Sanmik Food Pvt Ltd v Alfa Laval Australia Pty Ltd

[2025] NSWCA 7

Court of Appeal

Supreme Court

New South Wales

• Amendment notes

Medium Neutral Citation:

Sanmik Food Pvt Ltd v Alfa Laval Australia Pty Ltd [2025] NSWCA 7

Hearing dates:

9 December 2024

Decision date:

10 February 2025

Before:

Adamson JA at [1];
McHugh JA at [108];
Griffiths AJA at [144]

Decision:

Appeal dismissed with costs.

Catchwords:

CONTRACTS — construction — where parties entered into initial agreement for sale of two coconut milk production plants — where two parts of a plant were delivered — where initial agreement was terminated by deed of settlement and a new supply of two plants was to be provided — whether “new supply” meant a supply that was independent of the supply under the initial contract — whether vendor could rely on delivery of parts under initial agreement in part satisfaction of its obligations under settlement documents

CONTRACTS — construction — construction of release clause in deed of settlement — application of Grant v John Grant & Sons Proprietary Limited (1954) 91 CLR 112; [1954] HCA 23 — where parties agreed they had “no further obligations” in respect of a primary contract for sale of two coconut milk production plants — where vendor released seller from “all Claims and actions arising from or in connection with” settled matters — where title to plants under initial agreement did not pass to purchaser until full purchase price was paid — whether release clause extinguished vendor’s claim to title to the plants in circumstances where full purchase price was not paid under initial agreement

Cases Cited:

Burness v Hill [2019] VSCA 94

Codelfa Construction Proprietary Limited v State Rail Authority of New South Wales (1982) 149 CLR 337; [1982] HCA 24

Donau Pty Ltd v ASC AWD Shipbuilder Pty Ltd (2019) 101 NSWLR 679; [2019] NSWCA 185

Grant v John Grant & Sons Proprietary Limited (1954) 91 CLR 112; [1954] HCA 23

Hobbs v Petersham Transport Co Pty Ltd (1971) 124 CLR 220; [1971] HCA 26

Jireh International Pty Ltd t/as Gloria Jean's Coffee v Western Exports Services Inc [2011] NSWCA 137

Lend Lease Real Estate Investments Ltd v GPT RE Ltd [2006] NSWCA 207

Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104; [2015] HCA 37

Protheroe v Protheroe [2023] NSWCA 328

Reid v Commonwealth Bank of Australia (2022) 109 NSWLR 149; [2022] NSWCA 134

Sanmik Food Pvt Ltd v Alfa Laval Australia Pty Ltd; Alfa Laval Australia Pty Ltd v Sanmik Food Pvt Ltd [2024] NSWSC 698

The Commonwealth v Amann Aviation Pty Limited (1991) 174 CLR 64; [1991] HCA 54

Torrens Aloha Pty Ltd v Citibank NA (1997) 72 FCR 581

Texts Cited:

P Herzfeld and T Prince, Interpretation (3rd ed, 2024, Lawbook Co)

Category:

Principal judgment

Parties:

Sanmik Food Pvt Ltd (First Appellant)
Sanmik Natural Food Pty Ltd (Second Appellant)
Alfa Laval Australia Pty Ltd (Respondent)

Representation:

Counsel:
D R Sulan SC / R Jameson (Appellants)
S A Lawrance SC (Respondent)

Solicitors:
Holman Webb Lawyers (Appellants)
Piper Alderman (Respondent)

File Number(s):

2024/256596

 Decision under appeal 

Court or tribunal:

Supreme Court

Jurisdiction:

Equity – Commercial List

Citation:

Sanmik Food Pvt Ltd v Alfa Laval Australia Pty Ltd; Alfa Laval Australia Pty Ltd v Sanmik Food Pvt Ltd [2024] NSWSC 698

Date of Decision:

07 June 2024

Before:

Stevenson J

File Number(s):

2024/51638

HEADNOTE

[This headnote is not to be read as part of the judgment]

The issue in this case was the proper construction of a Settlement Deed, Commercial Terms and Supply Terms (together, the Settlement Documents) entered into by Sanmik Food Pvt Ltd and Sanmik Natural Food Pty Ltd (the purchaser) and Alfa Laval Australia Pty Ltd (the vendor) on 22 March 2023 to resolve proceedings brought by the purchaser against the vendor in 2021 (the Initial Proceedings).

The Initial Proceedings arose out of the vendor’s agreement to sell to the purchaser two coconut milk production plants, which each comprised various components including a homogeniser and an aseptic filler (the Initial Contract). Relevantly, the Initial Contract provided that title to each plant would pass to the purchaser upon “receipt of the full purchase price” by the vendor. The purchase price was $2.81 million.

In October 2019, the vendor shipped a homogeniser and a filler for the first plant to the purchaser’s warehouse in Sri Lanka. No further components were shipped and the purchaser only ever paid $387,600.

In July 2021 the vendor commenced the Initial Proceedings, claiming damages (including for wasted expenditure) for the purchaser’s alleged breaches of the Initial Contract. Prior to the hearing, the parties negotiated with a view to settling and the Settlement Documents were ultimately executed on the second day of the hearing.

The Settlement Documents provided for “a new supply [of two plants] that is independent of the previous Contract”. In cl 3.2 of the Settlement Deed, the vendor agreed “that the parties have no further obligations in respect of the [Initial Contract]” (cl 3.2(a)) and released the purchaser “from all Claims and actions arising from or in connection with the Settled Matters” (cl 3.2(b)). “Claim” was defined as including “any claim, action or liability of any kind” and “Settled Matters” included “all claims and disputes between [the parties] which were the subject of, or in any way related to” the supply of the first plant. The Settlement Documents were silent on what was to be made of the homogeniser and filler already delivered to the purchaser pursuant to the Initial Contract but title to which had not passed (because the full purchase price was not, and could no longer be, paid).

In 2024, the purchaser commenced proceedings in the Commercial List, alleging that on the proper construction of the Settlement Documents, the vendor was not entitled to use the homogeniser and filler it had previously supplied to discharge part of its obligation to supply two plants under the Settlement Documents. Stevenson J (the primary judge) dismissed the purchaser’s claim, preferring the vendor’s construction.

The purchaser appealed on the bases that the primary judge ought to have:

1. considered and construed cl 3.2(a) as having the effect that the vendor no longer had any claim to title to the homogeniser and filler (ground 1(a));

2. construed cl 3.2(b) as releasing the vendor’s claim to title to those components (ground 1(b)); and

3. found the Settlement Documents, when construed as a whole, required a new supply of the homogeniser and filler (ground 2).

The Court held (Griffiths AJA, McHugh JA agreeing with additional reasons, Adamson JA dissenting), dismissing the appeal with costs:

Ground 1(a): effect of cl 3.2(a) of the Settlement Deed

1. Although the primary judge did not address this clause, it ought be addressed on appeal because it was sufficiently raised before his Honour: at [45] (Adamson JA).

2. Clause 3.2(a) does not release any claim by the vendor concerning its ownership of the homogeniser and filler. The words of the subclause acknowledge the conventional consequences of termination: that parties are discharged from future obligations of performance under the Initial Contract. The subclause did not release the purchaser’s obligation to hold the items as bailee until the full purchase price was paid. The bailment was not an obligation sourced in the Initial Contract, but in law: at [118]-[126] (McHugh JA); [165]-[173] (Griffiths AJA).

Hobbs v Petersham Transport Co Pty Ltd (1971) 124 CLR 220; HCA 26, applied.

1. Clause 3.2(a) applies to the purchaser’s obligations as bailee of the homogeniser and filler until the purchase price is paid in full, with the effect that the purchaser no longer has an obligation under the Initial Contract to pay for the components already delivered and the vendor cannot enforce any rights of ownership conferred by the retention of title clause. The vendor cannot use these components to perform its obligations under the Settlement Documents: at [72]-[74] (Adamson JA, dissenting).

Ground 1(b): effect of cl 3.2(b) of the Settlement Deed

1. The definition of “Settled Matters” is not sufficiently broad to include the vendor’s title to, or ownership of, the homogeniser and filler. The word “Claim” refers to a dispute or contest between the parties and not an undisputed claim of right, such as the vendor’s undisputed ownership of the homogeniser and filler. The release in cl 3.2(b) does not cover the vendor’s claim to ownership of the components: at [129]-[138] (McHugh JA); [176]-[178] (Griffiths AJA).

Reid v Commonwealth Bank of Australia (2022) 109 NSWLE 149; [2018] NSWCA 316, applied.

1. Although there is force to the submission that “claim” as it appears in the definition of “Claim” and in the definition of “Settled Matters” connotes some kind of dispute between the parties, the vendor’s claim to title to the homogeniser and filler falls within this category. It was a matter which was unresolved in the Initial Proceedings and about which the parties were plainly at cross-purposes. The release in cl 3.2(b) thus covers the vendor’s claim to ownership of the components: at [87]-[88] (Adamson JA, dissenting).

2. There is no occasion to consider the scope of any equitable doctrine: at [139] (McHugh JA); [179] (Griffiths AJA).

3. Equity ought not intervene to restrain the purchaser’s reliance on this release. The claim sought to be released fell within the express contemplation of the parties because there was a real issue between them about the vendor’s title to the components, evidenced by their inclusion in the draft settlement documents of a clause directly addressing the issue: at [90]-[93] (Adamson JA, dissenting).

   Grant v John Grant & Sons Proprietary Limited (1954) 91 CLR 112; [1954] HCA 23, applied.

Ground 2: whether the Settlement Documents required a “new supply”

(8)   The reference in the Settlement Documents to “new supply” “independent” of the Initial Contract does not preclude the vendor using the already delivered items to fulfil the obligations under the Settlement Documents. No “supply” had occurred under the Initial Contract, as the entire plant had not been received: at [141]-[142] (McHugh JA); [183]-[187] (Griffiths AJA).

(9)   The wording of the Settlement Documents indicates there was to be a new supply of two plants that did not include components already supplied under the Initial Contract. Notably, the Settlement Documents refer to a “new supply” and do not distinguish between the first and second plant to be delivered. These considerations support the purchaser’s construction: [97]-[101] (Adamson JA, dissenting).

JUDGMENT

1. ADAMSON JA: The appellants, Sanmik Food Pvt Ltd and Sanmik Natural Food Pty Ltd (together, the purchaser), appeal against orders made by Stevenson J (the primary judge) on 21 June 2024 dismissing their Amended Commercial List Statement filed 17 April 2024. The respondent to the appeal is Alfa Laval Australia Pty Ltd (the vendor).

2. The appeal turns on the proper construction of a Settlement Deed, Commercial Terms and Supply Terms (together the Settlement Documents) which were entered into by the purchaser and the vendor on 22 March 2023 to resolve proceedings brought by the vendor against the purchaser in the Commercial List of the Equity Division in 2021 (the Initial Proceedings). The purchaser submitted that the primary judge erred in accepting the construction of the Settlement Documents for which the vendor contended.

