Sanmik Food Pvt Ltd v Alfa Laval Australia Pty Ltd; Alfa Laval Australia Pty Ltd v Sanmik Food Pvt Ltd

[2024] NSWSC 698

Supreme Court

New South Wales

Medium Neutral Citation:

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

Hearing dates:

16-17 May 2024; further written submissions 22 and 29 May 2024

Decision date:

07 June 2024

Jurisdiction:

Equity - Commercial List

Before:

Stevenson J

Decision:

Defendant entitled to rely on its delivery of the Homogenizer and Filler as part of the supply under the Settlement Documents

Catchwords:

CONTRACTS – construction – principles – deed settling earlier proceedings – where earlier proceedings involved dispute about contract for sale by defendant vendor to plaintiff purchaser of coconut milk production plants – where dispute settled on basis of parties entering further agreement for sale of those plants – where defendant vendor had delivered to plaintiff purchaser two major components of the first plant – whether on proper construction of the settlement deed the delivered components were agreed to be part of the supply under the further agreement

Cases Cited:

Burness v Hill [2019] VSCA 94

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

Directors of the London and South Western Railway Co v Blackmore (1870) LR 4 HL 610

DXC Eclipse Pty Ltd v Wildsmith [2023] NSWCA 98

Ecosse Property Holdings Pty Ltd v Gee Dee Nominees Pty Ltd (2017) 261 CLR 544; [2017] HCA 12

Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640; [2014] HCA 7

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

Kelly v The Queen (2004) 218 CLR 216; [2004] HCA 12

Miles v Luneburger Franchising Pty Ltd [2021] NSWCA 248

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

Reardon Smith Line Ltd v Hansen-Tangen; Hansen-Tangen v Sanko Steamship Co [1976] 1 WLR 989; [1976] 3 All ER 570

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

Simic v New South Wales Land and Housing Corporation (2016) 260 CLR 85; [2016] HCA 47

Victoria v Tatts Group Ltd [2016] HCA 5

Walker Group Constructions Pty Ltd v Tzaneros Investments Pty Ltd (2017) 94 NSWLR 108; [2017] NSWCA 27

Texts Cited:

P Herzfeld and T Prince, Interpretation (2nd ed, 2020, Thomson Reuters)

K Lewison and D Hughes, The Interpretation of Contracts in Australia (1st ed, 2012, Thomson Reuters)

Category:

Principal judgment

Parties:

Sanmik Food Pvt Ltd (First Plaintiff/First Cross-Defendant)
Sanmik Natural Food Pty Ltd (Second Plaintiff/Second Cross-Defendant)
Alfa Laval Australia Pty Ltd (Defendant/Cross-Claimant)

Representation:

Counsel:
A Horvath SC / R Jameson (Plaintiffs/Cross-Defendants)
S A Lawrance SC (Defendant/Cross-Claimant)

Solicitors:
Holman Webb (Plaintiffs/Cross-Defendants)
Piper Alderman (Defendant/Cross-Claimant)

File Number(s):

2024/51638

JUDGMENT

1. The parties are in dispute about the proper construction of an agreement they entered on 22 March 2023 to settle earlier proceedings in this list. The agreement comprised a “Deed of Settlement and Release” (“the Settlement Deed”) in which the parties agreed to enter “Commercial Terms” and “Supply Terms” in the form annexed to the Settlement Deed. Where convenient, I will refer to these documents, together, as the “Settlement Documents”.

2. On 12 April 2018, the first plaintiff, Sanmik Food Pvt Ltd, a company incorporated in Sri Lanka, and/or the second plaintiff, Sanmik Natural Food Pty Ltd (together, the “Purchaser”), entered into a contract with the defendant, Alfa Laval Australia Pty Ltd (the “Vendor”), pursuant to which the Vendor agreed to sell to the Purchaser two ultra-high temperature plants for the production of coconut milk (the “Plants”) for consideration of $2.7 million. The parties referred to this as the “Initial Contract”. The Initial Contract was varied from time to time. Those variations are not material to the dispute before me, save that the consideration was increased to $2.81 million.

3. The Initial Contract provided for the sale of two Plants, each of which comprised an homogenizer and a filler as well as other components, including a steritank. The purpose of an homogenizer is to create an even texture for coconut milk prior to sterilisation. The purpose of a filler is to fill the liquid form of coconut milk into a “bulk filling pouch” within the Plants. The other major component of the Plants was a steritank.

4. What was to be supplied under the Initial Contract was two Plants comprising each of those components.

5. On 7 May 2018, the Purchaser paid the Vendor $270,000 on account of the purchase price under the Initial Contract. On 2 August 2019, the Purchaser paid the Vendor a further $117,600 on account of the purchase price under the Initial Contract, making a total of $387,600 paid on account.

6. Between 12 September and 13 October 2019, the Vendor delivered to port at Colombo, Sri Lanka, and the Purchaser collected and delivered to its warehouse, two components of the first of the two Plants, being an homogenizer (the “Homogenizer”) and a filler (the “Filler”).

7. The Vendor declared to the Sri Lankan customs authorities that the value of the Homogenizer and Filler was $588,000.

8. The Initial Contract contained a reservation of title clause:

“Ownership of the equipment/module to be delivered shall pass to the Purchaser only upon receipt of the full purchase price by the Seller”.

9. The parties agree that the effect of this clause was that, as the Purchaser did not pay the “full purchase price”, at all times up to the time the parties executed the Settlement Documents, the Vendor owned the Homogenizer and Filler.

10. No further components of the Plants were delivered although, by October 2021, the Vendor had sourced or procured from third party suppliers all of the components for the two Plants. By the time the parties executed the Settlement Documents, the warranties given by those third parties in relation to those components may have expired^[1] . By April 2022, the Vendor had sold one of those components, the filler for the second of the two Plants, to a third party.

