated clearly that those areas were contractually entitled to the 6¢/litre rebate.

74 By letter dated 6 October 1998 to Euphoric, Mr Magar wrote:

“7) Mobil and Ryledar agree that the reference actual freight applicable to Newcastle is 1.4 cents per litre for determining the Contractual Rebate for deliveries to service stations in areas outside Sydney, Wollongong, Central Coast and Newcastle. Ryledar notes that in your letter dated 14th August 1998 Mobil have already acknowledged the reference is Sydney to Newcastle and have verbally advised Ryledar that the freight applicable from Sydney to Newcastle is 0.9 cents per litre to a service station. Ryledar considers this to be 1.4 cents per litre and has proposed to Mobil to seek three independent quotations on freight deliveries from Sydney to a service station in Newcastle and average the quotations.”

75 The part of the 6 October 1998 letter recorded above should be considered in the context of the following letter to Euphoric dated 2 November 1998 where Mr Magar wrote:

“Re: Option for two retail site locations

Volume Plus has the option to finalise an agreement on two new service stations in the Sydney area. These are located at Vineyard and Katoomba. We have assumed the delivered prices for these site will receive a contractual rebate of 6.2 and 6.0 cents per litre respectively. Please confirm the above by Wednesday 4th November 1998 so that we can finalise negotiations. …”

76 Given the assertion that the two sites at Vineyard and Katoomba were said to be in the Sydney area, it is odd that Mr Magar requested Euphoric to confirm an assumption that those two sites would receive the Contractual Rebate, particularly with regard to Katoomba, which was clearly outside the Rebate Area referred to in Item 4. Had Mr Magar held the firm belief that the 1998 Agreement contained a contractual right to a rebate of 6¢/litre for any location in New South Wales outside the Sydney Metro area, such a request for the confirmation of his assumption would have been unnecessary. I mention this matter at this point because it is telling evidence that Mr Magar and, therefore, Ryledar did not believe that the Contractual Rebate of 6¢/litre applied as a matter of contractual right to Katoomba or any other location outside the Rebate Area.

77 Nevertheless, it should be observed that by letter dated 4 November 1998 Euphoric confirmed that the rebate of 6¢/litre for Katoomba was “as per our Agreement”. However, this letter was signed by Mr Gilbert Braid, Reseller Marketing Manager of Euphoric and not by Mr Hobbs.

78 There followed further correspondence between the parties relating to the dispute with respect to freight reduction and, in particular, whether it should be based on book freight (being the freight nominated in Mobile’s Price Book) or actual freight costs. One thing should be noted and that is a comparison of the notes of meetings between the parties on the one hand and then letters from Ryledar to Euphoric purporting to confirm the contents of those meetings on the other. Without going into detail, it is apparent from the comparison of the notes of a meeting to a letter of alleged confirmation that in the latter, Ryledar was always pushing the boundaries of what had been agreed according to the notes. One example will suffice.

79 In Mr Hobbs’ minutes of a meeting held on 22 September 1998 Mr Narsey (of Mobil) responded to a suggestion by Mr Beckwith that Ryledar be provided with the ACCC intervention price each day and that it review prices annually, to which Mr Beckwith agreed. And yet in his letter of 12 November 1998 drafted by Mr Beckwith but signed by Mr Magar, the following appears:

“In respect to pricing/invoicing of daily purchases, we prefer the three month reconciliation period over the twelve month period. At a meeting on 22 September we had understood that three months was acceptable for both parties.”

80 By letter dated 2 December 1998 Mr Hobbs wrote to Mr Magar in terms which included the following:

“Throughout our correspondence you have referenced your frustration at ‘losing’ many retail opportunities in NSW due to the freight dispute. I can not accept this comment as you have only once raised the issue of supplying a site outside the area designated in the Supply Agreement with Euphoric Pty Ltd. At the site in question, Wandandian, Euphoric Pty Ltd has provided a delivered price better than any price specified in your correspondence.”

81 It is noteworthy that Euphoric applied a 6¢/litre rebate to Wandandian notwithstanding that there is no suggestion in the paragraph of the letter set out above that it was bound by the 1998 Agreement so to do. If anything, one would interpret the last sentence of that paragraph as an indication that the delivered price (which included a 6¢/litre rebate) was as a matter of grace rather than legal entitlement.

82 On 13 January 1999 Mr Magar sent a fax to Mr Hobbs drafted by Mr Beckwith in the following terms:

“Further to our meeting on 21/12/98, we have reviewed the three zone proposal to resolve the ‘freight issue’. The proposal (refer attachment) put is done on a without prejudice basis. We consider this counter proposal is a fair compromise. As discussed, the 1998 Agreement signed on 18 May 1998 remains unchanged until the parties are in full agreement on any proposed changes.

Our commercial plans still remain frustrated until these matters are resolved.”

83 The reference to the 1998 Agreement remaining unchanged until the parties had fully agreed on any proposed changes was to cl 15.1 which provided as follows:

“No variation of this Agreement nor consent to a departure by a party from a provision, shall be of effect unless it is in writing, signed by the parties or (in the case of a waiver) by the party giving it. Any such variation or consent shall be effective only to the extent to or for which it may be made or given.”

84 Paragraph numbered (1) of the attachment to the fax described three freight zones (north, west and south) by reference to specified major highways. Paragraph number (2) was as follows:

6CPL CONTRACTUAL REBATE AREAS

NORTH	WEST	SOUTH
All towns between Newcastle, Lithgow and Sydney Metro	All towns between Lithgow, Moss Vale and Sydney Metro	All towns between Moss Vale, Wollongong and Sydney Metro

85 Paragraph numbered (3) referred to the reference location for each zone being towns outside “above areas and Sydney Metro” and comprised Newcastle in the north zone, Moss Vale in the west zone and Wollongong in the south zone.

