New South Wales Supreme Court CITATION : Amaca Pty Ltd formerly known as James Hardie & Coy Pty Ltd v CSR Ltd [2001] NSWSC 285 CURRENT JURISDICTION: Equity Division Commercial List FILE NUMBER(S) : SC 50053/1999 HEARING DATE(S) : 11 April 2001 JUDGMENT DATE : 18 April 2001 PARTIES : Amaca Pty Ltd formerly known as James Hardie & Coy Pty Ltd (Plaintiff) CSR Ltd (Defendant) JUDGMENT OF : Bergin J COUNSEL : CG Gee QC/TGR Parker (Plaintiff) PW Taylor SC/JE Fernon (Defendant) SOLICITORS : Allen Allen & Hemsley (Plaintiff) Toomey Pegg Drevikovsky (Defendant) CATCHWORDS : Admissibility of post-contract communications in relation to (a) a claim in equity and an estoppel defence, and (b) in aid of the construction of a clause in a Deed. LEGISLATION CITED : Law Reform (Miscellaneous Provisions) Act 1946 (NSW) Partnership Act 1892 (NSW) Administration of the Territory of Papua New Guinea v Daera Guba (1973) 130 CLR 353 Australian Broadcasting Corporation v XIVth Commonwealth Games Ltd (1988) 18 NSWLR 540 Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337 FAI Traders Insurance Co Ltd v Savoy Plaza Pty Ltd (1993) 2 VR 343 CASES CITED : Hide & Skin Trading Pty Ltd v Oceanic Meat Traders Ltd (1990) 20 NSWLR 310 Re Homfray Carpets Australia Pty Ltd v Hycraft Carpets Pty Ltd (1996) 14 ACLC 555 Sasson v Fahevu [1999] NSWCA 400, unreported, 28 October 1999, Sheller JA, Beazley & Fitzgerald JJA Sportsvision Australia Pty Ltd v Tallglen Pty Ltd (1998) 44 NSWLR 103 Spunwill Pty Ltd v Bab Pty Ltd (1994) 36 NSWLR 290 White v Australian & New Zealand Theatres Ltd (1943) 67 CLR 266 DECISION : Evidence admitted in (a) and rejected in (b). THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION COMMERCIAL LIST BERGIN J DATE: 18 APRIL 2001 50053/1999 - AMACA PTY LTD formerly known as JAMES HARDIE & COY PTY LTD v CSR LIMITED JUDGMENT 1 James Hardie has tendered a series of documents numbered 1228-1232, 1238-1274, 1277-1304 and 1319-1458 in the tender bundle of documents in these proceedings, the nature and some history of which is referred to in my judgment delivered on 10 April, 2001. First Series 1228-1232 2 The first document in this series (1228) is a CSR internal memorandum dated 1 February 1980. It refers to a telephone call from Mr Denmead of James Hardie in which he advised that he would like to meet with appropriate people within CSR concerning health claims from the former employees of the business of the partnership between James Hardie and CSR. The memo concludes: Since James Hardie managed the Hardie BI activity, and was the principal employer for many of the employees, its management apparently feel overly exposed to the emerging asbestos diseases "flack", and want again some assurance from CSR in the preliminary stages that we will not seek to avoid any obligations (including moral support) arising from the partnership. At this stage, we strongly recommend that we should not enter into discussions aimed at committing CSR to some responsibility/liability in this Hardie-BI issue. On the contrary, we should respond that we consider that we expect MMI as insurers to continue to accept liability. 3 The next document (1230) is a letter dated 23 August 1982 from James Hardie to its then solicitors, Messrs Diamond Peisah & Co seeking advice in respect of some pleadings in which James Hardie has been joined as the Fourth Defendant. James Hardie advised the solicitors that in respect of the period 1967 to 1970 any manufacture of material would have been via the partnership between James Hardie and CSR and "will involve CSR Ltd as 50% partner". 4 The next document is a letter from James Hardie to CSR of 23 August 1982 in which James Hardie enclosed the copies of the pleadings for CSR's information "because difficulties are anticipated in regard to indemnity by Hardie-BI insurers and, if a question of liability ultimately arises, this may devolve on the individual partners of Hardie-BI". Second Series 1238-1274 5 This group of documents includes copies of affidavits in proceedings in the Common Law Division of this Court in which James Hardie is a defendant. It also includes correspondence between James Hardie's solicitors, James Hardie and the corporate lawyer for CSR. This correspondence refers to the Deed of Dissolution of the Partnership (the Deed) and to requests for CSR to consider the pleadings and to discuss a cooperative approach or solution. 6 The correspondence is in the years 1983 and 1984. The affidavits were sworn in 1983 for a case commenced in 1982. 