Wyllie v Tarrison Pty Ltd

No judgment structure available for this case.

New South Wales

Court of Appeal

CITATION: WYLLIE v TARRISON PTY LTD [2007] NSWCA 184
This decision has been amended. Please see the end of the judgment for a list of the amendments.

HEARING DATE(S): 15 and 16 May 2007

JUDGMENT DATE:
30 July 2007

JUDGMENT OF: Giles JA at 1; Basten JA at 2; Campbell JA at 96

DECISION: Appeal dismissed with costs.

CATCHWORDS:
CONTRACT – novation of contract of sale – whether new purchaser substituted for original purchaser under sale agreement - whether obligations of the guarantor of the original purchaser discharged by novation or substitution – construction of contract – commercial purpose of contract
CONTRACT – construction – where ambiguity in express terms of contract – court to have regard to commercial purpose and context of contract - meaning of “serviceable condition” of aircraft – Civil Aviation Act 1988 (Cth) – Civil Aviation Regulations 1988 (Cth)
TRADE PRACTICES – misleading and deceptive conduct – oral representations as to condition of aircraft – Trade Practices Act 1974 (Cth) s 51A, s 52 – Fair Trading Act 1987 (NSW) s 41

LEGISLATION CITED: Civil Aviation Act 1988 (Cth), s20AA
Civil Aviation Regulations 1988 (Cth), regs 2, 37, 37A, 38, 51, Part 4B
Civil Aviation Regulations 1998 (Cth), reg 43, Part 4A, Divs 2 and 3
Civil Aviation Regulations (No 11) 2002 No. 350, s 3, Schedule 1 [3]
Fair Trading Act 1987 (NSW), ss 41, 42
Trade Practices Act 1974 (Cth), ss 51A, 52, 82

CASES CITED: Butcher v Lachlan Elder Realty Pty Ltd (2004) 218 CLR 592
Codelfa Construction Pty Ltd v State Rail Authority of NSW (1981-82) 149 CLR 337
Fitzgerald v Masters (1956) 95 CLR 420
Harry v Fidelity Nominees Pty Ltd (1985) 41 SASR 458
Henville v Walker (2001) 206 CLR 459
Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41
Lam v Ausintel Investments Australia Pty Ltd (1989) 97 FLR 458
Maggbury Pty Ltd v Hafele Australia Pty Ltd (2001) 210 CLR 181
Maralinga Pty Ltd v Major Enterprises Pty Ltd (1973) 128 CLR 336
Oscar Chess Ltd v Williams [1957] 1 WLR 370
Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451
Re United Pacific Transport Pty Ltd [1968] Qd R 517
Reardon Smith Line Ltd v Hansen-Tangen [1976] 1 WLR 989
Rhone-Poulenc Agrochimie SA v UIM Chemical Services Pty Ltd (1986) 12 FCR 477
Ryledar Pty Ltd v Euphoric Pty Ltd [2007] NSWCA 65
Spunwill Pty Ltd v Bab Pty Ltd (1994) 36 NSWLR 290
Ting v Blanche (1993) 118 ALR 543
Toll (FCGT) Pty Ltd v Aophapharm Pty Ltd (2004) 219 CLR 165
Upper Hunter County District Council v Australian Chilling and Freezing Co Limited (1968) 118 CLR 429
Vickery v Commissioner of Stamp Duties (1950) 51 SR(NSW) 79
Watson v Foxman (2000) 49 NSWLR 315
Wyllie v Tarrison Pty Ltd [2007] NSWCA 95
Lewison, The Interpretation of Contracts (3rd ed, 2004), par 9.02

PARTIES: William Anthony Wyllie - First Appellant
Vengreen Pty Ltd - Second Appellant
Sydney Harbour Seaplanes Pty Ltd - Third Appellant
Tarrison Pty Ltd - First Respondent
Ross Edward Seller - Second Respondent
Rensen Pty Ltd - Third Respondent

FILE NUMBER(S): CA 40136/06

COUNSEL: N.J. West QC/J.E. Lazarus - Appellants
D.K.L. Raphael/J. O'Sullivan - Respondents

SOLICITORS: C.G. Gillis & Co, Lawyers - Appellants
Gibsons Lawyers - Respondents

LOWER COURT JURISDICTION: District Court

LOWER COURT FILE NUMBER(S): DC 2489/03

LOWER COURT JUDICIAL OFFICER: Hungerford ADCJ

LOWER COURT DATE OF DECISION: 24 February 2006

CA 40136/06
DC 2489/03

GILES JA
BASTEN JA
CAMPBELL JA
30 July 2007

William Anthony WYLLIE & ORS v TARRISON PTY LTD & ORS

On 15 February 2002, the First Respondent, Tarrison Pty Ltd (“Tarrison”), entered an agreement to sell two seaplanes to Purple Way Pty Ltd (“Purple Way”), a company associated with the First Appellant, Mr Wyllie. Tarrison operated one of the seaplanes through a related company, Sydney Harbour Seaplanes Pty Ltd (“SHS1”). By further agreement on 15 February 2002, SHS1 agreed to sell its assets and assign its business name to Purple Way, which later adopted the name Sydney Harbour Seaplanes Pty Ltd (“SHS2”). The two directors of SHS2, Mr Wyllie and Mr Kane, guaranteed the obligations of SHS2 in relation to payment to Tarrison of the purchase price of the two seaplanes, being $800,000.

An initial deposit was paid on execution of the sale agreement. Funds for the second instalment were sought from Westpac Banking Corporation. On the loan agreement with Westpac the purchaser was named as Vengreen Pty Ltd (the Second Appellant), another company controlled by Mr Wyllie. Soon after the major payments were made under the sale agreement, Mr Wyllie discovered that major work was required on both seaplanes. The final payment of $130,000, which was due and payable by 14 April 2003, was not paid.

On 21 July 2003, Tarrison commenced proceedings in the District Court against SHS2 and Messrs Wyllie and Kane, seeking payment of the unpaid amount under the sale agreement. The defendants in those proceedings cross-claimed, alleging misleading and deceptive conduct, involving misrepresentations as to the condition of the seaplanes, and a breach of the vendor’s warranty. The defendants also claimed that there had been a novation of the sale agreement so that Vengreen had become the purchaser, releasing Messrs Wyllie and Kane from any liability as guarantors of SHS2 under the original sale agreement.

In the District Court, Hungerford ACDJ found in effect that there had been a novation which substituted Vengreen for SHS2 as the purchaser under the sale agreement. The plaintiff obtained judgment for the outstanding instalment against Vengreen and Mr Wyllie, but not Mr Kane. The cross-claims were dismissed.

The present appeal was brought by Mr Wyllie, Vengreen (in liquidation) and SHS2 (in liquidation).

The issues for determination were:

(i) Whether there was a novation of the sale agreement pursuant to which Vengreen became the purchaser of the aircraft;

(ii) Whether there was a contractual warranty under the sale agreement;

(iii) Whether oral representations made on behalf of the vendor were promissory representations creating a contractual warranty;

(iv) Whether statements made on behalf of the vendor about the condition of the aircraft constituted misleading and deceptive conduct.

The Court held, dismissing the appeal:

(per Basten JA, Giles and Campbell JJA agreeing)

In relation to (i)

1. Having regard to the commercial purpose and context, a reasonable person would not infer that the whole of the contract between Tarrison and SHS2 had been discharged by the offer by Tarrison on 13 May 2002 to sell the seaplanes to Vengreen: [32]. Mr Wyllie’s obligations of guarantee with respect to SHS2 remained on foot. There was no novation of the sale agreement: [35].

Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451; Reardon Smith Line Ltd v Hansen-Tangen [1976] 1 WLR 98, applied.

In relation to (ii)

2. The court should look for a commercially sensible understanding of the language used in a written agreement, so as to give it effect, even if there appears to be a level of uncertainty or ambiguity: [44]. Where relief by way of rectification is not sought and the actual wording of the contract does not go so far as to result in absurdity or inconsistency, it may be legitimate to read a word in a contract as if its opposite had been inserted, in order to give effect to the common intention of the parties. This common intention may be inferred from the instrument itself and its objective context, without reference to the subjective intentions of the parties: [45]-[46].

Upper Hunter County District Council v Australian Chilling and Freezing Co (1968) 118 CLR 429, applied.

Fitzgerald v Masters (1956) 95 CLR 420; Maralinga Pty Ltd v Major Enterprises Pty Ltd (1973) 128 CLR 336; Ryledar Pty Ltd v Euphoric Pty Ltd [2007] NSWCA 65, considered.

3. In construing the provision relating to warranty as to “serviceable condition” of the aircraft, assistance may be sought from the objective framework of facts, such as the circumstances in which the clause was drafted and the statutory regime regulating civil aviation. In the circumstances of this case, it is appropriate to read “serviceable condition” as meaning compliance with the civil aviation regulatory scheme. As these requirements were satisfied, there was no breach of contractual warranty: [60].

In relation to (iii)

4. Statements made during negotiations may form binding warranties if an intelligent bystander would reasonably infer, from the words or conduct of the parties, that a warranty was intended: [62]. In this case, a reasonable person knowing the surrounding context would not construe the statements in question as indicating an intention to provide promissory warranties: [77].

Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41; Oscar Chess Ltd v Williams [1957] 1 WLR 370, applied.