86 Mr Hobbs by letter dated 13 January 1999 responded to this proposal regarding the “freight issue”. After referring to the fact that the proposal had a number of anomalies, the letter then set out a counter-offer on a without prejudice basis. The main difference between the counter-offer and the original proposal was that the three zones contained different descriptions and that the reference location for each zone and the freight applicable to each such location were changed. Relevantly, there was no reference in the counter-offer to paragraph numbered (2) of the proposal being the 6¢/litre Contractual Rebate areas.

87 His Honour (at [72]) concluded from the foregoing that it was:

“…unmistakably clear from Ryledar’s proposed definition of three zones with a 6¢ Contractual Rebate that Ryledar did not believe, at that time, that it was entitled to a Contractual Rebate for sales to country sites throughout the whole of New South Wales.”

88 The proposal for three specified zones which would qualify for the 6¢/litre Contractual Rebate, clearly acknowledged that sales to sites outside those specified zones would not be entitled to the rebate. According to his Honour (at [73]) this was confirmed by Mr Hobbs’ letter of 13 January 1999 which proposed certain changes to the specified zones for freight charges but said nothing about the proposed zones attracting the 6¢ Contractual Rebate.

89 On 9 February 1999 Mr Magar, in a fax drafted by Mr Beckwith, stated:

“Further to your fax dated 13/1/99 and subsequent telephone calls, we confirm our agreement on the ‘freight issue’.”

“The 6CPL contractual rebate area on a delivered basis becomes Newcastle, Central Coast, Wollongong and any town east of a straight line connecting Newcastle to Bilpin to Katoomba to Bowral to Wollongong excluding the Sydney Metro Area. The contractual rebate for the Sydney Metro area remains unchanged at 6.2CPL.”

90 The fax then set out what was referred to as the “typical delivered prices for each zone” as at 8 February 1999. It was in these terms:

ZONES:	WEST	SOUTH	NORTH
Typical Town	Wagga	Queanbeyan	Coffs Harbour
ACCC Price	66.00	66.00	66.00
LESS
Contractual Rebate to Katoomba/Wollongong/ Newcastle	(6.0)	(6.0)	(6.0)
LESS
Freight applicable to Katoomba/Wollongong/ Newcastle	(1.0)	(0.9)	(1.2)
……Freight	3.0	1.6	3.0
LESS
Zone allowance	NIL	NIL	(3.26)
Delivered Price	62.0	60.7	58.54

91 On 16 February 199 Mr Hobbs wrote to Mr Magar a letter which commenced as follows:

“As per clause 15.1 of the Supply Agreement between Euphoric Pty Ltd and Ryledar Pty Ltd I can confirm the following variations to the Supply Agreement”

Reference Schedule Item 5 Freight

92 What was then reproduced were the changes sought by Ryledar in its fax of 9 February 1999 except there was no reference to the variation to the Rebate Area in Item 4 which Ryledar had sought.

93 However, in a filenote of a conversation with Mr Hobbs, Mr Beckwith recorded the following:

“(1) Mobil has excluded 6 CPL area defined in our fax 9/2. Nigel said he agreed in principle with what we had but was not able to word it appropriately. I said I would draft again consistent with style of contract.”

94 On 24 February 1999 Mr Hobbs forwarded a letter to Mr Magar referring to discussions with Mr Beckwith in which two issues had been raised of which the second was

“a request …to demonstrate how the ‘country’ pricing would apply.”

95 Mr Hobbs then proceeded to give “an example only” taking an “example town” in each of the north, south and west zones being Forster, Wandandian and Forbes respectively. In respect of each he applied a 6¢/litre rebate notwithstanding that each of those towns was outside the New Rebate Area.

96 In [77] of his judgment, his Honour after referring to this letter, set out Mr Hobbs’ evidence as to what he intended when he worked out those examples. When asked whether he intended to communicate that Forster, Wandandian and Forbes would attract a rebate of 6¢/litre his reply was:

“My focus was on the freight calculation. I made an assumption that 6¢ was applying. I didn’t consider the agreement, I assumed it would apply, and didn’t give it a whole lot of thought at the time. I was focussing on the freight component.”

“His Honour: Q: When you said you didn’t think about the agreement, do I understand you to say that it wasn’t that you actually mistakenly believed that the rebate provisions of the contract actually included these towns, you believed that the rebate would be applied regardless of what the contract said, is that the effect of your evidence.?

A: No. At the time I was applying the rebate to towns that come on board. So, as I said yesterday, I wasn’t – from a commercial point of view I was happy to provide the rebate to the small amount of sites that were added to the supply agreement. The questions and discussions I had were around the freight issue, and I was trying to resolve that. As an example, I left the 6 cents in because that was consistent with the price we were applying to Volume Plus at that time.

Q: I understand what you are saying, that the freight issue is always the major issue for discussion and negotiation?

A: Mmm.

Q: As far as the contract rebate rate is concerned, your view was that as a matter of commercial good business, as and when towns or sites were acquired Volume, if it was good business, you would be happy to apply the contract rate to those towns, despite the fact that the agreement didn’t provide it?

A: That’s correct.

Q: Was that the attitude that you had at all times while you were general manager?

A: While I was general manager, yes.”

97 By letter dated 15 March 1999 (a letter again drafted by Mr Beckwith but signed by Mr Magar) reference was made to Euphoric’s letter of 16 February 1999 observing that that letter had been reworded so as to be consistent with Ryledar’s fax of 9 February 1999. Relevantly, the following was added to form part of the variations to the 1998 Agreement:

Reference Schedule Item 4 Contractual Rebate

98 After then setting out the content of Reference Schedule Item 5 Freight and before setting out changes to Item 6 and a new Item 7(a) of the Reference Schedule, Mr Magar set out what he referred to as “Typical examples of Ryledar’s delivered prices for each Zone”. Again, the west, south and north zones were referred to utilising the towns of Wagga, Queanbeyan and Coffs Harbour respectively in each of those zones. Again the examples included the Contractual Rebate of 6¢/litre in respect of each town.