    1. See [72] and [148] below.

11. A dispute arose between the Vendor and the Purchaser.

12. Thereafter, on 29 July 2021, the Vendor commenced proceedings (“the Earlier Proceedings”) in this List against the Purchaser seeking damages for alleged breach of the Initial Contract by the Purchaser.

13. In the Earlier Proceedings, the Purchaser’s position was that the Homogenizer and Filler were unable to be used without the remaining components of the Plant^[2] .

    2. See [43] below.

14. On 22 March 2023, the day after the hearing of the Earlier Proceedings had commenced, the matter settled and the Earlier Proceedings were, by consent, dismissed.

15. The settlement was recorded in the Settlement Documents.

16. By the Settlement Deed, the parties agreed to:

“… immediately enter into the Commercial Terms and Supply Terms for a new supply that is independent of the [Initial] Contract in the form annexed to this Deed”. ^[3]

3. Settlement Deed, cl 2.1(a).

17. Those Commercial Terms and Supply Terms provided for the supply by the Vendor to the Purchaser of two Plants, the specification of which was identical to that in the Initial Contract, for a total consideration of $2.8 million: $1.8 million for one plant (“Plant 1”) and $1 million for the other plant (“Plant 2”).

18. The Homogenizer and Filler met, precisely, the specifications of the homogenizer and filler to be supplied as part of Plant 1 under the Settlement Documents.

19. It is common ground that the matters set out at [2] to [13] and [17] to [18] were mutually known surrounding circumstances relevant to the proper construction of the Settlement Documents.

20. Since at least July 2023, the Purchaser has used the Homogenizer and Filler in its facilities at Sri Lanka.

21. After entry into the Settlement Documents the Vendor asserted in correspondence that it retained title to the Homogenizer and Filler and was entitled to use those components in satisfying part of its obligation under the Settlement Documents to supply Plant 1.

22. In reliance on this asserted entitlement, on 22 March 2024, the Vendor shipped part of Plant 1, being all the components other than an homogenizer and a filler. Those components arrived in Colombo on or about 6 April 2024.

23. In the meantime, the Purchaser commenced these proceedings seeking to have determined whether, on the proper construction of the Settlement Documents, the Vendor has the entitlement to which it asserts. On the other hand, the Vendor contends that the Purchaser, by using the Homogenizer and Filler in its facility in Sri Lanka, has converted those items.

24. I am dealing with the question of construction. Questions of damages have been deferred for later consideration.

The Settlement Deed

25. Under the heading “Introduction”, the Settlement Deed provided:

“A.   On 12 April 2018, [the Vendor] issued a quotation addressed to [the Purchaser] … (Offer).

B.   The Offer was for the supply of a specialised, custom-designed plant, by [the Vendor], 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 [the Vendor].

D.   On 12 April 2018, [the Purchaser] issued a purchase order to [the Vendor] accepting the terms of the Offer (First Purchase Order). Accordingly, a contract was formed between [the Vendor and the Purchaser] (Contract).

E.   On 12 June 2018, [the Vendor and the Purchaser] agreed to vary the design of the Second UHT Plant to increase its capacity.

F.   On 13 June 2018, [the Purchaser] issued a further purchase order to [the Vendor] 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, [the Vendor] commenced proceedings 2021/00216536 in the Supreme Court of New South Wales (the Proceedings).

H.   Without any admission 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.” (Emphasis in original.)

26. The Settlement Deed then set out a number of defined terms, to which I will return.

27. The Settlement Deed then set out under the heading “Terms of Settlement” cl 2.1(a) that I have set out at [16] above.

28. The Settlement Deed then set out a number of releases to which I will return. ^[4]

    4. See from [59] below.

29. Annexure A to the Settlement Deed contained the “Commercial Terms” referred to in the Settlement Deed. Annexure B to the Settlement Deed contained the “Supply Terms” referred to in the Settlement Deed.

The Commercial Terms

30. The Commercial Terms provided that Plant 1 and Plant 2 meant “the Plant[s] meeting the specification set out in the Supply Terms”, and that Plant 1 was “to be delivered” to a site in Sri Lanka and Plant 2 was to be delivered to a site in the Philippines. ^[5] I will return to this below. ^[6]

    5. Commercial Terms, cll 1.1(e) and (f).

    6. See [130]-[134] below.

31. Clause 2 of the Commercial Terms stated that the specification for Plant 1 “is the same as” the specification for Plant 2.

32. Clause 3 of the Commercial Terms made provision for “Delivery Time for Plant”. I will return to this below. ^[7]

    7. See [135]-[137] below.

33. Clause 4 of the Commercial Terms dealt with the “Price of Plant” and set out the prices to which I have referred. I will return to this below. ^[8]

    8. See [138]-[141] below.

34. Clause 4.4. provided:

“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”.

The Supply Terms

35. The Supply Terms comprise some 30 pages and set out the detailed specifications for each Plant.

36. The Supply Terms specified that each Plant was to comprise three major components:

1. an homogenizer;

2. a filler; and

3. a steritank.

37. The Supply Terms also made provision for an “Equipment Warranty”, upon which the Vendor placed particular reliance. I return to it below. ^[9]

    9. See [145]-[162] below.

Principles

38. A court in interpreting a provision of a document has regard to its words, its context, and the purpose of the document as a whole. The leading modern statement on the importance of context and purpose is found in the reasons of French CJ, Nettle and Gordon JJ in Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd:^[10]

“The rights and liabilities of parties under a provision of a contract are determined objectively,^[11] 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. ^[12]

…

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. ^[13]

However, sometimes, recourse to events, circumstances and things external to the contract is necessary. …”

10. (2015) 256 CLR 104; [2015] HCA 37 at [46], [48]-[49].

11. Citing Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640 at 656; [2014] HCA 7 at [35] (French CJ, Hayne, Crennan and Kiefel JJ).

12. Citing Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337 at 350, 352 (Mason J); [1982] HCA 24; Reardon Smith Line Ltd v Hansen-Tangen; Hansen-Tangen v Sanko Steamship Co [1976] 1 WLR 989 at 995; [1976] 3 All ER 570 at 574 (Lord Wilberforce).