In relation to (iv)

5. The conduct in question, objectively assessed, was not a warranty as to particular facts, but a suggestion that Mr Wyllie make his own inquiries as to the condition of the aircraft. The trial judge was correct in dismissing the claim for misleading and deceptive conduct: [90].

Henville v Walker (2001) 206 CLR 459; Butcher v Lachlan Elder Realty Pty Ltd (2004) 218 CLR 592, applied.

CA 40136/06
DC 2489/03

GILES JA
BASTEN JA
CAMPBELL JA
30 July 2007

William Anthony WYLLIE & ORS v TARRISON PTY LTD & ORS

Judgment

1 GILES JA: I agree with Basten JA.

2 BASTEN JA: Prior to 15 February 2002, Tarrison Pty Ltd (“Tarrison”) owned two seaplanes, one of which operated in commercial service between Rose Bay and Newcastle, through a related company, Sydney Harbour Seaplanes Pty Ltd, which has been referred to throughout these proceedings as “SHS1”. The two seaplanes have been identified in the proceedings by their distinctive call letters, “AQA” and “AQU” respectively.

3 On 15 February 2002 Tarrison entered into an agreement to sell the seaplanes to a company associated with Mr William Wyllie, the First Appellant (“the sale agreement”). The party identified as the purchaser in that agreement was Purple Way Pty Ltd (“Purple Way”). However, there was a further agreement of 15 February 2002 pursuant to which SHS1 agreed to sell its assets and assign its business name to Purple Way. In due course, Purple Way adopted the name Sydney Harbour Seaplanes Pty Ltd (retaining, of course, its separate ACN) and has been known throughout the proceedings as “SHS2”. It is convenient to adopt this nomenclature.

4 As at 15 February 2002, Purple Way (or SHS2) had two directors and shareholders, being Mr Wyllie and Mr Peter Kane. Under the sale agreement between Tarrison and SHS2, Messrs Wyllie and Kane guaranteed the obligations of SHS2 in relation to payment to Tarrison of the purchase price of the two seaplanes, being a total amount of $800,000.

5 An initial deposit of $10,000 was paid on execution of the sale agreement, with a second instalment of $660,000 due and payable on 14 April 2002. Funds for part of that major instalment were sought from Westpac Banking Corporation and a second company controlled by Mr Wyllie, Vengreen Pty Ltd (“Vengreen”), was substituted as the purchaser of the seaplanes. The correct legal characterisation of the ‘substitution’ will need to be considered in due course, but on one view it was designed to replicate the separation between ownership of the seaplanes and operation of the commercial service in which they were deployed, which had existed between Tarrison and SHS1, and was proposed as between Vengreen and SHS2.

6 Soon after the major payments were made under the sale agreement, Mr Wyllie discovered that major work was required in relation to both of the seaplanes, but particularly in relation to AQA. The final payment of $130,000, due and payable by 14 April 2003, was not paid. On 21 July 2003, Tarrison commenced proceedings in the District Court against SHS2 and Messrs Wyllie and Kane, seeking payment of the amount unpaid under the sale agreement, from SHS2, as purchaser, and from the individuals as guarantors of the financial obligations of SHS2 under the sale agreement. The defendants resisted payment and cross-claimed alleging misleading and deceptive conduct on the part of Tarrison, SHS1 (which had by now changed its name to Rensen Pty Ltd) and Mr Ross Seller who was the principal shareholder and director of those two companies. The conduct relied upon involved misrepresentations as to the condition of the seaplanes. The defendants also complained (on similar grounds) of a breach of the vendor’s warranty under the sale agreement.

7 In addition, the defendants claimed that there had been a novation of the sale agreement on 15 May 2002, so that the purchaser had become Vengreen. So far as the claim by Tarrison for a payment under the contract was concerned, the substitution of Vengreen for SHS2 could be addressed (as it was) by adding Vengreen as a fourth defendant to the statement of liquidated claim. However Messrs Wyllie and Kane relied upon the novation to relieve them of liability under their guarantees of the financial obligations of SHS2, under the original sale agreement.

8 The trial ran for three weeks before Hungerford ADCJ in the District Court. In broad terms, the plaintiff was successful and obtained judgment for the outstanding instalment under the sale agreement against Vengreen and Mr Wyllie. In effect, his Honour found a novation which substituted Vengreen for SHS2 as the purchaser under the sale agreement, with the result that Mr Kane, but not Mr Wyllie, was relieved of his obligations as guarantor. The cross-claims against Tarrison, SHS1, Mr Seller and a fourth cross-defendant, Mr Robert Britten, were dismissed.

9 The present appeal was brought by Mr Wyllie, Vengreen (in administration) and SHS2 (in liquidation). Tarrison made a belated attempt to cross-appeal out of time against the judgment in favour of Mr Kane (which had included an order that Tarrison pay Mr Kane’s costs). That application was rejected: see Wyllie v Tarrison Pty Ltd [2007] NSWCA 95 (Hodgson JA). Accordingly, Mr Kane has played no part in this appeal.

10 Before identifying more precisely the issues raised on the appeal, it is desirable to provide some further detail of the circumstances and documentation which gave rise to the dispute.

Background and documentation

11 The primary focus of the case was a set of contracts entered into on 15 February 2002. However, before identifying those arrangements, it is convenient to refer to a document entitled “Heads of Agreement” undated, but apparently executed by the proposed purchaser on 9 January 2002, by which SHS1 and Tarrison agreed to sell, respectively, the business and the aircraft, to a company associated with Messrs Wyllie and Kane, identified as Coastal Air Services, “or nominee”, as purchaser. Mr Seller noted that communications from Messrs Wyllie and Kane had been received on the letterhead of a company identified as Coastal Air Services (Aust) Pty Ltd (ACN 098 929 241): Affidavit, 4/6/04, par 7. The heads of agreement identified a total price of $825,000 with a refundable deposit of $5,000 to be paid upon execution of the heads of agreement. The purchaser was to have until 25 January 2002 to “complete its investigations” and enter into a final contract of purchase.

12 The date for the formal contractual arrangements was extended to 15 February 2002, when four agreements were executed. The agreement of primary interest in the present proceedings was the sale agreement between Tarrison and SHS2, which concerned the sale of the two seaplanes, AQA and AQU. The agreement was brief, containing two recitals and six clauses, together with an annexure identifying the goods the subject of the sale, upon the detail of which nothing turns for present purposes. (The goods are merely identified as two De Havilland Beaver (DHC-2) float planes with registration numbers VH-AQA and VH-AQU: other aspects of the seaplanes and their equipment were specified.)

13 Reference was made in the course of argument to the identification of the purchaser under the agreement and it is therefore appropriate to set out in full the somewhat awkward identification of the purchaser:

“PURPLE WAY PTY LTD (ACN 099 609 524) of Level 5, 311 Castlereagh Street, Sydney, NSW, 2000 (hereinafter called ‘the Purchaser’ or nominee, of the other part.”

The end of the parenthesis was not marked and, as will be seen below, something was made of the fact that the words “or nominee” came after and not before the identification of “the Purchaser”.

14 Clause 3 of the sale agreement made provision in relation to payment of the purchase price:

“3. The purchase price shall be payable as follows:

(a) a deposit of $10,000 payable now;

(b) as to $660,000 as at 14 April 2002 by bank cheque and upon delivery of the Aircraft described in the attachment and known as VH-AQA and VH-AQU, of Rose Bay, Sydney or Bankstown in Sydney.

If for any reason this payment is not received by 14 April 2002, then default interest will apply at the rate of 20% per annum calculated daily until payment is made. If payment is still not made by 14 May 2002 then this rate will increase to 30% per annum calculated daily.

If payment is still not made by 30 June 2002, then the Vendor may re-take possession of the Goods for the purpose of re-sale with any shortfall between the eventual sale price and the Purchase Price plus any default interest being payable by the Vendor;

(c) as to $130,000 by 14 April 2003 by bank cheque.”

(Clause 3(b) has been broken into parts to distinguish the initial obligation, the provision for “default interest” at an increasing rate, and the final provision that the vendor might retake possession for the purpose of resale.)

15 Clause 4 included vendor’s covenants, paragraph (a) providing:

“All property right and title in and to the Goods and each item thereof HEREBY PASSES to the Purchaser free from all mortgages liens charges and encumbrances whatsoever.”

As will be seen, there is reason to suppose that property did not pass upon the execution of the agreement, but at some time thereafter, possibly upon delivery pursuant to cl 3(b). On that construction, the reference to property hereby passing in cl 4(a) was not to have a temporal element.

16 Clause 5 is best set out in its terms, without an attempt to categorise it by descriptive label:

“5. The Purchaser acknowledges it is buying the aircraft on an ‘as is where is’ basis, and that no further warranty is given by the Vendor to the Purchaser as to the condition or suitability of the aircraft for those purposes of the Purchaser. The Purchaser does warrant that the Aircraft are in serviceable condition, will have valid Maintenance Releases and Certificates of Airworthiness for use in charter category.”

17 The proper construction of cl 5, and particularly the second sentence, was a significant issue in the case. In substance, the Appellants contended that the warranty as to “serviceable condition” was given by the vendor and not, as stated, by the purchaser. The alternative construction might be summarised as treating the verb “does warrant” as “does acknowledge”, leaving the subject of the verb as the purchaser.

18 The final clause contained the guarantee and read as follows:

“6. The obligations referred to in clause 3 are personally guaranteed by the officers of the Purchaser whose signatures also appear on this agreement.”