The relevant facts

3. The Settlement Documents were entered into in the following circumstances.

The Initial Contract

4. On 12 April 2018, the vendor agreed to sell two ultra-high temperature plants for the production of coconut milk to the purchaser for the price of $2.7 million (the Initial Contract). Each plant comprised a steriliser, a homogeniser, a steritank and an aseptic filler. Also on 12 April 2018, the purchaser issued a purchase order to the vendor for two complete plants. The purchase order listed the same payment terms as those in the Initial Contract (see below).

5. The first plant, which had a 4000L/hr capacity, was to be delivered to the purchaser’s warehouse in Sri Lanka, and the second, which had a 6000L/hr capacity, was to be delivered to the purchaser’s warehouse in the Philippines.

6. The Initial Contract provided that the purchase price was to be paid in 14 instalments as follows.

Instalment	Time at which payment due	Amount
1	10 days after placement of order.	10% of price ($270,000)
2	Within 10 days of presentation of the bill of lading.	20% of the price ($540,000). A bank guarantee securing the remaining $1.89 million with validity of 15 months was also to be provided with the bill of lading.
3	The earlier of the start-up of the equipment or 3 months from the bill of landing date.	1/12 of $1.89million ($157,500)
4-14	Monthly, after instalment 3.	$157,500 x 11

7. It was common ground that only two of these payments were made (totalling $387,600): the first was payment of the deposit of $270,000 on 7 May 2018, and the second was payment of $117,600 (relating to the delivery of the homogeniser and filler) on 2 August 2019.

8. The Initial Contract was a cost, insurance and freight (CIF) contract, which provided for the plant (in its various components) to be delivered by the vendor to the purchaser in Sri Lanka (for the first plant) and the Philippines (for the second plant). The terms of the standard CIF contract (which would have had the effect of passing title in the plants to the purchaser when they were loaded onto the ship delivering them) were substantially amended by express terms of the Initial Contract, including as to the passing of title.

9. The Initial Contract provided that title to each plant would pass from the vendor to the purchaser as follows:

“Reservation of Ownership / Insurance

Ownership of the equipment/module to be delivered shall pass to the Purchaser only upon receipt of the full purchase price by the Seller. Moreover, until that date, the Purchaser will keep the equipment/module insured against all risks, in particular fire for an amount at least corresponding to the agreed purchase price.”

10. On about 11 June 2018, the Initial Contract was varied to increase the capacity of the first plant from 4000L/hr to 6000L/hr which resulted in the purchase price increasing from $2.7 million to $2.81 million. The purchaser issued a new purchase order to this effect.

11. Between 12 September 2019 and 13 October 2019, the vendor shipped two components of the first plant, the homogeniser and the filler, to the purchaser’s warehouse in Sri Lanka. These were the only components of either plant which it shipped to the purchaser pursuant to the Initial Contract, although it had sourced all components for the two plants from third party suppliers ([10]).

The Initial Proceedings

12. On 29 July 2021, the vendor commenced the Initial Proceedings against the purchaser by filing a Summons and Commercial List Statement, which alleged that the purchaser had breached the Initial Contract by failing to provide a bank guarantee and which sought specific performance.

13. On 24 August 2022, the vendor purported to terminate the Initial Contract based on the purchaser’s alleged breaches and proposed to amend its Commercial List Statement to seek damages instead of specific performance.

14. On 5 October 2022, the vendor filed an Amended Commercial List Statement in which it alleged that the purchaser had breached the Initial Contract not only by failing to provide a bank guarantee, but also by failing to provide a shipping address for the second plant; failing to make progress payments in respect of the second plant; and failing to pay storage costs. It claimed damages which included loss of profits and costs incurred in sourcing components for and producing the first and second plants, less payments made by the purchaser and monies received from the sale of some components.

15. Mr Lawrance SC, who appeared for the vendor in this Court and in the Court below, confirmed that the vendor included in its claim for damages in the Initial Proceedings a claim for “wasted expenditure” (relying on The Commonwealth v Amann Aviation Pty Limited (1991) 174 CLR 64; [1991] HCA 54) for the whole of the cost of the homogeniser and the filler which had been delivered to Sri Lanka as well as the cost of the components which it had sourced to be delivered to the Philippines.

16. In its Commercial List Response, the purchaser denied that the vendor had validly terminated the Initial Contract.

17. The hearing of the Initial Proceedings was set down to commence on 21 March 2023. Prior to that date, the parties’ solicitors had engaged in negotiations with a view to settling the Initial Proceedings on the basis of a new supply contract. Draft settlement deeds were sent on 20 February 2023, 24 February 2023, 9 March 2023, 19 March 2023 and 20 March 2023.

18. In this Court, reliance was placed on these negotiations solely for the purpose of determining whether equity ought intervene to read down the release in cl 3.2(b) of the Settlement Deed (extracted below). It is therefore relevant to note the following aspects of the negotiations.

19. On 2 December 2022, the vendor’s solicitor wrote to the purchaser’s solicitor and said, in part:

“We refer to previous negotiations to settle this matter. Those negotiations proceeded on the basis that the dispute could be settled by entering into a new supply contract that made use of the parts procured under the now terminated supply contract that was previously entered into. While a number of the proposed terms for a new supply contract were agreed those negotiations broke down when agreement could not be reached on security for payment terms. The further difficulty was that the parts that were procured from third party suppliers for the purpose of the former supply contract are now out of warranty and your client has indicated it requires warranties for those parts if a new supply contract is entered into.”

20. On 20 February 2023, the vendor’s solicitor sent an email to the purchaser’s solicitor in which he referred to “recent discussions regarding restarting settlement negotiations” and to which he attached a draft deed. He qualified the provision of the draft, noting that while “the offer contained in the attached document has expired”, it may “provide a starting point for further discussions.” Of present relevance, the annexure to the draft deed, titled “Heads of Agreement”, included the following terms:

“1.3   The Parties agree that part of the plant for Plant 1 has already been delivered being 1 filler and 1 homogeniser.

…

3.5   Any additional costs required to be incurred to re-instate the filler and the homogeniser previously delivered to Sri Lanka is to be to the account of the Purchaser and is not included in the Price for Plant 1.

3.6   Any payments made prior to this agreement being reached are not to be taken into account or treated as part payment of the Price for Plant 1 or Plant 2.”

(Emphasis added to indicate the only one of these clauses which remained in the Settlement Deed.)

21. On 24 February 2023, the vendor’s solicitor sent a further email to the purchaser’s solicitor to which he attached further draft documents, including a draft deed, draft commercial terms and draft supply terms. Clause 1.3 of the Heads of Agreement was not included in this draft. Clauses 3.5 and 3.6 remained in the annexure, which was now titled “Commercial Terms”. The draft supply terms also included the following Equipment Warranty (which is relevant to the notice of contention):

“The Equipment is made up of equipment ordered under previous now terminated contracts. To the extent that warranties remain in force from the parties that supplied the Equipment to the Seller then the Buyer is entitled to the benefit of those warranties.

The Seller shall repair or replace any part of the Equipment needed to meet the Performance Warranty and to achieve Take Over. This is the Buyer’s sole and exclusive remedy for the Equipment that does not meet the mechanical warranty.”

22. The purchaser’s solicitor sent an email to the vendor’s solicitor on 9 March 2023, which attached further drafts of the deed and commercial terms. The version of the commercial terms annexed to this draft deed did not contain cl 3.5, although cl 3.6 remained but was renumbered as cl 4.4. This was how the clause appeared in the final form of the Commercial Terms (see below). Neither cl 1.3 nor cl 3.5 (extracted above) was in the Settlement Documents.

23. On 22 March 2023, the second day of the hearing, the Settlement Deed (in its final form) was executed. The new Commercial Terms were annexure A to the Settlement Deed and the new Supply Terms were annexure B.

24. As a consequence of the Settlement Deed, the Initial Proceedings were resolved and, on 23 March 2023, Black J made the following orders by consent:

“1.   The proceedings be dismissed.

2.   No order as to costs with the intent that each party bear their own costs.

3.   Vacate any existing costs orders.”

The Settlement Documents

25. The clauses in the Settlement Documents which are relevant to the issue of construction that arises in this Court are as follows.

26. The recitals to the Settlement Deed, which appear under the subheading “Introduction”, provide:

“A.   On 12 April 2018, Alfa Laval issued a quotation addressed to Sanmik Natural Food and titled “AUMEPCOL-830-REV D Final” (Offer).

B.    The Offer was for the supply of a specialised, custom-designed plant, by Alfa Laval, for the production of sterilised coconut milk consisting of two plants which were designed for installation in Sri Lanka (First UHT Plant) and the Philippines (Second UHT Plant).

C.    The Offer was capable of acceptance by way of a purchase order issued to Alfa Laval.

D.    On 12 April 2018, Sanmik Food issued a purchase order to Alfa Laval accepting the terms of the Offer (First Purchase Order). Accordingly, a contract was formed between Alfa Laval and Sanmik Food (or, alternatively, Sanmik Natural Food) (Contract).

E.    On 12 June 2018, Alfa Laval and Sanmik Food (or alternatively, Sanmik Natural Food) agreed to vary the design of the Second UHT Plant to increase its capacity.

F.    On 13 June 2018, Sanmik Food issued a further purchase order to Alfa Laval confirming the increased capacity and purchase price for the Second UHT Plant (Second Purchase Order).

G.    On 29 July 2021, after a dispute arose between the parties, Alfa Laval commenced proceedings 2021/00216536 in the Supreme Court of New South Wales (the Proceedings).

H   Without any admissions of liability in any respect, and on the grounds set out in this deed, the parties have agreed to settle all claims and disputes between them which were the subject of, or in any way related to:

(a)   the Proceedings (including any claims made for interest and costs);

(b)   the Offer, the First Purchase Order and the Second Purchase Order;

(c)   the Contract (and any variation or amendment, or alleged variation or alleged amendment to it);

(d)   the supply of the First UHT Plant and the Second UHT Plant;

(e)   payment for the supply of the First UHT Plant and the Second UHT Plant; and

(f)   Losses (as defined below in this deed) allegedly suffered by each of the parties arising or resulting from or connected with the circumstances or allegations giving rise to, or referred to in, or which were at any time the subject of, the Proceedings.

together, the Settled Matters.”

I   The parties as part of the settlement of the Settled Matters have agreed to enter into a new supply contract on the Supply Terms set out in this deed with payment for the Supply Terms being secured by a bank guarantee (Security) issued by an Australian Bank on terms otherwise set out in the Supply Terms and the Commercial Terms annexed to this deed.”

27. In clause 1.2(b) of the Settlement Deed, under the subheading “Interpretation”, “Claim” is defined as follows:

“Claim includes any claim, action, or liability of any kind (including one which is prospective or contingent and one the amount of which is not ascertained) and costs (whether or not the subject of a court order) in any jurisdiction.”