7 On 4 August 1983 CSR's corporate lawyer wrote to James Hardie (1257) in terms including the following: As you are aware, it is a distinct possibility that a person who claims damages as a result of exposure to asbestos-containing products manufactured by the partnership may well have also been exposed to asbestos-containing products manufactured separately by either of the partners or by other manufacturers. The almost limitless possibilities in this regard renders it to my mind almost impossible to settle upon a formula that will determine the quantum of the contribution that should be made by each of the partners towards the satisfaction of any judgment that might ultimately be obtained. For this reason I suggest that it is appropriate for each matter to be considered individually on the bases of the available evidence. If as I have stated above the manufacture is established to be the partners' then those partners will presumably contribute equally towards the satisfaction of any judgment that may ultimately be entered against James Hardie & Coy. Pty Ltd as representative of the partnership. On the other hand, if the evidence establishes, for example, that the asbestos products in question were manufactured by the partners and James Hardie & Coy Pty Ltd in its own right then it will be necessary to apportion the liability. It is my view that such apportionment should be considered after the facts have been established. 8 Further notes within this series of documents refer to conferences with counsel suggesting the joinder of CSR in the proceedings with a note (1261) that CSR had expressed a preference to: leave matters as set out in our letter of 4 August last whereby if the partnership became liable, the partners would split whatever damages the partnership was held liable for - and that we saw nothing at this stage to change the basic position. A further note (1262) states that CSR saw it as "unnecessary at this stage" to join CSR "as neither CSR nor, for that matter, the partnership had been referred to in either case". Third series 1277-1304 9 This series of documents includes further correspondence in respect of further litigation, a Deed of Settlement with QBE in which James Hardie is referred (1295) to "in its capacity as a former member of the former partnership known as Hardie BI company" and internal memoranda expressing views in respect of cross claims brought by Hardie against CSR and Bradford. These documents have all been created in 1984 and 1985. Fourth Series 1319-1458 10 These documents include further correspondence between the solicitors for the respective parties, copies of statements made in preparation for litigation, internal memoranda and file notes and correspondence with third parties. The documents range between 1985 and 1994 inclusive. The theme throughout the documentation is that CSR and James Hardie adopted an approach in 1983 in respect of asbestos-related litigation. On 25 June 1986 (1324) CSR wrote to James Hardie in the following terms: Gavin tells me that when you and he met in mid-1983 he indicated that: -CSR would be prepared to accept 50% of the liability for settlements, or that portion of settlements, which could reasonably be ascribed to Hardie BI; -But that, given the complexity of the issues he doubted if a formula could or should be worked out in advance to cover all possible situations; -And that we should be involved in the tactics, etc, for matters in which we would ultimately have a shared accountability; it would not be reasonable for CSR to be held accountable for matters allegedly involving Hardie-BI when we had no real say in their resolution. -Gavin's memory is that you would have preferred a simple 50% formula but seem to accept the overall approach as reasonable. 11 In 1991 a James Hardie internal memorandum (1391) records that James Hardie and CSR "arrived at an understanding" concerning the apportionment of 'liability' as between CSR and James Hardie in relation to asbestos cases. It continues: There is nothing on our files which specifies the agreement reached, except a bundle of material indicating what the agreement did not include. I enclose a copy of some of the relevant material. Unfortunately I do not have a complete set of correspondence and file notes. The CSR people did not eventually agree and what I proposed in 1988 as a formal agreement, as they did not consider that my draft accurately reflected the 1983 arrangement. I think the cross fertilisation of input of Bennett, Bagnall and Mutton resulted in conveniently crossedwires at CSR. There the matter rests. As a result of some very unhappy experiences recently with CSR and Wunderlich we have decided to join CSR wherever possible to cases arising out of the Hardie BI partnership. This course of action will not be the product of your negotiations but will arise out of the Partnership Agreement and the laws of Partnerships and joint tortfeasors (i.e.- those who contribute to or participate in an alleged wrong doing). 12 In 1991 (1415) there was further communication between the parties' lawyers in which they each expounded their understanding of the "arrangement". CSR claimed (1415) that it was never Mr Mutton's understanding that the "arrangement" did other than establish a scheme for determining the relative levels of apportionment as between the companies and the Hardie-BI matters. 13 In 1992 (1424) CSR repeated the view that the scheme detailed in CSR's letter of 4 August 1983 and the later variations to it provided the foundation for the management of the litigation and the resolution of the issues which may emerge between CSR and James Hardie. CSR noted that such arrangement was "not binding". 