The execution clause included, after the execution on behalf of Purple Way, a space where the document was to be “signed, sealed and delivered by … as guarantor”, (the names were not included), against which the signatures of Mr Wyllie and Mr Kane appeared.

19 As already noted, a contemporaneous agreement for the sale of assets and the assignment of the business name, Sydney Harbour Seaplanes, was entered into between SHS1 and “SHS2”, although Purple Way had not then changed its name. It was a requirement of that agreement (cl 4.2) that SHS2 execute a sale agreement with Tarrison in relation to the aircraft. Property in the assets, including the business name, passed on completion, which was identified as 1 March 2002.

20 Two further agreements were entered into on 15 February 2002, each being an “aircraft rental agreement” with respect to one seaplane. They were based on the premise that each seaplane remained the property of Tarrison and was let to SHS2. Each agreement provided for payment of $300 per hour of operating time and required that Tarrison pay “all fees and charges payable in respect of the maintenance and repair of the aircraft”. SHS2 was to be responsible for all landing and navigation charges. The agreements were terminable on one month’s notice in writing by either party. In handwriting at the bottom of each rental agreement was the following:

“To commence on the completion date in the sale agreement between the operator and the vendor Sydney Harbour Seaplanes P/L ACN 086 044 984.”

21 This last reference was to the agreement between SHS1 and SHS2 and was therefore to be understood as a reference to the sale of assets and assignment of business name agreement. As noted above, the completion date for that agreement was 1 March 2002, which was therefore the commencement date for each of the aircraft rental agreements.

22 In order to complete the picture in relation to the contractual arrangements, it is necessary to refer to the commercial loan agreement made between Vengreen and Westpac in early May 2002. Apart from the $10,000 deposit paid on 15 February 2002, an amount of $150,000 was paid by Mr Wyllie under the sale agreement on or about 25 April 2002 and a further sum of $10,000 on or about 2 May 2002. In his affidavit of 2 July 2004, Mr Wyllie said of each amount, “I paid” the amount “to Tarrison”: paragraphs 59-61. Apart from the final payment due in April 2003, that left an amount of $500,000, which Mr Wyllie arranged for Vengreen to obtain by way of a commercial loan from Westpac.

23 At some stage there appears to have been a decision made by Mr Wyllie to purchase the aircraft in the name of a company other than SHS2, which was intended to run the business. There were various suggestions in the evidence that this may have been a suggestion of Mr Seller, or of an officer of Westpac or Mr Wyllie, or indeed some other person. The only matter of relevance was that Mr Seller was aware that Tarrison would be required to deliver the aircraft to Vengreen and not to SHS2, with whom it had contracted. The state of Mr Seller’s knowledge was not seriously in dispute, he having first (in February 2002) prepared invoices in respect of a sale to SHS2 and having then prepared further invoices addressed to Vengreen. On behalf of Tarrison, he signed statutory declarations for Westpac to each of which was attached an “offer to sell” a seaplane to Vengreen. Consistently with an intention to vest title to the seaplanes in Vengreen, Vengreen and SHS2 executed aircraft rental agreements dated 14 May 2002 and signed by Mr Wyllie on behalf of each company. The agreements provided for a minimum payment of $4,500 per month, which was no doubt intended to cover the initial instalments repayable to Westpac of $3,869 per month.

Sale agreement and guarantee

24 It is not in dispute that Mr Wyllie and Mr Kane guaranteed the payment obligations of SHS2 under the sale agreement. What is in dispute is the continued obligation of Mr Wyllie after the “novation” pursuant to which Vengreen became the purchaser from Tarrison, on or about 15 May 2002. This new arrangement, it was contended by Mr Wyllie, discharged him from any liability in respect of the payments originally due from SHS2.

25 The inclusion of the words “or nominee” in the identification of the purchaser in the sale agreement of 15 February 2002 would have been sufficient to allow SHS2 to nominate a third party to whom the aircraft the subject of the agreement should be delivered: see Harry v Fidelity Nominees Pty Ltd (1985) 41 SASR 458 at 460 (King CJ) and 466 (Matheson J, applying principles established in Vickery v Commissioner of Stamp Duties (1950) 51 SR(NSW) 79, a decision of Street CJ, Maxwell and Herron JJ.) A direction to Tarrison to transfer the title in the planes, upon settlement, to Vengreen would have been effective to achieve that end, but would not have resulted in the discharge of SHS2 from its obligations under the sale agreement, including the obligation to make the final payment of $130,000 by 14 April 2003. To discharge SHS2 from its obligations under the sale agreement, it would be necessary to find a novation pursuant to which the contract of 15 February 2002 was discharged and replaced by a new sale agreement between Tarrison and Vengreen.

26 The trial judge accepted that this was the consequence of the documentation annexed to two statutory declarations dated 13 May 2002 and signed by Mr Seller as the authorised signatory for Tarrison. The documents annexed to the statutory declarations were, in each case, a printed form which identified the following matters, namely:

Name and address of Westpac’s customer; [Vengreen]

Full name and address of vendor; [Tarrison]

Description of goods; [AQA and AQU respectively]

“I/We the person(s) noted above hereby offer to sell to Westpac’s customer the above described goods at the specified price and warrant the truth of the statements made in the attached statutory declaration.”

27 The documents were undated and were not signed by or on behalf of Vengreen, nor by SHS2. They specified a price as $400,000 less a deposit of $150,000, being an amount of $250,000. Taken at face value, that must have been a waiver by Tarrison of its entitlement to the remaining instalment of $130,000. There were no terms or conditions, nor was there any provision for them. There was no express release of SHS2, nor was there any warranty of title on the part of Tarrison. There was no provision for the payment of interest on outstanding and unpaid instalments of the purchase price. The statutory declarations, the truth of which was warranted by Mr Seller in signing the offers, stated that the offer was made “with a view to Westpac’s customer entering into a transaction with Westpac in relation to the goods”.

28 While it is true that the purpose of the statutory declarations (and the new offer) was, in practical terms, to assist in obtaining funding for a substantial part of the purchase price of the seaplanes, it would fly in the face of commercial reality to construe these documents as a discharge of the sale agreement, including release of the guarantees which were, thereafter, the only security which Tarrison had for the payment of the final instalment. Despite the dispute as to the purpose and effect of cl 5 of the sale agreement, it is also at least unlikely that Tarrison intended to abandon any entitlement to rely on that provision. In the cross-claim, both SHS2 and Vengreen asserted that the sale agreement remained on foot, but that Vengreen had been substituted for SHS2.

29 As explained in Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451 at [22] the following statement of Lord Wilberforce in Reardon Smith Line Ltd v Hansen-Tangen [1976] 1 WLR 989 at 995-996 is a correct reflection of the law in Australia:

“In a commercial contract it is certainly right that the court should know the commercial purpose of the contract and this in turn presupposes knowledge of the genesis of the transaction, the background, the context, the market in which the parties are operating.”

30 In the present case, the commercial purpose of the May 2002 arrangement was twofold: one purpose was to permit Mr Wyllie’s companies to divide ownership of the seaplanes from the operation of the business. The second purpose was to ensure that the proposed owner would obtain the funds to pay the balance outstanding of the major instalment of the purchase price. There is no doubt that Mr Seller acquiesced in these arrangements, even to the extent of potentially misrepresenting in his statutory declaration the amount of the deposit which had been paid, by including within it the amount of the final instalment. That was a deception to which Mr Wyllie was party. Indeed, it was he who provided the draft form of invoice to Mr Seller by an email sent in early May 2002 which commenced with the following statements:

“Further to our conversation, finance has been arranged through Westpac for the balance of $500,000 now owing to you on the aircraft.

(Understood that a further $130,000 is owing under our contract between Tarrison and ourselves in years time.)”

31 The surrounding context and commercial purposes demonstrate that the contractual obligation to pay a further amount was intended to remain on foot, which could only occur under the February 2002 contract between Tarrison and SHS2. There is no document pursuant to which Vengreen accepted liability for that payment, although Vengreen does not dispute that it has such a liability, as the trial judge found. Furthermore, the draft invoice provided by Mr Wyllie to Mr Seller did not seek to replace SHS2 with Vengreen as the purchaser under that contract, but merely described Vengreen as the entity to which delivery was to be made.

32 Knowing that background and context, a reasonable reader would not infer that the whole of the contract between Tarrison and SHS2, with its future obligations of payment and its accompanying guarantees, had been discharged by the “offer” of 13 May 2002, which purported to be a unilateral offer by Tarrison at the request of Westpac.

33 If that analysis is correct, SHS2 remained subject to a contractual obligation under cl 3(c) to make the specified payment by 14 April 2003 and Mr Wyllie remained liable with respect to that obligation, pursuant to the guarantee contained in cl 6 of the sale agreement.

34 An alternative construction is that the arrangement between Mr Wyllie and Mr Seller (on behalf of Tarrison) in May 2002 should be construed as an agreement to substitute Vengreen for SHS2 as the purchaser under the sale agreement. SHS2 would thereby be discharged from its obligations under the sale agreement, but replaced by Vengreen which would become “the Purchaser” in each of the relevant clauses. That would include the reference in cl 6 to the officers of the purchaser whose signatures appeared on the agreement, although the relevant officer would then be Mr Wyllie alone, and not Mr Kane, who was not an officer of Vengreen. The fact that Mr Kane would thereby be released renders that construction, in my view, improbable but not one by which Mr Wyllie could escape liability. True it is that his original guarantee as officer of SHS2 would be discharged, but it would be replaced by his guarantee as officer of Vengreen.