28. Clauses 2.1-2.4, entitled “Terms of Settlement” provide:

“2.1   In accordance with the terms of this deed and in consideration of the releases provided in this deed, Alfa Laval, Sanmik Food and Sanmik Natural Food agree:

(a)   to immediately enter into the Commercial Terms and Supply Terms for a new supply that is independent of the previous Contract in the form annexed to this deed;

(b)   to perform each of their obligations under the Commercial Terms and Supply Terms; and

(c)   that nothing in this in this deed relieves either party of any obligation under the Commercial Terms or Supply Terms.

2.2   In the event that Security for Plant 1, as defined at clause 5.1 of the Commercial Terms, is not provided within 60 days of the date of this deed, then:

(a)   Sanmik Food and Sanmik Natural Food will be jointly and severally liable to pay an amount of $1,900,000 AUD to Alfa Laval;

(b)   Alfa Laval will be relieved of the entirety of its obligations under the Commercial Terms and Supply Terms including any obligation to supply Plant 1 and Plant 2; and

(c)   Sanmik Food and Sanmik Natural Food will be relieved of the entirety of their obligations under the Commercial Terms and Supply Terms including any further payment obligations.

2.3   The amount specified in clause 2.2(a) is a liquidated amount which is a genuine pre-estimate of the amount that Alfa Laval would have been entitled to receive if this deed had not been entered into and the releases given.

2.4   By this deed, each of Alfa Laval, Sanmik Natural Food and Sanmik Food agree to do all things necessary to procure the termination of the Proceedings with no order as to costs, including by signing and filing a Notice of Discontinuance.”

29. Clause 3 is titled “Release”. Relevantly, cl 3.2 is in the following terms:

“On and from the execution of this deed, Alfa Laval:

(a)   agrees that the Contract (and any alleged variation or amendment to it) has been terminated and that the parties have no further obligations in respect of the Contract or any alleged variation or amendment to it;

(b)   releases and forever discharges Sanmik Natural Food and Sanmik Food (including their officers, employees and agents) from all Claims and actions arising from or in connection with the Settled Matters;

…”

The Commercial Terms

30. Annexure A to the Settlement Deed is the Commercial Terms. In cl 1.1 of those terms, “Plant 1” and “Plant 2” are defined as follows:

“(e)   Plant 1 means the plant meeting the specification set out in the Supply Terms and to be delivered to the Sri Lanka Site.

(f)   Plant 2 means the plant meeting the specification set out in the Supply Terms and to be delivered to the Philippines Site.”

31. The “Sri Lanka Site” is defined in cl 1.1 as “the site located at 1D Nalapaha, Dibulapitiya Sri Lanka”, being the location of the purchaser’s warehouse in Sri Lanka.

32. Clause 2 of the Commercial Terms is titled “Plant Specification” and sets out the specification of Plant 1 and Plant 2 as follows:

“2.1   The specification for Plant 1 is set out in the Supply Terms.

2.2    The specification for Plant 2 is the same as Plant 1 with any required modifications to be treated as a permissible variation that can be made at cost.”

33. Clause 3 of the Commercial Terms states the delivery time for Plant 1 and Plant 2:

“3.1    The delivery time for Plant 1 to Colombo on a CIF basis is between 12 and 30 weeks from supply of the Security for Plant 1. The Supplier shall take all reasonable steps to reduce the delivery time to as low as 12 weeks.

3.2    The delivery time for Plant 2 to Davao is no greater than 60 weeks on a CIF basis from the supply of the Security for Plant 2.”

34. The price payable for Plant 1 and Plant 2 is set out in cl 4 of the Commercial Terms as:

“4.1   The Price payable for Plant 1 is 1,800,000 AUD (GST exclusive).

4.2    The Price payable for Plant 2 is 1,000,000 AUD (GST exclusive).

4.3    The Price of the Plant is inclusive of:

(a)    All shipping and CIF costs for the Plant;

(b)   successful commissioning of each Plant; and

(c)    28-man days of commissioning labour (2 people x 14 days) for each Plant.

4.4    Any payments made prior to this agreement being reached are not to be taken into account or treated as part payment of the Price for Plant 1 or Plant 2.”

35. Neither party sought to rely on the price differential between the purchase price for the two plants in the Initial Contract or in the Commercial Terms in support of its construction of the Settlement Deed, it being accepted that, as the agreements which comprise the Settlement Documents were entered into to resolve the Initial Proceedings, it was a matter for the parties to structure the amount and allocation of the price, which might be influenced by factors other than the objective value of each plant, such as expenditure for costs in the Initial Proceedings.

The Supply Terms

36. Annexure B to the Settlement Deed is the Supply Terms, which set out the specifications for the two plants to be provided, including their components, production capacity and composition. For example, the “Aseptic Homogenizer” component, which is to be supplied by Bertoli (a third party supplier), was listed as having a capacity of 6000L/hr.

37. Under the heading “PRICES & COMMERCIAL CONDITIONS”, the Supply Terms lists the following pieces of equipment:

“A. STERITHERM UHT OSI - 6000 with homogenizer

B. START-UP & COMMISSIONING (14 days) - ONE UNITS*

C. TRAINING (5 days) - ONE UNITS*

D. 20.000 LITRES STERITANK - ONE UNITS

E. DOUBLE HEAD FILLER CAF-2H/1 - ONE UNITS”.

38. Under the heading “Equipment Warranty” (which is relevant to the notice of contention), the Supply Terms provide:

“The Equipment is made up of equipment ordered under previous now terminated contracts. To the extent that warranties remain in force from the parties that supplied the Equipment to the Seller then the Buyer is entitled to the benefit of those warranties.

The Seller shall repair or replace any part of the Equipment needed to meet the Performance Warranty and to achieve Take Over. This is the Buyer's sole and exclusive remedy for the Equipment that does not meet the mechanical warranty.

…”

39. Finally, the “Reservation of Ownership / Insurance” provision of the Supply Terms provides:

“Ownership of the equipment/module to be delivered shall pass to the Purchaser only upon receipt of the full purchase price by the Seller. Moreover, until that date, the Purchaser will keep the equipment/module insured against all risks, in particular fire for an amount at least corresponding to the agreed purchase price.”

40. None of the Settlement Documents expressly provides for what was to be made of the homogeniser and filler already supplied to the purchaser under the Initial Contract in 2019, and whether these components were capable of being used in the performance of the vendor’s obligation under the Settlement Documents to provide two plants.

The proceedings in the Court below

41. On 9 February 2024, the purchaser commenced proceedings in the Commercial List by filing a Summons and Commercial List Statement, seeking declaratory relief in relation to the Settlement Documents, including that on their proper construction, the vendor is not entitled to use the homogeniser and filler which it had supplied to the purchaser pursuant to the Initial Contract to discharge its obligation to supply two plants under the Settlement Documents. It also sought an order that the vendor specifically perform the Settlement Documents.

42. On 28 March 2024, the vendor filed a Cross-Summons and a Commercial List Cross-Claim Statement which included the following allegations (which remained in its amended statement filed on 3 May 2024):

“Ownership of Homogenizer and Filler

14    During September 2019, the [vendor] delivered the Homogenizer and Filler to the [purchaser] pursuant to the Contract pleaded in paragraph 8(c) of the [purchaser’s] List Statement.

15    It was a term of the Contract that ownership of the equipment to be supplied under the Contract would only pass to the [purchaser] upon receipt of the full purchase price by the [vendor].

…

16    The ownership of the Homogenizer and Filler remained with the [vendor] following their delivery.

17    On 24 August 2022 the [vendor’s] lawyers sent a letter to the lawyers for the [purchaser] giving notice of the termination of the Contract.

18    On 22 March 2023, the [vendor] and [purchaser] entered into the following documents:

a. Deed of Settlement and Release (Settlement Deed);

b. Commercial Terms at Annexure A to the Settlement Deed; and

c. Supply Terms at Annexure B to the Settlement Deed.

(together, the Settlement Documents).

19    Neither the termination of the Contract on 24 August 2022 or the entry into the Settlement Documents had the effect of transferring ownership of the either the Homogenizer or the Filler from the [vendor] to the [purchaser].

Bailment

20    By reason of the matters pleaded at paragraphs 14 to 15, the [purchaser was] to hold the Homogenizer and Filler as bailee for the [vendor] until the full purchase price under the Contract was paid.”

43. On 16 April 2024, Ball J made orders for the separate determination of all issues raised by specified paragraphs of the pleadings filed which, in effect, required the separate determination of the question whether the vendor was entitled in its performance of its obligation to supply plant under the Settlement Documents to rely on its earlier supply of a homogeniser and filler to the purchaser. The primary judge heard the separate question on 16 and 17 May 2024 and delivered judgment on 7 June 2024: Sanmik Food Pvt Ltd v Alfa Laval Australia Pty Ltd; Alfa Laval Australia Pty Ltd v Sanmik Food Pvt Ltd [2024] NSWSC 698. His Honour made orders giving effect to those reasons on 21 June 2024.

The primary judge’s reasons

Overview

44. The primary judge preferred the vendor’s construction of the Settlement Documents, concluding that:

1. “the objective circumstances known to the parties when they entered the Settlement Documents, taken alone, suggest that the parties intended that the Homogenizer and Filler would stand as part of the supply by the Vendor under the ‘new’ arrangement” (at [163]);

2. “it was the Vendor’s subjective intention that…it did not have to deliver a further homogenizer and filler” to the purchaser under the Settlement Documents (at [165]);

3. “the effect of the releases was that the Vendor did not surrender title to the Homogenizer and Filler” (at [165]); and

4. “at the date of the Settlement Documents the Vendor remained the owner of the Homogenizer and Filler” (at [166]).

The releases

45. It was common ground that the primary judge did not address cl 3.2(a) of the Settlement Deed in his reasons for judgment (despite coming to a conclusion about the effect of “the releases”) but that this Court ought address the clause as it was sufficiently raised by the purchaser in the Court below.

46. The primary judge’s conclusion that the releases were “not themselves effective to release the Purchaser from the Vendor’s title in the Homogenizer and Filler” was based only on his consideration of cl 3.2(b) of the Settlement Deed.

47. His Honour reasoned as follows (footnotes omitted):

“101   The subject of the releases is, at their heart, the ‘claims and disputes between’ the parties in any way related to the nominated matters.

102   Mr Lawrance submitted that these words should, as a matter of law, be construed narrowly and as referring only to claims currently agitated between the parties and to disputes currently active ‘between’ the parties as at the date of the Settlement Documents. As Mr Lawrance submitted, there was no dispute between the parties about the Vendor’s title to the Homogenizer and Filler.