13. Citing Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (supra) at 352 (Mason J).

39. The question is what a reasonable business person in the position of the parties would have understood the relevant terms to mean; an objective task involving identification of the imputed intention of the parties by reference to the contractual text, construed in the light of its context and purpose. ^[14]

    14. Miles v Luneburger Franchising Pty Ltd [2021] NSWCA 248 at [32] (Gleeson JA, Macfarlan JA and Simpson AJA agreeing), citing Electricity Generation Corporation v Woodside Energy Ltd (supra) at [35] (French CJ, Hayne, Crennan and Kiefel JJ); Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (supra) at [46]-[51], [108]-[109] (French CJ, Nettle and Gordon JJ); Victoria v Tatts Group Ltd [2016] HCA 5 at [51]-[75] (French CJ, Kiefel, Bell, Keane and Gordon JJ); Ecosse Property Holdings Pty Ltd v Gee Dee Nominees Pty Ltd (2017) 261 CLR 544; [2017] HCA 12 at [16] (Kiefel, Bell and Gordon JJ); Simic v New South Wales Land and Housing Corporation (2016) 260 CLR 85; [2016] HCA 47 at [18] (French CJ).

40. Further, as has also been correctly stated: ^[15]

“… the only relevant meaning is that which the text conveys. This follows from the need to ascertain the intention expressed in the document. Although … context and purpose are relevant, ultimately the court must attribute meaning to the words actually used.” (Emphasis in original.)

15. P Herzfeld and T Prince, Interpretation (2nd ed, 2020, Thomson Reuters) at [19.60].

How should the Settlement Documents be construed?

41. When the parties entered the Settlement Documents they knew, obviously, that:

1. the Purchaser had paid, and the Vendor continued to retain, the $387,600 to which I have referred above; ^[16] and

2. the Vendor had delivered and the Purchaser retained possession of the Homogenizer and Filler.

   16. See [5] above.

42. The parties also knew that the Homogenizer and Filler in the Purchaser’s possession were still owned by the Vendor and met, precisely, the specifications for the corresponding components to be supplied by the Vendor to the Purchaser for Plant 1 pursuant to the Settlement Documents.

43. The parties also knew that the Purchaser considered that the Homogenizer and Filler, alone, were of no use to it. Thus, the evidence of Mr Pathmalal Withanage, the founder and director and shareholder of the Purchaser, was that the Homogenizer and Filler “were currently being stored in the Purchaser’s factory in Sri Lanka and unable to be used without the remainder of the plant”.

44. The parties cannot have overlooked these matters when negotiating the terms of the Settlement Documents. The parties must have intended somehow to accommodate these matters in the words they used.

45. It is clear from the terms of cl 4.4 of the Commercial Terms, set out at [34] above, that the parties intended that the Vendor retain the $387,600 paid by the Purchaser on account of the purchase under the Initial Contract. As I have said, that clause provided that “any payments made prior to this agreement” were “not to be taken into account or treated as part payment” for the plant to be provided pursuant to the Settlement Documents. The only “payments made prior to” the Settlement Documents were the two payments comprising the $387,600.

46. The critical question is what the parties intended in relation to the Homogenizer and Filler.

47. The matters set out at [41] to [43] above, taken alone, point to the probability that the parties intended that the Homogenizer and Filler stand as part of the supply under the Settlement Documents concerning Plant 1; particularly as the Purchaser’s position was then that the Homogenizer and Filler were of no use to it absent the balance of the components of the plant, and because the Homogenizer and Filler met the specifications in the Supply Terms for those components.

48. But there is no provision to this effect, in terms, in the Settlement Documents.

49. As I set out below,^[17] at one point the Vendor proposed a term for inclusion in the proposed Settlement Documents which would have placed the matter beyond doubt and made clear that the Homogenizer and Filler would stand as part of that supply. For reasons unexplained in the evidence, that term was not included in the Settlement Documents as executed by the parties. I discuss below the limited relevance of this.

    17. See [74]-[84] below.

The operative terms of the Settlement Documents

50. There is no provision in the Settlement Documents that, in terms, imposes on the Vendor an obligation to supply to the Purchaser Plant 1 and Plant 2.

51. The closest the parties came to this was recital I under the heading “Introduction”; ^[18] that the parties “have agreed to enter into a new supply contract on the Supply Terms set out in this deed”.

    18. As I set out at [25] above.

52. And in the Settlement Deed, and as I have set out above,^[19] the parties agreed:

“… to immediately enter into the Commercial Terms and Supply Terms for a new supply that is independent of the [Initial] Contract in the form annexed to this Deed”. ^[20]

and to:

“… perform each of their obligations under the Commercial Terms and Supply Terms”. ^[21]

19. See [16] above.

20. Settlement Deed, cl 2.1(a).

21. Settlement Deed, cl 2.1(b).

53. The Supply Terms contained a reservation of title clause in the same terms as was contained in the Initial Contract. ^[22] That clause provided for the transfer of “ownership of the equipment” from the Vendor to the Purchaser “upon receipt of the full purchase price by the [Vendor]”. It thus contemplated that delivery of the equipment might occur before payment.

    22. See [8] above.

54. Clause 2.1 of the Commercial Terms provided that the specification for Plant 1 was set out in the Supply Terms, and cl 2.2 provided that the specification for Plant 2 was the same as Plant 1.

55. The Supply Terms thus set out the specifications for each of Plant 1 and Plant 2, and those specifications included, for each plant, an obligation to provide all of the requisite components, including an homogenizer and a filler.

56. There is no clause within the Settlement Documents referring to the already delivered Homogenizer and Filler, or providing that the Vendor was entitled to use the Homogenizer and Filler as part of the supply to be made pursuant to the Settlement Documents.