35 The preferable conclusion is that there was no novation of the sale agreement. On that view, the conclusion reached by the trial judge (Judgment, p 88) was in error and, subject to the cross-claim, the order for payment of the outstanding instalment should have been directed to SHS2 (the first defendant) and Mr Wyllie (the second defendant) as guarantor and not to Vengreen (the fourth defendant).

36 This conclusion gives rise to a procedural issue: although there was a notice of contention filed by the Respondents arguing that there had been no novation, to substitute a judgment against SHS2 for a judgment against Vengreen would require a notice of cross-appeal against SHS2 which, at the date of judgment below, was in liquidation and, according to the notice of appeal filed in this Court, still is.

37 On the other hand, the Appellants seek only to set aside the judgment given in the Court below in favour of Tarrison against Mr Wyllie, in an amount of $175,046.34, and seek in place thereof a judgment for Tarrison against Vengreen alone in the amount stated. No party seeks to interfere with the judgment against Vengreen. Accordingly, the preferable course is simply to leave the first order made by the trial judge standing.

The contractual warranty claim

38 The claim for breach of contractual warranty depended on the construction of cl 5, as set out above at [16]. For there to be a relevant contractual warranty, the word “Purchaser” in the second sentence must be read as “Vendor”. Although no relief by way of rectification of the contract was sought, there is authority for the proposition that a word in a contract may be read as if a different word had been inserted, as a matter of construction, without an order for rectification, as his Honour noted, referring to Re United Pacific Transport Pty Ltd [1968] Qd R 517 at 523 (W.B. Campbell J), in turn relying on Fitzgerald v Masters (1956) 95 CLR 420; and see Spunwill Pty Ltd v Bab Pty Ltd (1994) 36 NSWLR 290 at 299-300. However, that gives rise to an additional question as to the correct approach to be adopted in relation to the question of construction.

39 It will be necessary in due course to consider whether there is any evidence relating to the circumstances in which the sale agreement reached its present form, which is relevant and admissible for the purposes of construing cl 5. However, on any view, the agreement is not a model of good drafting. Read in accordance with its express terms, the first sentence of cl 5 excludes any “further warranty” being given by the vendor as to the condition or suitability of the aircraft for the purchaser’s purposes, other than that which might be implicit in a purchase of the aircraft on an “as is where is” basis. Of course, an understanding of what that meant in the circumstances of the sale agreement may require evidence as to the state of the aircraft and their location at a particular time.

40 The second sentence, taken at face value, involves a warranty by the purchaser that the aircraft “are in serviceable condition” and will have valid maintenance releases and certificates of airworthiness. Without knowing the background circumstances, the purpose of the provision is puzzling, as is the use of both present and future tenses in different parts of the “warranty”. On behalf of the vendor, Tarrison, it was argued at trial that the second sentence, despite its grammatical and semantic curiosities, should be read literally. However, the vendor also accepted that the word “warrant” in the second sentence might be understood as “acknowledge”. That concession might remove one anomaly, and would, arguably, make the second sentence consistent with the first.

41 Counsel who appeared for both SHS2 and Vengreen (and Mr Wyllie) argued that the reference to “the Purchaser” must have been a mistake and that the intention was to refer to “the Vendor” and would operate when the aircraft were delivered. His argument focused, in effect, on three propositions. The first was that if the second sentence, in relation to serviceable condition, was to be read as operating at the time of the execution of the agreement, on 15 February 2002, it was palpably false to the knowledge of both parties, because at least one of the aircraft was then in pieces in a hangar at Bankstown and thus not in serviceable condition. Secondly, the use of the future tense in relation to maintenance releases and certificates of airworthiness suggested that those elements of the warranty were intended to apply at a future time, although not specified. The proper inference, he contended, was that those would be supplied at the time of delivery of the aircraft upon payment of the bulk of the purchase price under cl 3(b), at which time it was common ground that property would pass. If that understanding were correct, it would be consistent with the obligation under the contemporaneous aircraft rental agreements, pursuant to which the owner (Tarrison) was to be responsible for payment of fees and charges in respect of maintenance and repair of the aircraft. Accordingly, it was contended that it would make sense if, under the sale agreement, the vendor (Tarrison) were warranting that, in effect, the planes had been properly maintained and repaired in accordance with the aircraft rental agreements, and would continue to be until delivery.

42 There are however weaknesses in these contentions. First, if the aircraft were not in fact in serviceable condition as at 15 February 2002, it would be implausible that either party would warrant that they were, contrary to the known facts, or even that the purchaser would “acknowledge” that they were in such condition. Yet the use of the present tense indicated the relevant temporal aspect. It would have made more sense if some warranty or acknowledgment as to the serviceable condition of the aircraft had been included in the aircraft rental agreements, which commenced, not on 15 February 2002, the day that they were executed, but on 1 March 2002. The second limb of the second sentence adopted the future tense. In relation to the future existence of valid maintenance releases and certificates of airworthiness, the more plausible inference may depend on the date chosen for the future event. That date might be 1 March, when the aircraft were due to be made available under the rental agreements, or it might have been 14 April when delivery was anticipated for the purposes of the sale agreement. If the relevant date were 14 April, at which stage the purchaser would have obtained possession of the aircraft under the rental agreements, one might have been able to discern an implied obligation on the part of the purchaser to take proper care of the aircraft whilst they were in its possession, so that they would indeed be available for use at the date of the notional delivery of title, which might have been 14 April 2002 or some later date. Finally, the purchaser’s contention that the second sentence involved warranties by the vendor, would be largely inconsistent with the first sentence of cl 5. That result should be avoided.

43 A reading of the contract as a whole suggests that it cannot be made to operate sensibly if too strict an approach is adopted in relation to its language or grammar. Thus, in the identification of the party referred to as “the Purchaser” the inclusion of the words “or nominee” after the identification of the purchaser, should not be treated as excluding a nominee from the concept of “the Purchaser” as used in the agreement. Further, the last sentence in cl 3(b) permits the vendor to retake possession of the goods for resale, if the payment required by 14 April 2002 were not to be made by 30 June 2002. The clear purpose of that provision was to allow the vendor to sell the goods and, one might have thought, recoup any shortfall from the purchaser. However, in what may well be another mistake, the sentence stated that the shortfall will “be payable by the Vendor”, though to whom is quite unclear. One would be inclined to think (although nothing turns on it for the outcome of this case) that the wrong party had been identified.

44 Since the judgments of the High Court in Upper Hunter County District Council v Australian Chilling and Freezing Co Limited (1968) 118 CLR 429, it has been generally accepted that a court should look for a commercially sensible understanding of the language used in a written agreement, so as to give it effect, even if there appears to be a level of uncertainty or ambiguity. Adopting this approach, one could read cl 5 as follows. First, the initial acknowledgment that the aircraft were bought on an “as is where is” basis may be treated as not inconsistent with the common knowledge of the parties that, even whilst one was currently undergoing maintenance and repairs, the aircraft could properly be described as being in serviceable condition, subject to completion of such repairs and maintenance as were required and as might have been expected in relation to aircraft manufactured in 1964. Secondly, the statement that no further warranty was given by the vendor should be understood as the exclusion of any particular warranty as to the condition or suitability of the aircraft “for those purposes” of the purchaser, although none were specifically identified. The second sentence may then be understood as a warranty, not inconsistent with the statements just made, given by the vendor, but of limited effect. The reference to being “in serviceable condition” could, in the context of that sentence, be understood as involving no more than a warranty that they would have valid maintenance releases and certificates of airworthiness for use in the “charter category”. In other words, the purchaser’s contention that the second sentence should be read as a warranty by the vendor may be accepted, but on a limited basis as to its scope.

45 The question is whether this approach is legitimate as a matter of law. It involves not merely resolving the potential uncertainty as to the meaning of “serviceable condition”, so as to avoid internal inconsistency, but the replacement of one word (“Purchaser”) with its opposite (“Vendor”). That may be seen to go further than the willingness of the High Court in Fitzgerald v Masters (1956) 95 CLR 420, to construe “inconsistent” as “consistent”. That course was held by Dixon CJ and Fullagar J to involve little more than a superficial difficulty in that a correction was required as “clearly necessary in order to avoid absurdity or inconsistency”: pp426-427. Fitzgerald involved a clear case of absurdity in that a written contract purported to incorporate standard form terms which were “inconsistent” with those which had been specifically agreed upon. The present case, reading the second sentence literally, does not involve quite such an obvious level of absurdity, for reasons already noted. It certainly did not involve inconsistency, which was rather a potential consequence of the change proposed. However, the change proposed may bear some similarity to the misnomer cases referred to by Lewison, The Interpretation of Contracts (3rd ed, 2004) at par 9.02.