103   Mr Lawrance’s submission involves reading the expression ‘claims and disputes between them’ distributively as if the words used were ‘claims between them and disputes between them’. Thus, in oral submissions, Mr Lawrance put it this way:

‘Recital H I think I recall correctly, claims and disputes between them. Now in my submission it is not a sensible meaning to give to those words to treat an undisputed claim to ownership as a claim between the parties.’ (Emphasis added)

104   This is an available reading of the words as a matter of law.

105   An alternative reading of these words is that the subject of the release is ‘claims’ related to the nominated matters and ‘disputes between’ the parties about those matters. In that regard, Ms Horvath and Mr Jameson pointed to the fact that the releases are expressed to be in relation to any ‘claim’ that was ‘in any way related to’ the Earlier Proceedings.

106   But to read the release as Ms Horvath and Mr Jameson submitted would have the effect that the general words ‘claims and disputes between them’ would capture the Vendor’s ‘claim’ to title in the Homogenizer and Filler. But there was no dispute ‘between’ the parties about this. To read the release this way would allow ‘the general words of [the] release [to be used by the Purchaser] as a means of escaping the fulfilment of obligations falling outside the true purpose of the transaction as ascertained from the nature of the instrument and the surrounding circumstances’; including each party’s acceptance as to where title in the Homogenizer and Filler lay and the Vendor’s “actual intention” that those two pieces of equipment be taken into account as part of the Vendor’s obligations under the Settlement Documents.

107   This is sufficient to warrant the intervention of equity to read the release as I have set out at [102] to [104] above so that it does not release the Purchaser from the Vendor’s claim to title in the Homogenizer and Filler.

108   It is not necessary for this purpose for the Vendor to show that it would be unconscientious of the Purchaser to rely on the construction of the release for which it contends.

109   For those reasons my conclusion is that, on its proper construction, the releases were not themselves effective to release the Purchaser from the Vendor’s title in the Homogenizer and Filler.

110   It follows that, contrary to the Purchaser’s submission, title to the Homogenizer and Filler did not pass to it ‘when the Settlement Documents were entered into’. That could only have happened by reason of the releases; and they do not do this work.

111   By reason of the reservation of title clause in the Supply Terms, title would only pass on receipt by the Vendor ‘of the full purchase price’.

112   These matters leave open the critical question of whether the Vendor’s earlier delivery of the Homogenizer and Filler should stand as performance of its obligations under the Settlement Documents so far as concerns the homogenizer and filler to be supplied as part of Plant 1.

113   But absent evidence of a contrary intention manifested in other provisions of the Settlement Documents, if must follow that, because as at the date of the Settlement Documents the Vendor remained the owner of the Homogenizer and Filler, the parties intended that the delivery of these two items of equipment be taken as performance by the Vendor of its obligation to deliver an homogenizer and filler as part of Plant 1.”

A “new supply”

48. His Honour regarded the reference in cl 2.1(a) of the Settlement Deed to a “new supply” and the reference to “independent” as neutral and as not shedding any light on the parties’ intentions concerning the homogeniser and the filler ([119]-[120]).

49. Although the primary judge accepted that the phrase “to be delivered” in the definitions of Plant 1 and Plant 2 in the Commercial Terms was “arguably consistent with the [p]urchaser’s case that no part of Plant 1 had yet been delivered” ([131]), his Honour considered that the definitions of Plant 1 and Plant 2 indicated no more than that each plant must meet the stated specification. On this basis, the primary judge did not regard cl 2.1(a) as “compelling a different conclusion” to the one to which his Honour had already come ([132]-[134]).

The equipment warranty

50. In relation to the equipment warranty contained in the Supply Terms (see above), the primary judge concluded:

“155   The better view is that the parties intended the reference to the ‘previous now terminated contracts’ to be a reference to the Vendor’s subcontracts, and not to the Initial Contract.

…

161   … It amounts to no more than a statement that the Equipment, that is, relevantly, Plant 1, was made up of components, including but not limited to the Homogenizer and Filler, that the Vendor had ordered from its suppliers.

162   This may be consistent with the Vendor’s case that the parties intended that the Homogenizer and Filler would be part of the supply under the Settlement Documents. But it does not itself establish that proposition. It is neutral on the vital question.”

Grounds of appeal

51. The purchaser appeals on the following grounds:

“1.   The primary judge erred at J[101]-[113] in finding that the releases in cl 3 of the Settlement Deed did not release the respondent’s claim to title to the Homogeniser and Filler. The primary judge:

(a)    ought to have considered and construed the release in clause cl 3.2(a) of the Settlement Deed and concluded that upon entry into Settlement Deed each of the appellant and respondent had no further obligations under the Initial Contract which had the effect that the respondent no longer had any claim to title to the Homogeniser and Filler;

(b)    further or alternatively, ought to have construed the release in cl 3.2(b) of the Settlement Deed and concluded that the respondent's claim to title to the Homogeniser and Filler arose from or was connected with a Settled Matter.

2    Further or alternatively to ground 1, in concluding that the respondent was able to use the Homogeniser and Filler supplied under the Initial Contract as part of the supply under the Settlement Documents, the primary judge erred in failing to construe the Settlement Documents as a whole. In particular the primary judge erred:

(a)   by holding that cl 2.1(a) of the Settlement Deed, which provided that the supply under the Settlement Documents was a ‘new and independent’ supply, was neutral on the question of the proper construction of the Settlement Documents (see J[120]);

(b)    by holding that the words ‘to be delivered’ in the definitions of Plant 1 and Plant 2 were directed to the question of where the components of Plant 1 and Plant 2 were to be delivered rather than a future supply ( see J[132]); and

(c)    by finding that the definitions of Plant 1 and Plant 2 did not require Plant 1 and Plant 2 to meet the specifications in the Supply Terms at the time of delivery (see J[133]).”

Applicable principles

Construction of the Settlement Documents generally

52. The broad question of construction in the Court below and in this Court was whether:

1. as the vendor contended and the primary judge found, the vendor was entitled to rely on its delivery of the homogeniser and the filler to the purchaser’s warehouse in Sri Lanka pursuant to the Initial Contract as amounting to performance of its promise under the Settlement Documents to deliver Plant 1 to Sri Lanka (of which the homogeniser and filler were component parts); or

2. as the purchaser contended, the Settlement Documents require the vendor to deliver another homogeniser and filler to the purchaser’s warehouse in Sri Lanka.

53. The construction of the Settlement Documents for which the purchaser contended depends on the following independent propositions (the first of which was not considered by the primary judge, and the second and third of which were rejected). Those are that the homogeniser and the filler which the vendor had delivered to Sri Lanka could not be used to discharge the vendor’s obligation to deliver Plant 1 because:

1. the vendor’s title to these components was no longer enforceable by reason of cl 3.2(a) of the Settlement Deed (appeal ground 1(a)); or

2. clause 3.2(b) was effective to release the purchaser from any claim to title by the vendor with respect to the homogeniser and the filler (appeal ground 1(b)); or

3. on their proper construction, the Settlement Documents provide for a new supply of two plants, which is necessarily unrelated to the earlier supply (appeal ground 2).

54. To answer this question, this Court is obliged to construe the Settlement Documents in such a way as to give effect to the parties’ objective intention, as expressed in the words selected by them for that purpose.

55. Although some reference was made by the parties in their respective submissions to “common sense” and a “business-like” construction, I understood it to be, ultimately, common ground that this Court ought not presume to appreciate the applicable commercial considerations which motivated the parties to enter into the Initial Contract or the Settlement Documents since such considerations were not only not disclosed by the evidence but also any attempt to work them out would be speculative at best: for a discussion of the perils of judicial imposition of “commerciality” when construing an agreement, see Donau Pty Ltd v ASC AWD Shipbuilder Pty Ltd (2019) 101 NSWLR 679; [2019] NSWCA 185 at [58] (Bell P, Basten JA agreeing).

56. It was also ultimately common ground that the Court ought not have regard to the pre-contractual communications between the parties other than to divine their subjective intention for the purposes of determining whether to read down the release in cl 3.2(b) on the basis of the equitable principle articulated in Grant v John Grant & Sons Proprietary Limited (1954) 91 CLR 112; [1954] HCA 23 (Grant) (see below) and that these documents were not to be used as part of the Codelfa matrix (after Codelfa Construction Proprietary Limited v State Rail Authority of New South Wales (1982) 149 CLR 337; [1982] HCA 24) to construe the Settlement Documents at law.

Construction of the releases in cl 3.2 of the Settlement Deed

57. The releases in cl 3.2 of the Settlement Deed must be construed by reference to the following three principles expressed in Grant, the first two of which are principles of the common law and the third of which derives from equity:

1. “the general words of a release should be restrained by the particular occasion … the particular recital [and] ‘[i]f there be introductory matter, that will qualify the general words of the release’” (at 123, omitting citations and footnotes);

2. “[t]he general words in a release are limited always to that thing or those things which were specially in the contemplation of the parties at the time when the release was given; [that is] the general words of a release may be limited by the particular matter out of which the release springs and the particular intent of the parties by whom the release is executed” (at 123-124, omitting citations and footnotes); and

3. equity will intervene to restrain unconscientious reliance on the terms of a general release, by confining general words to the “particular occasion” in the contemplation of the parties at the time the release was entered into, and not construing the release as applying to something of which the parties were ignorant at the time of its execution (at 126).

58. It appeared to be common ground in this Court that the correct approach to be taken, when considering the releases in cl 3.2 of the Settlement Deed, was, first, to construe the clause as a matter of law to determine whether it is broad enough to cover the vendor’s claim (as submitted by the purchaser), having regard to (1) and (2) of Grant above; and, if so, determine whether equity would read down the release in accordance with the approach in Grant.

59. The primary judge did not follow this approach when constructing cl 3.2(b) (see the extract from [101]-[113] of his Honour’s reasons extracted above), preferring instead to address whether equity would intervene before the question of construction had been determined. It is a matter for this Court now to construe cl 3.2(a) and cl 3.2(b) in accordance with Grant.

60. There is a degree of overlap between the legal principles of construction of releases and the basis for equitable intervention as is apparent from the following passage from Grant at 125:

“From a very early time the Court of Chancery applied its special doctrines to the unconscientious reliance upon the general words of a release. In his Historical Sketch of the Equitable Jurisdiction of the Court of Chancery, at p. 246, Sir Duncan Kerly said: ‘The peculiar construction of releases in equity, which restricts their operation to matters within the contemplation of the parties, rests also partly on mistake of expression, and partly on mistake going to the substance of the transaction. This construction accorded with principles settled before the present period, and was, in fact, a development of the rule that words are to be understood secundum subjectam materiam, for ‘the chief and governing rule of construction is drawn from the end or cause’.’ He refers to “A Treatise on Equity”, published anonymously in 1737, which Sir William Holdsworth attributed to Henry Ballow (see History of English Law, vol. 12, p. 191) and quotes the following: “General words in a release of all demands, or the like, shall be restrained by the particular occasion, and shall be intended only of all demands concerning the thing released.”: see Fonblanque’s Fifth Ed. of the Treatise, p. 440. Story in his Equity Jurisprudence, s. 145, said simply that the court restrains the instrument to the purposes of the bargain and confines the release to the right intended to be released or extinguished.”

