New South Wales Supreme Court CITATION : Braystock Pty Ltd v Garland [2004] NSWSC 874 HEARING DATE(S) : 27 & 28 May and 15 & 17 September 2004 JUDGMENT DATE : 21 September 2004 JURISDICTION: Equity JUDGMENT OF : Hamilton J DECISION : Axle correction equipment included in expression "Truck Aligner" in contract for sale of business. CATCHWORDS : CONTRACTS [120] - General contractual principles - Construction and interpretation of contracts - Other matters - Admissibility of extrinsic evidence - Parol evidence rule - Ambiguity exception - Ambiguity of words "Truck Aligner" resolved with aid of extrinsic evidence. BP Australia Pty Ltd v Nyran Pty Ltd (2003) 198 ALR 442 Brooks v NSW Grains Board [2000] NSWSC 1049 Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337 CASES CITED : LMI Australasia Pty Ltd v Baulderstone Hornibrook Pty Ltd [2003] NSWCA 74 Manufacturers' Mutual Insurance Ltd v Withers (1988) 5 ANZ Insurance Cases 60-853 Royal Botanic Gardens and The Domain Trust v South Sydney Council (2002) 76 ALJR 436 J W Carter & Stewart, "Interpretation, Good Faith, and the 'True Meaning' of Contracts" (2002) 18 Journal of Contract Law 182 Braystock Pty Limited (1P) PARTIES : Julie Elizabeth Foster (2P) Robert Peter Garland (D) FILE NUMBER(S) : SC 4860/02 COUNSEL : G A Rich (Ps) D L Warren (D) SOLICITORS : Barraclough Jones & Associates (Ps) Walker Smith (D) IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION HAMILTON J TUESDAY, 21 SEPTEMBER 2004 4860/02 BRAYSTOCK PTY LTD & ANOR v ROBERT PETER GARLAND JUDGMENT 1 HIS HONOUR: The case, as it has come to be argued, concerns the ownership of a piece of equipment used in a specialist truck alignment business. The business, including equipment used in it, was sold by the second plaintiff to the defendant. At the same time, the first plaintiff granted to the defendant a lease of the premises in which the business was conducted. The directors of the first plaintiff are the second plaintiff and her husband, Stephen Foster. In the business she did the administrative work and he the mechanical. 2 The issue is whether the property in axle correction equipment installed in a pit in the premises passed to the defendant under the contract for sale, as being included in what was described in the contract as "Truck Aligner". The defendant took this equipment when he left the premises. If it was not his, the Court is asked to assess damages for its loss. If it was his, a smaller award is sought in respect of damage to the premises caused by the manner of its removal. 3 The contract for sale was entered into on 8 January 1997 and settled on the same day. The lease was also entered into on that day. The contract for sale was materially in the following term. It was made between the second plaintiff as vendor and the defendant as purchaser. The purchase price was $130,000, made up of goodwill $30,000, plant, fittings, chattels and fixtures $70,000 and stock $30,000. The business sold was described as "Front End Specialist & Truck Repairs and business normally associated therewith". Condition 1 of the contract provided that the "business includes the goodwill and all plant, fittings, chattels and fixtures used by the Vendors [sic] in connection therewith as set out in the Inventory". The Inventory is on a separate page of the contract which is headed "Equipment included in sale". The top item is "Truck Aligner". Also included in the list are "4 Wheel Car Aligner" and "F100 Alignment equipment". As well there are specified "2 Post hoist" and "4 Post hoist". The list includes items as minor as a hot water urn and a microwave. 4 The Lease contained the following material terms. The lessor was the first plaintiff and the lessee the defendant. By clause 18 the lessee acknowledged that the items set out in annexure "B" were owned by the lessor but were to be left in the demised premises for 12 months and then removed unless purchased by the lessee. Those items were a MIG welder, a Trans jack and a Hendrickson service unit high lift ram and large air chisel stipulated to have a total value of $11,000. By clause 21 the lessee was given first right of refusal if the lessor sold the premises during the term of the lease. By clause 22 the lessor agreed to leave in the premises for 12 months certain tools in what was called the MVRIC list, which were tools that were required to be in the premises for licensing purposes. By clause 5(b) the lessee covenanted to maintain and leave the premises in good repair upon vacating them. 5 The principal question to be resolved in the case is what was comprehended in the term "Truck Aligner" appearing in the inventory to the contract of sale. 6 There was evidence that there were in the premises, at the date of the sale and the time leading up to it, two items of equipment, either or both of which are candidates to fit that description. These were described in detail by the man who supplied and installed them as long ago as 1985, Bruce Reilly, an expert in the design, manufacture, installation and use of such equipment. His sales brochure is in evidence. 