46 There is some force in the contention put on behalf of Tarrison that the test of absurdity or inconsistency is not satisfied in the present case and that some more lenient test should not be applied. That is because it would be inappropriate, in purporting to construe the language of the contract to take a step equivalent to providing a remedy of rectification, in circumstances where the preconditions for such a remedy have not been satisfied. As explained by Mason J in Maralinga Pty Ltd v Major Enterprises Pty Ltd (1973) 128 CLR 336 at 350, that remedy is only available “where the writing by common mistake fails to express” the true agreement between the parties. See also Ryledar Pty Ltd v Euphoric Pty Ltd [2007] NSWCA 65 at [259] (Campbell JA). It is possible and often appropriate, in considering whether a claim for rectification has been made out, to consider evidence in relation to the subjective intention of the parties: Ryledar at [269]-[272]. However, such evidence is not generally relevant in determining the proper construction of a contractual term and, once it is accepted that the necessary common intention, to which the written agreement does not conform has not been established, any question of absurdity or inconsistency must be identified according to established principles, by reference to the text of the agreement understood in its factual and legal context: see Maggbury Pty Ltd v Hafele Australia Pty Ltd (2001) 210 CLR 181 at [11] (Gleeson CJ, Gummow and Hayne JJ). In a sense, the test adopted in Fitzgerald v Masters (absurdity or inconsistency) may be understood as seeking a common intention, not in conformity with the language used in the instrument, which may be inferred from the instrument itself and its objective context, without reference to the subjective intentions of the parties.

47 It is of assistance at this point to consider whether legitimate assistance can be obtained from a consideration of “the objective framework of facts within which the contract came into existence, as known to both parties, though not of course for the purpose of identifying the subjective intentions of either party”: see Codelfa Construction Pty Ltd v State Rail Authority of NSW (1981-82) 149 CLR 337 at 352 and Toll (FCGT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165 at [40]. There are three elements which may be considered in that context.

48 The first, already referred to, concerns the state of the aircraft as at 15 February 2002. The business of “Sydney Harbour Seaplanes” operating from a location at Rose Bay, had been undertaken by a number of entities over the years. SHS1 commenced operating the business only in September 2001, using the aircraft AQA. SHS1 had an arrangement with Airag Aviation Services Pty Ltd (“Airag”) to provide maintenance and repair work on the two seaplanes. Each of the planes had what was described as a “standard certificate of airworthiness – aircraft” issued on 22 February 1996 and valid whilst the aircraft was registered. In addition, AQA had a “maintenance release” issued by Airag on 6 February 2002, and valid for a year or 100 hours of flying service, whichever was reached first. AQU was undergoing maintenance and repair from June 2001 and was described as being “non-operational”. A valid maintenance release for AQU was issued by Airag on 20 March 2002, well after the date of the sale agreement, and almost three weeks after the date on which the aircraft rental agreements were intended to commence. However, it was a date before 14 April, when title in the aircraft was expected to pass under the sale agreement.

49 Although it was expected that AQU would be “operational” shortly after 15 February 2002, it was known by both parties to the sale agreement, through their relevant officers, that AQU was not operational as at the date of the sale agreement, nor, if that be a separate test, did it have a valid maintenance release at that time. The latter aspect is no doubt reflected in the use of the future tense in cl 5.

50 The second matter concerns the history of cl 5. As originally drafted, cl 5 was limited to the first sentence. The second sentence was added between Monday, February 11, 2002 and Thursday, February 14. The drafting of the document was undertaken by Mr Seller, or a solicitor at Gadens, of which he was then a partner. Mr Wyllie said in his evidence that he requested the amendment now contained in the second sentence of cl 5: Tcpt, 21 October 2002, pp 59-60. Mr Seller had a different view: he asserted in his evidence, under cross-examination, that the second sentence was inserted by him on 14 February and he gave an explanation as to why the sentence was in the form it took in the final agreement: Tcpt, 1 November 2005, pp 451-2 and p 463. Mr Seller denied having a conversation with Mr Wyllie between 11 and 14 February and there was no documentation to support Mr Wyllie’s evidence that he requested the change.

51 The trial judge did not make findings of fact in relation to the inclusion of the second sentence, because he found that it was clear and unambiguous in its language and had a purpose which was consistent with the first sentence. If this had been a rectification case, Mr Wyllie would have needed to establish a common intention and would, as a first step, have needed to establish that the second sentence was inserted at his request. Although the trial judge did not resolve the particular factual dispute, which turned entirely upon the oral evidence of Mr Wyllie and Mr Seller, the trial judge found Mr Wyllie to be “an unsatisfactory witness who did not impress as one who could be relied upon”: Judgment, p 63. His Honour continued:

“A negative aspect, I think of some importance, in Mr Wyllie’s evidence was his obvious attempt to show he had no experience in the aircraft industry and thus relied on the alleged representations by Mr Seller and Mr Britten. As an experienced businessman, particularly where in any event he had the industry knowledge available from Mr Kane in what was then seen as a joint venture …, I found that approach deceptive. And yet Mr Wyllie took no action during the six-week due diligence period after the Heads of Agreement were signed to have in his own interests technical inspections of the two aircraft to assess their airworthiness and condition notwithstanding the opportunity to do so provided by Mr Seller. It was not until 3 May 2002, about nine weeks after the sale contract was executed, that Mr Wyllie arranged for a valuation of the aircraft by Mr Richard MacLean of Melream as requested by Westpac as part of the loan application procedure. To me, that was another example of Mr Wyllie’s business approach in now blaming others for the condition of the aircraft following his failure to have them checked at the appropriate time.”

52 Mr Seller’s credit was also under suspicion, because of his execution of the statutory declarations which misrepresented to Westpac the financial arrangements in relation to the payment of the purchase price of the aircraft. His Honour noted that evidence, but nevertheless stated that Mr Seller’s presentation was “credible and understandable”: Judgment, p 64. The trial judge found that he “displayed a direct frankness in answering questions”.

53 Given these findings, it is highly improbable that, had his Honour found it necessary to resolve the disputed evidence as to the origin of the second sentence of cl 5, he would have been persuaded that Mr Wyllie’s version was to be preferred. Nor is there any objective material which would assist in reaching such a conclusion. The appropriate finding is that SHS2 and Vengreen failed to establish, through the evidence of Mr Wyllie, that the second sentence of cl 5 was inserted for their benefit.

54 The third relevant aspect of the background to these contracts concerns the regulatory regime under which commercial aircraft were (and are) required to operate. In substance, there were three requirements, the first of which was that they must be registered: see Civil Aviation Act 1988 (Cth), s 20AA(1). Registration was not in issue in the present case. Secondly, there must be a “certificate of airworthiness” in force in respect of the aircraft and, thirdly, there must be “a maintenance release” in force in respect of the aircraft. The latter two requirements may be avoided if the regulations otherwise authorise a flight without such a certificate or release: s 20AA(3) and (4). (There are other requirements in relation to pilots and aircraft operators, but those are of no present relevance.)

55 A certificate of airworthiness was issued under the Civil Aviation Regulations 1998 (Cth) (“the 1998 Regulations”), reg 21.176. A “maintenance release” was issued under the Civil Aviation Regulations 1988 (Cth) (“the 1988 Regulations”), reg 43. It is not in dispute that each aircraft had a certificate of airworthiness during the period from September 2001 through to 15 May 2002. (The Civil Aviation Regulations 1998 were replaced in December 2002 by the Civil Aviation Safety Regulations 1998 (Cth), although the substance of the regulations remained the same: see Civil Aviation Amendment Regulations (No 11) 2002 No. 350, s 3(1) and Schedule 1 [3], effective 20/12/02.)

56 At the relevant times, the Civil Aviation Safety Authority (“CASA”), established under the Civil Aviation Act, had the power to issue an “airworthiness directive”: see the 1988 Regulations, reg 37A. A directive may require a person to take action to remedy “an unsafe condition” that exists or is likely to exist or develop in an aircraft or type or category of aircraft. CASA also had power to give directions in relation to the maintenance of aircraft “for the purpose of ensuring the safety of air navigation”: the 1988 Regulations, reg 38. Generally, the holder of a certificate of registration for an aircraft was required to comply with a maintenance schedule, which may be the manufacturer’s maintenance schedule, or a schedule or system of maintenance approved or prescribed by CASA: the 1998 Regulations, Part 4A, Divs 2 and 3. Regulation 43 (in Part 4A, Div 9) provided:

43 Maintenance releases in respect of Australian aircraft

(1) Maintenance releases in respect of Australian aircraft shall be issued only by authorised persons and only in such manner, and in accordance with such form, as CASA directs or approves.
…
(5) CASA may give a direction specifying the period, or the maximum period, that a maintenance release of a kind specified in the direction is to be expressed to remain in force.

(6) Unless CASA otherwise approves, a maintenance release shall not be issued in respect of an aircraft unless there in force a certificate of airworthiness in respect of the aircraft.

57 Part 4 of the 1988 Regulations dealt generally with airworthiness requirements. Regulation 37 provided as follows:

37 Permissible unserviceabilities

(1) CASA may, for the purposes of these regulations, approve a defect in, or damage to, an Australian aircraft, or any aircraft included in a class of aircraft, as a permissible unserviceability in relation to the aircraft or to Australian aircraft included in the class of aircraft, as the case may be.

This concept is picked up in reg 43, which required that, where there was a “permissible unserviceability”, the maintenance release issued in respect of the aircraft was to bear an endorsement setting out the permissible unserviceability and any relevant conditions: reg 43(10).