(Emphasis added.)

61. The authorities establish that where the parties to a release did not appreciate, at the time the release was agreed, that there was a claim of the nature ultimately pressed, equity may intervene to read down the release so as not to cover that claim: see, for example, Burness v Hill [2019] VSCA 94. The basis for the reading down is that the claim pressed goes beyond the “particular occasion” (which is why the parties were unaware of it at the time of the release).

62. These principles were confirmed by this Court in Protheroe v Protheroe [2023] NSWCA 328 (Protheroe) at [36]-[40] and [54], although in that case the release was held, as a matter of construction, not to cover the specific claim. The release in that case was worded in slightly narrower terms than cl 3.2(b) in that it released the parties from “all Claims … in connection with or arising out of” the matters alleged in the proceedings, involving the National Australia Bank and borrowers, and the matters set out in the statement of agreed facts, which this Court considered limited the release to “matters happening as between the bank and the borrower parties” (at [55]). The question was whether there had been a release of a claim for proprietary estoppel, as between two of the borrowers, concerning one of the properties which was mortgaged in favour of the bank, in circumstances where there was no issue about the ownership of the property at the time the release was granted. This Court found, as a matter of construction, that there was no reason in the text of the deed of release between the bank and the borrowers, or the surrounding circumstances to read the release as “saying anything about any beneficial interests held or claimed” with respect to the properties or the mortgage to the bank ([55]).

Consideration

Ground 1(a) – the effect of cl 3.2(a) of the Settlement Deed

63. In support of ground 1(a), Mr Sulan SC, who appeared with Mr Jameson for the purchaser, submitted that the effect of cl 3.2(a) of the Settlement Deed was that there ceased to be, from the date of its execution, any further obligations under the Initial Contract, from which it followed that the vendor no longer had any claim to title to the homogeniser and filler which it had delivered to the purchaser’s warehouse in Sri Lanka. He identified the relevant obligation (which arose from the Initial Contract) as the purchaser’s obligation “to hold [the homogeniser and filler] as bailee until the full purchase price was paid”, an obligation which flowed from the retention of title clause. Mr Sulan relied on the fact that the existence of a bailment was asserted by the vendor in its Further Amended Commercial List Cross-Claim Statement. Mr Sulan submitted that because the vendor’s title derived from the reservation of title clause in the Initial Contract, if its claim to title was disputed, it could not enforce the Initial Contract against the purchaser, because the effect of cl 3.2(a) was that the vendor lost the right to assert its entitlement to have the homogeniser and filler returned.

64. Mr Sulan submitted that if cl 3.2(a) was not read as releasing the purchaser from the vendor’s claim of ownership to the homogeniser and filler supplied to Sri Lanka, a stalemate would arise, which tended against an alternate construction. The situation would be that:

1. the vendor would retain title to those components (the full purchase price under the Initial Contract not having been paid, or payable, since the contract was terminated); and

2. although the purchaser was in possession of those components, it could not sell them because it did not have title.

65. If the purchaser’s construction of cl 3.2(a) was accepted, Mr Sulan submitted the purchaser could use or sell the homogeniser and filler which had been supplied under the Initial Contract because its possessory title could no longer be defeated by the vendor.

66. Further, Mr Sulan submitted that his construction was consistent with the textual considerations (addressed in relation to ground 2) which led to the conclusion that the vendor was obliged to supply another homogeniser and filler to the purchaser in Sri Lanka and could not rely on the ones it had already supplied under the Initial Contract.

67. He also submitted that the Grant equitable principle has no application in respect of cl 3.2(a) because it is a specific release, not a general one. Accordingly, Mr Sulan submitted the proper approach is to construe it at law only.

68. Mr Lawrance submitted that cl 3.2(a) was only included in the Settlement Deed to make clear that the vendor’s termination of the Initial Contract was lawful and effective (this having been disputed by the purchaser in the Initial Proceedings, as referred to above) and that future obligations under the Initial Contract had been discharged.

69. He also submitted that, at the time of entry into the Settlement Documents, there was no issue between the parties about title to or what use should be made of the homogeniser and filler already delivered, and that it would be erroneous to construe cl 3.2(a) as being intended to release a matter which was not the occasion for the instrument (to borrow the expression used in Grant). He relied on Protheroe at [54] as a reason not to construe cl 3.2(a) beyond the effect he sought to give it, submitting that the clause was limited by Recital H, which does not “refer to any dispute between the parties about the homogeniser and filler”. He accepted, however, that Recital H was broader than the relevant recital in Protheroe.

70. Mr Lawrance further submitted that the stalemate postulated by Mr Sulan was not a true stalemate and that the position as to title ought be analysed by reference to three periods: first, up until the execution of the Settlement Deed, the vendor had title to the homogeniser and filler and the purchaser was in possession; second, between execution of the Settlement Deed and full payment for Plant 1, pursuant to the Settlement Documents, title would remain with the vendor because of the retention of title clause in the Supply Terms (extracted above); and, third, on full payment for Plant 1, title would pass to the purchaser.

71. In response to Mr Sulan’s submission that the obligation of the purchaser which ceased by virtue of cl 3.2(a) was its obligations as bailee, Mr Lawrance submitted that because any bailment arose only at law and not pursuant to the Initial Contract, it could not amount to an obligation in respect of that contract and is therefore not covered by cl 3.2(a).

72. I do not consider that cl 3.2(a) ought be read as narrowly as Mr Lawrance contended and prefer Mr Sulan’s construction of the provision. Mr Lawrance’s postulated resolution of the stalemate is circular since it presupposes that the components already delivered can be used in discharge of the vendor’s performance of the Settlement Documents.

73. I accept Mr Sulan’s submission that the purchaser’s obligation which arises from the Initial Contract, as bailee of the homogeniser and filler until the purchase price was paid in full, is an obligation covered by cl 3.2(a) and one which plainly falls within “the occasion” for the Settlement Deed.

74. The effects of cl 3.2(a) include the following. First, the purchaser no longer has any obligation under the Initial Contract to pay for the homogeniser and filler already delivered. Secondly, although the purchaser can never obtain good title to either of these components in the way contemplated by the Initial Contract (by paying the vendor in full), the vendor cannot enforce the rights of ownership of the homogeniser and filler conferred by the retention of title clause in the Initial Contract by requiring their return, seeking damages for conversion or enforcing the bailment. Thus, the purchaser has, by reason of its possession of these items, a better title to them than the vendor. In these circumstances, the vendor cannot use these components to perform its obligations under the Settlement Documents.

75. Accordingly, I consider that ground 1(a) has been made out.

Ground 1(b) – the effect of cl 3.2(b) of the Settlement Deed

76. Further, and in the alternative to ground 1(a), the purchaser submitted that the vendor’s claim to title to the homogeniser and filler which had earlier been delivered to Sri Lanka arose from, or was connected with, a “Settled Matter” and was thereby covered by the release in cl 3.2(b) of the Settlement Deed.

Construction of cl 3.2(b)

77. Mr Sulan submitted that cl 3.2(b) covered the vendor’s claim of title to, or ownership of, the components already delivered because the supply of equipment for the first plant was included in the definition of “Settled Matters” (Recital H(d) of the Deed of Settlement). He relied on the undoubted width of the definition of “Settled Matters”, including that the word “claims” in the prefatory words (“claims and disputes…the subject of, or in any way related to…the supply of the [first plant]”) is a common noun, to be distinguished from “Claim”, as defined in cl 1.2(b) of the Settlement Deed. He submitted that the obvious and expressed intention of the parties was not to limit the meaning of “claims” to “litigation or a dispute that had developed” but to require the claim be related to the Settled Matters, and thus, that the release was broad enough to capture any claim to title by the vendor from the date of the Settlement Deed. Mr Sulan also relied on the vendor’s submissions in support of its damages claim in the Initial Proceedings as supporting this construction (by indicating the ambit of the parties’ dispute at that time).

78. Although Mr Sulan accepted that, as at the date of the Settlement Deed, there was no specific, formulated dispute between the parties about that question, he submitted that the issue of ownership, in circumstances where the purchaser was in possession of components for which it was no longer liable to pay but to which the vendor had, at least until the Settlement Deed was executed, title under a (purportedly) terminated contract, was inevitably, and obviously, contentious.

79. Mr Lawrance submitted that the vendor’s claim to title to the components did not fall within the “Settled Matters”. He identified two available meanings of the word “claim”: first, as a synonym for demand; and, second, as meaning a right or title (being a right of ownership) to something and submitted that only the first was apposite in Recital H and the definition of “Claim” in cl 3.2(b). He pointed to the context in which “claims” appears in Recital H – “the parties have agreed to settle all claims and disputes between them …” – and submitted that the expression “claims and disputes” is a compound expression like “loss and damage” or “pain and suffering” where the two nouns have a similar meaning and one does not expand the meaning of the other but rather takes its colour from the other. On this basis, Mr Lawrance submitted that the use of “claims” in this context and the use of the word “settle” support his contention that the word means demand, rather than a right or title.

77. Mr Lawrance also submitted that the word “Claim” in cl 3.2(b) was similarly limited because “Claim” was defined in such a way (“claim, action or liability of any kind”) as to connote a dispute, albeit one which could be “prospective or contingent”, that being the common thread between those words: Lend Lease Real Estate Investments Ltd v GPT RE Ltd [2006] NSWCA 207 at [30] (Spigelman CJ, McColl and Basten JJA agreeing). Further, he relied on the words “Claims and actions” in cl 3.2(b) as providing support for the first meaning, rather than the second.

78. Mr Lawrance submitted that as there was no issue in the Initial Proceedings (including at the date of the Settlement Documents) about the status of the homogeniser and filler which had been delivered to Sri Lanka, since the vendor’s allegations of breach against the purchaser were confined to other matters (tr 23), there was no claim (in the sense of a demand) as to ownership because it was common ground that the vendor retained title to both of these components by reason of the retention of title clause in the Initial Contract. He relied on evidence filed by the purchaser in the Initial Proceedings as indicating its position as at the time of the Settlement Deed, including paragraph 104 of the affidavit of Pathmalal Withanage affirmed on 4 February 2022, which said:

“In September 2019, the filler and homogeniser for Plant 1 were shipped to the factory of Sanmik in Sri Lanka, where they are currently being stored and unable to be used without the remainder of the plant. The filler and homogeniser for Plant 2 has not been shipped.”

82. Mr Lawrance sought to explain this evidence as going to the fact that the purchaser had not benefitted from its possession of the homogeniser and filler, rather than as demonstrating an issue in the Initial Proceedings about them.