99 There followed a formal letter dated 31 March 1999 from Mr Hobbs to Ryledar marked to Mr Magar’s attention which stated that as per cl 15.1 of the 1998 Agreement, the following variations thereto were confirmed. There followed, relevantly, a repetition of the changes to the Reference Schedule set out in Ryledar’s letter of 15 March 1999 with the exclusion of any “typical examples” of how its delivered prices for each zone would be calculated.

100 Not to be deterred by the exclusion of those examples from Euphoric’s letter of 31 March 1999, Mr Magar forwarded a fax to Mr Hobbs on 13 April 1999 in which he noted that Euphoric’s variation letter of 31 March 1999 had not been received until 12 April 1999. The fax continued in these terms:

“Please confirm the examples of Ryledar’s delivered prices for each zone are correct as demonstrated in our letter dated 15/3/99.”

101 Mr Hobbs responded to this request by re-faxing to Ryledar his letter of 24 February 1999 (to which I have referred in [94] and [95] above) (It would not appear that there was any response to this letter, at least in writing). Nevertheless it was common ground that between 13 April 1999 and 6 July 2000 Euphoric applied the 6¢/litre Contractual Rebate to sales of petrol and automotive distillate to all of Ryledar’s country sites which opened during that time – whether those sites appeared within the New Rebate Area or not. Although, according to his Honour (at [83]) Mr Hobbs said that if he had been aware that Euphoric was allowing the rebate contrary to the terms of the 1999 Variation he would have reviewed the practice, in cross-examination he conceded that he probably would have continued the practice of allowing the rebate to all of Ryledar’s country locations for commercial reasons.

102 On 6 July 2000 Mr Hobbs’ successor as General Manager of Euphoric, Mr Rodgers, confirmed to Ryledar that from then on Euphoric would not allow the 6¢/litre rebate for sales outside the New Rebate Area as defined in Item 4 of the Reference Schedule under the 1999 Variation. It then invoiced Ryledar accordingly. Nevertheless from then until Euphoric terminated its relationship with Ryledar on 24 May 2001, the latter continued to deduct the 6¢/litre rebate from the invoiced prices in respect of gasoline and automotive distillate supplied to sites located outside the New Rebate Area.

Was Ryledar entitled as a matter of construction of Items 4 and 5 of the Reference Schedule to the 1999 Variation to a 6¢/litre contractual rebate in respect of all locations in New South Wales outside the Sydney Metro Locations?

103 The primary judge answered this question in the negative. His Honour rejected a submission that the words of Item 4 were ambiguous when considered in the light of the communications between the parties prior to 31 March 1999.

104 In its submissions Ryledar accepted that the decision of this Court in Magill v National Australia Bank [2001] NSWCA 221 established, at least for this Court, that post-contract correspondence and conduct of the parties was not admissible for the purpose of construing the contract. Nevertheless, reliance was place upon the following passage from the joint judgment of the High Court in Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451 at 461-462 [22]:

“The case provides a good example of the reason why the meaning of commercial documents is determined objectively: it was only the documents that spoke to Pacific. The construction of the letters of indemnity is to be determined by what a reasonable person in the position of Pacific would have understood them to mean. That requires consideration, not only of the text of the documents but also of the surrounding circumstances known to Pacific and BNP and the purpose and object of the transaction.”

105 Again, in Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165 at 179 [40] the Court in a joint judgment said:

Pacific Carriers Ltd v BNP Paribas

106 Ryledar also relied on the following principles of construction set out in the speech of Lord Hoffman, with whom Lord Goff of Chieveley, Lord Hope of Craighead and Lord Clyde agreed, in Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896 at 912-913 where, relevantly, his Lordship summarised the relevant principles in the following terms:

Mannai Investments Co. Ltd. v. Eagle Star Life Assurance Co. Ltd.

The Antaios Compania Neviera S.A. v. Salen Rederierna A.B.

280 Caution is needed in evaluating the case law relating to whether or not an outward expression of accord is needed. That is because it is not clear how much (or how little) is involved in an assertion, or denial, of the need for an “outward expression of accord”. It is not clear just what the phrase means. One possibility is that the parties have said “we agree”, or something similar, or performed an act like shaking hands or opening a bottle of champagne that is commonly recognised as an indication of a consensus having been reached. Another possibility is that each of the parties has in some fashion stated (though not to each other) his or her belief that an accord has been reached. Another is that the expression should be taken as performing the work that, in its context in Joscelyne v Nissen, it was designed to perform, namely of indicating that identical subjective intentions, of parties involved in a contractual negotiation, to use a word with a meaning different to its actual meaning is not enough to give rise to rectification unless those subjective intentions of the negotiators have not only become known to each other, but as well they have in some way stated that they propose to use the word with a meaning different to its actual meaning. There is no point in multiplying examples.

281 In my view, when the fundamental requirement for granting rectification is a continuing common intention of the parties, it is of more assistance to concentrate on what is needed before an intention of the parties to a negotiation counts as a common intention. In my view, when that intention relates to the terms upon which they will contract with each other, it is still necessary for them to know enough of each other's intentions for it to be said that there is a common intention. They might come to know of each other’s intentions in this way through those intentions being directly stated, or they might come to know of them through the various other means by which one person’s intention can become known to another person. Those means can sometimes involve a process of conscious and deliberate inference. Those means can sometimes involve simply perceiving a gestalt in a series of events. Those means can depend to some extent on the people involved sharing a common understanding of how particular bodies of knowledge or markets or social institutions they are operating in work – the experienced surgeon, or the experienced chess player, can sometimes see what another surgeon, or chess player, is seeking to do, in a way that an inexperienced person cannot. What matters for present purposes is that for a negotiating party to perform actions or say words from which the other party can gather his or her intention is itself a form of communication. Negotiation of any contract takes place in a context in which various facts are known or assumed by the negotiating parties. Sometimes, for example, if a contract is negotiated in a context where there are well understood business practices and conventions, and nothing is said about those practices and conventions not applying, it can be legitimate to conclude that both parties to the contract intended to act in accordance with those practices and conventions, even if they did not expressly communicate to each other that they intended to act in accordance with those practices and conventions. This view of what is needed before an intention is a common intention, accords, it seems to me, with the Australian case law since Joscelyne.