58 The regulations also made provision for reporting defects in Australian aircraft: the 1988 Regulations, Part 4B. If a defect were identified, an assessment was required to determine if it were a “major defect”. If it were, it must be reported to CASA: reg 51. The term “major defect” was defined in reg 2 as follows:

major defect

59 The regulations under the Civil Aviation Act are, and were in 2002, lengthy and detailed. They prescribe standards and processes designed to ensure the highest practicable level of safety of air navigation in Australia. Breach of many of the requirements, including the key requirements set out above, may give rise to sanctions in the form of penalties for offences. The regulations did not adopt the concept of “serviceable condition” but they adopted a number of related concepts which might be thought to have a similar purpose and scope of operation. Thus, in giving objective meaning to the phrase “serviceable condition” as contained in cl 5 of the sale agreement, a possible meaning is that, in relation to a particular aircraft, the concept is satisfied where there has been compliance with the regulatory scheme designed to ensure, as far as practicable, the airworthiness and safety for the purposes of air navigation, of aircraft operating in Australia.

60 The alternative reading of the phrase “serviceable condition”, in cl 5, so as to require some more stringent qualification would render the second sentence inconsistent with the first. The more limited meaning given to the second sentence will, to a large extent, avoid this inconsistency and should be accepted. However, so understood, the requirements contained in the second sentence were satisfied in the present case. Accordingly, at least for the purposes for determining whether there was a breach of cl 5, in relation to either aircraft, it is sufficient to assume, without deciding, that the reading proposed by the purchaser (namely that it involved a warranty by the vendor) is correct because, even on that reading, there has been no breach.

Oral representations

61 There were, as might be expected, in relation to the purchase of a business and two aircraft, pre-contractual discussions between Mr Wyllie, as a prospective purchaser, and Mr Seller, as the representative of the vendor. The purchaser of the seaplanes (though not the business) sought to rely, by way of cross-claim, on pre-contractual representations which were alleged to be false. These were relied on in two ways: first, they were said to be promissory representations and hence to form part of the sale agreement. Secondly, they were said to constitute misleading or deceptive conduct for the purposes of the Trade Practices Act 1974 (Cth), and the Fair Trading Act 1987 (NSW). The same arguments as to reliance on contractual warranties were presented on appeal and should be dealt with. Nevertheless, the concerns which may be identified in cases decided prior to the Trade Practices Act where parties have relied to their disadvantage on pre-contractual representations, and which did not find their way into a written agreement, have tended to disappear since the provision of the statutory remedies.

62 The trial judge accepted (at p 78) that statements made during negotiations “can form part of a contract if they were intended to be binding promises in the form of warranties or were promissory in their nature”. He correctly adopted the objective approach identified by Lord Denning in Oscar Chess Ltd v Williams [1957] 1 WLR 370 at 375, quoted with approval by Gibbs CJ in Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41 at 62:

“The question whether a warranty was intended depends on the conduct of the parties, on their words and behaviour, rather than on their thoughts. If an intelligent bystander would reasonably infer that a warranty was intended, that will suffice.”

63 There were two occasions on which statements were made which were said to constitute promissory warranties. The first was a meeting on 18 December 2001, attended by Mr Seller, Mr Britten, Ms Fitzgerald (all representing the vendors) and Messrs Wyllie and Kane. This was the first meeting at which Mr Wyllie had expressed his interest in obtaining the seaplane business, then being operated by SHS1. (Mr Kane had apparently discussed the possibility with Mr Seller on several earlier occasions (Judgment, p 12).) The cross-claim alleged that Mr Seller had made representations, of which those presently relevant were as follows:

“(c) The planes were in good operating condition;

(d) The floats on AQA would be serviceable for at least another year; and

64 In answer to a question as to what was happening with his business, Mr Seller had stated (Affidavit, 25 October 2004, par 8):

“It has been operating since about September this year. We are only operating one of the Beavers at present, AQA. The other aircraft AQU has not flown for about a year. It is sitting at Bankstown undergoing maintenance.”

65 So far as the pleading was concerned, as the trial judge noted, Tarrison and Mr Seller denied that representation (c) referred to above was made, but did not deny making the second and third representations. Mr Seller, in his affidavit of 25 October 2004, asserted that he had stated, in answer to a request from Mr Wyllie to tell him about the aircraft:

“The two aircraft are in the sort of condition you would expect for aircraft of that age that do a lot of work but receive regular maintenance.”

66 It might be thought that the first and third representations were either partly inconsistent or at least revealed a lack of precision. In his affidavit in support of the cross-claim, Mr Wyllie recounted statements made by Mr Seller at the meeting in the following terms (Affidavit, 2 July 2004, par 29):

“The Beavers (referring to AQA and AQU) are in good operating condition.”

“Floats on AQA need some repairs but they are serviceable for at least another year.”

“Talk to Rob Britten about the aircraft as he is thoroughly familiar with them.”

“He can advise about maintenance costs and details of the aircraft as he has maintained them for many years.”

67 This account was expanded somewhat in cross-examination, when Mr Wyllie was invited to tell the Court what Mr Seller had said at the meeting and he responded (Tcpt, 21 October 2005, pp 45-46):

“Mr Seller said they were in good working condition. He said the aircraft were 40 years old. … I asked Mr Seller about the aircraft and I said, ‘I’m surprised that aircraft of 40 years old can be good reliable aircraft. I’m not used to equipment of this age.’ Mr Seller responded by saying, ‘Bill, aircraft are – have time life components, components are reconditioned on the aircraft. The aircraft, particularly good ones such as the Beavers, which are very good for this type of work, can be 40 years old and older. Over time, with the servicing requirement on them, they can almost end up as new aircraft’.”

68 The following exchange then took place:

“Q. Is that all he said to you about the condition of them?
A. He said there were concerns about AQA’s floats. He said, he believed they would last for the next year.

69 If one accepted this account of the conversation, it would appear to have occurred at an introductory meeting between a prospective purchaser and an intending seller. Comments made about the condition of the aircraft by Mr Seller were expressly qualified by a suggestion that Mr Wyllie talk to someone with expertise (namely Mr Britten) and occurred in the context of a discussion as to the age of the aircraft. The discussion appears to have occurred at a level of abstraction from detail, but there was no express (false) representation that AQU was then being used at all. The evidence gave quite a different picture to that set out in the affidavit and different again from that set out in the pleaded particulars. The inappropriateness of placing too much reliance upon the terms of the pleading and assessing those words “in some sterile manner away from the full context of what was discussed” was noted by his Honour: Judgment, at p 70. The references to the evidence set out above demonstrate why that was so. His Honour expressly found that Mr Seller did not represent that the aircraft were “in good operating condition” continuing:

“At most, he said the condition was ‘reasonable’ which is to be seen in the context of the age of the aircraft, albeit with regular maintenance. The evidence of Mr Seller, Mr Britten and Ms Fitzgerald supports that finding against Mr Wyllie, and Mr Kane made no comment.”

It was made plain to Mr Wyllie at the meeting that only AQA was operational and AQU had not flown for a year and was then undergoing maintenance.

70 In relation to the condition of the floats on AQA, the account given by Mr Wyllie in cross-examination suggests, as might be expected, that anything said by Mr Seller in that regard was expressed as a matter of “belief”. Although Mr Wyllie never inspected the aircraft himself, or had them inspected by anyone with the relevant expertise, he did inspect the books of SHS1 and discussed the aircraft and the running costs with Mr Britten. He said that occurred, on a number of occasions, between 31 January and 15 February 2002: Affidavit, 2 July 2004, par 42. He asserted (par 43) that Mr Britten had made the following comments to him in relation to the state of the aircraft:

“AQA needs some minor repairs to a wing, which we will undertake.”

“It will then be available for continued reliable service.”

“We are currently operating with AQA.”

“The aircraft are in reasonable condition. There are queries about AQA’s floats and I believe they have at least another year’s use before major overhaul.”

71 Again, the statement as recounted by Mr Wyllie falls short of an unequivocal warranty that AQA’s floats would be serviceable “for at least another year”. As will be seen shortly, no reference was made in the pleaded representations made by Mr Britten, to AQA’s floats. Mr Seller, in his affidavit of 25 October 2004, stated that he had given an explanation about the different kinds of floats on the two aircraft, those on AQA being made by a company EDO and those on AQU, which he described as “not the best for this type of aircraft” having been made by Wipline. Mr Wyllie accepted in a subsequent affidavit of 11 February 2005 that comments had been made in relation to the kind of floats on each aircraft and in his oral evidence (Tcpt, p 46) he said:

“Mr Seller did talk about EDO and wipline floats but at that time I knew absolutely nothing or the difference between the two. But I was aware there was a doubt about one element of these two aircraft.”

72 In his affidavit of 25 October 2004, Mr Seller recounted the following statements, after he had indicated the price he was asking for the aircraft and the business:

“Wyllie: Those amounts seem reasonable. We will need to do our own due diligence. We will also need to look at the aircraft.

73 Although Mr Wyllie denied the first and second sentences of the three sentences attributed to him, he did not dispute the response given by Mr Seller. He did, however, assert that he had no knowledge that AQU was having repairs carried out at Bankstown until his conversations with Mr Britten between 31 January and 15 February 2002: Affidavit, 11 February 2005, par 12(d). However, so far as the affidavit evidence went, he appears to have expressed neither surprise nor even interest on learning of the position of AQU.

74 As noted above, heads of agreement were signed on behalf of SHS1 and Tarrison in December 2001 and by Mr Wyllie, for the proposed purchaser, on 9 January 2002. That agreement included par 1.1(c), in the following terms:

“The Purchaser requires and the Vendor and Tarrison agree to provide time of approximately one month until Friday, 25 January 2002 to complete its investigations and to be prepared to enter into formal contracts of purchase.”

