District Court New South Wales Medium Neutral Citation: Camnet Finance Pty Ltd v Blakehurst Aged Care Services Pty Ltd [2020] NSWDC 297 Hearing dates: 13 – 14 May 2020 Date of orders: 16 June 2020 Decision date: 16 June 2020 Jurisdiction: Civil Before: Weber SC DCJ Decision: (1) Judgment and verdict for the plaintiff in the sum of $135,910.71; and (2) The defendant pay the plaintiff's costs. Catchwords: CONTRACTS — Contractual construction — Terms – interaction between the contract and its variations led to a dispute concerning terms within the original contract and the variations – dispute as to whether the commencement date of the contract was altered by the variations – where the commercial purpose of the original contract and the variations could only be satisfied by the variations altering the commencement date CONTRACTS — Construction — Principles – Use of other documents in aid of construction CONTRACTS — Termination — Breach by terminating party – where erroneous termination led to a default event Cases Cited: Electricity Generation Corporation v Woodside Energy Pty Ltd (2014) 251 CLR 640 Hoyts Pty Ltd v Spencer (1919) 27 CLR 133 Johnston v Brightstars Holding Company Pty Ltd [2014] NSWCA 150 McVeigh, in the matter of Piccolo v National Australia Bank [2000] FCA 187 Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104 XL Insurance Co SE v BNY Trust Company of Australia Limited [2019] NSWCA 215 Category: Principal judgment Parties: Camnet Finance Pty Ltd (Plaintiff) Blakehurst Aged Care Services Pty Ltd (Defendant) Representation: Counsel: Mr J. Burnett (Plaintiff) Mr A. Byrne (Defendant) Solicitors: Sarvaas Ciappara Lawyers (Plaintiff) Cornwalls NSW (Defendant) File Number(s): 2019/00120426 Publication restriction: None Judgment 1. The plaintiff is a financier. It finances what are conventionally described as commercial leases of office equipment. I have used the adverb "conventionally" as in fact the relationship entered into between the plaintiff and its customers is one of bailor and bailee. That said, the language of leasing is sometimes used in the contractual documentation. Thankfully, it is unnecessary to decide the juristic nature of the relationship for the purposes of these proceedings. It is probably sufficient to note that the plaintiff supplies the goods the subject of the arrangement to its customer, but at all times title in the goods remains with the plaintiff. 2. The office equipment is provided by the plaintiff to its customers by agreement referred to as a Print Copy Plan ("PCP"). The defendant entered into such an agreement with the plaintiff in 2013. The PCP was subsequently varied twice. This matter concerns questions of contractual construction of both the original PCP and the two variations. Contractual Formation 1. The PCP is contained in a pro forma document designed to be completed in handwriting ("the PCP Schedule"). The PCP Schedule in turn incorporates type-written standard terms ("the Standard Terms"). 2. The contract between the plaintiff and the defendant was formed in the following manner. The defendant submitted to the plaintiff a completed PCP Schedule, which constituted an offer by the defendant to the plaintiff. It specified inter alia the goods proposed to be the subject of the transaction. The contract was formed by acceptance of that offer by the plaintiff. Clause 1 of the Standard Terms provides that after the customer's offer has been made, the customer cannot withdraw that offer without the plaintiff's consent, and that acceptance of the offer by the plaintiff will occur at the earliest of: 1. The time when the plaintiff had agreed to acquire the goods, described in the PCP Schedule, from its supplier; or 2. The signing of the PCP Schedule by the plaintiff. 1. This style of contractual formation is important, as it demonstrates the fundamental fact that the plaintiff has to acquire the goods the subject of the proposed transaction, at its own cost, before the provision of those goods to the customer can occur. Having committed itself to the supplier to acquire the goods, the plaintiff thus binds the customer to the transaction. This style of contractual formation therefore can be seen to control risk at the commencement of the transaction. It does so insofar as it binds the customer to the transaction from the time that the plaintiff is committed to acquiring the goods. Self-evidently, the aim of the transaction is for the plaintiff to recoup from the customer the purchase price of the equipment which it has acquired, together with other costs incurred by it, and, no doubt, a profit. In order to achieve that aim, the contract must also control risk at its potential conclusion. This is reflected in further clauses, to which I shall now turn. The Commencement Date 1. While the contract is formed at the time of acceptance by the plaintiff of the customer's offer, the agreement does not commence in an operating sense until the contractual "Commencement Date". This concept is defined in clause 21.1 of the Standard Terms as being the date nominated by the parties in the space adjacent to the type written "Commencement Date" at the bottom right-hand corner of the PCP Schedule, or "the date by which at least 50% of the goods are delivered". 