282 Street J, in Australasian Performing Right Association Ltd v Austarama Television Pty Ltd [1972] 2 NSWLR 467 at 473 said:

"… the true principle involves finding an identical corresponding contractual intention on each side, manifested by some act or conduct from which one can see that the contractual intention of each party met and satisfied that of the other. On such facts there can be seen to exist objectively a consensual relationship between the parties."

283 That passage was adopted by Menzies J in the original jurisdiction of the High Court in Hooker Town Developments Pty Ltd and Another v The Director of War Service Homes (1973) 47 ALJR 320 at 323-4, who added, at 324:

"The consensual relationship there referred to is, I think, the common intention with which the document was executed."

284 The passage I have cited from Street J was also applied by Yeldham J in Bishopsgate Insurance Australia Ltd v Commonwealth Engineering (NSW) Pty Ltd [1981] 1 NSWLR 429 at 430-431, who added, at 431:

"What many of the cases do make clear, however, is that the firm accord or common intention which must be established as a basis for rectification must be one that has been manifested in the words or conduct of the parties and not merely one which remained undisclosed in the course of the negotiations. But this is a different thing from a requirement that the respective intentions must be communicated … "

285 From the distinction that Yeldham J here draws between an intention being “disclosed” and being “communicated”, it appears that he is restricting "communicated" to communicated by express statement.

286 The passage from Street J was also adopted by Tipping J in Westland Savings Bank v Hancock [1987] 2 NZLR 21 at 30, who regarded it as supporting the conclusion that he drew, that

"… while there need be no formal communication of the common intention by each party to the other or outward expression of accord, it must be objectively apparent from the words or actions of each party that each party held and continued to hold an intention on the point in question corresponding with the same intention held by each party."

287 I note that the way in which Tipping J put it leaves open the question of to whom "it must be objectively apparent" – the other party or parties to the negotiation, or the court at the time of the hearing? In my view is clear that Street J intended the former meaning, because, as his Honour expressly stated at 473, what he saw himself as doing was reconciling two apparently different lines of authority, one of which required an antecedent concluded agreement, and the other of which did not. Further, mere proof that the subjective intentions of contracting parties were identical, if each contracting party had kept his or her intention completely to himself or herself, would not amount to showing a consensual relationship between the parties – which is what Street J says needs to be shown. Further, the passage I have quoted from Menzies J in Hooker shows that Menzies J understood Street J’s "true principle" in the same way I understand it.

288 In Elders Trustee and Executor Co Ltd v E G Reeves Pty Ltd and Others (1987) 78 ALR 193 at 253-254 Gummow J approved the approach taken by Yeldham J in Bishopsgate.

289 In Maralinga Pty Ltd v Major Enterprises Pty Ltd (1973) 128 CLR 336 Mason J (with whom Menzies J agreed) said at 349-350:

Lovell & Christmas Ltd v Wall

"For rectification it is not enough to set about to find what one or even both of the parties to the contract intended. What you have to find out is what intention was communicated by one side to the other, and with what common intention and common agreement they made their bargain."

What is of importance is that the purpose of the remedy is to make the instrument conform to the true agreement of the parties where the writing by common mistake fails to express that agreement accurately.”

290 While that passage is clearly using the word "agreement" in a sense that does not require the agreement to amount to a contract, it still emphasises the consensual nature of the common intention.

291 In Trawl Industries of Australia Pty Ltd v Effem Foods Pty Ltd (1992) 27 NSWLR 326 at 341 Samuels JA referred to the passages I have quoted from Maralinga, Austarama and Hooker. His Honour referred to them as authority for concluding that rejection of a particular part of the evidence of a particular witness about what was said at a negotiating meeting "would be fatal to any finding of a prior common intention of the parties (inconsistent with the instrument) upon which the doctrine of rectification depends". That process of reasoning makes sense only if what was said at the negotiating meeting (and thus communicated to the other side in the negotiation) was important for finding out whether there was a common intention.

292 Meagher, Gummow and Lehane’s, Equity Doctrines and Remedies, 4th edition para [26-030] says:

"No outward expression of accord is necessary, but whatever intentions the parties had cannot remain undisclosed."

293 In Commissioner of Stamp Duties (NSW) v Carlenka Pty Ltd (1995) 41 NSWLR 329 at 332 Mahoney A-P said that the difficulty in reconciling the effect of certain decided cases

their consensus or common agreement

294 In NSW Medical Defence Union Ltd v Transport Industries Insurance Co Ltd (NSW Supreme Court, 27 October 1986, reported in part at (1986) 6 NSWLR 740) Clarke J concluded that an outward expression of accord was not necessary before rectification could be granted. The case provides a useful example of how there can be a common intention on a particular subject matter, without an outward statement of agreement on the subject matter of that common intention. Because some matters that are relevant to this aspect of the case appear only in the typescript of the judgment, not in the edited version published in NSWLR, I shall mention them in fuller detail than I ordinarily would concerning a reported case.