83. Mr Lawrance submitted as there was no demand, either made or contemplated, by the purchaser to ownership of the homogeniser and filler prior to the execution of the Settlement Documents, the words in cl 3.2(b) did not cover the claim and that, accordingly, the release did not, as a matter of construction, apply.

84. He further submitted that the vendor’s claim for damages for wasted expenditure in the Initial Proceedings, which related to the items which had been delivered as well as those which had been sourced, did not involve any acceptance that it had lost title to these components or that its title was in issue and relied on the absence of a claim in damages for conversion in support of the submission that there was no issue about title to these items prior to the execution of the Settlement Documents.

85. The vendor’s claim in the Initial Proceedings for the whole cost of these components (but not for return of the components) as wasted expenditure indicates that this was a matter in issue between them, including because the vendor apparently regarded the components which it had delivered to Sri Lanka as of no use to it (otherwise it presumably would have sought to have them returned). Clause 3.2(b), when read with Recital H is significantly broader than the corresponding clause considered in Protheroe.

86. It was common ground that the vendor retained title to these components until the execution of the Settlement Documents, by reason of the retention of title clause in the Initial Contract. However, there was a real issue between the parties, at the time of execution of the Settlement Documents, as to the effect of the purchaser’s possession of the components once the Initial Contract was agreed to have been validly terminated (thereby depriving the purchaser of the ability to ever obtain good title under that contract) and, thus, whether the vendor was entitled, or not, to use the components already supplied as part-performance of obligations which the Settlement Documents expressed as future obligations to deliver plant to the purchaser. This issue was, metaphorically, the elephant in the room in that it presented an obvious problem or difficult situation for which the parties failed to make express provision, not because it was not an issue, but perhaps because each wanted to retain the hope that their respective subjective intention would prevail in any litigated contest.

87. There is considerable force in Mr Lawrance’s submission that the word “claim”, including as incorporated in the definition of “Claim” and in Recital H in the Settlement Deed, connotes some kind of dispute or contentious issue between the parties, rather than a claim of right in the abstract. However, I accept Mr Sulan’s submission that the vendor’s claim of title to the homogeniser and the filler in Sri Lanka falls within this category not only because it is a claim about a “Settled Matter”, being a claim about the supply of plant within Recital H(d), but because it was a matter which, albeit not expressly raised by the pleadings in the Initial Proceedings, was unresolved and about which the parties were plainly at cross-purposes.

88. For these reasons, I consider that the release in cl 3.2(b) covers the vendor’s claim to ownership of the components of the plant it delivered to the purchaser in Sri Lanka and the associated dispute as to that matter.

Whether equity will intervene to read down the release

89. Protheroe and other similar cases concerning releases to which this Court was referred, such as Reid v Commonwealth Bank of Australia (2022) 109 NSWLR 149; [2022] NSWCA 134 and Torrens Aloha Pty Ltd v Citibank NA (1997) 72 FCR 581, demonstrate that a release in the form of cl 3.2(b), which applies to “Claims” in connection with certain matters, is capable of attracting the principles in Grant because of its breadth.

90. For the reasons given above, the claim sought to be released fell within the express contemplation of the parties (in Recital H(d)) because there was a real issue between the parties as to the vendor’s title to the components which had been delivered to the purchaser and were therefore in its possession.

91. Taking into account the negotiations preceding execution of the Settlement Documents (as I am entitled to do for this purpose only), the inclusion of cll 1.3 and 3.5 in the draft settlement documents indicated that both parties appreciated that there was an issue about the status of the homogeniser and filler which had been supplied to the purchaser under the Initial Contract. The removal of these clauses from the Settlement Deed neither resolved nor removed the issue. Rather, the removal of cl 1.3 made it almost inevitable that the Settlement Documents would require judicial interpretation. To the extent to which Mr Lawrance sought to explain the removal of cl 3.1 by reference to the inclusion of the Equipment Warranty (which he submitted contemplates the “recycling” of items), I do not consider that this serves to make the status of the homogeniser and filler any less an issue between the parties.

92. Mr Lawrance also relied on the primary judge’s unchallenged finding at [165](a) that it was the vendor’s intention that the homogeniser and the filler could be used to discharge its obligations under the Settlement Documents in support of a submission that only the subjective intention of the releasor, in this case, the vendor, was relevant to the intervention of equity in this context (relying on Reid v Commonwealth Bank of Australia at [81] (Leeming JA), referring to Burness v Hill at [81]). Even assuming this rather surprising submission to be correct, the vendor’s subjective intention (as found by the primary judge) constituted no more than a hope or aspiration that its preferred construction would prevail. The compelling inference from the pre-contractual negotiations is that the vendor’s attempt to insert cl 1.3 was rejected by the purchaser and the vendor preferred to conclude the agreement in a Delphic form rather than press the point.

93. In these circumstances, there is no occasion for equity to intervene to restrain the purchaser’s reliance on cl 3.2(b) of the Settlement Deed.

Ground 2: whether cl 2.1(a) of the Settlement Deed requires there to be a new supply

94. Mr Sulan submitted that, irrespective of whether cl 3.2(a) or cl 3.2(b) applied, and thus whether the vendor retained title to the components, cl 2.1(a) of the Settlement Deed required there to be a new supply of Plant 1 and Plant 2 and that the primary judge was in error in failing to so find (at [163]). He accepted however, that if he were only to succeed on this ground, the matter would have to be remitted for determination of the vendor’s claim in conversion. However as I have found that grounds 1(a) and 1(b) have been made out, that course will not be necessary.

95. Mr Lawrance submitted that this construction was at odds with the equipment warranty in the Supply Terms which expressly contemplated that components which had been sourced for the Initial Contract could be used to fulfil the vendor’s obligations under the Settlement Documents. He submitted that the words “new supply” in cl 2.1(a) of the Settlement Deed meant a new supply contract rather than the physical supply of new components and thus, there was no impediment to the vendor supplying components either already sourced or already delivered.

96. While I accept that the equipment warranty contemplated that the vendor could supply components which had been sourced (but not delivered) for the Initial Contract, I do not consider that this is sufficient to overcome the effect of the Settlement Documents, read as a whole, which, in my view, required the vendor to provide another homogeniser and filler to the purchaser in Sri Lanka. To use the circumstance that components already sourced could be provided to the purchaser (as provided by the equipment warranty) to reason that components already delivered could count as performance by the vendor of its obligations to supply plant pursuant to the Settlement Documents involves unwarranted speculation about commercial considerations which are, in the present case (for reasons given above), at best, opaque.

97. I consider the following wording of the Settlement Deed indicates that there was to be a new supply of Plant 1 and Plant 2 to the purchaser in the future, which is independent of the supply under the Initial Contract rather than a supply which included components which had already been supplied:

1. recital I to the Settlement Deed refers to there being “a new supply contract” (emphasis added) on the Supply Terms; and

2. clause 2.1(a) of the Settlement Deed refers to “a new supply that is independent of the previous Contract” (emphasis added).

98. Further, the Settlement Documents do not distinguish between Plant 1 (in respect of which components had already been supplied under the Initial Contract) and Plant 2 (in respect of which no components had been supplied under the Initial Contract), as is indicated by the following:

1. clause 2.2(b) of the Settlement Deed provides that, if the purchaser does not provide the requisite security within 60 days, the vendor will be relieved of the entirety of its obligations … including any obligation to supply Plant 1 and Plant 2” (emphasis added);

2. the definition of Plant 1 and Plant 2 in cl 1.1 of the Commercial Terms defines each plant in relevantly identical terms by reference to specifications and includes the words, “and to be delivered to the Sri Lanka Site” (in the case of Plant 1) and “to be delivered to the Philippines Site” (in the case of Plant 2)”; and

3. the list of equipment in the Supply Terms under the heading “PRICES & COMMERCIAL CONDITIONS” in the Supply Terms, includes a homogeniser, a tank (“one units” (sic)) and a filler (“one units” (sic)).

99. Mr Lawrance accepted that there was “some infelicity” in the language of “to be delivered” because, in effect, the words were inconsistent with the construction for which he contended in that it would have been more accurate to define Plant 1 as those components which had already been delivered and the remainder of which was still to be delivered. But the objective intention of the parties (which, like legislative intention, is a construct) can only be assessed by the words used in the context of the Settlement Documents as a whole. I accept Mr Sulan’s submission that the lack of distinction drawn between Plant 1 and Plant 2 does not make much sense if the homogeniser and filler which were to comprise Plant 1 were already in Sri Lanka. The list of equipment in the Supply Terms is also against the vendor’s construction since there is no apparent reason to list the homogeniser and the filler if the earlier supply was intended to be counted as part performance of the obligation under the Settlement Documents to supply Plant 1 to Sri Lanka. This point is reinforced by the fact that the list of equipment for Plant 1 and Plant 2 is identical.

100. I also consider the wording of cl 4.4 of the Commercial Terms (which provided that payments already made by the purchaser, the $387,600, are not to be taken into account or treated as part payment of the Price for Plant 1 or Plant 2) supports the purchaser’s construction. This term was arguably necessary in respect of monies already paid but not in respect of goods already supplied because, in the case of the latter, the express wording of the Settlement Documents referred to above was sufficient to evince an objective intention that there be a completely new supply.

101. For these reasons, ground 2 has been made out.

The notice of contention

102. The vendor filed an amended notice of contention which alleged the following grounds:

“1   Deleted

2.    The learned trial judge erred in finding (J [155]) that the reference to ‘previous now terminated contracts’ in the first sentence of the Equipment Warranty was a reference to the Vendor's subcontracts, and should have found that it was a reference to the Initial Contract.

3.    Regardless of whether the reference to ‘previous now terminated contracts’ was a reference to the Vendor's subcontracts or to the Initial Contract, the learned primary judge should have found that the first sentence of the Equipment Warranty recorded an intention that the Homogenizer and Filler sitting in Colombo be used for the purpose of supplying Plant 1.

4.   The construction of the release in clause 3.2(b) arrived at by the learned trial judge at J [107] was the correct construction at law.”

Grounds 2 and 3 of the notice of contention

103. The vendor challenged the primary judge’s finding that the Equipment Warranty (set out above) did not concern the termination of the Initial Contract but rather made provision for the purchaser to have the benefit of any third-party warranties which had been given to the vendor in respect of goods sourced by the vendor. Mr Lawrance accepted that the use of the plural in the phrase “equipment under previous now terminated contracts” was, at least on its face, inconsistent with “terminated contracts” being a reference to the Initial Contract. However, he submitted that the use of the plural could be explained by the fact that there were two plants to be supplied to two separate locations. Further, he submitted that “terminated” was a reference to the singular Initial Contract, which the parties, by cl 3.2(a), had agreed was validly terminated.

104. Mr Lawrance also sought to draw support from the use of the word “ordered” in the opening words of the Equipment Warranty (to refer to equipment that had been ordered by the purchaser) and the words “supplied … to the Seller” in the second sentence of the warranty. He submitted that, even in respect of the homogeniser and the filler which had been delivered to the purchaser, these components had been ordered by the purchaser but not yet supplied since the plant, as defined had not yet been supplied and title to these items had not yet passed. I am not persuaded by this submission, which, in my view, puts an unwarranted gloss on the words used by the parties.