2. In the present case there was no nominated commencement date on the face of the PCP schedule, and therefore the date upon which at least 50% of the leased goods were delivered, constituted the date of commencement of the contract. The Structure of the PCP 1. As I have indicated, the PCP Schedule described the goods to be leased, it then provided a regime which governed both the monthly charges payable by the customer to the plaintiff, and the time at which the agreement could be brought to a conclusion by the customer. 2. The customer was to pay a nominated amount per print (including GST) for both black-and-white and colour prints. This was described as the "Cost Per Print". These charges were levied at different rates. There was a minimum amount payable by the plaintiff per month, calculated, in the original PCP, by multiplying the rate per print by 20,000 blank-and-white prints, and 8000 colour prints. This was described as the "Agreed Volume per Billing Period". This sum was payable whether the minimum number of prints was actually used by the customer or not. If the actual number of prints per month made by the customer exceeded the Agreed Volume per Billing Period, additional prints thereafter would be charged according to the Cost Per Print. 3. The maximum term of the agreement in the original PCP Schedule was stated to be "60 months after the last day of the calendar month of the Date of Commencement". 4. The maximum term was set out below a table referred to in the PCP Schedule as the "Print Table". This table contains the numerical details agreed between the parties for the following: 1. The Cost Per Print (excluding GST); 2. The Cost Per Print (including GST); 3. An "Agreed Volume per Billing Period"; and 4. A "Total Volume For Function". 1. The Total Volume For Function in the original PCP Schedule is the product of the Agreed Volume per Billing Period multiplied by the maximum term; that is, in respect of black-and-white prints: 20,000 x 60 = 1,200,000 prints; and, in respect of colour prints: 8,000 x 60 = 480,000 prints. 2. The Total Volume For Function played an important role in the potential termination of the PCP by the customer. This was so as the PCP had a twofold approach as to when it could be terminated by the customer. The first was a temporal method of termination. In this regard the PCP was terminable by the defendant at the expiry of the maximum term of 60 months from the contractual commencement date (Standard Term clause 2.1(a)). The second method of termination was when an agreed total number of prints had been invoiced and paid for. This was the function of the Total Volume For Function (Standard Term clause 2.3). 3. It can be seen, therefore, that these clauses provided a regime to ensure that the plaintiff's investment in acquiring the leased goods would be recouped before the customer could terminate the agreement. Put another way, these clauses controlled the risk that the customer would seek to terminate the transaction before the recouping of the plaintiff's investment had occurred. The Variations 1. As I have earlier indicated, the PCP was varied twice. In both cases certain goods the subject of the original PCP were deleted, and new goods were delivered in their place. 2. The schedules to the PCP variations again contained a Points Table, the typed portions of which were in a relevantly identical form to the Points Table contained on the original PCP schedule. The maximum term was again stipulated to be 60 months from the date of commencement. 3. The first and second variations had different Costs Per Print and different Agreed Volume(s) per Billing Period compared to both the original PCP Schedule, and each other. The Total Volume For Function was also, as a consequence, different. In that regard, two important matters should be mentioned, namely that: 1. The Total Volume For Function was again calculated by multiplying the amended Agreed Volume per Billing Period by the 60 month maximum term; and 2. The resultant figure for the Total Volume For Function was described as "New". The Defendant's Purported Termination 1. Had the PCP not been varied, it was common ground that the defendant could have terminated the agreement at the time the maximum term was reached, namely in or about October 2018. The defendant in fact did purport to terminate the agreement at or about that time. 2. The plaintiff denied its right to do so. 3. The plaintiff asserted that the effect of the variations was to extend the maximum term applicable to the PCP to a date 60 months after the commencement date of each contractual variation, or in practical terms, 60 months after the date of commencement of the second contractual variation. On any view of it, that time had not arrived, when the defendant purported to terminate the agreement. 