295 An insurer that wrote professional indemnity insurance for medical practitioners obtained reinsurance of its obligations "in respect of claims notified" during the 1981 calendar year (p 6 typescript). A claim was made during the 1981 calendar year against an insured medical practitioner on behalf of a child, arising from alleged mistreatment of the child. The medical practitioner in turn made a claim on his insurer. In the 1984 calendar year the parents of the child instituted proceedings claiming damages for nervous shock they alleged they had suffered in consequence of the injury to their child. The reinsurer denied liability to indemnify concerning the latter claim. The Court of Appeal, in previous litigation (Transport Industries Insurance Co Ltd & Ors v NSW Medical Defence Union Ltd (1986) 4 ANZ Ins Cas ¶ 60-736) had construed the policy of reinsurance. The Court of Appeal held that the obligation to indemnify in respect of "claims notified" in the policy of reinsurance did not extend to an obligation to indemnify in respect of circumstances that could give rise to a claim, where those circumstances were notified to the insurer by an insured during the 1981 calendar year but where no claim was made upon the insured until after the end of the 1981 calendar year. The insurer then sought, and obtained, rectification of the policy of reinsurance, so that the indemnity extended to occurrences notified during the relevant calendar year that resulted in claims, even if such a claim was made only after the end of the calendar year.

296 The reinsurance policy in question was negotiated between a broker, Mr Lacey, and an underwriter for the reinsurer, Mr Brown.

297 The insurer called evidence from an experienced broker (Mr Lacey), and an experienced underwriter (Mr Walker) concerning "usages, practices and the availability of markets in the insurance industry", which Clarke J summarised as follows (typescript page 19):

“The effect of Lacey’s evidence, shortly stated, was that professional indemnity policies were known as “claims made” policies, that they invariably included a provision the effect of which was to equate occurrences notified during the year with claims made during the year, that the word “claim” had a special meaning in such policies the effect of which was to include “occurrences notified” and that there was in the 1979, 1980 and 1981 years no available market in which insurance or reinsurance could be obtained to cover liability in respect of incidents which occurred and were notified before the inception of the policy, notwithstanding that they did not mature into claims until after its commencement. Lacey also deposed to the fact that after Brown had agreed to accept the risk and the premium offered he sent to Lacey an executed form of policy which was, as its heading suggests, the normal form used by Brown.”

298 That form of policy contained a "deeming clause" that deemed claims arising after the year of insurance, out of conduct or circumstances notified during the year of insurance, to be made during the year of insurance. That form of policy was not eventually used to write the policy, but the proffer of the "deeming clause" indicated the intention that Brown had.

299 Walker's evidence (typescript 21) was to the effect that

“… the phrase “claim made” in professional indemnity policies was understood to extend to the notification of circumstances which might give rise to a claim notwithstanding that an actual claim was not made during the period of insurance. … there was no available market in which one could obtain reinsurance in respect of known occurrences which might mature into claims in the period during which the policy then under negotiation was in existence. What occurred, according to Walker, was that when a proponent for professional indemnity insurance, or reinsurance, approached an underwriter he would be required to disclose any notification of circumstances which might be the subject, at a later date, of a claim. Upon disclosure of the notification there would be an express exclusion of that occurrence in the policy. … a professional indemnity policy which did not cover an insured in respect of occurrences notified to the insurer, but which did not mature into an actual claim during the year of the policy, was unknown in the industry.”

300 There was no contrary expert evidence called by the reinsurer. Clarke J rejected, however, a submission that there was a notorious meaning of “claims made” in the insurance industry – he reasoned that if there was such a notorious meaning, there would be no need for clauses like the deeming clause that Brown had proffered.

301 As well, there was evidence of how the reinsurer had paid some claims under the reinsurance policy that it would have been liable to pay only if it had a liability concerning claims that were eventually made arising from occurrences notified during the year of insurance. One of those claims arose from the death of a Mrs Thompson.

302 It was in that context that Clarke J made findings, at 745-746 of the NSWLR report:

The facts which demonstrate the common intention are as follows: Lacey offered Brown a contract in which the first defendants would indemnify the plaintiff in respect of 50 per cent of the plaintiff's liability for all claims in excess of $50,000 under the plaintiff's professional indemnity insurance policy; at the same time he handed Brown a bordereau which referred to claims made and occurrences notified and which made it quite plain that many of the occurrences notified had not crystallised into claims; he told Brown that the policy was a standard malpractice or professional indemnity policy; all, or at least the vast majority, of professional indemnity insurances written in the market in Sydney provided cover in respect of claims made or occurrences notified within the year of insurance; there was no available market in which an insurer could obtain reinsurance for occurrences notified prior to the year of insurance but which might crystallise into claims in the year of insurance; Brown was an experienced underwriter who had written annually about 2,000 reinsurance contracts for Lacey; therefore Brown must be taken to have known that no market existed in which insurance could be obtained for known occurrences which had not crystallised into claims and must have known that the policy was intended to conform with the standard policy and provide cover for occurrences notified in the relevant year. To these facts should be added Brown's forwarding of a policy, after the negotiation of the appropriate premium, which included the deeming clause to which I have made reference and the administration by Brown of the policy in accordance with that view of the meaning of the contract.

Finally, counsel submitted that although it may be correct to say that there was no trade meaning of the word “claims”, the evidence demonstrated that expressions such as “claims made” or “claims notified” in professional indemnity policies invariably were understood in the industry to refer to “claims actually made and occurrences notified”.

These factors, according to Mr Rayment, all lead to the irresistible conclusion that both parties intended this policy to provide reinsurance cover in respect of both claims and occurrences (which later matured into claims), notified in a year of insurance. Brown was not called to contradict the evidence as to the practice and markets in the industry nor was he called to establish that his intention was contrary to that suggested by the plaintiff's evidence. Reference to the material concerning the manner in which the claims were administered suggests that it would have been difficult for him to contend that he was binding the first defendants to the policy with the limited protection which, properly construed, it accords the plaintiff. Such material as is tendered which contains statements by Brown (I have in mind his letter of 29 May 1984 concerning Mrs Thompson's case to which I have referred) instils confidence that his intention coincided with Lacey's.