75 That period was later extended to 15 February 2002, at Mr Wyllie’s request. His Honour noted that despite the extension, at no point did Mr Wyllie trouble to inspect the aircraft himself, or have them inspected. However, Mr Wyllie’s failure to act in his own interests was not important: rather Mr Seller’s statement that the aircraft and the books of the business were available for inspection, Mr Wyllie’s reference to ‘due diligence’ and the time provided to carry out investigations, together tended against the inference that the discussion on 18 December involved contractual warranties.

76 The sale agreement, with cl 5 limited to the first sentence, went through four versions, although the changes were minor. Mr Wyllie did not challenge the reference to the purchaser buying on an “as is where is” basis. Yet that clause was inconsistent with the existence of the alleged oral warranties as to the condition of the aircraft.

77 A reasonable person knowing the context of the meeting of 18 December 2001, knowing what was said at the meeting to the extent of the evidence set out above, the subsequent documentation of the heads of agreement and the sale agreement, and knowing in particular the content of cl 5 of the sale agreement as executed, would not construe anything said by Mr Seller at the meeting of 18 December as a contractual warranty. It would have been clear to such a person that Mr Seller was providing quite basic information as to the nature and operation of the business and that both he and Mr Wyllie expected that Mr Wyllie would conduct “due diligence”, both in relation to the books of the business and the assets, before executing a binding contract to purchase. A reasonable and prudent business person, if asked whether he or she would have expected Mr Wyllie to outlay $800,000 to purchase two 40 year old aircraft, in reliance on what was said at the meeting and without any attempt to have them inspected, would treat the suggestion as risible. The statements by Mr Seller did not indicate an intention to provide promissory warranties; the conduct of Mr Wyllie in seeking time to carry out “due diligence” did not suggest he understood them otherwise. No doubt, the fact that he did not have the aircraft inspected could be seen to suggest reliance upon statements made by the vendor, but given the nature of the statements in fact made, should more properly be understood as demonstrating indifference as to the state of the aircraft. His Honour’s conclusion that no contractual warranty was intended should not be interfered with.

78 The second set of representations were those attributed to Mr Britten. As pleaded in par 11 of the cross-claim, they were said to be made in late January or early February and were identified as follows:

“(a) The engines in the planes would only require replacement every 1,400 hours flying time and AQA had used 260 hours and AQU had used 835 hours;

(b) Both planes were in reasonable condition;

(c) One plane (AQA) was operating and the other (AQU) required minor repairs to a wing, after which it would be available for continued reliable service;

(i) $4,000 every 100 hours; and

79 At the time these statements were supposedly made, Mr Britten was working for SHS1. He later undertook work for SHS2, at Mr Wyllie’s request.

80 Mr Wyllie gave evidence of his conversations with Mr Britten, which were alleged to have taken place “on or about 5 February 2002”: Affidavit, 2 July 2004, par 44. In addition to the alleged representations, Mr Wyllie recounted Mr Britten saying, in relation to the 1,400 hour engine replacement/maintenance program:

“You can obtain the same program when you purchase the aircraft and submit your system of maintenance under your AOC.”

(“AOC” is a reference to an air operator’s certificate required under the regulatory system referred to above.)

81 In the notice of appeal, grounds 3 and 4 related to statements made “by the second and fourth respondents prior to entering into the sale agreement”. The second respondent was Mr Seller, but there was no fourth respondent: the reference may have been intended to be to the second and fourth cross-defendants under the second further amended notice of cross-claim issued by SHS1 and Vengreen. The second cross-defendant was Mr Seller and the fourth was Mr Britten. However, no relief was pursued against Mr Britten and the written submissions in relation to the incorporation of oral representations into the sale agreement were largely restricted to those made by Mr Seller: c.f. Appellants’ written submissions, par 34. The submissions with respect to misleading or deceptive conduct were expressly limited to “representations made by Mr Seller to Mr Wyllie on about 18 December 2001 that the planes were in reasonable condition”: par 87. There was no discussion in oral argument as to the representations made by Mr Britten.

82 Accordingly, little more need be said about them. For present purposes their only relevance is the additional light they cast on the likelihood that anything said on 18 December constituted a contractual warranty or (as to which see below) could form the basis of claim under the Trade Practices Act. His Honour’s findings in relation to the representations allegedly made by Mr Britten may be briefly noted. At pp 72-73, his Honour said:

“As to representation (a), Mr Britten maintained he informed Mr Wyllie the aircraft were being maintained under Schedule 5 but an extension of hours for engine replacement would be available if an approved system of maintenance were applied for and arrangements existed to achieve [that] through Mr Haines as a CASA delegate; the current hours flown by the aircraft were communicated to Mr Wyllie by email on 28 December 2001.

Representation (b) as to the condition of the aircraft as ‘reasonable’ was wholly denied by Mr Britten as having been said by him but he did admit to saying during a telephone discussion with Mr Wyllie that AQA’s floats ‘will, with normal operation and maintenance, remain serviceable through the coming summer but may require re-skinning’. I took that to mean the need for possible re-skinning in mid-2002 which is consistent with Mr Seller’s evidence on this point.”

83 Mr Britten acknowledged that AQU was the subject of repairs required for a maintenance release and acknowledged that he gave the figures indicated in representation (d), but said he did so after 20 February 2002, that is after the sale agreement was executed.

84 The major complaints revolved around representations (a) and (b). Unless his Honour’s factual findings were to be reviewed, the conclusions reached reduced the significance of those representations to such an extent that there was little to be gained from them by the Appellants. As to which of Mr Wyllie and Mr Britten should be accepted in relation oral discussions which had occurred early in 2002, the trial judge had stated that he preferred the evidence of Mr Seller and Mr Britten to that of Mr Wyllie to the extent of any inconsistency: Judgment, p 65.

Misleading and deceptive conduct

85 It remains necessary to consider whether the statements made by Mr Seller constituted misleading and deceptive conduct for the purposes of s 52 of the Trade Practices Act 1974 (Cth). To the extent that they related to future matters, reliance was also placed in the pleading on s 51A of the Trade Practices Act and s 41 of the Fair Trading Act: it is sufficient to consider the matter by reference to the former Act. For this purpose, two particulars were relied upon, one being that “the planes were not in good operating condition”; the second was that “there was no reasonable basis for the statement that the floats on AQA were serviceable for at least another year”. The formulation of the latter representation assumed that it was a representation “with respect to any future matter”, for the purposes of s 51A of the Trade Practices Act. Although the cross-claimants did not bear any onus of proof (see Ting v Blanche (1993) 118 ALR 543 at 552, Hill J) the particular may be understood as an acceptance of the fact that the statement was one as to a future matter and therefore would not be misleading or deceptive unless the representor lacked reasonable grounds for making the representation.

86 In the written submissions on the appeal, the Appellants appeared to abandon the view that either of the representations was as to “any future matter”. The submissions confined themselves to a breach of s 52 of the Trade Practices Act (and s 42 of the Fair Trading Act), but no complaint was made of that by the Respondents. Rather, the Respondents relied upon the fact that no unqualified representation of the kind alleged was found to have been made by Mr Seller and that, to the extent that a representation was made, there was no ‘reliance’ on it by Mr Wyllie, so that any causal nexus sufficient to establish a cause of action under s 82 of the Trade Practices Act, was missing.

87 Although the focus of the argument was on certain statements made by Mr Seller, said to constitute ‘representations’, there was also reliance on his silence in other respects. The reference to failure to make certain disclosures draws attention to the fact that what must be considered for the purposes of s 82 of the Trade Practices Act is “conduct” - the same term is used in s 52: see Butcher v Lachlan Elder Realty Pty Ltd (2004) 218 CLR 592 at [99]-[109] (McHugh J, albeit in dissent as to the outcome). Although representations will constitute conduct, they must be understood in context and “relatively subtle nuances” may well affect the categorization of the conduct: see Watson v Foxman (2000) 49 NSWLR 315, 318-319 (McLelland CJ in Eq). Even more care may need to be taken in assessing the significance of silence, that being a failure to make a statement, the effect of which, if made, may well depend on precisely what should have been said: see Lam v Ausintel Investments Australia Pty Ltd (1989) 97 FLR 458, 475-476, Gleeson CJ (Samuels and Meagher JJA agreeing) citing Bowen CJ in Rhone-Poulenc Agrochimie SA v UIM Chemical Services Pty Ltd (1986) 12 FCR 477 at 489-490.

88 The first matter to be considered in this context is the content of the “representation” as found by the trial judge, a matter which has been addressed above. Significantly, the Appellants did not seek to rely upon the third representation pleaded in relation to the sale warranty, namely that the planes were “in the sort of condition you would expect for planes of that age”. As already noted, a warranty in that form was significantly inconsistent with a warranty that they were in “good operating condition”; rather, it would invite the listener to identify and consider his or her own expectations. The Appellants sought to boost their case under the Trade Practices Act by complaining of Mr Seller’s silence in relation to what he knew of the “true condition” of the aircraft, prior to 15 February 2002 or, perhaps, prior to 15 May 2002: Appellants’ submissions in reply, par 25. However reliance upon the later date would cause problems for the Appellant. By that stage, the Appellants had, or were entitled to have, possession of the aircraft under the rental agreements, from 1 March 2002 (the date of commencement of the agreements) or at least from 20 March 2002, when AQU received a maintenance release. In what sense the representations were “operative” after 15 February 2002 was left obscure: any damage which might have flowed from reliance on the representations, in accordance with the pleadings, was to be assessed as at 15 February 2002, when the Appellants entered into the sale agreement.