4. Relying on its purported termination, the defendant ceased paying monthly print charges. This, if its termination was not valid, constituted a "Default Event" (clause 12.1(a)). Upon commission of a Default Event, the defendant was deemed to have repudiated the PCP, and the plaintiff was entitled to terminate the PCP by written notice, or by taking possession of the leased goods (clause 13.1). 5. Upon such termination, the defendant became immediately liable to pay to the plaintiff the "Recoverable Amount". This was defined in clause 21.1. 6. The plaintiff did purport to terminate the PCP reliant on these clauses. It was agreed between the parties that if the plaintiff was entitled to do so, and was thus entitled to judgment as sought, the Recoverable Amount is $135,910.71. The Issues 1. As the quantum of the claim was agreed, the issues are twofold, namely: 1. Whether the defendant was entitled to terminate the agreement when it did; and 2. If not, whether the manner of the plaintiff's termination was in accordance with the provisions of the PCP. 1. The first issue turns on the construction of the PCP and its variations. The Applicable Principles 1. There was no dispute between the parties as to the applicable concepts which govern contractual interpretation. The plaintiff relied on what was stated by the High Court in Electricity Generation Corporation v Woodside Energy Pty Ltd (2014) 251 CLR 640, where French CJ, Hayne, Crennan and Kiefel JJ said (at [35]): The meaning of the terms of a commercial contract is to be determined by what a reasonable businessperson would have understood those terms to mean. That approach is not unfamiliar. As reaffirmed, it will require consideration of the language used by the parties, the surrounding circumstances known to them and the commercial purpose or objects to be secured by the contract. Appreciation of the commercial purpose or objects is facilitated by an understanding "of the genesis of the transaction, the background, the context [and] the market in which the parties are operating." As Arden LJ observed in Re Golden Key Ltd, unless a contrary intention is indicated, a court is entitled to approach the task of giving a commercial contract a businesslike interpretation on the assumption "that the parties… intended to produce a commercial result". A commercial contract is to be construed so as to avoid it "making a commercial nonsense or working commercial inconvenience". 1. The defendant, for its part, relied on the High Court's statement of principle in Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104 (at [116] to [117]), where the plurality (French CJ, Nettle and Gordon JJ) stated: The rights and liabilities of parties under a provision of a contract are determined objectively, by reference to its text, context (the entire text of the contract as well as any contract, document or statutory provision referred to in the text of the contract) and purpose. In determining the meaning of the terms of a commercial contract, it is necessary to ask what a reasonable businessperson would have understood those terms to mean. That inquiry will require consideration of the language used by the parties in the contract, the circumstances addressed by the contract and the commercial purpose or objects to be secured by the contract. Ordinarily, this process of construction is possible by reference to the contract alone. Indeed, if an expression in a contract is unambiguous or susceptible of only one meaning, evidence of surrounding circumstances (events, circumstances and things external to the contract) cannot be adduced to contradict its plain meaning. However, sometimes, recourse to events, circumstances and things external to the contract is necessary. It may be necessary in identifying the commercial purpose or objects of the contract where that task is facilitated by an understanding "of the genesis of the transaction, the background, the context [and] the market in which the parties are operating". It may be necessary in determining the proper construction where there is a constructional choice. 1. Neither party suggested that there was any material difference in the High Court's recitation of principles in the two authorities. Consideration 1. The defendant argues that the commencement date as set forth in the original PCP is unaltered by the subsequent variations. It says, therefore, that the maximum term had arrived when it purported to terminate the agreement, and as such it was legally entitled to do so. 2. To my mind this construction confronts serious obstacles. 3. The first is that in each of the variations the Total Volume For Function is described as being "New", which strongly suggests that the variation amounted to a complete "reset" of both the figures in the Print Table set out in the PCP Schedule, and the Date of Commencement of the PCP, as varied. 