7 The larger piece of equipment was the axle correction equipment the subject of the proceedings. It was installed in a pit in the premises. It was described in a heading in the brochure as "Axle Correction Equipment", but also under an illustration as "Safe T Steer 'In pit' Truck Wheel Aligner". It was bolted down so that it could only be removed by cutting through the bolts. The second piece of equipment was described in a heading in the brochure as "Truck Laser/Wheel/Axle/Chassis Measuring System", but also under an illustration as "Truck 'in shop' laser assignment systems". This item of equipment was much smaller than the axle correction equipment - it appears to be a collection of tools hung on a wheeled trolley, or contained in a carrying case. I shall call it a portable aligner. There were in the premises additional items called truck turntables, which were used with both forms of aligner. Property in the portable aligner was undisputedly passed by the contract - this is what the plaintiffs say is the "Truck Aligner" in the contract. It is not disputed that property in the truck turntables also passed. 8 Evidence of the process of truck alignment was given by Mr Reilly. To align a truck you have to adjust castor, toe and camber. The first two can be achieved with the measuring capability of the portable aligner and an adjustment built into the vehicles. However, camber needs adjustment only when an axle is bent, generally by collision damage. There is no built in adjustment for this and the axle must be corrected through the application of up to 150 tonnes force, using the axle correction equipment. 9 Both Stephen Foster and the defendant gave evidence that generally each of them used the portable aligner with the truck over the pits, even when the axle correction equipment did not have to be used to correct camber. Both sometimes used the portable aligner elsewhere. In both cases the truck turntables had to be used. When the truck was over the pit they were in place there as shown in the illustration in the brochure. But if the portable aligner was used away from the pit, the turntables had to be removed from the pit and taken for use with the portable aligner. The defendant did this only with trailers, because they could not be driven over the pit. 10 Although the contract for sale was in writing, evidence was given of conversations and of documents passing between the parties before the contract was entered into. Both sides conducted the case on the basis that these communications were admissible as part of the background material, which could be taken into account in the construction of the contract, unless the Court rules that the words of the written contract were unambiguous. 11 There was, in particular, a conversation between the defendant and Stephen Foster, in which the equipment to be sold was pointed out. This conversation took place in front of the pit. The defendant says Stephen Foster did not say the equipment in the pit was excluded from the sale. Stephen Foster concedes this, assigning as the reason, that he assumed that as a fixture it was clear the in pit equipment would not pass. Stephen Foster claims to have said in some conversation, that fixtures and fittings remained the plaintiffs' property. His evidence about this is quite unspecific, both as to when and as to the terms in which it was said. Particularly in light of the terms of the written contract of sale, it could not be taken to convey that the axle correction equipment did not pass. 12 In addition to the conversations, documents passed between the parties before execution of the contractual documents. They did not shed light on what was included in the ambit of the "Truck Aligner". 13 Criticism was made of the defendant's credit and there was some substance in this. There were inconsistencies in his evidence. The Fosters gave evidence in a frank and open manner. However, there is not really any controversy as to the facts set out above and there are no conflicts of evidence of any significance to be resolved. 14 The evidence showed that Stephen Foster had carried out the mechanical work of the truck alignment business for ten years or more before the contract. The defendant was a qualified mechanic. He had, in the course of his employment, often brought trucks to the premises for alignment by Stephen Foster, but had not engaged in the process. He had heard of a truck aligner but was not familiar with the equipment. 