Australia Hotel Co Ltd v Moore

303 Clarke J also expressly held, at 750 of NSWLR

“… there does not seem to me to have been any outward expression of accord as to the meaning of “claims made” by the parties at the time of negotiation of the contract. The plaintiff's counsel has argued that Lacey expressed his intention by, for instance, handing over a bordereau referring to claims and occurrences and that Brown did likewise by returning a form of contract which included the deeming clause. I am not satisfied that these actions, or any of the actions of the contracting persons, established an outward expression of accord. In point of fact I am asked to infer that both Brown and Lacey had a common intention by reference to the usages in the insurance industry and their conduct prior to and after the negotiation of the contract.”

304 In Transport Industries, it can be seen that both parties had identical intentions about the coverage of the reinsurance policy, and that those intentions had been disclosed sufficiently, one to the other, for it to be concluded that they had reached a consensus, or a common intention.

Assistance from the Rationale for Rectification

305 That the common intention must be in some manner disclosed is also consistent with the rationale on which rectification is granted.

306 In Simpson v Vaughan (1739) 2 Atk 31; 26 ER 415 Lord Hardwicke saw the justification for granting rectification as lying in mistake. He rectified a bond binding two people, that had not been stated to bind them severally, saying at 2 Ark 33; 26 ER 416:

"Now here is a reasonable presumption that this bond was either through fraud, or for want of skill, made a joint, instead of a joint and several bond; for Baker, one of the obligors who filled it up, is only a tradesman, and intirely unacquainted with the common form of bonds, where money is lent to two persons; but I do not think it was a fraud in Baker, but merely a mistake, and this is a head of equity on which the Court always relieves."

307 Simonds J in Crane v Hegeman-Harris Co Inc, a decision given in 1939, but reported in full at [1971] 1 WLR 1390, also identified the rationale of rectification as lying in mistake, saying at 1391:

"… in order that this Court may exercise its jurisdiction to rectify a written instrument it is not necessary to find a concluded and binding contract between the parties antecedent to the agreement which it is sought to rectify … it is sufficient if you find a common continuing intention in regard to a particular provision or aspect of the agreement. If you find that in regard to a particular point the parties were in agreement up to the moment when they executed their formal instrument, and the formal instrument does not conform with that common agreement, then this court has jurisdiction to rectify although it may be that there was, until the formal instrument was executed, no concluded and binding contract between the parties. … if it were not so, it would be a strange thing, for the result would be that two parties binding themselves by a mistake to which each had equally contributed, by an instrument which did not express their real intentions, would yet be bound by it."

308 The judgment of Simonds J in that case was endorsed by the Court of Appeal in England (Crane v Hegeman-Harris Co Inc [1939] 4 All ER 68), and part of the passage that I have just quoted (from “if it were not so" onwards) was quoted by Rich, Dixon and Williams JJ in Slee v Warke (1952) 86 CLR 271, at 280-281. While Simonds J’s account is correct as far as it goes, it points to only one aspect of the problem that rectification aims to remedy. It does not go on to identify why it is that mistake ought result in a court administering equitable jurisdiction ordering rectification, and does not explain why granting rectification of the contract, rather than some other remedy such as rescission is the appropriate response to the problem.

309 A fuller account of the rationale for the granting of a remedy of rectification is given in Story, Commentaries on Equity Jurisprudence as Administered in England and America (13th edition 1886) at 168-169, [154]-[155]. The author started by considering how the principles upon which equity granted rectification compared with the principle of the common law under which parol evidence was not admissible to vary or add to written contracts, and continued:

"The same principle lies at the foundation of each class of decisions, that is to say, the desire to suppress frauds and promote general good faith and confidence in the formation of contracts. The danger of setting aside the solemn engagements of parties when reduced to writing, by the introduction of parol evidence substituting other material terms and stipulations, is sufficiently obvious. But what shall be said where those terms and stipulations are suppressed or omitted by fraud or imposition? Shall the guilty party be allowed to avail himself of such a triumph over innocence and credulity to accomplish his own base designs? That would be to allow a rule introduced to suppress fraud to be the most effectual promotion and encouragement of it. And hence Courts of Equity have not hesitated to entertain jurisdiction to reform all contracts where a fraudulent suppression, omission, or insertion of a material stipulation exists, notwithstanding to some extent it breaks in upon the uniformity of the rule as to the exclusion of parol evidence to vary or control contracts; wisely deeming such cases to be a proper exception to the rule, and proving its general soundness.

It is upon the same ground that equity interferes in cases of written agreements where there has been an innocent omission or insertion of a material stipulation contrary to the intention of both parties and under the mutual mistake. To allow it to prevail in such a case would be to work a surprise, or fraud, upon both parties; and it certainly upon the one who is the sufferer. As much injustice would to the full be done under such circumstances as would be done by a positive fraud or an inevitable accident. A Court of Equity would be of little value if it could suppress only positive frauds, and leave mutual mistakes, innocently made, to work intolerable mischiefs contrary to the intention of parties. It would be to allow an act originating in innocence to operate ultimately as a fraud, by enabling the party who receives the benefit of the mistake to resist the claims of justice under the shelter of a rule framed to promote it. In a practical view there would be as much mischief done by refusing relief in such cases as there would be introduced by allowing parol evidence in all cases to vary written contracts."

310 In other words, the type of unconscientiousness that is prevented by the availability of the equity to rectify a written contract is that that would occur if a party to the contract sought the benefit of those legal rights he would have if the document contained the agreement that the parties had made, when the document does not accurately state the common intention that the parties had.

311 Spry, Equitable Remedies (6th edition 2001), at 608, also sees the basis of rectification as lying in the prevention of unconscionable conduct:

"It may be added generally of the remedy of rectification that in many contexts it has been shown to be salutary in preventing unconscionable reliance upon documents executed or continuing in existence in an objectionable form."