4. Secondly, the New Total Volume For Function "Volume" can be seen to be derived by multiplying the amended Agreed Volume per Billing Period by a 60 month maximum term which, in order to make the arithmetic work, must commence from the time of the variation. If the original 60 months maximum term was unaltered, as the defendant contends, then the New Agreed Value For Function would be less than the parties have stipulated in the Print Table. 5. The defendant's construction confronts another substantial obstacle in the form of the Prints Made Calculation. This is a feature found only in the variations, and not in the original PCP. It is defined in both variations as follows: You acknowledge that Prints Made prior to the Commencement Date of this Variation will not be included in the calculation of the volume of Prints Made under this Variation. You acknowledge that the volume of prints made to the date of this variation will not be carried forward to count towards the New Total Volume. (My emphasis added.) 1. To my mind, the words "of this Variation" after "the Commencement Date" appear to make clear that the variation was to have the effect of providing a new commencement date for the PCP, and thus a new maximum term. 2. Further, if the commencement date of the varied PCP remained unaltered from the original PCP, there does not appear to be a logical basis for the parties to exclude points previously acquired from the Prints Made Calculation. On the other hand, if the variation had the effect of varying the commencement date, as the plaintiff contends, it was necessary to make explicit that prints made before the variation could not be counted, as otherwise their inclusion could reduce the number of prints in the Agreed Volume per Billing Period, and thus be incompatible with the mathematics for calculation of the New Total Volume For Function. 3. Further, the prohibition of Prints Made being "carried forward" also strongly suggests that the previous points were part of a billing regime that no longer existed, and that had been overtaken by a new billing regime, which commenced afresh at the commencement of the variation. This conclusion is reinforced by the fact that the Prints Made which could not be carried forward were those made "prior to the Commencement Date of this Variation". 4. Of further significance, in my view, is the fact that if the defendant's construction be correct, then there seems to me to be no need for the entry on the PCP variation for the maximum term of "60 months after the last day becomes the month of the date of commencement." This is so as on the defendant's construction the maximum term is always anchored to the original PCP commencement date in 2013. In the face of this obstacle the defendant says that the clause is otiose, and could and should be ignored. This approach is contrary to authority which only countenances the ignoring of words in a contract where a construction is not available which provides work for the words to do (see, for example, XL Insurance Co SE v BNY Trust Company of Australia Limited [2019] NSWCA 215 at [22]). 5. This is not the case in the present proceedings. Far from being otiose, the definition of maximum term when it appears in the PCP variation, to my mind, indicates the variations have the effect of resetting the commencement date and thus, resetting the maximum term, and the New Total Volume For Function. 6. The defendant says that the outcome for which it contends may have been different had the parties completed the Commencement Date available to be completed at the bottom right-hand corner of the PCP variation. The fact is that there are two methods for the ascertainment of Commencement Date, the first of which being the completing of the space on the PCP variation, the second being the one adopted by the parties in both the PCP and its variations; that is when 50% of the relevant leased goods were delivered. The parties chose the latter method on each occasion, which is in 2013, and at the time of the two variations. I do not see the fact of the parties choosing that option as being relevant, let alone determinative, of the issue of construction before me. 7. The defendant suggested that it is unlikely that the parties would have intended that the Commencement Date of the original PCP would be governed by the date when 50% of the leased equipment had been delivered pursuant to the PCP variations. It contended that this was so, as to do so would be to create difficulties in the calculation of the commencement date. 8. This argument appeared to beg the question as to whether the initial commencement date in the original PCP remained unaltered. 9. It was only if one adopted, as a starting point for calculating when 50% of the goods had been delivered, the unaltered original date of delivery of 50% of the original leased goods that any possible difficulty in calculation may arise. On the contrary, if one assumes that the commencement date of the varied PCP is when 50% of the leased goods the subject of the variation had been delivered, then the commencement date would seem to be readily capable of ascertainment. 