57. I should record that in its Amended Commercial List Cross-Claim Statement, the Vendor contended that it was an:

“… express term [of the Settlement Documents] that the Filler and Homogenizer delivered in 2019 would ([or] alternatively, could) be used in the current supply contract”.

58. That proposition was not advanced during argument by Mr Lawrance SC, who appeared for the Vendor. That is understandable as there is, clearly, no such “express term”. The only “express term” on which Mr Lawrance relied was the Equipment Warranty in the Supply Terms, to which I will return. ^[23]

    23. See [145]-[162] below.

The releases

59. Both the Purchaser and the Vendor placed reliance on the terms of the releases in the Settlement Deed.

60. In particular, the Purchaser’s central submission was that title to the Homogenizer and Filler passed to it “when the Settlement Documents were entered into”. That was because, the Purchaser submitted, the effect of the releases was that the Vendor released the Purchaser from any claim to title in the Homogenizer and Filler, with the consequences that title in those components passed to it, leaving the Vendor obliged to provide a further homogeniser and filler for each of Plants 1 and 2.

61. The Vendor’s position was that the releases did not have that effect, that title in the Homogenizer and Filler remained with it and must have been intended by the parties to constitute performance of the Vendor’s obligations under the Settlement Documents to deliver such components as part of Plant 1, with title passing once the Purchaser paid the “full purchased price”.

62. The releases were set out in cll 3.1 and 3.2 of the Settlement Deed.

63. Clauses 3.1(a) to (c) of the Settlement Deed provided:

“On and from the execution of this [D]eed, [the Purchaser]:

(a)   agree[s] that the Contract … 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)   release and forever discharge [the Vendor] … from all Claims and actions arising from or in connection with the Settled Matters;

(c)   agree that [the Vendor] (including its officers, employees and agents) may plead this [D]eed as a bar to any Claim or action brought against it in relation to the Settled Matters.”

64. Clause 3.2 provided a corresponding agreement and release by the Vendor.

65. The parties’ submissions focussed on the releases in cll 3.1(b) and 3.2(b).

66. The word “Claim” was defined in the Settlement Documents 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”. (Emphasis in original)

67. I have set out the definition of “Settled Matters” at [25] above.

The construction of releases

68. The principles relevant to construing a release are:

1. at law, releases are to be construed narrowly with general words confined to those things which were “specially in the contemplation of the parties at the time when the release was given”; ^[24] such that “a dispute that ha[s] not emerged, or a question which ha[s] not at all arisen, cannot be considered as bound and concluded by the anticipatory words [in a release] of a general release”; ^[25]

2. equity will intervene to ensure that a “releasee must not use the general words of a release 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 the state of knowledge of the respective parties concerning the existence, character and the extent of the liability in question and the actual intention of the releasor”; ^[26]

3. equity will intervene to restrain an unconscientious exercise of the rights conferred by the general words of a release, ^[27] although this is not a condition precedent to equitable intervention^[28] ;

4. in that regard the Court thus may receive evidence of the subjective understanding of the parties as to the extent of the liability in question including the “actual intention of the releasor”; ^[29] and

5. releases nonetheless can extend to claims of which the releasor and the releasee were unaware. ^[30]

   24. Directors of the London and South Western Railway Co v Blackmore (1870) LR 4 HL 610 at 623 (Lord Westbury); cited with approval in Reid v Commonwealth Bank of Australia (2022) 109 NSWLR 149; [2022] NSWCA 134 at [33] (Leeming JA, Bell CJ agreeing).

   25. Directors of the London and South Western Railway Co v Blackmore (supra) at 623-624 (Lord Westbury).

   26. Grant v John Grant & Sons Pty Ltd (1954) 91 CLR 112 at 129-130 (Dixon CJ, Fullagar, Kitto and Taylor JJ); [1954] HCA 23; see Reid v Commonwealth Bank of Australia (supra) at [42] (Leeming JA), [121]-[122] (White JA).

   27. Reid v Commonwealth Bank of Australia (supra) at [3] (Bell CJ), [42]-[43] (Leeming JA); and see P Herzfeld and T Prince, Interpretation (supra) at [30.80].

   28. Burness v Hill [2019] VSCA 94 at [81] (Kaye, McLeish and Hargrave JJA; and see White JA in Reid v Commonwealth Bank of Australia (supra) at [120] to [122]

   29. See Grant v John Grant & Sons Pty Ltd (supra) at 130 (Dixon CJ, Fullagar, Kitto and Taylor JJ) and Reid v Commonwealth Bank of Australia (supra) at [34], [42], [47]-[48] (Leeming JA).

   30. Reid v Commonwealth Bank of Australia (supra) at [3] (Bell CJ), [36], [51] and [52] (Leeming JA) and [125]-[126] (White JA).

69. As “this is one area in which evidence of the subjective intentions of the parties to a deed of (or contractual) release may legitimately inform the analysis of the operation and efficacy of any release”,^[31] the parties’ submissions focused on the negotiations leading up to the execution of the Settlement Documents, especially so far as they concerned the Vendor’s intention.

    31. Per Bell CJ in Reid v Commonwealth Bank of Australia (supra) at [3].

The negotiations leading up to the execution of the Settlement Documents

70. Negotiations to settle the Earlier Proceedings commenced towards the end of 2022. Those negotiations aimed at reaching agreement for the supply of the plants the subject of the Initial Contract.

71. It is common ground that by 2 December 2022, negotiations had proceeded upon 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”, to adopt the words used by the Vendor’s solicitor, Mr Coleman, in an email to the Purchaser’s solicitor that day. That is, at this stage, it was proposed by both parties that the Homogenizer and Filler stand as part of the delivery under the proposed renegotiated agreement.

72. However, as Mr Coleman continued:

“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. ^[32] 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.”

32. This was evidently an issue that had also arisen under the Initial Contract.

73. Negotiations resumed in February 2023.

74. On 20 February 2023, Mr Coleman sent to the Purchaser’s solicitor, Mr Madani, a draft deed as “a starting point for further discussions”.