14 James Hardie tenders these documents in part in aid of the construction of the following release contained in the Deed of Partnership Dissolution: 8. As from the date of dissolution James Hardie, CSR and Bradford Insulation, by their execution hereof agree that the Partnership will be at an end, that all rights, duties and obligations of all the parties under the Principal Deed or any of them shall then cease and further that subject to clause 9 hereof, James Hardie, CSR and Bradford Insulation jointly and severally release the other parties and either of them from all such actions, causes of action, demands or claims which any of them has had or but for this Deed might have had against the others or either of the others. By way of clarification to this clause and not otherwise, James Hardie, CSR and Bradford Insulation shall as from the date of dissolution not be bound by Clause 2 of Division 4 of the Principal Deed. 15 Clause 2 of Division 4 of the Principal Deed dealt with a restriction on the activities of the partners during the partnership. 16 It is submitted that if the Court forms the view that the meaning of the release is clear then resort to the material will be unnecessary. However it submitted that if there is ambiguity in the terms of the clause then the material is able to be called in aid to construe the clause. All of the material post-dates the Deed. Pleadings 17 By Further Amended Summons James Hardie claims that it is entitled to contribution from CSR in respect of the payments made to plaintiffs in asbestos related claims in the Dust Diseases Tribunal involving exposure to products manufactured by the partnership. 18 James Hardie claims that CSR is liable at law or in equity to pay contribution by reason of James Hardie's and CSR's co-ordinate liability under the Partnership Act 1892 (NSW) or under the Law Reform (Miscellaneous Provisions) Act 1946 (NSW). 19 In an Amended Defence filed on 30 March 2001 CSR pleads: C9-6 By reason of the terms of the Deed of Dissolution and since the date of dissolution of the Hardie-BI Partnership, James Hardie cannot maintain any claim against CSR for contribution to, or indemnity for, its liability to Welch. C9-8 By reason of the foregoing James Hardie is estopped from pursuing the relief claimed in these proceedings. 20 In an Amended Reply to these paragraphs and others in the earlier Defence, James Hardie denied that it was estopped from making the claims in these proceedings. It pleaded that at the time of the execution of the Deed, it did not know of CSR's potential liability and did not intend to release, and did not know of any intention by CSR to release, any such potential liability as part of the dissolution of the partnership (pars. 6A, 8 & 9). Objections 21 CSR objects to the material. It is conceded that there are two approaches to be considered in ruling upon the admissibility of these documents. The first is that the material may be admissible in relation to the claim in equity to ascertain the intention of the parties at the time of dissolution and the second is in relation to the construction of the release. Claim in Equity 22 Mr Taylor SC, for CSR, put a series of submissions, which he described as a threshold objection, in relation to the documents in respect of the ascertainment of the intention of the parties at the time of dissolution. 23 The first of those submissions is in relation to the period between the dissolution/release and the correspondence and other material contained in the tendered documents. The date of dissolution is November 1974 and the documents are dated from 1980 to 1994. He submitted that this lack of proximity to the date of dissolution could not assist in ascertaining the intention of the parties at the time of the entry into the Deed. 24 The second submission is that none of the directing minds who caused the parties to enter into the Deed are the authors of the correspondence and documents the subject of the tender. 25 The third submission is that there had been a fundamental change in the relationship between the parties, both by the dissolution of the partnership and the commencement of negotiations in respect of sheet asbestos, with which, I understand, the BI partnership had no connection. 26 In response Mr Gee QC, for James Hardie, submitted that the age of the material is not a bar to admissibility. If documents show, as he submitted they do show, a consistent theme of understanding between the parties and a common assumption in respect of the document the subject of the claim, then such material may assist and is relevant and admissible. 27 As to the second matter he submitted that, although it may be the case that the directing minds are not the authors of the documents, in the main the authors are the corporate or instructed lawyers of the parties and the Court could assume that the views expressed in the material are the views of the directing minds. 