15 The defendant entered into possession of the business and conducted it in the premises for some years. In June 2002 he left the premises. When he did so he removed the in pit equipment. To do so, he cut through the bolts embedded in the concrete foundation, but in such a way that portions of the bolts were left protruding from the top of the foundation. Shortly prior to his departure, he received a letter from the plaintiffs' solicitors warning that the in pit equipment belonged to the plaintiffs and should not be removed. It does not appear, by any clear evidence, that he knew before then that the plaintiffs claimed that the in pit equipment continued to be theirs. This letter was not answered and the equipment simply removed on his departure in the fashion indicated. Since that time the defendant has conducted a truck alignment business in other premises, apparently involving the use of the removed in pit equipment. The business was originally sold by the plaintiffs because Stephen Foster had not wanted to continue with the truck alignment work. He has, since that time, continued to do some mechanical work on trucks, as well as conducting a tow truck business. 16 So far as the law is concerned, there has been a recent statement concerning the principles of construction of contracts relating to the resolution of ambiguity by the High Court in Royal Botanic Gardens and The Domain Trust v South Sydney Council (2002) 76 ALJR 436. After referring to Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337, Gleeson CJ, Gaudron, McHugh, Gummow and Hayne JJ said at [10]: "In Codelfa, Mason J (with whose judgment Stephen J and Wilson J agreed) referred to authorities [In particular, speeches of Lord Wilberforce in Prenn v Simmonds [1971] 1 WLR 1381 at 1383-1385; [1971] 3 All ER 237 at 239-241; L Schuler AG v Wickman Machine Tool Sales Ltd [1974] AC 235 at 261; and Reardon Smith Line Ltd v Yngvar Hansen-Tangen [1976] 1 WLR 989 at 995-997; [1976] 3 All ER 570 at 574-576] which indicated that, even in respect of agreements under seal, it is appropriate to have regard to more than internal linguistic considerations and to consider the circumstances with reference to which the words in question were used and, from those circumstances, to discern the objective which the parties had in view. In particular, an appreciation of the commercial purpose of a contract [ Reardon Smith Line Ltd v Yngvar Hansen-Tangen [1976] 1 WLR 989 at 995-996; [1976] 3 All ER 570 at 574]: '… presupposes knowledge of the genesis of the transaction, the background, the context, the market in which the parties are operating'. Such statements exemplify the point made by Brennan J in his judgment in Codelfa [(1982) 149 CLR 337 at 401]: 'The meaning of a written contract may be illuminated by evidence of facts to which the writing refers, for the symbols of language convey meaning according to the circumstances in which they are used.'" 17 There has been a deal of discussion, judicial and academic, as to whether the English and Australian law on this subject have diverged. See the decisions of Palmer J in Brooks v NSW Grains Board [2000] NSWSC 1049 and of the Court of Appeal in LMI Australasia Pty Ltd v Baulderstone Hornibrook Pty Ltd [2003] NSWCA 74 and J W Carter & Stewart, "Interpretation, Good Faith, and the 'True Meaning' of Contracts" (2002) 18 Journal of Contract Law 182. However, I do not need to enter into that. I take what was said by RD Nicholson J in the Federal Court in BP Australia Pty Ltd v Nyran Pty Ltd (2003) 198 ALR 442 at [32] - [34] as a correct and sufficient statement of the law to be applied in the present circumstances. "[32] At the risk of repeating what is said in Codelfa, it follows that the issues arising in this matter should be approached in the following manner. [33] It is necessary firstly to determine whether the contract has a plain meaning or contains an ambiguity. If the contract has a plain meaning, evidence of 'surrounding circumstances' will not be admissible to contradict the language of the contract. If the language of the contract is 'ambiguous or susceptible of more than one meaning' evidence of 'surrounding circumstances' is admissible to assist in the interpretation of the contract. [34] The concept of 'surrounding circumstances' is to be understood to be a reference to 'the objective framework of facts'. It will include evidence of prior negotiations so far as they tend to establish objective background facts known to both parties and the subject matter of the contract. It will also include facts so notorious that knowledge of them is to be presumed. Additionally it will include evidence of a matter in common contemplation and constituting a common assumption. From the evidence of that setting the parties' presumed intention may be taken into account in determining which of two or more possible meanings is to be given to a contractual provision. What cannot be taken into account is evidence of statements and actions of the parties which are reflective of their actual intentions and expectations. Objective background facts can include statements and actions of the parties which reflect their mutual actual intentions. That is, evidence of the mutual subjective intention of the parties to a contract may be part of the objective framework of facts within which the contract came into existence. It is the mutuality which makes the evidence admissible." 