Case: Watson v Foxman (1995) 49 NSWLR 315
Outcome: followed
No contract is made in a vacuum. In order to construe the terms of the contract, the Court seeks to place itself in the matrix of mutually known facts forming the background in which the parties contracted. Additionally, where terms are alleged to have been made orally, it is necessary to identify what, if any, oral terms were agreed. In Watson v Foxman (1995) 49 NSWLR 315 at 318-319 McLelland CJ in Eq explained that, where a party alleged in civil proceedings that conduct of another was misleading or deceptive, or likely to mislead or deceive, ordinarily it was necessary for that party to prove to the reasonable satisfaction of the Court first, what the alleged conduct was, and secondly, the circumstances which rendered it misleading. He continued, in terms, which in my opinion are apposite to the identification of oral terms of a contract agreed to have been made in the course of negotiations, as follows: 'Where the conduct is the speaking of words in the course of a conversation, it is necessary that the words spoken be proved with a degree of precision sufficient to enable the court to be reasonably satisfied that they were in fact misleading in the proved circumstances. In many cases (but not all) the question whether spoken words were misleading may depend upon what, if examined at the time, may have been seen to be relatively subtle nuances flowing from the use of one word, phrase or grammatical construction rather than another, or the presence or absence of some qualifying word or phrase, or condition. Furthermore, human memory of what was said in a conversation is fallible for a variety of reasons, and ordinarily the degree of fallibility increases with the passage of time, particularly where disputes or litigation intervene, and the processes of memory are overlaid, often subconsciously, by perceptions or self-interest as well as conscious consideration of what should have been said or could have been said. All too often what is actually remembered is little more than an impression from which plausible details are then, again often subconsciously, constructed. All this is a matter of ordinary human experience.' 71 McLelland CJ in Eq said that each element of the cause of action had to be proved to the reasonable satisfaction of the Court: Watson 49 NSWLR at 319; see also s 140 of the Evidence Act 1995 (Cth) and CEPU v ACCC [2007] FCAFC 132 ; (2007) 162 FCR 466 at 479-482 [29] - [39] per Weinberg, Bennett JJ and myself. 108 In a commercial setting between experienced business people, the express words of the contract, even if contained in exchanges of correspondence, will often be an authoritative guide as to the matters on which each party relied in entering the contract. They will know that often events will have moved on from earlier communications. Courts will be mindful that representations made early in a negotiation process, can be potent and can continue to influence a party's understanding of what is being discussed, or what becomes the subject-matter of a contract. Nonetheless, courts must also be realistic about how negotiations progress; they are not static and when the context evolves, so does the understanding of each party as to what, at the later point of time, is being discussed. Gibbs CJ noted in Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd [1982] HCA 44 ; (1982) 149 CLR 191 at 199 (in a passage approved by Gleeson CJ, Gaudron, McHugh, Gummow, Kirby, Hayne and Callinan JJ in Campomar Sociedad Limitada v Nike International Ltd [2000] HCA 12 ; (2000) 202 CLR 45 at 85 [102] ) that s 52 of the Trade Practices Act did not impose burdens which operated for the benefit of persons who failed to take reasonable care of their own interests. Gibbs CJ was discussing representations made to the public, as opposed to particular individuals. However, the judgment in Campomar 202 CLR at 83-84 [98]-[100] also discussed the need to consider all of the circumstances of the particular case. And, as McLelland CJ in Eq in Watson 49 NSWLR at 318-319 noted, recollections of pre-contractual conversations relied on as the source of an allegedly misleading or deceive representation can be affected by later events and the lapse of time. 251 In making the second finding, I have not overlooked Mr Proud's evidence, which North East Equity relied on as supporting its case, in relation to the starting point for measuring the 18% rejects. In his written evidence, Mr Proud referred on three separate occasions to the agreed initial tonnage (182 tonnes per 8 hour working shift or 22.75 tonnes per operating hour) being fed into the new line commencing after the brush washers. In cross-examination Mr Proud said that this was wrong. I do not consider that Mr Proud was always reliable in his evidence. On this point, the contemporaneous documents are a surer guide to what the parties agreed and discussed than their recollections four or five years later. Those recollections have been coloured by the subsequent history of the dispute and the desires of both witnesses to justify in their own minds, what they thought they had done. Their evidence was prone to being assertive and unreliable: see too Watson 49 NSWLR at 318-319. 252 While North East Equity was entitled to rely on these statements by Mr Proud as admissions against interest, I do not consider them to be reliable. They made no commercial sense, since neither party measured the weight at that point, or had any objective means of calculating this. The new equipment had to work with what was to be retained, including the initial part of the plant. A mix of production targets was discussed in 2002. The key inputs were the initial quantity of carrots delivered and the pack out tonnage per hour. As I have found above, it made no sense for the parties to measure or consider the production of the new equipment in isolation. Ultimately, in 2002 Mr Tana agreed with Mr Proud that Proud Machinery would provide new equipment to be combined with some old for the plant, working as a whole, which could pack out 18.75 tonnes per operating hour (or 17.55 tonnes without the handline) with a maximum of 18% total rejects. The new equipment, obviously, had to have the capacity to operate in a way which enabled the final pack out rate to be achieved. But, as Mr Webster' s 1 August 2002 memorandum showed, the overall capacity of the line, consisting of both the old and new equipment, was what mattered. The new equipment could not process more than the amount of carrots fed into it from the old system's brush washers. I do not accept Mr Proud's written evidence on the starting point for measuring the 18% rejects. 253 In any event, I must approach the identification of the terms and the construction of the agreement objectively, rather than from the subjective points of view of the parties. For the reasons I have given, I am satisfied based on the mutually known facts, the evidence of discussions and contemporaneous written material that the parties agreed that the 18% rejects related to the processing operation as a whole, commencing from the point where the carrots were tipped into the wet hoppers. And, given the nature of the negotiations and the parties here, it is appropriate to assess whether any representation complained of was made by Proud Machinery or Mr Proud on the same basis.