105. For the reasons given above, I consider that the primary judge’s construction of the Equipment Warranty was correct for the reasons his Honour gave (summarised above).

Ground 4 of the notice of contention

106. This ground is responsive to the alleged error in the primary judge’s approach to cl 3.2(b) in which his Honour addressed the question of equitable intervention before construing the provision as a matter of law. The correct approach, following Grant, has been applied above. For the reasons set out above, I consider that the release in cl 3.2(b) is sufficiently broad to cover the claim alleged, which was part of the occasion for the instrument and that the provision ought not be read down by reference to equitable principle because it fell within the “particular occasion” and was known and appreciated by both parties to be an issue between them.

Proposed orders

107. For the reasons given above, I propose the following orders:

1. Allow the appeal.

2. Order 1 made by Stevenson J on 21 June 2024 be set aside, and in lieu thereof, declare that:

1. Upon their proper construction, the Settlement Deed, Commercial Terms and Supply Terms dated 22 March 2023 (Settlement Documents) oblige the Defendant to, amongst other things, supply to the Plaintiffs:

1. a Steritherm UHT OSI 6000;

2. an Aseptic Homogenizer type HA340 55 – Bertoli; and

3. a No 1 Aseptic Filler CAF 2H/1,

the specifications of which are set out in the Supply Terms at Annexure B to the Settlement Deed dated 22 March 2023, in connection with the supply of both Plant 1 and Plant 2 (as defined in the Settlement Documents).

2. Upon the proper construction of the Settlement Documents, for the purpose of the supply of Plant 1 and Plant 2 (as defined in the Settlement Documents) under the Settlement Documents, the Defendant is not permitted to use the Aseptic Homogenizer type HA340 55 – Bertoli or the No 1 Aseptic Filler CAF 2H/1 which were previously supplied to the Plaintiffs under any previous contract of supply.

3. Order the respondent to pay the appellants’ costs of the separate determination of the issues identified in the orders made by Ball J on 16 April 2024.

4. Remit the proceedings to the Commercial List of the Supreme Court of New South Wales.

5. Order the respondent to pay the appellants’ costs of the appeal.

108. McHUGH JA: The parties chose to settle litigation about their Initial Contract for the supply of two plants, which contract they agreed had been terminated, by entering into a new contract for the supply of two plants. The parties failed to make express provision in the Settlement Documents for the fact that, prior to termination of the Initial Contract, the vendor (a) had delivered to the purchaser a homogeniser and filler that would meet the specification for the same components of the plant required to be supplied under the new contract, but (b) retained title to those components. That failure made it, as Adamson JA points out, almost inevitable that the Settlement Documents would require judicial interpretation.

109. Having had the considerable benefit of reading Adamson JA’s reasons for judgment in draft, and gratefully adopting her Honour’s abbreviations, I can express my reasons for concluding that the appeal should be dismissed relatively shortly. Although I am in general agreement with Griffiths AJA, I would add the following.

110. Neither party suggested that the fact that the homogeniser and filler were physically located in Sri Lanka had any bearing on the applicable principles; they proceeded on the footing that the general law of Australia applied.

Title to the homogeniser and filler at the time of the settlement

111. It was common ground at first instance and on appeal that the vendor retained title to the homogeniser and filler immediately prior to entry into the Settlement Deed, and that there had been no dispute about the vendor’s ownership of the homogeniser and filler at the time. The primary judge made an unchallenged finding that the parties knew at the time that the homogeniser and filler were still owned by the vendor, and that they precisely met the specifications for the corresponding components to be supplied under the new contract: Sanmik Food Pvt Ltd v Alfa Laval Australia Pty Ltd [2024] NSWSC 698 at [42].

140. In my view, that exception relates to the significance as an aid to construction (once it is apparent that the relevant clauses in the Settlement Documents do not have a plain meaning) of the Customs Invoice dated 17 July 2019. This Customs declaration was made by the vendor and copied to the purchaser. It describes the proposed entry into Sri Lanka of the filler and the homogenizer, being the two items at the heart of the dispute. I consider it significant that the nominated total value of the two items was the substantial sum of AUD$588,000 (comprised of amounts of $428,500 and $159,500 for the filler and homogenizer respectively). Thus the declared total value was approximately $200,000 more than the money paid by the purchaser under the terms of the Initial Contract (being $387,600).

141. The substantial value of the two items, as declared to Sri Lankan Customs, was known to both parties. Indeed, it is one of the seven matters which the purchaser identified below in a document dated 17 May 2024 and headed “Critical surrounding circumstances known to both parties”. Moreover, in closing address below, the purchaser’s then senior counsel acknowledged that both parties knew of the declared value of $588,000; and, in oral address on the appeal, the purchaser’s replacement senior counsel described the homogenizer, filler and tank as “the three main components of the plant”.

142. The invoice forms part of the surrounding circumstances relevant to the issues of construction once it becomes clear that the contractual provisions do not have a plain meaning. In particular, I consider that it lends support to a construction which favours the view that the releases did not apply to the vendor’s undisputed title to the two items.

143. Objectively viewed, it is unlikely that the parties intended that the two items would simply become “White Elephants” and not be employed as part of the equipment to be supplied under the new Supply Contract. That is all the more so in circumstances where the declared value of the items was not only considerable; they were also brand new (having apparently been stored by the purchaser in its warehouse from the time of their delivery until some time after the Settlement Documents were executed). Moreover, and notably:

1. the two items were customised and met the specifications for those particular components to be supplied under the new Supply Contract (see at [3] of the vendor’s document below headed “Surrounding circumstances”);

2. it was common ground that Sanmik considered that the two components were unable to be used without the remainder of the Plant (see [6] of the “Critical surrounding circumstances known to both parties” document); and

3. when the Settlement Documents were executed, there was no dispute or contest that the vendor retained title to the filler and homogenizer, having regard to the terms of the Initial Contract and the purchaser’s failure at that time to pay the full purchase price.

150. These surrounding circumstances all point to the likelihood, objectively viewed, of the parties agreeing in the Settlement Documents to the two items being utilised in the new supply contract rather than effectively being rendered redundant and “replaced” by two new identical customised items of equipment.

151. The objective logic of these matters leans against a construction of the documentation which would result in the vendor having to transport and ship two identical items for the purposes of the new supply contract, leaving the other two items idle unless the vendor was able to sell them for spare parts (presumably at a discount and possibly having to have them refabricated or redesigned given that they were customised) or incur what might reasonably be expected to be significant transport costs in shipping them elsewhere.

152. I consider that these particular surrounding circumstances, which were known to both parties, are relevant aids to the construction of the Settlement Documents, having regard to what was said by French CJ, Nettle and Gordon JJ in Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104; [2015] HCA 37 at [46]-[49] (footnotes omitted):

[46] The rights and liabilities of parties under a provision of a contract are determined objectively, by reference to its text, context (the entire text of the contract as well as any contract, document or statutory provision referred to in the text of the contract) and purpose.

[47] In determining the meaning of the terms of a commercial contract, it is necessary to ask what a reasonable businessperson would have understood those terms to mean. That inquiry will require consideration of the language used by the parties in the contract, the circumstances addressed by the contract and the commercial purpose or objects to be secured by the contract.

[48] Ordinarily, this process of construction is possible by reference to the contract alone. Indeed, if an expression in a contract is unambiguous or susceptible of only one meaning, evidence of surrounding circumstances (events, circumstances and things external to the contract) cannot be adduced to contradict its plain meaning.

[49] However, sometimes, recourse to events, circumstances and things external to the contract is necessary. It may be necessary in identifying the commercial purpose or objects of the contract where that task is facilitated by an understanding “of the genesis of the transaction, the background, the context [and] the market in which the parties are operating”. It may be necessary in determining the proper construction where there is a constructional choice. The question whether events, circumstances and things external to the contract may be resorted to, in order to identify the existence of a constructional choice, does not arise in these appeals.

153. As is evident from Adamson JA’s detailed analysis, the relevant provisions of the Settlement Documents are not unambiguous or susceptible of only one meaning. If they were, there would be no warrant to have recourse to any relevant surrounding circumstances.

154. And, as stated by P Herzfeld and T Prince in Interpretation (3rd ed, 2024, Lawbook Co) at [19.70]:

The true position is that it is not possible to describe in a single statement the varied circumstances in which a court may consider extrinsic evidence to interpret a private legal document. What can be said is that the reasonable person seeking to interpret the document is attributed with knowledge of the relevant facts established by material that is admissible for the purpose of interpretation.

155. It is also well recognised that there are important limits to the notion that a court must give a contractual provision “a commercial and business-like operation”. For example, in Jireh International Pty Ltd t/as Gloria Jean's Coffee v Western Exports Services Inc [2011] NSWCA 137 at [55], Macfarlan JA (with whom Young JA and Tobias AJA agreed) said:

…So far as they are able, courts must of course give commercial agreements a commercial and business-like interpretation. However, their ability to do so is constrained by the language used by the parties. If after considering the contract as a whole and the background circumstances known to both parties, a court concludes that the language of a contract is unambiguous, the court must give effect to that language unless to do so would give the contract an absurd operation. In the case of absurdity, a court is able to conclude that the parties must have made a mistake in the language that they used and to correct that mistake. A court is not justified in disregarding unambiguous language simply because the contract would have a more commercial and businesslike operation if an interpretation different to that dictated by the language were adopted.

156. I respectfully agree with Adamson JA that the evidence concerning the parties’ negotiations preceding the execution of the Settlement Documents, including the unexplained deletion of cll 1.3 and 3.5 from the earlier drafts, is not relevant to the task of construction at law. Nor for that purpose should the Court seek to determine the parties’ individual subjective motives in negotiating and ultimately agreeing the terms of the Settlement Documents.

157. I turn now to explain more fully why I would reject both grounds of the notice of appeal filed 10 September 2024.

Appeal ground 1

(a) Clause 3.2(a)

158. The first limb of ground 1 relates to the construction of the release in cl 3.2(a) of the Settlement Deed (the terms of which are set out by Adamson JA at [29] above). The purchaser contends that the primary judge erred at J[101]-[113] in finding that the releases in cl 3 generally did not release the vendor’s claim to title of the filler and homogenizer. It contends that cl 3.2(a) should be construed such that, upon entry into the Settlement Deed, the parties agreed that neither of them had any further obligations under the Initial Contract. Accordingly, it contends the vendor no longer had any claim to title of the filler and homogenizer.

159. As Adamson JA has pointed out, the primary judge did not address cl 3.2(a). This is understandable, having regard to the way in which the purchaser conducted its case below. Its commercial list statement filed 17 April 2024 contained multiple references to various clauses in the Settlement Deed, including cl 3.2. The terms of cl 3.2(a) were summarised in [8(h)] of that document.