10. The defendant also argued that "the goods" were defined by reference to the 2013 PCP only, and as such, the commencement date, being as it is tied to the delivery of the goods, remains unaltered by the variations. This argument, to my mind, again begs the question as to whether the effect of the variations was to amend the PCP inter alia by amending the description of "the goods". The new goods delivered following the variation in question were described as "additional goods" in the variations. Evidently they replaced earlier delivered goods which were described in the variations as "deleted goods". This strongly suggests that the variation also affected the identity of "the goods". 11. The defendant advanced a further argument which, given its subtlety, I shall set out rather than paraphrase: [28] First, the expression Maximum term, in both the 2015 Variation and 2016 Variation, is undefined, and, on the basis of the plain use of the English language, could only mean the outer date limit for the contract in question (whether the 2013 Agreement, the 2015 Variation or the 2016 Variation). Conversely, the adjective "maximum" cannot reasonable or objectively, on the basis of lain language, be read as "minimum" – so that "maximum term" was, in effect, construed to refer to the minimum term for a contract. That would amount to a fundamental distortion of the meaning of that adjective. Thus, on a plain reading of the language in the 2015 Variation and 2016 Variation, the expression "Maximum term" is irrelevant in determining the minimum period before which the plaintiff is entitled to exercise termination rights (under the 2013 Agreement or otherwise). 1. I do not see any merit in this argument. The expression "maximum term" in its contractual context has an effect as both a maximum and a minimum, depending on the perspective from which one considers it. From the customers point of view it refers to the maximum number months during which it will have to pay monthly payments, before it can terminate the agreement. From the plaintiff's point of view, however, the maximum term represents a minimum, that is to say, the least period of monthly payments before which the customer can terminate the agreement (assuming the Total Volume For Function figure has not been reached). 2. Viewed in this way, there is no reason why the variations could not vary the maximum term. 3. The plaintiff's construction of the date of commencement, to my mind, is also a construction which advances the evident commercial objects of the transaction. This is so as, in my view, the fact that the variations resulted in the delivery of new equipment means that it is only to be expected that the date of commencement would commence with the delivery of those goods, with the maximum term to be reached 60 months thereafter. 4. On the other hand, the defendant's construction of the agreement would have commercial consequences that are incompatible with the evident commercial purpose of the contract. I do not believe that the hypothetical business person postulated by the High Court in both Woodside and Mount Bruce would attribute to the agreement the construction proposed by the defendant. 5. As I have indicated, in order to accept the customer's offer, the plaintiff, as a financier, acquires a substantial chattel, such as a photocopier, at what is no doubt a substantial cost. It does so only when it has secured the customer to a PCP. Its interest is in ensuring that it can recoup the capital outlay, and make a profit. The pricing of the payments and their duration in the term of the contract can be seen to be designed to achieve this. There are only two methods by which the customer can terminate the agreement. The first is when the customer has made a minimum of 60 monthly payments. The second is when it has paid the New Total Volume For Production. Both methods where clearly designed to ensure that the plaintiff recoups its investment in the machines before termination. 6. The defendant's construction would not further this foundational commercial object of the transaction. For example, on the defendant's construction, the defendant could order a new photocopier by way of a PCP Variation within weeks of the expiry of the original PCP maximum term period, but could then bring the arrangement to an end at the expiry of the original maximum term, leaving the plaintiff with a recently delivered second-hand photocopier upon which it received virtually no payments in the nature of rental. 7. To my mind, the contract is carefully constructed to ensure that this is not the case. The Use of Other Documents in Aid of Construction 1. The plaintiff contends that two other documents are available as aids to the construction of the PCP and the two variations. These are: 1. A document entitled "Camnet Print Copy Plan: 10 Points You Need To Know"; and 2. A document entitled "Maintenance Agreement". 