Tanwar Enterprises Pty Ltd v Cauchi

“unconscientious”

“unconscionable”

312 Calverley v Williams (1790) 1 Ves Jr 210; 30 ER 306 was in essence an application to rectify a contract of sale, and conveyance of land made pursuant to that contract. The dispute related to whether a particular parcel of land had been intended to be part of the land sold. Lord Thurlow LC said at 211 of Ves Jr, 306 of ER:

bona fide

313 This rationale of using rectification to give effect to the common purpose in a way that preserves good faith is but the obverse of using rectification to avoid unconscientious insistence on the terms of the written document.

314 It is because the avoidance of unconscientious taking advantage of the common mistake is the rationale of the remedy that it does not matter that the mistaken drafting of the agreement was carried out by the plaintiff, or that the plaintiff is a legal practitioner: Ball v Storie (1823) 1 Sim & St 210 at 219; 57 ER 84 at 88.

315 That the rationale for granting rectification is to avoid unconscientious departure from the common intention assists in deciding what is required for there to be a "common intention". If two negotiating parties each had a particular intention about the agreement they would enter, and their intentions were identical, but that intention was disclosed by neither of them, and they later entered a document that did not accord with that intention, what would be the injustice or unconscientiousness in either of them enforcing the document according to its terms?

Conclusion

316 For the reasons I have given, the common intention that is required to grant rectification is subjective. Even though there is a requirement for the intention to be disclosed before it can count as a common intention, that disclosure need not be by words that say in substance “this is my intention”. The need for disclosure fills the role of being a limitation on the types of subjective intention that can be enforced through the remedy of rectification, or a limitation on the circumstances in which a subjective intention must exist before it can be enforced through the remedy of rectification. It still remains that proof of the subjective intention of the parties to the contract is fundamental to the grant of rectification. Hence it is not possible to ignore a factual finding by the trial judge, to the effect that he was not satisfied that the plaintiff intended the rebate to apply in relation to deliveries to any location within New South Wales outside the Sydney Metro locations, and look only to the correspondence for the purpose of finding a "common intention".

Exercise of Option

317 The other topic on which I wish to make some remarks is whether Ryledar validly exercised its option to renew the 1998 Agreement as varied by the 1999 Variation. The text of the option is set out in the judgment of Tobias JA at para [235].

318 There is a frequently recurring problem in the construction of options concerning what counts as the “exercise” of the option. Concerning the option in question in Australian Hardwoods Pty Ltd v Commissioner for Railways [1961] 1 All ER 737; [1961] 1 WLR 425 Lord Radcliffe said, at All ER 740, WLR 430:

“It might be the giving of the option notice, or, possibly, the expiration of the time limited by the notice: on the other hand, it might be that, though a notice of the required length has to be given, no rights are created unless and until the purchase price is tendered at the date when the prescribed time has run out.”

319 The option under consideration in that case did not make exercise of the option conditional upon observance of the covenants in the agreement that created the option.

320 Another possibility that the language of "exercise" leaves open in the present case is that the option is not exercised unless all of the preconditions for its exercise have been met. On that construction, the "exercise" of the option amounts to having done everything that is necessary to have a legal right to renew the agreement – the “exercise of the option” is the actual use and enjoyment of the right to renew the agreement. When that meaning is comfortably open on the language of the clause, and there are no other aids to construction that are sought to be relied upon, the decisive factor, it seems to me, is that the clause should not be construed in a way that makes it operate in an uncommercial and impractical way. For the reasons given by Tobias JA, any construction other than one that requires compliance with Ryledar’s obligations for the entirety of the Term would make the agreement operate in an uncommercial and impractical way.

Orders

321 As earlier indicated, I agree with the orders proposed by Tobias JA.

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05/03/2008 - Missing pages due to software glitch - Paragraph(s) [1]-[302]

05/03/2008 - Software glitch on publication - Paragraph(s) [1]-[302]

07/05/2008 - Removal of internal cross-referencing. - Paragraph(s) Various

09/03/2009 - Incorrect spelling in case reference - Paragraph(s) Coversheet, [104]

Citations

Ryledar Pty Ltd v Euphoric Pty Ltd [2007] NSWCA 65

Most Recent Citation

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293

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Redevelopments Pty Limited v Enima Pty Limited [2010] ACTCA 13

Rose v Manno Kingsway Pty Limited as trustee for the Manno Kingsway Unit Trust [2025] NSWCA 23

Cases Cited

40

Statutory Material Cited

3

Magill v National Australia Bank Ltd [2001] NSWCA 221

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Reported Decision:	(2007) Aust Contract Reports 90-254
Appeal Outcome:	Special leave refused with costs by the High Court - 16 November 2007