160. Reference was also made to cll 3.2(a), (b) and (d) of the Settlement Deed in the purchaser’s outline of written submissions below. It submitted that the releases captured any former rights or obligations concerning retention of title provisions in the Initial Contract.

161. In closing oral address, senior counsel for the purchaser referred to the releases in cl 3.2 generally. However, the focus of the exchanges with the primary judge was on cl 3.2(b). The primary judge observed that cl 3.2(a) was “wide enough to release [the purchaser] from any obligation in relation to the homogenizer and the filler”. Senior counsel for the purchaser agreed with the primary judge’s proposition that “on one view they are releasing you in this clause, taken alone, from any obligation to return [the homogenizer and filler]”.

162. When the primary judge added that, looking at the subclauses in cl 3.2, his preliminary impression was that the purchaser “would say well the parties have agreed to let the chips lie where they fall”, senior counsel for the purchaser agreed. Nothing further was said about cl 3.2(a) in the purchaser’s closing address.

163. It is scarcely surprising, therefore, that in his reasons for judgment the primary judge did not address this subclause and merely noted at J[65] and [97] that the focus of both parties’ submissions was on cl 3.2(b). Senior counsel for the purchaser on the appeal fairly and appropriately acknowledged that no criticism should be levelled at the primary judge on this matter because cl 3.2(a) did not feature “heavily in closing or at all, perhaps”.

164. I turn now to address cl 3.2(a) and whether it should be construed as releasing any claim by the vendor concerning its ownership of the relevant components of Plant 1.

165. When the Settlement Documents were executed, the parties were in dispute as to whether the Initial Contract had been validly terminated. This dispute was reflected in the terms of the vendor’s further amended commercial list statement below (at [52]) and the purchaser’s denial in its response that there had been a valid termination (at [19A] of its further amended commercial list response).

166. I accept the vendor’s submission that the release in cl 3.2(a) should be read against that background. The reference in that subclause to the purchaser agreeing that the Initial Contract “has been terminated” constituted an agreement between the parties on the contested issue of whether or not the Initial Contract had been validly terminated. The following words in the subclause (ie, “and that the parties have no further obligations in respect of the Contract…”) should be viewed as an acknowledgment of the conventional consequences of such a termination, being that the parties are discharged from future obligations of performance arising under the Initial Contract.

167. I do not accept the purchaser’s contention that the subclause operated to release the purchaser’s obligation to hold the items as bailee until the full purchase price was paid, which obligation was said to arise from the terms of the Initial Contract. It was further said that this was supported by [20] of the vendor’s further amended commercial list cross-claim statement. There, the vendor pleaded that, by reason of the matters pleaded earlier at [14] and [15], the purchaser was to hold the homogenizer and filler “as bailee” for the vendor until the full purchase price was paid under the Initial Contract. Paragraphs [14] and [15] were addressed to ownership of the homogenizer and filler. The vendor pleaded that it had delivered the homogenizer and filler pursuant to the Initial Contract and that it was a term of that contract that ownership would only pass to the purchaser upon receipt of the full purchase price.

168. I do not accept the purchaser’s submission that these pleadings confirm that the bailment was an obligation sourced in the Initial Contract (and not in law) and therefore was covered by the release in cl 3.2(a). Rather, I consider that the relevant pleadings in the further amended commercial list cross-claim statement claimed that there was a bailment as a matter of law because, although the purchaser was in possession of the two components, no title had passed from the vendor. The bailment did not arise under the Initial Contract; rather, it arose because ownership of the two components was never transferred to the purchaser.

169. Clause 3.2(a) also needs to be read against the background of the recitals (which are set out at [26] above). Relevantly, Recital H states that the parties “have agreed to settle all claims and disputes between them which were the subject of, or in any way related to” a list of six matters, which include the Proceedings (par (a)); the Initial Contract (par (c)); and the supply of the First UHT Plant (par (d)).

170. I consider that the primary judge was correct to accept the vendor’s submission that the expression “claims and disputes between them” should be read distributively. This construction means that the release does not capture ownership of the homogenizer and filler. That is because there was simply no dispute “between” the parties about that ownership, nor was there any relevant “claim” in the sense of a demand concerning their ownership – the items were unquestionably owned by the vendor as at the date of the execution of the Settlement Documents.

171. I do not consider that there is any “circularity” in this construction. The criticism that this construction is based on a presupposition that the two items already delivered can be used to discharge the vendor’s obligations under the new supply contract could be applied equally to the purchaser’s competing construction, which is based on the opposite presupposition.

172. As noted above, the purchaser conceded that the vendor retained title to the two items when the Settlement Documents were executed (presumably by reference to the retention of title clause in the Initial Contract). The Settlement Documents included a fresh retention of title clause, but that is a different matter. It provided that ownership of the equipment/module to be delivered “shall pass to the Purchaser only upon receipt of the full purchase price by the Seller”. This clause would apply to the two already delivered items, not unlike the retention of title clause in the Initial Contract prior to execution of the Settlement Documents.

173. For these reasons, I consider that ground 1(a) should be rejected.

(b) Clause 3.2(b)

174. The proper construction of the release in this subclause is raised by ground 1(b) of the notice of appeal. The terms of cl 3.2(b) are set out by Adamson JA at [29] above.

175. This issue turns on whether the definition of “Settled Matters” is sufficiently broad to include the vendor’s title to, or ownership of, the two relevant items. Adamson JA has summarised the parties’ respective submissions on the issue at [77]-[86] above.

176. In my view, the word “claim” (which is incorporated in both the definition of “Claim” in cl 1.2(b) and in the chapeau to Recital H of the Settlement Deed) refers to a dispute or contest between the parties and not to an undisputed claim of right, such as that applying to the vendor’s undisputed ownership of the two components. This interpretation is supported by the juxtaposition of the word “claim” with “any action or liability” in the definition of “Claim” and also its juxtaposition with “disputes between them” in relation to the Settled Matters as described in the chapeau to Recital H. As at the date of execution of the Settlement Documents, there was simply no claim or dispute (in the sense of a controversy or contest) between the vendor and the purchaser regarding ownership of the two components.

177. Nor do I accept the purchaser’s separate contention that the vendor’s ownership is a claim about a “Settled Matter” because there is a claim about “the supply of the First UHT Plant” within par (d) of Recital H or a claim relating to “payment for the supply of the First UHT Plant” within par (e). In my view, the reference in both those paragraphs to the “supply of the First UHT Plant” is a reference to the entirety of that supply, and not merely the supply (or delivery) of the two component parts.

178. Furthermore, I cannot accept that the question of ownership constitutes a claim or dispute which was the subject of, or in any way related to, the Initial Contract, in circumstances where it was common ground that there was no such claim or dispute about that subject. Thus the question was not left “unresolved”, nor were the parties at “cross purposes”. Rather, at all relevant times, they were ad idem on the question of ownership of the two items.

179. Having regard to what I consider to be the proper construction at law of the releases in cll 3.2(a) and (b), there is no need to address the possible application of equitable principles as set out in Grant v John Grant & Sons Pty Ltd (1954) 91 CLR 112; [1954] HCA 23.

180. For these reasons, I would reject ground 1(b) of the appeal.

Appeal ground 2

181. This ground challenges the primary judge’s findings at J[120], [132] and [133], which, respectively, were to the following effect:

1. Clause 2.1(a) of the Settlement Deed (which is set out at [28] above), which provided that the parties would immediately enter into the Commercial Terms and Supply Terms for a “new supply that is independent” of the Initial Contract, was neutral as to the proper construction of the Settlement Documents.

2. By holding that the phrase “to be delivered” in the definitions of Plant 1 and Plant 2 was directed to the question of where the individual components of those Plants were to be delivered, rather than a future supply.

3. By finding that the definitions of Plant 1 and Plant 2 did not require those Plants to meet the specifications in the Supply Terms at the time of delivery.

182. As Adamson JA has noted at [94], if the purchaser succeeded only on ground 2 and failed on ground 1, the matter would need to be remitted for determination of the vendor’s claim in conversion.

183. The primary judge explained at J[120] why he did not accept the purchaser’s contention that, by stating in cl 2.1(a) of the Settlement Deed that the parties agreed to enter into the Commercial Terms and the Supply Terms for a “new supply” that was to be “independent” of the Initial Contract, this necessarily precluded using the already delivered items which were the subject of the Old Supply. His Honour described those matters as “neutral” because the sale agreement was a “new” sale agreement and a “new” supply, and there was also a sale which was independent of the Initial Contract. I respectfully agree.

182. In oral address on the appeal, senior counsel for the purchaser asked rhetorically: “how can something be independent of the previous contract if the supply had occurred under the previous contract”. With respect, senior counsel’s question is misdirected. The Initial Contract contemplated the supply of an entire plant, but this never occurred because only two of the components were delivered (or supplied). Accordingly, there was no “supply” under the Initial Contract and title never passed to the purchaser even though it had taken physical possession of two components of the plant.

183. As to the significance of the phrase “to be delivered” in cl 1.1 of the Commercial Terms, with reference to Plant 1 being delivered to the Sri Lanka site and Plant 2 being delivered to the Philippines site, I respectfully agree with the primary judge’s reasoning at J[132] that these phrases appear to be directed to the question of where the components of Plant 1 and Plant 2 were “to be delivered”, rather than focusing on whether all the constituent parts of Plant 1 or Plant 2 had then been delivered. As McHugh JA said in an exchange with the purchaser’s senior counsel on the appeal, the phrase “to be delivered” is “simply identifying that there’s one going to Sri Lanka and one going to the Philippines, but the timing is governed by what’s in the clause … in 3.1 and 3.2 as to when they’re to be delivered”.

184. On the appeal, the vendor’s counsel properly acknowledged (as did the purchaser’s senior counsel) that there was “some infelicity in the language used”, but the primary judge’s construction is supported by the uncontested fact that, while two significant components of Plant 1 had already been delivered to the Sri Lanka Site, the entire Plant was still to be delivered to that Site. The definitions of Plant 1 and Plant 2 in cl 1.1 of the Commercial Terms (see at [38] above) plainly refer to the entirety of the plant. Although the Settlement Deed refers to the “First UHT Plant and Second UHT Plant” respectively, those expressions are not defined in that document. It may be inferred that the related definitions in the Commercial Terms applied.

185. For all these reasons, I reject ground 2. In these circumstances, it is not necessary to address the correctness of the primary judge’s finding that the Equipment Warranty did not relate to the termination of the Initial Contract, but rather applied to give the purchaser the benefit of any third-party warranties as a result of the vendor sourcing goods from those third parties.

Conclusion

188. For all these reasons, I propose that the appeal be dismissed, with costs.

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Amendments

11 February 2025 - "SC" inserted after "S A Lawrance" - coversheet

Decision last updated: 11 February 2025