1. Each of these documents was produced and signed at about the same time as both the PCP, and the subsequent PCP variations. 2. There is no doubt that a document executed contemporaneously or shortly after a primary document is capable of being relied upon as an aid to contractual interpretation of the primary document (see for example Hoyts Pty Ltd v Spencer (1919) 27 CLR 133 at [142] per Isaacs J). It is clear, however, that this principle is only applicable to contemporaneous documents, which are themselves contractual, and forming part of the same transaction as the primary document. 3. The "10 Points You Need To Know" document is not contractual. It merely sets forth certain post contractual expressions of opinion as to various matters, including the term of the agreement which it accompanies. That it is not a contractual document is made explicit on its face (see paragraph 10 of the document). 4. The primary purpose of the "Ten Points" document seems to be as an acknowledgement by the customer of having received the PCP, as well as the plaintiff's privacy policy. 5. The plaintiff alternatively contended that the document amounted to admission by the defendant as to the maximum term and commencement date of the variations. I do not believe that this is the case. As these matters involve pure questions of law, they are incapable of being the subject of a meaningful admission (Johnston v Brightstars Holding Company Pty Ltd [2014] NSWCA 150 at [78] to [84] (Beazley P), at [119] to [124] (Basten JA), at [134] (Gleeson JA agreeing)). 6. In my view, the Maintenance Agreement however, is available as an aid to construction. It is a contractual document. It was a document entered into as part of the same transaction as the original PCP and, relevantly, each variation. Each seems to have been executed shortly after the relevant variation and at the time of delivery of the new goods the subject of the variation. The Maintenance Agreement concerned maintenance of those items. Its term was five years. This strongly suggests that the PCP as varied was also to operate to a maximum of 60 months from the date of the variation. 7. The defendant's only answer to the use of the Maintenance Agreement in aid of the construction of the variations to which they relate, was to say that the Camnet company which entered into the Maintenance Agreement, was not the plaintiff, but rather was a related corporation of the plaintiff. 8. I do not consider this to be an impediment to the use of the Maintenance Agreement as an aid in construction of the variation to which it relates (see McVeigh, in the matter of Piccolo v National Australia Bank [2000] FCA 187 at [31] to [32] per Finkelstein J ("Piccolo v NAB"). It seems to me that consistent with his Honour's example of a loan secured by a guarantee in Piccolo v NAB, the parties could have chosen to incorporate the maintenance aspect of the transaction into the original PCP and its variations by including the related company in a tripartite agreement. The fact that they decided to approach the transaction by entering into two agreements, one involving a related corporation to the plaintiff, does not disqualify the latter document of its status of being available to aid in the construction of the PCP or the variations to which it relates. Conclusion on Construction 1. In conclusion therefore, I find that the defendant was not entitled to terminate the PCP at the time at which it purported to do so, and that subject to the issue of notice, to which I shall now return, the plaintiff is entitled to judgment. The Termination 1. The defendant submitted that the plaintiff had not validly terminated the PCP as varied. This contention was that the termination contemplated by the PCP was a three-stage process, namely: 1. Invoices for payment of print charges; 2. Which invoices were not paid; then 3. Non-compliance with a subsequent notice requiring payment. 1. The defendant asserted that there was no subsequent notice. 2. I do not accept this to be the case. 3. The PCP terms do not provide for any particular form of notice. The clause which deals with the topic concerns issues of service surrounding the notice. The letter from the plaintiff to the defendant dated 29 January 2019 in its final paragraph, and the letter from the plaintiff's solicitor to the defendant's solicitor dated 14 February 2019, again in its final paragraph, in my view, constitute sufficient notice to comply with the plaintiff's obligations necessary to effect termination. There was non-compliance with those notices. 4. Finally, I should add that the defendant did not engage in the question as to the consequences of success of its termination argument. This was understandable, as it may be that if the termination was invalid the PCP remains on foot, with the defendant's monthly payment obligation remaining ongoing. Orders: 1. Judgment and verdict for the plaintiff in the sum of $135,910.71; and 2. The defendant pay the plaintiff's costs. ********** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 16 June 2020