28 As to the third submission in respect of the fundamental change, Mr Gee submitted that even though the partnership had dissolved the post dissolution communications, where they demonstrate a mutuality of approach, are quite appropriate to consider. He submitted therefore that they are relevant and admissible. 29 There is a claim by James Hardie in equity and there is a claim by CSR in the Amended Defence that James Hardie is estopped from pursuing the relief claimed in these proceedings. The estoppel claim and the case pleaded in reply to it, in my view, make these documents relevant. 30 Some of these documents are dated a long time after the dissolution/release, however in many respects they refer back to the earlier of them, in particular to CSR's letter of 4 August 1983. I do not see the period of time being a bar to the admissibility of the documents on this aspect of the case. The same pertains to the second submission made by Mr Taylor in his threshold objection. As to the third submission, there are some documents which refer to sheet asbestos, however rather than editing those parts out of the otherwise relevant documents they will be admitted subject to relevance. 31 I intend to admit the documents in each series on this aspect of the proceedings. Construction of the Release 32 Far more controversy surrounds the admissibility of the documents as an aid to the construction of the release. Mr Taylor submitted that I should reject the whole of the post contractual material on this aspect of the case. In support of these submissions he relied upon the decisions of the Court of Appeal in Victoria in FAI Traders Insurance Co Ltd v Savoy Plaza Pty Ltd (1993) 2 VR 343 and Re Homfray Carpets Australia Pty Ltd v Hycraft Carpets Pty Ltd (1996) 14 ACLC 555. 33 He submitted that I should follow the approach adopted by Bryson J in Sportsvision Australia Pty Ltd v Tallglen Pty Ltd (1998) 44 NSWLR 103 at 116 and that I should reject the approach adopted by Santow J in Spunwill Pty Ltd v Bab Pty Ltd (1994) 36 NSWLR 290. In this latter respect Mr Taylor submitted that Santow J's approach was flawed by reason of an unwarranted criticism of Brooking J's judgment in Savoy at 307F-G; 308C and in finding some limited support in the approach adopted by Eames J (305 E). 34 Mr Gee submitted that Hide & Skin Trading Pty Ltd v Oceanic Meat Traders Ltd (1990) 20 NSWLR 310 is binding authority which follows White v Australian and New Zealand Theatres Ltd (1943) 67 CLR 266, the application of which makes the documents admissible. 35 In Hide & Skin, Priestley JA, with whom Meagher JA agreed, considered "whether it is legitimate to take into account the parties' post contractual conduct" in the "wider approach to construction" of a written agreement (326D). Kirby P did not consider that he was obliged to decide this matter in that case but made the following observations: By clear and mutual conduct the parties may sometimes evidence what they originally intended. They may thus clothe ambiguous words with a sensible operation by the way they behave in apparent pursuit of their agreement…..The extent, if any, to which regard may be had to post-contract conduct must await another day. 36 Priestley JA referred to the English approach in refusing to allow consideration of post contractual conduct (at 326F) and analysed the Australian position, particularly in White in which the High Court was construing the meaning of the words "sole professional services" in a letter of agreement. The Court allowed consideration of the conduct of the parties including post agreement conduct. 37 Priestley JA concluded that White sanctioned a broad and "entirely rational" approach to the admissibility of surrounding circumstances to show the meaning of words in a contract (at 327D). Indeed his Honour went on to say (at 327D): ..it seems to me that any narrower approach to the ascertaining of the meaning of words in contracts is artificial and noted that the authorities and text to which he had referred had not indicated any helpful answer to the "critical question", as by what criterion the field of inquiry is to be marked out (at 327E). 38 Priestley JA also referred to the oft cited portion of Mason J's judgment in Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337 at 353 which he described as "liberating rather than restricting" (at 327F). More importantly for this case his Honour went on to consider Administration of the Territory of Papua New Guinea v Daera Guba (1973) 130 CLR 353 and said at 327G-328B: In that case Gibbs J (at 446) adopted the House of Lords decisions in Miller and Schuler as establishing the "general principle" that "it is not legitimate to use as an aid in the construction of the contract anything which the parties said or did after it was made". Menzies J (at 405) agreed with Gibbs J, as did Stephen J (at 459). I do not know of any later decision in the High Court expressly to the contrary. It may be that, in strictness, what Gibbs J said on this point was not essential to his reasoning on that part of the case to which it was relevant . Because this authority seems to be in conflict with White , it seems prudent for this Court to act on the possibility that White remains binding on this Court, and consider, in the present case, whether the acts of the parties after the date of the letter of agreement give any assistance to ascertaining the meaning of that agreement. 