89 The representation, as identified by the trial judge and as accepted above, was that to be derived from the evidence of Mr Seller, and in particular the conversations at the meeting on 18 December 2001, set out in his affidavit of 25 October 2004. That evidence, it will be recalled, including a statement that “AQU has not flown for about a year” but was “at Bankstown undergoing maintenance”. The further statement that the aircraft were “in the sort of condition you would expect for aircraft of that age that do a lot work but receive regular maintenance” was not consistent with a representation that they were in “good operating condition”. Further, Mr Seller, as Mr Wyllie acknowledged, made statements in relation to the floats. The evidence as to the precise statements made differed as between the cross-examination of Mr Wyllie and the statements in Mr Seller’s affidavit. Nevertheless, in neither form were they consistent with a representation that AQA’s floats would be serviceable for “at least a year”. Furthermore, if there were aspects of the condition of the planes which were not disclosed in terms by Mr Seller, that did not involve a representation by silence that such defects did not exist. Rather, Mr Seller, as his Honour accepted, invited Mr Wyllie to inspect the planes and to discuss their condition with Mr Britten. Any representation operating at the time the sale agreement was executed, must take into account both the fact that Mr Wyllie had the opportunity, which he did not take up, of inspecting the planes and the advice given to him by Mr Britten as to the condition of the floats.

90 Questions of reliance, which become relevant once a misrepresentation has been established, are often addressed by reference to the subjective intention of the representee. However, the concept of reliance is not found in the Trade Practices Act, the cause of action under s 82 requiring that loss be suffered “by the conduct of” the representor. In any event, before reaching that question, it is necessary to determine the legal characterisation of the conduct of the corporation or its agent, objectively assessed, as in the case of formation of a contract: see Butcher v Lachlan Elder Realty Pty Ltd (2004) 218 CLR 592 at [50] (Gleeson CJ, Hayne and Heydon JJ). For this purpose, it would be beside the point that Mr Wyllie may have been careless as to his own interests: see Henville v Walker (2001) 206 CLR 459 at [13] (Gleeson CJ). On the other hand, if the conduct of Mr Seller and Mr Britten, properly understood, constituted not a warranty as to particular facts, but a suggestion that Mr Wyllie make his own inquiries and form his own opinions, Mr Wyllie will have failed to establish the first step in making out a cause of action under s 82 of the Trade Practices Act. There will have been no breach of the standard defined by s 52, with or without s 51A. In my view that is in substance what the trial judge found in relation to the representations relied upon and no error has been demonstrated in reaching that conclusion. It follows that the claim for damages under s 52 of the Trade Practices Act or s 42 of the Fair Trading Act was properly dismissed by the trial judge.

91 Much time was spent at the trial, and on the argument of the appeal, in demonstrating the condition of the seaplanes, as at various times, but by extrapolation, as at 15 February 2002, in order to establish breach of warranties or representations. The Appellants’ case was that the condition of the seaplanes was far below that which SHS2 had expected when entering into the sale agreement. As a result, SHS2 (and Vengreen) incurred significant losses, although the damages recoverable would have depended upon the precise breaches which were established. However, the conclusions set our above demonstrate that Tarrison, through Mr Seller, delivered that which it had contracted to deliver and the risk that the planes required significant work in order to remain serviceable lay with the purchaser. That was, in substance, the conclusion reached by the trial judge and the Appellants have failed to demonstrate that it was wrong.

Conclusions

92 With respect to the primary claim made by the vendors, the finding of the trial judge that Mr Wyllie was liable under his contractual guarantee was correct and the judgment against him should stand. The judgment against Vengreen, which might be thought inconsistent with the reasoning set out above, was not challenged. The reasoning itself is consistent with a liability in SHS2, formerly Purple Way Pty Ltd, but no variation of his Honour’s orders was sought in respect of that company and as it is in liquidation, no order could be made unless the Respondents had sought leave to proceed against it by way of cross-appeal.

93 In relation to an order initially made against SHS2 in an amount totalling $12,295, by further order made on 24 February 2006, the primary judge vacated the existing order, because SHS2 was by then in liquidation and no leave had been sought to proceed against it. Since that order was apparently not restored, it may be assumed that leave has still not been sought, or if sought refused. Accordingly, there is no utility in now permitting an application to cross-appeal out of time against SHS2.

94 The Appellants’ claims otherwise in relation to the cross-claim brought by SHS2 and Vengreen, have been unsuccessful and his Honour’s orders with respect to the cross-claim should stand.

95 The Appellants should pay the costs of the appeal.

96 CAMPBELL JA: I agree with Basten JA.

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02/08/2007 - Correct name in line 1 - Paragraph(s) 41

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Citations

Wyllie v Tarrison Pty Ltd [2007] NSWCA 184

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CITATION:	WYLLIE v TARRISON PTY LTD [2007] NSWCA 184 This decision has been amended. Please see the end of the judgment for a list of the amendments.
HEARING DATE(S):	15 and 16 May 2007
JUDGMENT DATE:	30 July 2007
JUDGMENT OF:	Giles JA at 1; Basten JA at 2; Campbell JA at 96
DECISION:	Appeal dismissed with costs.
CATCHWORDS:	CONTRACT – novation of contract of sale – whether new purchaser substituted for original purchaser under sale agreement - whether obligations of the guarantor of the original purchaser discharged by novation or substitution – construction of contract – commercial purpose of contract CONTRACT – construction – where ambiguity in express terms of contract – court to have regard to commercial purpose and context of contract - meaning of “serviceable condition” of aircraft – Civil Aviation Act 1988 (Cth) – Civil Aviation Regulations 1988 (Cth) TRADE PRACTICES – misleading and deceptive conduct – oral representations as to condition of aircraft – Trade Practices Act 1974 (Cth) s 51A, s 52 – Fair Trading Act 1987 (NSW) s 41
LEGISLATION CITED:	Civil Aviation Act 1988 (Cth), s20AA Civil Aviation Regulations 1988 (Cth), regs 2, 37, 37A, 38, 51, Part 4B Civil Aviation Regulations 1998 (Cth), reg 43, Part 4A, Divs 2 and 3 Civil Aviation Regulations (No 11) 2002 No. 350, s 3, Schedule 1 [3] Fair Trading Act 1987 (NSW), ss 41, 42 Trade Practices Act 1974 (Cth), ss 51A, 52, 82
CASES CITED:	Butcher v Lachlan Elder Realty Pty Ltd (2004) 218 CLR 592 Codelfa Construction Pty Ltd v State Rail Authority of NSW (1981-82) 149 CLR 337 Fitzgerald v Masters (1956) 95 CLR 420 Harry v Fidelity Nominees Pty Ltd (1985) 41 SASR 458 Henville v Walker (2001) 206 CLR 459 Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41 Lam v Ausintel Investments Australia Pty Ltd (1989) 97 FLR 458 Maggbury Pty Ltd v Hafele Australia Pty Ltd (2001) 210 CLR 181 Maralinga Pty Ltd v Major Enterprises Pty Ltd (1973) 128 CLR 336 Oscar Chess Ltd v Williams [1957] 1 WLR 370 Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451 Re United Pacific Transport Pty Ltd [1968] Qd R 517 Reardon Smith Line Ltd v Hansen-Tangen [1976] 1 WLR 989 Rhone-Poulenc Agrochimie SA v UIM Chemical Services Pty Ltd (1986) 12 FCR 477 Ryledar Pty Ltd v Euphoric Pty Ltd [2007] NSWCA 65 Spunwill Pty Ltd v Bab Pty Ltd (1994) 36 NSWLR 290 Ting v Blanche (1993) 118 ALR 543 Toll (FCGT) Pty Ltd v Aophapharm Pty Ltd (2004) 219 CLR 165 Upper Hunter County District Council v Australian Chilling and Freezing Co Limited (1968) 118 CLR 429 Vickery v Commissioner of Stamp Duties (1950) 51 SR(NSW) 79 Watson v Foxman (2000) 49 NSWLR 315 Wyllie v Tarrison Pty Ltd [2007] NSWCA 95 Lewison, The Interpretation of Contracts (3rd ed, 2004), par 9.02
PARTIES:	William Anthony Wyllie - First Appellant Vengreen Pty Ltd - Second Appellant Sydney Harbour Seaplanes Pty Ltd - Third Appellant Tarrison Pty Ltd - First Respondent Ross Edward Seller - Second Respondent Rensen Pty Ltd - Third Respondent
FILE NUMBER(S):	CA 40136/06
COUNSEL:	N.J. West QC/J.E. Lazarus - Appellants D.K.L. Raphael/J. O'Sullivan - Respondents
SOLICITORS:	C.G. Gillis & Co, Lawyers - Appellants Gibsons Lawyers - Respondents

LOWER COURT JURISDICTION:	District Court
LOWER COURT FILE NUMBER(S):	DC 2489/03
LOWER COURT JUDICIAL OFFICER:	Hungerford ADCJ
LOWER COURT DATE OF DECISION:	24 February 2006

[2007] NSWCA 184

30 July 2007

Key Legal Topics

Areas of Law

Contract Law

Commercial Law

Statutory Interpretation

Legal Concepts

Contract Formation

Breach

Appeal

Costs

Statutory Construction

Reliance