75. The draft deed included a proposed Heads of Agreement, which would become the Commercial Terms and which included a proposed cl 1.3 as follows:

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

76. The draft also contained a cl 3.5:

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

77. The draft also included a proposed cl 3.6 which is in the same terms as cl 4.4 as finally included in the Settlement Documents. ^[33]

    33. See [34] above.

78. These matters made clear that, at this stage, the Vendor’s intention was that it retain the $387,600 paid by the Purchaser to the Vendor on account of the purchase price under the Initial Contract, but that the already delivered Homogenizer and Filler be taken to be on account of the Vendor’s obligations under the proposed renegotiated agreement. Indeed, had Mr Coleman’s proposed cl 1.3 remained in the renegotiated agreement, it is hard to see how the dispute now before me would have arisen.

79. On 24 February 2023, Mr Coleman sent Mr Madani a “more detailed version of the settlement proposal”, which, for reasons unexplained in the evidence, omitted proposed cl 1.3. This draft retained proposed cll 3.5 and 3.6.

80. On 9 March 2023, Mr Madani sent Mr Coleman a “marked up version of the draft deed of settlement and commercial terms” which, again, for reasons unexplained in the evidence, omitted Mr Coleman’s proposed cl 3.5 but retained Mr Coleman’s proposed cl 3.6 which, because of paragraph reordering, became cl 4.4.

81. Thus, by now both of Mr Coleman’s proposed cll 1.3 and 3.5 were removed from the draft Settlement Documents. ^[34]

    34. Ms Horvarth and Mr Jameson did not seek to call this in aid on the construction of the Settlement Documents. Indeed, in oral submissions Ms Horvath eschewed reliance on these omissions, no doubt because there was no evidence that their omission was the result of “mutual concurrence” between the parties: Walker Group Constructions Pty Limited v Tzaneros Investments Pty Limited (2017) 94 NSWLR 108; [2017] NSWCA 27 at [114]-[121] (Bathurst CJ, Beazley P and Gleeson J agreeing); DXC Eclipse Pty Limited v Wildsmith [2023] NSWCA 98 at [102]-[104], [110] (Bell CJ, Brereton JA and Simpson AJA agreeing; and see Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (supra) at 352-353 (Mason J).

82. The trial of the Earlier Proceedings was to commence on Tuesday 21 March 2023.

83. Late on Sunday 19 March 2023, Mr Madani wrote to Mr Coleman, stating “as you are aware, our respective counsel have been conferring this weekend with settlement offers” and enclosing a “further draft of the deed and commercial terms which reflects the current position in negotiations”.

84. In that draft, Mr Coleman’s 20 February 2023 proposed cl 3.5 remained omitted. Clause 4.4 remained in the draft.

85. During the afternoon on Monday 20 March 2023, Mr Coleman sent a further draft of the Settlement Documents to Mr Madani “with...markups”.

86. Those markups had been made by an individual whose initials are “GB”. Evidently, “GB” was an employee of the Vendor who, having regard to the nature of his or her markups, had a high degree of technical expertise concerning the Plants. One of these markups related to a reference in the proposed Supply Terms concerning the Filler, which GB evidently construed as suggesting that two fillers were to be supplied. GB’s markup was:

“One filler has bee[n] delivered already to [the Purchaser].”

87. The consequential change that “GB” proposed be made to the Supply Terms is not material, but the comment bespeaks GB’s understanding, and thus I would infer the Vendor’s understanding, that the delivery by the Vendor of the Filler to the Purchaser was to be taken as being on account of the Vendor’s obligations under the proposed settlement.

88. Later, on 20 March 2023, Mr Madani provided a copy of the latest draft of the deed to Mr Withanage.

89. On 21 March 2023, the day that the trial was due to commence, Mr Withanage and Mr Sanjaya Pathirage, also from the Purchaser, had a Microsoft Teams meeting with Mr Paul Cirillo, Mr Marwan Baig, and Mr Asyraf Zamzam from the Vendor.

90. In his affidavit, Mr Zamzam said that during this meeting he said:

“You already have the filler and homogenizer for the new plant at your site in Sri Lanka. The only parts remaining to be supplied are the steriliser and the aseptic tank.”

91. In his affidavit, Mr Withanage said of this conversation:

“I do not remember this being discussed as we were only discussing the validation process.”

92. Mr Zamzam gave this evidence about that matter in cross-examination in answer to questions from Ms Horvath SC, who appeared with Mr Jameson for the Purchaser:

“Q. … You don’t know whether the Sanmik people heard you make that statement, do you?

A. Yes, I don’t know. Yep.

Q. And because they didn’t respond at the time, you at the time didn’t have any confidence, did you, that they heard that statement, did you?

A. I confident that they heard that statement.

Q. You assumed, I take it?

A. No, I think I confident that they heard that statement.

Q. You--

A. Because it’s long silen[ce] before the next topic move on.

Q. So there was a long silence. You accept, don’t you, that it’s entirely possible that the Sanmik people didn’t hear and understand the statement you made, don’t you?

A. I don’t know that.

Q. Well, you would have to accept that it’s possible, wouldn’t you?

A. I - I'm not in their shoes so I can’t answer on their behalf, I’m so sorry.”

93. In cross-examination, Mr Withanage repeated that he could not recall Mr Zamzam saying the words to which Mr Zamzam deposed. He said:

“According to my knowledge I didn’t discuss anything about the plant installation parts or machinery, I just going to discuss about the process validation only”.

94. I accept that Mr Withanage does not recall the words being said. Much else was discussed in the meeting, which was taking place virtually, and in which both Mr Withanage and Mr Zamzam were speaking English, not the first language of either of them. However, Mr Zamzam impressed me as a witness who had a clear recollection of events. I accept Mr Zamzam’s evidence that he said the words set out at [90] during the Teams Meeting.