18 It was faintly argued that the words "Truck Aligner" in the contract for sale were unambiguous and clearly referred to the portable aligner only. In my view this submission is clearly wrong. In a situation where the equipment present included both the in pit equipment, the mobile aligner and the truck turntables for use with either, that expression was quite ambiguous. 19 Looking at the words in the context of the whole of the contract for sale and of the lease, and of the evidence of the background up to the time that the contractual documents were entered into, I have come to the view that the intent of the parties, to be gathered from those documents and against that background, was that the words "Truck Aligner" in the contract for sale were to be taken to include both the in pit equipment and the portable aligner. 20 In particular, the following matters seem to me to be significant. The specific inclusion in the sale by condition 1 of "fixtures used by the Vendor in connection with the business", and the inclusion in the inventory of hoists, which were firmly bolted to the floor, militates against any suggestion that the parties did not intend any fixtures to pass under the sale. Similarly, in the lease, items which were not to be included in the demise were specifically excepted. On the evidence, nothing was said at the time of the deal excluding the in pit equipment from the sale. Furthermore, the whole purpose of sale was to transfer to the defendant, for a substantial price, including a substantial element for equipment, the ongoing truck alignment business. 21 The plaintiffs were aware of the process of alignment and the use of particular items of equipment in the process, to a degree to which the defendant was not aware. What is not knowledge common to the parties, cannot be taken to be among the background facts: see, eg, per McHugh JA (as his Honour then was) in Manufacturers' Mutual Insurance Ltd v Withers (1988) 5 ANZ Insurance Cases 60-853 at 75,343; per Mason J in Codelfa at 352; LMI Australia at [41]; per RD Nicholson J in Nyran at [34]. However, the defendant was aware that a truck alignment business was conducted on the premises and he had often brought trucks there for alignment. 22 It seems to me, on consideration of all the relevant material, that the intent of the parties is to be taken to be that the words should include all equipment in the premises used in the business that fell within the description "Truck Aligner" and that included the axle correction equipment. 23 It is my view, therefore, that property in the axle correction equipment in the pit was passed from the second plaintiff to the defendant under the contract of sale. Although the defendant's conduct in removing the in pit equipment, without answering the plaintiffs' assertion that it was theirs, may be regarded as unmannerly or even, as the plaintiffs have submitted, cavalier, it was within the defendant's legal rights. The claim for damages for the removal of the in pit equipment therefore fails. 24 So far as concerns the claim for the making good of the premises, there was a clear obligation, arising from clause 5(b) of the lease, to leave the premises in good repair. Although, on the finding I have made, the defendant was entitled to remove the in pit equipment and to sever it from the premises for that purpose, he remained obliged to leave the premises in good repair. In my view this involved cutting off the bolts neatly and leaving the pit and the foundations so that they could be used for other purposes. This was not done. It is clear that the first plaintiff will need to expend money to remedy the situation. To that extent the defendant is liable in damages to the first plaintiff. 25 There is in evidence a quote from engineers to do the necessary work, the quantum of which was not the subject of challenge. That quote is for $2,400. There will be judgment for the first plaintiff against the defendant for $2,400 accordingly. There will be GST payable on the $2,400, but it is not clear, on the material before me, that the first plaintiff will ultimately bear the burden of that tax. In those circumstances, I do not propose to include any amount for GST in the award of damages. 26 By reason of the findings I have made, the cross claim as pleaded falls to the ground and should be dismissed. 27 Short minutes of order may be brought in to give effect to these decisions. 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