39 In Sportsvision Bryson J expressed the view that the approach in White was "entirely orthodox and furnishes no support for any view in which resort may be had to parties' later conduct and behaviour for resolving ambiguities in the text of an agreement or for construction of what the written agreement said". In referring to the above portion of Priestley JA's judgment in Hide & Skin Bryson J said at 116: To my reading the judgments do not support any different views to that of Gibbs J in Daera Guba. With respect I do not understand Priestley JA as endorsing the views expressed in White by observing that those views were entirely rational. …Priestley JA was directing himself to the state of authority, and the incontestable observation that the broad view is entirely rational did not express adherence to that view. Notwithstanding the force which would ordinarily be attributed to a later considered statement in High Court judgments, Priestley JA's conclusion was that the earlier statements made it prudent to consider what conclusion would be reached on the broader basis. 40 Bryson J concluded that the opinions expressed in Daera Guba have great force for courts in New South Wales, including primary judges. He was of the view that there was no rule which made the post contractual conduct admissible. 41 In Spunwill Santow J formed a view different from Bryson J in Sportsvision. Santow J concluded that in construing the words "business of the similar nature" in a written contract, post-contractual conduct was admissible where it "evidences a clear and mutual subjective intention as to what the contract originally meant"(at 312B-C). This approach might be seen to provide the criterion to "mark out" the field of inquiry in relation to post-contract conduct, in answer to the "critical question" referred to by Priestley JA in Hide & Skin. 42 The conflict of views between Bryson J and Santow J was referred to by the Court of Appeal in Sasson v Fahevu [1999] NSWCA 400, unreported, 28 October 1999, Sheller JA, Beazley & Fitzgerald JJA, without resolving it or taking the opportunity to provide any guidance as to the preferable approach: per Beazley JA [31] - [32]. 43 The two authorities of the Victorian Court of Appeal support the approach of rejecting the post contractual conduct. However I agree with Mr Gee's submissions that the observations made in Savoy were obiter. In Re Homfray Hayne JA seemed to be inclined to the view consistent with rejecting the post-contract conduct but decided there was no need to express a concluded view as to whether to follow Spunwill (at 577). 44 I find it difficult to reconcile the admission of post-contract conduct in circumstances where there is no binding authority which sets the limits of the extent of the inquiry. Santow J's approach in Spunwill might be an answer. Hayne JA saw considerable difficulties in such approach in Re Homfray (at 577). This observation relied to a large extent on Gleeson CJ's judgment in Australian Broadcasting Corporation v XIVth Commonwealth Games Ltd (1988) 18 NSWLR 540 at 549 in which the Chief Justice said: In my view the subsequent conduct of the parties may reveal their subjective intentions, but it is not those intentions which reveal the nature and extent of the rights and obligations of the parties, it is "the intention which was reasonably understood by the other parties to be manifested by that party's words". 45 Santow J's approach limits the admissibility of the conduct to that which evidences clear and mutual subjective intention of what the contract originally meant. Such clear and mutual conduct might fall within the category of conduct referred to in Gleeson CJ's judgment. In those circumstances the difficulties Hayne JA saw may be less than considerable. 46 If the approach adopted by Santow J is the correct approach, I am of the view that, although there may be an intention evidenced within the material, it is not a clear and mutual subjective intention as to what the contract originally meant. The parties proceeded over a number of years to treat the letter of 4 August 1983 as an arrangement to be adopted with respect to the litigation. However the correspondence is equivocal, with expressions such as "presumably" utilised to describe the proposed sharing arrangement. There was also a clear statement that such arrangement was "not binding". 47 I do not have to choose between the approach adopted by Bryson J in Sportsvision or that adopted by Santow J in Spunwill. On either approach the documents are inadmissible and I reject them on this aspect of the case. ******************** Last Modified: 04/19/2001 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.