95. The fact that Mr Zamzam said these words is clear evidence that, immediately prior to execution of the Settlement Documents, the Vendor’s intention was that the Homogenizer and Filler in the Purchaser’s possession would be taken to be on account of the Vendor’s obligation under the proposed renegotiated agreement.

96. The parties executed the Settlement Documents the following day, 22 March 2023.

The proper construction of the releases

97. As I have said, the parties’ submissions focussed on the release in subcl (b) of cll 3.1 and 3.2 of the Settlement Documents.

98. When the relevant wording from the definitions of “Claim” and “Settled Matters” are incorporated into the release in subcl (b),^[35] it reads as follows, adopting “[ ]” to denote incorporation of defined terms, and “{ }” to denote added words:

“[Purchaser/Vendor] releases and forever discharges [Vendor/Purchaser] from [any claim, action or liability of any kind (including one which is prospective or contingent …)] ^[36] arising from or in any way in connection with {any} [claims and disputes between them which were the subject of or in any way related to … the {initial} Contract, … the supply of the First UHT Plant, {and} payment for the supply of the First UHT Plant …].” ^[37]

“Supply”

35. See Kelly v The Queen (2004) 218 CLR 216; [2004] HCA 12 at [103] (McHugh J); see the cases referred to in K Lewison and D Hughes, The Interpretation of Contracts in Australia (1st ed, 2012, Thomson Reuters) at [5.11] and P Herzfeld and T Prince, Interpretation (supra) at [21.10].

36. From definition of “Claim”; see [66] above.

37. From definition of “Settled Matters”; see [25] above.

99. The release makes reference to the “Supply” of the first Plant. Mr Lawrance submitted this must refer to the provision of the entirety of Plant 1, and not merely the Homogenizer and Filler, because the Initial Contract was not a contract for the supply of the individual components of the Plant but rather for its entirety. I do not think that this is correct. If it were, it would render subcl H(d) irrelevant. ^[38] Moreover, as was submitted by Ms Horvath and Mr Jameson for the Purchaser, such a construction of the word “supply” is not consistent with:

    38. I have set that out at [25] above.

1. cll 1.1(e) and (f) of the Commercial Terms, which speak of each of Plant 1 and Plant 2 being “delivered” rather than supplied;

2. cl 9.5 of the Commercial Terms, which speaks of an agreement to “supply” ongoing spare and replacement parts;

3. the Supply Terms, which speak of the “supply” of parts of the equipment rather than the Plant; and

4. the delivery terms within the Supply Terms, which allowed for partial shipments from any of the Vendor’s factories.

100. In those circumstances, and in the context that the parties knew that the Vendor had delivered to the Purchaser the Homogenizer and Filler, the better construction of the word “Supply” within the definition of “Settled Matters”, and as incorporated by reference into the terms of the release, is to include the “supply” of the Plant or any component of it.

“Claims and disputes”

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 Lawrence’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”; ^[39] 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. ^[40]

     39. See Grant v John Grant & Sons Pty Ltd (supra) at [68(b)] above.

     40. See [95] above.

104. 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.

105. 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. ^[41]

     41. See [68(d)] above; Burness v Hill (supra) at [81] (Kaye, McLeish and Hargrave JJA); cited with approval by White JA in Reid v Commonwealth Bank of Australia (supra) at [122].

106. 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.

107. 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”. ^[42] That could only have happened by reason of the releases; and they do not do this work.

     42. See [60] above.

108. 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”.

109. 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.

110. 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.

111. I now turn to those other provisions.

Clause 3.3 of the Settlement Deed

115. Clause 3.3 of the Settlement Deed, which appears immediately after the releases in cll 3.1 and 3.2, provided:

“For the avoidance of doubt, nothing in this deed prevents a party … from commencing or pursuing a Claim or action arising from or in connection with the Commercial Terms or the Supply Terms”.

116. Mr Lawrance submitted that this clause represented a qualification of the releases in the immediately preceding clauses of the Settlement Deed and that, by reason of the Equipment Warranty in the Supply Terms, its effect was that if “[the Vendor] needs to assert a claim to ownership of the [H]omogenizer and [F]iller in order to perform [the supply obligations under the Settlement Documents], the effect of clause 3.3 is that the release in clause 3.2(b) does not apply”.

117. I will return to the Equipment Warranty below. ^[43] The point for present purposes, and the answer to Mr Lawrance’s submission, is that although cl 3.3 appears immediately after the releases in cll 3.1 and 3.2, I do not see it as qualifying those releases in any relevant way. It speaks prospectively and makes clear that nothing in the Settlement Deed, including the releases, affects any “Claim” either party might have in the future arising from the performance of their obligations under the Commercial Terms or Supply Terms. The clause is not directed to matters arising in the past, including the Vendor’s delivery of the Homogenizer and Filler. It says nothing about the critical question before me.

     43. See [145]-[162] below.

A “new” supply “independent of” the Initial Contract

118. As I have set out above,^[44] by cl 2.1(a) of the Settlement Deed 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.

     44. See [16] above.

119. Ms Horvath and Mr Jameson submitted that:

“By calling the supply a ‘new supply’, there is an objective recognition that there existed an ‘old supply’ (being the supply the subject of the Initial Contract and the settled proceedings). A reasonable business person would recognise that the parties chose to limit the terms of the Settlement Documents to a new supply, those precluding the use of the [Homogenizer and Filler] which were the subject of the old supply … This is further reinforced by the reference to the supply being ‘independent of the previous [Initial Contract]”.

120. I see these matters as being neutral. As Mr Lawrance submitted, the sale agreement in the Settlement Documents was a “new” sale agreement. It was a “new” supply. It was also a sale that was “independent” of the Initial Contract. I cannot see what light this clause casts on the parties’ intention concerning the Homogenizer and Filler.

Clauses 2.2 and 2.3

121. Clauses 2.2. and 2.3 of the Settlement Deed provided:

“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)   [the Purchaser] will be jointly and severally liable to pay an amount of $1,900,000 AUD to [the Vendor];

(b)   [the Vendor] 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)   [the Purchaser] 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 [the Vendor] would have been entitled to receive if this deed had not been entered into and the releases given.”