CITATION:	Ryledar Pty Ltd & Anor v Euphoric Pty Ltd [2007] NSWCA 65 This decision has been amended. Please see the end of the judgment for a list of the amendments.
HEARING DATE(S):	13 February 2007
JUDGMENT DATE:	20 April 2007
JUDGMENT OF:	Mason P at 1; Tobias JA at 2; Campbell JA at 257
DECISION:	Appeal dismissed with costs.
CATCHWORDS:	CONTRACTS – General contractual principles – Construction and interpretation of contracts - EQUITY – Rectification – Mistake as to the effect of the deliberately chosen words – Requirement of clear and convincing proof of a common intention inconsistent with the words deliberately employed – Whether objective evidence of common intention renders evidence of subjective intention irrelevant - ESTOPPEL – Estoppel by convention - ESTOPPEL – General principles – Whether an estoppel continues if the contract is renewed - CONTRACTS – General contractual principles – Options to renew – Whether the exercise of an option is conditionally valid but subject to defeasance if a party goes into breach of a condition precedent to the option after the exercise of the option but before the end of the original term
LEGISLATION CITED:	Fair Trading Act 1987 Supreme Court Rules 1970 Trade Practices Act 1974 (Cth)
CASES CITED:	Air Great Lakes Pty Limited v K S Easter (Holdings) Pty Ltd (1985) 2 NSWLR 309 Amalgamated Investment & Property Co Ltd v Texas Commercial International Bank Ltd (in liq) [1982] QB 84 Australian Broadcasting Corporation v XIVth Commonwealth Games Ltd (1988) 18 NSWLR 540 Australian Co-operative Foods Ltd v Norco Co-operative Ltd (1999) 46 NSWLR 267 Australian Hardwoods Pty Ltd v Commissioner for Railways [1961] 1 All ER 737 [1961] 1 WLR 425 Baker v Paine (1750) 1 Ves Sen 456 Ball v Storie (1823) 1 Sim & St 210 57 ER 84 Bishopsgate Insurance Australia Ltd v Commonwealth Engineering (NSW) Pty Ltd [1981] 1 NSWLR 429 Brambles Holdings Ltd v Bathurst City Council (2001) 53 NSWLR 153 Branir Pty Ltd v Owston Nominees (No 2) Pty Ltd (2001) 117 FCR 424 Calverley v Williams (1790) 1 Ves Jr 210 30 ER 306 Club Cape Schanck Resort Co Ltd v Cape Country Club Pty Ltd (2001) 3 VR 526 Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337 Commissioner of Stamp Duties (NSW) v Carlenka Pty Ltd (1995) 41 NSWLR 329 Commonwealth v Verwayen (1990) 170 CLR 394 Con-Stan Industries of Australia Pty Ltd v Norrich Winterthur Insurance (Australia) Ltd (1986) 160 CLR 226 Crane v Hegeman-Harris Co Inc [1971] 1 WLR 1390 Earl v Hector Whaling Ltd [1961] 1 Lloyd’s Rep 459 Elders Trustees & Executor Co Ltd v E G Reeves Pty Ltd (1987) 78 ALR 193 Equus Corp Pty Ltd v Glengallan Investments Pty Ltd [2006] QCA 194 Farrow Mortgage Services Pty Ltd (in liquidation) v Slade and Nelson (1996) 38 NSWLR 636 Fowler v Fowler (1859) 4 De G & J 250 45 ER 97 Frederick E Rose (London) Ltd v William H Pim Jnr & Co Ltd [1053] 2 QB 450 Gilbert J McCaul (Aust) Pty Ltd v Pitt Club Ltd (1959) 59 SR (NSW) 122 Green v AMP Life [2005] NSWSC 370 (2005) 13 ANZ Ins Cas 90-124 Grundt v Great Boulder Pty Gold Mines Ltd (1937) 59 CLR 641 Hooker Town Developments Pty Ltd and Another v The Director of War Service Homes (1973) 47 ALJR 320 The Indian Grace (No. 2) [1998] AC 878 In Re Butlin’s Settlement Trusts [1976] Ch 251 Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896 Joscelyne v Nissen [1970] 2 QB 86 Johnson Matthey Ltd v A C Rochester Overseas Corporation (1990) 23 NSWLR 190 Lion Nathan Australia Pty Ltd v Coopers Brewery Ltd (2005) 223 ALR 560 Mander v Clements (2005) 30 WAR 46 Maralinga Pty Ltd v Major Enterprises Pty Ltd (1973) 128 CLR 336 Magill v National Australia Bank [2001] NSWCA 221 MK & JA Roche Pty Ltd v Metro Edgely Pty Ltd [2005] NSWCA 39 Moratic Pty Ltd v Gordon [2007] NSWSC 5 Mortimer v Shortall (1842) 2 Dr & War 363 NSW Medical Defence Union Ltd v Transport Industries Insurance Co Ltd (1986) 6 NSWLR 740 Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451 Prenn v Simmonds [1971] 1 WLR 1381 Pukallus v Cameron (1982) 180 CLR 447 River Wear Commissioners v Adamson (1877) 2 App Cas 743 Simpson v Vaughan (1739) 2 Atk 31 26 ER 415 Slee v Warke (1949) 86 CLR 271 State Rail Authority of NSW v Heath Outdoor Pty Ltd (1986) 7 NSWLR 170 Taylor v Johnson (1983) 151 CLR 422 Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165 Tonitto v Basral (1992) 28 NSWLR 564 Transport Industries Insurance Co Ltd & Ors v NSW Medical Defence Union Ltd (1986) 4 ANZ Ins Cas 60-736 Trawl Industries of Australia Pty Ltd v Effem Foods Pty Ltd (1992) 27 NSWLR 326 The Vistafjord [1988] 2 Lloyds Reports 343 Walterman v Gerling Australia Insurance Co Pty Ltd (2005) 65 NSWLR 300 Westland Savings Bank v Hancock [1987] 2 NZLR 21 Whittet v State Bank of New South Wales (1991) 24 NSWLR 146
PARTIES:	Ryledar Pty Limited t/as Volume Plus Azir Magar Sidhom Euphoric Pty Ltd t/as Clay & Michel
FILE NUMBER(S):	CA 40067/06; 40068/06
COUNSEL:	A: B. W. Rayment QC / M Sahade R: B. Coles QC / M Ashhurst / S Docker
SOLICITORS:	A: Mallesons Stephen Jaques (Sydney) R: Cowley Hearne Lawyers (Sydney)
LOWER COURT JURISDICTION:	Supreme Court - Equity Division
LOWER COURT FILE NUMBER(S):	SC 50070/01; SC 50071/01
LOWER COURT JUDICIAL OFFICER:	Palmer J
LOWER COURT DATE OF DECISION:	6/6/05 10/10/05 11/10/05 30/1/06
LOWER COURT MEDIUM NEUTRAL CITATION:	Euphoric Pty Ltd v Ryledar Pty Ltd [2006] NSWSC 2