122. The effect of these provisions was that if the Purchaser did not provide the “Security” of $1.8 million for Plant 1, ^[45] it was obliged to pay the Vendor $1.9 million, and each of the parties would be relieved of the “entirety of their obligations” under the Commercial Terms and the Supply Terms including, in the case of the Vendor, its obligation to supply Plant 1 and Plant 2, and, in the case of the Purchaser, its obligation to make any “further” payment.

     45. Commercial Terms, cl 5.1.

123. The “obligations” of which the parties would be “relieved” would not include the obligations arising from the releases as they are contained in the Settlement Deed, and not in the Commercial Terms or the Supply Terms.

124. The result would appear to be, first, that the Vendor would retain the $387,600. It had no “obligations” under the Commercial Terms and the Supply Terms concerning that sum; indeed, by cl 4.4 of the Commercial Terms, that sum was agreed not to be taken into account as part payment for Plants 1 or 2.

125. As to the Homogenizer and Filler, the nature of the Vendor’s obligations to “supply” Plant 1, including whether or not it was obliged to provide a further homogenizer and filler, and thus the nature of the obligations of which it would be relieved were cl 2.2 to be engaged, depend on and do not itself provide the answer to the critical question.

126. That is because the outcome of the operation of cl 2.2, were it to be engaged, on the status of the Homogenizer and Filler would depend on the effect of the releases.

127. If, contrary to my conclusion, the effect of the releases was that the Vendor no longer had title to the Homogenizer and Filler, the effect of cl 2.2 would be that the Vendor would be “relieved” from any further obligation to provide an homogenizer and filler for Plant 1, and the Purchaser would have title to the Homogenizer and Filler.

128. On the other hand, if, as I have found, the effect of the releases was that they did not have this effect, and the Vendor remained the owner of the Homogenizer and Filler, the effect of cl 2.2 would be that the Vendor was “relieved” from providing the remaining components of Plant 1, but would remain the owner of, and entitled to possession of, the Homogenizer and Filler.

129. Either way, cl 2.2 casts no light on the critical question.

“To be delivered”

130. In the Commercial Terms, “Plant 1” and “Plant 2” are defined as follows:

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

Plant 2 means the plant meeting the specification set out in the Supply Terms and to be delivered to the Philippines Site.”^[46] (Emphasis in original.)

46. See [30] above.

131. The fact that Plant 1 was defined as being “the plant … to be delivered”, taken out of context, is arguably consistent with the Purchaser’s case that no part of Plant 1 had yet been delivered.

132. However, the definitions of Plant 1 and Plant 2 make no reference to the Homogenizer and Filler, and appear to be directed to the question of where the components of those Plants 1 and Plants 2 were “to be delivered”, rather than whether all their constituent parts had by then been delivered. The plant comprising Plant 1 was “to be delivered” to Sri Lanka, and the plant comprising Plant 2 was “to be delivered” to the Philippines. Consistently with this requirement, the Homogenizer and Filler had in fact been delivered to Sri Lanka.

133. Ms Horwath and Mr Jameson submitted that the provision also presupposed that Plant 1 and Plant 2 would meet the specifications in the Supply Terms at the time of delivery and that, without a new filler and homogenizer being “delivered” to the Purchaser, Plant 1 could not meet that definition. I do not read the definitions this way. Rather, they do no more than state that each plant must meet the stated specification.

134. Overall, I do not see this provision itself as compelling a different conclusion to that I have expressed above.

Time for delivery of the Plant

135. Clause 3.1 of the Commercial Terms provided that the “delivery time” for Plant 1 to Columbo was between 12 and 30 weeks from the supply of identified Security. In the Initial Contract the corresponding “delivery time” for Plant 1 was 30 to 34 weeks.

136. Mr Lawrance submitted that the “reduced delivery time” in the Commercial Terms, as compared to that in the Initial Contract, suggested that the parties’ objective intention was that the Vendor “would perform its supply obligations under the Settlement [Documents] using the equipment it had obtained for the purposes of performing its supply obligations under the Initial Contract”.

137. I do not see such a suggestion arising from this clause. Either way, the parties contemplated that it might take 30 weeks for delivery of Plant 1. I do not see this as a factor shedding any light on the parties’ intention concerning the Homogenizer and Filler.

Price of the Plant

138. Clauses 4.1 and 4.2 of the Commercial Terms provided that the price payable for Plant 1 was $1.8 million and the price payable for Plant 2 was $1 million.

139. Ms Horvath and Mr Jameson submitted that if, as the Vendor contends, the Homogenizer and Filler could be used as part of the supply of Plant 1, a reasonable business person would expect that the price for Plant 1 be less than the price for Plant 2.

140. I do not think any inference can be drawn either way by the pricing structure in the Commercial Terms. The evidence does not reveal why it was that the parties agreed that the price of Plant 1 would be more than the price for Plant 2. It may have been, as Mr Lawrance submitted, because it was a part of the agreement that there be no order as the costs of the Earlier Proceeding. ^[47]

     47. See Settlement Deed, cl 2.4.

141. I do not see the pricing structure as casting any light on the critical issue.

Milestone Payments

142. Clause 6.1 of the Commercial Terms provided for “Milestone Payments” for Plant 1 including “20% of the price payable upon issuance of a copy of bill of lading for Plant 1”.

143. Ms Horvath and Mr Jameson did not refer to this provision in their written submissions, but, in oral submissions, Ms Horvath submitted that this provision showed that the parties contemplated that there be only one bill of lading in relation to Plant 1; suggesting that the parties intended that all of the components of Plant 1, including an homogenizer and filler, be supplied following the date of the Settlement Documents. However, as Mr Lawrance pointed out, the Supply Terms made provision for the partial shipments so that there could well be more than one bill of lading.

144. I find this provision to be neutral on the vital question.

Equipment Warranty

145. Within the Supply Terms were a series of “Commercial Conditions” which included an “Equipment Warranty” in the following terms:

“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”.

146. There was also an Equipment Warranty in the Initial Contract. It was in more conventional terms as follows:

“The Seller warrants that each item of the Equipment is as specified in the quotation.”

147. The parties agree that the reference in the Equipment Warranty to the “Equipment” is a reference to all of the equipment to be provided by the Vendor in respect of Plant 1 and Plant 2; that is an homogenizer, a filler and a steritank.

148. The evident purpose of the Equipment Warranty was to explain the limited nature of the warranties that might be available to the Purchaser in circumstances where, as the parties knew, the Vendor had procured the components for the two Plants from third party suppliers and the warranties given by those third party suppliers may have expired by the time of the Settlement Documents. ^[48]

     48. See [10] and [72] above.

149. There was debate between the parties as to whether the reference in the first sentence of the Equipment Warranty to “previous now terminated contracts” was a reference to the Initial Contract, as the Vendor contended, or to the subcontracts between the Vendor and its third party suppliers, as the Purchaser contended.

150. The obvious difficulty with the Vendor’s contention is that the clause refers to “contracts”, plural. There was only one Initial Contract. There were a number of subcontracts made by the Vendor with its third party suppliers.

151. The “warranties” referred to in the second sentence of the Equipment Warranty are obviously those given to the Vendor by its third party suppliers and, in that context, the reference to “previous now terminated contracts” in the immediately preceding sentence suggests that what is being referred to is the Vendor’s third party contracts.

152. It is true that there is no evidence that those subcontracts have been “terminated”, and the parties’ contemplation that some warranties under those third party contracts might remain in force appears to be inconsistent with termination of such contracts.

153. There is some infelicity of language here. Indeed, as Mr Lawrance submitted, there is no construction of the Settlement Documents that does not involve some infelicity.

154. In the Settlement Deed, the parties had used the defined term “Contract” to denote the Initial Contact. ^[49] The Supply Terms are an annexure to the Settlement Deed. If the parties had intended to refer in the first sentence of the Equipment Warranty to the Initial Contract, it seems like they would have used the defined term “Contract”, rather than the bespoke words in fact adopted.

     49. See recital D at [25] above.

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.

156. Ms Horvath submitted that were the expression “previous now terminated contracts” to be construed as meaning the Initial Contract, it would mean that the statement in the first sentence of the Equipment Warranty was not completely correct. That is because part of the equipment “ordered under” the Initial Contract, being a filler intended for the second of the two Plants, had been sold by the Vendor to a third party,^[50] and thus could not be an element of which the Equipment “was made up”.

     50. See [10] above.

157. However, the same can be said if “previous now terminated contracts” is read as meaning the Vendor’s subcontracts with its third party suppliers.

158. Evidently, when drafting this clause, the parties overlooked the sale of the filler for the second Plant. I see this factor as being neutral and again reflecting no more than the infelicity of the drafting of this provision.

159. Mr Lawrance submitted that whatever else the Equipment Warranty reveals as to the parties’ intention, it shows that they acknowledged that the Equipment to be supplied under the Settlement Documents was comprised of components, the “equipment”, that had been earlier “ordered”.

160. Mr Lawrance put the argument this way:

“I was answering your Honour's question about the equipment warranty and it must at least do this; it must at least reflect an intention on the part of the parties that at least some of the plant that was going to be supplied to [the Purchaser] ^[51] would be made up of can I use the expression recycled parts, or what I really mean is parts that had been ordered by [the Vendor] in the past in order to perform the Initial Contract. It must at the very least reflect an intention that some of the plant would be provided using previously acquired parts.

Now, if that is right then of all the pieces of equipment that are going to end up in these plants, the one piece that objectively the parties must most likely have intended to be able to be used for the purposes of supplying Plant 1 would be the piece of equipment that has not just been previously ordered by [the Vendor] for supplying Plant 1, it has actually been ordered, delivered to Sri Lanka, it is sitting in their factory in Sri Lanka and it meets precisely the specifications of the supply contract that forms part of the settlement terms and [the Vendor] owns it.

So on any view of the matter in my submission the equipment warranty does at least that much work. It would, putting it another way, it would in my submission be strange if the parties had intended that that equipment sitting in Colombo be the odd one out and it not being able to be used for the purpose of performing the supply obligations under the contract.”

51. Mr Lawrance referred to “Alfa Laval” but must have intended to refer to Sanmik, the Purchaser.

161. The difficulty with this argument is that all of the elements of Plant 1, not only the Homogenizer and Filler, had been ordered by the Vendor from its third party suppliers. In that context, the statement in the first sentence of the Equipment Warranty is, save for explaining what follows in the second sentence concerning the limited warranties that might be available for the Purchaser, unremarkable. 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.

Conclusion as to construction

163. As I have said, 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 to be recorded in the Settlement Documents; particularly because the Purchaser did not consider them to be of any use without the remaining components of plant.

164. The question is, however, what intention can be attributed to the parties by the words they used in the Settlement Documents in their proper context.

165. I have found that:

1. it was the Vendor’s subjective intention that, because it had delivered a Homogenizer and Filler to the Purchaser, it did not have to deliver a further homogenizer and filler under the proposed Settlement Documents in respect of Plant 1; and

1. the effect of the releases was that the Vendor did not surrender title to the Homogenizer and Filler.

166. These matters also point to the conclusion that, because 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.

167. I do not see any other provision in the Settlement Documents as pointing to a different conclusion.

168. My conclusion is that, on the proper construction of the Settlement Documents, the Vendor is entitled to rely on its delivery of the Homogenizer and Filler as part of the supply under the Settlement Documents.

169. The parties should confer and agree on the orders necessary to give effect to these reasons and on the further steps that now need to be taken in the proceedings.

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Endnotes

Decision last updated: 07 June 2024